<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRIMERA FOODS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2015 39-1596279
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
612 SOUTH 8TH STREET
CAMERON, WISCONSIN 54822
(715) 458-4075
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JON E. LUIKART
CHIEF EXECUTIVE OFFICER
PRIMERA FOODS CORPORATION
612 SOUTH 8TH STREET
CAMERON, WISCONSIN 54822
(715) 458-4075
(Name, Address, Including Zip Code, and Telephone Number of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY C. ROBBINS, ESQ. DOUGLAS R. WRIGHT, ESQ.
PAUL L. SCHULTZ, ESQ. JEFFREY A. SHERMAN, ESQ.
MESSERLI & KRAMER P.A. PARCEL, MAURO, HULTIN & SPAANSTRA, P.C.
150 SOUTH FIFTH STREET, SUITE 1800 1801 CALIFORNIA STREET, SUITE 3600
MINNEAPOLIS, MINNESOTA 55402 DENVER, COLORADO 80202
TELEPHONE: (612) 672-3600 TELEPHONE: (303) 292-6400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value............................. $13,800,000 $4,071.00
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DECEMBER 8, 1997
1,500,000 SHARES
PRIMERA FOODS CORPORATION
COMMON STOCK
------------------------
All of the 1,500,000 shares of Common Stock offered hereby are being
offered by Primera Foods Corporation ("Primera" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$7.00 and $8.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Company
has applied for quotation of the Common Stock on the Nasdaq National Market
under the symbol "PFDS."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIVE TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
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</TABLE>
(1) Excludes the value of warrants to be issued to Cruttenden Roth Incorporated
as the Representative of the several Underwriters (the "Representative") to
purchase up to 150,000 shares of Common Stock. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $ , including a non-accountable expense allowance payable
to the Representative.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 225,000 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If this option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered severally by the Underwriters
named herein, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to other conditions. It is expected that
delivery of the certificates representing the shares of Common Stock will be
made against payment therefor at the offices of Cruttenden Roth Incorporated,
Irvine, California, on or about , 1998.
------------------------
CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1998.
<PAGE> 3
[PICTURES]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, references
to the "Company" or "Primera" shall refer to Primera Foods Corporation and its
consolidated subsidiary. Except as otherwise specified or the context otherwise
requires, shares and per share information contained in this Prospectus gives
effect to the 2,906.3-for-1 stock split effected by the Company in December
1997. Unless otherwise indicated, the information in this Prospectus does not
give effect to (i) 400,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option Plan, (ii) 150,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants and (iii) 225,000 shares
of Common Stock which may be purchased by the Underwriters to cover
over-allotments, if any. This Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed under the heading "Risk Factors," which investors should carefully
consider.
THE COMPANY
Primera Foods Corporation is a leading producer and wholesale distributor
of value-added dried egg products, consisting of egg white, egg yolk and whole
egg powder. The Company markets its dried egg products to consumer food
companies for use as an ingredient in the preparation of both ready-to-eat foods
such as baked goods and salad dressings and ready-to-prepare foods such as cake
mixes and pastas. The Company estimates that it produces approximately 15% of
all dried egg products in the United States, making it one of the largest
producers of dried egg products. In 1996, the Company processed the liquid from
approximately 67.0 million dozen shell eggs into 19.8 million pounds of
value-added egg products. The Company's objective is to become a diversified
processor, packager and distributor of food products and ingredients for
consumer food companies.
The processed food industry has grown substantially over the past 15 years,
as consumer food companies increasingly are required to satisfy consumers'
desires for safe, healthful and high quality foods that are packaged for
convenient handling, cooking and consumption. In turn, consumer food companies
have sought to increase the efficiency of their operations by demanding
ingredients from suppliers that are simple to ship, store and incorporate into
their product lines. Value-added dried egg products, such as those produced by
Primera, offer advantages over shell eggs or liquid egg used in the manufacture
of food products, including an extended shelf life, easier handling and
protection from bacteria and other contaminants. As a result, the dried egg
industry has grown at an annual rate of 3.0% since 1990, including a 10.5%
increase during the 12 months ended September 30, 1997 with total sales of
approximately 135.4 million pounds of dried egg products.
In 1995, Primera commenced a strategy that focused on increasing sales of
its value-added dried egg products. As a result, the Company's net sales of
value-added dried egg products grew from $24.2 million in 1994 to $44.7 million
in 1996. In early 1997, the Company redirected its sales and marketing strategy
to concentrate on customers recognizing the value of Primera's products and
services, and to eliminate less profitable business. As a result of this shift
and the Company's raw materials purchasing practices, Primera's gross margin
increased to 14.6% for the nine months ended September 30, 1997 as compared to
8.8% for the same period in 1996. The Company has established long-term
relationships with consumer food companies such as The Pillsbury Company,
Borden, Inc. and McKee Foods Corporation.
Primera's management has extensive experience in the food processing
industry and believes the market for providing certain value-added food
processing services to consumer food companies is substantial and growing. The
Company intends to pursue the following strategies: (i) continue to produce high
quality products; (ii) execute strategic acquisitions; (iii) develop additional
value-added food products; (iv) continue to improve operating efficiencies; and
(v) manage its raw material supply.
The Company was formed in 1986 as a Delaware corporation under the name
Primegg, Ltd. In December 1997, the Company changed its name to Primera Foods
Corporation. The Company's executive offices are located at 612 South 8th
Street, Cameron, Wisconsin 54822. The Company's telephone number is (715)
458-4075.
3
<PAGE> 5
THE OFFERING
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Common Stock Offered by the Company.............. 1,500,000 shares
Common Stock Outstanding After the Offering...... 5,375,000 shares(1)
Use of Proceeds.................................. Repayment of certain outstanding indebtedness,
including indebtedness to certain related
parties, construction of an egg-laying and
breaking facility, potential acquisitions and
working capital and general corporate
purposes. See "Use of Proceeds" and "Certain
Transactions."
Proposed Nasdaq National Market Symbol........... PFDS
</TABLE>
- -------------------------
(1) Excludes (i) 400,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan, (ii) 150,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants and (iii) 225,000
shares of Common Stock which may be purchased by the Underwriters to cover
over-allotments, if any.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
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<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $29,776 $32,903 $31,593 $33,136 $53,708 $40,059 $37,907
Income from operations....... 593 607 769 1,356 2,876 1,868 3,960
Net income (loss)............ (26) (58) (1,119) 542 1,174 693 2,334
Net income (loss) per
share..................... $ (.01) $ (.01) $ (0.29) $ 0.14 $ 0.30 $ 0.18 $ 0.60
Weighted average common and
common equivalent shares
outstanding............... 4,844 4,844 3,875 3,875 3,875 3,875 3,875
OPERATING DATA:
Dozens of eggs
processed(1).............. 43,375 42,092 46,925 53,858 73,025 54,775 56,055
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 869 $ 5,599
Total assets.............................................. 18,395 23,125
Long-term debt, less current maturities................... 4,577 1,527
Stockholders' equity...................................... 3,497 13,277
</TABLE>
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(1) Defined as dozens of shell eggs, including the shell egg equivalent of
liquid egg purchased as raw material.
(2) As adjusted to give effect to the sale of 1,500,000 shares of Common Stock
offered hereby based upon an assumed initial public offering price of $7.50
per share and the application of the estimated net proceeds. See "Use of
Proceeds.
4
<PAGE> 6
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business prospects before purchasing shares offered by this Prospectus.
VOLATILITY OF EGG PRICES
The Company's principal raw material is liquid egg. The Company obtains
liquid egg by purchasing shell eggs and extracting the liquid egg or through
direct purchases of liquid egg. Prices for shell and liquid eggs vary
considerably, and there is no assurance that the Company will be able to
purchase its requirements of shell or liquid eggs at acceptable prices. In order
to manage their exposure to egg market prices, the Company's larger customers
seek contracts ranging from three to six months that fix the price of the
Company's products to be delivered in the future. These contracts can have an
adverse effect on the Company's margins and results of operations if the cost of
shell or liquid eggs increases during the term of the contract. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Operations."
DEPENDENCE ON THIRD-PARTY SUPPLIERS
The Company currently purchases all of its raw materials from third-party
suppliers. Approximately one-third of the Company's raw material requirements
are provided by Golden Oval Eggs, a division of Midwest Investors of Renville,
Inc. ("Golden Oval"), under a contract that expires in November 2001. The
Company satisfies the balance of its raw material requirements by the purchase
of shell eggs from approximately 35 additional egg producers and by the purchase
of shell eggs and liquid egg in the open market. The Company has long-term
supply agreements with only a limited number of these additional producers. In
the event that the relationships with any of these suppliers are terminated or
suspended for any reason, including competition or fire or any other natural
disaster, there can be no assurance that the Company's supply of shell or liquid
eggs would not be disrupted or interrupted. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Operations."
RISKS ASSOCIATED WITH PROSPECTIVE EGG-LAYING AND BREAKING FACILITY
The Company intends to use approximately $2.0 million of the net proceeds
from this offering, together with funds provided by state and local agencies and
other sources, to develop and construct an approximately $15.0 million
egg-laying and breaking facility, together with a feed mill, near the Company's
Cameron, Wisconsin location. The Company has not yet obtained the state and
local approvals required or any commitment for the debt financing necessary to
construct the facility. There can be no assurance it will obtain the necessary
approvals or financing on terms acceptable to the Company, or at all.
The Company expects to complete the initial phase of the project and
commence operations in mid-1998. The facility is expected to be completed in
1999. Construction projects such as the Company's egg-laying and breaking
facility entail risks, including shortages of materials and skilled labor,
unanticipated environmental, engineering or geological problems, work stoppages,
weather interference, difficulties with regulatory agencies and unanticipated
cost increases, any of which could give rise to delays and cost overruns.
The Company's management has no experience in the operation and maintenance
of an egg-laying facility and feed mill. These operations will be subject to all
the risks inherent in any agricultural operation, including those associated
with the acquisition and care of hens and fluctuations in feed prices. In
addition, these operations are subject to ongoing environmental risks and
opposition, whether valid or unfounded, from special interest groups. Although
the facility is intended to provide the Company with a predictable and low-cost
supply of raw material, there is no assurance that this objective will be met.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Operations."
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RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to pursue strategic acquisitions of businesses that
either expand or complement its business. A substantial portion of the Company's
capital resources, including a portion of the proceeds from this offering, could
be used for these acquisitions. The Company will evaluate specific acquisition
opportunities based on prevailing market and economic conditions. Acquisitions
could require integration of dissimilar operations or assets, assimilation of
new employees, diversion of management time and resources, increases in
administrative costs, potential loss of key employees of an acquired company and
additional costs associated with debt or equity financing. These factors and the
Company's lack of experience in new markets it may enter through acquisitions
could adversely affect the Company's results of operations or financial
condition. Acquisitions also could result in dilution to existing stockholders,
including those purchasing shares of Common Stock in this offering. The Company
may encounter increased competition for acquisitions in the future, which could
result in acquisition prices the Company does not consider acceptable and
adversely affect the Company's acquisition strategy. There can be no assurance
that the Company will be able to identify suitable acquisition candidates at
acceptable prices or succeed in integrating any acquired business into the
Company's existing business or in retaining key customers of acquired
businesses. There also can also be no assurance that the Company will have
sufficient available capital resources to execute its acquisition strategy. See
"Use of Proceeds" and "Business -- Primera Strategies."
DEPENDENCE ON KEY CUSTOMERS
During the nine months ended September 30, 1997, the Company's ten largest
customers accounted for over 60% of the Company's net sales. The Pillsbury
Company accounted for over 25% of the net sales for such period. The loss of, or
any material reduction in, sales to any significant customer could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has not entered into any long-term contracts
with any of its customers, nor is any customer obligated to order additional
products from the Company. There can be no assurance that the Company will be
able to retain existing customers or attract new customers. See "Business --
Customers."
AGRICULTURAL RISKS
The Company's production activities are subject to all the general risks to
which the agricultural industry is exposed. These factors include risks
associated with weather conditions, animal diseases and natural disasters that
could adversely affect the available supply of raw materials needed for the
Company's operations. These risks are not within Primera's control and could
have a material adverse effect on the Company's operations.
FOOD CONSUMPTION RISKS AND DECLINE IN EGG CONSUMPTION
Per capita consumption of eggs declined significantly from the early 1980s
through 1995 due in part to public health and safety concerns regarding blood
cholesterol levels and bacterial contamination. Despite a recent upward trend,
there can be no assurance that per capita consumption of eggs will not decline.
Adverse publicity regarding eggs and egg products could adversely affect demand.
Although eggs broken for use in dried, liquid and frozen products increased from
approximately 805.6 million dozen for the 12 months ended September 30, 1985 to
nearly 1.6 billion dozen for the 12 months ended September 30, 1997, there can
be no assurance that demand for egg products will continue to increase or not
decline in the future. See "Business -- Industry Background."
GOVERNMENT REGULATION
The manufacture, processing, packaging, storage, distribution and labeling
of food products are subject to extensive federal, state and local regulation.
The Company is regulated by the Food and Drug Administration (the "FDA") and the
United States Department of Agriculture ("USDA"). The Company's facilities are
subject to continuous on-site USDA inspection. Applicable statutes and
regulations governing food products include "standards of identity" for the
content of specific types of foods, nutritional labeling and serving size
6
<PAGE> 8
requirements and "Good Manufacturing Practices" with respect to production
processes. Failure to comply with applicable laws and regulations could subject
the Company to civil remedies, including fines, injunctions, recalls or
seizures, as well as potential criminal sanctions, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's business is also subject to various other federal, state and
local environmental and health regulations. If the Company were found not to be
in compliance with such regulations, governmental agencies could impose
sanctions and penalties that could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Government Regulation."
COMPETITION
The production and sale of dried and liquid egg products are intensely
competitive. The Company does not occupy a controlling market position and there
can be no assurance that it will be able to maintain or expand its market
position in the future. The Company competes with at least 11 other major
manufacturers of dried and liquid egg products. The Company competes primarily
on the basis of quality, price, product availability and terms of sale.
Competition is not limited by geographic boundaries. Some of the Company's
competitors have greater financial and other resources than the Company and may
offer lower prices on competitive products.
The Company must also compete for qualified employees. The number of
persons residing near the Company's facilities is limited and significant
competition exists for this labor pool. As a result of this competition the
Company may find it difficult to attract and retain individuals to staff the
Company's various facilities. See "Business -- Primera Strategies" and "--
Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a large extent upon the expertise of Jon
E. Luikart, Chief Executive Officer, and Michael Shevi, Chairman. The loss of
the services of either Mr. Luikart or Mr. Shevi could have a material adverse
effect on the Company. Mr. Shevi resides in Israel and divides his time between
Primera and Cham Foods (Israel) Ltd., the Company's sole stockholder ("Cham
Foods"). The Company has an employment agreement with Mr. Luikart that includes
a non-compete provision relative to the egg industry, and it maintains a
key-person life insurance policy on Mr. Luikart in the amount of $1.0 million.
Primera has a consulting agreement with Cham Foods for Mr. Shevi's services, but
it maintains no life insurance policy with respect to Mr. Shevi. See "Management
- -- Employment Agreements" and "Certain Transactions."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of significant growth that
has placed significant demands on management, other personnel and resources.
This growth has resulted in an increased level of responsibility for management
personnel. Primera is pursuing a strategic plan that includes growth in
revenues, diversification by acquisition and the construction of an egg-laying
and breaking facility. The Company's officers have had limited experience in
executing acquisitions and no experience managing an egg-laying facility. As
such, the Company is actively seeking to fill several positions, including those
of Chief Financial Officer, Vice President of Operations and manager of the new
egg-laying and breaking facility. Tom L. Wiles, current Chief Financial Officer,
has indicated his intention to terminate employment with the Company upon the
hiring of a new Chief Financial Officer. There is no assurance that the Company
will be able to manage its planned continued growth or attract and retain the
necessary management personnel to enable it to successfully execute its business
plan. See "Management."
DEPENDENCE UPON INDEPENDENT FOOD BROKERS
The Company relies partially upon the services of two independent food
brokers to market its egg products. Net sales through such brokers accounted for
approximately 35% of the Company's net sales during the nine months ended
September 30, 1997. The Company has an exclusive agreement with only one of
these
7
<PAGE> 9
brokers. The loss of either of these brokers or any material reduction in net
sales through these brokers could have a material adverse effect on the Company.
See "Business -- Sales and Marketing."
SIGNIFICANT OUTSTANDING AND FUTURE INDEBTEDNESS; SECURITY INTERESTS
In order to finance its capital requirements, the Company has incurred
significant indebtedness. At September 30, 1997, there was outstanding
approximately $3.1 million of indebtedness under a line of credit (the "Line of
Credit") and $540,000 of indebtedness under a term note (the "Term Loan") with
First Bank Systems Business Finance ("FBS"), $4.0 million under unsecured
promissory notes to certain related parties and $1.5 million under promissory
notes to United Community Bank and Bank of Sun Prairie. The Company's required
debt service payments under the Line of Credit, the Term Loan and the promissory
notes total $52,000 per month. In connection with obtaining the Line of Credit,
the Company granted FBS a security interest in all of the Company's accounts
receivable, intangibles, inventory and property and equipment. The Line of
Credit requires the Company to maintain certain ratios regarding leverage and
cash flow. In addition, the Line of Credit agreement limits the Company's
ability to make capital expenditures and to pay interest and principal on notes
payable to related parties. In the event of a default, FBS could declare the
Company's indebtedness immediately due and payable. In such event, FBS could
foreclose on the Company's assets in which FBS has a security interest.
Moreover, to the extent that the Company's assets continue to secure such
indebtedness, such assets will not be available to secure additional
indebtedness. Although the Company has allocated $5.1 million of the proceeds of
this offering to repay $2.0 million of the unsecured notes and to reduce the
outstanding balance on the Line of Credit, it has not allocated any proceeds to
repay the balance of the unsecured notes, the Term Loan, or the $1.5 million
balance due to United Community Bank and Bank of Sun Prairie. If the Company is
not able to obtain additional financing or pay such notes with its cash flows,
the Company could be required to use a portion of the proceeds of this offering
to repay such amounts then outstanding and would have fewer funds available for
other purposes.
The Company anticipates incurring indebtedness of approximately $13.0
million in connection with the development and construction of the egg-laying
and breaking facility and related feed mill which must be repaid out of future
cash flows or other sources, including proceeds of this offering. Prior to
incurring such indebtedness, the Company must obtain the approval of FBS
pursuant to the terms of the Line of Credit agreement. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "-- Liquidity and Capital Resources," "Business --
Operations" and "Certain Transactions."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; BENEFITS TO RELATED PARTIES
Approximately $2.7 million of the estimated net proceeds from this offering
(27.6% of such net proceeds assuming an initial public offering price of $7.50
per share) have been allocated to potential acquisitions of businesses and for
working capital and general corporate purposes. Accordingly, the Company will
have broad discretion as to the application of such proceeds. Additionally, the
Company intends to use approximately $2.0 million of the estimated net proceeds
from this offering (20.4% of such net proceeds assuming an initial public
offering price of $7.50 per share) to repay outstanding indebtedness owed to
Cham Foods and one of its affiliates. See "Use of Proceeds" and "Certain
Transactions."
PRODUCT LIABILITY
The Company may be subject to significant liability if the consumption of
food containing any of its products causes injury, illness or death. There can
be no assurance that product liability claims will not be asserted against the
Company or that the Company will not be obligated to recall its products. The
Company has a general liability insurance policy of $10.0 million and carries
product liability insurance in the aggregate amount of $1.0 million, with per
occurrence limits of $1.0 million. There can be no assurance that this insurance
will be adequate to protect the Company against product liability claims, or
that such insurance will continue to be available to the Company on reasonable
terms. A product recall or a product liability matter involving the Company
(regardless of whether covered by insurance) could have a material adverse
effect on the Company's business, financial condition and results of operations.
8
<PAGE> 10
FLUCTUATIONS IN OPERATING RESULTS
The Company may experience significant fluctuations in future operating
results because of a number of factors including, among other things, the size
and timing of customer orders, new product introductions, quality control
difficulties, market acceptance of new products, the ability of the Company to
integrate any acquired businesses, product returns, seasonality in dried egg
product purchases and trends in the food industry in general and in the specific
markets in which the Company is active. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
ENVIRONMENTAL RISKS
Ownership and operation of real property create the potential for
environmental liability on the part of the Company. If hazardous substances are
discovered on or emanating from any of the Company's facilities or the release
or disposal of hazardous substances (including waste produced by hens at the
Company's proposed egg-laying and breaking facility) presents a threat of or
harm to public health or the environment, the Company may be responsible for the
cost of remediation of these hazardous substances. See "Business -- Government
Regulation."
RESTRICTIONS ON DIVIDENDS
The Company does not anticipate paying any dividends in the foreseeable
future. In addition, the Line of Credit agreement contains certain covenants
that may limit the Company's ability to pay dividends and the amount of
dividends paid. Accordingly, investors who have a need for current income should
not purchase the shares offered hereby. See "Dividend Policy."
CONTROL BY PRINCIPAL STOCKHOLDER
Immediately following this offering, Cham Foods will beneficially own
approximately 72.1% of the outstanding Common Stock (approximately 69.2% if the
Underwriters' over-allotment option is exercised in full). As a result, Cham
Foods will continue to be able to elect the entire Board of Directors and to
control the outcome of all other matters requiring stockholder approval. Such
voting concentration may have the effect of delaying or preventing a change in
management or control of the Company. See "Principal Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF
TRADING PRICE
Prior to this offering, there has been no public market for the Common
Stock. Although the Company has applied for the quotation and trading of the
Common Stock on the Nasdaq National Market, there can be no assurance that an
active public market will develop, or that the initial public offering price
will correspond to the price at which the Common Stock will trade in the public
market subsequent to this offering. The initial public offering price for the
Common Stock has been determined by negotiations between the Company and the
Representative of the Underwriters based on the factors described under
"Underwriting."
The market price of the Common Stock may be volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's operating results, announcements of new products or services by
the Company or its competitors, developments with respect to conditions and
trends in the egg or food processing industries (including actual or perceived
food contamination), government regulation, changes in estimates by securities
analysts of the Company's future financial performance, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations which, in no
relationship to operating performance, have adversely affected the market prices
of securities of some companies. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock after this offering could
adversely affect the market price of the Common Stock. Although only the
1,500,000 shares (1,725,000 shares if the Underwriters' over-allotment option is
exercised in full) being sold in this offering will be available for sale in the
public market
9
<PAGE> 11
immediately after the offering, 3,875,000 shares of Common Stock owned by Cham
Foods will be eligible for sale in the public market beginning 180 days after
the date of this Prospectus, subject to the volume and manner of sale
limitations imposed by Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). Rule 144 generally provides that beneficial owners of
Common Stock who have held such Common Stock for one year may sell within a
three-month period a number of shares not exceeding the greater of 1% of the
total outstanding shares or the average weekly trading volume of the shares
during the four calendar weeks preceding such sale. Future sales of restricted
Common Stock under Rule 144 could negatively impact the market price of the
Common Stock. Pursuant to the terms of the underwriting agreement between the
Company and the Representative of the Underwriters, Common Stock owned by Cham
Foods, as well as option holders, may not be sold for 180 days from the date of
this Prospectus, but the Representative may waive this requirement. See "Shares
Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS; "BLANK CHECK" PREFERRED STOCK
Certain provisions of the Delaware General Corporation Law (the "DGCL") and
the Company's Restated Certificate of Incorporation and Restated Bylaws could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that investors might be willing to pay in
the future for the Common Stock.
The Company's Restated Certificate of Incorporation and Restated Bylaws
divide the Company's Board of Directors into three classes. Each class serves
for a term of three years, subject to earlier resignation or removal, and
election of the classes is staggered so that one class is elected each year. The
classification of directors will have the effect of making it more difficult for
stockholders to change the composition of the Board of Directors. At least two
annual meetings of shareholders generally will be required to effect a change in
a majority of the Board of Directors. These provisions of the Restated
Certificate of Incorporation and Restated Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company.
The Company's agreement with Golden Oval grants it a right of first refusal
to acquire all of the Company's assets or stock under certain circumstances.
Golden Oval must respond to any offer made to it within thirty days. This
provision could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company.
The Board of Directors of the Company has the authority to issue up to 1.0
million shares of Preferred Stock (the "Preferred Stock") and to determine the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no current plans to issue shares of Preferred Stock. In addition, the
Company will, upon consummation of the offering, be subject to the anti-takeover
provisions of Section 203 of the DGCL. In general, this statute prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder unless such
business combination is approved in the manner prescribed by the statute. See
"Management -- Classified Board of Directors" and "Description of Capital
Stock."
DILUTION
Purchasers of the Common Stock offered hereby will incur an immediate and
substantial dilution of $5.09 per share, or 67.9%, in the net tangible book
value of the initial Common Stock from the assumed initial public offering price
of $7.50 per share. If the Company issues additional shares of capital stock for
any reason,
10
<PAGE> 12
including to finance acquisitions, purchasers of the shares offered hereby may
incur additional dilution. See "Dilution."
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements, including the
plans and objectives of management for the business, operations and economic
performance of the Company. The forward-looking statements and associated risks
set forth in this Prospectus may include or relate to, among other things, (i)
the ability of the Company to finance, construct and operate its proposed
egg-laying and breaking facility, (ii) the ability of the Company to consummate
strategic acquisitions of businesses and integrate such acquisitions into the
Company's operations, (iii) demand and preferences for dried and liquid egg
products produced by the Company, (iv) general health concerns regarding
consumption of egg products, (v) the size and growth rate of the egg industry,
(vi) seasonality of the egg producing business and (vii) competition from other
producers of dried and liquid egg products.
The forward-looking statements included herein are based upon current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based upon assumptions that the Company will
continue to manage and operate its business effectively, that competitive
conditions within the egg industry will not change materially or adversely, that
demand for liquid and dried egg products will increase or at least remain at
current levels, that the Company will be able to finance, construct and operate
its proposed egg-laying and breaking operation, that the Company will be able to
acquire and successfully integrate businesses into the Company's operations and
that there will be no material adverse change in the Company's business,
financial condition and results of operations. Assumptions relating to the
foregoing involve judgments with respect, among other things, to future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and most of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate; therefore, there can be no assurance that
the results contemplated in forward-looking information will be realized. In
addition, as disclosed above, the business and operations of the Company are
subject to substantial risks that increase the uncertainty inherent in such
forward-looking statements. Any of the other factors disclosed above could cause
the Company's net sales or net income, or growth in net sales or net income, to
differ materially from prior results. Growth in absolute amounts of costs of
sales and general and administrative expenses or the occurrence of extraordinary
events could cause actual results to vary materially from the results
contemplated in the forward-looking statements. Budgeting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience in business
developments, the impact of which may cause the Company to alter its marketing,
capital expenditure or other budgets, which may in turn affect the Company's
results of operations. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial offering price of $7.50 per share, after deducting estimated
underwriting discounts and commissions and offering expenses, are estimated to
be approximately $9.8 million ($11.3 million if the Underwriters' over-allotment
option is exercised in full). In addition to the purposes set forth below, this
offering is intended to provide a public market for Primera's Common Stock and
to facilitate access to the public capital markets. Management of the Company
anticipates that it will use the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT
--------------------------- -------------
<S> <C>
Repay certain indebtedness.................................. $5,100,000
Construct egg-laying and breaking facility.................. 2,000,000
Acquisitions, working capital and general corporate
purposes.................................................. 2,700,000
----------
Total.................................................. $9,800,000
==========
</TABLE>
Approximately $2.0 million of the net proceeds of this offering will be
used to repay a portion of certain unsecured notes payable to Cham Foods and one
of its affiliates which bear interest at a rate not to exceed a specified bank's
reference rate, plus 0.5% compounded daily. The Company also intends to reduce
its Line of Credit by $3.1 million to $0. The Line of Credit bears interest at
0.25% in excess of the bank's reference rate. The proceeds received by the
Company from the unsecured notes and the Line of Credit were used for working
capital and general corporate purposes. Assuming application of the proceeds
described above, the Company will have up to $5.5 million available under the
Line of Credit following the offering based on the Company's accounts receivable
and inventory levels. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Certain Transactions."
Approximately $2.0 million of the net proceeds of this offering will be
used for the construction of an egg-laying and breaking facility and related
feed mill. When completed and fully operational, the facility will house
approximately 1.0 million hens as well as an egg breaking facility, which will
provide an internal source for approximately 25% of the Company's current raw
material needs. The construction of the egg-laying and breaking facility and
related feed mill is scheduled to begin in early 1998 and is estimated to cost
approximately $15.0 million. The Company believes that with $2.0 million from
this offering, it will be able to obtain the additional debt financing needed to
complete such facility, and is currently in discussions with various state and
local agencies and private financing sources concerning such financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Raw Material Supply."
Approximately $2.7 million of the net proceeds of this offering will be
used for acquisitions of businesses and for working capital and general
corporate purposes. The Company currently is not engaged in any negotiations and
is not a party to any letter of intent or other agreement regarding any
acquisition. See "Business -- Primera Strategies."
The foregoing represents management's best estimate of its allocation of
the net proceeds anticipated from this offering, based upon the current state of
the Company's business and its current plans. Pending use of the net proceeds
for the above purposes, the Company intends to invest such net proceeds in
short-term, investment-grade, interest-bearing securities.
12
<PAGE> 14
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its capital stock in the
foreseeable future. Any future declaration and payment of dividends will be
subject to the discretion of the Company's Board of Directors, will be subject
to applicable law and will depend upon the Company's results of operations,
earnings, financial condition, cash requirements, future prospects and other
factors deemed relevant by the Board of Directors. In addition, the Line of
Credit agreement contains certain covenants that may limit the Company's ability
to pay dividends and the amount of dividends paid. See "Risk Factors --
Restrictions on Dividends."
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, on an actual basis and as adjusted to give
effect to the sale of the 1,500,000 shares of Common Stock offered by the
Company hereby based upon an assumed initial public offering price of $7.50 per
share and the application of the estimated net proceeds therefrom. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt(1)..................... $4,535 $ 2,535
====== =======
Long-term debt, less current maturities..................... 4,577 1,527
------ -------
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $.001 par value; 25,000,000 shares
authorized; 3,875,000 shares issued and outstanding
actual and 5,375,000 shares issued and outstanding as
adjusted(2)............................................ 4 5
Additional paid-in capital................................ 262 10,041
Accumulated earnings...................................... 3,231 3,231
------ -------
Total stockholders' equity................................ 3,497 13,277
------ -------
Total capitalization........................................ $8,074 $14,804
====== =======
</TABLE>
- -------------------------
(1) Includes notes payable to related parties. See "Certain Transactions."
(2) Excludes (i) 400,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan, (ii) 150,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants and (iii) 225,000
shares of Common Stock which may be purchased by the Underwriters to cover
over-allotments, if any.
14
<PAGE> 16
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
$3.2 million, or $0.82 per share. Net tangible book value per share is equal to
the Company's total tangible assets less total liabilities, divided by the total
number of shares of Common Stock outstanding. After giving effect to the sale by
the Company of 1,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $7.50 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the adjusted net tangible book value of the Company as
of September 30, 1997 would have been $13.0 million, or $2.41 per share. This
represents an immediate increase in net tangible book value of $1.59 per share
to the existing stockholder and an immediate dilution in net tangible book value
of $5.09 per share to investors purchasing shares of Common Stock in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $7.50
Net tangible book value per share at September 30, 1997... $0.82
Increase in net tangible book value per share attributable
to new investors....................................... 1.59
Net tangible book value per share after the offering........ 2.41
-----
Dilution per share to new investors......................... $5.09
=====
</TABLE>
The following table summarizes as of September 30, 1997, the number of
shares purchased from the Company, the total consideration paid to the Company
and the average price per share paid by the Company's existing stockholder and
by the new investors after the sale of 1,500,000 shares of Common Stock by the
Company at an assumed initial public offering price of $7.50 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder.................... 3,875,000 72.1% $ 266,666 2.3% $0.07
New investors........................... 1,500,000 27.9 11,250,000 97.7 7.50
--------- ----- ----------- ----- -----
Total.............................. 5,375,000 100.0% $11,516,666 100.0% $2.14
========= ===== =========== ===== =====
</TABLE>
The foregoing calculations do not give effect to (i) 400,000 shares of
Common Stock reserved for issuance under the Company's 1997 Stock Option Plan,
(ii) 150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants and (iii) 225,000 shares of Common Stock which may be
purchased by the Underwriters to cover over-allotments, if any.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following Selected Consolidated Financial Data are qualified by
reference to and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements, including the notes thereto, as of December 31, 1995 and
1996 and September 30, 1997 and for each of the years in the three-year period
ended December 31, 1996 and the nine months ended September 30, 1997, and the
independent auditors' report thereon, which are included elsewhere in this
Prospectus. The selected consolidated financial data presented below under the
captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of
the end of each of the years in the three-year period ended December 31, 1996,
and as of and for the nine months ended September 30, 1997, are derived from the
consolidated financial statements of Primera Foods Corporation and subsidiary,
which consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected consolidated
financial data presented below as of and for each of the years in the two-year
period ended December 31, 1993, and as of and for the nine months ended
September 30, 1996, are derived from the Company's unaudited consolidated
financial statements and include, in the opinion of management, all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods. Results for the nine-month period ended September 30, 1997 are not
necessarily indicative of results for the full year ending December 31, 1997.
The information presented below under the caption "Operating Data" is unaudited.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales.......................... $29,796 $32,903 $31,593 $33,136 $53,708 $40,059 $37,907
Cost of sales...................... 26,930 29,935 28,860 29,896 48,626 36,553 32,357
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 2,866 2,966 2,913 3,239 5,082 3,506 5,549
Selling, general and administrative
expenses......................... 2,272 2,361 2,144 1,884 2,206 1,638 1,589
------- ------- ------- ------- ------- ------- -------
Income from operations........ 593 607 769 1,356 2,876 1,868 3,960
Other income (expense):
Write-off of related party
receivables................... (18) (90) (771) 0 0 0 0
Gain from officer life
insurance..................... 0 0 0 202 0 0 0
Interest expense................. (559) (575) (1,111) (1,149) (1,061) (795) (662)
Other income (expense) net....... 0 0 (6) 134 1 7 31
------- ------- ------- ------- ------- ------- -------
Total other income
(expense)................... 577 (665) (1,888) (813) (1,060) (788) (631)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... 16 (58) (1,119) 542 1,815 1,080 3,330
Income tax expense................. 42 0 0 0 (641) (387) (996)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ (26) $ (58) $(1,119) $ 542 $ 1,174 $ 693 $ 2,334
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share........ $ (.01) $ (.01) $ (0.29) $ 0.14 $ 0.30 $ 0.18 $ 0.60
======= ======= ======= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding.... 4,844 4,844 3,875 3,875 3,875 3,875 3,875
OPERATING DATA:
Dozens of eggs processed(1)... 43,375 42,092 46,925 53,858 73,025 54,775 56,055
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1997
----------------------------------------------- ------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(2)
---- ---- ---- ---- ---- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).... $ (554) $ 2,590 $ 1,412 $ 4,159 $ 3,509 $ 869 $ 5,599
Total assets................. 12,351 14,484 14,828 15,947 17,790 18,395 23,125
Long-term debt, less current
maturities................ 5,655 10,266 9,757 11,263 9,265 4,577 1,527
Stockholders' equity
(deficit)................. 678 633 (553) (10) 1,163 3,497 13,277
</TABLE>
- -------------------------
(1) Defined as dozens of shell eggs, including the shell egg equivalent of
liquid egg purchased as raw material.
(2) As adjusted to give effect to the sale of 1,500,000 shares of Common Stock
offered hereby based upon an assumed initial public offering price of $7.50
per share and the application of the estimated net proceeds. See "Use of
Proceeds.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, including the related notes thereto, and the
other information included herein. The following information also includes
forward-looking statements, the realization of which may be impacted by certain
important factors discussed under "Risk Factors."
OVERVIEW
Primera Foods Corporation is a leading producer and wholesale distributor
of value-added dried egg products, consisting of egg white, egg yolk and whole
egg powder. The Company also sells liquid egg when production or market
conditions warrant. The Company sells its value-added dried egg products to
consumer food companies for use as an ingredient in the preparation of both
ready-to-eat and ready-to-prepare foods such as baked goods, salad dressings,
cake mixes and pastas. The Company estimates that it produces approximately 15%
of all dried egg products in the United States, making it one of the largest
producers of dried egg products.
In April 1995, the Company hired Jon E. Luikart as its new President and
Chief Executive Officer. Under Mr. Luikart's guidance, Primera's management team
commenced programs to actively increase the Company's sales and marketing
activities, to improve the Company's purchasing of raw materials and to
strengthen the Company's operating practices. These efforts resulted in
significantly improved profitability.
During the second half of 1995 and in 1996, the Company focused on building
sales volume for the Company's value-added dried egg products, both by
increasing the number of customers and by increasing sales to existing
customers. During the first nine months of 1997, Primera redirected its sales
and marketing strategy to eliminate less profitable business and to concentrate
on customers recognizing the value of Primera's products and services. These
actions resulted in a modest reduction in the number of customers served and
contributed to improvements in the Company gross margin. The Company also
adopted a strategy to more closely match customer pricing, contract term and
product mix sales decisions with fluctuations in raw material costs. As a
result, the Company increased its operating income.
Primera's principal raw material is liquid egg, which the Company processes
into value-added dried egg products or resells. The Company obtains liquid egg
(i) by purchasing bulk quantities of liquid whole egg, egg white or egg yolk
directly from egg processors and (ii) by purchasing shell eggs from egg
suppliers and then extracting and separating the liquid egg components in the
Company's facilities.
During the first nine months of 1997, Primera purchased approximately 40%
of its liquid egg requirements directly from egg processors. The Company's
single largest supplier of liquid egg is Golden Oval, which in the first nine
months of 1997 supplied the Company with approximately one-third of its raw
material. Under the supply agreement with Golden Oval, which expires in November
2001 subject to certain "evergreen" provisions requiring two years' prior
written notice of termination, the Company's liquid egg purchase price is
adjusted in relation to the sales price the Company charges its customers for
processed egg products. As a result, the Company's gross profit for products
derived from Golden Oval's liquid egg is essentially predetermined. The
agreement's pricing provisions are adjusted annually based on changes in the
Company's operating costs and other factors. Primera also purchases liquid egg
in the open market from other egg processors.
During the first nine months of 1997, Primera purchased shell eggs from egg
suppliers for subsequent liquid extraction in the Company's facilities. The
extracted liquid represented approximately 60% of the Company's raw material
supply. The Company purchases breaking stock eggs. Breaking stock eggs generally
are of lower shell quality and are less expensive than graded eggs normally
destined for retail consumption. The Company purchases the bulk of its shell
eggs at negotiated prices based on prevailing market conditions from
approximately 35 egg suppliers located within 150 miles of the Company's
facilities. Primera has long-term relationships with most of these egg suppliers
and has written agreements with a limited number of them. The Company also
purchases shell eggs in the open market from other egg suppliers.
17
<PAGE> 19
Breaking stock eggs are a commodity, and open market prices for shell eggs
and liquid egg fluctuate considerably. The sales prices of the Company's
products are affected in part by changes in egg prices. These prices generally
are lower during the Company's second quarter and tend to be higher during the
fourth quarter as a result of the year-end holiday periods when consumer demand
for shell eggs and products containing eggs is greater. Through November 11,
1997, breaking stock shell egg prices in 1997 for the Midwest region ranged from
$0.41 to $0.66 per dozen, according to Urner Barry Market Service, an industry
reporting service.
In order to diversify the Company's raw material supply sources and to
reduce the Company's exposure to open market price fluctuations that can
adversely affect gross profits, the Company plans to construct an egg-laying and
breaking facility and a feed mill near its Cameron, Wisconsin facility. The
first phase of the facility is expected to be completed by mid-1998. The Company
expects to complete the facility during 1999. When fully operational, the
facility will house approximately 1.0 million hens and produce approximately 25%
of the Company's raw material supply. See "Use of Proceeds" and "-- Liquidity
and Capital Resources."
Operating improvements implemented by the Company have contributed to
Primera's improved gross profit. These improvements are principally related to
the more productive use of plant and personnel as a result of the increase in
the number of dozens of eggs processed by the Company.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain selected
consolidated financial data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 90.8 90.2 90.5 91.2 85.4
----- ----- ----- ----- -----
Gross margin.................................... 9.2 9.8 9.5 8.8 14.6
Selling, general and administrative expenses.... 6.8 5.7 4.1 4.1 4.2
----- ----- ----- ----- -----
Income from operations.......................... 2.4 4.1 5.4 4.7 10.4
Total other income (expense).................... (6.0) (2.5) (2.0) (2.0) (1.7)
----- ----- ----- ----- -----
Income (loss) before income taxes............... (3.5) 1.6 3.4 2.7 8.8
Income tax expense.............................. (0.0) (0.0) (1.2) (1.0) (2.6)
----- ----- ----- ----- -----
Net income (loss)............................... (3.5)% 1.6% 2.2% 1.7% 6.2%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES. Net sales include sales of the Company's value-added dried egg
products and liquid egg. The Company recognizes revenues upon shipment of its
products. The number of dozens of eggs processed by the Company increased during
1997; however, net sales decreased $2.2 million or 5.4% to $37.9 million for the
nine months ended September 30, 1997, from $40.1 million for the same period in
1996. The decline in net sales was principally attributable to (i) management's
elimination of less profitable business and concentration on customers
recognizing the value of Primera's products and services, (ii) a decline in open
market egg prices which affected the average sales price for the Company's
products and (iii) an increase in sales of liquid egg that generally carries
prices lower than those for dried egg products. The Company's international
sales increased to 12.0% of net sales for the nine months ended September 30,
1997, from 6.9% for the same period in 1996.
COST OF SALES AND GROSS PROFIT. Cost of sales consists primarily of raw
materials, labor, incoming freight costs, and overhead attributable to the
production of the Company's processed products. Cost of sales decreased $4.2
million or 11.5% to $32.4 million for the nine months ended September 30, 1997
from $36.6
18
<PAGE> 20
million for the same period in 1996. Gross profit increased $2.0 million or
58.3% to $5.5 million, or 14.6% of net sales, for the nine months ended
September 30, 1997 from $3.5 million, or 8.8% of net sales, for the same period
in 1996. The gross margin increased for the 1997 period primarily because the
Company's raw materials costs decreased at a greater rate than net sales. In
addition, the gross margin for the 1996 period was adversely affected by rising
raw material costs. The Company also realized the benefits of operating
improvements during the 1997 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of corporate wages and payroll taxes, brokerage
commissions, outbound freight costs, travel costs and consulting, legal and
accounting fees. Selling, general and administrative expenses remained
relatively constant at $1.6 million or 4.2% and 4.1%, respectively, of net sales
for the nine months ended September 30, 1997 and 1996.
INCOME FROM OPERATIONS. Income from operations increased $2.1 million or
112.0% to $4.0 million, or 10.4% of net sales, for the nine months ended
September 30, 1997, from $1.9 million, or 4.7% of net sales, for the same period
in 1996. The increase was principally attributable to the Company's improved
gross profit.
TOTAL OTHER INCOME (EXPENSE). Total other income (expense) includes
interest expense, gain or loss on disposal of property and equipment and other
miscellaneous income and expense not attributable to the Company's operations.
Total other expense declined $158,000 or 20.0% to $631,000, or 1.7% of net
sales, for the nine months ended September 30, 1997 as compared to $788,000, or
2.0% of net sales, for the same period in 1996. The decrease is principally
attributable to a reduction in the weighted average outstanding borrowings and a
negotiated decrease in the interest rates charged on certain of the Company's
loans.
INCOME TAX EXPENSE. Income tax expense increased $609,000 or 157.4% to
$996,000, or 2.6% of net sales, for the nine months ended September 30, 1997,
from $387,000, or 1.0% of net sales, for the same period in 1996. The Company's
effective federal and state income tax rate declined to 29.9% for the nine
months ended September 30, 1997 from 35.8% during the same period of 1996. This
decline is principally attributable to the Company's utilization of its net
operating loss and alternative minimum tax credit carryforwards, as well as a
reduction in the Company's deferred tax asset valuation allowance. The Company
expects these tax benefits to be limited solely to 1997.
NET INCOME. As a result of the above, net income increased $1.6 million or
236.9% to $2.3 million, or 6.2% of net sales, for the nine months ended
September 30, 1997 from $693,000, or 1.7% of net sales, for the same period in
1996.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased $20.6 million or 62.1% to $53.7 million in
1996 from $33.1 million in 1995. The increase was principally attributable to an
increase in the sales price for the Company's products as a result of increasing
open market egg prices, as well as implementation of a focused sales and
marketing strategy designed to build overall sales volume, in part through
greater utilization of independent sales brokers.
COST OF SALES AND GROSS PROFIT. Cost of sales increased $18.7 million or
62.6% to $48.6 million in 1996 from $29.9 million in 1995. Gross profit
increased $1.8 million or 56.9% to $5.1 million, but decreased to 9.5% of net
sales, in 1996 from $3.2 million, or 9.8% of net sales, in 1995. The decrease in
the gross margin was principally attributable to increased raw material costs
without a corresponding increase in net sales, partially offset by higher
volumes processed through the Company's existing plant and equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $323,000 or 17.1% to $2.2 million, but
decreased to 4.1% of net sales, in 1996 from $1.9 million, or 5.7% of net sales,
in 1995. The dollar increase in such expenses was primarily attributable to
increased compensation expenses, broker commissions and professional fees. The
decrease as a percentage of net sales was principally attributable to a more
efficient use of existing resources.
INCOME FROM OPERATIONS. Income from operations increased $1.5 million or
112.1% to $2.9 million, or 5.4% of net sales in 1996, from $1.4 million, or 4.1%
of net sales, in 1995. The increase as a percentage of sales
19
<PAGE> 21
was primarily attributable to increased gross profit without a corresponding
increase in selling, general and administrative expenses.
TOTAL OTHER INCOME (EXPENSE). Total other expense increased $247,000 or
30.4% to $1.1 million, but decreased to 2.0% of net sales in 1996 from $813,000,
or 2.5% of net sales, in 1995. Total other expense in 1995 was reduced by
insurance proceeds paid to the Company as the result of the death of a key
employee, as well as non-recurring miscellaneous income from the settlement of
certain litigation relating to a prior joint venture. The decrease in total
other expense as a percentage of net sales was principally attributable to the
increase in net sales without a corresponding increase in such expense.
INCOME TAX EXPENSE. Income tax expense increased $641,000 to 1.2% of net
sales in 1996 from zero in 1995. The Company's effective federal and state
income tax rate was 35.3% for 1996 and 0% for 1995. Although the Company
reported net income in 1995 of $542,000, the Company paid no tax because of
temporary differences in the reporting of certain expenses for federal income
tax purposes. In 1996, the Company utilized net operating loss carryforwards to
partially offset the federal income tax computed as a result of alternative
minimum tax and changes in deferred taxes.
NET INCOME. As a result of the above factors, net income increased $631,000
or 116.5% to $1.2 million, or 2.2% of net sales, in 1996 from $542,000, or 1.6%
of net sales, in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES. Net sales increased $1.5 million or 4.9% to $33.1 million in
1995 from $31.6 million in 1994. Of the Company's 1994 net sales, $7.1 million,
or 22.6%, represented sales of graded shell eggs, the marketing of which was
discontinued in December 1994. Excluding sales of graded shell eggs, net sales
increased $8.6 million, or 35.5%, to $33.1 million in 1995 from $24.5 million in
1994. The increase was primarily attributable to increased sales volume of the
Company's value-added dried and liquid egg products resulting from the strategic
decision by the Company in early 1995 to focus on building its sales base, as
well as an increase in the sales price of the Company's products.
COST OF SALES AND GROSS PROFIT. Cost of sales increased $1.2 million or
4.2% to $29.9 million in 1995 from $28.7 million in 1994. Gross profit increased
$327,000 or 11.2% to $3.2 million, or 9.8% of net sales, in 1995 from $2.9
million, or 9.2% of net sales, in 1994. The increase in gross margin was
primarily attributable to the discontinuation of the Company's graded shell egg
operations, enabling the Company to shift its raw material purchases to less
expensive breaking stock eggs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $260,000 or 12.1% to $1.9 million, or 5.7% of
net sales, in 1995 from $2.1 million, or 6.8% of net sales, in 1994. The dollar
decrease was principally attributable to non-recurring accounting and legal
expenses incurred in 1994 as a result of litigation commenced against a former
officer and stockholder involving the alleged expenditure of Company funds for
his personal benefit.
INCOME FROM OPERATIONS. Income from operations increased $587,000 or 76.3%
to $1.4 million, or 4.1% of net sales, in 1995 from $769,000, or 2.4% of net
sales, in 1994. This percentage increase was primarily attributable to increased
net sales and a percentage decrease in raw material costs and selling general
and administrative expenses.
TOTAL OTHER INCOME (EXPENSE). Total other expense decreased $1.1 million or
56.9% to $813,000, or 2.5% of net sales, in 1995 from $1.9 million, or 6.0% of
net sales, in 1994. The decrease was attributable to a write-off of a related
party receivable in the amount of $771,000 in connection with the 1994
settlement of the Company's litigation with a former officer and stockholder as
described above, the receipt of insurance proceeds paid to the Company in 1995
as the result of the death of a Company employee and non-recurring miscellaneous
income received by the Company in 1995 from the settlement of certain litigation
relating to a prior joint venture.
NET INCOME (LOSS). As a result of the above factors, net income increased
$1.7 million to $542,000, or 1.6% of net sales, in 1995 from a loss of $1.1
million in 1994.
20
<PAGE> 22
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly combined
financial data for the last quarter of 1995, the four quarters in 1996 and the
first three quarters of 1997. In the opinion of the Company's management, this
unaudited information has been prepared on the same basis as the audited
information and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
1995 1996 1997
------- ------------------------------------- ---------------------------
DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $8,898 $13,939 $11,707 $14,412 $13,649 $13,992 $11,438 $12,477
Cost of sales......................... 8,507 13,356 10,510 12,686 12,074 12,114 9,655 10,588
------ ------ ------- ------- ------ ------ ------- -------
Gross profit.......................... 391 583 1,197 1,726 1,575 1,878 1,783 1,889
Selling, general and administrative
expenses............................ 440 500 544 594 568 526 508 555
------ ------ ------- ------- ------ ------ ------- -------
Income (loss) from operations......... (49) 83 653 1,132 1,007 1,352 1,275 1,334
Total other income (expense).......... (12) (330) (235) (223) (272) (223) (207) (201)
------ ------ ------- ------- ------ ------ ------- -------
Income (loss) before income taxes..... (61) (247) 418 909 735 1,129 1,068 1,133
Income tax expense.................... 0 0 0 (387) (254) (341) (324) (331)
------ ------ ------- ------- ------ ------ ------- -------
Net income (loss)..................... $ (61) $ (247) $ 418 $ 522 $ 481 $ 788 $ 744 $ 802
====== ====== ======= ======= ====== ====== ======= =======
</TABLE>
The Company has experienced and expects to continue to experience quarterly
variations in demand for its products as a result of seasonal demand for
products that contain eggs. Demand tends to be lower in the quarter ending June
30 and to build in the third and early fourth quarter in preparation for the
year-end holiday periods.
BACKLOG
The Company carried a backlog of $6.9 million at September 30, 1997,
substantially all of which is expected to be filled in 1997, as compared to a
backlog of $5.6 million at September 30, 1996. Despite the seasonal demand for
products containing eggs, the Company has not experienced any seasonal variation
in its backlog. However, the Company has experienced cyclical variations in net
sales volume due to fluctuations in egg market prices that caused customers to
vary their order size based upon price trends.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations, supplemented by bank borrowings and loans from related parties.
Working capital was $869,000 at September 30, 1997, compared to $393,000 at
September 30, 1996. The increase was primarily attributable to an increase in
cash.
Cash provided by operating activities for the nine months ended September
30, 1997 and 1996 was $2.7 million and $2.2 million, respectively. The increase
for the 1997 period over the 1996 period was primarily attributable to the
increase in the Company's net income and a decrease in accounts receivable
offset by a reduction in accounts payable. Cash provided by operating activities
for 1996 and 1995 was $3.0 million and $100,000, respectively. The increase for
1996 over 1995 was primarily attributable to an increase in the Company's net
income and accounts payable, as well as improved collection activities.
Cash used in investing activities for the nine months ended September 30,
1997 and 1996 was $913,000 and $479,000, respectively. The increase for the 1997
period over the 1996 period was principally attributable to a $467,000 increase
in purchases of property, plant and equipment. Cash used in investing activities
for 1996 and 1995 was $956,000 and $131,000, respectively. The increase for 1996
over 1995 was principally attributable to a $626,000 increase in purchases of
property, plant and equipment.
Cash used in financing activities for the nine months ended September 30,
1997 was $1.3 million. This was primarily related to a net repayment of $800,000
of related party debt coupled with a decrease of $624,000
21
<PAGE> 23
in checks issued in excess of cash balances, partially offset by a $520,000
increase in net borrowings under the Line of Credit. Cash used in financing
activities for the nine months ended September 30, 1996 was $1.7 million. This
was primarily related to net repayments of $3.8 million on the Line of Credit
and repayments of $385,000 of long-term debt, partially offset by proceeds of
$2.5 million from the issuance of unsecured notes to related parties. Cash used
in financing activities in 1996 was $2.0 million. This was principally related
to net repayments of $1.4 million on the Line of Credit and repayments of
$624,000 of long-term debt. Cash provided by financing activities in 1995 was
$31,000. This was primarily due to $1.4 million of net borrowings from related
parties and a $241,000 increase in checks issued in excess of cash balances,
offset by $1.1 million of net repayments of long-term debt and $518,000 of
repayments on the Line of Credit.
At September 30, 1997, the Company's borrowings consisted principally of
(i) $4.0 million of unsecured debt due on demand to Cham Foods and one of its
affiliates, (ii) $540,000 due under the Term Loan, (iii) $3.1 million due under
the Line of Credit and (iv) $1.5 million of secured real estate mortgage debt
owed to United Community Bank and Bank of Sun Prairie. The Company also has an
unused $1.0 million equipment loan facility with FBS. The Line of Credit permits
the Company to borrow up to $5.5 million on a revolving basis. Advances under
the Term Loan and Line of Credit currently bear interest at the bank's base rate
plus 0.25%; however, the Company may periodically borrow funds under the Line of
Credit at the LIBOR rate. The Term Loan and Line of Credit terminate on June 30,
2000. Borrowings under the Term Loan and Line of Credit are secured by the
Company's accounts receivables, intangibles, inventory and property and
equipment. The Company intends to use $5.1 million of the estimated net proceeds
from this offering to reduce the debt owed to Cham Foods and one of its
affiliates by $2.0 million and to reduce the Line of Credit to $0.
Capital expenditures were $946,000 and $479,000 in the first nine months of
1997 and 1996, respectively. Capital expenditures historically have been, and
future expenditures are anticipated to be, primarily for facilities and
equipment to support the Company's operations. The Company plans to build an
egg-laying and breaking facility beginning in 1998, and expects to complete
construction of the facility in 1999. The cost to complete the facility is
anticipated to be approximately $15.0 million. The Company intends to use
approximately $2.0 million from this offering to fund the construction of the
facility. The Company intends to obtain the remaining necessary funds for the
facility construction from state and local loans or contributions, through the
use of lease financing and by borrowing funds under the Line of Credit. The
Company has not yet obtained commitments for the financing necessary for the
facility.
Primera intends to seek the strategic acquisition of businesses that either
expand or complement its business. The Company currently does not have any
commitments for an acquisition and cannot estimate the cash requirements for any
potential acquisitions. The Company anticipates that the cash requirements for
acquisitions will be financed principally through proceeds of this offering,
borrowings under the Line of Credit and from cash flows from operations.
The Company believes that funds generated from operations, together with
the net proceeds of this offering and available credit under its Line of Credit,
will be sufficient to finance its current operations and planned capital
expenditure requirements (except for additional funds needed to finance the
proposed egg-laying and breaking facility) at least through 1998.
INFLATION. The Company does not believe that inflation has had a material
effect on its results of operations in recent years; however, there can be no
assurance that the Company's business will not be adversely affected by
inflation in the future.
RECENTLY ISSUED ACCOUNTING STANDARDS. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards No. 128 (SFAS 128)
entitled Earnings per Share. The Company will adopt this new standard in the
fourth quarter of 1997. Primera does not expect the implementation of SFAS 128
to have a material impact on net income per share.
22
<PAGE> 24
BUSINESS
OVERVIEW
Primera is a leading producer and wholesale distributor of value-added
dried egg products, consisting of egg white, egg yolk and whole egg powder. The
Company markets its dried egg products to consumer food companies for use as an
ingredient in the preparation of both ready-to-eat foods such as baked goods and
salad dressings and ready-to-prepare foods such as cake mixes and pastas. The
Company estimates that it produces approximately 15% of all dried egg products
in the United States, making it one of the largest producers of dried egg
products. In 1996, the Company processed the liquid from approximately 67.0
million dozen shell eggs into 19.8 million pounds of value-added egg products.
The Company's objective is to become a diversified processor, packager and
distributor of food products and ingredients for consumer food companies.
INDUSTRY BACKGROUND
Food Processing. Food processing in the United States is a $124 billion
industry expected to grow at an annual rate of 4% over the next ten years,
according to Poultry & Egg Fax, an industry publication. The food processing
industry remains highly fragmented despite the presence of several large and
well-known branded food companies. According to Factset Research, there are
approximately 4,400 food processing companies, 84.1% of which have revenues
under $100 million. According to Food Technology magazine's 1996 trends report,
food manufacturers increasingly are required to satisfy consumers' desires for
safe, healthful, high quality foods which are packaged for convenient handling,
cooking and consumption by consumers.
Processed Egg Industry. The use of eggs in processed food products has
grown substantially over the past 15 years, despite a decline until 1995 in per
capita shell egg consumption. The trend toward use of dried processed egg
products is principally related to the convenience sought by consumer food
companies in the delivery, storage, handling and incorporation of eggs into
ready-to-eat and ready-to-prepare food products. According to USDA statistics,
eggs broken for use in value-added dried, liquid and frozen processed egg
products have increased from approximately 805.6 million dozen for the 12 months
ended September 30, 1985 to nearly 1.6 billion dozen for the 12 months ended
September 30, 1997. This market is expected to grow at an annual rate of 8% over
the next ten years, according to Poultry & Egg Fax.
The processed egg industry is highly consolidated, with 12 companies
accounting for over 90% of the market in 1996, according to Poultry & Egg Fax.
According to USDA statistics, production from the dried egg segment of the
processed egg industry was 135.4 million pounds during the 12 months ended
September 30, 1997, an increase of 10.5% over the prior 12 month period.
PRIMERA STRATEGIES
Primera's strategic objective is to become a diversified processor,
packager and distributor of value-added products and ingredients for consumer
food companies. The Company intends to pursue this objective by implementing the
following strategies:
- - Produce High Quality Products. Primera believes it has developed a reputation
for producing high quality, value-added egg products and providing superior
service. As the Company grows, it intends to maintain these high standards in
order to continue to develop and preserve long-term relationships with
consumer food companies.
- - Execute Strategic Acquisitions. Primera intends to seek the strategic
acquisition of businesses that will leverage the Company's operating expertise
and its current customer base. The Company is targeting acquisitions that will
enable it to open new markets for existing products, develop new product lines
or enhance the efficiency of its operations.
- - Develop Additional Value-Added Food Products. Primera intends to develop,
produce and distribute additional value-added food products and ingredients
for consumer food companies. The Company is focusing on enhancing the
convenience for its customers in receiving, storing and handling its products
and incorporating them into consumer food products.
23
<PAGE> 25
- - Leverage Management's Operating Expertise. Primera's management team has
extensive experience in the food processing industry. The Company intends to
leverage this experience through continuing investments in new technology and
development of new and improved processing practices.
- - Manage Raw Material Supply. Primera intends to continue to diversify its
source of raw materials. The Company's planned egg-laying and breaking
facility is intended to provide the Company with a substantial internal source
of liquid egg supply.
PRODUCTS
The Company's current products consist of value-added dried egg white,
dried egg yolk and dried whole egg powder. The Company also sells liquid egg,
which is the principal raw material of dried egg products, when production or
market conditions warrant.
Consumer food companies incorporate the Company's dried and liquid egg
products in many ready-to-eat and ready-to-prepare consumer food products. For
example, the foaming properties of egg whites are important in bakery products.
Egg yolks serve as an emulsifier in mayonnaise and salad dressings, allowing the
water and oil ingredients to mix together. The addition of eggs to meats or
other foods also enhances their binding properties, color and flavor. Eggs also
contain substantial amounts of protein and can be used as an additive to
increase the nutritional value of consumer food products.
Primera's value-added dried egg products offer consumer food companies
several advantages over the use of shell eggs without compromising any of the
benefits of their use. First, dried egg products have a substantially longer
shelf life than shell eggs. Consumer food companies can purchase the Company's
dried egg products and store them for up to 12 months before incorporating them
into ready-to-eat and ready-to-prepare consumer food products. Shell eggs are
normally used within two to four weeks. Second, dried egg products are easier
and more efficient for the Company's customers to handle than shell eggs. Shell
eggs must be broken and the components sometimes separated, and they may contain
bacteria. Primera helps to streamline its customers' manufacturing operations by
processing liquid egg into pasteurized, value-added dried egg products. The
Company's customers may reconstitute the dried egg product to liquid egg through
the addition of water or incorporate the dried egg product into a blend that the
consumer will reconstitute, such as a cake mix. The Company's dried egg products
are typically packaged in 50 pound boxes and thus take up less warehouse space
than shell eggs and also do not require refrigeration. Finally, Primera custom
blends dried egg products for customers by creating special yolk and white mixes
or by incorporating other ingredients.
RAW MATERIAL SUPPLY
Primera's principal raw material is liquid egg, which the Company processes
into value-added dried egg products or resells. For the nine months ended
September 30, 1997, the Company processed the liquid extracted from eggs laid by
approximately 3.5 million hens. The Company obtains liquid egg (i) by purchasing
bulk quantities of liquid whole egg, egg white and egg yolk directly from egg
processors and (ii) by purchasing breaking stock eggs from egg suppliers and
then extracting and separating the liquid egg components in the Company's
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
During the first nine months of 1997, Primera purchased approximately 40%
of its liquid egg requirements directly from egg processors. The Company's
single largest supplier of liquid egg is Golden Oval, which in the first nine
months of 1997 supplied the Company with approximately one-third of its raw
material from eggs produced by approximately 1.0 million hens maintained at
Golden Oval's Renville, Minnesota facility. Primera also purchases liquid egg in
the open market from other egg processors.
During the first nine months of 1997, Primera purchased breaking stock eggs
from egg suppliers for subsequent liquid extraction in the Company's facilities.
The extracted liquid represented approximately 60% of the Company's raw material
supply. The Company purchases the bulk of its breaking stock eggs at negotiated
prices based on prevailing market conditions from approximately 35 egg suppliers
located within
24
<PAGE> 26
150 miles of the Company's facilities. Primera has long-term relationships with
most of these egg suppliers and has written agreements with a limited number of
them. The Company also purchases breaking stock eggs in the open market from
other egg suppliers.
In order to further diversify its supply of liquid egg, the Company intends
to construct an egg-laying and breaking facility, together with a feed mill,
near the Company's Cameron, Wisconsin facility. The initial phase of the project
is expected to be completed in mid-1998 and is expected to be completed during
1999. The new facility, when constructed and fully operational, is expected to
house 1.0 million hens producing approximately 21.0 million dozen eggs annually.
See "Use of Proceeds."
OPERATIONS
Primera currently conducts its operations in three Midwest locations:
Cameron, Wisconsin; Perham, Minnesota; and Stockton, Illinois. These facilities
currently operate on a combined average of approximately 75% of total estimated
capacity. The Company breaks shell eggs and separates and extracts the
components through an automated processing line. The Stockton plant houses three
egg breaking systems and the Perham facility has four breaking systems.
The Company uses spray drying systems to remove the water from the liquid
egg components. Primera's Cameron plant has three drying systems and the Perham
facility has one drying system. In March 1997, the Company completed the
installation of a reverse osmosis system at the Cameron facility which
concentrates liquid egg white by removing a portion of the water. The reverse
osmosis system allows the Company to process egg white in the spray drying
systems with higher dehydration efficiencies. The drying process creates a
powdered egg product that is collected and typically packaged in 50 pound boxes
through an automated process. Primera pasteurizes all egg products to eliminate
any bacteria, such as salmonella.
Primera maintains a centralized laboratory at the Cameron facility that
performs continuous testing and analysis of the Company's products. The Company
also employs other on-site sampling, testing and inspection practices at all of
its facilities to ensure consistent product quality. The Company has developed
and implemented a Hazard Analysis and Critical Control Points ("HACCP") program
for its production facilities to assess potential food processing safety hazards
associated with each of its operational steps and to take preventive or
corrective measures to ensure that the Company's products are safe, clean and
free of contaminants. In recognition of its stringent quality standards, the
Company consistently has been granted the American Institute of Baking's highest
quality rating.
CUSTOMERS
Primera distributes its value-added egg products to a variety of consumer
food companies primarily in the bakery and pasta industries. In 1996, the
Company provided its value-added egg products to 171 customers as compared to
140 customers in 1995. During the first nine months of 1997, Primera redirected
its sales and marketing strategy to eliminate less profitable business and to
concentrate on customers recognizing the value of Primera's products and
services. As a result, the Company supplied value-added egg products to 151
customers located throughout the United States and in 11 foreign countries in
the first nine months of 1997, as compared to 162 customers in the same period
of 1996. For the nine months ended September 30, 1997, 12% of the Company's
sales were to customers located in foreign countries. For the same period, The
Pillsbury Company accounted for over 25% of the Company's net sales. Primera's
customers include:
<TABLE>
<S> <C>
- - Archer Daniels Midland Co. - Keebler Company
- - Archway Cookies, Inc. - Matsuda Corp.
- - Borden, Inc. - McKee Foods Corporation
- - Bunge Foods Corporation - The Pillsbury Company
- - CPC International Inc. - Quaker Oats Company
- - Dawn Food Products, Inc. - Tyson Foods, Inc.
</TABLE>
25
<PAGE> 27
SALES AND MARKETING
The Company markets its products principally through the sales efforts of
its Chief Executive Officer, Chairman and Perham plant manager. Primera also
uses domestic and international independent brokers. Sales derived through the
Company's California and New Jersey-based independent brokers together accounted
for approximately 35% of the Company's net sales during the first nine months of
1997. The Company has an exclusive marketing arrangement with its
California-based broker.
COMPETITION
The production, processing and distribution of processed egg products is
intensely competitive. Competition is generally based on quality, price and
service. Although Primera is one of the largest processors of dried egg products
in the United States, it does not occupy a controlling market position in any
area where its products are sold. The industry is concentrated among 12 major
manufacturers of dried egg products, including the Company. Competition is not
limited by geographic boundaries and some of the Company's competitors are
better financed, have larger production facilities and employ a greater number
of sales personnel than does the Company. Major competitors of the Company
include Papetti's Hygrade Egg Products, Inc. and Milton G. Waldbaum Company
(both subsidiaries of Michael Foods, Inc.), Sonstegard Foods Incorporated and
Henningsen Foods Incorporated.
GOVERNMENT REGULATION
Public Health. As a processor and distributor of food products, the Company
is subject to oversight and regulation by the USDA. This comprehensive
regulatory scheme governs the manufacture (including composition and
ingredients), labeling, packaging and safety of food. The USDA regulates
manufacturing practices for foods through its current "Good Manufacturing
Practices" (GMP) regulations, specifies the standards of identity for certain
foods, including many of the products sold by the Company, and prescribes the
format and content of certain information required to appear on food product
labels. The Company's egg breaking operations are subject to continuous on-site
USDA inspection and the drying and packaging operations are subject to regular
USDA inspections.
In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. The Company and
its products are also subject to state and local regulation through such
measures as well as the licensing of manufacturing and packaging facilities,
enforcement by state and local health agencies of state standards for the
Company's products, inspection of the Company's facilities and regulation of the
Company's trade practices in connection with the sale of its products.
Management believes that the Company's facilities and manufacturing and
packaging practices comply with applicable public health laws and regulations.
Employee Safety Regulations. The Company is subject to certain health and
safety regulations issued pursuant to the Occupational Safety and Health Act.
These regulations require the Company to comply with certain manufacturing,
health and safety standards to protect its employees from accidents.
Environmental Regulations. The Company is also subject to federal, state
and local environmental laws and regulations regarding the discharge of
wastewater and other environmental matters. The new egg-laying and breaking
facility and related feed mill will require compliance with a variety of
environmental laws and regulations, including the receipt of permits.
PROPERTIES, FACILITIES AND SYSTEMS
The Company owns its 52,000 square foot Cameron facility and its 59,000
square foot Perham facility and leases its 20,000 square foot Stockton facility
on a month-to-month basis for $3,334 per month. For the nine months ended
September 30, 1997, these facilities operated on a combined average of
approximately 75% of total estimated capacity.
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<PAGE> 28
Primera has recently completed an upgrade of its computer systems to
include a dial-in network integrating its various branch operations with its
Cameron headquarters. This network enables the Company to monitor inventory and
production levels at each plant on a daily basis and facilitates detailed
financial management. The Company believes that its information technology
systems will be Year 2000 compliant.
EMPLOYEES
As of September 30, 1997, the Company had a total of 152 full-time
employees, of whom 140 worked in the Company's operations and 12 were
administrative employees, including officers. The Company periodically relies
upon part-time workers, principally during peak periods surrounding holidays.
None of the Company's employees is covered by a collective bargaining agreement.
The Company considers its relations with its employees to be good.
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<PAGE> 29
MANAGEMENT
The names and ages of the executive officers and directors of the Company,
and their positions and offices presently held, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael Shevi..................... 60 Chairman of the Board and Director
Jon E. Luikart.................... 44 President, Chief Executive Officer and
Director
Tom L. Wiles...................... 50 Chief Financial Officer
Sandor Hofstadter................. 73 Director
Alexander E. Grossman............. 78 Director
Gordon E. Hecker*................. 36 Director
</TABLE>
- -------------------------
* Member of audit and compensation committees.
Mr. Shevi has served as the Chairman of the Company since 1994. Mr. Shevi
has been Managing Director of Cham Foods, a publicly traded Israeli food
processing company, since 1971. Cham Foods manufactures and distributes
value-added dried egg products and dried vegetable products internationally. Mr.
Shevi's current responsibilities at Cham Foods include strategic planning and
international markets development.
Mr. Luikart has served as the President and Chief Executive Officer of the
Company since April 1995, and as a director since November 1997. He has held a
variety of management positions that have provided extensive experience in
food-related domestic and international operations and sales and marketing.
Between January 1989 and March 1995, Mr. Luikart was employed by McCormick &
Company, a spice and food ingredient manufacturer, where he served in a number
of capacities including Operations Director, Sales Director and most recently
Director of Global Sourcing. From January 1976 to January 1989, Mr. Luikart was
employed by Protein Technologies, a division of Ralston Purina Corporation, most
recently as its Operations Manager. Mr. Luikart received his B.S. degree in food
science and technology from the University of Minnesota and his M.B.A. degree
from the University of St. Thomas.
Mr. Wiles has served as Chief Financial Officer of the Company since 1991.
Between 1984 and 1991, Mr. Wiles served in various financial capacities for
Monark Egg Corporation of Kansas City, most recently as Chief Financial Officer.
Monark Egg filed a bankruptcy reorganization petition under Chapter 11 of the
United States Bankruptcy Code in August 1985. The petition was confirmed and
discharged in September 1987 in the United States Bankruptcy Court for the
Western District of Missouri. Mr. Wiles received his B.A. degree from Northwest
Missouri State University and his M.B.A. degree from the University of Missouri.
Mr. Hofstadter has served as a director of the Company since 1994 and as
Chairman of Cham Foods since 1973. Since the 1950s, Mr. Hofstadter has been
President of H&R Developments, a Toronto, Canada-based industrial, commercial
and residential building construction and management company. He is also
Chairman of H&R Real Estate Investment Trust, a publicly traded Canadian
company.
Mr. Grossman has served as a director of the Company since 1986 and as a
director of Cham Foods since 1973. Since 1953, Mr. Grossman has been President
of Belmont Properties Inc., a Toronto, Canada-based developer of high-rise
apartments.
Mr. Hecker has served as a director of the Company since December 1997.
Since November 1995, Mr. Hecker has been Vice President -- Lawns Marketing with
The Scotts Company with responsibility for managing the lawn products division's
advertising and marketing programs, new product and packaging efforts and
strategic planning initiatives. Between February 1989 and October 1995, he
served in various capacities with Specialty Brands, Inc., including as Product
Manager of the Spice Islands division, Category Manager of all U.S. branded
spice businesses, where he had responsibility for integration of the company's
Durkee/French products acquisition and most recently as Director - Spice
Business Unit, where he had responsibility for the company's branded and private
label retail spice businesses. Mr. Hecker was an Assistant Brand Manager of
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<PAGE> 30
The Clorox Company between September 1987 and February 1989 and was responsible
for salad dressing promotional planning with The Kraft Company between August
1986 and July 1987. Mr. Hecker received his B.A. degree from Stanford University
and his M.B.A. degree from the University of Chicago.
Within 90 days of the effective date of this Prospectus, Cham Foods intends
to cause the election of one additional director who is neither an employee nor
an officer of Primera or Cham Foods, nor a director of Cham Foods. Such director
will serve as a member of the Company's audit and compensation committees.
OTHER KEY EMPLOYEES:
Deborah L. Higgs has served as Corporate Controller of the Company since
March 1992. She is responsible for the Company's daily accounting and banking
functions and information technology systems. Between 1988 and 1992, Ms. Higgs
served in various accounting capacities with Hitchcock Industries, Inc. From
1984 to 1988, Ms. Higgs was employed by Rosemount, Inc. in its accounting
department. Ms. Higgs received her B.A. degree from Metropolitan State
University.
John W. Boortz has served as Director of Quality Assurance of the Company
since August 1996. He has over 30 years of quality control experience, including
ISO 9000 certification and compliance procedures, with consumer food companies
including The Pillsbury Company, Grace Cocoa Chocolate and Seagrams
Incorporated. Mr. Boortz received his B.S. degree in biology and chemistry from
the University of Wisconsin.
Thomas B. Brown has served as the Plant Manager of the Cameron facility
since October 1994. In addition to his daily responsibilities for plant
operations, he oversees the Company's production equipment maintenance and
acquisition activities. Mr. Brown received his B.S. in food science from the
University of Wisconsin.
Tim A. Zueger has served as the Plant Manager of the Stockton facility
since December 1990. In addition to his daily responsibilities for plant
operations, Mr. Zueger is responsible for purchasing the raw materials for the
Stockton facility. Mr. Zueger and his family have been involved in the
operations of the Stockton facility for nearly 40 years.
Joe E. Sczygiel has served as the Plant Manager of the Perham facility
since June 1971. In addition to his daily responsibilities for plant operations,
Mr. Sczygiel is responsible for maintaining Primera's relationships with other
egg processing companies for the purposes of purchasing liquid egg to meet
Perham's production needs and selling liquid egg when production or market
conditions warrant.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation and
Restated Bylaws, the Board of Directors is divided into three classes. Each
class serves for a term of three years, subject to earlier resignation or
removal, and election of the classes is staggered so that one class is elected
each year. The directors serving in Class I, whose class term initially expires
on the date of the Company's 1998 annual meeting of stockholders, are Mr. Shevi
and Mr. Luikart. The directors serving in Class II, whose class term initially
expires on the date of the Company's 1999 annual meeting of stockholders, are
Mr. Hofstadter and Mr. Grossman. The director serving in Class III, whose class
term initially expires on the date of the Company's 2000 annual meeting of
stockholders, is Mr. Hecker. Within 90 days of the effective date of this
Prospectus, Cham Foods intends to cause the election of one additional director
who is neither an employee nor an officer of Primera or Cham Foods, nor a
director of Cham Foods, to serve as a Class III director. See "Description of
Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee and an
Audit Committee. Mr. Hecker is, and upon his or her election the other Class III
director will be, a member of the Compensation and Audit Committees. The
Compensation Committee will review on behalf of, and make recommendations to,
the Board of Directors with respect to the compensation of executive officers
and will administer the Company's stock option plan and make recommendations to
the Board of Directors with
29
<PAGE> 31
respect to the plan and the grant of options to persons eligible under the plan.
The Audit Committee's functions will include assessing the independence and
recommending to the Board of Directors the engagement of the Company's
independent public accountants and reviewing with such accountants the plans for
and the results and scope of their auditing engagement and certain other matters
relating to their services to the Company.
DIRECTOR COMPENSATION
The Company intends to compensate each director who is neither an employee
nor an affiliate of Primera or Cham Foods with an annual fee of $10,000 and a
grant of a five-year option to purchase 5,000 shares of the Company's Common
Stock. These options will be fully vested upon their grant. In November 1997,
the Company granted Mr. Hecker 5,000 of such options at an exercise price equal
to the initial public offering price per share in this offering. All directors
will receive $500 for each Board of Directors and committee meeting attended and
will be reimbursed for expenses incurred in connection with attendance at such
Board and committee meetings.
INDEMNIFICATION AGREEMENTS
Prior to the date of this Prospectus, the Company intends to enter into an
agreement with each director providing for indemnification to the fullest extent
permitted under Delaware law against liability for damages and expenses,
including attorneys' fees, arising out of threatened, pending or completed legal
actions, suits or proceedings by reason of the fact that such person is or was a
director, officer or employee of the Company. The agreement will permit the
director to demand certain advances against, or the creation of a trust for,
expenses to be incurred in defending any covered claim. Insofar as the
indemnification agreement may cover liabilities arising under the Securities
Act, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
EMPLOYMENT AGREEMENTS
Mr. Luikart has entered into a three year employment agreement with the
Company effective as of January 1, 1997. The agreement provides for an annual
base salary in 1997 and 1998 of $120,000 and $140,000, respectively, and an
annual base salary for 1999 to be agreed upon between Mr. Luikart and the
Company. In addition, the Company has agreed to pay Mr. Luikart an annual cash
bonus equal to 3% of the Company's net income for each year during the term of
the agreement. Mr. Luikart's employment agreement contains a non-compete
agreement. Mr. Luikart is also reimbursed for life insurance premiums with
respect to a $500,000 term policy. Mr. Luikart has the use of a Company-owned
automobile.
Mr. Wiles has no employment agreement with the Company but has an agreement
that entitles him to certain deferred compensation if he terminates employment
with the Company. As of November 1, 1997, Mr. Wiles' accrued deferred
compensation was $100,300. Mr. Wiles has the use of a Company-owned automobile.
Mr. Wiles has indicated his intention to terminate employment with the Company
upon the hiring of a new Chief Financial Officer.
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<PAGE> 32
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information regarding compensation paid during each of the Company's last three
years to the Chief Executive Officer. No other executive officers had aggregate
salaries and bonuses that exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
-------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Jon E. Luikart, Chief Executive Officer.............. 1996 $96,000 $55,000 $1,000
1995 $80,000 $10,000 $1,000
</TABLE>
- -------------------------
(1) Represents life insurance premiums paid by the Company on a policy owned by
Mr. Luikart.
BENEFIT PLANS
1997 Stock Option Plan. In October 1997, the Company adopted its 1997 Stock
Option Plan (the 1997 Stock Option Plan"). The purpose of the 1997 Stock Option
Plan is to advance the interests of the Company and its stockholders by
enhancing the Company's ability to attract and retain qualified persons to
perform services for the Company by providing incentives to such persons to put
forth maximum efforts for the Company and by rewarding persons who contribute to
the achievement of the Company's economic objectives. Persons eligible to
receive options under the 1997 Stock Option Plan consist of all employees,
officers, directors, consultants and independent contractors of the Company. The
1997 Stock Option Plan provides for the granting of incentive stock options
intended to qualify under section 422 of the Internal Revenue Code of 1986, as
amended ("Incentive Options") and options that do not constitute incentive stock
options ("Non-Qualified Options").
The 1997 Stock Option Plan has been administered by the Board of Directors
and, upon election of the Company's other Class III director, will be
administered by the Compensation Committee (the "Committee"). In general, the
Committee will be authorized to recommend the recipients of awards and the terms
and conditions of those awards to the Board of Directors for its approval. The
number of shares of Common Stock that may be issued under the 1997 Stock Option
Plan may not exceed 400,000 shares (subject to adjustment to reflect stock
dividends, stock splits, recapitalizations and similar changes in the Company's
capital structure). Shares of Common Stock that are attributable to awards that
have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
Incentive Options may be granted only to employees of the Company and must
be granted at an exercise price not less than the fair market value of the
Common Stock on the date of grant (or, for an option granted to a person holding
more than 10% of the Company's voting stock, at not less than 110% of fair
market value). Non-Qualified Options may be granted to any eligible participant
under the 1997 Stock Option Plan at such exercise price (which may be less than
fair market value) as determined by the Compensation Committee. An optionee who
leaves the Company for reasons other than death, disability or termination for
cause has 90 days after termination within which to exercise his or her
Incentive Options. In the event an optionee's employment or other service with
the Company is terminated by reason of such optionee's death or disability, all
outstanding options then held by the optionee will become immediately
exercisable in full and remain exercisable after such termination for a period
of one year (but in no event after the expiration date of any such option). The
term of each Incentive Option, which is fixed at the date of grant, may not
exceed 10 years from the date the option is granted (except that an Incentive
Option granted to a person holding more than 10% of the Company's voting stock
may be exercisable only for five years from the date of grant). The term of
Non-Qualified Options may be fixed by the Committee in its sole discretion at
the date of grant. Options may be exercisable in whole or installments. The
Committee may accelerate the vesting of outstanding options in its discretion if
the Company dissolves, liquidates or merges or consolidates with another
corporation and is not the surviving corporation.
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<PAGE> 33
No awards under the 1997 Stock Option Plan may be granted after October
2007; however, the 1997 Stock Option Plan may be terminated earlier by Board
action, and no option may be granted after such termination. Options outstanding
upon termination of the 1997 Stock Option Plan may be exercised in accordance
with their terms.
Option Grants. In October 1997, the Company granted Mr. Luikart Incentive
Stock Options and Non-Qualified Stock Options to purchase an aggregate of 37,500
and 87,500 shares of Common Stock, respectively, pursuant to the 1997 Stock
Option Plan. The Company also granted Mr. Wiles Non-Qualified Stock Options to
purchase an aggregate of 10,400 shares of Common Stock. Additionally, the
Company granted an aggregate of 29,300 Incentive Options to six other employees.
All of these options vest over a three-year period, with one-third of the
options vesting each year commencing one year after the date of grant. However,
if Mr. Wiles terminates his employment with the Company within 12 months of the
date of grant, 50% of his options will vest immediately. Vested options are
exercisable at the initial public offering price on the cover page of this
Prospectus. All of the options will expire 10 years from the date of grant.
In November 1997, the Company granted Mr. Hecker Non-Qualified Stock
Options to purchase an aggregate of 5,000 shares of Common Stock pursuant to the
1997 Stock Option Plan at an exercise price equal to the initial public offering
price per share on the cover page of this Prospectus. These options will vest on
the date of this Prospectus and will expire five years from the date of grant.
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<PAGE> 34
CERTAIN TRANSACTIONS
As of September 30, 1997, the Company had unsecured notes payable to
related parties totaling $4.0 million bearing interest at a rate not to exceed
the bank's reference rate plus 0.5% to be compounded daily and paid monthly or
quarterly. The Company paid $359,000 and $107,000 of interest to these related
parties during 1996 and the nine months ended September 30, 1997, respectively.
The notes payable to related parties at September 30, 1997 consist of $3.3
million payable to Cham Foods and $748,000 payable to Egis Holdings Ltd.
("Egis"), the largest stockholder of Cham Foods. Messrs. Hofstadter and Grossman
are affiliates of Egis. The Company intends to use proceeds from this offering
to repay a portion of these notes. See "Use of Proceeds."
The Company purchased $1.3 million and $755,000 of ingredients from Cham
Foods during 1996 and the nine months ended September 30, 1997, respectively,
and had accounts payable to Cham Foods on such purchases of $934,000 and $1.2
million at December 31, 1996 and September 30, 1997, respectively. The Company
pays interest at a rate of 8% on Cham Foods payables outstanding over 90 days.
The Company also had accounts receivable due from Cham Foods of $168,000 and
$189,000 on December 31, 1996 and September 30, 1997, respectively, primarily
for equipment and brokerage payments made on behalf of Cham Foods to facilitate
business in the United States. The Line of Credit agreement prohibits the Cham
Foods receivables from exceeding $200,000.
The Company paid Cham Foods a management fee of $70,000 in 1996. In January
1997, the Company entered into a management agreement with Cham Foods providing
for an annual fee of $110,000 during the agreement's three year term. Under the
agreement, Cham Foods will make the services of Mr. Shevi available to the
Company for ongoing management and sales and marketing advice.
Mr. Luikart received a loan from the Company of $12,500 in October 1996.
The loan is due on demand. Mr. Luikart received a second loan from the Company
of $30,000 in February 1997. The second loan is due in February 2007. Both loans
bear interest at an annual rate of 6.0%.
All future material and affiliated transactions and loans will be made or
entered into on terms that are no less favorable to the Company than those that
can be obtained from unaffiliated third parties, and all future material
affiliated transactions and loans, and any forgiveness of loans, must be
approved by a majority of the independent, non-affiliated members of the Board
of Directors who do not have an interest in the transaction.
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<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
for the sale of shares offered hereby, by: (i) each person who beneficially owns
more than 5% of the Common Stock, (ii) each of the Company's executive officers
and directors, and (iii) by all executive officers and directors of the Company
as a group. Unless otherwise noted, each person or group identified has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY OWNED -------------------------
PRIOR TO AND AFTER PRIOR TO AFTER THE
NAME AND ADDRESS THE OFFERING(1) THE OFFERING OFFERING
---------------- ------------------ ------------ ---------
<S> <C> <C> <C>
Cham Foods (Israel) Ltd.(2).............................. 3,875,000 100% 72.1%
Michael Shevi(2)(3)...................................... 3,875,000 100% 72.1%
Jon E. Luikart(4)........................................ -- -- --
Tom L. Wiles(4).......................................... -- -- --
Sandor Hofstadter(3)..................................... 3,875,000 100% 72.1%
3625 Dufferin Street, Suite 500
Downsview, Ontario M3K 1N4 Canada
Alexander E. Grossman(3)................................. 3,875,000 100% 72.1%
970 Lawrence Avenue West, Suite 300
Toronto, Ontario M6A 3B6 Canada
Gordon E. Hecker(5)...................................... 5,000 * *
10786 Weymouth Avenue
Powell, Ohio 43065
All executive officers and directors as a group (6
persons)(5)............................................ 3,880,000 100% 72.1%
</TABLE>
- -------------------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from the date hereof, are considered outstanding
for the purpose of calculating the percentage of Common Stock owned by such
person and owned by a group, but not for the purpose of calculating the
percentage of Common Stock owned by any other person.
(2) The address of this stockholder is: Herbert Samuel Street No. 66, P.O. Box
299, 38102, Hadera, Israel.
(3) Consists of 3,875,000 shares held by Cham Foods, of which Mr. Shevi is the
Managing Director and of which Messrs. Hofstadter and Grossman are
directors.
(4) The address of each of these executive officers is: c/o Primera Foods
Corporation, 612 South 8th Street, P.O. Box 373, Cameron, Wisconsin 54622.
(5) Includes 5,000 shares which may be purchased upon exercise of options which
are to become exercisable within 60 days of the date hereof.
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<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, par value $.001 per share and 1,000,000 shares of Preferred
Stock, par value $1.00 per share. Immediately prior to the offering, there were
3,875,000 shares of Common Stock outstanding held by one holder of record and no
shares of Preferred Stock outstanding.
COMMON STOCK
Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of the stockholders. Stockholders do not have cumulative voting
rights, the absence of which will, in effect, allow the holders of a majority of
the outstanding shares of Common Stock to elect all the directors then standing
for election. After the completion of the offering hereby and assuming no
exercise of any stock options, the Representative's Warrants or the
Underwriters' over-allotment option, Cham Foods will own approximately 72.1% of
the Common Stock.
Subject to the rights and preferences of the Preferred Stock, if any, each
share of Common Stock has an equal and ratable right to receive dividends, when,
as and if declared by the Company's Board of Directors, out of any funds legally
available for the payment thereof. In the event of the liquidation, dissolution
or winding up of the Company, after satisfaction of amounts payable to creditors
and distribution to the holders of outstanding Preferred Stock, if any, of
amounts to which they may be preferentially entitled, holders of the Common
Stock are entitled to share ratably, on a per share basis, in the assets
available for distribution to the stockholders.
Holders of Common Stock are not entitled to conversion or preemptive
rights. All outstanding shares of Common Stock are, and when issued, the shares
of Common Stock to be issued in connection with this offering, will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, subject to any limitations
prescribed by law, without further action by the stockholders, to issue up to an
aggregate of 1,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series. The shares noted
above constitute "blank check" Preferred Stock, and, as of the date of this
offering, the Board of Directors has not yet designated any series thereof or
any rights, preferences, privileges or restrictions attaching thereto. The
issuance of Preferred Stock could adversely affect the voting power of the
holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation and may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any Preferred Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION, RESTATED BYLAWS
AND CONTRACTS
The Company's Restated Certificate of Incorporation and Restated Bylaws
divide the Company's Board of Directors into three classes. Each class serves
for a term of three years, subject to earlier resignation or removal, and
election of the classes is staggered so that one class is elected each year. The
classification of directors will have the effect of making it more difficult for
stockholders to change the composition of the Board of Directors. At least two
annual meetings of shareholders generally will be required to effect a change in
a majority of the Board of Directors. These provisions of the Restated
Certificate of Incorporation and Restated Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. See "Management."
The Company's Restated Bylaws provide that special meetings of stockholders
may be called only by the Chairman of the Board, the Chief Executive Officer, a
majority of the Board of Directors or the holders of shares entitled to cast not
less than 25% of the voting power of any class entitled to vote at the meeting.
In
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<PAGE> 37
addition, the Restated Bylaws provide that stockholders may not raise new
matters or nominate directors at a meeting of stockholders unless certain
advance notice requirements are satisfied.
The Company's agreement with Golden Oval grants it a right of first refusal
to acquire all of the Company's assets or stock in the event of a proposed sale
of all of such assets or stock. Golden Oval must respond to any offer made to it
within thirty days. This provision could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company.
CERTAIN PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a broad range of "business combinations" with an
"interested stockholder" (defined generally as a person owning 15% or more of
the corporation's outstanding voting stock) for three years following the date
such person became an interested stockholder unless (i) before the person
becomes an interested stockholder, the transaction resulting in such person
becoming an interested stockholder or the business combination is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares owned by directors who are
also officers of the corporation or shares held by employee stock plans that do
not provide employees with the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender offer or exchange offer)
or (iii) on or after such date on which such person became an interested
stockholder the business combination is approved by the board of directors and
authorized at an annual or special meeting, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock excluding
shares owned by the interested stockholders. The restrictions of Section 203 do
not apply, among other reasons, if a corporation, by action of its stockholders,
adopts an amendment to its certificate of incorporation or bylaws expressly
electing not to be governed by Section 203, provided that, in addition to any
other vote required by law, such amendment to the certificate of incorporation
or bylaws must be approved by the affirmative vote of a majority of the shares
entitled to vote. Moreover, an amendment so adopted is not effective until
twelve months after its adoption and does not apply to any business combination
between the corporation and any person who became an interested stockholder of
such corporation on or prior to such adoption. The Company's Restated
Certificate of Incorporation and Restated Bylaws do not currently contain any
provisions electing not to be governed by Section 203 of the DGCL.
Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of Common Stock. This could have the
effect of inhibiting changes in management and may also prevent temporary
fluctuations in the Common Stock that often result from takeover attempts.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is Norwest Bank
Minnesota, N.A.
36
<PAGE> 38
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
5,375,000 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised). Of these outstanding shares, the 1,500,000 shares of
Common Stock sold in this offering will be freely tradeable without restriction
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company (as that term is defined in the Securities Act), which will be
subject to the resale limitations under Rule 144 adopted under the Securities
Act. The 3,875,000 shares of Common Stock held by Cham Foods are "restricted"
securities within the meaning of Rule 144 and may not be resold in a public
distribution except in compliance with the registration requirements of the
Securities Act or pursuant to Rule 144.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least one year but less than two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 53,750 shares immediately after the offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons) other than an "affiliate" who has beneficially owned his or her shares
for at least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person who directly, or indirectly through the use
of one or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer. Rule 144A under the Securities Act as currently in
effect permits the immediate sale by current holders of restricted shares of all
or a portion of their shares to certain qualified institutional buyers described
in Rule 144A, subject to certain conditions.
Cham Foods has agreed that it will not sell any shares of capital stock of
the Company, either publicly or privately, without the prior consent of the
Representative for a period of 180 days from the date of this Prospectus.
The Company has reserved an aggregate of 400,000 shares of Common Stock for
issuance pursuant to the 1997 Stock Option Plan. Options to purchase a total of
169,700 shares of Common Stock have been granted to certain employees and a
director of the Company under the 1997 Stock Option Plan. The Company intends to
file a registration statement on Form S-8 under the Securities Act within 30
days after the date of this Prospectus to register the shares to be issued
pursuant to the 1997 Stock Option Plan. Shares of Common Stock issued under the
1997 Stock Option Plan after the effective date of such registration statement
will be freely tradeable in the public market, subject to the lock-up
restrictions and subject in the case of sales by affiliates to the amount,
manner of sale notice and public information requirements of Rule 144.
There has been no prior market for the Common Stock and there can be no
assurance that a significant public market for the Common Stock will develop or
be sustained after the offering contemplated by this Prospectus. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price of the Common Stock.
37
<PAGE> 39
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as Representative, have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names below
at the price to public less underwriting discounts and commissions set forth on
the cover page of this Prospectus. The nature of the Underwriters' obligations
is such that if any such shares are purchased, all must be purchased.
<TABLE>
<CAPTION>
UNDERWRITER PARTICIPATION
----------- -------------
<S> <C>
Cruttenden Roth Incorporated................................
---------
Total.................................................. 1,500,000
=========
</TABLE>
The several Underwriters propose to offer the shares of Common Stock in
part directly to the public at the price to public set forth on the cover page
of this Prospectus, and in part to certain dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD"), or institutions
located outside the U.S. that are not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and agree to make no sales within
the U.S. or its territories and possessions or to persons who are nationals
thereof or residents therein, at the price to public less a concession not
exceeding $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share. After the shares of
Common Stock are released for sale to the public, the Representative may change
the initial price to public and other selling terms. No change in such terms
shall change the amount of proceeds to be received by the Company as set forth
on the cover page of this Prospectus.
The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 225,000
shares of Common Stock at the price to public less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may exercise the
option solely to cover over-allotments, if any. To the extent that the
Underwriters exercise the over-allotment option, each Underwriter will be
committed, subject to certain conditions, to purchase a number of additional
shares which is proportionate to such Underwriter's initial commitment.
The Company has also agreed to pay the Representative a non-accountable
expense allowance equal to 2% of the gross proceeds of the offering (including
any over-allotment shares), and to sell to the Representative or its designees,
for nominal consideration, the Representative's Warrants to purchase up to
150,000 shares of Common Stock (subject to certain antidilution adjustments).
The Representative's Warrants will be exercisable for a period of five years
commencing one year after the effective date of the Registration Statement of
which this Prospectus forms a part, and cannot be transferred for a period of
one year from the date of issuance except to Underwriters, selling group members
and their officers or partners. The exercise price per share for the
Representative's Warrants is equal to 120% of the initial price to public and
may be paid in cash or on a cashless net issuance basis by foregoing receipt of
a number of shares otherwise issuable upon exercise having a fair market value
equal to the aggregate exercise price. During the exercise period, holders of
the Representative's Warrants are entitled to certain demand and incidental
registration rights with respect to the securities issuable upon exercise.
Except in connection with acquisitions or pursuant to the exercise of
options granted under the 1997 Stock Option Plan, the Company has agreed, for a
period of 180 days after the consummation of this offering, not to issue or sell
or purchase any equity securities without the prior written consent of the
Representative. In addition, the Company's officers, directors and Cham Foods
have agreed not to transfer any equity securities
38
<PAGE> 40
of the Company for a period of 180 days after the consummation of this offering
without the prior written consent of the Representative.
Prior to this offering, there has not been a public market for the Common
Stock. The public offering price of the Common Stock will be determined by
arms-length negotiation between the Company and the Representative. There will
be no direct relation between the offering price of the Common Stock and the
assets, book value or net worth of the Company. Among the factors to be
considered by the Company and the Representative in pricing the Common Stock are
the results of operations, the current financial condition and future prospects
of the Company, the experience of management, the amounts of ownership to be
retained by Cham Foods, the general condition of the economy and the securities
markets, the rights, preferences, privileges and restrictions of the Common
Stock, and the demand for similar securities of companies considered comparable
to the Company.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with the Exchange Act pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by selling
more Common Stock in connection with the offering than they are committed to
purchase from the Company, and in such case may purchase Common Stock in the
open market following completion of the offering to cover all or a portion of
such shares of Common Stock or may exercise the Underwriters' over-allotment
option referred to above. In addition, the Representative, on behalf of the
Underwriters, may impose "penalty bids" under the contractual arrangements with
the Underwriters whereby the Representative may reclaim from an Underwriter (or
dealers participating in the offering), for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in stabilization or syndicate covering transactions or otherwise.
Any of these activities may stabilize or maintain the price of the Common Stock
at a level above which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and if they are undertaken
they may be discontinued at any time.
The Representative has advised the Company that the Underwriters do not
expect to confirm any sales to accounts over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Messerli & Kramer P.A., Minneapolis, Minnesota. Certain legal matters
will be passed upon for the Underwriters by Parcel, Mauro, Hultin & Spaanstra,
P.C., Denver, Colorado.
EXPERTS
The consolidated financial statements of Primera Foods Corporation and
subsidiary as of December 31, 1995 and 1996, and September 30, 1997, and for
each of the years in the three year period ended December 31, 1996, and for the
nine month period ended September 30, 1997, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
39
<PAGE> 41
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder.
Statements contained in this Prospectus regarding the contents of any contract
or any other document are not necessarily complete and, in each such instance,
reference is hereby made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street N.W., Judiciary
Plaza, Washington, D.C. 20549 at the prescribed rates. Also, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Web site is HTTP://WWW.SEC.GOV.
40
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
PRIMERA FOODS CORPORATION:
We have audited the accompanying consolidated balance sheets of Primera
Foods Corporation and subsidiary as of December 31, 1995 and 1996, and September
30, 1997, and the related consolidated statements of operations, stockholders'
equity/(deficit), and cash flows for each of the years in the three-year period
ended December 31, 1996, and for the nine months ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Primera
Foods Corporation and subsidiary as of December 31, 1995 and 1996, and September
30, 1997, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996, and for the nine
months ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 31, 1997, except as to note 11,
which is as of December 4, 1997
F-1
<PAGE> 43
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 0 $ 0 $ 517,393
Trade accounts receivable, less allowance for
doubtful accounts of $56,404, $60,000, and
$60,000 at December 31, 1995 and 1996, and
September 30, 1997, respectively................. 3,390,236 4,191,293 3,928,871
Notes receivable due from related parties........... 4,926 23,694 45,470
Inventories......................................... 4,926,376 5,620,167 5,426,353
Prepaid expenses and other current assets........... 96,168 100,144 53,359
Deferred tax assets................................. 90,496 109,162 243,971
----------- ----------- -----------
Total current assets........................... 8,508,202 10,044,460 10,215,417
----------- ----------- -----------
Property, plant, and equipment, net of accumulated
depreciation........................................ 7,068,855 7,409,633 7,833,856
Goodwill, net of accumulated amortization 340,000 329,375 321,406
Other assets, net of accumulated amortization 30,222 6,953 24,500
----------- ----------- -----------
Total assets................................... $15,947,279 $17,790,421 $18,395,179
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Checks issued in excess of cash balances............ 587,589 623,592 0
Accounts payable.................................... 2,921,607 4,499,004 3,558,206
Accrued liabilities................................. 201,462 610,155 670,618
Accrued interest payable............................ 90,157 127,922 233,528
Accrued income tax payable.......................... 0 171,126 349,076
Current maturities of long-term debt................ 548,076 503,455 506,133
Current maturities of notes payable -- related
parties.......................................... 0 0 4,028,550
----------- ----------- -----------
Total current liabilities...................... 4,348,891 6,535,254 9,346,111
----------- ----------- -----------
Long-term liabilities:
Notes payable -- related parties.................... 4,865,700 4,828,550 0
Long-term debt, less current maturities............. 6,397,631 4,436,756 4,576,941
Deferred income taxes............................... 345,496 826,598 974,897
----------- ----------- -----------
Total long-term liabilities.................... 11,608,827 10,091,904 5,551,838
----------- ----------- -----------
Total liabilities.............................. 15,957,718 16,627,158 14,897,949
----------- ----------- -----------
Commitments and contingencies (notes 6 and 8)
Stockholders' equity (deficit):
Preferred stock -- $1.00 par value; 1,000,000 shares
authorized; no shares issued and outstanding as
of December 31, 1995 and 1996, and September 30,
1997............................................. 0 0 0
Common stock -- $.001 par value; 25,000,000 shares
authorized; 3,875,000 shares issued and
outstanding at December 31, 1995 and 1996, and
September 30, 1997, respectively................. 3,875 3,875 3,875
Additional paid-in capital.......................... 262,791 262,791 262,791
Accumulated earnings (deficit)...................... (277,105) 896,597 3,230,564
----------- ----------- -----------
Total stockholders' equity/(deficit)........... (10,439) 1,163,263 3,497,230
=========== =========== ===========
Total liabilities and stockholders'
equity/(deficit)............................ $15,947,279 $17,790,421 $18,395,179
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 44
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $31,592,769 33,135,649 53,707,977 40,058,671 37,906,750
Cost of sales................. 28,680,219 29,896,451 48,626,198 36,552,493 32,357,383
----------- ----------- ----------- ----------- -----------
Gross profit............. 2,912,550 3,239,198 5,081,779 3,506,178 5,549,367
Selling, general, and
administrative expenses..... 2,143,580 1,883,547 2,206,210 1,638,319 1,589,086
----------- ----------- ----------- ----------- -----------
Income from operations... 768,970 1,355,651 2,875,569 1,867,859 3,960,281
Other income (expense):
Write-off of related party
receivable............... (771,180) 0 0 0 0
Gain from officer life
insurance................ 0 201,955 0 0 0
Interest expense............ (1,111,100) (1,149,483) (1,061,219) (795,148) (661,632)
Other income/(expense)
net...................... (5,631) 134,097 765 6,859 30,956
----------- ----------- ----------- ----------- -----------
Total other income
(expense).............. (1,887,911) (813,431) (1,060,454) (788,289) (630,676)
----------- ----------- ----------- ----------- -----------
Income/(loss) before
income taxes........... (1,118,941) 542,220 1,815,115 1,079,570 3,329,605
Income tax expense............ 0 0 (641,413) (386,764) (995,638)
----------- ----------- ----------- ----------- -----------
Net income/(loss) $(1,118,941) 542,220 1,173,702 692,806 2,333,967
=========== =========== =========== =========== ===========
Net income/(loss) per share $ (.29) .14 .30 .18 .60
=========== =========== =========== =========== ===========
Weighted average common and
common equivalent shares
outstanding................. 3,875,000 3,875,000 3,875,000 3,875,000 3,875,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY/(DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996,
AND THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON ADDITIONAL ACCUMULATED
------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... 4,843,742 $4,844 $328,490 $ 299,616 $ 632,950
Redemption of common stock for
retirement January 1, 1994........ (968,742) (969) (65,699) -- (66,668)
Net loss............................. -- -- -- (1,118,941) (1,118,941)
--------- ------ -------- ----------- -----------
Balance at December 31, 1994........... 3,875,000 3,875 262,791 (819,325) (552,659)
Net income........................... -- -- -- 542,220 542,220
--------- ------ -------- ----------- -----------
Balance at December 31, 1995........... 3,875,000 3,875 262,791 (277,105) (10,439)
Net income........................... -- -- -- 1,173,702 1,173,702
--------- ------ -------- ----------- -----------
Balance at December 31, 1996........... 3,875,000 3,875 262,791 896,597 1,163,263
Net income........................... -- -- -- 2,333,967 2,333,967
--------- ------ -------- ----------- -----------
Balance at September 30, 1997.......... 3,875,000 $3,875 $262,791 $ 3,230,564 $ 3,497,230
========= ====== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $(1,118,941) $ 542,220 $ 1,173,702 $ 692,806 $ 2,333,967
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation of property, plant, and
equipment........................... 745,681 452,234 624,264 417,153 506,426
Amortization of goodwill and other
assets.............................. 17,549 13,896 13,894 10,421 10,422
Write-down of property, plant, and
equipment........................... 0 269,645 0 0 0
Write-off of employee advance......... 0 6,000 0 0 0
Write-off of note receivable.......... 0 75,000 0 0 0
Net (gain) loss from disposition of
property, plant, and equipment...... 12,625 3,805 10,860 0 (17,591)
Provision for deferred taxes.......... 0 0 462,436 0 13,490
Provision for losses on trade accounts
receivable.......................... 0 40,128 63,378 61,510 0
Change in operating assets and
liabilities:
Trade accounts receivable........... 132,692 (1,469,064) (864,435) (1,691,620) 262,422
Notes receivable due from related
parties.......................... 223,770 16,870 (18,768) (9,196) (21,776)
Inventories......................... (818,780) (380,739) (693,791) 977,884 193,814
Prepaid expenses and other current
assets........................... (7,510) (76) (3,976) 3,879 26,785
Accounts payable.................... (288,100) 757,467 1,577,397 994,307 (940,798)
Accrued liabilities................. 194,084 (37,740) 408,693 376,136 60,463
Accrued interest payable............ 219,713 (189,577) 37,765 (10,171) 105,606
Accrued income taxes payable........ 0 0 171,126 386,764 177,950
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities........... (687,217) 100,069 2,962,545 2,209,873 2,711,180
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant, and
equipment............................. (585,227) (349,618) (975,402) (478,842) (945,758)
Proceeds from sale of property, plant,
and equipment......................... 10,000 191,152 19,500 0 32,700
Other assets............................ 0 27,264 0 0 0
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (575,227) (131,202) (955,902) (478,842) (913,058)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from related party debt
issuances............................. 605,700 1,450,000 2,462,850 2,462,850 817,950
Payments of related party debt.......... 0 (60,000) (2,500,000) 0 (1,617,950)
Proceeds from issuance of long-term
debt.................................. 5,305,500 109,000 0 0 0
Repayments of long-term debt............ (4,466,961) (1,190,786) (624,264) (384,894) (377,278)
Increase (decrease) in checks issued in
excess of cash balances............... 156,369 240,995 36,003 (51,896) (623,592)
Net increase (decrease) on revolving
credit agreement...................... (271,496) (518,076) (1,381,232) (3,757,091) 520,141
Redemption of common stock for
retirement............................ (66,668) 0 0 0 0
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... 1,262,444 31,133 (2,006,643) (1,731,031) (1,280,729)
----------- ----------- ----------- ----------- -----------
Net change in cash............... 0 0 0 0 517,393
Cash at beginning of period............... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash at end of period..................... $ 0 $ 0 $ 0 $ 0 $ 517,393
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest paid......................... $ 891,387 $ 1,285,270 $ 975,952 $ 794,719 $ 556,026
Taxes paid............................ 20,850 3,178 7,851 1,100 776,398
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 47
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996,
AND SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
NATURE OF BUSINESS
Primera Foods Corporation and subsidiary (formerly known as Primegg, Ltd.)
(the Company) is a corporation operating primarily in the processing of eggs and
egg-related products. The Company dries egg liquid into powder. Due to the
product line there is some risk caused by market conditions. The majority of the
Company's customers are in the United States.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Primera Foods Corporation and Primegg (Barbados) Ltd., a foreign sales
corporation. All material intercompany accounts and transactions are eliminated
in consolidation.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined on the average cost method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets, which range from 3 to 40 years.
GOODWILL
The excess of cost over the fair value of net assets resulting from the
acquisition of the Company's Perham facility resulted in goodwill that is being
amortized over 40 years using the straight-line method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are recorded on its balance sheet. The
carrying value of the Company's financial assets and liabilities approximates
fair value due to the immediate or short-term maturity of these financial
instruments, and the interest rates on long-term debt approximate market rates
available to the Company.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and
liability method of Statement 109 deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the balance sheet carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
F-6
<PAGE> 48
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue from product sales based on the terms of the
contract, which is generally at the time of shipment.
STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
STOCK SPLITS
Dollar, share, and per share amounts herein and in the accompanying
consolidated financial statements have been adjusted retroactively, where
appropriate, to reflect the 2,906.25727 for one common stock split effective
December 4, 1997.
EARNINGS PER SHARE
Earnings per share are determined on the basis of the weighted average
number of shares outstanding during the period. Also, pursuant to the Securities
and Exchange Commission regulations, all common shares, stock options, and
warrants granted by the Company during the 12-month period preceding the initial
filing date in December 1997 of a Registration Statement for the Company's
initial public offering have been included in the calculation of weighted
average common and common equivalent shares outstanding as if they were
outstanding for all periods presented using the treasury stock method and an
assumed offering price of $7.50 per share. Because the exercise price of all
options granted is equal to the offering price and the exercise price of the
warrants granted exceeds the offering price, there are no incremental shares
outstanding when applying the treasury stock method.
The Company will adopt Statement of Financial Accounting Standard No. 128
(SFAS No. 128), Earnings Per Share, in the fourth quarter of the year ending
December 31, 1997. The Company does not expect the implementation of SFAS No.
128 to have a material impact on earnings per share.
(2) INVENTORIES
The components of inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- SEPTEMBER 30
1995 1996 1997
---- ---- ------------
<S> <C> <C> <C>
Supplies.............................. $ 250,741 $ 296,364 $ 290,215
Raw materials......................... 357,747 665,945 338,713
Finished products..................... 4,317,888 4,657,858 4,797,425
---------- ---------- ----------
$4,926,376 $5,620,167 $5,426,353
========== ========== ==========
</TABLE>
F-7
<PAGE> 49
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(3) PROPERTY, PLANT, AND EQUIPMENT
The components of property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL ---------------------------- SEPTEMBER 30
LIVES 1995 1996 1997
--------- ---- ---- ------------
<S> <C> <C> <C> <C>
Land.................... -- $ 118,957 $ 118,957 $ 118,957
Buildings............... 32-40 years 3,140,654 3,140,654 3,670,279
Machinery and
equipment............. 5-15 years 6,552,753 6,925,800 7,626,004
Vehicles................ 3-4 years 351,191 364,500 413,119
Furniture and
fixtures.............. 3-15 years 75,822 147,912 170,098
Construction in
progress.............. -- 0 454,228 40,667
----------- ----------- -----------
10,239,377 11,152,051 12,039,124
Less accumulated depreciation........ (3,170,522) (3,742,418) (4,205,268)
----------- ----------- -----------
$ 7,068,855 $ 7,409,633 $ 7,833,856
=========== =========== ===========
</TABLE>
Accumulated depreciation is associated with the following components:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- SEPTEMBER 30
1995 1996 1997
---- ---- ------------
<S> <C> <C> <C>
Buildings............................. $ 503,310 $ 587,204 $ 654,700
Machinery and equipment............... 2,410,573 2,841,425 3,191,697
Vehicles.............................. 225,878 269,588 293,988
Furniture and fixtures................ 30,761 44,201 64,883
---------- ---------- ----------
Total accumulated depreciation... $3,170,522 $3,742,418 $4,205,268
========== ========== ==========
</TABLE>
In 1995, the Company recorded a write-down of $269,645 for various
equipment to properly reflect management's estimated net realizable values,
which was determined based on the fair market appraisal performed on the
Stockton equipment. The charge is included in cost of goods sold. The major
portion of the write-down, $145,000, related to breaking equipment at the
Stockton facility.
(4) LONG-TERM DEBT
The Company has a $7 million credit and security agreement with First Bank
Systems Business Finance (FBS). This agreement has three components: Revolving
credit with a maximum amount of $5.5 million, Term Loan A with an existing
balance of $540,000, and unused available Equipment Loan with a maximum amount
of $1 million. As of September 30, 1997, the Company had only drawn amounts
under the revolving credit facility. The revolving credit facility bears
interest at the bank's base rate plus .25% and terminates on June 30, 2000.
Interest is computed daily and paid monthly. The credit agreement was amended on
May 30, 1997. Previous to this amendment, the interest rate for the revolver was
the bank base rate plus .75%. The note is secured by a security interest in the
Company's accounts receivable, intangibles, inventory, and property and
equipment. The bank's base rate at December 31, 1995 and 1996, and September 30,
1997 was 8.5%, 8.25%, and 8.5%, respectively. The Company pays a commitment fee
of 3/8ths of 1% per annum on the average daily unused revolving credit facility
amount.
The Company has assigned its trade accounts receivable to FBS, and any
receipts on receivables are remitted directly into a lock box to be applied to
the Company's collateral account for application against the revolving credit
note.
F-8
<PAGE> 50
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company's loan agreements with FBS contain covenants which, among other
matters, limit the ability of the Company to make capital expenditures, loans,
advances to related parties, and payment of interest on the notes payable to
shareholders and limits the payment of dividends to 25 percent of net income
provided the Company is in compliance with all other covenants. The Company must
also maintain certain ratios regarding leverage and cash flow, among other
restrictions. The Company was in compliance with these financial covenants
requirements as of December 31, 1995 and 1996, and September 30, 1997.
As of December 31, 1995 and 1996, and September 30, 1997, the available
unused revolving credit note was $3,441,000, $4,770,000, and $2,450,000,
respectively.
The weighted average interest rate for the years ended December 31, 1995
and 1996, and the nine-month period ended September 30, 1997, was 10.0%, 9.6%,
and 9.1%, respectively.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- ------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Notes payable -- First Bank Systems
Business Finance:
Revolving credit note of $5.5 million............... $3,911,091 $2,529,859 $3,050,000
Note payable in monthly installments of $38,333,
plus interest at prime rate plus .25% with final
payment in full due on June 30, 2000; secured by
inventory, accounts receivable, general
intangibles, and a guarantee by a stockholder of
Cham Foods (Israel) Ltd. The prime rate at
December 31, 1995, 1996, and September 30, 1997,
was 8.5%, 8.25%, and 8.5%, respectively........... 1,345,007 885,011 540,014
Mortgage payable -- United Community
Bank and Bank of Sun Prairie:
Mortgage payable in monthly installments of $10,351
including interest at 8%, with final payment in
full due on February 1, 1999; secured by a first
real estate mortgage on property in Perham,
Minnesota and a guarantee by a stockholder of Cham
Foods (Israel) Ltd................................ 1,185,023 1,154,781 1,130,320
Mortgage payable -- Bank of Sun Prairie:
Mortgage payable in monthly installments of $3,352
including interest at 8%, with final payment in full
due on December 17, 1998; secured by a first real
estate mortgage on property in Cameron, Wisconsin
and a guarantee by a stockholder of Cham Foods
(Israel) Ltd........................................ 380,219 370,560 362,740
Notes payable for vehicles and equipment in various
monthly installments through November 1996............. 124,367 0 0
---------- ---------- ----------
6,945,707 4,940,211 5,083,074
Less current maturities.................................. (548,076) (503,455) (506,133)
---------- ---------- ----------
Total long-term debt........................... $6,397,631 $4,436,756 $4,576,941
========== ========== ==========
</TABLE>
F-9
<PAGE> 51
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Aggregate annual maturities of long-term debt as of September 30, 1997, are
as follows:
<TABLE>
<S> <C>
1998........................................................ $ 506,133
1999........................................................ 1,526,941
2000........................................................ 3,050,000
----------
$5,083,074
==========
</TABLE>
(5) INCOME TAXES
The tax provision for the years ended December 31, 1994, 1995, and 1996,
and the nine-month period ended September 30, 1997, differs from the amount
computed by applying the U.S. federal income tax rate of 34% to pretax income
from continuing operations as a result of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Computed tax expense (benefit) at statutory
rate.......................................... $(380,000) $ 184,000 $617,139 $1,132,066
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of
federal income benefit................... (59,000) 28,000 118,128 163,137
Change in the beginning of the year balance
of the valuation allowance for deferred
tax assets allocated to income tax
expense.................................. 444,000 (218,000) (96,371) (436,613)
Adjustment to provision for additional
taxes.................................... 0 0 0 133,279
Other...................................... (5,000) 6,000 2,517 3,769
--------- --------- -------- ----------
$ 0 $ 0 $641,413 $ 995,638
========= ========= ======== ==========
</TABLE>
Components of income tax expense is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
YEAR ENED DECEMBER 31, 1994
Federal......................................... $ 0 $ 0 $ 0
State........................................... 0 0 0
-------- -------- --------
$ 0 $ 0 $ 0
======== ======== ========
YEAR ENDED DECEMBER 31, 1995
Federal......................................... 0 0 0
State........................................... 0 0 0
-------- -------- --------
$ 0 $ 0 $ 0
======== ======== ========
YEAR ENDED DECEMBER 31, 1996
Federal......................................... 178,977 283,454 462,431
State........................................... 0 178,982 178,982
-------- -------- --------
$178,977 $462,436 $641,413
======== ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1997
Federal......................................... $769,534 (21,074) 748,460
State........................................... 212,614 34,564 247,178
-------- -------- --------
$982,148 $ 13,490 $995,638
======== ======== ========
</TABLE>
F-10
<PAGE> 52
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996, and September 30, 1997, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 879,188 $ 218,551 $ 0
AMT credit carryforwards................. 189,932 362,281 90,027
Self-insured health insurance............ 2,340 24,287 10,531
Bad debt................................. 21,998 23,402 23,402
Uniform capitalization................... 58,748 41,006 40,836
Accrued interest......................... 0 0 75,665
Other.................................... 21,844 3,510 3,510
---------- --------- --------
Gross deferred asset................ 1,174,050 673,037 243,971
Valuation allowance........................ (532,984) (436,613) 0
---------- --------- --------
Net deferred tax asset.............. $ 641,066 $ 236,424 $243,971
========== ========= ========
Deferred tax liabilities:
Depreciation............................. 896,066 940,314 974,897
Other.................................... 0 13,546 0
---------- --------- --------
Deferred tax liabilities............ $ 896,066 $ 953,860 $974,897
========== ========= ========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1995 and 1996, and the nine-month period ended September 30, 1997,
was a decrease of $218,000, $96,371, and $436,613, respectively, related
primarily to operating loss and Alternative Minimum Tax credit carryforwards.
At December 31, 1995 and 1996, the Company had federal income tax
carryforwards of net operating losses of approximately $2,254,000 and $526,000,
respectively. These carryforwards were available to offset future taxable
income.
The Company has determined that a valuation allowance for the deferred tax
assets is not required since it is more likely than not that they will be
realized through future reversals of existing taxable temporary differences and
future taxable income.
(6) LEASES
The Company leases certain trucks, a warehouse, and the Stockton breaking
facility under operating leases. The lease terms range from month-to-month to
eight years at inception. Rent expense for the years ended December 31, 1994,
1995, and 1996, and the nine-month period ended September 30, 1997, was
$246,602, $120,690, $93,870, and $173,017, respectively. Future minimum lease
payments due under these leases for the years ended September 30, are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 78,178
1999........................................................ 78,178
2000........................................................ 39,413
--------
$195,769
========
</TABLE>
F-11
<PAGE> 53
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) RELATED PARTIES AND RELATED PARTY TRANSACTIONS
Following is a schedule of amounts due to/due from related parties:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Accounts receivable:
Cham Foods (Israel) Ltd................. $ 185,155 $ 168,289 $ 189,343
Notes receivable:
Jon Luikart............................. 0 12,500 42,500
Weinberg Foods.......................... 4,926 11,194 2,970
---------- ---------- ----------
$ 190,081 $ 191,983 $ 234,813
========== ========== ==========
Payables:
Cham Foods Ltd.......................... 780,104 934,044 1,175,572
Notes payable:
Cham Foods Ltd.......................... 0 2,462,850 3,280,800
Canadian stockholders................... 2,875,700 375,700 0
Egis Holdings Limited................... 1,790,000 1,790,000 747,750
M. Shevi Family Asset Ltd............... 200,000 200,000 0
---------- ---------- ----------
4,865,700 4,828,550 4,028,550
---------- ---------- ----------
$5,645,804 $5,762,594 $5,204,122
========== ========== ==========
</TABLE>
The Company has unsecured notes payable to related parties totaling
$4,865,700, $4,828,550, and $4,028,550 at December 31, 1995, and 1996, and
September 30, 1997, respectively, bearing interest at a rate not to exceed the
bank's reference rate plus .5% to be compounded daily and paid monthly or
quarterly. The Company paid $410,115, $358,774, and $107,452 of interest to
these related parties during the years ended December 31, 1995 and 1996, and the
nine-month period ended September 30, 1997, respectively. The Company owed
interest of $59,657, $84,489, and $194,000 on these notes at December 31, 1995
and 1996, and September 30, 1997, respectively, which is reflected in accrued
interest payable. These related parties are all companies owned all or in part
by certain of the Company's stockholders. The notes payable are due on demand
but the stockholders have stated that they will not call the notes during
calendar 1997.
Cham Foods (Israel) Ltd. and Egis Holdings Limited are companies owned all
or in part by certain of the Company's stockholders. Michael Shevi is a
stockholder of Cham Foods (Israel) Ltd. All receivables due from Cham Foods
(Israel) Ltd. are expected to be collected during the year. Interest is not
charged on outstanding accounts receivable. The Company purchased $1,003,420,
$1,300,789, and $754,819 of ingredients from Cham Foods (Israel) Ltd. during the
years ended December 31, 1995 and 1996, and the nine-month period ended
September 30, 1997, respectively. The Company pays interest at a rate of 8% on
Cham Foods (Israel) Ltd. payables outstanding over 90 days.
The Company leases its Stockton facility on a month-to-month basis from an
employee for $3,334 per month. Rent of $40,008, $40,008, and $30,006 were paid
by the Company for its Stockton facility for the years ended December 31, 1995
and 1996, and the nine-month period ended September 30, 1997, respectively.
Beginning in the year ended December 31, 1996, the Company paid Cham Foods
(Israel) Ltd. a consulting fee for ongoing management advice. These fees were
$70,000 and $98,000 for the year ended December 31, 1996 and nine-month period
ended September 30, 1997, respectively.
On February 22, 1995, the Company signed a settlement agreement and release
with a former director and officer of the Company. This Agreement resulted in
certain receivables due from this former director and
F-12
<PAGE> 54
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
officer being forgiven by the Company. The Company's debt of $50,000 to the
former director and officer was also forgiven. The financial statements as of
and for the year ended December 31, 1994, reflect the net write-off of the
receivables and the debt resulting in a net charge of $771,180 to earnings.
(8) COMMITMENTS AND CONTINGENCIES
PURCHASE CONTRACTS
The Company has a supply contract with Golden Oval Eggs, a division of
Midwest Investors of Renville, Inc. (Midwest), whereby Midwest sells eggs
produced in its Renville facility to the Company. The agreement's initial term
expires in November 2001. Either party retains the right to end this agreement
at any time subsequent to November 2001 by notifying the other party in writing
two years in advance. The purchase price for the eggs purchased is partially
based on the Company's selling price of the egg powder produced less an
agreed-upon contribution charge.
SALES CONTRACTS
At September 30, 1997, the Company has agreements with certain of its
customers to sell merchandise over periods ranging up to four months in length
at specified prices. The Company's aggregate commitment under sales agreements
is approximately $6,900,000 as of September 30, 1997.
OTHER
The Company has a letter of credit totaling $250,000 outstanding with a
bank to cover purchases from suppliers in the event the Company is unable to
make payments to certain suppliers.
(9) 401(K) PROFIT SHARING PLAN
The Company has a 401(k) Profit Sharing Plan (the Plan), which covers
substantially all full-time employees. Employees are allowed to contribute up to
15% of their pretax annual compensation. Additionally, the Company makes a
matching contribution to the Plan of an amount equal to 20% of the first 5% of
base compensation that a participant contributes to the Plan. Matching
contributions totaled $0, $1,104, $5,925, and $9,980 for the years ended
December 31, 1994, 1995, and 1996, and nine months ended September 30, 1997,
respectively.
(10) MAJOR CUSTOMERS AND SUPPLIERS
The following summarizes significant customers comprising 10% or more of
the Company's net sales:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Customer A...................................... 15% 16% 20% 26%
Customer B...................................... * 10% * *
Customer C...................................... * * 13% *
Customer D...................................... 15% -- -- --
</TABLE>
- -------------------------
*Sales to respective customer is less than 10% during the period.
The Company received approximately 0%, 16.4%, 28.7%, and 36.1% of its raw
material requirements for its liquid eggs from Midwest in the years ended
December 31, 1994, 1995, and 1996, and the nine-month period ended September 30,
1997, respectively.
F-13
<PAGE> 55
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) SUBSEQUENT EVENTS
STOCK SPLIT
On December 4, 1997, the Company approved a 2,906.25727 for one common
stock split.
STOCK OPTION PLAN
In the fourth quarter of 1997, the Board of Directors and stockholders of
the Company approved the 1997 Stock Option Plan (the Stock Option Plan). The
purpose of the Stock Option Plan is to enhance the Company's ability to attract
and retain qualified employees and members of the Board of Directors
(Directors). The number of shares of common stock that may be issued under the
Stock Option Plan may not exceed 400,000 shares. The options granted to
employees will vest over a three-year period, with one-third of the options
vesting each year commencing one year after the date of grant. Options granted
to directors vest at the later of the completion of the Company's initial public
offering or date of grant.
The Company will account for stock-based compensation under Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
APB 25 requires compensation cost to be recorded on the date of the grant only
if the current market price of the underlying stock exceeds the exercise price.
The Company will adopt the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, in the
period options are first granted.
Outstanding options are as follows:
<TABLE>
<CAPTION>
EXERCISE
TOTAL SHARES OPTIONS OPTIONS OPTIONS PRICE PER
YEAR OF GRANT GRANTED EXPIRED EXERCISED OUTSTANDING SHARE
------------- ------------ ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1997......................... 169,700 -- -- 169,700 *
</TABLE>
- -------------------------
*Equal to the initial public offering price.
WARRANTS
In connection with the Company's initial public offering, the Company will
issue warrants to purchase up to 150,000 shares of common stock (subject to
certain antidilution adjustments) to the representatives of the underwriters.
The warrants will be exercisable for a period of five years commencing one year
after the effective date of the Registration Statement, and cannot be
transferred for a period of one year from the date of issuance except to the
Underwriters, selling group members, and their officers or partners. The
exercise price per share for the warrants is equal to 120% of the initial price
to the public in the initial public offering and may be paid in cash or on a
cashless net issuance basis by foregoing receipt of a number of shares otherwise
issuable upon exercise having a fair market value equal to the aggregate
exercise price. During the exercise period, holders of the warrants are entitled
to certain demand and incidental registration rights with respect to the
securities issuable upon exercise.
PREFERRED STOCK
The Board of Directors has the authority, subject to any limitations
prescribed by law, without further action by the stockholders, to issue up to an
aggregate of 1,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges, and restrictions granted to or imposed
upon any unissued shares of preferred stock and to fix the number of shares
constituting any series and the designations of such series. The shares noted
above constitute "blank check" preferred stock, and, as of the date of the
financial statements, the Board of Directors has not yet designated any series
thereof or any rights, preferences, privileges, or restrictions attaching
thereto. The issuance of preferred stock could adversely affect the voting
F-14
<PAGE> 56
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
power of the holders of common stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation and may have the effect
of delaying, deferring, or preventing a change in control of the Company. The
Company has no present plan to issue any preferred stock.
EGG-LAYING OPERATIONS
The Company plans to construct a $15 million egg-laying and breaking
facility, together with a feed mill, near the Company's Cameron, Wisconsin
facility. The Company has not yet obtained any commitment for the debt financing
necessary to construct this facility and there can be no assurance it will
obtain the necessary financing on terms acceptable to the Company, if at all.
The Company anticipates using $2 million of the net proceeds from its planned
initial public offering to finance a portion of this project.
EMPLOYMENT AGREEMENTS
In December 1997, Mr. Luikart entered into a three-year employment
agreement with the Company effective as of January 1, 1997. The agreement
provides for an annual base salary in 1997 and 1998 of $120,000 and $140,000,
respectively, and an annual base salary for 1999 to be agreed upon between Mr.
Luikart and the Company. In addition, the Company has agreed to pay Mr. Luikart
an annual cash bonus equal to 3% of the Company's net income for each year
during the term of the agreement. Mr. Luikart's employment agreement contains a
noncompete agreement. Mr. Luikart is also reimbursed for life insurance premiums
with respect to a $500,000 term policy. Mr. Luikart has the use of a
Company-owned automobile.
Mr. Wiles has no employment agreement with the Company, but on November 1,
1997, entered into an agreement that entitles him to severance compensation of
approximately $100,000 if he terminates employment with the Company voluntarily.
This amount increases by $1,834 per month for each additional month of services
provided by Mr. Wiles. This severance package will be expensed in the fourth
quarter of 1997. Mr. Wiles has the use of a Company-owned automobile.
F-15
<PAGE> 57
=========================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN PRIMERA
FOODS CORPORATION OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 12
Dividend Policy......................... 13
Capitalization.......................... 14
Dilution................................ 15
Selected Consolidated Financial and
Operating Data........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 17
Business................................ 23
Management.............................. 28
Certain Transactions.................... 33
Principal Stockholders.................. 34
Description of Capital Stock............ 35
Shares Eligible for Future Sale......... 37
Underwriting............................ 38
Legal Matters........................... 39
Experts................................. 39
Additional Information.................. 40
Financial Statements.................... F-2
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=========================================================
=========================================================
1,500,000 SHARES
PRIMERA FOODS
CORPORATION
COMMON STOCK
CRUTTENDEN ROTH
INCORPORATED
=========================================================
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the Representative's non-accountable
expense allowance, payable by the Company in connection with the sale of Common
Stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC Registration Fee........................................ $ 4,071.00
NASD Filing Fee............................................. 1,880.00
Nasdaq Stock Market Listing Fee............................. 10,000.00
Accounting Fees and Expenses................................ 140,000.00
Legal Fees and Expenses..................................... 120,000.00
Printing Expenses........................................... 45,000.00
Blue Sky Fees and Expenses.................................. 5,000.00
Transfer Agent Fees and Expenses............................ 1,000.00
Miscellaneous............................................... 18,049.00
-----------
Total.................................................. $345,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's Restated Certificate of Incorporation contains
provisions permitted by Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any person, including directors and officers, who are,
or are threatened to be made, parties to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
director, officer, employee or agent acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal actions or proceedings, had no
reasonable cause to believe that his or her conduct was unlawful. A Delaware
corporation may indemnify directors and/or officers in an action or suit by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the director or
officer is adjudged to be liable to the corporation. Where a director or officer
is successful on the merits or otherwise in the defense of any action referred
to above, the corporation must indemnify him or her against the expenses which
such director or officer actually and reasonably incurred. The Registrant's
Restated Certificate of Incorporation filed as Exhibit 3.1 to this Registration
Statement provides for indemnification of directors of the Registrant to the
fullest extent permitted by the DGCL.
II-1
<PAGE> 59
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the initial public offering,
including certain liabilities under the Securities Act.
The Restated Bylaws of the Company filed as Exhibit 3.2 to this
Registration Statement contain provisions requiring indemnification of directors
and officers to the maximum extent permitted by Delaware law.
Prior to the date of this Prospectus, the Company intends to enter into an
agreement with each director providing for indemnification to the fullest extent
permitted under Delaware law against liability for damages and expenses,
including attorneys' fees, arising out of threatened, pending or completed legal
actions, suits or proceedings by reason of the fact that such person is or was a
director, officer or employee of the Company. The agreement will permit the
director to demand certain advances against, or the creation of a trust for,
expenses to be incurred in defending any covered claim.
The Registrant may provide liability insurance for each director and
officer for certain losses arising from claims or charges made against such
officer or director while acting in his or her capacities as directors or
officers of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Between October and November 1997, the Registrant granted an aggregate of
169,700 stock options to eight employees and a director. The Company believes
that the grant of such options is exempt from registration under the Securities
Act because no sale of securities was consummated.
ITEM 16. EXHIBITS.
(a) Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrants.
3.1 Restated Certificate of Incorporation of Registrant.
3.2 Restated Bylaws of Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Messerli & Kramer P.A.
10.1 1997 Stock Option Plan.
10.2 Employment Agreement with Jon E. Luikart.
10.3 Line of Credit agreement with FBS (exhibits available to the
SEC upon request).
10.4 Agreement with Golden Oval Eggs (confidential treatment
sought with respect to certain redacted portions).
10.5 Cham Foods Consulting Agreement.
10.6 Form of Indemnification Agreement.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Messerli & Kramer P.A. (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule (Edgar filing only).
</TABLE>
- -------------------------
* to be filed by amendment
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
II-2
<PAGE> 60
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officers or
controlling persons of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of competent jurisdiction the question
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cameron,
State of Wisconsin, on December 5, 1997.
PRIMERA FOODS CORPORATION
By: /s/ JON E. LUIKART
------------------------------------
Jon E. Luikart,
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jon E. Luikart as his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS, IN THE
CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JON E. LUIKART President and Chief Executive December 5, 1997
- --------------------------------------------- Officer and Director (Principal
Jon E. Luikart Executive Officer)
/s/ TOM L. WILES Chief Financial Officer (Principal December 5, 1997
- --------------------------------------------- Financial and Accounting Officer)
Tom L. Wiles
/s/ MICHAEL SHEVI Chairman of the Board and Director December 5, 1997
- ---------------------------------------------
Michael Shevi
/s/ SANDOR HOFSTADTER Director December 5, 1997
- ---------------------------------------------
Sandor Hofstadter
/s/ ALEX GROSSMAN Director December 5, 1997
- ---------------------------------------------
Alex Grossman
/s/ GORDON E. HECKER Director December 5, 1997
- ---------------------------------------------
Gordon E. Hecker
</TABLE>
II-4
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrants.
1.3 Restated Certificate of Incorporation of Registrant.
3.2 Restated Bylaws of Registrant.
*4.1 Specimen Common Stock Certificate.
*5.1 Opinion of Messerli & Kramer P.A.
10.1 1997 Stock Option Plan.
10.2 Employment Agreement with Jon E. Luikart.
10.3 Line of Credit agreement with FBS (exhibits available to the
SEC upon request).
10.4 Agreement with Golden Oval Eggs (confidential treatment
sought with respect to certain redacted portions).
10.5 Cham Foods Consulting Agreement.
10.6 Form of Indemnification Agreement.
23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Messerli & Kramer P.A. (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule (Edgar filing only).
</TABLE>
- -------------------------
* to be filed by amendment
II-5
<PAGE> 63
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE
AT
BEGINNING ADDITIONS
OF CHARGED TO COSTS BALANCE AT
DESCRIPTIONS PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
- --------------------------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for Doubtful Accounts...... $17,000 $ 1,618 $ (1,618) $ 17,000
Deferred Tax Asset Valuation......... -- 750,855 -- 750,855
-------- -------- --------- --------
$17,000 $752,473 $ (1,618) $767,855
======== ======== ========= ========
Year Ended December 31, 1995
Allowance for Doubtful Accounts...... $17,000 $ 40,128 $ (724) $ 56,404
Deferred Tax Asset Valuation......... 750,855 -- (217,871) 532,984
-------- -------- --------- --------
$767,855 $ 40,128 $(218,595) $589,388
======== ======== ========= ========
Year Ended December 31, 1996
Allowance for Doubtful Accounts...... $56,404 $ 63,378 $(59,782) $ 60,000
Deferred Tax Asset Valuation......... 532,984 -- (96,371) 436,613
-------- -------- --------- --------
$589,388 $ 63,378 $(156,153) $496,613
======== ======== ========= ========
Nine Months Ended September 30, 1997
Allowance for Doubtful Accounts...... $60,000 $ -- $ -- $ 60,000
Deferred Tax Asset Valuation......... 436,613 -- (436,613) --
-------- -------- --------- --------
$496,613 $ -- $(436,613) $ 60,000
======== ======== ========= ========
</TABLE>
S-1
<PAGE> 1
EXHIBIT 1.1
1,500,000 SHARES
PRIMERA FOODS CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
________________, 1998
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
Primera Foods Corporation, a Delaware corporation (the "COMPANY"),
addresses you as the Representative of each of the parties listed in Schedule A
hereto (herein collectively called the "UNDERWRITERS") and hereby confirms its
agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,500,000 shares of its authorized and unissued Common Stock, par value $0.001
per share (the "FIRM SHARES") to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 225,000
additional shares of the Company's Common Stock, par value $0.001 per share
(the "OPTION SHARES"), as provided in SECTION 7. The Company also proposes to
sell to the Representatives, at a purchase price of $0.001 per warrant,
warrants exercisable for a period of five years commencing one year after the
effective date of the Registration Statement (as defined below) to purchase up
to an aggregate of shares of Common Stock at a price of $ per share (the
"REPRESENTATIVES' WARRANTS"), which exercise and purchase shall be effected in
accordance with the Representatives' Warrant Agreement in the form attached
hereto as Exhibit A and entered into between the Company and you concurrently
herewith (the "REPRESENTATIVES' WARRANT AGREEMENT"). As used in this
Agreement, the term "SHARES" shall include the Firm Shares and the Option
Shares. All shares of Common Stock, par value $0.001 per share, of the
Company, including the Shares, are hereinafter referred to as "COMMON STOCK."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333- ) with
respect to the Shares, including a prospectus, has been prepared by the Company
in material conformity with the requirements of the Securities Act of 1933, as
amended (the "ACT"), and the applicable rules and regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange
- 1 -
<PAGE> 2
Commission (the "COMMISSION") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses and such abbreviated registration statements pursuant to Rule
462(b) of the Rules and Regulations as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement,
such amended prospectuses and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments
together with each exhibit filed therewith, of each related prospectus (the
"PRELIMINARY PROSPECTUSES") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to
you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission, pursuant to Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus), the information omitted from
the registration statement pursuant to Rule 430A(a) of the Rules and
Regulations or, if Cruttenden Roth Incorporated, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations.
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and
promptly file an amendment to the registration statement, including a final
form of prospectus, or, if Cruttenden Roth Incorporated, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations.
The term "REGISTRATION STATEMENT" as used in this Agreement shall mean
such registration statement, including financial statements, schedules and
exhibits (including exhibits incorporated by reference), in the form in which
it became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations or files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) or Rule
434(d) of the Rules and Regulations) and, in the event of any amendment thereto
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "PROSPECTUS" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Cruttenden Roth Incorporated, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet
- 2 -
<PAGE> 3
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares and the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations, and such Prospectus will not be materially different from such
prospectus subject to completion. Notwithstanding the foregoing, if any revised
prospectus shall be provided to the Underwriters by the Company for use in
connection with the offering of the Shares that differs from the prospectus
referred to in the immediately preceding sentence (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations), the term "Prospectus" shall refer to such
revised prospectus from and after the time it is first provided to the
Underwriters for such use.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus or instituted proceedings for that purpose,
and each such Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of its date,
has not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company is duly incorporated and validly existing as a corporation
in good standing under the laws of the State of Delaware with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Registration Statement and the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business
- 3 -
<PAGE> 4
prospects of the Company; no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities that are material to the conduct of its business, all of
which are valid and in full force and effect; the Company is not in violation
of or breach of or default under (nor has any event occurred that with notice,
lapse of time or both would constitute a breach of or default under) its
charter or bylaws or any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which its properties may be bound; and the Company
is not in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or its
properties. Other than Primegg (Barbados) Ltd., which is inactive, the Company
does not directly or indirectly own any equity interest in or securities of, or
control, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to enter into
this Agreement and the Representatives' Warrant Agreement and perform the
transactions contemplated hereby and thereby. This Agreement and the
Representatives' Warrant Agreement have been duly authorized, executed and
delivered by the Company and are valid and binding agreements on the part of
the Company, enforceable in accordance with their respective terms, except as
rights to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof of thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; the
making and performance of this Agreement and the Representatives' Warrant
Agreement by the Company and the consummation of the transactions herein and
therein contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under,(i) any bond, debenture,
note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which its
properties may be bound, (ii) the charter or bylaws of the Company or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, administrative agency, regulatory body, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
its properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or its properties is
required for the execution and delivery of this Agreement and the consummation
by the Company of the transactions herein contemplated, except such as may be
required under the Act, by the National Association of Securities Dealers, Inc.
(the "NASD"), the rules of the Nasdaq National Market, or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied in
all material respects.
(e) There is not any pending or, to the Company's knowledge, threatened,
any action, suit, claim or proceeding against the Company, any of its officers,
directors,
- 4 -
<PAGE> 5
employees, or agents or any of its properties or assets or rights, at law or in
equity, before any court, administrative agency, regulatory body, government or
governmental agency or body, domestic or foreign, which (i) might, individually
or in the aggregate, result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect the Company's
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the
Act or the Rules and Regulations which have not been accurately described in
all material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement. The Company is not a party or subject
to the provisions of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency, government or governmental agency or
body domestic or foreign, that could be expected to result in a material
adverse change in the condition (financial or other), earnings, operations,
business or business prospects of the Company.
(f) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding
capital stock of the Company is as set forth in the Prospectus under the
caption "CAPITALIZATION" and conform in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus
(and such statements correctly state the substance of the instruments defining
the capitalization of the Company); the capital stock of the Company, including
the Shares, conforms in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; the Shares and the
Representatives' Warrants and the shares of Common Stock issuable upon exercise
of the Representatives' Warrants have been duly authorized for issuance and
sale to the Underwriters pursuant to this Agreement, and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement or the Representatives' Warrant Agreement, as the case may
be, will be duly and validly issued and fully paid and nonassessable, and will
be sold free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; no preemptive right, co-sale right, registration
right, right of first refusal or other similar right of stockholders exists
with respect to any of the Shares or the issuance and sale thereof or the
Representatives' Warrants or the Common Stock issuable upon exercise thereof;
and the certificates for the Shares are in due and proper form and the holders
of the Shares and the Representatives' Warrants and the Common Stock issuable
upon exercise thereof, after making payment therefor will not be subject to
personal liability by reason of being such holders. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares or the
Representatives' Warrants or the Common Stock issuable upon exercise thereof
except as may be required under the Act or under state or other securities or
Blue Sky laws. Except as disclosed in the Registration Statement, Prospectus
and the financial statements of the Company, and the related notes thereto
included in the Prospectus, the Company has no outstanding options to purchase,
or any preemptive rights or
- 5 -
<PAGE> 6
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus fairly and accurately
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(g) KPMG Peat Marwick LLP whose reports on the consolidated financial
statements of the Company and the Partnerships are included in the Registration
Statement and the Prospectus, are independent accountants within the meaning of
the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations and cash flows of the Company at the respective dates and for the
respective periods to which they apply and have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved except as may be otherwise stated therein. The selected
and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled
on a basis consistent with the audited financial statements presented therein.
No other financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business consistent with past practices, (iii) any
obligation, direct or contingent, that is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business
consistent with past practices, (iv) any change in the capital stock of the
Company, (v) any change in the outstanding indebtedness of the Company that is
material to the Company or is out of the ordinary course of business of the
Company, (vi) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company, (vii) any default in the payment of
principal of or interest on any outstanding debt obligations, or (viii) any
loss or damage (whether or not insured) to the property of the Company which
has been sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(i) The Company has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus as owned by it, and
valid and subsisting interests in all of the real property described in the
Registration Statement and Prospectus as leased by it, in each case free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than as set forth in the Registration Statement and Prospectus
or as would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company. The agreements to which the Company is a party described in, or filed
as exhibits to, the Registration Statement and Prospectus are valid agreements,
enforceable by the Company, except as the enforcement
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<PAGE> 7
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the Company's knowledge,
the other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and the Company has valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by it, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted, and all such
properties are free of contractual or legal restrictions that would impair the
Company's use of such properties in its business for the purposes described in
the Registration Statement and the Prospectus.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the Company's knowledge, might be asserted against the Company that might have
a material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; and all tax
liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of recognized financial
responsibility of the types and in the amounts generally deemed prudent for its
business and consistent with insurance coverage maintained by similar companies
in similar businesses, including, but not limited to, insurance covering real
and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism, products liability, errors and omissions, and
all other risks customarily insured against, all of which insurance is in full
force and effect; the Company has not been refused any insurance coverage
sought or applied for; and the Company does not have any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(l) To the Company's knowledge, no labor disturbance by the employees of
the Company exists or is imminent, and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its principal
suppliers, subcontractors, authorized dealers or international distributors
that might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(m) To the best of the Company's knowledge, the Company owns or possesses
exclusive rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights that are
necessary to conduct its business as now conducted and as described in the
Registration Statement and Prospectus; except as set forth in the Registration
Statement and the Prospectus, the expiration of any
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<PAGE> 8
patents, patent rights, trade secrets, trademarks, service marks, trade names
or copyrights would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others by the Company with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and is
approved for quotation on the Nasdaq National Market, and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating terminating such
registration or listing.
(o) The Company has been advised concerning the Investment Company Act of
1940, as amended (the "1940 ACT"), and the rules and regulations thereunder,
and the Company has in the past conducted, and the Company intends in the
future to conduct, its affairs in such a manner as to ensure that it is not and
will not become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(p) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) None of the Company, the Partnerships, or their officers, directors,
employees or agents has at any time during the last five (5) years made (i) any
unlawful contribution to any candidate for foreign office or failed to disclose
fully any contribution in violation of law, or (ii) any payment to any federal
or state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof, or (iii) any other
payment of funds of the Company or any of the Partnerships prohibited by law,
and no funds of the Company have been set aside for any payment prohibited by
law.
(r) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or
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<PAGE> 9
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares (except for any action taken by the Underwriters).
(s) Except as otherwise set forth in the Registration Statement and the
Prospectus, each officer, director and stockholder of the Company has agreed in
writing that such person will not, except as described below, for a period of
one year from the date of the final Prospectus (the "LOCK-UP PERIOD"), sell,
offer to sell, solicit an offer to buy, contract to sell, loan, pledge, grant
any option to purchase, or otherwise transfer or dispose of (collectively, a
"DISPOSITION"), any shares of Common Stock, or any securities convertible into
or exercisable or exchangeable for Common Stock (collectively, "SECURITIES"),
now owned or hereafter acquired by such person or with respect to which such
person has or hereafter acquires the power of disposition otherwise than (i) on
the transfer of shares of Common Stock or Securities during such person's
lifetime by BONA FIDE gift or upon death by will or intestacy, provided that
any transferee agrees to be bound by the Lock-Up Agreement, and (ii) on the
transfer or other disposition of shares of Common Stock or Securities as a
distribution to limited partners or stockholders of such person, provided that
the distributees thereof agree to be bound by the terms of the Lock-Up
Agreement. The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging, pledge or other
transaction which is designed to or may reasonably be expected to lead to or
result in a Disposition by any stockholder or any other person of any
Securities, whether or not owned by a Stockholder, during the Lock-up Period,
even if such Securities would be disposed of by someone other than such
stockholder. Such prohibited hedging, pledge or other transactions would
include, without limitation, any short sale (whether or not against the box),
any pledge of shares covering an obligation that matures, or could reasonably
mature during the Lock-Up Period, or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, each such person has also agreed and
consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person
except in compliance with this restriction. The Company has provided to counsel
for the Underwriters a complete and accurate list of all security holders of
the Company as of the date hereof and the number and type of securities held by
each security holder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors and stockholders have agreed to such or similar
restrictions (the "LOCK-UP AGREEMENTS") presently in effect. The Company
hereby represents and warrants that it will not purport to release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of Cruttenden
Roth Incorporated.
(t) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded
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<PAGE> 10
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(u) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers,
directors, employees, or consultants of the Company or any of the Partnerships
or any of the members of the families of any of them, except as disclosed in
the Registration Statement and the Prospectus.
(v) Other than Cruttenden Roth Incorporated, on behalf of the several
Underwriters, no person is or will be owed any finders fee or commission or
similar payment in connection with the transactions contemplated by this
Agreement.
(w) There are no persons with registration or other similar rights to have
any securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the Act, except that the Underwriters have
registration rights with respect to the Underwriters' Warrants and the
underlying Common Stock as described in the Underwriters Warrant Agreement.
(x) The Company has conducted and is conducting its businesses, and the
Partnerships conducted their businesses, in compliance with all applicable
federal, state, local and foreign statutes, laws, rules, regulations,
ordinances, codes, decisions, decrees, directives and orders, except where the
failure to do so would not, singly or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(y) The Company has complied with all provisions of Florida H.B. 1771,
codified as Section 517.075 of the Florida statutes, and all regulations
promulgated thereunder relating to issuers doing business with Cuba.
(z) Except as described in the Prospectus, to the Company's knowledge,
there are no rulemaking or similar proceedings before any federal, state, local
or foreign government or regulatory bodies which involve or affect the Company
which, if the subject of an action unfavorable to the Company would have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(aa) To the knowledge of the Company, no officer, director, employee, or
consultant of the Company is in violation of any non-competition,
non-disclosure, confidentiality or other similar agreement with any party other
than the Company, and no such person is expected to be in violation thereof as
a result of the business conducted or expected to be conducted by the Company
as described in the Prospectus or such person's performance of his obligations
to the Company.
(bb) The Company has not violated any foreign, federal, state or local law
or regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), or
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<PAGE> 11
any federal or state law relating to discrimination in the hiring, promotion or
pay of employees or any applicable federal or state wages and hours laws, or
any provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case might result in any
material adverse effect on the properties, assets, operations, business,
business prospects or condition (financial or other) of the Company.
(cc) The Company has such permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits"), including without
limitation under any applicable Environmental Laws, as are necessary to own,
lease and operate its properties and to conduct its business; the Company has
fulfilled and performed all of its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such permit; and, except
as described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company.
(dd) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company, in the course of which it identifies and
evaluates associated costs and liabilities (including without limitation any
capital or operating expenditure required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company reasonably has
concluded that such associated costs and liabilities, singly or in the
aggregate, would not have a material adverse effect on the properties, assets,
operations, business, business prospects or condition (financial or other) of
the Company.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_______ per share, the
respective number of Firm Shares set forth opposite the name of such
Underwriter in Schedule A hereto (subject to adjustment as provided in SECTION
10).
Delivery of definitive certificates for the Firm Shares to be purchased by
the several Underwriters pursuant to this SECTION 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in same day funds, payable to the order
of the Company, at the offices of Parcel, Mauro Hultin & Spaanstra, P.C., 1801
California Street, Suite 3600, Denver, Colorado 80202 (or at such other place
as may be agreed upon between the Representative and the Company), at 7:00 a.m.
California time, (a) on the third (3rd) full business day following the first
day that Shares are traded or (b) if this Agreement is executed and delivered
after 1:30 p.m. California time, the fourth (4th) full business day following
the day that this Agreement is executed and delivered or (c) at such other time
and date not later than seven (7) full business days following the first day
that Shares are traded as the Representative and the Company may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to SECTION 10), such time and date of payment and delivery being
herein called the "CLOSING DATE";
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<PAGE> 12
PROVIDED, HOWEVER, that if the Company has not made available to the
Representative copies of the Prospectus within the time provided in SECTION
4(d), the Representative may, in its sole discretion, postpone the Closing Date
until no later than two (2) full business days following delivery of copies of
the Prospectus to the Representative.
The certificates for the Firm Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you shall specify at least two (2) full business
days prior to the Closing Date. If the Representative so elects, delivery of
the Firm Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representative.
It is understood that you, individually, and not as the Representative of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
The Underwriters intend to make a public offering (as described in SECTION
11) of the Firm Shares at the public offering price of $________ per share.
After the public offering the Underwriters may from time to time, in their
discretion, vary t he public offering price.
The information set forth on the inside front cover page of the Prospectus
(insofar as such information relates to the Underwriters) concerning
stabilization, syndicate short covering transactions and penalty bids, and
under the first (including the table listing the Underwriters), second, third,
ninth and tenth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitutes the only information furnished by
the Underwriters to the Company for inclusion in any Preliminary Prospectus,
the Prospectus or the Registration Statement, and you, on behalf of the
respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration
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<PAGE> 13
Statement, any subsequent amendment to the Registration Statement or any
abbreviated registration statement has become effective or any supplement to
the Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to such Registration Statement as originally declared
effective which is declared effective by the Commission; if the Company files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus and term sheet meeting
the requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations have been filed, within the time period prescribed, with the
Commission pursuant to Rule 424(b) of the Rules and Regulations; if for any
reason the filing of the final form of Prospectus is required under Rule
424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory
to you that the Prospectus contains such information and has been filed with
the Commission within the time period prescribed; it will notify you promptly
of any request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the opinion of counsel for the several Underwriters ("UNDERWRITERS' COUNSEL"),
may be necessary or advisable in connection with the distribution of the Shares
by the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, and provide you with copies of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act,
any event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice or
obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement, or suspension of
the qualification of the Shares for sale in any jurisdiction, or of the
initiation or threat of any proceeding for any such purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
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<PAGE> 14
(c) The Company will use its best efforts (including by providing full
cooperation with your counsel, whose services in this matter are required and
which you and the Company will seek to expedite) to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction for such purpose.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first full business day following the first day
that Shares are traded, copies of the Registration Statement (two of which will
be signed and which will include all exhibits), each Preliminary Prospectus,
the Prospectus and any amendments or supplements to such documents, including
any prospectus prepared to permit compliance with Section 10(a)(3) of the Act,
all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Cruttenden Roth Incorporated, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a twelve
(12) month period beginning after the effective date of the Registration
Statement.
(f) During a period of five (5) years after the date hereof, the Company
will furnish to its stockholders as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent certified public accountants) and, upon request by a stockholder,
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity, and of cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to stockholders, (iv) as soon
as they are available, copies of all reports and financial statements furnished
to or filed with the Commission, any securities exchange or the NASD, (v) every
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<PAGE> 15
material press release and every material news item or article in respect of
the Company or its affairs which was generally released to stockholders or
prepared by the Company, and (vi) any additional information of a public nature
concerning the Company, or its business which you may reasonably request.
During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and such subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(i) The terms of Section 7 of that certain Letter Agreement dated
____________, 1997 between you and the Company (the "LETTER AGREEMENT") are
hereby incorporated by reference and made obligations of the Company and
Cruttenden Roth Incorporated as part of this Agreement notwithstanding that the
Letter Agreement shall have ceased to be of full force or effect for any other
purpose. If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed hereunder or to fulfill any condition of
the Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to SECTION 11(a), or if the Underwriters shall terminate
this Agreement pursuant to SECTION 11(a) or 11(b), then the provisions of
Section 11 of the Letter Agreement shall govern payment and reimbursement
obligations of the parties notwithstanding that the Letter Agreement shall have
ceased to be in full force or effect for any other purpose.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the prior
written consent of Cruttenden Roth Incorporated, effect the Disposition of,
directly or indirectly, any Securities other than the sale of the Firm Shares
and the Option Shares hereunder and the Company's issuance of options or Common
Stock under the Company's presently authorized stock option and stock purchase
plans described in the Registration Statement and the Prospectus.
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<PAGE> 16
(l) The Company shall pay to Cruttenden Roth Incorporated a nonaccountable
expense allowance equal to three percent (2%) of the total Price to Public
shown on the front cover of the Prospectus, including, if exercised, with
respect to the over-allotment option. Cruttenden Roth Incorporated
acknowledges that $30,000 of the amount payable pursuant to this paragraph has
already been paid.
(m) The Company will use its best efforts to cause the Shares to be
included in the Nasdaq National Market.
(n) The company will refrain from investing the proceeds of the sale of
the Shares in such a manner as to cause the Company to become an "investment
company" within the meaning of the 1940 Act.
(o) The company will furnish to you as early as practicable before the
Closing Date and any later date on which Option Shares are to be purchased, as
the case may be, but not later than two business days prior thereto, a copy of
the latest available unaudited interim consolidated financial statements, if
any, of the Company that have been read by the Company's independent certified
public accountants as stated in their letter to be furnished pursuant to
SECTION 6(f).
(p) On the Closing Date, the Company will sell the Representatives'
Warrants to the Representatives.
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in connection
with the preparation, printing and filing of the Registration Statement
(including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Representatives' Warrant Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the Preliminary
Blue Sky Survey and any Supplemental Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any; the cost of all certificates
representing the Shares and transfer agents' and registrars' fees; the fees and
disbursements of counsel for the Company; all fees and other charges of the
Company's independent certified public accountants; the cost of furnishing to
the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus, and any
amendments or supplements to any of the foregoing; NASD filing fees and the
cost of qualifying the Shares under the laws of such jurisdictions as you may
designate (including fees up to a maximum of $30,000 and disbursements of
Underwriters' Counsel and filing fees in connection with such NASD filings and
Blue Sky qualifications); the cost of any listing of the Shares on any
securities exchange or qualification of the Share for inclusion in the Nasdaq
National Market; registration and other fees payable to the Commission; the
cost of preparing bound volumes of the public offering documents for the
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<PAGE> 17
Representatives and Underwriters' Counsel; and all other expenses directly
incurred by the Company in connection with the performance of its obligations
hereunder. The provisions of this SECTION 5(a)(i) are intended to relieve the
Underwriters from the payment of the expenses and costs which the Company
hereby agrees to pay.
(ii) In addition to its other obligations under SECTION 8(a), the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding described in SECTION 8(a), it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) listed from time to time in
THE WALL STREET JOURNAL which represents the base rate on corporate loans
posted by a substantial majority of the nation's thirty (30) largest banks (the
"PRIME RATE"). Any such interim reimbursement payments which are not made to
the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under SECTION 8(b), the
Underwriters severally and not jointly agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in SECTION 8(b), they will reimburse the Company on a monthly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Company shall promptly return such payment to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the
Company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in SECTIONS 5(a)(ii) and 5(b),
including the amounts of any requested reimbursement payments, the method of
determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such
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<PAGE> 18
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in SECTIONS 5(a)(ii) and 5(b) and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for
expenses that is created by the provisions of SECTIONS 8(a) and 8(b) or the
obligation to contribute to expenses that is created by the provisions of
SECTION 8(d).
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
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<PAGE> 19
(a) The Registration Statement shall have become effective not later than
2:00 p.m., California time, on the date following the date of execution and
delivery of this Agreement, or such later date and time as shall be consented
to in writing by you; and no stop order suspending the effectiveness thereof
shall have been issued, no suspension of the qualification of the Shares for
sale in any jurisdiction shall have occurred, and no proceedings for any such
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission or any other regulatory authority of
appropriate jurisdiction, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of Underwriters'
Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares, shall have
been reasonably satisfactory to the Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to
in this Section.
(c) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any (i) present or
prospective change in the condition (financial or otherwise), earnings,
operations, properties, assets, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse to the Company and that makes it, in
your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus; (ii) any transaction
that is material to the Company entered into or committed to by the Company
other than as described in the Registration Statement and the Prospectus; or
(iii) any material obligation, contingent or otherwise, directly or indirectly,
incurred by the Company other than as described in the Registration Statement
and the Prospectus.
(d) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, the following
opinion of Messerli & Kramer P.A., counsel for the Company, dated the Closing
Date or such later date on which Option Shares are to be purchased addressed to
the Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) To such counsel's knowledge, the Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
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<PAGE> 20
(iii) To such counsel's knowledge, other than Primegg (Barbados) Ltd.,
which is inactive, the Company does not own or control, directly or indirectly,
any stock or other equity or ownership interest in any corporation, association
or other entity.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein; the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and to such counsel's knowledge have not been issued in violation of any
registration right or in violation of or subject to any preemptive right,
co-sale right, right of first refusal or other similar right;
(v) The capital stock of the Company, including the Shares, conforms in
all material respects to the description thereof contained in the Registration
Statement and the Prospectus;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement, the
Representatives' Warrants, and the Common Stock issuable upon exercise of the
Representatives' Warrants have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms hereof or the
Representatives' Warrant Agreement, as the case may be, will be duly and
validly issued and fully paid and nonassessable, free of any pledge, lien or
other encumbrance, and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or, to the best of such counsel's knowledge, other similar right contained in
the Company's charter or bylaws or in any other agreement or contract to which
the Company is a party; and the forms of certificates evidencing the Common
Stock comply with applicable law;
(vii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus; and to enter into this Agreement and the Representatives' Warrant
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder, the Representatives' Warrants, and the Common
Stock issuable upon exercise of the Representatives' Warrants;
(viii) This Agreement and the Representatives' Warrant Agreement have been
duly authorized by all necessary corporate action on the part of the Company
and have been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, are valid and binding agreements
of the Company, enforceable in accordance with their respective terms, except
insofar as indemnification provisions may be limited by applicable law and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act, any
required filing of the Prospectus, or any Term Sheet that constitutes a part
thereof, pursuant to Rules 434 and 424(b) has been made in the manner and
within the time period required by Rules 434
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<PAGE> 21
and 424(b), and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules), and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
comply as to form in all material respects with the requirements of the Act and
the applicable Rules and Regulations and if the company elects to rely on Rule
434, the Prospectus is "materially different," as such term is used in Rule
434, from the prospectus included in the Registration Statement at the time of
its effectiveness or a post-effective amendment thereto (including information
that is permitted to be omitted pursuant to Rule 430A);
(xi) The information in the Prospectus under the captions "Risk
Factors--Government Regulation," "Risk Factors--Shares Eligible for Future
Sale," "Risk Factors--Antitakeover Provisions" "Business--Government
Regulation," "Business--Employees," "Business--Properties, Facilities and
Systems," "Management--Benefit Plans Option Plan,"
"Management--Indemnification," "Management--Employment Agreements," "Certain
Transactions," "Description of Capital Stock," and "Shares Eligible For Future
Sale" to the extent that it describes laws, regulations, rules, legal or
governmental proceedings, or contracts, or constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair and accurate in
all material respects;
(xii) The descriptions in the Registration Statement and the Prospectus of
the charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Act and the applicable
Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required to
be described or referred to in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xiv) The performance of this Agreement and the Representatives' Warrant
Agreement and the consummation of the transactions contemplated herein and
therein (other than performance of the Company's indemnification obligations
hereunder, concerning which no opinion need be expressed) do not and will not
(a) result in any violation of the charter or bylaws of the Company or (b)
result in a material breach or violation of any of the terms and provisions of,
or constitute a default under, of any event that with notice, lapse of time or
both would constitute a breach of or default under, any material bond,
debenture, note or other evidence of indebtedness, or any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by which its
properties are bound, or any applicable statute, rule or regulation or any
order, writ or decree of any court, government or governmental agency or body
having jurisdiction over the Company or any of its properties or operations;
provided, however, that
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<PAGE> 22
such counsel need not express any opinion or belief with respect to state
securities or Blue Sky laws;
(xv) No consent, approval, authorization or order of or filing or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company or any of its properties or operations is
necessary in connection with the consummation by the Company of the
transactions contemplated in this Agreement or the Representatives' Warrant
Agreement, except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the Underwriters;
(xvi) To such counsel's best knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character required
to be disclosed in the Registration Statement or the Prospectus by the Act or
the Rules and Regulations, other than those described therein;
(xvii) To such counsel's knowledge, the Company is not in violation of its
respective charter or bylaws and is not in breach or violation of any of the
terms and provisions of, or in default under, and no event has occurred that,
with notice, lapse of time or both would constitute a breach of or default
under any material bond, debenture, note or other evidence of indebtedness, or
any material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the Company
is a party or by which its properties are bound, or any applicable statute,
rule or regulation or any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of its
properties or operations;
(xviii) To such counsel's best knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights or preemptive rights with
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the Company
having rights to registration of such shares of Common Stock or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement.
(xix) The Company is not an "investment company" or a person "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(xx) The sales of securities by the Company described in Item 15 of the
Registration Statement were exempt from the registration requirements of the
Act.
In addition, such counsel shall state that such counsel has acted as
outside corporate legal counsel to the Company and participated in conferences
with officials and other representatives of the Company, the Representatives,
Underwriters' Counsel and the independent certified public accountants of the
Company, at which such conferences the
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<PAGE> 23
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads such counsel to
believe that, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on any later
date on which Option Shares are to be purchased, the Registration Statement and
any amendment or supplement thereto (other than the financial statements
including supporting schedules and other financial information derived
therefrom, as to which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of California upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representative of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Parcel, Mauro, Hultin & Spaanstra, P.C., in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from KPMG
Peat Marwick LLP, Independent Auditors ("KPMG"), addressed to the
Underwriters, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be (in each case, the "BRING DOWN
LETTER"), confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in a
letter delivered to you concurrently with the execution of this Agreement
(herein called the "ORIGINAL LETTER"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the
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<PAGE> 24
statements and conclusions set forth in the Original Letter that are necessary
to reflect any changes in the facts described in the Original Letter since its
date, or to reflect the availability of more recent financial statements, data
or information. The Bring Down Letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from KPMG shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the combined balance sheet of the Company as of
December 31, 1996 and related combined statements of operations, equity and
cash flows for the twelve (12) months ended December 31, 1996, (iii) state that
KPMG has performed the procedures set out in Statement on Auditing Standards
No. 71 ("SAS 71") for a review of interim financial information and providing
the report of KPMG as described in SAS 71 on the financial statements for the
three-quarter period ended September 30, 1997 (the "QUARTERLY FINANCIAL
STATEMENTS"), (iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications need
to be made to any of the Quarterly Financial Statements in order for them to be
in compliance with generally accepted accounting principles consistently
applied across the periods presented, (v) state that nothing came to their
attention that caused them to believe that the financial statements included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Rules and
Regulations and that any adjustments thereto have not been properly applied to
the historical amounts in the compilation of such statements, and (vi) address
other matters agreed upon by KPMG and you. In addition, you shall have
received from KPMG a letter addressed to the Company and made available to you
for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of December 31, 1996, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall
be satisfied that:
(i) The representations and warranties of the Company in this Agreement
and the Representatives' Warrant Agreement are true and correct, as if made on
and as of the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
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<PAGE> 25
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the Act
and the Rules and Regulations, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, the Prospectus, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any (a)
present or prospective material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company, (b) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company, entered into
or committed to by the Company other than as described in the Registration
Statement and the Prospectus, (d) any change in the capital stock of the
Company, (e) any change in the outstanding indebtedness of the Company that is
material to the Company or is out of the ordinary course of business of the
Company, (f) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, other than as described in the Registration
Statement and the Prospectus, or (g) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will have
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company.
(h) The Company shall have obtained and delivered to you an agreement from
each officer, director and stockholder of the Company in writing prior to the
date hereof that such person will not, except as described below, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) on the transfer of shares
of Common Stock or Securities during such person's lifetime by BONA FIDE gift
or upon death by will or intestacy, provided that any transferee agrees to be
bound by the Lock-Up Agreement, and (ii) on the transfer or other disposition
of shares of Common Stock or Securities as a distribution to limited partners
or stockholders of such person, provided that the distributees thereof agree to
be bound by the terms of the Lock-Up Agreement. The foregoing restriction
shall have been expressly agreed to preclude the holder of the Securities from
engaging in any hedging, pledge or other transaction which is designed
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<PAGE> 26
to or may reasonably be expected to lead to or result in a Disposition by any
stockholder or any other person of any Securities, whether or not owned by a
stockholder, during the Lock-Up Period, even if such Securities would be
disposed of by someone other than such holder. Such prohibited hedging, pledge
or other transactions would include, without limitation, any short sale
(whether or not against the box), any pledge of shares covering an obligation
that matures or could reasonably mature during the Lock-Up Period, or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad- based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(i) The Shares have been approved for inclusion in the Nasdaq National
Market.
(j) The Company shall have executed and delivered the Representatives'
Warrant Agreement and shall have tendered to the Representatives the
Representatives' Warrants.
(k) The Company shall have furnished to you such further certificates and
documents as you shall reasonably request (including certificates of officers
of the Company) as to the accuracy of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of Option Shares
at the purchase price per share for the Firm Shares set forth in SECTION 3.
Such option may be exercised by the Representative on behalf of the several
Underwriters on one (1) or more occasions in whole or in part during the period
of forty-five (45) days after the date on which the Firm Shares are initially
offered to the public by giving written notice (the "OPTION NOTICE") to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representative in such manner
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<PAGE> 27
as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this SECTION 7 shall be made against payment of the purchase price therefor by
the several Underwriters by certified or official bank check or checks drawn in
NEXT DAY SAME-DAY funds, payable to the order of the Company (and the Company
agrees not to deposit any such check in the bank on which it is drawn, and not
to take any other action with the purpose or effect of receiving immediately
available funds, until the business day following the date of its delivery to
the Company, and in the event of any breach of the foregoing the Company shall
reimburse the Underwriters for the interest lost and any other expenses borne
by them by reason of such breach). In the event of any breach of such
definitive certificate delivery obligations, the Company shall reimburse the
Underwriters for the interest lost and any other expenses borne by them by
reason of such breach. Such delivery and payment shall take place at the
offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Suite 1700, Irvine,
California or at such other place as may be agreed upon between the
Representative and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company after the date two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you shall specify at least two (2)
full business days prior to such date of payment and delivery. If the
Representative so elects, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
It is understood that you, individually, and not as the Representative of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in SECTION 7(a), the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in SECTION 6, and to the condition that
all proceedings taken at or prior to the payment date in connection with the
sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have
- 27 -
<PAGE> 28
been furnished with all such documents, certificates and opinions as you may
request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages, judgments, liabilities and expenses (including the fees and
expenses of counsel and other expenses in connection with investigating,
defending or settling any such action or claim) (or actions in respect
thereof), as they are incurred and regardless of whether the Indemnitee is a
party to the litigation, if any, arising out of or based upon (i) any breach
of any representation, warranty, agreement or covenant of the Company herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
by such Underwriter, directly or through you, specifically for use in the
preparation thereof and, PROVIDED FURTHER, that the indemnity agreement
provided in this SECTION 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with SECTION 4(d).
The indemnity agreement in this SECTION 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act and each of the agents,
- 28 -
<PAGE> 29
employees, officers and directors of each Underwriter and person who so
controls any Underwriter. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company against any losses, claims, damages or liabilities,
joint or several, to which the Company may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages,
judgments liabilities and expenses (including the fees and expenses of counsel
and other expenses in connection with investigating, defending or settling any
such action or claim) (or actions in respect thereof), as they are incurred and
regardless of whether the Indemnitee is a party to the litigation, if any,
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii)
any untrue statement or alleged untrue statement of any material fact contained
in any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this SECTION 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof, and agrees to reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred.
The indemnity agreement in this SECTION 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this SECTION 8 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under
this SECTION 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this SECTION 8 except to the extent that it has been prejudiced by such
omission. In case any such action is brought against any indemnified party,
and it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; PROVIDED, HOWEVER, that if the defendants in any such action
include both the
- 29 -
<PAGE> 30
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
which are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party hereunder for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under SECTION 8(a) or 8(b) hereof who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party. In no event shall any indemnifying party be liable
in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; PROVIDED
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this SECTION 8 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this SECTION 8 provides for indemnification
in such case, all the parties hereto shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Underwriters severally and not
jointly are responsible pro rata for the portion represented by the percentage
that the underwriting discount bears to the public offering price, and the
Company is responsible for the remaining portion, PROVIDED, HOWEVER, that (i)
no Underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares purchased by
such Underwriter exceeds the amount of damages which such Underwriter has
otherwise been required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this SECTION 8(d) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter or the Company within the
meaning of the Act or the Exchange Act and each officer of the Company who
signed the Registration Statement and
- 30 -
<PAGE> 31
each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this SECTION 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this SECTION 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in SECTION 8
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company, or any of its officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed
to purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or
- 31 -
<PAGE> 32
Underwriters as provided in this SECTION 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or
other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of
their underwriting obligation. If the remaining Underwriters shall not take up
and pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters
as aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this SECTION 10, then, other than as set forth in the
Letter Agreement, the Company shall not be liable to any Underwriter (except as
provided in SECTIONS 5 and 8 hereof) nor shall any Underwriter (other than an
Underwriter who shall have failed, otherwise than for some reason permitted
under this Agreement, to purchase the number of Firm Shares agreed by such
Underwriter to be purchased hereunder, which Underwriter shall remain liable to
the Company and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company (except to the extent provided in SECTIONS 5
and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this SECTION 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) 6:30 A.M.,
California time, on the first full business day following the effective date of
the Registration Statement, or (ii) the time of the public offering of any of
the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the public offering shall mean the time of the release
by you, for publication, of the first newspaper advertisement relating to the
Shares, or the time at which the Shares are first generally offered by the
Underwriters to the public by letter, telephone, telegram or telecopy,
whichever shall first occur. By giving notice as set forth in SECTION 12
before the time this Agreement becomes effective, you, as Representative of the
several Underwriters, or the Company, may prevent this Agreement from becoming
effective without liability of any party to any other party, except as provided
in SECTIONS 4(i) and 8.
(b) You, as Representative of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled is not fulfilled, including,
without limitation, any change in the condition (financial or otherwise),
earnings, operations, business or business
- 32 -
<PAGE> 33
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional governmental restrictions, not in force and effect on the date
hereof, shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on
either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency which, in the opinion of the
Representative, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event
of termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to SECTIONS 4(i), 5 and 8 . Any
termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in
SECTIONS 4(i) and 8.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: General Counsel; if sent to the Company, such notice shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to 612 South 8th Street, Cameron, Wisconsin 54822,
telecopier number (715) ____-______ Attention: President.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in SECTION 8, any
legal or equitable right, remedy or claim in respect of this Agreement or any
provisions herein
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<PAGE> 34
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign by reason merely of
such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you jointly or by Cruttenden Roth Incorporated on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE> 35
If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between the Company and the several Underwriters.
Very truly yours,
PRIMERA FOODS CORPORATION
By:___________________________________
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each
of the several Underwriters named in
Schedule A hereto.
By:_________________________________
Authorized Signatory
- 35 -
<PAGE> 36
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Shares Underwriters
to be Purchased
----------------------------------
<S> <C>
Cruttenden Roth Incorporated ...........
Total................................
</TABLE>
- 36 -
<PAGE> 1
EXHIBIT 1.2
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "AGREEMENT") is entered into as of
_________, 1998 by and between Primera Foods Corporation, a Delaware
corporation (the "COMPANY") and Cruttenden Roth Incorporated (the
"REPRESENTATIVE").
A. The Representative has agreed to act as the Representative of
the several underwriters in connection with the proposed public offering by the
Company pursuant to that certain Underwriting Agreement with the Company dated
_______________, 1998 (the "UNDERWRITING AGREEMENT") of up to 1,500,000 shares
in the aggregate of its Common Stock, par value $0.001 per share (the "COMMON
STOCK"), including 225,000 of such shares covered by an over-allotment option
(the "PUBLIC OFFERING"); and
B. Pursuant to Section 4(p) of the Underwriting Agreement and as
part of the Representatives' compensation in connection with the Public
Offering, the Company has agreed to sell to the Representatives, at a price of
$0.001 per warrant, warrants (the "WARRANTS") to purchase, at an exercise price
of $________ per share, up to an aggregate of 150,000 shares of Common Stock
(hereinafter, and as the number thereof may be adjusted as set forth herein,
the "WARRANT SHARES").
In consideration of the foregoing premises and the mutual agreements
herein and in the Underwriting Agreement and for other good and valuable
consideration, the parties hereto agree as follows:
1. Issuance of Warrants: Form of Warrant Certificate. The Company
shall issue to the Representative, on the Closing Date referred to in the
Underwriting Agreement, the Warrants. Certificates representing the Warrants
in substantially the form of Exhibit A (the "WARRANT CERTIFICATES") shall be
executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman of the Board, Chief Executive Officer or Vice
President of the Company, attested by the manual or facsimile signature of the
Secretary or an Assistant Secretary of the Company, and delivered to the
Representative on the Closing Date referred to in the Underwriting Agreement,
and thereafter to successive registered Holders (as defined below). Warrant
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrant Certificates or did not
hold such offices on the date of this Agreement. Warrant Certificates shall be
dated as of the date of execution thereof by the Company either upon initial
issuance or upon division, exchange, substitution or transfer.
2. Terms and Exercise of Warrants.
2.1. Each Warrant entitles the registered owner thereof to
purchase one share of Common Stock (subject to adjustment as set forth herein)
at any time from 10:00 a.m., California time, on __________, 1999 (the
"INITIATION DATE") until 6:00 p.m., California time, on __________, 2004 (the
"EXPIRATION DATE") at an exercise price of $ ________ (subject to adjustment
as set forth herein) (the "WARRANT PRICE"). Subject to the provision of this
Agreement, each registered Holder
<PAGE> 2
(as defined below) of Warrants shall have the right to exercise the Warrants
and purchase the Warrant Shares, either in their entirety or from time to time,
effective as of any date specified by the Holder from and after the Initiation
Date and on or before the Expiration Date in the manner set forth in the
Warrant Certificate. Payment of the aggregate Warrant Price for all Warrant
Shares for which Warrants are exercised shall be made, in the discretion of the
Holder, in cash or by certified or official bank check or by net issuance, or a
combination thereof. Exercise by net issuance shall be effected without
payment by the Holder of any cash or other consideration by the Company's
withholding from the Warrant Shares that would otherwise by issued upon
exercise if the exercise price were paid in cash, that number of Warrant Shares
which, when multiplied by the Closing Price for the day immediately preceding
the date of exercise, equals the aggregate Warrant Price for the Warrants so
exercised.
2.2. Notwithstanding the foregoing, if at 6:00 p.m.,
California time on the Expiration Date, any Holder of Warrants has not
exercised its Warrants and has not notified the Company that it waives
automatic issuance pursuant to this Section 2.1, then all such unexercised
Warrants shall be automatically converted into a number of shares of Common
Stock of the Company equal to: (A) the number of shares of Common Stock then
issuable upon exercise of all such unexercised Warrants minus (B) a number of
shares of Common Stock equal to the quotient obtained by dividing the aggregate
Warrant Price for all such unexercised Warrants by the Closing Price (as
defined in Section 11.1(c) below) for the Common Stock on the Expiration Date.
2.3. Upon exercise of Warrants and payment of the applicable
Warrant Price, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered Holder of
such Warrants and in such name or names as such registered Holder may
designate, a certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of such Warrants (net of any Warrant Shares
withheld in payment of the Warrant Price, if paid by net issuance), together
with cash, as provided in Section 12, in respect of any fraction of a share
otherwise issuable upon such exercise and, if the number of Warrants
represented by a Warrant Certificate shall not be exercised in full, a new
Warrant Certificate for the number of Warrants represented by the Warrant
Certificate surrendered but not exercised. Any person(s) designated by the
exercising Holder as the holder of the Warrant Shares issuable upon exercise
shall be deemed to have become a holder of record of such shares as of the date
of the surrender of such Warrants and payment of the Warrant Price, or such
later date as the exercising Holder may specify, notwithstanding that the stock
transfer books of the Company may then be closed or that certificates
representing the Warrant Shares have not been delivered.
3. Registration. The Warrant Certificates shall be numbered and
shall be registered on the books of the Company (the "WARRANT REGISTER")
as they are issued. The Company shall be entitled to treat the registered
holder of any Warrant Certificate (notwithstanding any notation of ownership or
other writing made on the Warrant Certificate made by anyone) on the Warrant
Register (the "HOLDER") as the owner in fact thereof and of the Warrants
represented thereby for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant Certificate or the
Warrants represented thereby on the part of any other person, and shall not be
liable for any registration or transfer of Warrants registered in the name of a
fiduciary or the nominee of a fiduciary. The Warrant Certificates shall be
registered initially in the names of the Representative, or
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<PAGE> 3
in such other denominations as the Representative may request in writing to the
Company with respect to the Warrants to be issued to the Representative.
4. Transfers.
4.1. Until __________, 1999, the Warrants will not be sold,
transferred, assigned or hypothecated except to (a) bona fide officers of
the Representative; (b) a successor to the Holder in a merger or consolidation;
(c) a purchaser of all or substantially all of the Holder's assets; (d) any
person receiving the Warrants from a permitted transferee at death pursuant to
will, trust or the laws of intestate succession; (e) any other underwriter or
selling group member that participated in the Public Offering and is a member
of the NASD, or bona fide officers or partners thereof; or (f) any person by
operation of law, provided that any such transfer shall be contingent upon the
transferee's agreement in writing to be bound by the terms hereof.
4.2. The Warrants shall be transferable only on the Warrant
Register upon delivery thereof duly endorsed by the Holder or by the Holder's
duly authorized attorney or representatives, or accompanied by proper evidence
of succession, assignment or authority to transfer. In all cases of transfer
by an attorney, the original power of attorney, duly approved, or an official
copy thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant Certificate or Warrant Certificates to the person entitled thereto.
4.3. The Company shall not be required to recognize any
transfer of the Warrants or the Warrant Shares unless (a) such transfer is made
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "ACT"), including a post-effective amendment to the
Registration Statement, or (b) counsel reasonably satisfactory to the Company
provides an opinion that the transfer may be made without registration pursuant
to Rule 144 under the Act or otherwise.
4.4. The Company may stop transfer of the Warrants and the
Warrant Shares to enforce the transfer restrictions set forth herein. The
Warrant Certificates shall bear the following legend:
TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS RESTRICTED
AS DESCRIBED IN THE WARRANT AGREEMENT DESCRIBED HEREIN.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON
STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO WHICH SUCH SECURITIES WERE ORIGINALLY
REGISTERED IN CONNECTION WITH ORIGINAL ISSUANCE OF THE WARRANTS
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<PAGE> 4
REPRESENTED HEREBY, OR (ii) A SEPARATE REGISTRATION STATEMENT
UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT.
The Warrant Shares or other securities issued upon exercise of the
Warrants shall bear the following legend, if applicable:
THE SHARES OR OTHER SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
5. Compliance with Government Regulations. If any shares of
Common Stock required to be reserved for purposes of exercise or conversion
of Warrants require, under any federal or state law or applicable governing
rule or regulation of any national securities exchange or market system,
registration with or approval of any governmental authority, or listing on any
such national securities exchange or market system before such shares may be
issued upon exercise, the Company will in good faith and as expeditiously as
possible endeavor to cause such shares to be duly registered, approved or
listed. The Company shall keep current in filing all reports, statements and
other materials required to be filed with the Securities and Exchange
Commission to permit Holders to sell the Warrants and the Warrant Shares under
Rule 144.
6. Payment of Taxes. The Company shall pay any taxes due in
connection with the issuance or exercise of the Warrants other than transfer
taxes payably in connection with secondary transfers of any Warrants or
issuance of Warrant Shares to any person other than the registered Holder of
such Warrants.
7. Exchange of Warrant Certificates. Holders of Warrant
Certificates may exchange them for another certificate or certificates
representing the right of the Holder thereof to purchase a like aggregate
number of Warrant Shares as the Warrant Certificate or Certificates surrendered
by delivering the Warrant Certificates to be exchanged to the Company, properly
endorsed or accompanied by a properly executed instrument of transfer, together
with a written request for transfer, whereupon the Company shall execute and
deliver to the person entitled thereto a new Warrant Certificate or
Certificates, as the case may be as so requested.
8. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
shall issue and deliver in exchange and substitution for and upon cancellation
of the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing equivalent right or interest, subject to the
provision to the Company by the Holder thereof of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and, if requested, indemnity or bond also reasonably satisfactory
to the
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<PAGE> 5
Company, provided that no such bond shall be required from any of the initial
Holders of the Warrants.
9. Reservation of Warrant Share; Authorization and Valid Issuance.
The Company shall at all times reserve and keep available out of its authorized
and unissued shares of Common Stock a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the Common Stock or any other securities issuable upon the
exercise of any of the rights of purchase aforesaid ("TRANSFER AGENT") is
hereby irrevocably authorized and directed at all times until the Expiration
Date to reserve such number of authorized and unissued shares or other
securities as shall be required for such purpose. The Company will keep a copy
of this Agreement on file with the Transfer Agent and will supply such Transfer
Agent with duly executed stock certificates for such purposes and will itself
provide or otherwise make available any cash which may be issuable as provided
in Section 12. The Company will furnish to such Transfer Agent a copy of all
notices of adjustments, and certificates related thereto, transmitted to each
Holder pursuant to Section 11.2. All Warrant Certificates surrendered in the
exercise of the rights thereby evidenced shall be canceled. The Company
represents that the Warrant Shares are duly authorized and covenants that, upon
receipt by the Company of the full payment therefor, the Warrant Shares will be
validly issued, fully paid, nonassessable, and not issued in violation of any
preemptive rights.
10. Obtaining Stock Exchange Listings. The Company will from time
to time take all action which may be necessary to that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
and/or included for trading on the principal securities exchanges and markets
within the United States of America, if any, on which other shares of Common
Stock are then listed or included for trading.
11. Adjustment of Warrant Price and Number of Warrant Shares. For
purposes of this Section 11, "Common Stock" means shares now or hereafter
authorized of any class of Common Stock of the Company and any other stock of
the Company, however designated, that has the right (subject to any prior
rights of any class or series of preferred stock) to participate in any
distribution of the assets or earnings of the Company without limit as to per
share amount.
11.1. Mechanical Adjustments. The number and kind of
securities purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend in shares
of Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock or (iv) issue by reclassification of its shares of
Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant Shares purchasable
upon exercise of each Warrant without giving effect thereto shall be adjusted
so that the Holder of each Warrant shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company which such Holder
would have owned or would have been entitled to receive after the happening of
any of the events described above, had
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<PAGE> 6
such Warrants been exercised immediately prior to the happening of such event
or any record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall distribute to all holders of
its shares of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the surviving
corporation) evidence of its indebtedness or assets (excluding cash dividends
or distributions payable out of consolidated earnings or earned surplus and in
compliance with applicable law and dividends or distributions referred to in
paragraph (a) above or in the paragraph immediately following this paragraph),
or rights, options or warrants, or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock, then
in each case the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying the number of
Warrant Shares purchasable upon the exercise of each Warrant without giving
effect thereto by a fraction, the numerator of which shall be the current
market price per share of Common Stock (as defined in paragraph (c) below) as
of the record date for such distribution or, if there is no record date with
respect thereto then as of the date of such distribution, and the denominator
of which shall be the current market price per share of Common Stock as of such
date, less the fair value (as reasonably determined by the Board of Directors
of the Company) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective on the date of distribution retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
Notwithstanding the foregoing, however, no adjustment in the number of Warrant
Shares purchasable upon the exercise of each Warrant need be made under this
paragraph if the Company issues or distributes to each Holder of Warrants the
rights, options, warrants or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those paragraphs which each
Holder of Warrants would have been entitled to receive had the Warrants been
exercised prior to the happening of such event or the record date with respect
thereto. No adjustment need be made for a change in the par value of the
Warrant Shares.
In the event of a distribution by the Company to all holders of
its shares of Common Stock or of the stock of a subsidiary of securities
convertible into or exercisable for such stock (other than as described in
subparagraph (a)(iv) above), then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant, the Holder of
each Warrant, upon the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as the
Company shall determine, the stock or other securities to which such Holder
would have been entitled if such Holder had exercised such Warrant immediately
prior thereto, all subject to further adjustment as provided in this Section
11.1; provided, however, that no adjustment in respect of dividends or interest
on such stock or other securities shall be made during the term of a Warrant or
upon the exercise of a Warrant.
(c) For the purpose of any computation under paragraph (b)
of this Section, the current market price per share of Common Stock as of any
date shall be the average of the daily
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<PAGE> 7
Closing Prices for 20 consecutive trading days on which such Common Stock
actually was traded commencing 30 trading days before the date of such
computation. The "CLOSING PRICE" for any day shall be the last such reported
sales price regular way for a share of Common Stock on that day on the
principal national securities exchange or national market system on which the
shares of Common Stock are listed or admitted to trading or, if not so listed
or admitted to trading, the average of the closing bid and asked prices of the
Common Stock in the over-the-counter market or if not approved for such
trading, the average of the closing bid and asked prices as furnished by two
members of the National Association of Securities Dealers, Inc. selected from
time to time by the Company for that purpose.
(d) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment would require
an increase or decrease of at least one percent (1%) in the number of Warrant
Shares purchasable upon the exercise of each Warrant; provided, however, that
any adjustments which by reason of this paragraph (d) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-thousandth of a
share.
(e) Whenever the number of Warrant Shares purchasable upon
the exercise of each Warrant is adjusted, as herein provided, the Warrant Price
per share payable upon exercise of each Warrant shall be appropriately and
proportionately adjusted.
(f) If at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Holders shall become entitled to purchase
any securities of the Company other than shares of Common Stock, thereafter the
number of such other shares so purchasable upon exercise of each Warrant and
the Warrant Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this Section 11, and
the other provisions of this Agreement, with respect to the Warrant and Warrant
Shares, shall apply as nearly equivalent as practicable on like terms to such
other securities.
(g) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges for which an adjustment was made hereunder,
if any thereof shall not have been exercised, the Warrant Price per share and
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall, upon such expiration, be readjusted and shall thereafter be such
as they would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only shares of
Common Stock so issued were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such rights, options, warrants or conversion or
exchange rights and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the aggregate consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
or exchange rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Warrant Price per share or
decreasing the number of shares of Common Stock purchasable upon the exercise
of each Warrant by an amount in excess of the amount of the adjustment
initially made in respect to the issuance, sale or grant of such rights,
options, warrants or conversion or exchange rights.
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<PAGE> 8
11.2. Notice of Adjustment. Whenever the Company proposes
any action that would result in an adjustment of the number of Warrant Shares
purchasable upon the exercise of Warrants or the Warrant Price per share as
herein provided, the Company shall, at least 10 days prior to the date of such
action or, if earlier, the record date therefor, mail by first class, postage
prepaid, to each Holder notice of such adjustment or adjustments, the proposed
date and, if applicable, record date therefor, and a certificate of a firm of
independent public accountants selected by the board of directors of the
Company (who may be the regular accountants employed by the Company) setting
forth the number of Warrant Shares to be purchasable upon the exercise of each
Warrant and the Warrant Price per share after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
11.3. No Adjustment for Dividends. Except as provided in
Section 11.1, no adjustments in respect of any dividends shall be made during
the term of a Warrant or upon the exercise of a Warrant.
11.4. Preservation of Purchase Rights Upon Merger,
Consolidation etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale, transfer or
lease to another corporation of all or substantially all the property of the
Company, the Company or such successor or purchasing corporation, as the case
may be, shall execute with each Holder an agreement (and shall not effect any
such transaction in the absence of such an agreement) that each Holder shall
have the right thereafter upon payment of the Warrant Price in effect
immediately prior to such action to purchase upon exercise of each Warrant the
kind and amount of shares and other securities, cash and property which such
Holder would have owned or would have been entitled to receive in connection
with the happening of such consolidation, merger, sale, transfer or lease and
as a result of subsequent transactions had such Warrant been exercised
immediately prior to such action and such consideration been held until such
exercise; provided, however, that no adjustment in respect of dividends,
interest or other income on or from such shares or other securities, cash and
property shall be made during the term of a Warrant or upon the exercise of a
Warrant. Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 11. The provisions of this Section 11.4 shall similarly apply to
successive consolidations, mergers, sales transfer or leases.
11.5. Statement on Warrants. Irrespective of any adjustments
in the Warrant Price per share or the number or kind of shares purchasable upon
the exercise of the Warrants, Warrant Certificates theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in the Warrants initially issuable pursuant to this Agreement.
12. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be exercised at the same time by the same holder, the number of
full Warrant Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of the Warrants so exercised. If any fraction of a Warrant Share
would, except for the provision of this Section 12, be issuable on the exercise
of any Warrant (or specified portion thereof), the Company shall pay the
exercising Holder in lieu thereof an amount in cash equal to the Closing Price
for one
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<PAGE> 9
share of the Common Stock, on the day immediately preceding the exercise date
of the Warrant, multiplied by such fraction.
13. Registration Rights.
13.1. Demand Registration Rights. Within 60 days after
receipt of a written request from the Representative or from Holders of at
least 40% in interest of the aggregate of Warrants and/or Warrant Shares that
the Representative or such Holders of the Warrants and/or Warrant Shares desire
and intend to transfer more than 25% in interest of the aggregate number of the
Warrants and/or Warrant Shares under such circumstances that a public offering,
within the meaning of the Act, will be involved, the Company shall (subject to
the last sentence of this paragraph) notify all Holders of such request and
file a registration statement (and use its reasonable best efforts to cause
such registration statement to become effective under the Act) with respect to
the offering and sale or other disposition of the Warrants and/or Warrant
Shares requested to be included by the requesting Holders and any other Holders
who request inclusion of Warrants or Warrant Shares within 20 days after the
Company has given them notice of the registration (the "OFFERED SECURITIES");
provided, however, that the Company shall not be obligated to comply with the
foregoing provisions of this Section 13.1 if in the opinion of counsel to the
Company reasonably acceptable to the Holder or Holders from whom such written
requests have been received, registration under the Act is not required for the
transfer of the Offered Securities in the manner proposed by such person or
persons, or a post-effective amendment to an existing registration statement
would be legally sufficient for such transfer (in which latter event the
Company shall promptly file such post-effective amendment (and use its best
efforts to cause such amendment to become effective under the Act)).
Notwithstanding the foregoing, however, the Company shall not be obligated to
provide more than one effective registration statement meeting the requirements
hereof pursuant to this Section 13.1.
The Company may defer the preparation and filing of a registration
statement for up to 90 days after the request for registration is made in the
Company's board of directors determines in good faith that (i) such
registration or post-effective amendment would materially adversely affect or
otherwise materially interfere with a proposed or pending material transaction
by the Company, including without limitation a financing or a corporate
reorganization, or (ii) the Company is in possession of material inside
information concerning the company or its securities, disclosure of which would
be illegal or have material adverse effect upon the Company.
The Company shall not be obligated to honor any request to register
Warrant Shares pursuant to this Section 13.1 received later than six (6) years
from the effective date of the Company's Registration Statement on Form S-1
(File No. 333-_______) (the "EFFECTIVE DATE"). The Company shall not be
required (i) to maintain the effectiveness of the registration statement beyond
the date on which all of the Offered Securities have been sold (the
"TERMINATION DATE"); provided, however, that if at the Termination Date the
Offered Securities are covered by a registration statement which also covers
other securities and which is required to remain in effect beyond the
Termination Date, the Company shall maintain in effect such registration
statement as it relates to Offered Securities for so long as such registration
statement (or any substitute registration statement) remains or is required to
remain in effect for any such other securities, or (ii) to cause any
registration statement with respect to the Warrant Shares to become effective
prior to the Initiation Date. All expenses of
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<PAGE> 10
registration pursuant to this Section 13.1 shall be borne by the Company
(excluding underwriting discounts and commissions on securities not sold by the
Company).
The Company shall be obligated pursuant to this Section 13.1 to include
in the registration statement Warrant Shares that have not yet been purchased
by a Holder of Warrants so long as such Holder of Warrants submits an
undertaking to the Company that such Holder intends to exercise Warrants
representing the number of Warrant Shares to be included in such registration
statement prior to the consummation of the public offering with respect to such
Warrant Shares. In addition, such Holder of Warrants is permitted to pay the
Company the Warrant Price for such Warrant Shares upon the consummation of the
public offering with respect to such Warrant Shares.
13.2. Piggy-back Registration Rights. In the event the
Company proposes to file (for its own offer and sale or offer and sale
by selling security holders) a registration statement under the Act at any time
on or before __________, 2003 (the fifth anniversary of the Effective Date)
with respect to any class of security (other than in connection with an
exchange offer, a non-cash offer or a registration statement of Form S-4 or
Form S-8 or any successor registration statement form) which becomes or which
should be expected to become effective at any time after the Initiation Date
then the Company shall in each case give written notice or such proposed filing
to the Holders of Warrants and Warrant Shares at least 30 days before the
proposed filing date and such notice shall offer to such Holders the
opportunity to include in such registration statement such number of Warrant
Shares as they may request, unless, in the opinion of counsel to the Company
reasonably acceptable to any such holder of Warrants or Warrant Shares who
wishes to have Warrant Shares included in such registration statement,
registration under the Act is not required for the transfer of such Warrants
and/or Warrant Shares in the manner proposed by such Holders. The Company
shall not be obligated to honor any request to register any such Warrant Shares
if the Company is not notified in writing of any such request pursuant to this
Section 13.2 within 20 days after the Company has given notice to the Holders
of the filing. The Company shall permit, or shall cause the managing
underwriter of a proposed offering to permit, the Holders of Warrant Shares
requested to be included in the registration (the "PIGGY-BACK SHARES") to
include such Piggy-back Shares in the proposed offering on the same terms and
conditions as applicable to securities of the Company included therein or as
applicable to securities of any person other than the Company and the Holders
of Piggy-back Shares if the securities of any such person are included
therein. Notwithstanding the foregoing, if any such managing underwriter shall
advise the Company in writing that it believes that the distribution of all or
a portion of the Piggy-back Shares requested to be included in the registration
statement concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company for its own account, then the Holders of such Piggy-back Shares shall
delay their offering and sale of Piggy-back Shares (or the portion thereof so
designated by such managing underwriter) for such period, not to exceed 120
days, as the managing underwriter shall request provided that no such delay
shall be required as to Piggy-back Shares if any securities of the company are
included in such registration statement for the account of any person other
than the Company and the Holders of Piggy-back Shares. In the event of such
delay, the Company shall file such supplements, post-effective amendments or
separate registration statement, and take any such other steps as may be
necessary to permit such Holders to make their proposed offering and sale for a
period of 90 days immediately following the end of such period of delay
("PIGGY-BACK TERMINATION DATE"); provided, however, that if at the Piggy-back
Termination Date
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<PAGE> 11
the Piggy-back Shares are covered by a registration statement which is, or is
required to remain, in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to
the Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities.
The Company shall be obligated pursuant to this Section 13.2 to include
in the registration Warrant Shares that have not yet been purchased by a holder
of Warrants so long as such Holder of Warrants submits an undertaking to the
Company that such Holder intends to exercise Warrants representing the number
of Warrant Shares to be included in such registration prior to the consummation
of the offering made pursuant thereto. In addition, such Holder of Warrants is
permitted to pay the Company the Warrant Price for such Warrant Shares upon the
consummation of the public offering with respect to such Warrant Shares.
If the Company decides not to proceed with a registration and offering
in which Piggy-back Shares are included, the Company has no obligation to
proceed with the offering of the Piggy-back Shares, unless the Holders of the
Warrants and/or Warrant Shares otherwise comply with the provisions of Section
13.1 hereof (without regard to the 60 days' written request required thereby).
13.3. In connection with the registration of securities in
accordance with Sections 13.1 and 13.2 above, the Company shall:
(a) Use its reasonable best efforts to register or qualify
the securities for offer or sale under the state securities or Blue Sky laws
of such states which the Holders of such Warrant Shares shall designate;
provided, however, that in no event shall the Company be obligated to qualify
to do business in any jurisdiction where it is not then so qualified or take
any action which would subject it to general service of process in any
jurisdiction where it is not then so subject or to register or get a license as
a broker or dealer in securities in any jurisdiction where it is not so
registered or licensed.
(b) Pay all costs, other than fees and disbursements of
counsel for the Holders and underwriting discounts and commissions, if any, in
respect of securities held by the Holders.
(c) Furnish to each Holder such number of copies of the
registration statement and of each amendment and supplement thereto (in each
case, including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each supplement or
amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations
thereunder, and such other documents, as any Holder may reasonably request to
facilitate the disposition of the securities included in such registration.
(d) If an opinion of counsel for the Company is delivered
to any underwriter in connection with the registration, such opinion to each
Holder participating in the registration.
(e) Enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and if requested, enter into an underwriting
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<PAGE> 12
agreement containing conventional representations, warranties, allocation of
expenses and customary closing conditions, including, without limitation,
opinions of counsel and accountants' cold comfort letters, with any underwriter
who acquires any securities included by a Holder in the registration.
13.4. (a) The Company shall indemnify and hold harmless each
Holder participating in any registration hereunder against any losses, claims,
damages or liabilities, joint or several, to which such Holder may become
subject under the Act, the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") or otherwise, specifically including, but not limited to,
losses, claims, damages, judgments, liabilities and expenses (including the
fees and expenses of counsel and other expenses in connection with
investigating, defending or settling any such action or claim) (or actions in
respect thereof), as they are incurred and regardless of whether the indemnitee
is a party to the litigation, if any, arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement filed by the Company or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iii) any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
prospectus or final prospectus included in any registration statement filed by
the Company or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each such
Holder for any legal or other expenses reasonably incurred by it in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any such
registration statement, preliminary prospectus or final prospectus, or any such
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Holder furnished to the Company by such
Holder specifically for use in the preparation thereof, and provided further,
that the indemnity agreement provided in this Section 13.4(a) with respect to
any preliminary prospectus shall not inure to the benefit of any Holder from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased
securities, if adequate copies of the applicable final prospectus in which such
untrue statement or alleged untrue statement or omission or alleged omission
was corrected were provided by the Company to the Holder or its representatives
and the Holder or its representatives did not deliver such final prospectus to
such person.
The indemnity agreement in this Section 13.4(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Holder within the meaning of the Act or the Exchange
Act and each of the agents, employees, officers and directors of each Holder
and person who so controls any Holder. This indemnity agreement shall be in
addition to any liabilities which the Company may otherwise have.
(b) Each Holder, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the
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<PAGE> 13
Company may become subject under the Act or otherwise, specifically including,
but not limited to, losses, claims, damages, judgments, liabilities and
expenses (including the fees and expenses of counsel and other expenses in
connection with investigating, defending or settling any such action or claim)
(or actions in respect thereof), as they are incurred and regardless of whether
the indemnitee is a party to the litigation, if any, arising out of or based
upon (i) any breach of representation, warranty, agreement or covenant of such
Holder herein contained, (ii) any untrue statement or alleged untrue statement
of any material fact contained in any registration statement filed by the
Company or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
preliminary prospectus or final prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 13.4(b) to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use in the preparation
thereof, and agrees to reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred.
The indemnity agreement in this Section 13.4(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed such registration statement and each director of the
Company, and each person, if any, who controls the Company within the meaning
of the Act or the Exchange Act. This indemnity agreement shall be in addition
to any liabilities which each Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 13.4 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
any indemnifying party under this Section 13.4, notify the indemnifying party
in writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 13.4 except to the
extent that it has been prejudiced by such omission. In case any such action
is brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf
of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party hereunder for any legal or other expenses
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<PAGE> 14
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under Section 13.4(a) or 13.4(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party effect, any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and
indemnification could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding.
(d) To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section
13.4(a) or 13.4(b) (subject to the limitations thereof) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act or
otherwise, then the Company (including for this purpose any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed any such registration statement, any controlling person of the Company,
and its or their respective counsel), as one entity, and the affected Holders
of the securities included in such registration in the aggregate (including for
this purpose any contribution by or on behalf of an indemnified party), as a
second entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Holders in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses. The relative fault, in the case of
an untrue statement, alleged untrue statement, omission or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information supplied by the
Company or by such Holders, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and the Holders agree
that it would be unjust and inequitable if the respective obligations of the
Company and the Holders for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Holder and the other indemnified parties were treated as
one entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 13.4(c). In
no case shall any Holder be responsible for a portion of the contribution
obligation imposed on all Holders in excess of its pro rata share based on the
number of shares of Common Stock (or other successor securities) owned (or
which would be owned upon exercise of all Warrants) by it and included in such
registration as compared to the number of shares of Common Stock (or other
successor securities) owned (or which would be owned
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<PAGE> 15
upon exercise of all Warrants) by all Holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 13.4(c), each person, if any, who controls any Holder within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent and counsel of each such
Holder or control person shall have the same rights to contribution as such
Holder or control person and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed any such registration
statement, each director of the Company and its or their respective counsel
shall have the same rights to contribution as the Company, subject in each case
to the provisions of this Section 13.4(c). Anything in this Section 13.4(c) to
the contrary notwithstanding, no party shall be liable for contribution with
respect to the settlement of any claim or action effected without its written
consent. This Section 13.4(c) is intended to supersede any right to
contribution under the Act, the Exchange Act or otherwise.
14. No Rights as Stockholder; Notices to Holders. Nothing
contained in this Agreement or in any of the Warrant Certificates shall be
construed as conferring upon the Holders or their transferee(s) the right to
vote or to receive dividends or to consent to or receive notice as stockholders
in respect of any meeting of stockholders for the election of directors of the
Company or any other matter or any rights whatsoever as stockholders of the
Company. If, however, at any time prior to the expiration of the Warrants and
prior to their exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution (other than
a cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of
Common Stock any additional shares of Common Stock or securities convertible
into or exchangeable for shares of Common Stock or any right to subscribe to or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or lease
of all or substantially all of its property assets and business as an entirety)
shall be proposed,
then in any one or more of said event the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 16 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 10 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution or subscription
rights, or for the determination of stockholders entitled to vote on such
proposed dissolution, liquidation or winding up. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to publish, mail or receive such notice or any defect therein or in
the publication or mailing thereof shall not affect the validity of any action
taking in connection with such dividend, distribution or subscription rights,
or such proposed dissolution, liquidation or winding up.
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<PAGE> 16
15. Attorney's Fees. In the event of any action, suit,
counterclaim, appeal, arbitration, mediation, or other proceeding (an
"ACTION") between any Holder and the Company arising out of or in connection
with this Agreement or the Warrants, in addition to any damages and costs to
which the prevailing party would otherwise be entitled, the losing party in any
such Action shall pay to the prevailing party the attorneys' fees and costs
incurred by the prevailing party in connection with such Action and/or
enforcing any judgment, order, ruling, or award (collectively, a "DECISION")
granted therein, all of which shall be paid whether or not such Action is
prosecuted to a Decision. Any Decision entered in an Action shall contain a
specific provision providing for the recovery of attorneys' fees and costs
incurred in enforcing such Decision. Attorneys' fees shall include, but not be
limited to, fees incurred in the following: (1) post judgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy, and debtor
and third party examinations; (4) discovery, and (5) bankruptcy. "Prevailing
party" within the meaning of this section includes, without limitation, a party
who agrees to dismiss an Action on the other party's payment of the sum
allegedly due or performance of the covenants allegedly breached, or who
obtains substantially the relief sought. If there are multiple claims, the
prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although with respect to any claim, it
may be determined by the court or arbitrator before which the Action is brought
that there is no prevailing party.
16. Notices. Any notice pursuant to this Agreement to be given or
made by the registered Holder of any Warrant to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
Primera Foods Corporation
P.O. Box 373, 612 S. 8th Street
Cameron, Wisconsin 54822
Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail, postage prepaid, addressed to such Holder at the address of such Holder
as shown on the Warrant Register.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principals of conflicts of laws.
18. Supplements and Amendments. The Company and the Representative
owning at least a majority of the outstanding Warrants may from time to time
supplement or amend this Agreement in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Representative may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrant Certificates and which shall
not adversely affect the interests of the Holders. This Agreement may also be
supplemented or amended from time to time by writing executed by or on behalf
of the
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<PAGE> 17
Company all of the Holders.
19. Successor. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by
the Holders of their rights hereunder shall be made in accordance with Section
4.
20. Merger or Consolidation of the Company. So long as Warrants
remain outstanding, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement
executed and delivered to the Holders, the due and punctual performance and
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement,
but this Agreement shall be for the sole and exclusive benefit of the Company
and the Holders of the Warrants and Warrant Shares.
22. Captions; References. The captions of the sections and
subsections of this Agreement have been inserted for convenience only and
shall have no substantive effect. References herein to Sections, Schedules and
Exhibits are, unless otherwise specified, references to the referenced section,
schedule or exhibit hereof or hereto.
23. Counterparts. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
PRIMERA FOODS CORPORATION CRUTTENDEN ROTH INCORPORATED
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
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<PAGE> 18
Exhibit A to
Warrant Agreement
[Form of Warrant Certificate]
TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS RESTRICTED AS
DESCRIBED IN THE WARRANT AGREEMENT DESCRIBED HEREIN.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK
ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO WHICH SUCH SECURITIES WERE
ORIGINALLY REGISTERED IN CONNECTION WITH ORIGINAL ISSUANCE OF THE WARRANTS
REPRESENTED HEREBY, OR (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT,
OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
EXERCISABLE ON OR BEFORE ___________, 2004
No. __________ Warrants
Warrant Certificate
PRIMERA FOODS CORPORATION
This Warrant Certificate certifies that [Cruttenden Roth Incorporated],
or registered assigns (the "HOLDER"), is the registered holder of __________
Warrants (the "WARRANTS") to purchase Common Stock, $0.001 par value per share
(the "COMMON STOCK"), of Primera Foods Corporation, a Delaware corporation (the
"COMPANY"). Each Warrant entitles the registered Holder thereof to purchase
one share of Common Stock (subject to adjustment as set forth in the Warrant
Agreement (as defined below), at any time from 10:00 a.m., California time, on
_________, 1999 (the "INITIATION DATE") until 6:00 p.m., California time, on
___________, 2004 (the "EXPIRATION DATE") at an exercise price of $ _________
(the "WARRANT PRICE").
Subject to the provisions of the Warrant Agreement, the Holder shall
have the right to exercise the Warrants and purchase the underlying Warrant
Shares, either in their entirety or from time to time, effective as of any date
specified by the Holder from and after the Initiation Date and on or before the
Expiration Date. Exercise shall be effected by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon properly
completed and executed, together with payment of the Warrant Price or
designation of net issuance at the office of the Company designated for such
purpose. If upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the Holder or such Holder's assignee a new
Warrant Certificate evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common Stock issuable upon
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<PAGE> 19
exercise of this Warrant.
Payment of the aggregate Warrant Price for all Warrant Shares for which
Warrants are exercised shall be made, in the discretion of the Holder, by
certified or official bank check or by net issuance, or a combination thereof.
Exercise by net issuance shall be effected without payment by the Holder of any
cash or other consideration by the Company's withholding from the Warrant
Shares that would otherwise be issued upon exercise if the exercise price were
paid in cash, that number of Warrant Shares which, when multiplied by the
Closing Price for the day immediately preceding the date of exercise, equals
the aggregate Warrant Price for the Warrants so exercised.
Notwithstanding the foregoing, if at 6:00 p.m., California time on the
Expiration Date, the Holder has not exercised its Warrants and has not notified
the Company that it waives automatic issuance, then all such unexercised
Warrants shall be automatically converted into a number of shares of Common
Stock of the Company equal to: (A) the number of shares of Common Stock then
issuable upon exercise of all such unexercised Warrants minus (B) a number of
shares of Common Stock equal to the quotient obtained by dividing the aggregate
Warrant Price for all such unexercised Warrants by the Closing Price (as
defined in Section 11.1(c) of the Warrant Agreement) for the Common Stock on
the Expiration Date.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to a Warrant Agreement, dated as
of ____________, 1998 (the "WARRANT AGREEMENT"), duly executed and delivered by
the Company, which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders of the Warrants. A copy of the Warrant
Agreement may be obtained by the Holder hereof upon written request to the
Company.
The Warrant Price and number of Warrant Shares issuable upon exercise
of the Warrants are subject to adjustment upon the occurrence of certain events
set forth in the Warrant Agreement. No fractions of a share of Common Stock
will be issued upon the exercise of any Warrants but the Company will pay the
cash value thereof determined as provided in the Warrant Agreement.
The Holder is entitled to certain registration rights with respect to
the Common Stock purchasable upon exercise thereof as set forth in the Warrant
Agreement.
Warrant Certificates may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
The Company may deem and treat the registered Holder of this Warrant
Certificate (notwithstanding any notation of ownership or other writing hereon
made by anyone) as the owner in fact hereof and of the Warrants represented
hereby for all purposes, and the Company shall not be affected by any notice to
the contrary.
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<PAGE> 20
Neither the Warrants nor this Warrant Certificate entitles the Holder
to any rights of a stockholder of the Company.
This Warrant Certificate shall not be valid unless countersigned by the
Company.
IN WITNESS WHEREOF, Primera Foods Corporation has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary.
Dated: __________, 1998 PRIMERA FOODS CORPORATION
By:
------------------------------------
Chief Executive Officer
Attest:
-----------------------------
Secretary
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<PAGE> 21
[Form of Election to Purchase]
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects, effective as of
________________, to exercise the right, represented by this Warrant
Certificate, to receive __________ shares of Common Stock, par value $0.001 per
share, of Primera Foods Corporation and elects to pay the Exercise Price as
indicated below:
[ ] Payment in cash in the amount of $___________ per share, for a
total aggregate Exercise Price payment of $___________; check
payable to Primera Foods Corporation in the amount of such
aggregate Exercise Price.
[ ] Payment on a cashless, net issuance basis by foregoing receipt
of that number of shares of Common Stock otherwise
issuable upon this exercise as has an aggregate value, at the
Closing Price, equal to the aggregate Exercise Price.
The undersigned requests that a certificate for such shares be
registered in the name of _________________________________, whose address is
____________________________________________________________ and that such
shares be delivered to ____________________________ whose address is
_______________________ _____________________________________. If said number
of shares is less than all of the shares of Common Stock purchasable hereunder,
the undersigned requests that a new Warrant certificate representing the
remaining balance of such shares be registered in the name of ________________
whose address is ____________________________________, and that such Warrant
certificate be delivered to ________________________ whose address is
____________________________________.
Signature:
Date:
Signature Guaranteed:
<PAGE> 1
EXHIBIT 1.3
RESTATED CERTIFICATE OF INCORPORATION
OF PRIMERA FOODS CORPORATION
ARTICLE I
The name of the Corporation is Primera Foods Corporation (hereinafter
the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801, County of Newcastle. The name of its registered agent at that address
is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code.
ARTICLE IV
(a) The number of shares which the Corporation shall have authority to
issue, itemized by class and par value of the shares, if any, is:
<TABLE>
<CAPTION>
Class Shares Par Value
--------------- ---------- ---------
<S> <C> <C>
Common Stock 25,000,000 $.001
Preferred Stock 1,000,000 $1.00
</TABLE>
The shares of Preferred Stock shall have the rights and preferences as adopted
by resolutions of the Board of Directors from time to time.
(b) The Board of Directors may, from time to time, establish by
resolution different classes or series of shares and may fix the relative
rights and preferences of said shares in any class or series.
(c) The Board of Directors shall have the authority to issue shares of
a class or series to holders of shares of another class or series to effectuate
share dividends, splits, or conversion of its outstanding shares.
(d) No stockholder of the Corporation shall have any preemptive
rights.
(e) No stockholder of the Corporation shall be entitled to any
cumulative voting rights.
ARTICLE V
The number, classification and terms of the Board of Directors of the
Corporation and the
<PAGE> 2
procedures to elect directors, to remove directors, and to fill vacancies in
the Board of Directors shall be as follows:
(a) The number of directors that shall constitute the whole Board of
Directors shall from time to time be fixed exclusively by the Board of
Directors by a resolution adopted by a majority of the whole Board of Directors
serving at the time of that vote. In no event shall the number of directors
that constitute the whole Board of Directors be fewer than three. No decrease
in the number of directors shall have the effect of shortening the term of any
incumbent director. Directors of the Corporation need not be elected by
written ballot unless the bylaws of the Corporation otherwise provide.
(b) The Board of Directors of the Corporation shall be divided into
three classes designated Class I, Class II and Class III, respectively, all as
nearly equal in number as possible, with each director then in office receiving
the classification that at least a majority of the Board of Directors
designates. The initial term of office of directors of Class I shall expire at
the annual meeting of stockholders of the Corporation in 1998, of Class II
shall expire at the annual meeting of stockholders of the Corporation in 1999,
and of Class III shall expire at the annual meeting of stockholders of the
Corporation in 2000, and in all cases as to each director until his successor
is elected and qualified or until his earlier death, resignation or removal.
At each annual meeting of stockholders beginning with the annual meeting of
stockholders in 1998, each director elected to succeed a director whose term is
then expiring shall hold his office until the third annual meeting of
stockholders after his or her election and until his or her successor is
elected and qualified or until his or her earlier death, resignation or
removal. If the number of directors that constitutes the whole Board of
Directors is changed as permitted by this Article, the majority of the whole
Board of Directors that adopts the change shall also fix and determine the
number of directors comprising each class; provided, however, that any
increase or decrease in the number of directors shall be apportioned among the
classes as equally as possible.
(c) Vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
and newly-created directorships resulting from any increase in the
authorized number of directors may be filled by no less than a majority vote of
the remaining directors then in office, though less than a quorum, who are
designated to represent the same class or classes of stockholders that the
vacant position, when filled, is to represent or by the sole remaining director
(but not by the stockholders except as required by law); provided that, with
respect to any directorship to be filled by the Board of Directors by reason of
an increase in the number of directors, (i) such directorship shall be for a
term of office continuing only until the next election of one or more directors
by the stockholders and (ii) the Board of Directors may not fill more than two
such directorships during the period between any two successive annual meetings
of stockholders. Each director chosen in accordance with this provision shall
receive the classification of the vacant directorship to which he or she has
been appointed or, if it is a newly-created directorship, shall receive the
classification that at least a majority of the Board of Directors designates
and shall hold office until the first meeting of stockholders held after his or
her election for the purpose of electing directors of that classification and
until his or her successor is elected and qualified or until his earlier death,
resignation or removal from office.
(d) A director of any class of directors of the Corporation may be
removed before the expiration date of that director's term of office only by an
affirmative vote of the holders of 65% of the
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<PAGE> 3
voting power of the then outstanding shares of capital stock entitled to vote
thereon ("Voting Stock"), voting together as a single class.
(e) Notwithstanding any other provisions of this Restated Certificate
of Incorporation or any provision of law that might otherwise permit a lesser
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Restated Certificate of Incorporation, the affirmative vote of
65% of the Voting Stock, voting together as a single class, shall be required
to amend or repeal, or to adopt any provision inconsistent with, this Article.
ARTICLE VI
All of the power of the Corporation, insofar as it may be lawfully
vested by this Restated Certificate of Incorporation in the Board of
Directors, is hereby conferred upon the Board of Directors of the Corporation.
In furtherance of and not in limitation of that power or the powers conferred
by law, (1) a majority of directors then in office (or such higher percentage
as may be specified in the bylaws with respect to any provision thereof) shall
have the power to adopt, alter, amend and repeal the bylaws of the Corporation;
(2) the stockholders of the Corporation shall have no power to appoint or
remove directors as members of committees of the Board of Directors, nor to
abrogate the power of the Board of Directors to establish any such committees
or the power of any such committee to exercise the powers and authority of the
Board of Directors; (3) the stockholders of the Corporation shall have no
power to elect or remove officers of the Corporation nor to abrogate the power
of the Board of Directors to elect and remove officers of the Corporation; and
(4) notwithstanding any other provision of this Restated Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Restated Certificate of Incorporation, the bylaws of the
Corporation shall not be adopted, altered, amended or repealed by the
stockholders of the Corporation except in accordance with the provisions of the
bylaws and by the vote of the holders of not less than 65% of the Voting Stock,
voting together as a single class, or such higher vote as is set forth in the
bylaws. In the event of a direct conflict between the bylaws of the
Corporation and this Restated Certificate of Incorporation, the provisions of
this Restated Certificate of Incorporation shall be controlling.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Restated Certificate of Incorporation, the affirmative vote of
the holders of not less than 65% of the Voting Stock, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article.
Subject to the terms of any Preferred Stock, any action required or
permitted to be taken by the stockholders of the Corporation must be taken at a
duly called annual or special meeting of stockholders and may not be taken by
written consent in lieu of such a meeting.
ARTICLE VII
Special meetings of the stockholders of the Corporation, and any
proposals to be considered at such meetings, may only be called and proposed by
(1) the Chairman of the Board, (2) the Chief
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<PAGE> 4
Executive Officer, (3) the Board of Directors pursuant to a resolution adopted
by a majority of the then-authorized number of directors or (4) the holders of
at least 25% of the outstanding Voting Stock, voting together as a single
class. Except as otherwise required by law or regulation, no business proposed
by a stockholder to be considered at an annual meeting of the stockholders
(including the nomination of any person to be elected as a director of the
Corporation) shall be considered by the stockholders at that meeting unless, no
later than sixty (60) days before the annual meeting of stockholders or (if
later) ten days after the first public notice of that meeting is sent to
stockholders, the Corporation receives from the stockholder proposing that
business a written notice that sets forth (1) the nature of the proposed
business with reasonable particularity, including the exact text of any
proposal to be presented for adoption, and the reasons for conducting that
business at the annual meeting; (2) with respect to each such stockholder,
that stockholder's name and address (as they appear on the records of the
Corporation), business address and telephone number, residence address and
telephone number and the number of shares of each class of stock of the
Corporation beneficially owned by that stockholder; (3) any interest of the
stockholder in the proposed business; (4) the name or names of each person
nominated by the stockholder to be elected or re-elected as a director, if any;
and (5) with respect to each nominee, that nominee's name, business address
and telephone number, and residence address and telephone number, the number of
shares, if any, of each class of stock of the Corporation owned directly and
beneficially by that nominee, and all information relating to that nominee that
is required to be disclosed in solicitations of proxies for elections of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any provision of law
subsequently replacing Regulation 14A, together with a duly acknowledged letter
signed by the nominee stating his or her acceptance of the nomination by that
shareholder, stating his or her intention to serve as a director if elected and
consenting to being named as a nominee for director in any proxy statement
relating to such election. The person presiding at the annual meeting shall
determine whether business (including the nomination of any person as a
director) has been properly brought before the meeting and, if the facts so
warrant, shall not permit any business (or voting with respect to any
particular nominee) to be transacted that has not been properly brought before
the meeting. Notwithstanding any other provisions of this Restated Certificate
of Incorporation or any provision of law that might otherwise permit a lesser
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Restated Certificate of Incorporation, the affirmative vote of
the holders of not less than 65% of the Voting Stock, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article.
ARTICLE VIII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law or (4) for any transaction from which the director derived any
improper personal benefit.
If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by
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<PAGE> 5
the Delaware General Corporation Law as so amended. Any repeal or modification
of the foregoing provisions of this Article by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE IX
The Corporation shall indemnify its officers, directors, employees and
agents to the fullest extent permitted by the General Corporation Law of
Delaware. Any repeal or modification of any of the foregoing provisions of
this Article IX shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
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<PAGE> 1
EXHIBIT 3.2
RESTATED BY-LAWS
OF
PRIMERA FOODS CORPORATION
<PAGE> 2
CONTENTS OF RESTATED BY-LAWS
OF
PRIMERA FOODS CORPORATION
PAGE
----
ARTICLE 1. OFFICES .................................................. 1
1.01 Registered Office ................................ 1
1.02 Other Offices .................................... 1
ARTICLE II. MEETINGS OF STOCKHOLDERS ................................. 1
2.01 Place of Meetings ................................ 1
2.02 Time of Meetings ................................. 1
2.03 Annual Meetings .................................. 1
2.03-a Business to be Transacted ................ 1
2.03-b Date and Time ............................ 2
2.03-c Election of Directors .................... 2
2.04 Special Meetings ................................. 2
2.05 Purpose of Special Meetings ...................... 3
2.06 Notice of Meetings ............................... 3
2.07 Waiver of Notice ................................. 3
2.08 Quorum; Adjournment .............................. 3
2.09 Vote Required .................................... 3
2.10 Voting Rights .................................... 4
2.11 Proxies .......................................... 4
2.12 No Action in Writing ............................. 4
2.13 Closing of Books; Record Date .................... 4
ARTICLE III. DIRECTORS ................................................ 5
3.01 General Powers .................................... 5
3.02 Number and Qualification .......................... 5
3.03 Classes and Terms ................................. 5
3.04 Vacancies ......................................... 5
3.05 Meetings .......................................... 6
3.05-a Place of Meeting .......................... 6
3.05-b Regular Meetings .......................... 6
3.05-c Special Meetings .......................... 6
3.05-d Notice .................................... 6
3.05-e Quorum; Voting Requirements; Adjournment .. 7
3.05-f Organization of Meetings .................. 7
3.05-g Action in Writing ......................... 7
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<PAGE> 3
3.05-h Absent Directors .......................... 7
3.06 Committees ........................................ 8
3.06-a Executive Committee ....................... 8
3.06-b Committee of Disinterested Persons ........ 8
3.06-c Compensation Committee .................... 8
3.06-d Audit Committee ........................... 8
3.06-e Other Committees .......................... 9
3.06-f Limitations on Authority .................. 9
3.06-g Minutes of Committee Meetings ............. 9
3.06-h Limitation of Power of Stockholders ....... 9
3.07 Telephone Conference Meetings ..................... 9
3.08 Compensation ...................................... 10
3.09 Limitation of Director's Liabilities .............. 10
3.10 Resignation and Removal ........................... 10
ARTICLE IV. OFFICERS ................................................. 10
4.01 Selection; Qualification .......................... 10
4.01-a Election; Qualifications .................. 10
4.01-b Additional Officers ....................... 11
4.02 Salaries .......................................... 11
4.03 Term of Office .................................... 11
4.04 Chair of the Board ................................ 11
4.05 Chief Executive Officer ........................... 11
4.06 President ......................................... 11
4.07 Vice-Presidents ................................... 12
4.08 Secretary ......................................... 12
4.09 Chief Financial Officer ........................... 12
4.09-a Custody of Funds and Accounting ........... 12
4.09-b Disbursements and Reports ................. 12
4.09-c Bond ...................................... 12
ARTICLE V. CERTIFICATES FOR SHARES .................................. 12
5.01 Issuance of Shares and Fractional Shares .......... 12
5.02 Form of Certificate ............................... 13
5.03 Facsimile Signatures .............................. 13
5.04 Lost, Stolen, or Destroyed Certificates ........... 13
5.05 Transfers of Stock ................................ 14
5.06 Uncertificated Shares ............................. 14
5.07 Closing of Transfer Books; Record Date ............ 14
5.08 Registered Stockholders ........................... 14
5.09 Stock Options and Agreements ...................... 15
ARTICLE VI. DIVIDENDS ................................................ 15
6.01 Method of Payment ................................. 15
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<PAGE> 4
6.02 Closing of Books; Record Date ..................... 15
6.03 Reserves .......................................... 15
6.04 Determining Fair Market Value ..................... 15
ARTICLE VII. CHECKS ................................................... 15
7.01 ................................................... 15
ARTICLE VIII. CORPORATE SEAL ........................................... 16
8.01 ................................................... 16
ARTICLE IX. FISCAL YEAR .............................................. 16
9.01 ................................................... 16
ARTICLE X. AMENDMENTS ............................................... 16
10.01 ................................................... 16
ARTICLE XI. BOOKS AND RECORDS ........................................ 16
11.01 Books and Records ................................. 16
11.02 Computerized Records .............................. 16
ARTICLE XII. INSPECTION OF BOOKS ....................................... 17
12.01 Examination and Copying by Stockholders ........... 17
ARTICLE XIII. LOANS AND ADVANCES ....................................... 17
13.01 Loans, Guarantees, and Suretyship ................. 17
13.02 Advances to Officers, Directors, and Employees .... 17
ARTICLE XIV. INDEMNIFICATION .......................................... 17
14.01 ................................................... 17
ARTICLE XV. DEFINITIONS AND USAGE .................................... 17
15.01 Singular, Plural; Masculine
Feminine, and Neuter .............................. 17
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<PAGE> 5
RESTATED BY-LAWS
OF
PRIMERA FOODS CORPORATION
ARTICLE I: OFFICES
Section 1.01. Registered Office. The registered office of the
Corporation in Delaware shall be that set forth in the Certificate of
Incorporation or in the most recent amendment of the Certificate of
Incorporation or in a certificate prepared by the Board of Directors and filed
with the Secretary of State of Delaware changing the registered office.
Section 1.02. Other Offices. The Corporation may also have offices and
places of business at such other places of business both within and without the
State of Delaware as the Board of Directors may from time to time determine or
the business of the Corporation may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS
Section 2.01. Place of Meetings. All meetings of the stockholders of the
Corporation shall be held at its registered office or at such other place
within or without the State of Delaware as shall be stated by the Board of
Directors in the notice of the meeting. In the absence of designation
otherwise, meetings shall be held at the principal business address of the
Corporation in the State of Wisconsin.
Section 2.02. Time of Meetings. The Board of Directors shall designate
the time and day for each meeting. In the absence of such designation, every
meeting of the stockholders shall be held at 3:30 p.m., Central Time.
Section 2.03. Annual Meetings.
Section 2.03-a. Business to be Transacted. Except as otherwise
required by law or regulation, no business proposed by a stockholder to
be considered at an annual meeting of the stockholders (including the
nomination of any person to be elected as a director of the Corporation)
shall be considered by the stockholders at that meeting unless, no later
than sixty (60) days before the annual meeting of stockholders or (if
later) ten (10) days after the first public notice of that meeting is
sent to stockholders, the Corporation receives from the stockholder
proposing that business a written notice that sets forth (1) the nature
of the proposed business with reasonable particularity, including the
exact text of any proposal to be presented for adoption, and the reasons
for conducting that business at the annual meeting; (2) with respect to
each such stockholder, that stockholder's name and address (as they
appear on the records of the Corporation), business address and telephone
number, residence address and telephone number, and the number of shares
of each class of stock of the Corporation beneficially owned by that
stockholder; (3) any interest of the stockholder
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<PAGE> 6
in the proposed business; (4) the name or names of each person
nominated by the stockholder to be elected or re-elected as a director,
if any; and (5) with respect to each nominee, that nominee's name,
business address and telephone number, and residence address and
telephone number, the number of shares, if any, of each class of stock of
the Corporation owned directly and beneficially by that nominee, and all
information relating to that nominee that is required to be disclosed in
solicitations of proxies for elections of directors, or is otherwise
required, pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, or any provision of law subsequently replacing
Regulation 14A, together with a duly acknowledged letter signed by the
nominee stating his or her acceptance of the nomination by that
stockholder, stating his or her intention to serve as a director if
elected, and consenting to being named as a nominee for director in any
proxy statement relating to such election. The person presiding at the
annual meeting shall determine whether business (including the nomination
of any person as a director) has been properly brought before the meeting
and, if the facts so warrant, shall not permit any business (or voting
with respect to any particular nominee) to be transacted that has not
been properly brought before the meeting. Notwithstanding any other
provisions of the Certificate of Incorporation or any provision of law
that might otherwise permit a lesser or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the
capital stock of the Corporation required by law or by the Certificate of
Incorporation, the affirmative vote of the holders of not less than
sixty-five percent (65%) of the voting power of the then outstanding
shares of capital stock entitled to vote thereon (the "Voting Stock"),
voting together as a single class, shall be required to amend or repeal,
or to adopt a provision inconsistent with, this Section 2.03-a.
Section 2.03-b. Date and Time. Annual meetings of stockholders
shall be held at such date and time as shall be designated by the Board
of Directors and stated in the notice of the meeting.
Section 2.03-c. Election of Directors. At each annual meeting of
stockholders beginning in 1998, the stockholders, voting as provided in
the Certificate of Incorporation or in these Bylaws, shall elect
directors to succeed directors whose terms are expiring, each such
director to hold his office until the third annual meeting of
stockholders after his or her election and until his or her successor is
elected and qualified or until his or her earlier death, resignation or
removal.
Section 2.04. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may only be called and proposed by (i) the
Chairman of the Board, (ii) the Chief Executive Officer, (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the then-authorized
number of directors or (iv) the holders of at least twenty-five percent (25%)
of the outstanding Voting Stock, voting together as a single class. Such
request shall state the purpose or purposes of the proposed meeting.
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<PAGE> 7
Section 2.05. Purpose of Special Meeting. Business transacted at any
special meeting of the stockholders shall be limited to the matters stated in
the notice, or other matters necessarily incidental therefor.
Section 2.06. Notice of Meetings. Notice of meetings shall be in
writing. Such notice shall state the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. A copy of such notice shall be either delivered personally or
mailed, postage prepaid, to each stockholder of record entitled to vote at such
meeting pursuant to Section 2.13 hereof not less than ten (10) nor more than
sixty (60) days before such meeting. If mailed, it shall be directed to each
stockholder at his address as it appears upon the records of the Corporation,
and upon such mailing of any such notice, the service thereof shall be
complete, and the time of the notice shall begin to run from the date that such
notice is deposited in the mail for transmission to such stockholder. Personal
delivery of any such notice to a corporation, an association, or a partnership
shall be accomplished by personal delivery of such notice to any officer of a
corporation or an association or to any member of a partnership.
Section 2.07. Waiver of Notice. Notice of any meeting of the
stockholders may be waived before, at, or after such meeting in a writing
signed by the stockholder or representative thereof entitled to vote the shares
so represented. Such waiver shall be filed with the Secretary or entered upon
the records of the meeting.
Section 2.08. Quorum; Adjournment. The holders of a majority of the
voting power of all shares entitled to vote, present in person or represented
by proxy, shall constitute a quorum for the transaction of all meetings of the
stockholders, except as may be otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting in accordance with the notice thereof. If a quorum is present when a
duly called or held meeting is convened, the stockholders present in person or
represented by proxy may continue to transact business until adjournment
notwithstanding the withdrawal of enough stockholders originally present in
person or by proxy to leave less than a quorum, and for the purposes of voting
pursuant to Section 2.09 hereof, stockholders holding a majority of the voting
power of all shares entitled to vote shall be deemed to be present in person.
Section 2.09. Vote Required. When a quorum is present or represented at
any meeting, the vote of the holders of a majority of the voting power of all
shares entitled to vote present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one that by
express provision of statute or of the Certificate of Incorporation or of these
Bylaws requires a different vote, in which case such express provision shall
govern the vote required.
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<PAGE> 8
Section 2.10. Voting Rights. Except as may be otherwise required by
statute or the Articles of Incorporation or these Bylaws, every stockholder of
record of the Corporation shall be entitled at each meeting of the stockholders
to one vote for each share of stock standing in his name on the books of the
Corporation.
Section 2.11. Proxies. At any meeting of the stockholders, any
stockholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing, signed by the stockholder, and filed with the Secretary
at or before the meeting. In addition, a stockholder may cast or authorize the
casting of a vote by a proxy by transmitting to the Corporation or the
Corporation's duly authorized agent before the meeting, an appointment of a
proxy by means of a telegram, cablegram, or any other form of electronic
transmission, including telephonic transmission, whether or not accompanied by
written instructions of the stockholder. The electronic transmission must set
forth or be submitted with information from which it can be determined that the
appointment was authorized by the stockholder. If it is determined that a
telegram, cablegram, or other electronic transmission is valid, the inspectors
of election or, if there are no inspectors, the other persons making that
determination shall specify the information upon which they relied to make that
determination.
An appointment of a proxy or proxies for shares held jointly by two or
more stockholders is valid if signed by any one of them, unless and until the
Corporation receives from any one of those stockholders written notice denying
the authority of such other person or persons to appoint a proxy or proxies or
appointing a different proxy or proxies, in which case no proxy shall be
appointed unless the instrument shall otherwise provide. If the proxies
present at the meeting are equally divided on an issue, the shares represented
by such proxies shall not be voted on such issue. No proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period. Subject to the above, any duly executed proxy shall continue in
full force and effect and shall not be revoked unless written notice of its
revocation or a duly executed proxy bearing a later date is filed with the
Secretary of the Corporation. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable proxy.
Section 2.12. No Action in Writing. Subject to the terms of any
preferred stock of the Corporation, any action required or permitted to be
taken by the stockholders of the Corporation must be taken at a duly called
annual or special meeting of stockholders and may not be taken by written
consent in lieu of such a meeting.
Section 2.13. Closing of Books; Record Date. The Board of Directors may
fix, or authorize an officer to fix, a date, not exceeding sixty (60) days
preceding the date of any meeting of the stockholders of the Corporation, as a
record date for the determination of the stockholders of record on the date so
fixed or their legal representatives shall be entitled to notice of and to vote
at such meeting, notwithstanding any transfer of shares on the books of the
Corporation against the transfer of shares during the whole or any part of such
period. If the Board of Directors or an authorized officer fails to fix such a
record date, the record date shall be the twentieth (20th) day preceding the
date of such meeting.
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<PAGE> 9
ARTICLE III. DIRECTORS
Section 3.01. General Powers. The business of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are by statute or by the
Certificate of Incorporation or by these Bylaws permitted, directed or required
to be exercised or done by the Board of Directors.
Section 3.02. Number and Qualification. The number of directors that
shall constitute the whole Board of Directors shall from time to time be fixed
exclusively by the Board of Directors by a resolution adopted by a majority of
the whole Board of Directors serving at the time of that vote. In no event
shall the number of directors that constitute the whole Board of Directors be
fewer than three. No decrease in the number of directors shall have the effect
of shortening the term of any incumbent director. Directors of the Corporation
need not be elected by written ballot. Directors need not be stockholders.
Section 3.03. Classes and Terms. The Board of Directors of the
Corporation shall be divided into three classes designated Class I, Class II,
and Class III, respectively, all as nearly equal in number as possible, with
each director then in office receiving the classification that at least a
majority of the Board of Directors designates. The initial term of office of
directors of Class I shall expire at the annual meeting of stockholders of the
Corporation in 1998, of Class II shall expire at the annual meeting of
stockholders of the Corporation in 1999, and of Class III shall expire at the
annual meeting of stockholders of the Corporation in 2000, and in all cases as
to each director until his successor is elected and qualified or until his
earlier death, resignation or removal. At each annual meeting of stockholders
beginning with the annual meeting of stockholders in 1998, each director
elected to succeed a director whose term is then expiring shall hold his office
until the third annual meeting of stockholders after his election and until his
successor is elected and qualified or until his earlier death, resignation or
removal. If the number of directors that constitutes the whole Board of
Directors is changed as permitted by the Certificate of Incorporation or these
Bylaws, the majority of the whole Board of Directors that adopts the change
shall also fix and determine the number of directors comprising each class;
provided, however, that any increase or decrease in the number of directors
shall be apportioned among the classes as equally as possible. Notwithstanding
any provision of the Certificate of Incorporation or any provision of law that
might otherwise permit a lesser or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the capital stock of
the Corporation required by law or by the Certificate of Incorporation, the
affirmative vote of 65% of the Voting Stock, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with, this Section 3.03.
Section 3.04. Vacancies. Vacancies in the Board of Directors resulting
from death, resignation, retirement, disqualification, removal from
office, or other cause and newly-created directorships resulting from any
increase in the authorized number of directors may be filled by no less than a
majority vote of the remaining directors then in office, though less than a
quorum, who are designated to represent the same class or classes of
stockholders that the vacant position, when
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<PAGE> 10
filled, is to represent or by the sole remaining director (but not by
the stockholders except as required by law); provided that, with respect to
any directorship to be filled by the Board of Directors by reason of an
increase in the number of directors, (A) such directorship shall be for a term
of office continuing only until the next election of one or more directors by
the stockholders and (B) the Board of Directors may not fill more than two such
directorships during the period between any two successive annual meetings of
stockholders. Each director chosen in accordance with this provision shall
receive the classification of the vacant directorship to which he has been
appointed or, if it is a newly-created directorship, shall receive the
classification that at least a majority of the Board of Directors designates
and shall hold office until the first meeting of stockholders held after his
election for the purpose of electing directors of that classification and until
his successor is elected and qualified or until his earlier death, resignation,
or removal from office. Notwithstanding any provision of the Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by the Certificate of Incorporation, the affirmative vote of 65% of the
Voting Stock, voting together as a single class, shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Section 3.04.
Section 3.05. Meetings.
Section 3.05-a. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 3.05-b. Regular Meetings. As soon as practicable after
each regular election of Directors, the Board of Directors shall meet at
the registered office of the Corporation, or at such other place within
or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing the officers of the Corporation
and for the transaction of such other business as shall come before the
meeting. Other regular meetings of the Board of Directors may be held
without notice at such time and place within and without the State of
Delaware as shall from time to time be determined by resolution of the
Board of Directors.
Section 3.05-c. Special Meetings. Special meetings of the Board of
Directors may be called by the Chief Executive Officer or Secretary or by
one or more Directors and shall be held at such time and place as shall
be designated in the notice of such meeting.
Section 3.05-d. Notice. Notice of a special meeting shall be given
to each Director at least 24 hours before the time of the meeting, or at
the earliest time possible thereafter, but prior to such meeting, if it
is impractical to give such notice 24 hours in advance. Notice may be
given by any means calculated to apprise the Directors of the time, place
and subject matter of the special meeting. Notice by mail shall be
deemed to be given at the time when the same shall be mailed, such
mailing to take place at least three (3) business days prior to
such meeting. Whenever any provision of law, the Certificate of
Incorporation, or the Bylaws require notice to be given, any Director
may, in writing, either before or after the meeting, waive notice
thereof. Without notice, any Director, by his attendance at and
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<PAGE> 11
participation in the action taken at the meeting, shall be deemed to have
waived notice thereof.
Section 3.05-e. Quorum; Voting Requirements; Adjournment. A
majority of the Board of Directors then in office shall be necessary to
constitute a quorum for the transaction of business, and the act of a
majority of the Directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation or these Bylaws.
If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting to
another time or place, and no notice as to such adjourned meeting need be
given other than by announcement at the meeting at which such adjournment
is taken. If a quorum is present at the call of a meeting, the Directors
may continue to transact business until adjournment notwithstanding the
withdrawal of enough Directors to leave less than a quorum.
Section 3.05-f. Organization of Meetings. At all meetings of the
Board of Directors, the Chair of the Board, if appointed, or in his
absence, the Chief Executive Officer, or in his absence, any Director
appointed by the Chief Executive Officer, shall preside, and the
Secretary, or in his absence, any person appointed by the Chief Executive
Officer, shall act as Secretary.
Section 3.05-g. Action in Writing. Except as may be otherwise
required by statute or the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of
Directors of the Corporation may be taken without a meeting, without
prior notice, and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the number of Directors that
would be necessary to authorize or take such action at a meeting at which
all Directors entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less
than unanimous consent shall be given to those Directors who have not
consented in writing.
Section 3.05-h. Absent Directors. A Director may give advance
written consent or opposition to a proposal to be acted on at a meeting
of the Board of Directors. Such advance written consent or opposition
shall be ineffective unless the writing is delivered to the Chief
Executive Officer or Secretary of the Corporation prior to the meeting at
which such proposal is to be considered. If the Director is not present
at the meeting, consent or opposition to a proposal does not constitute
presence for purposes of determining the existence of a quorum, but such
consent or opposition shall be counted as a vote in favor of or against
the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the
proposal to which the Director has consented or objected, such
substantial similarity to be determined in the sole judgment of the
presiding officer at the meeting.
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Section 3.06. Committees.
Section 3.06-a. Executive Committee. The Board of Directors may,
by affirmative action of a majority of the Directors present, establish
an Executive Committee consisting of two (2) or more Directors of the
Corporation. Such Committee may meet at stated times or on notice by any
Committee member to all other members. The Executive Committee, to the
extent determined by such action of the Board, shall have and exercise
the authority of the Board and the management of the business of the
Corporation. Any such Executive Committee shall act only in the interval
between meetings of the Board and shall be subject at all times to the
control and direction of the Board.
Section 3.06-b. Committee of Disinterested Persons. The Board of
Directors may establish a Committee composed of two (2) or more
disinterested Directors or other disinterested persons to determine
whether it is in the best interests of the Corporation to pursue a
particular legal right or remedy of the Corporation or whether to cause
the dismissal or discontinuance of a particular proceeding that seeks to
assert a right or remedy on behalf of the Corporation. For purposes of
this Section 3.06-b, a Director or other person is "disinterested" if the
Director or other person is not the owner of more than one percent (1%)
of the outstanding shares of stock of the Corporation, is not currently
an officer, employee, or agent of the Corporation or of a related
corporation, has not been an officer within the immediately preceding two
(2) years, and has not been made or threatened to be made a party to the
proceeding in question. The Committee, once established, is not subject
to the direction or control of, or termination by, the Board of
Directors. A vacancy on the Committee may be filled by a majority vote
of the remaining members. The good faith determination of the Committee
is binding upon the Corporation and its Directors, officers, and
stockholders. The Committee shall be dissolved upon the issuance of a
final written report of its determinations to the Board of Directors.
Section 3.06-c. Compensation Committee. The Board of Directors
may, by affirmative action of a majority of the Directors present,
establish a Compensation Committee consisting of two (2) or more
Directors of the Corporation, neither of whom is an employee or affiliate
of the Corporation. When constituted, the Compensation Committee shall
review on behalf of, and make recommendations to, the Board of Directors
with respect to the compensation of executive officers and shall
administer the Company's option plans and make recommendations to the
Board of Directors with respect to the plans and the grant of options to
persons eligible under the plans. Such Committee may meet at stated
times or on notice by any Committee member to all other members.
Section 3.06-d. Audit Committee. The Board of Directors may, by
affirmative action of a majority of the Directors present, establish a
Compensation Committee consisting of two (2) or more Directors of the
Corporation, neither of whom is an employee or affiliate of the
Corporation. When constituted, the Audit Committee's functions shall
include recommending to the Board of Directors the engagement of the
Company's independent public accountants, reviewing with such accountants
the plans for and the results and scope
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of their auditing engagement and certain other matters relating to
their services provided to the Company, including the independence of
such accountants. Such Committee may meet at stated times or on notice
by any Committee member to all other members.
Section 3.06-e. Other Committees. The Board of Directors may
establish, by affirmative action of a majority of the Directors present,
other committees from time to time, making such regulations as it deems
advisable with respect to the membership, authority, and procedures of
such committees.
Section 3.06-f. Limitations on Authority. No committees of the
Corporation shall have authority as to any of the following matters:
(a) The submission to stockholders of any action as
to which stockholders' authorization is required by law or by
the Certificate of Incorporation or these Bylaws;
(b) The fixing of the number of Directors or the
filling of vacancies on the Board of Directors or on any
committees;
(c) The fixing of compensation of any Director for
serving on the Board or on any committee;
(d) The amendment or repeal of these Bylaws or the
adoption of new Bylaws; or
(e) The amendment or repeal of any resolution of the
Board, which by its terms shall not be so amendable or
repealable.
Section 3.06-g. Minutes of Committee Meetings. The committees
shall keep regular minutes of their proceedings and report the same to
the Board of Directors when required.
Section 3.06-h. Limitation of Power of Stockholders. The
stockholders of the Corporation shall have no power to appoint or remove
directors as members of committees of the Board of Directors, nor to
abrogate the power of the Board of Directors to establish any such
committees or the power of any such committee to exercise the powers and
authority of the Board of Directors.
Section 3.07. Telephone Conference Meetings. Any Director or any member
of a duly constituted committee of the Board of Directors may participate in
any meeting of the Board of Directors or of any duly constituted committee
thereof my means of a conference telephone or other comparable communication
technique whereby all persons participating in such a meeting can hear and
communicate with each other. For the purpose of establishing a quorum and
taking any action at such a meeting, the members participating in such a
meeting pursuant to this Section 3.07 shall be
deemed present in person at such meeting.
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Section 3.08. Compensation. Unless otherwise provided by the Board of
Directors, Directors shall be paid their expenses, if any, of attendance at
each meeting of the Board of Directors or a committee thereof. Directors shall
be paid $500 for attendance at each meeting of the Board of Directors or
committee thereof unless a different sum is fixed by resolution of the Board of
Directors. In addition and unless otherwise fixed by resolution of the Board of
Directors, Directors who are neither employees nor affiliates of the
Corporation or of Cham Foods (Israel) Ltd. shall also be paid $10,000 annually
and shall be granted annually an option to purchase 5,000 shares of the
Corporation's Common Stock. Directors may also receive other compensation for
their service as directors or committee members as determined by the Board of
Directors. Nothing herein contained shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
Section 3.09. Limitation of Directors' Liabilities. A Director shall not
be liable to the Corporation or its stockholders for dividends illegally
declared, distributions illegally made to stockholders, or any other actions
taken in good faith reliance upon financial statements of the Corporation
represented to him to be correct by the Chief Executive Officer of the
Corporation or the officer having charge of its books of account or certified
by an independent or certified public accountant to fairly reflect the
financial condition of the Corporation; nor shall he be liable if in good faith
in determining the amount available for dividends or distributions the Board
values the assets in a manner allowable under applicable law.
Section 3.10. Resignation and Removal. A director may resign at any time
by giving written notice to the Secretary. Such resignation shall take effect
on the date of the Secretary's receipt of such notice or at such later date as
specified therein. An employee of the Corporation who is also a Director shall
resign as a Director coincident with his or her termination of employment. A
director of any class of directors of the Corporation may be removed before the
expiration date of that director's term of office, with or without cause, only
by an affirmative vote of the holders of sixty-five percent (65%) of the voting
power of the Voting Stock, voting together as a single class. Notwithstanding
any provision of the Certificate of Incorporation or any provision of law that
might otherwise permit a lesser or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the capital stock of
the Corporation required by law or by the Certificate of Incorporation, the
affirmative vote of 65% of the Voting Stock, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with, this Section 3.10.
ARTICLE IV. OFFICERS
Section 4.01. Selection; Qualifications.
Section 4.01-a. Election: Qualifications. The Board of Directors
at its next meeting after each annual meeting of the stockholders shall
choose a Chair of the Board, a Chief Executive Officer, a Secretary, a
Chief Financial Officer, and such other officers or agents as it deems
necessary, none of whom need be members of the Board. Any two or more of
the
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offices, except those of Chief Executive Officer and Vice President, may
be held by the same person.
Section 4.01-b. Additional Officers. The Board of Directors may
choose a President, additional Vice Presidents, Assistant Secretaries,
and Assistant Treasurers and such other officers and agents as it shall
deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from
time to time by the Board.
Section 4.02. Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors.
Section 4.03. Term of Office. The officers of the Corporation shall hold
office until their successors are chosen and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time with or without
cause by the affirmative vote of a majority of the Board of Directors. Any
officer may resign at any time by giving written notice to the Chief Executive
Officer or the Secretary of the Corporation. Any vacancy occurring in any
office of the Corporation by death, resignation, removal, or otherwise shall be
filled by the Board of Directors. The stockholders of the Corporation shall
have no power to appoint or remove officers of the Corporation nor to abrogate
the power of the Board of Directors to elect and remove officers of the
Corporation.
Section 4.04. Chair of the Board. The Chair of the Board of Directors
shall preside at all meetings of the Board of Directors and of the stockholders
and shall perform such other duties as he may be directed to perform by the
Board of Directors.
Section 4.05. Chief Executive Officer. The Chief Executive Officer of
the Corporation shall have general active management of the business of the
Corporation. Unless the Board has elected a Chair of the Board of Directors,
the Chief Executive Officer shall preside at meetings of the stockholders of
the Corporation and at meetings of the Board of Directors. The Chief Executive
Officer shall, with the direction and approval of the Board, establish and
appoint members to committees from time to time; may execute and deliver in the
name of the Corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the Corporation, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly delegated by the Board to some other officer or
agent of the Corporation; may delegate the authority to execute and deliver
documents to other officers of the Corporation; shall maintain records of and,
whenever necessary, certify any proceedings of the stockholders and the Board;
shall perform such other duties as may from time to time be prescribed by the
Board; and, in general, shall perform all duties usually incident to the office
of the Chief Executive Officer.
Section 4.06. President. The President of the Corporation shall have
general active management of the business of the Corporation in the
absence or disability of the Chief Executive Officer. He shall also generally
assist the Chief Executive Officer and exercise such other powers and perform
such other duties as are delegated to him by the Chief Executive Officer or as
the Board of Directors shall prescribe.
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Section 4.07. Vice-Presidents. Unless otherwise determined by the Board
of Directors, the Vice Presidents, if any, shall, in the absence or disability
of the President, perform the duties and exercise the powers of the President.
They shall also generally assist the Chief Executive Officer and the President
and exercise such other powers and perform such other duties as are delegated
to them by the Chief Executive Officer or the President or as the Board of
Directors shall prescribe.
Section 4.08. Secretary. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all the proceedings
of the meetings of the stockholders and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required, and shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or the Chief Executive Officer, under whose supervision he shall be.
Section 4.09. Chief Financial Officer.
Section 4.09-a. Custody of Funds and Accounting. The Chief
Financial Officer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors.
Section 4.09-b. Disbursements and Reports. The Chief Financial
Officer shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements,
and shall render to the Chief Executive Officer and the Board of
Directors, at the regular meetings of the Board, or when the Board of
Directors so requires, an account of all his transactions as Chief
Financial Officer and of the financial condition of the Corporation.
Section 4.09-c. Bond. If required by the Board of Directors, the
Chief Financial Officer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and
for the restoration, upon the expiration of his term of office or his
resignation, retirement, or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
ARTICLE V. CERTIFICATES FOR SHARES
Section 5.01. Issuance of Shares and Fractional Shares. The Board of
Directors is authorized to issue shares and fractional shares of stock
of the Corporation up to the full amount authorized by the Certificate of
Incorporation in such amounts as may be determined by the Board of Directors
and as permitted by law. No shares shall be allotted except in consideration
of cash or other property, tangible or intangible, received or to be received
under a written agreement by the Corporation, or
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services rendered or to be rendered under a written agreement to the
Corporation, or an amount transferred from surplus to stated capital upon a
share dividend. At the time of each such allotment of shares, the Board of
Directors shall state by resolution its determination of the fair market value
to the Corporation in monetary terms of any consideration other than cash for
which shares are allotted. The amount of consideration to be received in cash
or otherwise shall not be less than the par value of the shares so allotted nor
less than the stated capital to be represented by shares without par value so
allotted.
Section 5.02. Form of Certificate. The shares of the Corporation shall
be represented by a certificate or shall be uncertificated. Certificates
shall be signed by the Chair of the Board, the President or a Vice President
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares of capital stock
owned by him in the Corporation. If the Corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
designations, preferences, and relative, participating, optional, or other
special rights of the various classes of stock or series thereof and the
qualifications, limitations, or restrictions of such rights, together with a
statement of the authority of the Board of Directors to determine the relative
rights and preferences of subsequent classes or series, shall be set forth in
full on the face or back of the certificate which the Corporation shall issue
to represent such stock, or, in lieu thereof, such certificate shall contain a
statement that the stock is, or may be, subject to certain rights, preferences,
or restrictions and that a statement of the same will be furnished without
charge by the Corporation upon request by any stockholder. Certificates
representing the shares of the capital stock of the Corporation shall be in
such form not inconsistent with law or the Certificate of Incorporation or
these Bylaws as shall be determined by the Board of Directors.
Section 5.03. Facsimile Signatures. Whenever any certificate is
countersigned or otherwise authenticated by a transfer agent, transfer clerk,
or registrar, then a facsimile of the signatures of the officers or agents of
the Corporation may be printed or lithographed upon such certificate in lieu of
the actual signatures. In case any officer or officers who shall have signed,
or whose facsimile signature shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation, or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be signed and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be the officer or officers of the Corporation.
Section 5.04. Lost, Stolen, or Destroyed Certificates. The Board of
Directors may direct a new certificate or new certificates or
uncertificated shares to be issued in place of a certificate or certificates
previously issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or new certificates or uncertificated shares,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation
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<PAGE> 18
a bond in such sum as it may direct as indemnity against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
Section 5.05. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books; except that the Board of Directors may, by
resolution duly adopted, establish conditions upon the transfer of shares of
stock to be issued by the Corporation, and the purchasers of such shares shall
be deemed to have accepted such conditions on transfer upon the receipt of the
certificate representing such shares, provided that the restrictions shall be
referred to on the certificates or the purchaser shall have otherwise been
notified thereof.
Section 5.06. Uncertificated Shares. Unless prohibited by the
Certificate of Incorporation or these Bylaws, some or all of any or all classes
and series of the Corporation's shares may be uncertificated shares. Upon
receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the
books of the Corporation. Within a reasonable time after the issuance or
transfer of uncertificated shares, the Corporation shall send to the new
stockholder the information required by Section 5.02 to be stated on
certificates. If this Corporation becomes a publicly held corporation which
adopts, in compliance with Section 17 of the Securities Exchange Act of 1934, a
system of issuance, recordation, and transfer of its shares by electronic or
other means not involving an issuance of certificates, this information is not
required to be sent to new stockholders.
Section 5.07. Closing of Transfer Books; Record Date. The Board of
Directors or an officer of the Corporation authorized by the Board may close
the stock transfer books of the Corporation for a period not exceeding sixty
(60) days preceding the date of any meeting of stockholders as provided in
Section 2.13 hereof or the date for payment of any dividend as provided in
Section 6.02 hereof or the date for the allotment of rights or the date when
any change or conversion or exchange of capital stock shall go into effect. In
lieu of closing the stock transfer books as aforesaid, the Board of Directors
or an officer of the Corporation authorized by the Board may fix, in advance, a
date, not exceeding sixty (60) days preceding the date for payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, as a record
date for the determination of the stockholders entitled to receive payment.
Section 5.08. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of the persons registered on its books
as the owners of shares to receive dividends and to vote as such owners and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided in the laws
of Delaware.
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Section 5.09. Stock Options and Agreements. In addition to any stock
options, plans, or agreements into which the Corporation may enter, any
stockholder of the Corporation may enter into an agreement giving at any other
stockholder or stockholders or any third party an option to purchase any of his
stock in the Corporation, and such shares of stock shall thereupon be subject
to such agreement and transferable only upon proof of compliance therewith;
provided, however, that a copy of such agreement shall be filed with the
Corporation and reference thereto placed upon the certificates representing
said shares of stock.
ARTICLE VI. DIVIDENDS
Section 6.01. Method of Payment. Dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 6.02. Closing of Books; Record Date. The Board of Directors or an
officer of the Corporation authorized by the Board may fix a date not exceeding
sixty (60) days preceding the date fixed for the payment of any dividend as the
record date for the determination of the stockholders entitled to receive
payment of the dividend and, in such case, only stockholders of record on the
date so fixed shall be entitled to receive payment of such dividend
notwithstanding any transfer of shares on the books of the Corporation after
the record date. The Board of Directors or an officer of the Corporation
authorized by the Board may close the books of the Corporation against the
transfer of shares during the whole or any part of such period. If the Board
of Directors or an officer of the Corporation authorized by the Board fails to
fix such a record date, the record date shall be the twentieth (20th) day
preceding the date of such payment.
Section 6.03. Reserves. Before payment of any dividend, there may be set
aside out of the funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves for meeting contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall think conducive to
the interest of the Corporation, and the Board may modify or abolish any such
reserve in the manner in which it was created.
Section 6.04. Determining Fair Market Value. The Board of Directors in
computing the fair market value of the assets of the Corporation to determine
whether the Corporation may pay a dividend or purchase its shares shall not
include unrealized appreciation of assets, except that readily marketable
securities of other issuers may be valued at not more than market value.
ARTICLE VII: CHECKS
Section 7.01. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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ARTICLE VIII: CORPORATE SEAL
Section 8.01. The Corporation shall have no corporate seal.
ARTICLE IX: FISCAL YEAR
Section 9.01. The fiscal year of the Corporation shall end on December 31
unless otherwise fixed by resolution of the Board of Directors.
ARTICLE X. AMENDMENTS
Section 10.01. These Bylaws shall not be adopted, altered, amended or
repealed except in accordance with the provisions of the Certificate of
Incorporation and these Bylaws. Unless a different requirement is mandated by
the Certificate of Incorporation of these Bylaws, adoption, alteration,
amendment or repeal of these Bylaws requires the affirmative action of a
majority of the Directors then in office or the vote of the holders of not less
than sixty-five percent (65%) of the Voting Stock, voting together as a single
class, at an annual meeting of the stockholders or any special meeting of the
stockholders.
ARTICLE XI: BOOKS AND RECORDS
Section 11.01. Books and Records. The Board of Directors of the
Corporation shall cause to be kept:
(a) a share register not more than one year old,
giving the names and addresses of the stockholders, the number
and classes held by each, and the dates on which the
certificated or uncertificated shares were issued;
(b) records of all proceedings of stockholders and
Directors; and
(c) such other records and books of account as shall
be necessary and appropriate to the conduct of the corporate
business.
Section 11.02. Computerized Records. The records maintained by the
Company, including its share register, financial records, and minute books, may
utilize any information storage technique, including, for example, punched
holes, printed or magnetized spots, or micro-images, even though that makes
them illegible visually, if the records can be converted, by machine and within
a reasonable time, into a form that is legible visually and whose contents are
assembled by related subject matter to permit convenient use by persons in the
normal course of business.
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ARTICLE XII. INSPECTION OF BOOKS
Section 12.01. Examination and Copying by Stockholders. Every
stockholder of record of the Corporation shall have a right to examine, in
person or by agent or attorney, at any reasonable time or times, at the place
or places where usually kept, and upon the showing of a proper purpose, the
Corporation's stock ledger, a list of its stockholders and its other books and
records, and to make copies or extracts therefrom.
ARTICLE XIII. LOANS AND ADVANCES
Section 13.01. Loans, Guarantees, and Suretyship. The Corporation may
lend money to, guarantee an obligation of, become a surety for, or otherwise
financially assist a person, if the transaction, or a class of transactions to
which the transaction belongs, is approved by the affirmative vote of a
majority of the Directors present at a lawfully convened meeting and such
action (a) is in the usual and regular course of business of the Corporation,
(b) is with, or for the benefit of, a related corporation, an organization with
which the Corporation has the power to make donations, (c) is with, or for the
benefit of, an officer or other employee of the Corporation or a subsidiary,
including an officer or employee who is a Director of the Corporation or a
subsidiary, and may reasonably be expected, in the judgment of the Board of
Directors, to benefit the Corporation, or (d) has been approved by the
affirmative vote of the holders of sixty-five percent (65%) of the Voting
Stock, voting together as a single class. The loan, guarantee, or other
assistance may be with or without interest and may be unsecured or may be
secured in any manner that a majority of the Board of Directors approves,
including, without limitation, a pledge of or other security interest in shares
of the Corporation.
Section 13.02. Advances to Officers, Directors, and Employees. The
Corporation may, without a vote of the Directors, advance money to its
Directors, officers, or employees to cover expenses that can reasonably be
anticipated to be incurred by them in the performance of their duties and for
which they would be entitled to reimbursement in the absence of an advance.
ARTICLE XIV: INDEMNIFICATION
Section 14.01. The Corporation shall indemnify its officers, directors,
employees and agents to the fullest extent permitted by the General Corporation
Law of Delaware.
ARTICLE XV: DEFINITIONS AND USAGE
Section 15.01. Singular, Plural, Masculine, Feminine, and Neuter.
Whenever the context of these Bylaws requires, the plural shall be read to
include the singular, and vice versa; and words of the masculine gender shall
refer to the feminine gender, and vice versa; and words of the neuter gender
shall refer to any gender.
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KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Secretary of the
Corporation, does hereby certify that the foregoing Bylaws constituting pages
numbered one through eighteen were duly adopted as the Restated Bylaws of the
Corporation in accordance with law.
Dated: December 4, 1997.
/s/ Jeffrey C. Robbins
---------------------------
Jeffrey C. Robbins,
Secretary
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EXHIBIT 10.1
PRIMEGG, LTD.
1997 STOCK OPTION PLAN
ARTICLE 1.
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. Primegg, Ltd. (the "Company") hereby establishes a
plan providing for the grant of stock options to certain eligible individuals
who have or will render services to the Company and any Subsidiary. This plan
shall be known as the Primegg, Ltd.1997 Stock Option Plan (the "Plan"). This
Plan has been approved by the Board of Directors and the sole shareholder of
the Company in contemplation of a restatement of the Company's Certificate of
Incorporation that, among other matters, will split the 1,333.33 issued and
outstanding shares of Common Stock of the Company, par value $200 per share,
into 3,875,000 shares, par value $.001 per share. Accordingly, this Plan
assumes the filing of the Restated Certificate of Incorporation and such stock
split.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of the
Company and its shareholders by enhancing the Company's ability to attract and
retain qualified persons to perform services for the Company by providing
incentives to such persons to put forth maximum efforts for the Company and by
rewarding persons who contribute to the achievement of the Company's economic
objectives.
ARTICLE 2.
DEFINITIONS
The following terms have the meanings set forth below, unless the context
otherwise requires:
2.1 "AFFILIATE" means with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by, or under common control with such
Person, (ii) any person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner or holder of ten percent (10%) or more of the voting interests
of any Person described in clauses (i) through (iii) of this sentence. For
purposes of this definition, the term "controls," "is controlled by," or "is
under common control with" shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
person or power to direct or cause the direction of the management and policies
of a person or entity, whether through the ownership of voting securities, by
contract or otherwise.
2.2 "BOARD" means the Board of Directors of the Company.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended.
2.4 "COMMITTEE" means the group of individuals administering the Plan, as
provided in Article 3 of the Plan.
<PAGE> 2
2.5 "COMMON STOCK" means the common stock of the Company, par value $.001
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of the
Plan.
2.6 "CONVERSION RIGHT" means the right, if granted pursuant to Section 6.6
below, of a Participant to require the Company to convert an Option, in whole
or in part at any time after it becomes exercisable and prior to its
expiration, into shares of Common Stock without the payment of any exercise
price. If a Participant is granted a Conversion Right, then upon exercise of
the Option or a part thereof, the Company shall deliver to the Participant
(subject to Article 9 below) that number of shares of Common Stock computed by
multiplying (A) the number of Option Shares underlying the Option or part
thereof being exercised by (B) the quotient obtained by dividing (x) the
difference between (i) the aggregate Fair Market Value for the Option Shares
underlying the Option (or part thereof being exercised) immediately prior to
the exercise of the Conversion Right and (ii) the aggregate exercise price for
the Option (or part thereof being exercised) by (y) the aggregate Fair Market
Value for the Option Shares underlying the Option (or part thereof being
exercised) immediately prior to the exercise of the Conversion Right.
2.7 "DISABILITY" means the permanent and total disability of the
Participant within the meaning of Section 22 (e)(3) of the Code.
2.8 "ELIGIBLE RECIPIENT" means all employees (including, without
limitation, officers and directors who are also employees), directors,
consultants and independent contractors of the Company.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, the
following:
(a) If the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on The Nasdaq
National Market(R), the last sale price of the Common Stock on such
exchange or reported by The Nasdaq National Market(R) System as of such
date (or, if no shares were traded on such day, as of the next preceding
day on which there was such a trade).
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges or reported on The Nasdaq National Market(R), and bid
and asked prices therefor in the over-the-counter market are reported by
The Nasdaq SmallCap MarketSM, the Nasdaq Bulletin Board, or the National
Quotation Bureau, Inc. (or any comparable reporting service), the mean of
the closing bid and asked prices as of such date, as so reported by the
applicable Nasdaq(R) system, or, if not so reported thereon, as reported
by the National Quotation Bureau, Inc. (or such comparable reporting
service).
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(c) In all other cases, such price as the Committee determines in
good faith in the exercise of its reasonable discretion.
2.11 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Article 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.12 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Article 6 of the Plan that does
not qualify as an Incentive Stock Option.
2.13 "OPTION" means an Incentive Stock Option or a Non-Statutory
Stock Option.
2.14 "OPTION SHARES" means the shares of Common Stock issuable upon
exercise of an Option.
2.15 "PARTICIPANT" means an Eligible Recipient who receives one or more
Options under of the Plan.
2.16 "PERSON" means any individual, corporation, partnership, group,
association, or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly-owned Subsidiary of the
Company, or any employee benefit plan sponsored by the Company or a
wholly-owned Subsidiary of the Company.
2.17 "PREVIOUSLY ACQUIRED SHARES" mean shares of Common Stock that are
already owned by the Participant.
2.18 "RETIREMENT" means the retirement of a Participant pursuant to and in
accordance with the regular or, if approved by the Board for purposes of the
Plan, any early retirement plan or practice of the Company or Subsidiary then
covering the Participant.
2.19 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.20 "SUBSIDIARY" means any subsidiary corporation of the Company within
the meaning of Section 424(f) and (g) of the Code.
ARTICLE 4.
PLAN ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Board or by a
committee of the Board consisting of not less than two persons; provided,
however, that from and after the date on which the Company first registers a
class of its equity securities under Section 12 of the Exchange Act, the Plan
shall be administered to the extent provided herein by a committee appointed by
the Board consisting of not less than two members of the Board. Members of
such a committee, if
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established, shall be appointed from time to time by the Board, shall serve
at the pleasure of the Board and may resign at any time upon written notice
to the Board. A majority of the members of such a committee shall
constitute a quorum. Such a committee shall act by majority approval of the
members, shall keep minutes of its meetings and shall provide copies of such
minutes to the Board. Action of such a committee may be taken without a
meeting if unanimous written consent is given. Copies of minutes of such a
committee's meetings and of its actions by written consent shall be provided to
the Board and kept with the corporate records of the Company. As used in this
Plan, the term "Committee" will refer to the Board or to such a committee, if
established.
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan,
the Committee shall have the authority to recommend to the Board for its
consideration and approval (i) the Eligible Recipients who shall be
selected as Participants, (ii) the nature and extent of the Options to be
granted to each Participant (including the number of shares of Common
Stock to be subject to each Option, the exercise price and the manner in
which Options will vest or become exercisable), (iii) the time or times
when Options will be granted, (iv) the duration of each Option, (v) the
restrictions and other conditions to which the exercisability or vesting
of Options may be subject, and (vi) such other provisions of the Options
as the Committee may deem necessary or desirable and as consistent with
the terms of the Plan. The Committee shall determine the form or forms
of the option agreements with Participants which shall evidence the
particular terms, conditions, rights, and duties of the Company and the
Participants with respect to Options granted pursuant to the Plan, which
agreements shall be consistent with the provisions of the Plan.
(b) With the consent of the Participant affected thereby and subject
to the consideration and approval of the Board, the Committee may amend
or modify the terms of any outstanding Option in any manner, provided
that the amended or modified terms are permitted by the Plan as then in
effect. Without limiting the generality of the foregoing sentence, the
Committee may, with the consent of the Participant affected thereby and
subject to consideration and approval of the Board, modify the exercise
price, number of shares, or other terms and conditions of an Option,
extend the term of an Option, accelerate the exercisability or vesting or
otherwise terminate any restrictions relating to an Option, accept the
surrender of any outstanding Option, or, to the extent not previously
exercised or vested, authorize the grant of new Options in substitution
for surrendered Options.
(c) The Committee shall have the authority to interpret the Plan
and, subject to the provisions of the Plan, to establish, adopt, and
revise such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan. The
Committee's decisions and determinations under the Plan need not be
uniform and may be made selectively among Participants, whether or not
such Participants are similarly situated. Each determination,
interpretation, or other action made or taken by the Committee pursuant
to the provisions of the Plan shall be conclusive and binding for all
purposes and on all persons, including, without limitation, the Company
and its Subsidiaries, the shareholders of
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<PAGE> 5
the Company, the Committee and each of its members, the directors,
officers, and employees of the Company and its Subsidiaries, and the
Participants and their respective successors in interest. No member of
the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under the Plan.
ARTICLE 4.
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
below, the maximum number of shares of Common Stock that shall be authorized
and reserved for issuance under the Plan shall be 400,000 shares of Common
Stock.
4.2 SHARES AVAILABLE FOR USE. Shares of Common Stock that may be issued
upon exercise of Options shall be applied to reduce the maximum number of
shares of Common Stock remaining available for use under the Plan. Any shares
of Common Stock that are subject to an Option (or any portion thereof) that
lapses, expires, or for any reason is terminated unexercised shall
automatically again become available for use under the Plan. Also, Previously
Acquired Shares which are tendered to the Company in satisfaction or partial
satisfaction of the Exercise Price pursuant to Section 6.6 or in satisfaction
or partial satisfaction of withholding obligations pursuant to Article 10 shall
become available for use under the Plan to the extent permitted by Rule 16b-3
of the Exchange Act.
4.3 ADJUSTMENTS TO SHARES.
(a) In the event after the stock split contemplated by Section 1.1
above of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination
of shares, rights offering, extraordinary dividend or divestiture
(including a spin-off), or any other change in the corporate structure or
shares of the Company, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of
the surviving corporation) shall make appropriate adjustment (which
determination shall be conclusive) as to the number and kind of
securities subject to and reserved under the Plan and, in order to
prevent dilution or enlargement of the rights of Participants, the
number, kind, and exercise price of securities subject to outstanding
Options. Without limiting the generality of the foregoing, in the event
that any of such transactions are effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets,
including cash, with respect to or in exchange for such Common Stock, all
Participants holding outstanding Options shall upon the exercise of such
Options receive, in lieu of any shares of Common Stock they may be
entitled to receive, such stock, securities, or assets, including cash,
as would have been issued to such Participants if their Options had been
exercised and such Participants had received Common Stock prior to such
transaction.
(b) Notwithstanding Section 4.3(a), there shall be no adjustment to
the shares authorized pursuant to this Plan for an event described in
Section 4.3(a) which occurs before or simultaneously with the Effective
Date of this Plan.
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<PAGE> 6
ARTICLE 5.
PARTICIPATION
Participants in the Plan shall be those Eligible Recipients who, in the
judgment of the Committee, have performed, are performing, or during the term
of an Option will perform, services in the management, operation, and
development of the Company or any Subsidiary or Affiliate thereof, and
significantly contributed, are significantly contributing, or are expected to
significantly contribute to the achievement of corporate economic objectives.
Eligible Recipients may be granted from time to time one or more Options, as
may be recommended by the Committee in its sole discretion to the Board of
Directors for its consideration and approval. The number, type, terms, and
conditions of Options granted to various Eligible Recipients need not be
uniform, consistent, or in accordance with any plan, regardless of whether such
Eligible Recipients are similarly situated. Upon determination by the
Committee and consideration and approval by the Board that an Option is to be
granted to an Eligible Recipient, written notice shall be given such person,
specifying the terms, conditions, rights and duties related thereto. Each
Eligible Recipient to whom an Option is to be granted shall enter into an
agreement with the provisions of the Plan, specifying such terms, conditions,
rights and duties. Options shall be deemed to be granted as of the date
specified in the grant resolution of the Board, and the related option
agreements shall be dated as of such date.
ARTICLE 6.
STOCK OPTIONS
6.1 GRANT. An Eligible Recipient may be granted one or more Options under
the Plan and such Options shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as shall be determined by the
Committee in its sole discretion upon the consideration and approval of the
Board. The Committee may recommend to the Board whether an Option is to be
considered an Incentive Stock Option or a Non-Statutory Stock Option; provided,
however, that an Incentive Stock Option shall be granted only to an Eligible
Recipient who is an employee of the Company or a Subsidiary or Affiliate
thereof. The terms of the agreement relating to a Non-Statutory Stock Option
shall expressly provide that such Option shall not be treated as an Incentive
Stock Option. Options shall be granted for no cash consideration unless
minimal cash consideration is required by applicable law.
6.2 EXERCISE. An Option shall become exercisable at such times and in such
installments (which may be cumulative) as shall be determined by the Committee
in its sole discretion at the time the Option is granted. Upon the completion
of its exercise period, an Option, to the extent not then exercised, shall
expire.
6.3 EXERCISE PRICE.
(a) Incentive Stock Options. The per share price to be paid by the
Participant at the time an Incentive Stock Option is exercised shall be
determined by the Committee, in its discretion and upon the consideration
and approval of the Board, at the date of its grant; provided, however,
that such price shall not be less than (i) 100% of the Fair Market Value
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<PAGE> 7
of one share of Common Stock on the date the Option is granted, or (ii)
110% of the Fair Market Value of one share of Common Stock on the date
the Option is granted if, at that time the Option is granted, the
Participant owns, directly or indirectly (as determined pursuant to
Section 424(d) of the Code), more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary or parent
corporation of the Company (within the meaning of Sections 424(f) and
424(e), respectively, of the Code).
(b) Non-Statutory Stock Options. The per share price to be paid by
the Participant at the time a Non-Statutory Stock Option is exercised
shall be determined by the Committee in its sole discretion upon the
consideration and approval of the Board at the time the Option is
granted; provided, however, that such price shall not be less than 85% of
the Fair Market Value of one share of Common Stock on the date the Option
is granted.
6.4 DURATION.
(a) Incentive Stock Options. The period during which an Incentive
Stock Option may be exercised shall be fixed by the Committee in its sole
discretion upon consideration and approval of the Board at the time such
Option is granted; provided, however, that in no event shall such period
exceed ten (10) years from its date of grant or, in the case of a
Participant who owns, directly or indirectly (as determined pursuant to
Section 424(d) of the Code), more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary or parent
corporation of the Company (within the meaning of Section 424(f) and
424(e), respectively, of the Code), five (5) years from its date of
grant.
(b) Non-Statutory Stock Options. The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the
Committee in its sole discretion upon consideration and approval of the
Board at its date of grant.
(c) Effect of Termination of Employment or Other Service.
Notwithstanding this Section 6.4, except as provided in Articles 7 and 8
of the Plan, all Options granted to a Participant shall terminate and may
no longer be exercised upon the termination of the Participant's
employment or other status with the Company, its Affiliates or
Subsidiaries.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained herein
and in the agreement evidencing such Option, by delivery, in person or through
certified or registered mail, of written notice of exercise to the Company at
its principal executive office (Attention: Chief Financial Officer), and by
paying in full the total Option exercise price for the shares of Common Stock
purchased. Such notice shall be in a form satisfactory to the Committee and
shall specify the particular Option (or portion thereof) that is being
exercised and the number of shares with respect to which the Option is being
exercised. Subject to compliance with Section 11.1 of the Plan, the exercise
of the Option shall be deemed effective upon receipt of such notice and payment
complying with the terms of the Plan and the execution of the agreement
evidencing such Option. As soon as practicable after the effective exercise of
the Option, the Participant shall be recorded on the stock transfer books of
the Company
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<PAGE> 8
as the owner of the shares purchased, and the Company shall deliver to the
Participant one or more duly issued stock certificates evidencing such
ownership. If a Participant exercises any Option with respect to some, but not
all, of the shares of Common Stock subject to such Option, the right to
exercise such Option with respect to the remaining shares shall continue until
it expires or terminates in accordance with its terms. An Option shall only be
exercisable with respect to whole shares.
6.6 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to
be purchased upon exercise of an Option shall be paid entirely in cash (by
certified check or money order) provided, however, that the Committee, in its
sole discretion upon the original grant of the Option or thereafter, and upon
the consideration and approval of the Board, may allow such payments to be
made, in whole or in part, by transfer from the Participant to the Company of
Previously Acquired Shares or by exercise of a Conversion Right. In
determining whether or upon what terms and conditions a Participant will be
permitted to pay the purchase price of an Option in a form other than cash, the
Committee may consider all relevant facts and circumstances including, without
limitation, the tax and securities law consequences to the Participant and the
Company and the financial accounting consequences to the Company. In the event
the Participant is permitted to pay the purchase price of an Option in whole or
in part with Previously Acquired Shares, the value of such shares shall be
equal to their Fair Market Value on the date of exercise of the Option. No
shares of the Common Stock shall be delivered pursuant to the exercise of any
Option until payment in full of any amount required to be paid pursuant to the
Plan or the applicable option agreement is, or is arranged to be, received by
the Company.
6.7 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Participant shall have become the holder of record of such shares,
and no adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine pursuant to Section 4.3 of the Plan.
6.8 DISPOSITION OF COMMON STOCK ACQUIRED PURSUANT TO THE EXERCISE OF
INCENTIVE STOCK OPTIONS. Prior to making a disposition (as defined in Section
424(c) of the Code) of any shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option granted under the Plan before the
expiration of two years after its date of grant or before the expiration of one
year after its date of exercise and the date on which such shares of Common
Stock were transferred to the Participant pursuant to exercise of the Option,
the Participant shall send written notice to the Company of the proposed date
of such disposition, the number of shares to be disposed of, the amount of
proceeds to be received from such disposition and any other information
relating to such disposition that the Company may reasonably request. The
right of a Participant to make any such disposition shall be conditioned on the
receipt by the Company of all amounts necessary to satisfy any federal, state,
or local withholding and employment-related tax requirements attributable to
such disposition. The Committee shall have the right, in its sole discretion,
to endorse the certificates representing such shares with a legend restricting
transfer and to cause a stop transfer order to be entered with the Company's
transfer agent until such time as the Company receives the amounts necessary to
satisfy such withholding and employment-related tax requirements or until the
later of
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the expiration of two years from its date of grant or one year from its date of
exercise and the date on which such shares were transferred to the Participant
pursuant to the exercise of the Option.
6.9 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. To
the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect
to which incentive stock options (within the meaning of Section 422 of the
Code) are exercisable for the first time by a Participant during any calendar
year (under the Plan and any other incentive stock option plans of the Company
or any Subsidiary or any parent corporation of the Company) exceeds $100,000
(or such other amount as may be prescribed by the Code from time to time), such
excess Options shall be treated as Non-Statutory Stock Options. The
determination shall be made by taking incentive stock options into account in
the order in which they were granted. If such excess only applies to a portion
of an incentive stock option, the Committee, in its discretion, shall designate
which shares shall be treated as shares to be acquired upon exercise of an
incentive stock option.
ARTICLE 7.
EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE
7.1 TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH, DISABILITY,
OR RETIREMENT. Except as otherwise provided in Article 8 of the Plan or as
otherwise determined by the Committee upon the consideration and approval of
the Board either at time an Option is granted or thereafter, in the event a
Participant's employment or other service with the Company and all Subsidiaries
or Affiliates is terminated by reason of such Participant's death, Disability,
or Retirement, all outstanding Options then held by the Participant shall
become immediately exercisable in full and remain exercisable after such
termination for a period of three months in the case of Retirement and one year
in the case of death or Disability (but in no event after the expiration date
of any such Option).
7.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE FOR REASONS OTHER THAN
DEATH, DISABILITY, OR RETIREMENT. Except as otherwise provided in Article 8 of
the Plan or as otherwise determined by the Committee upon the consideration and
approval of the Board either at the time an Option is granted or thereafter, in
the event of termination of the Participant's employment or other status with
the Company and all Subsidiaries or Affiliates in relation to which the Option
was granted for any reason other than death, Disability, or Retirement, all
rights of the Participant under the Plan shall immediately terminate without
notice of any kind, and no Options then held by the Participant shall
thereafter be exercisable; provided, however, that if such termination is due
to any reason other than termination by the Company or any Subsidiary or
Affiliate for "cause," all outstanding Options then held by such Participant
shall remain exercisable to the extent exercisable as of such termination for a
period of three months after such termination (but in no event after the
expiration date of any such Option). For purposes of this Section 7.2, "cause"
shall be as defined in any employment or other agreement or policy applicable
to the Participant or, if no such agreement or policy exists, shall mean (a)
dishonesty, fraud, misrepresentation, embezzlement, or material or deliberate
injury or attempted injury, in each case related to the Company or any
Subsidiary, (b) any unlawful or criminal activity of a serious nature, (c) any
willful breach of duty, habitual neglect of duty, or
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<PAGE> 10
unreasonable job performance, or (d) any material breach of a confidentiality or
noncompetition agreement entered into with the Company or any Subsidiary.
7.3 MODIFICATION OF EFFECT OF TERMINATION. Notwithstanding the provisions
of this Article 7, upon a Participant's termination of employment or other
status with the Company and all Subsidiaries or Affiliates with respect to
which Options were granted, the Committee may, in its sole discretion upon the
consideration and approval of the Board (which may be exercised before or
following such termination) cause Options, or any portions thereof, then held
by such Participant to become exercisable and remain exercisable following such
termination in the manner determined by the Committee upon the consideration
and approval of the Board; provided, however, that no Option shall be
exercisable after the expiration date thereof and any Incentive Stock Option
that remains unexercised more than three months following employment
termination by reason of Retirement or more than one year following employment
termination by reason of death or Disability shall thereafter be deemed to be a
Non-Statutory Stock Option.
7.5 DATE OF TERMINATION. Unless the Committee shall otherwise determine in
its sole discretion, a Participant's employment or other service shall, for
purposes of the Plan, be deemed to have terminated on the date such Participant
ceases to perform services for the Company and all Subsidiaries or Affiliates,
as determined in good faith by the Committee.
ARTICLE 8.
CHANGE OF CONTROL
8.1 CHANGE IN CONTROL. For purposes of this Article 8, a "Change in
Control" of the Company shall mean (a) the sale, lease, exchange, or other
transfer of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a corporation that is
not controlled by the Company, (b) the approval by the shareholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company, or (c) a change in control of the Company of a nature that would be
required to be reported (assuming such event has not been "previously
reported") in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the effective date of the Plan, pursuant to Section 13 or 15(d) of
the Exchange Act, whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (i) any Person becomes
after the effective date of the Plan the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 20% or more of the
combined voting power of the Company's outstanding securities ordinarily having
the right to vote at elections of directors, or (ii) individuals who constitute
the Board on the effective date of the Plan cease for any reason to constitute
at least a majority thereof, provided that any person becoming a director
subsequent to the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors comprising or deemed pursuant hereto to comprise the
Board on the effective date of the Plan (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) shall be, for purposes of this clause (ii) and the
following sentence, considered as though such person were a member of the Board
on the effective date of the Plan. Notwithstanding anything in the foregoing
to
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the contrary, no Change in Control shall be deemed to have occurred for
purposes of this Section 8.1 by virtue of any transaction which shall have been
approved by the affirmative vote of at least a majority of the members of the
Board or by the sole shareholder of the Company on the effective date of the
Plan (including, without limitation, the actions taken by the Board as of
October 26, 1997 to approve an initial public offering of the Company's Common
Stock and by the sole shareholder as of November 30, 1997 to approve a
three-tiered classification of the Board and elect the members thereof in
advance of the initial public offering).
8.2 ACCELERATION OF VESTING. If a Change of Control of the Company shall
be about to occur or shall occur, the Committee, in its sole discretion and
upon the consideration and approval of the Board, may determine that all
outstanding Options shall become immediately exercisable in full and shall
remain exercisable during the remaining term thereof, regardless of whether the
employment or other status of the Participants with respect to which Options
have been granted shall continue with the Company or any Subsidiary.
8.3 CASH PAYMENT. If a Change in Control of the Company shall be about to
occur or shall occur, then the Committee, in its sole discretion upon the
consideration and approval of the Board and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options shall receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
8.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in
Sections 8.2 or 8.3 above to the contrary, if, with respect to a Participant,
the acceleration of the exercisability of an Option as provided in Section 8.2
or the payment of cash in exchange for all or part of an Option as provided in
Section 8.3 above (which acceleration or payment could be deemed a "payment"
within the meaning of Section 280G(b)(2) of the Code), together with any other
payments which such Participant has the right to receive from the Company or
any corporation which is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of
which the Company is a member, would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), then the acceleration of
exercisability and the payments to such Participant pursuant to Sections 8.2
and 8.3 above shall be reduced to the largest extent or amount as, in the sole
judgment of the Committee, will result in no portion of such payments being
subject to the excise tax imposed by Section 4999 of the Code.
ARTICLE 9.
RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES
The Company is entitled to (a) withhold and deduct from future wages of
the Participant (or from other amounts which may be due and owing to the
Participant from the Company) or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any and all federal, state,
and local withholding and employment-related tax requirements (i) attributable
to the
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<PAGE> 12
grant or exercise of an Option or to a disqualifying disposition of stock
received upon exercise of an Incentive Stock Option, or (ii) otherwise incurred
with respect to an Option, or (b) require the Participant promptly to remit the
amount of such withholding to the Company before taking any action with respect
to the exercise of an Option or the issuance of any stock certificate either to
the Participant or any transferee. The Committee, in its sole discretion, may
permit a Participant to pay all or a portion of such withholding liability
either by surrendering Previously Acquired Shares already owned by the
Participant or by electing to have the Company retain shares subject to the
Option, provided that the Committee determines that the fair market value of
the surrendered Previously Acquired Shares or the retained shares is equal to
such withholding liability.
ARTICLE 10.
RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS;
TRANSFERABILITY
10.1 EMPLOYMENT OR SERVICE. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, or
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
10.2 RESTRICTIONS ON TRANSFER. Other than pursuant to a qualified domestic
relations order (as defined by the Code), no right or interest of any
Participant in an Option prior to the exercise of such Options shall be
assignable or transferrable, or subjected to any lien, during the lifetime of
the Participant, either voluntarily or involuntarily, directly or indirectly,
by operation of law or otherwise, including execution, levy, garnishment,
attachment, pledge, divorce, or bankruptcy. In the event of a Participant's
death, such Participant's rights and interest in Options shall be transferrable
by testamentary will or the laws of descent and distribution, and payment of
any amounts due under the Plan shall be made to, and exercise of any Options
(to the extent permitted pursuant to Article 7 of the Plan) may be made by, the
Participant's legal representatives, heirs, or legatees. If, in the opinion of
the Committee, a Participant holding an Option is disabled from caring for his
or her affairs because of mental condition, physical condition, or age, any
payments due the Participant may be made to, and any rights of the Participant
under the Plan shall be exercised by, such Participant's guardian, conservator,
or other legal personal representative upon furnishing the Committee with
evidence satisfactory to the Committee of such status.
10.3 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to amend, modify, or rescind any previously approved compensation
plans or programs entered into by the Company. The Plan will be construed to
be in addition to any and all such other plans or programs. Neither the
adoption of the Plan nor the submission of the Plan to the shareholders of the
Company for approval will be construed as creating any limitations on the power
or authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.
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<PAGE> 13
ARTICLE 11.
SECURITIES LAW RESTRICTIONS
11.1 SHARE ISSUANCES. Notwithstanding any other provision of the Plan or
any agreements entered into pursuant hereto, the Company shall not be required
to issue or deliver any certificate for shares of Common Stock under this Plan,
and an Option shall not be considered to be exercised notwithstanding the
tender by the Participant of any consideration therefor, unless and until each
of the following conditions has been fulfilled:
(a) (i) There shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable state
securities laws if the Committee, in its sole discretion, shall have
determined to file, cause to become effective, and maintain the
effectiveness of such registration statement; or (ii) if the Committee
has determined not to so register the shares of Common Stock to be issued
under the Plan, (A) exemptions from registration under the Securities Act
and applicable state securities laws shall be available for such issuance
(as determined by counsel to the Company) and (B) there shall have been
received from the Participant (or, in the event of death or disability,
the Participant's heir(s) or legal representative(s)), any
representations or agreements requested by the Company in order to permit
such issuance to be made pursuant to such exemptions; and
(b) There shall have been obtained any other consent, approval, or
permit from any state or federal governmental agency which the Committee
shall, in its sole discretion upon the advice of counsel, deem necessary
or advisable.
11.2 SHARE TRANSFERS. Shares of Common Stock issued pursuant to Options
granted under the Plan may not be sold, assigned, transferred, pledged,
encumbered, or otherwise disposed of, whether voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, except pursuant to
registration under the Securities Act and applicable state securities laws or
pursuant to exemptions from such registrations. The Company may condition the
sale, assignment, transfer, pledge, encumbrance, or other disposition of such
shares not issued pursuant to an effective and current registration statement
under the Securities Act and all applicable state securities laws on the
receipt from the party to whom the shares of Common Stock are to be so
transferred of any representations or agreements requested by the Company in
order to permit such transfer to be made pursuant to exemptions from
registration under the Securities Act and applicable state securities laws.
11.3 HOLDING PERIOD REQUIREMENTS. Any Options granted and any Common
Stock acquired pursuant to the exercise of Options under this Plan may be
subject to a six-month holding requirement from the grant date in order for the
transaction to be exempt from the short-swing trading profits provision of
Section 16(b) of the Exchange Act.
11.4 LEGENDS.
(a) Unless a registration statement under the Securities Act and
applicable state securities laws is in effect with respect to the
issuance or transfer of shares of Common Stock
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<PAGE> 14
under the Plan, each certificate representing any such shares shall be
endorsed with a legend in substantially the following form, unless
counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR UNDER APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE
LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE ACT AND SUCH STATE LAWS, THE AVAILABILITY OF
WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
(b) The Committee, in its sole discretion, may endorse certificates
representing shares issued pursuant to the exercise of Incentive Stock
Options with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED, ENCUMBERED, HYPOTHECATED, OR
OTHERWISE DISPOSED OF ON OR BEFORE [THE LATER OF THE
ONE-YEAR OR TWO-YEAR INCENTIVE STOCK OPTION HOLDING
PERIODS], WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMPANY.
ARTICLE 12.
PLAN AMENDMENT; MODIFICATION AND TERMINATION
12.1 AMENDMENT; MODIFICATION; TERMINATION. The Board may suspend or
terminate the Plan or any portion thereof at any time, and may amend the Plan
from time to time in such respects as the Board may deem advisable in order
that Options under the Plan shall conform to any change in applicable laws or
regulations or in any other respect the Board may deem to be in the best
interests of the Company; provided, however, that no such amendment shall be
effective, without approval of the shareholders of the Company, if shareholder
approval of the amendment is then required to comply with or obtain exemptive
relief under any tax or regulatory requirement the Board deems desirable to
comply with or obtain exemptive relief under, including without limitation,
Rule 16b-3 under the Exchange Act or any successor rule or Section 422 of the
Code or under the applicable rules or regulations of any securities exchange or
the NASD. No termination, suspension, or amendment of the Plan shall alter or
impair any outstanding Option without the consent of the
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<PAGE> 15
Participant affected thereby; provided, however, that this sentence shall not
impair the right of the Committee to take whatever action it deems appropriate
under Section 4.3 or Article 8 of the Plan.
ARTICLE 13.
EFFECTIVE DATE OF THE PLAN
13.1 EFFECTIVE DATE. The Plan is effective as of October 26, 1997, the
date adopted by the Board; provided, however, that no Incentive Stock Options
may be exercised until November 30, 1997, the date the Plan was adopted by the
sole shareholder of the Company in accordance with the requirements of the
Code.
13.2 DURATION OF THE PLAN. The Plan shall terminate at midnight on
October 25, 2007, and may be terminated prior thereto by Board action, and no
Option shall be granted after such termination. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.
ARTICLE 14.
MISCELLANEOUS
14.1 CONSTRUCTION AND HEADINGS. The use of the masculine gender shall also
include within its meaning the feminine and the singular may include the plural
and the plural may include the singular, unless the context clearly indicates
to the contrary. The headings of the Articles, Sections, and subparts of the
Plan are for convenience of reading only and are not meant to be of substantive
significance and shall not add or detract from the meaning of such Article,
Section, or subpart.
14.2 GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Wisconsin, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed by
and construed exclusively and solely in accordance with the laws of the State
of Wisconsin without regard to the conflict of laws provisions of any
jurisdictions. All parties agree to submit to the jurisdiction of the state
and federal courts of Wisconsin with respect to matters relating to the Plan
and agree not to raise or assert the defense that such forum is not convenient
for such party.
14.3 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase, or other acquisition of substantially all of the assets
or business of the Company, and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company's obligations under
the Plan.
14.4 SURVIVAL OF PROVISIONS. The rights, remedies, agreements,
obligations, and covenants contained in or made pursuant to the Plan, any
agreement evidencing an Option and any other notices or agreements in
connection therewith, including, without limitation, any notice of exercise of
an
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<PAGE> 16
Option, shall survive the execution and delivery of such notices and
agreements and the delivery and receipt of shares of Common Stock and shall
remain in full force and effect.
IN WITNESS WHEREOF, and as evidence of the adoption of this Plan by the
Company, the Company has caused this Plan to be signed by the undersigned
officer, thereunto duly authorized pursuant to the resolutions of the Board of
Directors adopted on October 26, 1997.
Dated: October 26, 1997
PRIMEGG, LTD.
By: /s/ Jon E. Luikart
----------------------
Jon E. Luikart,
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of the 1st day of January, 1997, by and between PRIMEGG, LTD., a
Delaware corporation with its principal office at 612 South 8th Street,
Cameron, Wisconsin 54822 ("Employer"), and JON E. LUIKART, a resident of the
State of Wisconsin ("Employee").
WHEREAS, Employer is a leading producer and distributor in the United
States of dried egg products, including egg white, egg yolk and whole egg
powder, and of liquid egg;
WHEREAS, Employee is the President and Chief Executive Officer of the
Employer and the parties desire to enter into this Agreement to provide for the
terms and conditions of Employee's continued employment; and
WHEREAS, the parties acknowledge that the terms and provisions of this
Agreement, including the severance package contained herein, provide separate
and valuable consideration for the Non-Compete Covenant contained herein.
NOW, THEREFORE, in consideration of the premises, it is agreed as follows:
1. DUTIES. Employee agrees to continue to serve as a full-time employee
of Employer in the capacity of President and Chief Executive Officer. Employee
agrees to faithfully and diligently perform the acts and duties of his office
and devote his best efforts on a full-time basis. Employee shall also perform
such other duties as are consistent with his position as are reasonably
assigned to him by the Board of Directors of Employer (the "Board").
2. TERM. The term of Employee's employment under this Agreement (the
"Employment Period") will begin immediately and end on December 31, 1999,
subject to earlier termination as provided in Section 4 below.
3. COMPENSATION AND RELATED MATTERS. Employer shall pay Employee
compensation and benefits as follows:
(a) Base Compensation. During 1997 and 1998, the Employee will
receive an annual base salary of $120,000 and $140,000, respectively.
The Employee's annual base salary for 1999 will be mutually agreed upon
between the Employee and the Company. Employee's salary may be further
reviewed and adjusted periodically upward, but not downward, by the
Board.
(b) Bonus. Employee shall also be entitled, during the Employment
Period, to an annual cash bonus equal to 3% of the Company's net income
for the corresponding year as computed by the Company's regularly
retained independent accountants in accordance with generally accepted
accounting principles consistently applied. Unless otherwise
<PAGE> 2
agreed between the parties, such bonus will be payable within 30 days
after the audited financial statements for the applicable year are
completed and delivered to the Company.
(c) Automobile. During the Employment Period, Employee will have
the use of a Company-owned automobile.
(d) Insurance Reimbursement. Employee is entitled to reimbursement
from the Company for life insurance premiums with respect to a $500,000
term life insurance policy on the life of, and owned by, Employee;
provided, however, that the annual amount of reimbursement shall not
exceed $1,500 without mutual agreement of the parties.
(e) Expenses. During the Employment Period, Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by Employee in performing services hereunder; provided,
however, that Employee complies with Employer's policies and procedures
established from time to time to document such expenses.
(f) Vacations and Other Benefits. Employee shall be entitled to
such paid vacation and other benefits as shall be in effect from time to
time for senior executive officers of Employer.
4. TERMINATION AND COMPENSATION DUE ON TERMINATION. Employee's employment
hereunder may not be terminated without cause, but may be terminated subject to
the following provisions and obligations:
(a) Death or Disability. Employee's employment hereunder shall
terminate upon his death, or in the event that Employee becomes disabled
by reason of a medical condition (physical or non-physical) pursuant to
which he cannot timely perform the material duties of his position with
Employer for a substantially continuous period over 120 days (such
determination to be made in the discretion of the Board), and no further
payment of salary, any benefits or other payment in connection with
Employee's employment shall be due from Employer to Employee or
Employee's estate under this Agreement thereafter, except for expense
reimbursement and base salary and bonus accrued through the date of death
or disability.
(b) Cause. Employer may terminate Employee's employment hereunder
for "Cause," which shall mean (i) fraud, dishonesty, gross negligence, or
willful malfeasance by Employee in connection with the performance of his
duties hereunder, (ii) conviction of Employee of a felony, (iii)
insubordination or other substantial failure, refusal or negligence by
Employee in fulfilling his duties and obligations hereunder, which breach
or failure Employee fails to remedy within ten (10) days after written
demand from the Board, or (iv) violation of the terms and conditions of
this Agreement, including without limitation, the Non-Compete Covenant
provided in Section 7 hereof. In the event that Employee's employment is
terminated hereunder for Cause, Employer shall have no further
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<PAGE> 3
obligations to Employee in connection with Employee's employment except
for expense reimbursement and base salary and bonus accrued through the
date of termination.
(c) Voluntary Termination. Upon any voluntary termination of
employment by Employee, Employer shall have no further obligations to
Employee except for expense reimbursement and base salary and bonus
accrued through the date of termination.
5. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees that he
will not use or disclose, or permit others to use or disclose (other than other
employees or representatives of Employer), any trade secrets, confidential
information, data or records relating to the business, techniques, operations
and condition (financial or otherwise) of Employer which is not generally known
or available through other lawful sources.
6. PROPERTY RIGHTS. Subject to the last sentence in this Section,
Employer shall acquire exclusive right, title, and interest to all inventions,
discoveries, improvements, designs, ideas, know-how, technology and the like
developed, conceived, or invested by Employee, in whole or in part, whether
written or in some other form and whether or not patentable or eligible for
protection under any copyright law. Without limiting the generality of the
foregoing, Employee hereby assigns to Employer (i) all rights to any
inventions, or to improvements, and all rights to apply for United States
and/or foreign letters of patent granted upon such inventions; and (ii) any
copyrights Employee may have in materials created by Employee or otherwise
generated during the period in which Employee is performing services for
Employer, and Employer shall have the sole right to apply for and obtain
copyright protection for any materials for which such protection can be
obtained and to obtain such copyright renewals. Despite any of the foregoing,
nothing in this Section 6 shall apply to an invention for which no equipment,
supplies, facility or trade secret information of Employer is used and which is
developed entirely on Employee's own time, and (a) does not relate (1) directly
to the business of Employer or (2) to Employee's actual or demonstrably
anticipated research or development, or (b) which does not result from any work
performed by Employee for Employer.
7. NON-COMPETE COVENANT. During the Employment Period and for a period of
12 months after the termination of employment for any reason, Employee shall
not (i) directly or indirectly, whether as a principal, owner, agent, employee
or in any other capacity whatsoever, engage in the business of producing and/or
distributing dried or liquid egg products in the United States or in any other
country in which Employer's customers purchased dried or liquid egg products
from the Employer within 12 months prior to Employee's termination of
employment, (ii) solicit for employment or employ any employee or independent
contractor of Employer, or (iii) contact any current or contemplated customers
of Employer regarding the business of Employer.
8. REMEDIES FOR BREACH. Employee acknowledges that he has carefully read
and considered all of the terms and conditions of this Agreement. Employee
further acknowledges that money damages would not be a measurable or adequate
remedy for Employee's breach of any of the covenants contained in this
Agreement, and, accordingly, in addition to and without limiting
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<PAGE> 4
any other remedy available to Employer in the event of such a breach, Employee
agrees to submit to the equitable jurisdiction of any court of competent
personal and subject matter jurisdiction in connection with any action to
enjoin the Employee from violating any such covenants. In the event that
Employee is found to have breached any of the terms and conditions of this
Agreement, Employee hereby agrees to pay all costs and expenses incurred by
Employer in enforcing the provisions of this Agreement found to have been
breached by Employee, including Employer's attorney's fees.
9. BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and
be enforceable by Employer, its successors, assigns, and affiliates.
10. WAIVER. The failure of Employer to insist on the strict performance
of any provision of this Agreement or to exercise any right, power or remedy
upon a breach by Employee shall not constitute a waiver of that or any other
provision of this Agreement. A waiver on any one occasion shall not be deemed
to be a waiver for subsequent occasions.
11. SURVIVAL AND SEVERABILITY. The terms and conditions of this Agreement
shall survive the termination of Employee's employment with Employer to the
full extent necessary for their enforcement and for the protection of Employer,
its successors, assigns and affiliates. If for any reason any portion of any
provision of this Agreement is declared invalid, void or unenforceable by a
court of competent jurisdiction, the validity and binding effect of any
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent possible as if this Agreement had been executed with the
invalid, void or unenforceable portion or portions eliminated. In the event
that any provision of this Agreement relating to time periods and/or areas of
restriction shall be declared by a court of competent jurisdiction to exceed
the maximum time periods or areas such court deems reasonable and enforceable,
said time periods and/or areas of restriction shall be deemed to become and
thereafter be the maximum time periods and/or areas which such court deems
reasonable and enforceable.
12. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Wisconsin, exclusive of its conflict of laws rules.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their
signatures.
EMPLOYER: PRIMEGG, LTD.
By: /s/ Michael Shevi
-----------------
Michael Shevi, Chairman
EMPLOYEE: /s/ Jon E. Luikart
-----------------------
Jon E. Luikart
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<PAGE> 1
EXHIBIT 10.3
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT is made as of April 8, 1994, by and between FBS
BUSINESS FINANCE CORPORATION, a Delaware corporation (the "Lender"), and
PRIMEGG, LTD., a Delaware corporation (the "Borrower").
In consideration of the mutual agreements herein contained, the
parties hereto agree as follows:
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. In addition to terms defined elsewhere in this
Agreement or any Supplement, Exhibit or Schedule hereto, the following terms
shall have the following respective meanings (and such meanings shall be
equally applicable to both the singular and plural forms of the terms defined,
as the context may require):
"Account Debtor": Any Person who is or who may become obligated to the
Borrower under, with respect to, or on account of an Account Receivable,
General Intangible or other Collateral.
"Account Receivable": Any account of the Borrower and any other right
of the Borrower to payment for goods sold or leased or for services rendered,
whether or not evidenced by an instrument or chattel paper and whether or not
yet earned by performance.
"Adverse Event": The occurrence of any event that could have a
material adverse effect on the business, operations, property, assets or
condition (financial or otherwise) of the Borrower or on the ability of the
Borrower or any other Obligor to perform its obligations under the Loan
Documents.
"Affiliate" means any Person which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, the Lender, including, without limitation, FBNA. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of stock, by contract or otherwise.
"Agreement": This Credit and Security Agreement, as it may be
amended, modified, supplemented, restated or replaced from time to time.
"Application": An application by the Borrower, in a form and
containing terms and provisions acceptable to the Lender, for the issuance by
the Lender, or any Affiliate, of a Letter of Credit.
"Assignment of Life Insurance": An Assignment of Life Insurance Policy
as Collateral, substantially in the form set forth as Exhibit A, of the
Borrower in favor of the Lender.
"Attorneys' Fees": The value of the services (and costs, charges and
expenses related thereto) of the attorneys employed by the Lender
(including, without limitation, attorneys and paralegals who are employees of
the Lender or any Affiliate) from time to time (a) in connection with the
negotiation, preparation, execution, delivery, administration and
<PAGE> 2
enforcement of the Loan Documents, (b) to prepare documentation related to the
Loans and other Obligations incurred hereunder, (c) to represent the Lender in
any litigation, contest, dispute, suit or proceeding or to commence, defend or
intervene in any litigation contest, dispute, suit or proceeding or to file a
petition, complaint, answer, motion or other pleading, or to take any other
action in or with respect to, any litigation, contest, dispute, suit or
proceeding (whether instituted by the Lender, the Borrower or any other Person
and whether in bankruptcy or otherwise) in any way or respect relating to the
Collateral, any Third Party Collateral, the Loan Documents, or the Borrower's or
any other Obligor's or any Subsidiary's affairs, (d) to protect, collect, lease,
sell, take possession of, or liquidate any of the Collateral or any Third Party
Collateral, (v) to attempt to enforce any security interest in any of the
Collateral or any Third Party Collateral or to give any advice with respect to
such enforcement, and (e) to enforce any of the Lender's rights to collect any
of the Obligations.
"Average Maturity Period": The weighted average time to scheduled
maturity of the total dollar amount of principal being prepaid at any one time.
Average Maturity Period shall be computed by (a) multiplying the dollar amount
of each installment of principal prepaid by the number of days until the
scheduled maturity of that installment, (b) adding together the resulting
products, and (c) dividing the resulting sum by the total dollar amount of
principal being prepaid.
"Borrowing Base": The term "Borrowing Base" shall have the meaning
given such term in Supplement A.
"Borrowing Base Certificate": The term "Borrowing Base Certificate"
shall have the meaning given such term in Section 2.5(c).
"Business Day": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open in Minneapolis, Minnesota.
"Capital Base": At any determination date, the total of (a) the sum of
(i) all assets appearing on a consolidated balance sheet of the
Borrower at such date, prepared in accordance with GAAP, after deducting all
proper reserves (including reserves for depreciation, obsolescence and
amortization), plus (ii) Subordinated Debt; minus (b) all liabilities which in
accordance with GAAP would be included on the liability side of a consolidated
balance sheet
"Capital Expenditure": Any amount debited to the fixed asset account
on the consolidated balance sheet of the Borrower in respect of (a) the
acquisition (including, without limitation, acquisition by entry into a
Capitalized Lease), construction, improvement, replacement or betterment of
land, buildings, machinery, equipment or of any other fixed assets or
leaseholds, and (b) to the extent related to and not included in clause (a),
materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP).
"Capitalized Lease": Any lease which is or should be capitalized on
the books of the lessee in accordance with GAAP.
"Cash Flow Coverage Ratio": For any period, the ratio of (a) the
Borrower's EBITDA to (b) the sum of (i) consolidated interest expense
(including, without limitation, imputed interest expense on Capitalized
Leases), plus (ii) mandatory principal payments on Long Term Debt,
2
<PAGE> 3
plus (iii) Capital Expenditures which have not been financed using Long Term
Debt, plus (iv) income taxes actually paid during such period.
"Closing Date": The date on which all of the conditions precedent to
the initial Loans are satisfied.
"Code": The Internal Revenue Code of 1986, as amended, or any
successor statute, together with the regulations thereunder.
"Collateral": The term "Collateral" shall have the meaning given such
term in Section 3.1.
"Collateral Account": The term "Collateral Account" shall have the
meaning given such term in Section 3.2(d).
"Collateral Letter of Credit": The term "Collateral Letter of Credit"
shall have the meaning given such term in Section 3.5.
"Committed Inventory": Finished Goods Inventory of the Borrower which
an Account Debtor has agreed in writing to purchase from the Borrower.
"Credit": The facility established under this Agreement pursuant to
which the Lender will make Revolving Loans and the Term Loans to the Borrower
or issue, or cause any Affiliate to issue, Letters of Credit for the account of
the Borrower.
"Default Rate": With respect to a Loan, the rate of interest which is
applicable to such Loan after any amount thereof is not paid when due, as
determined pursuant to Supplement A.
"Disbursement Account": The term "Disbursement Account" shall
have the meaning given such term in Section 2.3(b).
"EBITDA": For any period, the consolidated net income of the Borrower
and the Subsidiaries before provision for income taxes, interest expense
(including, without limitation, implicit interest expense on Capitalized
Leases), depreciation, amortization and other non-cash expenses or charges, all
as determined in accordance with GAAP, excluding therefrom (to the
extent included): (a) non-operating gains (including, without limitation,
extraordinary or nonrecurring gains, gains from discontinuance of
operations and gains arising from the sale of assets other than Inventory)
during the applicable period; and (b) similar non-operating losses during such
period.
"Eligible Account Receivable": An Account Receivable owing to the
Borrower which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by
the Borrower, which services have been fully performed and, if
applicable, acknowledged and/or accepted by the Account Debtor with
respect thereto; or (ii) the sale or lease of goods by the Borrower
and (A) such goods comply with such Account Debtor's specifications
(if any) and have been shipped to, or delivered to and accepted by,
such Account Debtor, (B)
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<PAGE> 4
the Borrower has possession of, or has delivered to the Lender,
at the Lender's request, shipping and delivery receipts evidencing such
shipment, delivery and acceptance, and (C) such goods have not been
returned to the Borrower;
(c) it (i) is evidenced by an invoice rendered to the Account
Debtor with respect thereto which (A) is dated not earlier than the
date of shipment or performance and (B) has payment terms not
unacceptable to the Lender; and (ii) meets the Eligible Account
Receivable requirements set forth in Supplement A;
(d) it is not subject to any assignment, claim or Lien other
than (i) a Lien in favor of the Lender and (ii) Liens consented to by
the Lender in writing;
(e) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto and is not
subject to setoff, counterclaim, credit or allowance (except any
credit or allowance which has been deducted in computing the net
amount of the applicable invoice as shown in the original schedule or
Borrowing Base Certificate furnished to the Lender identifying or
including such Account Receivable) or adjustment by the Account Debtor
with respect thereto, or to any claim by such Account Debtor denying
liability thereunder in whole or in part, and such Account Debtor has
not refused to accept any of the goods or services which are the
subject of such Account Receivable or offered or attempted to return
any of such goods;
(f) there are no proceedings or actions which are then
threatened or pending against the Account Debtor with respect thereto
or to which such Account Debtor is a party which might result in any
material adverse change in such Account Debtor's financial condition
or in its ability to pay any Account Receivable in full when due;
(g) it does not arise out of a contract or order which, by its
terms, forbids, restricts or makes void or unenforceable the
assignment by the Borrower to the Lender of such Account Receivable;
(h) the Account Debtor with respect thereto is not a
Subsidiary, Related Party or Obligor, or a director, officer, employee
or agent of the Borrower, a Subsidiary, Related Party or Obligor;
(i) the Account Debtor with respect thereto is a resident or
citizen of and is located within the United States of America or,
provided such Account Debtor is acceptable to the Lender in its sole
discretion, Canada, unless the sale of goods giving rise to such
Account Receivable is on letter of credit, banker's acceptance or
other letter of credit support terms satisfactory to the Lender;
j) it does not arise from a "sale on approval," "sale or
return" or "consignment," nor is it subject to any other repurchase or
return agreement;
(k) it is not an Account Receivable with respect to which
possession and/or control of the goods sold giving rise thereto is
held, maintained or retained by the Borrower, any Subsidiary, Related
Party or Obligor (or by any agent or custodian of the Borrower, any
Subsidiary, Related Party or Obligor) for the account of or subject to
further and/or future direction from the Account Debtor with respect
thereto;
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(l) it does not, in any way, fail to meet or violate any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's Accounts Receivable;
(m) the Account Debtor with respect thereto is not located in
the States of Indiana, New Jersey or Minnesota, provided, however,
that such restriction shall not apply if (i) the Borrower has filed
and has effective a Notice of Business Activities Report with the
appropriate office or agency of the States of Indiana, New Jersey or
Minnesota, as applicable, for the then current year or (ii) the
Borrower is exempt from the filing of such report;
(n) it arises in the ordinary course of the Borrower's
business;
(o) if the Account Debtor with respect thereto is the United
States of America or any department, agency or instrumentality
thereof, the Borrower has assigned its right to payment of such
Account Receivable to the Lender pursuant to the Assignment of Claims
Act of 1940 as amended;
(p) if the Lender, in its sole and absolute discretion, has
established a credit limit for the Account Debtor with respect
thereto, the aggregate dollar amount of Accounts Receivable due from
such Account Debtor, including such Account Receivable, does not
exceed such credit limit; and
(q) if it is evidenced by chattel paper or instruments, (i) the
Lender shall have specifically agreed to include such Account
Receivable as an Eligible Account Receivable, (ii) only payments then
due and payable under such chattel paper or instrument shall be
included as an Eligible Account Receivable and (iii) the originals of
such chattel paper or instruments have been assigned and delivered to
the Lender in a manner satisfactory to the Lender.
An Account Receivable which is at any time an Eligible Account Receivable but
which subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be an Eligible Account Receivable. Further, with respect to
any Account Receivable, if the Lender at any time or times hereafter
determines, in its sole and absolute discretion, that the prospect of payment
or performance by the Account Debtor with respect thereto is or will be
impaired for any reason whatsoever, notwithstanding anything to the contrary
contained above, such Account Receivable shall forthwith cease to be an
Eligible Account Receivable.
"Eligible Committed Inventory": Committed Inventory of the Borrower
with respect to which the Account Debtor has been approved by the Lender, in
its sole and absolute discretion, and the Account Receivable arising therefrom
would otherwise constitute an Eligible Account Receivable. Further, with
respect to any Committed Inventory, if the Lender at any time or times
hereafter determines, in its sole and absolute discretion, that the prospect of
payment or performance by the Account Debtor with respect thereto is or will be
impaired for any reason whatsoever, notwithstanding anything to the contrary
contained herein, such Committed Inventory shall forthwith cease to be Eligible
Committed Inventory.
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"Eligible Inventory": Inventory of the Borrower which meets the
following requirements:
(a) it is owned by the Borrower and is not subject to any prior
assignment, claim or Lien other than (i) a Lien in favor of the Lender
and (ii) Liens consented to by the Lender in writing;
(b) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing)
new and unused;
(c) except as the Lender may otherwise consent, it is not
stored with a bailee, warehouseman or similar party; if so stored with
the Lender's consent, such bailee, warehouseman or similar party has
issued and delivered to the Lender, in form and substance acceptable
to the Lender, such documents and agreements as the Lender may
require, including, without limitation, warehouse receipts therefor in
the Lender's name;
(d) the Lender has determined, in its sole and absolute
discretion, that it is not unacceptable due to age, type, category,
quality and/or quantity;
(e) it is not held by the Borrower on "consignment" and is not
subject to any other repurchase or return agreement;
(f) it complies with all standards imposed by any governmental
agency having regulatory authority over such goods and/or their use,
manufacture or sale;
(g) it does not, in any way, fail to meet or violate any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's Inventory; and
(h) it satisfies the Eligible Inventory requirements, if any,
set forth in Supplement A.
Inventory of the Borrower which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements shall forthwith
cease to be Eligible Inventory.
"Environmental Laws": The Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act,
and any other federal, state or local statue, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning any Hazardous Materials or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance, whether
solid, liquid or gas, as now or at any time hereafter in effect.
"Environmental Lien": A Lien in favor of any governmental entity for
(a) any liability under any Environmental Law, or (b) damages arising from or
costs incurred by such governmental entity in response to a spillage, disposal,
or release into the environment of any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance.
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"Equipment": All equipment of the Borrower of every description,
including, without limitation, fixtures, furniture, vehicles and trade
fixtures, together with any and all accessions, parts and equipment attached
thereto or used in connection therewith, and any substitutions therefor and
replacements thereof.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with the regulations thereunder.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which the Borrower is a member and which
is treated as a single employer under Section 414 of the Code.
"Event of Default": The term "Event of Default" shall have the meaning
given such term in Section 7.1.
"FBNA": First Bank National Association, a national banking
association having its offices at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302.
"Federal Reserve Board": The Board of Governors of the Federal Reserve
System or any successor thereto.
"Finished Goods Inventory": Inventory of the Borrower which consists
of finished goods.
"Fixed Rate": A rate per annum equal to the sum of (a) the yield
(converted as necessary to the equivalent semi-annual compound rate) on U.S.
Treasury Securities having a maturity date closest to the Termination Date, as
published by The Wall Street Journal (or, if not so published, as determined by
the Lender by using the average quotes obtained by the Lender from three
primary dealers that market U.S. Treasury Securities on the secondary market);
plus (b) the amount by which the Lender's cost of funds exceeded the
aforementioned yield as of the day of the establishment of the Fixed Rate.
"Fixed Rate Loan": Any Loan which bears interest from time to time
with reference to the Fixed Rate.
"GAAP": Generally accepted accounting principles promulgated by the
Financial Accounting Standards Board, as applied in the preparation of the
audited financial statement of the Borrower referred to in Section 4.6.
"General Intangibles": All of the Borrower's intangible personal
property including things in action, causes of action and all other personal
property of the Borrower of every kind and nature (other than goods, accounts,
chattel paper, documents, instruments and money) including, without limitation,
corporate or other business records, inventions, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, claims against carriers and shippers, guarantee claims, security
interests, security deposits or other security held by or granted to the
Borrower to secure payment by an Account Debtor of any of the Accounts
Receivable, any other rights to payment, including, without limitation, rights
to reimbursement or indemnification, and any other rights of whatsoever nature.
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"Government Yield": As of any date of determination, the yield
(converted as necessary to the equivalent semi-annual compound rate) on
U.S. Treasury Securities having a maturity date closest to the Average
Maturity Period, as published by The Wall Street Journal (or, if not so
published, as determined by the Lender by using the average quotes obtained by
the Lender from three primary dealers that market U.S. Treasury Securities on
the secondary market).
"Guarantor": Mark S. Krasno, individually.
"Guaranty": A Guaranty, substantially in the form set forth as Exhibit
B, of the Guarantor in favor of the Lender.
"Hazardous Materials": Any hazardous substance or pollutant or
contaminant defined as such in (or for the purposes of) any Environmental Law
including, without limitation, petroleum, including crude oil or any fraction
thereof which is liquid at standard conditions of temperature or pressure (60
degrees fahrenheit and 14.7 pounds per square inch absolute), any radioactive
material, including any source, special nuclear or by-product material as
defined at 42 U.S.C. section 2011 et. seq., as amended or hereafter amended,
and asbestos in any form or condition.
"Indebtedness": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the obligors
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
any obligation secured by any mortgage, pledge, security interest, lien, charge
or other encumbrance existing on property owned or acquired subject thereto,
whether or not such obligation shall have been assumed and whether or not such
obligation is the obligation of the owner or another party; (b) any obligation
on account of deposits or advances; (c) any obligation for the deferred
purchase price of any property or services, except accounts payable arising in
the ordinary course of business; (d) any obligation as lessee under any
Capitalized Lease; (e) any guaranty, endorsement or other contingent obligation
in respect to Indebtedness of others; and (f) any undertaking or agreement to
reimburse or indemnify issuers of letters of credit. For all purposes of this
Agreement, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner or a
joint venturer.
"Indemnified Liabilities": The term "Indemnified Liabilities" shall
have the meaning given such term in Section 10.2.
"Indemnitees": The term "Indemnitees" shall have the meaning given
such term in Section 10.2.
"Issuing Bank": For purposes of the original Collateral Letter of
Credit, Bank Leumi LeIsrael, and for purposes of any substititute Collateral
Letter of Credit, such other financial institution as shall be satisfactory to
the Lender in its sole and absolute discretion.
"Interest Differential": As of the date of any full or partial
prepayment, the rate of interest payable on Term Loan A minus the sum
of (a) the Government Yield as of the date of prepayment plus (b) the amount by
which the Lender's cost of funds exceeded the Government Yield as of the day of
the establishment of the Fixed Rate for the Loan.
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"Inventory": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wheresoever located which are or may at any time
be leased by the Borrower to a lessee, held for sale or lease, furnished under
any contract of service or held as raw materials, work in process, or supplies
or materials used or consumed in the Borrower's business, or which are held for
use in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, and all goods, the sale or other disposition of
which has given rise to an Account Receivable, which are returned to and/or
repossessed and/or stopped in transit by the Borrower or the Lender, or at any
time hereafter in the possession or under the control of the Borrower or the
Lender, or any agent or bailee of either thereof, and all documents of title or
other documents representing the same.
"Investment": The acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital, extension
of credit (except for trade and customer accounts receivable for inventory sold
or services rendered in the ordinary course of business and payable in
accordance with customary trade terms), any acquisitions of real and personal
property (other than real and personal property acquired in the ordinary course
of business) and any purchase or commitment or option to purchase stock or
other debt or equity securities of, or any interest in, another Person or any
integral part of any business or the assets comprising such business or part
thereof.
"L/C Draft": A draft drawn on the Lender, or any Affiliate, pursuant
to a Letter of Credit.
"Letter of Credit": A letter of credit issued by the Lender, or any
Affiliate, on the Application of the Borrower.
"Letter of Credit Obligations": An amount equal to the aggregate of
the original face amounts of all Letters of Credit minus the sum of (a)
the amount of any reduction(s) in the original face amount of any Letter of
Credit which did not result from a draw made under such Letter of Credit, (b)
the amount of any payments made by the Lender, or any Affiliate, with respect
to a Letter of Credit or L/C Draft for which the Borrower has reimbursed the
Lender, or such Affiliate, and (c) the undrawn portion of any issued, but
expired, Letter of Credit plus the amount of any increase(s) in the original
face amount of any Letter of Credit. For purposes of determining the
outstanding Letter of Credit Obligations at any time, the Lender's, or any
Affiliate's, acceptance of an L/C Draft shall constitute a draw on the
applicable Letter of Credit at the time of such acceptance.
"Letter of Credit Sublimit": The term "Letter of Credit Sublimit"
shall have the meaning given such term in Supplement A.
"Lien": Any security interest, mortgage, pledge, lien, hypothecation,
judgment lien or similar legal process, charge, encumbrance, title retention
agreement or analogous instrument or device (including, without limitation, the
interest of lessors under Capitalized Leases and the interest of a vendor under
any conditional sale or other title retention agreement).
"Loan": Any Revolving Loan made by the Lender to the Borrower pursuant
to Section 2.1.1, Term Loan A made by the Lender to the Borrower pursuant to
Section 2.1.2, Term Loan B made by the Lender to the Borrower pursuant to
Section 2.1.3, and any other loan or advance made by the Lender to the Borrower
under or pursuant to this Agreement.
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"Loan Account": The term "Loan Account" shall have the meaning given
such term in Section 2.3(A).
"Loan Documents": This Agreement, any Note, the Guaranty, the
Subordination Agreements, the Collateral Letter of Credit and each other
instrument, document, guaranty, mortgage, deed of trust, chattel mortgage,
pledge, power of attorney, consent, assignment, contract, notice, security
agreement, lease, financing statement, subordination agreement, trust account
agreement, or other agreement executed and delivered by the Borrower or any
guarantor or party granting security interests in connection with this
Agreement, the Loans or the Collateral.
"Long Term Debt": All Indebtedness of any Person for borrowed money or
which has been incurred in connection with the acquisition of assets in each
case having a final maturity of one or more than one year from the date of
origin thereof (or which is renewable or extendble at the option of
the obligor for a period or periods more than one year from the date of
origin), including all payments in respect thereof that are required to be made
within one year from the date of any determination of Long Term Debt,
whether or not the obligation to make such payments shall constitute a current
liability of the obligor under GAAP.
"Note": Any promissory note of the Borrower evidencing any loan or
advance (including but not limited to the Loans) made by the Lender to the
Borrower pursuant to this Agreement.
"Obligations": All of the liabilities, obligations and indebtedness of
the Borrower to the Lender, or any Affiliate, of any kind or nature, however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing or due or to become due, and including,
without limitation, (a) the Borrower's obligations under the Loan Documents,
including obligations of performance, (b) the Borrower's obligations with
respect to any Letter of Credit or any Application, and (c) interest, charges,
expenses, Attorneys' Fees and other sums chargeable to the Borrower by the
Lender under the Loan Documents. "Obligations" shall also include any and all
amendments, extensions, renewals, refundings or refinancings of any of the
foregoing.
"Obligor": The Borrower and each other Person who is or shall become
primarily or secondarily liable on any of the Obligations or who grants to the
Lender a Lien on any property of such Person as security for any of the
Obligations.
"Occupational Safety and Health Law": The Occupational Safety and
Health Act of 1970 and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"Over Advance": The term "Over Advance" shall have the meaning given
such term in Section 2.8.
"Overdraft Loan": The term "Overdraft Loan" shall have the meaning
given such term in Section 2.7.
"Participant": Any Person, now or at any time or times hereafter,
participating with the Lender in the Loans made to the Borrower hereunder.
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"PBGC": The Pension Benefit Guaranty Corporation, established pursuant
to Subtitle A of Title IV of ERISA, or any successor thereto or to the
functions thereof.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision thereof, or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan": An employee benefit plan or other plan, maintained for
employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of
ERISA or Section 412 of the Code.
"Quotient": The term "Quotient" shall have the meaning given such term
in Section 2.1.2(d).
"Reference Rate": The rate of interest from time to time publicly
announced by FBNA as its "reference rate." The Lender may lend to its customers
at rates that are at, above or below the Reference Rate. For purposes of
determining any interest rate which is based on the Reference Rate, such
interest rate shall change on the effective date of any change in the Reference
Rate.
"Related Party": Any Person (other than a Subsidiary): (a) which
directly or indirectly, through one of more intermediaries, controls, is
controlled by or is under common control with, the Borrower, (b) which
beneficially owns or holds 5% or more of the equity interest of the Borrower,
or (c) 5% or more of the equity interest of which is beneficially owned or held
by the Borrower or a Subsidiary. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Reportable Event": A reportable event, as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC, by regulation, has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, however that a failure to
meet the minimum funding standard of Section 412 of the Code and Section 302 of
ERISA shall be a reportable event regardless of the issuance of any such
waivers in accordance with Section 412(d) of the Code.
"Revolving Credit Amount": The term "Revolving Credit Amount" shall
have the meaning given such term in Supplement A.
"Revolving Loan": The term "Revolving Loan" shall have the meaning
given such term in Section 2.1.1.
"Revolving Loan Availability": The lesser of (a) the Revolving Credit
Amount minus the Letter of Credit Obligations and (b) the Borrowing Base minus
the Letter of Credit Obligations.
"Subordinated Debt": That portion of any liabilities, obligations or
Indebtedness of the Borrower which contains terms satisfactory to the Lender
and is subordinated, in a manner satisfactory to the Lender, as to right and
time of payment of principal and interest thereon, to any and all of the
Obligations.
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"Subordinated Lender(s)": Bleeman Holdings Limited, Caftan Holdings
Limited, Egis Holdings Limited, Greenwin Florida Investments, Grossman Holdings
Limited, H&R Developments, Seaford Holdings Limited and the Guarantor.
"Subordination Agreement": A Subordination Agreement, substantially in
the form set forth as Exhibit C, of each Subordinated Lender in favor of the
Lender.
"Subsidiary": Any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the combined
voting power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such Person, if
it is a corporation, (b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.
"Supplemental Documentation": The term "Supplemental Documentation"
shall have the meaning given such term in Section 3.6.
"Taxes": With respect to any Person means taxes, assessments or other
governmental charges or levies imposed upon such Person, its income or any of
its properties, franchises or assets.
"Term Loan A": The term "Term Loan A" shall have the meaning given such
term in Section 2.1.2.
"Term Loan B": The term "Term Loan B" shall have the meaning given such
term in Section 2.1.3.
"Term Loan(s)": Individually or collectively, Term Loan A and Term Loan
B.
"Termination Date": The term "Termination Date" shall have the meaning
given such term in Supplement A.
"Third Party Collateral": Any property of any Person other than the
Borrower which secures payment or performance of any Obligations.
"UCC": The Uniform Commercial Code as in effect in the State of
Minnesota and any successor statute, together with any regulations thereunder,
in each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
"Unmatured Event of Default": Any event which, with the giving of
notice to the Borrower or lapse of time, or both, would constitute an Event of
Default.
"Unused Revolving Credit Amount": The Revolving Credit Amount minus the
sum of (a) the outstanding principal balance of the Revolving Loans plus (b)
the Letter of Credit Obligations.
"U.S. Treasury Securities": Actively traded U.S. Treasury bonds, bills
and notes and, if more than one issue of U.S. Treasury Securities is scheduled
to mature at or about the time of
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the Termination Date, then to the extent possible, the U.S. Treasury Security
most recently issued will be chosen.
"Variable Rate Loan": Any Loan which bears interest from time to time
with reference to the Reference Rate.
1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly
provided to the contrary herein, all accounting terms used herein or in any
certificate or other document made or delivered pursuant hereto shall be
interpreted and all accounting determinations hereunder (including, without
limitation, determination of compliance with financial ratios and restrictions
in Articles V and VI shall be made in accordance with GAAP consistently
applied, using a first in first out method of Inventory valuation. Any
reference to "consolidated" financial terms shall be deemed to refer to those
financial terms as applied to the Borrower and the Subsidiaries in accordance
with GAAP.
1.3 OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined herein,
all terms defined in this Agreement shall have such defined meanings when used
in any other Loan Document. Terms used in this Agreement which are defined in
any Supplement, Exhibit or Schedule hereto shall, unless the context otherwise
indicates, have the meanings given them in such Supplement, Exhibit or
Schedule. Other terms used in this Agreement shall, unless the context
otherwise indicates, have the meanings given such terms in the Minnesota
Uniform Commercial Code to the extent the same are used or defined therein. The
words "hereof," "herein," and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Reference to "this Agreement" shall
include the provisions of Supplement A. References to Sections, Exhibits,
Schedules and like references are to this Agreement unless otherwise
expressly provided. Section captions used in this Agreement are for convenience
only, and shall not affect the construction of this Agreement.
ARTICLE 11 REVOLVING LOANS; TERM LOANS; OTHER MATTERS
2.1 LOANS.
2.1.1 REVOLVING LOANS.
(a) Subject to the terms and conditions of the Loan
Documents, and in reliance upon the warranties of the Borrower
set forth herein and in the other Loan Documents, the Lender agrees
to make such loans or advances (individually, a "Revolving Loan"
and collectively, the "Revolving Loans") to the Borrower as the
Borrower may from time to time request, up to but not in excess of
the Revolving Loan Availability. Revolving Loans made by the Lender
may be repaid and, subject to the terms and conditions hereof,
reborrowed to the Termination Date unless the Credit extended under
this Agreement is otherwise terminated as provided in this
Agreement.
(b) In the event the aggregate outstanding principal balance
of the Revolving Loans exceeds the Revolving Loan Availability,
the Borrower shall, unless the Lender shall otherwise consent,
immediately and without notice of
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any kind, make such payments or take such other action as shall
be necessary to eliminate such excess.
2.1.2 TERM LOAN A.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein
and in the other Loan Documents, the Lender agrees to make a loan
("Term Loan A") to the Borrower on the Closing Date in the
amount of TWO MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,300,000) or such lesser amount as the Borrower shall request.
(b) Unless otherwise required to be sooner paid pursuant to
this Agreement, the principal of Term Loan A shall mature and be
payable in consecutive equal monthly installments of $38,333 payable
on the fifteenth day of each month for the immediately preceding
month, commencing on the first such day to occur following the date of
this Agreement, and a final installment in the outstanding principal
balance of Term Loan A on the Termination Date.
(c) During any period in which Term Loan A is a Variable Rate
Loan, the Borrower may, upon three Business Days' notice to the
Lender, prepay the principal of Term Loan A in whole or in part
without premium. Any partial prepayment of principal of Term Loan A
shall be in a minimum amount of the lesser of (i) the outstanding
principal balance of Term Loan A and (ii) $10,000 or an integral
multiple thereof, and shall be applied to the unpaid installments of
Term Loan A in the inverse order of their maturities. Any principal of
Term Loan A which is repaid may not be reborrowed.
(d) During any period in which Term Loan A is a Fixed Rate
Loan, the Borrower may, upon five Business Days' prior written notice
to the Lender, prepay the principal of Term Loan A in whole or in
part. Any partial prepayment of principal of Term Loan A shall be in a
minimum amount of the lesser of (i) the outstanding principal balance
of Term Loan A and (ii) $10,000 or an integral multiple thereof, and
shall be applied to the unpaid installments of Term Loan A in the
inverse order of their maturities. If at the time of any prepayment
(whether voluntary or involuntary, including, without limitation, any
payment prior to the scheduled maturity following acceleration of Term
Loan A), the Interest Differential is greater than zero, the Borrower
shall pay to the Lender a prepayment premium equal to the present
value (determined in accordance with standard financial practice) of
the product of (1) the Interest Differential, (2) the amount prepaid,
and (3) the Average Maturity Period. The amount of the prepayment
premium shall be calculated as follows: The amount prepaid shall be
multiplied by the product of (A) the Interest Differential, and (B) a
fraction, the numerator of which is the number of days in the Average
Maturity Period and the denominator of which is 360. The resulting
product shall then be divided by the number of whole months (using a
thirty day month) in the Average Maturity Period, yielding a quotient
(the "Quotient"). The amount of the prepayment premium shall be the
present value (determined in accordance with standard financial
practice) on the date of prepayment (using Government Yield as of
the
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date of such prepayment as the discount factor) of a stream of equal
monthly payments in number equal to the number of whole months (using
a thirty day month) in the Average Maturity Period, with the
amount of each hypothetical monthly payment being equal to the
Quotient and with the first payment payable thirty days after the date
of prepayment.
(e) Any payment of Term Loan A may be made with the proceeds of
a Revolving Loan only if, immediately before and after giving effect
to such payment, no Event of Default or Unmatured Event of Default
then exists or would result therefrom.
2.1.3 TERM LOAN B.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein
and in the other Loan Documents, the Lender agrees to make a loan
("Term Loan B") to the Borrower on the Closing Date in the
amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) or such
lesser amount as the Borrower shall request.
(b) Unless otherwise required to be sooner paid pursuant to
this Agreement, the entire outstanding principal balance of Term Loan
B shall mature and be payable on March 31, 1995.
(c) The Borrower may, upon three Business Days' notice to the
Lender, prepay the principal of Term Loan B in whole or in part
without premium. Any partial prepayment of principal of Term Loan B
shall be in a minimum amount of the lesser of (i) the outstanding
principal balance of Term Loan B and (ii) $10,000 or an integral
multiple thereof, and shall be applied to the unpaid installments of
Term Loan B in the inverse order of their maturities. Any principal of
Term Loan B which is repaid may not be reborrowed.
(d) Any payment of Term Loan B may be made with the proceeds of
a Revolving Loan only if, immediately before and after giving effect
to such payment, no Event of Default or Unmatured Event of Default
then exists or would result therefrom.
2.1.4 ALL LOANS PAYABLE ON TERMINATION DATE. All Loans and other
Obligations hereunder shall be paid by the Borrower on the Termination Date,
unless payable sooner pursuant to the provisions of this Agreement.
2.2 LETTERS OF CREDIT.
(a) In addition to Loans made pursuant to Section 2.1, the Lender, or
any Affiliate, may, upon receipt of duly executed Applications and such other
documents, instruments and/or agreements as the Lender, or such Affiliate, may
require, issue Letters of Credit on such terms as are satisfactory to the
Lender; provided, however, that no Letter of Credit will be issued if, before
or after taking such Letter of Credit into account, the Letter of Credit
Obligations exceeds the least of (i) the Letter of Credit
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Sublimit, (ii) the Revolving Credit Amount minus the outstanding
principal balance of the Revolving Loans and (iii) the Borrowing Base
minus the outstanding principal balance of the Revolving Loans.
(b) The Borrower agrees to pay the Lender, or any Affiliate, on
demand, the Lender's, or such Affiliate's, standard administrative
operating fees and charges in effect from time to time for issuing and
administering any Letters of Credit. The Borrower further agrees to
pay the Lender, or any Affiliate, a commission on the undrawn amount
of each Letter of Credit and on each L/C Draft accepted by the Lender,
or such Affiliate, in the amount indicated in Supplement A.
Such commissions shall be paid at such frequency as the Lender, or
such Affiliate, shall determine.
(c) The Borrower agrees to reimburse the Lender, or any
Affiliate, on demand for each payment made by the Lender, or such
Affiliate, under or pursuant to any Letter of Credit or L/C Draft. The
Borrower further agrees to pay to the Lender, or any Affiliate, on
demand, interest at the Default Rate, on any amount paid by the
Lender, or such Affiliate, under or pursuant to any Letter of Credit
or L/C Draft from the date of payment until the date of reimbursement
to the Lender, or such Affiliate.
(d) Notwithstanding anything to the contrary herein or in any
Application of the Borrower, upon the occurrence of an Event of
Default, or on the Termination Date, an amount equal to the aggregate
amount of the outstanding Letter of Credit Obligations shall, at the
Lender's option and without further notice to the Borrower, be deemed
(as between the Lender and the Borrower) to have been paid or
disbursed by the Lender under the Letters of Credit and L/C Drafts
accepted by the Lender, or any Affiliate, notwithstanding that such
amounts may not in fact have been so paid or disbursed, and a Loan to
the Borrower, in the amount of such Letter of Credit Obligations, to
have been made and accepted, which Loan shall be immediately due and
payable. In lieu of the foregoing, at the election of the Lender, the
Borrower shall, upon the Lender's demand, deliver to the Lender, or
any Affiliate, cash or other Collateral of a type satisfactory to the
Lender, or such Affiliate, having a value, as determined by the
Lender, or such Affiliate, equal to the aggregate Letter of Credit
Obligations. Any such Collateral and/or any amounts received by the
Lender, or any Affiliate, in payment of the Loan made pursuant to this
paragraph (d) shall be held by the Lender, or such Affiliate,
in the Collateral Account or a separate account appropriately
designated as a cash collateral account in relation to this Agreement
and the Letters of Credit and retained by the Lender, or such
Affiliate, as collateral security for the Obligations and each of the
Letters of Credit and L/C Drafts. Such amounts shall not be used by
the Lender, or any Affiliate, to pay any amounts drawn or paid under
or pursuant to any Letter of Credit or L/C Draft but may be applied to
reimburse the Lender, or any Affiliate, for drawings or payments under
or pursuant to Letters of Credit or L/C Drafts which the Lender, or
such Affiliate, has paid or, if no such reimbursement is required, to
payment of such other Obligations as the Lender shall determine.
Following payment in full of all Obligations, any amounts remaining in
any cash collateral account established pursuant to this paragraph
(d) which are not (as determined by the Lender) to be applied to
reimburse the Lender, or any Affiliate, for amounts actually paid by
the Lender, or such Affiliate, in respect of a Letter of Credit or L/C
Draft shall be returned to the Borrower (after deduction of the
Lender's, or such Affiliate's expenses).
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2.3 LOAN ACCOUNT; DISBURSEMENT ACCOUNT.
(a) LOAN ACCOUNT. The Lender shall establish or cause to be established on
its books in the Borrower's name one or more accounts (each, a "Loan
Account") to evidence Loans made to the Borrower. Any amounts advanced
as Loans which are credited to the Disbursement Account, together with
any other amounts advanced to the Borrower as a Loan pursuant to this
Agreement, will be debited to the applicable Loan Account and result
in an increase in the principal balance outstanding in such Loan
Account in the amount thereof.
(b) DISBURSEMENT ACCOUNT. Unless otherwise provided in this Agreement, the
Lender will credit or cause to be credited to a commercial account
(the "Disbursement Account") maintained by the Borrower at FBNA's
First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402-4302 office the amount of any sums advanced as Loans.
2.4 INTEREST; FEES.
(a) INTEREST. The outstanding principal balance of each Loan to the
Borrower hereunder shall bear interest at the rate(s) applicable to
such Loan indicated in Supplement A; provided, however, that no
provision of this Agreement or any Note shall require the payment or
permit the collection of interest in excess of the rate permitted by
applicable law. Interest as aforesaid shall be charged for the actual
number of days elapsed over a year consisting of 360 days on the
actual daily balance of such Loan. Interest on the unpaid principal of
any Loan shall accrue from the date such Loan is made to the date such
Loan is paid. Interest shall be paid by the Borrower on the last day
of each month, commencing on the first such day to occur after the
date hereof, and on maturity. After maturity of any Loan, whether by
acceleration or otherwise, interest shall be payable on demand.
(b) INTEREST AFTER DEFAULT. If any Loan or any amount thereof is not paid
in full when due, whether by acceleration or otherwise, the entire
unpaid principal balance of such Loan shall bear interest at the
Default Rate applicable to such Loan,
(c) COMMITMENT FEE. The Borrower shall pay to the Lender a commitment fee
for the period from the date hereof to the date the Credit terminates
in the amount indicated in Supplement A. The commitment fee shall be
charged for the actual number of days elapsed over a year consisting
of 360 days on the actual daily balance of the Revolving Loans. The
commitment fee shall be paid by the Borrower in arrears on the last
day of each March, June, September and December, commencing on the
first such day to occur after the date hereof, and on the date the
Credit terminates for the period then ended.
(d) CREDIT TERMINATION FEE. Upon termination or cancellation of the Credit
by the Borrower, the Borrower shall pay to the Lender a termination
fee in the amount indicated in Supplement A.
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2.5 REQUESTS FOR REVOLVING LOANS; BORROWING BASE CERTIFICATES; OTHER
INFORMATION.
(a) Revolving Loans shall be requested by telephone, except for
Overdraft Loans. Any such telephonic notice shall be promptly confirmed by
the Borrower in writing. The Borrower's failure to confirm any such
telephonic notice or otherwise comply with the provisions of this Section
2.5(a) shall not in any manner affect the obligation of the Borrower to
repay such Revolving Loan in accordance with the terms of this Agreement.
(b) In the event that the Borrower shall at any time, or from time to
time, (i) make a request for a Revolving Loan, or (ii) be deemed to have
requested an Overdraft Loan, the Borrower agrees to forthwith provide the
Lender with such information, at such frequency and in such format, as is
required by the Lender, such information to be current as of the time of
such request.
(c) The Borrower further agrees to provide to the Lender a current
borrowing base certificate ("Borrowing Base Certificate") at the end of
each month and at such other times as the Lender may request. Such
Borrowing Base Certificate shall be in substantially the form of Exhibit
D, executed and certified as accurate by such person or persons as the
Borrower designates in writing to the Lender pursuant to duly adopted
resolutions of the Borrower's Board of Directors authorizing such action.
(d) The Borrower shall provide the Lender with documentation
satisfactory to the Lender indicating the names of those employees of the
Borrower authorized by the Borrower to sign Borrowing Base Certificates,
among other things, and/or to make a telephone request for a Revolving
Loan, and/or to authorize disbursement of the proceeds of a Loan by wire
transfer or otherwise, and the Lender shall be entitled to rely upon such
documentation until notified in writing by the Borrower of any change(s)
in the names of persons so authorized. The Lender shall be entitled to act
on the instructions of anyone identifying himself as one of the persons
authorized to request Revolving Loans or disbursements of Loan proceeds by
telephone and the Borrower shall be bound thereby in the same manner as if
the person were actually so authorized. The Borrower agrees to indemnify
and hold the Lender harmless from any and all claims, damages,
liabilities, losses, costs and expenses (including Attorneys' Fees) which
may arise or be created by the acceptance of instructions for making or
paying Loans or wire transfers by telephone.
2.6 NOTES. Except to the extent a Loan may, in the Lender's sole and
absolute discretion, be evidenced by a Note, all Loans and payments hereunder
shall be recorded on the Lender's books, which shall be rebuttable presumptive
evidence of the amount of such Loans outstanding at any time hereunder. The
Lender will account monthly as to all Loans and payments hereunder and each
monthly accounting will be fully binding on the Borrower unless, within 15 days
following the Borrower's receipt thereof, the Borrower shall provide the Lender
with a specific listing of exceptions. Notwithstanding any term or condition of
this Agreement to the contrary, the failure of the Lender to record the date
and amount of any Loan shall not limit or otherwise affect the obligation of
the Borrower to repay any such Loan.
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2.7 OVERDRAFT LOANS. The Lender, in its sole and absolute discretion and
subject to the terms hereof, may make a Loan to the Borrower in an amount equal
to the amount of any overdraft which may from time to time exist with respect
to the Disbursement Account or any other bank account which the Borrower may
now hereafter have with FBNA or any other Affiliate. The existence of such
overdraft shall be deemed to be a request by the Borrower for such Loan. The
Borrower acknowledges that the Lender is under no duty or obligation to make
any Loan to the Borrower to cover any overdraft. The Borrower further agrees
that an overdraft shall constitute a separate Loan under this Agreement (an
"Overdraft Loan"), which shall bear, from the date on which the overdraft
occurred until paid, interest in an amount, equal to the greater of 130% of the
highest rate of interest then charged for Loans (other than Overdraft Loans)
made hereunder, or $50.00 per day. If the Lender, in its sole and absolute
discretion, decides not to make a Loan to cover part or all of any overdraft,
the Lender may return any check(s) which created such overdraft.
2.8 OVER ADVANCES. The Lender, in its sole and absolute discretion, may
make Loans to the Borrower, either at the Borrower's request or to pay amounts
due to the Lender under this Agreement or any other Loan Document, in excess of
the Loan Availability or permit the total Loans to at any time exceed the Loan
Availability (such excess Obligations are hereinafter referred to as "Over
Advances") and no such event or occurrence shall cause or constitute a waiver
by the Lender of its right to refuse to make any further Loan or issue, or
cause to be issued, any Letters of Credit at any time that an Over Advance
exists or would result therefrom. During any period in which an Over Advance
exists, the amount of the Over Advances shall bear interest at a rate equal to
130% of the highest rate of interest then charged for Loans (other than
Overdraft Loans) made hereunder.
2.9 ALL LOANS ONE OBLIGATION. All Loans under this Agreement shall
constitute one Loan, and all Indebtedness and other Obligations shall
constitute one general obligation secured by the Lien granted by the Borrower
hereunder on all of the Collateral and by all other Liens heretofore, now or at
any time or times hereafter granted by the Borrower or any other Obligor to
secure the Obligations. The Borrower agrees that all of the rights of the
Lender set forth in the Loan Documents shall, unless otherwise agreed to in
writing, apply to any modification of or supplement to the Loan Documents.
2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS; CHARGING OF ACCOUNTS.
(a) All payments hereunder (including payments with respect to any
Notes) shall be made without set-off or counterclaim and shall be made to
the Lender in immediately available funds (or as the Lender may otherwise
consent) prior to 12:30 p.m., Minneapolis time, on the date due at its
office at First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302, or at such other place as may be designated by the
Lender to the Borrower in writing. Any payments received after such time
shall be deemed received on the next Business Day. Whenever any payment to
be made hereunder or under any Note shall be stated to be due on a date
other than a Business Day such payment may be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of payment of interest or any fees.
(b) The Borrower authorizes the Lender to, and the Lender will,
subject to the provisions of this Section 2.10(b), apply the whole or any
part of any amounts received
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by the Lender, or any Affiliate (whether deposited in the Collateral
Account or otherwise received by the Lender, or any Affiliate) from the
collection of items of payment and proceeds of any Collateral or Third
Party Collateral against the principal and/or interest of any Loans made
HEREUNDER AND/OR ANY other Obligations, whether or not then due, in such
order of application as the Lender may determine, unless such payments or
proceeds are, in the Lender's sole and absolute discretion, released to
the Borrower; provided, however, that no checks, drafts or other
instruments received by the Lender, or any Affiliate, shall constitute
final payment to the Lender unless and until such item of payment has
actually been collected. All items or amounts which are delivered to the
Lender, or any Affiliate, by or on behalf of the Borrower or any Obligor
or any Account Debtor on account of partial or full payment or otherwise
as proceeds of any of the Collateral or Third Party Collateral (including
any items or amounts which may have been deposited to the Collateral
Account) may from time to time, in the Lender's sole and absolute
discretion, be released to the Borrower or may be applied by the Lender
towards such of the Obligations, whether or not then due, in such order of
application as the Lender may determine. Notwithstanding anything to the
contrary herein, (i) all cash, checks, instruments and other items of
payment, solely for purposes of determining the occurrence of an Event of
Default hereunder, shall be deemed received upon actual receipt by the
Lender unless the same is subsequently dishonored for any reason
whatsoever, (ii) for purposes of determining whether, under Sections 2.1
and 2.2, there is availability for Loans or Letters of Credit, all cash,
checks, instruments and other items of payment shall be applied against
the Obligations on the first Business Day following receipt thereof by the
Lender in Minneapolis, Minnesota or the first Business Day following the
initiation by the Lender of an ACH transaction from a Collateral Account,
and (iii) solely for purposes of interest calculation hereunder, all cash,
checks, instruments and other items of payment shall be deemed to have
been applied against the Obligations on the second Business Day following
receipt thereof by the Lender in Minneapolis, Minnesota or the second
Business Day following the initiation by the Lender of an ACH transaction
from a Collateral Account.
(c) The Borrower hereby authorizes the Lender and the Lender may, in
its sole and absolute discretion, charge to the Borrower, at any time, all
or any portion of any of the Obligations (and interest, if any, thereon)
including, without limitation, any Attorneys' Fees and other costs and
expenses of the Lender for which the Borrower is liable pursuant to the
terms of the Loan Documents, by charging the Disbursement Account or any
other bank account of the Borrower with FBNA or by advancing the amount
thereof to the Borrower as a Loan; provided, however, that the provisions
of this Section 2.10(c) shall not affect the Borrowers obligation to pay
when due all amounts payable by the Borrower under any of the Loan
Documents whether or not there are sufficient funds therefor in the
Disbursement Account or any such other bank account of the Borrower with
FBNA, or sufficient Loan Availability.
2.11 LENDER'S ELECTION NOT TO ENFORCE. Notwithstanding any term or
condition of this Agreement to the contrary, the Lender, in its sole and
absolute discretion, at any time and from time to time may suspend or refrain
from enforcing any or all of the restrictions imposed in this Section 2 but no
such suspension or failure to enforce shall impair the Lender's right and power
under this Agreement to refrain from making a Loan or issuing, or causing to be
issued, a Letter of Credit requested by the Borrower if all conditions
precedent to the Lender's
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obligation to make such Loan or issue, or cause to be issued, such Letter of
Credit have not been satisfied.
ARTICLE III COLLATERAL; COLLATERAL LETTER OF CREDIT
3.1 GRANT OF SECURITY INTEREST. As security for the payment of all Loans
now or hereafter made by the Lender to the Borrower hereunder or under any
Note, and as security for the payment or other satisfaction of all other
Obligations, the Borrower hereby grants to the Lender, and its Affiliates, a
security interest in and to the following property of the Borrower, whether now
owned or existing, or hereafter acquired or coming into existence, wherever now
or hereafter located (all such property is hereinafter referred to collectively
as the "Collateral"):
(a) Accounts Receivable (whether or not Eligible Accounts
Receivable), including all other rights and interests (including all liens
and security interests) that the Borrower may at any time have by law or
agreement against any Account Debtor or other obligor obligated to make
any such payment or against any of the property of such Account Debtor or
other obligor;
(b) Equipment;
(c) Inventory (whether or not Eligible Inventory or Eligible
Committed Inventory);
(d) General Intangibles;
(e) documents;
(f) all chattel paper and instruments evidencing, arising out of or
relating to any obligation to the Borrower for goods sold or leased or
services rendered or otherwise arising out of or relating to any property
described in clauses (a) through (e) above;
(g) goods, instruments, documents or chattel paper that are in the
possession or control of, or in transit to, the Borrower or any agent
or bailee for the Lender for any reason and all interest on, dividends and
distributions and other rights in connection with such property, and any
and all balances, credits, deposits (general or special, time or demand,
provisional or final), accounts or monies of or in the name of the
Borrower now or hereafter with the Lender, or any Affiliate, and any and
all property of every kind or description of or in the name of the
Borrower now or hereafter, for any reason or purpose whatsoever, in the
possession or control of, in transit to or standing to the Borrower's
credit on the books of, the Lender, any Affiliate, or any agent or bailee
for the Lender or any Affiliate or any Participant;
(h) all interest of the Borrower in any goods the sale or lease of
which shall have given or shall give rise to, and in all guaranties and
other property securing the payment of or performance under, any Accounts
Receivable, General Intangibles or any chattel paper or instruments
referred to in clause (f) above;
(i) any and all other property of the Borrower of any kind or
description, including, without limitation, real estate of the Borrower,
subject to a separate mortgage, pledge or security interest in favor of
the Lender or in which the Lender now
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or hereafter has or acquires a security interest securing any Obligations,
pursuant to any written agreement or instrument other than this Agreement;
(j) all replacements, substitutions, additions or accessions to or
for any of the foregoing;
(k) to the extent related to the property described in clauses (a)
through (i) above, all books, correspondence, credit files, records,
invoices and other papers and documents, including, without limitation, to
the extent so related, all tapes, cards, computer runs, computer programs
and other papers and documents in the possession or control of the
Borrower or any computer bureau from time to time acting for the Borrower,
and, to the extent so related, all rights in, to and under all policies of
insurance, including claims of rights to payments thereunder and proceeds
therefrom, including any credit insurance; and
(l) all proceeds (including, without limitation, any Accounts
Receivable or other proceeds arising from the sale or other disposition
of any Collateral, any returns of any Equipment or Inventory sold by the
Borrower and the proceeds of any insurance covering any of the Collateral)
of any of the foregoing.
3.2 ACCOUNTS RECEIVABLE.
(a) The Borrower shall notify the Lender immediately of all disputes
and claims by any Account Debtor and settle or adjust them at no
expense to the Lender. If the Lender directs, no discount or credit
allowance shall be granted thereafter by the Borrower to any Account
Debtor. All Account Debtor payments and all net amounts received by the
Lender in settlement, adjustment or liquidation of any Account Receivable
may be applied by the Lender to the Borrower's Obligations or credited to
the Disbursement Account (subject to collection), as the Lender may deem
appropriate, as more fully described in Section 2.10. If requested by the
Lender, the Borrower will make proper entries in its books, disclosing the
assignment of Accounts Receivable to the Lender.
(b) Unless otherwise consented to by the Lender, the Borrower will,
forthwith upon receipt by the Borrower of all checks, drafts, cash and
other remittances in payment or as proceeds of, or on account of, any of
the Accounts Receivable or other Collateral, deposit the same in a special
bank account (the "Collateral Account") with FBNA or such other bank or
financial institution as the Lender shall consent, over which the Lender
alone has power of withdrawal, and will designate with each such deposit
the particular Accounts Receivable or other item of Collateral upon which
the remittance was made. The Borrower acknowledges that the maintenance of
the Collateral Account is solely for the convenience of the Lender in
facilitating its own operations and the Borrower does not and shall not
have any right, title or interest in the Collateral Account or in the
amounts at any time appearing to the credit thereof. Said proceeds shall
be deposited in precisely the form received except for the Borrower's
endorsement where necessary to permit collection of items, which
endorsement the Borrower agrees to make. Pending such deposit, the
Borrower agrees not to commingle any such checks, drafts, cash and other
remittances with any of its funds or property, but will hold them separate
and apart therefrom and upon an
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express trust for the Lender until deposit thereof if made in the
Collateral Account. Upon the full and final liquidation of all
Obligations, the Lender will pay over to the Borrower any excess amounts
received by the Lender as payment or proceeds of Collateral, whether
received by the Lender as a deposit in the Collateral Account or received
by the Lender as a direct payment on any of the sums due hereunder.
(c) If any Accounts Receivable, chattel paper or General Intangible
arises out of contracts with the United States or any department, agency,
or instrumentality thereof, the Borrower will, unless the Lender shall
otherwise agree, immediately notify the Lender in writing and execute any
instruments and take any steps required by the Lender in order that all
monies due and to become due under such contracts shall be assigned to the
Lender and notice thereof given to the government under the Federal
Assignment of Claims Act of 1940, as amended.
(d) If any Accounts Receivable is evidenced by chattel paper or
instruments, the Borrower will, unless the Lender shall otherwise
agree, deliver the originals of same to the Lender, appropriately endorsed
to the Lender's order and, regardless of the form of such endorsement, the
Borrower hereby expressly waives presentment, demand, notice of dishonor,
protest and notice of protest and all other notices with respect thereto.
3.3 INVENTORY.
(a) Unless the Lender shall otherwise agree, if the Borrower
sells Inventory for cash, all full and partial payments therefor shall
immediately be delivered by the Borrower to the Lender in their original
form for deposit in the Collateral Account or other application to
reduction of the Obligations. All such cash shall be held by the Borrower
in trust for the Lender and shall be remitted to the Lender at the end of
the day received or at such other time as the Lender may designate.
(b) The Lender shall not be liable or responsible in any way for
the safekeeping of any Inventory delivered to it, to any bailee
appointed by or for it, to any warehouseman, or under any other
circumstances. The Lender shall not be responsible for collection of any
proceeds or for losses in collected proceeds held by the Borrower in trust
for the Lender. Any and all risk of loss for any or all of the foregoing
shall be upon the Borrower except for such loss as shall result from the
Lender's gross negligence or willful misconduct.
(c) The Borrower shall, upon acquiring an interest in any
Inventory, deliver to the Lender schedules of such Inventory, together
with supplier's invoices, warranties, production, cost and other
records as the Lender may request. If requested by the Lender, the
Borrower shall deliver to the Lender schedules of the sale of any
Inventory immediately upon its sale. Any material change in the value or
condition of any Inventory and any errors discovered in schedules
delivered to the Lender shall be reported to the Lender immediately.
(d) The Borrower shall (i) notify the Lender immediately if the
Borrower obtains possession (by return, repossession or otherwise) of
any Inventory which has been sold and shall inform the Lender of the
identity of the returned or repossessed Inventory, the
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applicable Account Debtor and the amount of the applicable Account
Receivable; (ii) receive such Inventory in trust; and (iii) resell such
Inventory for the Lender unless instructed to deliver it to the Lender.
3.4 EQUIPMENT.
(a) In the event any Equipment is sold, transferred or otherwise
disposed of, unless the Lender shall agree otherwise, the Borrower shall
deliver all of the proceeds of any such sale, transfer or disposition to
the Lender, which proceeds shall be deposited in the Collateral Account or
otherwise applied to the repayment of the Obligations.
(b) The Borrower will, upon request of the Lender, submit to the
Lender a current listing of all of the Borrower's Equipment which listing
shall indicate the type, model, serial number and location of such
Equipment.
3.5 COLLATERAL LETTER OF CREDIT. The Borrower shall cause to be delivered
to the Lender an Irrevocable Standby Letter of Credit, substantially in the
form set forth as Exhibit E, issued by the Issuing Bank in favor of the Lender,
as beneficiary, in the face amount of $1,250,000 and having an expiry of March
31, 1995 (the "Collateral Letter of Credit"). Upon the occurrence of an Event
of Default or Unmatured Event of Default, the Lender shall, at its option and
without making any prior demand or claim upon the Borrower, make a drawing
under and in accordance with the terms of the Collateral Letter of Credit. Any
amounts received by the Lender under the Collateral Letter of Credit shall be
deposited into a Collateral Account and shall be held as collateral security
for the Borrower's Obligations in respect of this Agreement or, at the Lender's
option, be applied against the Obligations in such order of application as the
Lender shall determine in its sole discretion. If the Lender at any time or
times hereafter determines, in its sole and absolute discretion, that the
prospect of payment or performance by the Issuing Bank is or will be impaired
for any reason whatsoever, the Lender shall give the Borrower written notice of
such determination and the Borrower will, within 30 days following receipt by
the Borrower of such notice, deliver to the Lender a substitute Collateral
Letter of Credit issued by an Issuing Bank which shall be acceptable to the
Lender in its sole discretion. The terms of the substitute Collateral Letter of
Credit shall in all material respects be the same as the original Collateral
Letter of Credit.
3.6 SUPPLEMENTAL DOCUMENTATION. At the Lender's request, the Borrower
shall execute and/or deliver to the Lender, at any time or times hereafter,
such agreements, documents, financing statements, warehouse receipts, bills of
lading, notices of assignment of Accounts Receivable, schedules of Accounts
Receivable assigned, and other written matter necessary or requested by the
Lender to perfect and maintain perfected the security interest in the
Collateral granted hereunder (all the above hereinafter referred to as
"Supplemental Documentation"), in form and substance acceptable to the Lender,
and pay all taxes, fees and other costs and expenses associated with any
recording or filing of the same. The Borrower hereby irrevocably makes,
constitutes and appoints the Lender (and all Persons designated by the Lender
for that purpose) as the Borrower's true and lawful attorney (and
agent-in-fact) to sign the name of the Borrower on any of the Supplemental
Documentation and to deliver any of the Supplemental Documentation to such
Persons as the Lender in its sole and absolute discretion, may elect. The
Borrower agrees that a carbon, photographic, photostatic, and
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other reproduction of this Agreement or of a financing statement is sufficient
as a financing statement.
3.7 POWER OF ATTORNEY. The Borrower irrevocably designates, makes,
constitutes, and appoints the Lender (and all Persons designated by the Lender)
as the Borrower's true and lawful attorney (and agent-in-fact) and the Lender,
or the Lender's agent, may, without notice to the Borrower:
(a) at such time or times hereafter as the Lender or said agent, in
its sole and absolute discretion, may determine, in the Borrower's or the
Lender's name, (i) notify and/or require the Borrower to notify, any
Account Debtor or other Person obligated under or in respect of any
Collateral, of the fact of the Lender's Lien thereon and of the collateral
assignment thereof to the Lender; (ii) direct and/or require the Borrower
to direct, any Account Debtor or other Person obligated under or in
respect of any Collateral, to make payment directly to the Lender of any
amounts due or to become due thereunder or with respect thereto; (iii)
endorse the Borrower's name on any checks, notes, drafts or any other
items of payment relating to and/or proceeds of the Collateral which come
into the possession of the Lender or under the Lender's control and apply
such payment or proceeds to the Obligations; and (iv) endorse the
Borrower's name on any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement in the
Lender's possession relating to Accounts Receivable, Inventory Equipment or
any other Collateral; and
(b) at such time or times after the occurrence of an Event of
Default, as the Lender or said agent, in its sole and absolute discretion,
may determine, in the Borrower's or the Lender's name: (i) receive, open
and dispose of all mail received at the street address or any post office
box address of the Borrower; (ii) demand, collect, surrender, release or
exchange all or any part of any Collateral or any amounts due thereunder
or with respect thereto; (iii) settle, adjust, compromise, extend or renew
for any period (whether or not longer than the initial period) any and all
sums which are now or may hereafter become due or owing upon or with
respect to any of the Collateral; (iv) enforce, by suit or otherwise,
payment or performance of any of the Collateral; (v) settle, adjust or
compromise any legal proceedings brought to collect any sums due or owing
upon or with respect to any of the Collateral; (vi) exercise all of the
Borrower's rights and remedies with respect to the collection of any
amounts due upon or with respect to any of the Collateral; (vii) if
permitted by applicable law, sell or assign the Collateral upon such
terms, for such amounts and at such time or times as the Lender may deem
advisable; (viii) discharge and release the Collateral; (ix) prepare, file
and sign the Borrower's name on any proof of claim in bankruptcy or similar
document against any Account Debtor; (x) prepare, file and sign the
Borrower's name on any notice of lien, assignment or satisfaction of lien
or similar document in connection with the Accounts Receivable and/or
other Collateral; and (xi) do all acts and things necessary, in the
Lender's sole and absolute discretion, to obtain repayment of the
Obligations and to fulfill the Borrower's other obligations under this
Agreement.
(c) at such time or times after the assertion by the Lender that an
Event of Default has occurred and is continuing (whether or not an Event
of Default has in fact occurred), as the Lender or said agent, in its
reasonable discretion, may determine, in
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the Borrower's or the Lender's name, notify the post office authorities to
change the address for delivery of the Borrower's mail to an address
designated by the Lender.
Under no circumstances shall the Lender be under any duty to act in regard to
any of the foregoing matters. The costs relating to any of the foregoing
matters, including Attorneys' Fees and out-of-pocket expenses shall be borne
solely by the Borrower whether the same are incurred by the Lender or the
Borrower.
Neither the Lender nor any of its directors, officers, employees or agents will
be liable for any acts of commission or omission nor for any error in judgment
or mistake of fact or law, unless the same shall have resulted from gross
negligence or willful misconduct. This power, being coupled with an interest,
is irrevocable until either (i) all Obligations under this Agreement are paid
in full, or (ii) this Agreement is terminated, whichever shall last occur.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make Loans to the
Borrower hereunder, the Borrower makes the following representations and
warranties, all of which shall be true and correct as of the date the initial
Loans are made and survive the execution of this Agreement and the making of
the initial Loans:
4.1 ORGANIZATION. The Borrower and each of its corporate Subsidiaries are
corporations duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of their respective incorporation. All of the
Borrower's other Subsidiaries, if any, are entities duly organized, validly
existing and in good standing under the laws of the jurisdictions of their
respective organization. The Borrower and all of its Subsidiaries are in good
standing and are duly qualified to do business in each state where, because of
the nature of their respective activities or properties, such qualification is
required. On the date hereof, the Borrower and each Subsidiary conducts
business in its own name exclusively and has no trade names, styles or doing
business forms except as disclosed on Schedule 4.1. The Borrower's taxpayer
identification number is I.D. No. 39-1596279.
4.2 AUTHORIZATION. The Borrower is duly authorized to execute and deliver
the Loan Documents and any Supplemental Documentation contemplated by this
Agreement, and is and will continue to be duly authorized to borrow monies
hereunder and to perform its obligations under the Loan Documents and any
Supplemental Documentation contemplated by this Agreement and the borrowings
hereunder do not and will not require any consent or approval of any
governmental agency or authority.
4.3 NO CONFLICTS. The execution, delivery and performance by the Borrower
of the Loan Documents and any Supplemental Documentation contemplated by this
Agreement, do not and will not conflict with (a) any provision of law, (b) the
charter or by-laws of the Borrower, (c) any agreement binding upon the
Borrower, or (d) any court or administrative order or decree applicable to the
Borrower, and do not and will not require, or result in, the creation or
imposition of any Lien on any asset of the Borrower or any of the Subsidiaries
except as provided herein.
4.4 Validity and Binding Effect. The Loan Documents and any Supplemental
Documentation contemplated by this Agreement, when duly executed and delivered
will be,
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legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms, except as enforceability
may be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
4.5 NO DEFAULT. Neither the Borrower nor any of the Subsidiaries is in
default under any agreement or instrument to which the Borrower or any
Subsidiary is a party or by which any of their respective properties or assets
is bound or affected, which default (a) might materially and adversely affect
the Lender's Lien on or rights with respect to any Collateral or Third Party
Collateral or (b) constitutes an Adverse Event. No Event of Default or
Unmatured Event of Default has occurred and is continuing.
4.6 FINANCIAL STATEMENTS. The Borrower's audited consolidated and
consolidating financial statement as at September 30, 1993 and the Borrower's
unaudited consolidated and consolidating financial statement as at January 31,
1994, copies of which have been furnished to the Lender, have been prepared in
conformity with generally accepted accounting principles promulgated by the
Financial Accounting Standards Board and applied on a basis consistent with
that of the preceding fiscal year and period and present fairly the financial
condition of the Borrower and the Subsidiaries as at such dates and the results
of their operations for the periods then ended, subject (in the case of the
interim financial statement) to year-end audit adjustments. Since January 31,
1994, no Adverse Event has occurred.
4.7 INSURANCE. Schedule 4.7 sets forth a summary of the property and
casualty insurance program carried by the Borrower and the Subsidiaries on the
date hereof, including the insurer's(s') name(s), policy number(s), expiration
date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s),
Best's policyholder's and financial size ratings of the insurers, exclusions,
deductibles and self-insured retention, and describes in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by the Borrower or any Subsidiary or imposed upon the
Borrower or any Subsidiary by any such insurer. This summary also includes any
self-insurance program that is in effect.
4.8 LITIGATION; CONTINGENT LIABILITIES.
(a) Except for those referred to in Schedule 4.8, no claims
litigation, arbitration proceedings or governmental proceedings are
pending or threatened against or are affecting the Borrower or any
Subsidiary.
(b) Other than any liability incident to the claims,
litigation or proceedings disclosed in Schedule 4.8, neither
the Borrower nor any the Subsidiary has any contingent liabilities
which are material to the Borrower or any Subsidiary.
4.9 LIENS. None of the Collateral or other property or assets of the
Borrower or any Subsidiary is subject to any Lien (including, without
limitation, Liens pursuant to Capitalized Leases under which the Borrower or
any Subsidiary is a lessee) except: (a) Liens in favor of the Lender; (b) Liens
for current Taxes not delinquent or Taxes being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; (c) carriers',
warehousemen's, mechanics', materialmen's and other like statutory Liens
arising in the ordinary course of business securing obligations which are not
overdue or which are being contested in good faith and by
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appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; and (d) Liens
listed on Schedule 4.9.
4.10 SUBSIDIARIES. The Borrower has no Subsidiaries except as listed
on Schedule 4.10. The Borrower and the Subsidiaries own the percentage of the
Subsidiaries as set forth on Schedule 4.10.
4.11 PARTNERSHIPS. Neither the Borrower nor any of the Subsidiaries is
a partner or joint venturer in any partnership or joint venture other than the
partnerships and joint ventures listed on Schedule 4.11.
4.12 BUSINESS LOCATIONS. On the date hereof the office where the
Borrower keeps the Borrower's books and records concerning the Borrower's
Accounts Receivable and other Collateral, and the Borrower's chief place of
business and chief executive office, is located at the address of the Borrower
set forth on the signature pages of this Agreement, and all of the Borrower's
other places of business and all locations and places of business of each
Subsidiary are listed on Schedule 4.12. On the date hereof, the names of any
landlords and/or mortgagees of any of such locations are identified in Schedule
4.12.
4.13 COLLATERAL LOCATIONS. On the date hereof the Borrower's Inventory,
Equipment and, if applicable, fixtures (except any part thereof which prior to
the execution of this Agreement the Borrower shall have advised the Lender in
writing consists of Collateral normally used in more than one state) is located
at the addresses set forth in Schedule 4.13. The legal descriptions of any real
property on which any fixtures are located and the name(s) of the record owner
of such real property is set forth in Schedule 4.13.
4.14 ELIGIBILITY OF COLLATERAL. (a) All of the Accounts Receivable are
and will continue to be bona fide existing obligations created by the sale of
goods, the rendering of services, or the furnishing of other good and
sufficient consideration to Accounts Debtors in the regular course of business
and all shipping or delivery receipts and other documents furnished or to be
furnished to the Lender in connection therewith are and will be genuine; (b)
Each Account Receivable, item of Inventory or item of Equipment which the
Borrower shall, expressly or by implication, request the Lender to classify as
an Eligible Account Receivable, as Eligible Inventory or as Eligible Committed
Inventory, respectively, will, as of the time when such request is made,
conform in all respects to the requirements of such classification set forth in
the respective definitions of "Eligible Account Receivable," "Eligible
Inventory" and "Eligible Committed Inventory" set forth herein; (c) with
respect to each schedule of Inventory delivered to the Lender pursuant to
Section 3.3: (i) the descriptions, origins, size, qualities, quantities,
weights, and markings of all goods stated thereon, or on any attachment
thereto, are true and correct in all material respects; (ii) all goods stated
thereon have been produced by the Borrower in compliance with all requirements
of the Fair Labor Standards Act; and (iii) none of the goods stated thereon are
defective, of second quality, used, or goods returned after shipment, except
where described as such; and (iv) all Inventory not included on such schedule
has been previously scheduled.
4.15 CONTROL OF COLLATERAL; LEASE OF PROPERTY. The Borrower is not now
conducting, or permitting or suffering to be conducted, any activities pursuant
to or in conjunction with which any of the Collateral is now, or will be (while
any Obligations exist or this Agreement is in effect), in the possession or
control of, any Subsidiary, Obligor (other than the Borrower) or
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Related Party. Except as listed on Schedule 4.15, none of the machinery,
equipment or real property used by the Borrower or any Subsidiary is subject to
a lease (excluding only Capitalized Leases included on Schedule 6.12) under
which the Borrower or such Subsidiary is the lessee.
4.16 PATENTS, TRADEMARKS, ETC. The Borrower and each of the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.
All such licenses, patents, trademarks, trade names, service marks and
copyrights, and applications therefor existing on the date hereof are listed on
Schedule 4.16.
4.17 SOLVENCY. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature, and the Borrower and each of
the Subsidiaries now owns property having a value, greater than the amount
required to pay the Borrower's or such Subsidiary's debts.
4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on Schedule 4.18:
(a) neither the Borrower nor any Subsidiary is a party to any contract or
agreement, or subject to any charge, corporate restriction, judgment, decree or
order, the performance of which constitutes an Adverse Event; (b) no labor
contract to which the Borrower or any Subsidiary is subject is scheduled to
expire during the original term of this Agreement; and (c) on the date of this
Agreement (i) neither the Borrower nor any Subsidiary is a party to any labor
dispute and (ii) there are no strikes or walkouts relating to any labor
contracts to which the Borrower or any Subsidiary is subject.
4.19 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event, other than a Reportable Event for
which the reporting requirements have been waived by regulations of the PBGC,
has occurred and is continuing with respect to any Plan. All of the minimum
funding standards applicable to such Plans have been satisfied and there exists
no event or condition which would permit the institution of proceedings to
terminate any Plan under Section 4042 of ERISA. The Current value of the Plans'
benefits guaranteed under Title IV of ERISA does not exceed the current value
of the Plans' assets allocable to such benefits. Except as listed on Schedule
4.8, neither the Borrower nor any Subsidiary has any contingent liability with
respect to any "employee welfare benefit plans," as such term is defined in
Section 3(1) of ERISA, which covers retired or terminated employees and their
beneficiaries.
4.20 REGULATION U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Federal Reserve Board), and no part of the
proceeds of any Loan will be used to purchase or carry margin stock or for any
other purpose which would violate any of the margin requirements of the Federal
Reserve Board.
4.21 COMPLIANCE. The Borrower and each of the Subsidiaries are in
material compliance with all statutes and governmental rules and regulations
applicable to them. All
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Inventory of the Borrower has been produced in compliance with all requirements
of the Fair Labor Standards Act.
4.22 TAXES. The Borrower and each of the Subsidiaries has filed all
federal, state and local tax returns required to be filed and has paid, or made
adequate provisions for the payment of, all Taxes due and payable pursuant to
such returns and pursuant to any assessments made against it or any of its
property (other than Taxes the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and no material claims are being
asserted with respect to any such Taxes. The charges, accruals and reserves on
the books of the Borrower in respect of Taxes are adequate. The Borrower is not
aware of any proposed assessment against the Borrower or any Subsidiary for
additional Taxes (or any basis for any such assessment) which might be material
to the Borrower and the Subsidiaries taken as a whole.
4.23 INVESTMENT COMPANY ACT. Neither the Borrower nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.24 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Except as disclosed
on Schedule 4.25: (a) the operations of the Borrower and each of the
Subsidiaries complies in all respects with (i) all applicable Environmental
Laws, and (ii) all applicable Occupational Safety and Health Laws; (b) none of
the operations of the Borrower or any Subsidiary are subject to any judicial or
administrative proceeding alleging the violation of any Environmental Law or
Occupational Safety and Health Law; (c) none of the operations of the Borrower
or any Subsidiary is the subject of federal or state investigation evaluating
whether any remedial action is needed to respond to (i) a spillage, disposal or
release into the environment of any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance, or (ii)
any unsafe or unhealthful condition at any premises of the Borrower or any
Subsidiary; (d) neither the Borrower nor any Subsidiary has filed any notice
under any Environmental Law or Occupation Safety and Health Law indicating or
reporting (i) any past or present spillage, disposal or release into the
environment of, or treatment, storage or disposal of, any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (ii) any unsafe or unhealthful condition at any premises of the
Borrower or any Subsidiary; and (e) neither the Borrower nor any Subsidiary has
any known contingent liability in connection with (i) any spillage, disposal or
release into the environment of, or otherwise with respect to, any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, or (ii) any unsafe or unhealthful condition at
any premises of the Borrower or any Subsidiary.
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ARTICLE V AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations of the
Borrower hereunder are paid in full, the Borrower agrees that unless the Lender
shall otherwise consent in writing, it will:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
5.1.1 FINANCIAL REPORTS. Furnish to the Lender in form satisfactory
to the Lender:
(a) ANNUAL AUDIT REPORT. As soon as available and in any
event within 90 days after the end of each fiscal year of the
Borrower, the annual audit report of the Borrower and the Subsidiaries
prepared on a consolidating and consolidated basis in conformity with
GAAP, consisting of at least statements of income, cash flow, changes
in financial position and stockholders' equity, and a consolidated and
consolidating balance sheet as at the end of such year, setting forth
in each case in comparative form corresponding figures from the
previous annual audit, certified, without qualification, by
independent certified public accountants of recognized standing
selected by the Borrower and acceptable to the Lender, together with
any management letters, management reports or other supplementary
comments or reports to the Borrower of its board of directors
furnished by such accountants.
(b) ACCOUNTANT'S CERTIFICATE. Together with the audited
financial statements required under Section 5.1.1(a), a certificate
from the accounting firm performing such audit (i) acknowledging its
understanding that the Lender and any Participant is relying on such
audit report and (ii) stating that it has reviewed this Agreement and
that in performing its examination, nothing came to its attention that
caused it to believe that any Event of Default or Unmatured Event of
Default exists, or, if such Unmatured Event of Default or Event of
Default exists, describing its nature.
(c) MONTHLY FINANCIAL STATEMENT. As soon as available and in
any event within 20 days after the end of each month of each fiscal
year of the Borrower, a copy of the unaudited financial statement of
the Borrower and the Subsidiaries prepared in the same manner as the
audit report referred to in Section 5.1.1(a), signed by the Borrower's
chief financial officer and consisting of at least consolidated and
consolidating statements of income, cash flow, changes in financial
position and stockholders' equity for the Borrower and the
Subsidiaries for such month and for the period from the beginning of
such fiscal year to the end of such month, and a consolidated and
consolidating balance sheet of the Borrower as at the end of such
month.
(d) PROJECTIONS. As soon as available and in any event not
later than 30 days following the last day of each fiscal year of the
Borrower, a projected financial statement of the Borrower and the
Subsidiaries prepared in the same manner as the audit report referred
to in Section 5.1.1(a), signed by the Borrower's chief financial
officer and presenting fairly the Borrower's best good faith
projections of the financial position and results of operations of the
Borrower and the Subsidiaries for each month of the following fiscal
year.
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(e) OFFICER'S CERTIFICATE. Together with the financial statements
furnished by the Borrower under Section 5.1.1(a) and (c), a certificate
of the Borrower's chief financial officer, dated the date of such
annual audit report or such monthly financial statement, as the case
may be, to the effect that no Event of Default or Unmatured Event of
Default has occurred and is continuing, or, if there is any such
event, describing it and the steps, if any, being taken to cure it,
and containing a computation of, and showing compliance with, each of
the financial ratios and restrictions contained in Articles V and VI
and Supplement A.
(f) GUARANTOR'S FINANCIAL STATEMENTS. As soon as available, and
in any event within 90 days following the last day of each fiscal year
of the Borrower, a sworn statement of the Guarantor, substantially in
the form set forth as Exhibit F, and including, without limitation, a
copy of the Guarantor's personal financial statement and a list of the
Guarantor's contingent liabilities.
(g) GAAP Changes. In the event that a material change occurs, in
the Lender's judgment, in GAAP, either the Lender and the Borrower
shall amend, in writing, the covenants in this Agreement, Supplement
A, and the other Loan Documents which are calculated on the basis of
GAAP to reflect such change, or, if the Lender and the Borrower fail
to agree on and enter into such an amendment, the Lender shall have
the right to deem such change in GAAP to be an Event of Default.
5.1.2 AGINGS; INELIGIBLE ACCOUNTS RECEIVABLE CERTIFICATION. Within 15
days after the end of each month, (a) a detailed aging of all Accounts
Receivable by invoice, including, without limitation, a reconciliation to the
aging report delivered to the Lender for the preceding month, (b) a
certification of ineligible Accounts Receivable and (c) an aging of all
accounts payable as of the end of the preceding month, each in form and content
acceptable to the Lender.
5.1.3 INVENTORY CERTIFICATION. Within two days after the end of each
week, an Inventory certification report as of the end of the preceding week for
all Inventory locations, in form and content acceptable to the Lender.
5.1.4 SALES AND COLLECTION REPORTS. Not later than 5:00 p.m.,
Minneapolis time, on each Business Day, a report of the Borrower's sales and
collections for such day for the immediately preceding Business Day, in form
and content acceptable to the Lender.
5.1.5 OTHER REPORTS.
(a) SEC AND OTHER REPORTS. Promptly upon the making or filing
thereof, copies of all financial statements, reports and proxy
statements mailed to the Borrower's shareholders, and copies of all
registration statements, periodic reports and other documents filed
with the Securities and Exchange Commission (or any successor thereto)
or any national securities exchange.
(b) REPORT OF CHANGE IN SUBSIDIARIES OR PARTNERSHIPS. Promptly
from time to time, a written report of any change in the list of the Borrower's
Subsidiaries set forth on Schedule 4.10 or in the list of partnerships and
joint ventures set forth on Schedule 4.11.
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(c) PATENTS, ETC. Promptly from time to time, a written report
of any change to the list of patents, trademarks, copyrights and other
information set forth in Schedule 4.16.
(D) OTHER REPORTS. The information required to be provided
pursuant to other provisions of this Agreement, and such other reports
from time to time requested by the Lender.
5.2 NOTICES. Notify the Lender in writing of any of the following
immediately upon learning of the occurrence thereof, describing the same and,
if applicable, the steps being taken by the Person(s) affected with respect
thereto:
(a) DEFAULT. The occurrence of (i) any Event of Default or
Unmatured Event of Default, and (ii) to the extent not included in
clause (i) above, the default by the Borrower, any other Obligor or
any Subsidiary under any note, indenture, loan agreement, mortgage,
lease, deed or other material similar agreement to which the Borrower,
any other Obligor or any Subsidiary, as appropriate, is a party or by
which it is bound.
(b) LITIGATION. The institution of any litigation, arbitration
proceeding or governmental proceeding affecting the Borrower, any
other Obligor, any Subsidiary, any Collateral or any Third Party
Collateral, whether or not considered to be covered by insurance.
(c) JUDGMENT. The entry of any judgment or decree against the
Borrower, any other Obligor or any Subsidiary, if the amount of such
judgment exceeds $50,000.
(d) ERISA. With respect to any Plan, the occurrence of a
Reportable Event (other than a Reportable Event for which the
reporting requirements have been waived by PBGC regulations) or any
"prohibited transaction" (as defined in Section 4975 of the Code), a
notice specifying the nature thereof and what action the Borrower
proposes to take with respect thereto, and, when received, copies of
any notice from PBGC of intention to terminate or have a trustee
appointed for any Plan; or the incurrence of any material increase in
the contingent liability of the Borrower, any other Obligor or any
Subsidiary with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA which covers retired employees and
their beneficiaries.
(e) CHANGE IN COLLATERAL LOCATIONS. If any of the Borrower's
Inventory or Equipment is placed in locations other than those
identified in this Agreement or in Schedule 4.13.
(f) CHANGE IN PLACE(S) OF BUSINESS. Any proposed opening,
closing or other change in the list of offices and other places of
business of the Borrower and each Subsidiary set forth in Schedule
4.12, and any opening, closing or other change in the offices and
other places of business of each other Obligor.
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(g) CHANGE OF NAME. Any change in the name of the Borrower, any
other Obligor or any Subsidiary, and any change in the list of trade
names and trade styles set forth in Schedule 4.1.
(h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Receipt of any
notice that the operations of the Borrower, any other Obligor or any
Subsidiary are not in full compliance with requirements of any
applicable Environmental Law or any Occupational Safety and Health
Law; receipt of notice that the Borrower, any other Obligor or any
Subsidiary is subject to federal, state or local investigation
evaluating whether any remedial action is needed to respond to (i) any
spillage, disposal or release into the environment of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, or (ii) any unsafe or unhealthful
condition at any premises of the Borrower, any other Obligor or any
Subsidiary; or receipt of notice that any properties or assets of the
Borrower any other Obligor or any Subsidiary are subject to an
Environmental Lien.
(i) ADVERSE EVENT. The occurrence of an Adverse Event.
(j) DEFAULT BY OTHERS. Any material default by any Account
Debtor or other Person obligated to the Borrower, any other Obligor,
or any Subsidiary, under any contract, chattel paper, note or other
evidence of amounts payable or due or to become due to the Borrower,
such Obligor or Subsidiary if the amount payable under such contract,
chattel paper, note or other evidence of amounts payable or due or to
become due is material.
(k) MOVEABLE COLLATERAL. If any of the Collateral or Third Party
Collateral shall consist of goods of a type normally used in more than
one state, whether or not actually so used, any use of any such goods
in any state other than a state in which the Borrower shall have
previously advised the Lender such goods will be used. The Borrower
agrees that such goods will not, unless the Lender shall otherwise
consent in writing, be used outside the continental United States or
in Louisiana.
(l) OTHER EVENTS. The occurrence of such other events as the
Lender may from time to time specify.
5.3 EXISTENCE. Maintain and preserve, and cause each Subsidiary to
maintain and preserve, its respective existence as a corporation or other form
of business organization, as the case may be, and all rights, privileges,
licenses, patents, patent rights, copyrights, trademarks, trade names,
franchises and other authority to the extent material and necessary for the
conduct of its respective business in the ordinary course as conducted from
time to time.
5.4 NATURE OF BUSINESS. Engage, and cause each Subsidiary to
engage, in substantially the same fields of business as it is engaged in on the
date hereof.
5.5 BOOKS, RECORDS AND ACCESS. Maintain, and cause each Subsidiary to
maintain, complete and accurate books and records (including, without
limitation, records relating to Accounts Receivable, Inventory, Equipment and
other Collateral), in which full and correct entries in conformity with GAAP
shall be made of all dealings and transactions in
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relation to its respective business and activities. Cause its books and records
as at the end of any calendar month to be posted and closed not more than 15
days after the last business day of such month. Permit, and cause each
Subsidiary to permit, access by the Lender and its agents or employees to the
books and records of the Borrower and such Subsidiary at the Borrower's or such
Subsidiary's place or places of business at intervals to be determined by the
Lender and without hindrance or delay, and permit, and cause each Subsidiary to
permit, the Lender or its agents and employees to inspect the Borrower's
Inventory and Equipment and such Subsidiary's inventory and equipment, and to
inspect, audit, check and make copies and/or extracts from the books, records,
journals, orders, receipts, correspondence and other data relating to
Inventory, Accounts Receivable, chattel paper, General Intangibles, Equipment
and any other Collateral or Third Party Collateral, or to any other
transactions between the parties hereto. Any and all such inspections and/or
audits shall be at the Borrower's expense.
5.6 INSURANCE. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as is
commonly maintained by companies similarly situated or as the Lender may
reasonably request from time to time. Keep the Collateral properly housed and
insured for its full insurable value against loss or damage by fire, theft,
explosion, sprinklers, collision (in the case of motor vehicles) and such other
risks as are customarily insured against by persons engaged in business similar
to that of the Borrower, with such companies, in such amounts and under
policies in such form as shall be satisfactory to the Lender. Certificates of
such policies of insurance have been delivered to the Lender prior to the date
hereof together with evidence of payment of all premiums therefor. The Borrower
shall cause each issuer of an insurance policy to provide the Lender, within 15
days after the date hereof, with an endorsement or an independent instrument
(a) substantially in the form of Exhibit G or such other form and containing
such other terms as shall be acceptable to the Lender and (b) showing loss
payable to the Lender and, if required by the Lender, naming the Lender as an
additional insured. The Borrower hereby directs all insurers under such
policies of insurance to pay all proceeds payable thereunder directly to the
Lender. The Borrower irrevocably makes, constitutes and appoints the Lender and
any Person whom the Lender may from time to time designate (and all officers,
employees or agents designated by the Lender or such Person) as the Borrower's
true and lawful attorney (and agent-in-fact) for the purpose of making,
settling and adjusting claims under such policies of insurance, endorsing the
name of the Borrower on any check, draft, instrument or other item of payment
for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. In the
event the Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required herein or to pay any premium
in whole or in part relating thereto, the Lender, without waiving or releasing
any obligations or default by the Borrower hereunder, may at any time or times
thereafter (but shall be under no obligation to do so) obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect thereto which the Lender deems advisable. All sums so disbursed by the
Lender, including reasonable Attorneys' Fees, court costs, expenses and other
charges relating thereto, shall be payable on demand by the Borrower to the
Lender.
5.7 INSURANCE SURVEY. Provide to the Lender at least annually within
90 days of the end of the Borrower's fiscal year, a certificate signed by its
chief financial officer that attests to and summarizes the property and
casualty insurance program carried by the Borrower and the Subsidiaries. This
summary shall include the insurer's(s') name, policy number(s), expiration
date(s), amount(s) of coverage, type(s) of coverage, the annual
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premium(s), Best's policyholder's and financial size ratings of the insurers,
exclusions, deductibles and self-insured retention and shall describe in detail
any retrospective rating plan, fronting arrangement or any other self-insurance
or risk assumption agreed to by the Borrower or any Subsidiary or imposed upon
the Borrower or any Subsidiary by any such insurer, as well as any
self-insurance program that is in effect. The Borrower shall (a) notify the
Lender in writing at least 30 days prior to any cancellation or material change
of any such insurance by the Borrower or any Subsidiary and (b) within five
business days after receipt of any notice (whether formal or informal) thereof,
of any cancellation or change in any of its insurance by any of its insurers or
any material change in the cost thereof or which reduces the policyholder's or
financial size ratings of the insurance carriers of the Borrower or any
Subsidiary, as established by Best's Insurance Reports. Annually, the Lender
shall have the right to request the Borrower to have a risk management survey
completed by a recognized independent risk management consultant acceptable to
it and the Lender which will identify, quantify and assess any catastrophic
uninsured, underinsured or self-insured exposures faced by the Borrower and the
Subsidiaries. The cost of such survey shall be borne solely by the Borrower. A
copy of the results of each such a survey shall be promptly delivered by the
Borrower to the Lender.
5.8 REPAIR. Maintain, preserve and keep, and cause each Subsidiary to
maintain, preserve and keep, its properties in good repair, working order and
condition, and from time to time make, and cause each Subsidiary to make, all
necessary and proper repairs, renewals, replacements, additions, betterments
and improvements thereto so that at all times the efficiency thereof shall be
fully preserved and maintained.
5.9 TAXES. Pay, and cause each Subsidiary to pay, when due, all of its
Taxes, unless and only to the extent that the Borrower or such Subsidiary, as
the case may be, is contesting such Taxes in good faith and by appropriate
proceedings and the Borrower or such Subsidiary has set aside on its books such
reserves or other appropriate provisions therefor as may be required by GAAP.
5.10 COMPLIANCE. Comply, and cause each Subsidiary to comply, with all
statutes and governmental rules and regulations applicable to it, including,
without limitation, the Fair Labor Standards Act.
5.11 COLLATERAL MONITORING. Permit the Lender to (a) use the Borrower's
stationery and sign the name of the Borrower to request verification of
Accounts Receivable or other Collateral from Account Debtors, and (b) use the
information recorded on or contained in any data processing equipment and
computer hardware and software to which the Borrower has access relating to
Accounts Receivable, Inventory, Equipment and/or other Collateral.
5.12 KEY MAN LIFE INSURANCE. Maintain insurance on the life of Mark S.
Krasno in an amount not less than $1,250,000, properly assigned to the Lender.
ARTICLE VI NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations
of the Borrower hereunder are paid in full, the Borrower agrees that, unless
the Lender shall otherwise consent in writing, it will not, and will not permit
any Subsidiary to, do any of the following:
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6.1 MERGER. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person.
6.2 SALE OF ASSETS. Sell, transfer, convey, lease, assign or otherwise
dispose (with or without recourse) of any of its assets (including, without
limitation, any Accounts Receivable, instruments or chattel paper) except for
sales and leases of Inventory in the ordinary course of business.
6.3 PURCHASE OF ASSETS. Purchase or lease or otherwise acquire all or
substantially all the assets of any Person.
6.4 ERISA. Permit any condition to exist in connection with any Plan
which might constitute grounds for the PBGC to institute proceedings to have
such Plan terminated or a trustee appointed to administer such Plan; permit any
Plan to terminate under any circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to any property, revenue or asset of the
Borrower or any Subsidiary; or permit the underfunded amount of Plan benefits
guaranteed under Title IV of ERISA to exceed $100,000.
6.5 CHANGES IN COLLATERAL OR BUSINESS LOCATIONS. Change (a) the
location of its chief executive office or chief place of business; (b) its
name; or (c) the locations where it stores or maintains Inventory or Equipment
without, in each case, at least 30 days' prior written notice to the Lender.
6.6 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES. Either: (a) form or
acquire any corporation which would thereby become a Subsidiary; or (b) form or
enter into any partnership as a limited or general partner or into any joint
venture.
6.7 OTHER AGREEMENTS. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Lender which
would (a) prohibit the Borrower or such Subsidiary from granting, or otherwise
limit the ability of the Borrower or such Subsidiary to grant, to the Lender
any Lien on any assets or properties of the Borrower or such Subsidiary, or (b)
be violated or breached by the Borrower's performance of its obligations under
the Loan Documents.
6.8 RESTRICTED PAYMENTS. Purchase or redeem any shares of its stock,
declare or pay any dividends thereon (other than stock dividends and dividends
payable to the Borrower), make any distribution to stockholders as such (other
than the Borrower) or set aside any funds for any such purpose, and not prepay,
purchase or redeem any subordinated Indebtedness of the Borrower or any
Subsidiary.
6.9 BORROWER'S AND SUBSIDIARIES' STOCK. Purchase or otherwise acquire
any shares of the stock of the Borrower, and not take any action which will
result in a decrease in the Borrower's or any Subsidiary's ownership interest in
any Subsidiary.
6.10 LEASES. Enter into or permit to exist any arrangements for the
leasing by the Borrower or any Subsidiary, as lessee, of any real or personal
property (or any interest therein) under leases (other than Capitalized Leases)
or otherwise which require the payment by the Borrower and the Subsidiaries on
a consolidated basis of rental amounts in the aggregate in excess of $100,000
in any one fiscal year; provided, however, that if the Borrower shall cease
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to operate the Stockton, Illinois facility, such amount shall be reduced to
$30,000 in any one fiscal year.
6.11 INVESTMENTS. Acquire for value, make, have or hold any Investments,
except: (a) advances to Related Parties (excluding Cham Foods) not to exceed in
$650,000 in the aggregate, including any Investments listed on Schedule 6.11;
(b) advances to Cham Foods not to exceed $200,000 in the aggregate, including
any Investments listed on Schedule 6.11; (c) advances to employees of the
Borrower or any Subsidiary for travel or other ordinary business expenses,
provided that the aggregate amount outstanding at any one time shall not exceed
$10,000 for any single employee and $50,000 in the aggregate for all employees;
(d) advances to subcontractors and suppliers in maximum aggregate amounts
reasonably acceptable to the Lender; (e) extensions of credit in the nature of
Accounts Receivable or notes receivable arising from the sale of goods and
services in the ordinary course of business; (f) shares of stock, obligations
or other securities received in settlement of claims arising in the ordinary
course of business; (g) Investments (other than Investments in the nature of
loans or advances) outstanding on the date hereof in subsidiaries by the
Borrower and other Subsidiaries; (h) other Investments outstanding on the date
hereof and listed on Schedule 6.11; and (i) other Investments consented to by
the Lender in writing.
6.12 INDEBTEDNESS. Incur, create, issue, assume or suffer to exist any
Indebtedness, including, without limitation, Indebtedness as lessee under any
Capitalized Lease, except: (a) Indebtedness under the terms of this Agreement;
(b) Subordinated Debt; (c) Indebtedness hereafter incurred in connection with
Liens permitted under Section 6.13(d); (d) other Indebtedness outstanding on
the date hereof and listed on Schedule 6.12; and (e) other Indebtedness
approved in writing by the Lender.
6.13 LIENS. Create, incur, assume or suffer to exist any Lien with
respect to any property, revenues or assets now owned or hereafter arising or
acquired, except: (a) Liens for current Taxes not delinquent or Taxes being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, and other like statutory Liens arising in the ordinary course of
business securing obligations which are not overdue or which are being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained; (c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation; (d) Liens in
connection with Capital Expenditures attaching only to the property being
acquired if the Indebtedness secured thereby does not exceed 100% of the fair
market value of such property at the time of acquisition thereof; (e) Liens in
favor of the Lender; (f) Liens referred to in Section 4.9; and (g) Liens
consented to by the Lender in writing.
6.14 CONTINGENT LIABILITIES. Either: (a) endorse, guarantee,
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other Person,
except by the endorsement of negotiable instruments for deposit or collection
(or similar transactions) in the ordinary course of business, or (b) agree to
maintain the net worth or working capital of, or provide funds to satisfy any
other financial test applicable to, any other Person.
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6.15 CHANGE IN ACCOUNTS RECEIVABLE. After the occurrence of an Event of
Default or receipt of notice from the Lender that the Lender intends to
commence direct collection of Accounts Receivable, permit or agree to any
extension, compromise or settlement or make any change or modification of any
kind or nature with respect to any Account Receivable, including any of the
terms relating thereto.
6.16 UNCONDITIONAL PURCHASE OBLIGATIONS. Enter into or be a party to any
contract for the purchase of materials, supplies or other property or services,
if such contract requires that payment be made by it regardless of whether or
not delivery is ever made of such materials, supplies or other property or
services.
6.17 USE OF PROCEEDS. Use or permit any proceeds of the Loans to be used,
either directly or indirectly, for the purpose, whether immediate, incidental
or ultimate, of "purchasing or carrying any margin stock" within the meaning of
Regulation U of the Federal Reserve Board, as amended from time to time, and
furnish to the Lender upon request, a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U of the
Federal Reserve Board.
6.18 TRANSACTIONS WITH RELATED PARTIES. Enter into or be a party to any
transaction or arrangement, including, without limitation, the purchase, sale,
lease or exchange of property or the rendering of any service, with any Related
Party, except in the ordinary, course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than
would obtain in a comparable arm's-length transaction with a Person not a
Related Party.
6.19 CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Make any substantial
change in the senior management of the Borrower or any Subsidiary, including,
without limitation, any failure of the Guarantor to continue as president of
the Borrower, or any change in the Borrower's or any Subsidiary's line(s) of
business.
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) NON PAYMENT. The Borrower shall fail to pay, when due or
declared due, any of the Obligations;
(b) NON-PAYMENT OF OTHER INDEBTEDNESS. The Borrower, any other
Obligor or any Subsidiary shall fail to pay, when due, whether by
acceleration or otherwise (subject to any applicable grace period), any
Indebtedness of, or guaranteed by, the Borrower, such other Obligor
or such Subsidiary;
(c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition
shall occur which results in the acceleration of the maturity of any
Indebtedness of, or guaranteed by, the Borrower, any other Obligor or any
Subsidiary or enables the holder or holders of such other Indebtedness or
any trustee or agent for such holders (any required notice of default
having been given and any applicable grace period having expired) to
accelerate the maturity of such other Indebtedness;
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(d) OTHER OBLIGATIONS. The Borrower, any other Obligor or any
Subsidiary shall fail to pay, when due, whether by acceleration or
otherwise, or perform or observe (subject to any applicable grace period
or waiver of such default) (i) any obligation or agreement of the
Borrower, such other Obligor or such Subsidiary to or with the Lender
(other than any obligation or agreement of the Borrower hereunder and
under any Notes) or (ii) any material obligation or agreement of the
Borrower, such other Obligor or such Subsidiary to or with any other
Person (other than (A) any such material obligation or agreement
constituting or related to Indebtedness, (B) accounts payable arising in
the ordinary course of business, and (C) any material obligation or
agreement of any Subsidiary to the Borrower or to any other Subsidiary),
except only to the extent that the occurrence of any such failure is being
contested by the Borrower, such other Obligor or such Subsidiary, as the
case may be, in good faith and by appropriate proceedings and the
Borrower, such other Obligor or such Subsidiary, as applicable, shall have
set aside on its books such reserves or other appropriate provisions
therefor as may be required by GAAP;
(e) INSOLVENCY. The Borrower, any other Obligor or any Subsidiary
becomes insolvent, or generally fails to pay, or admits in writing its
inability to pay, its debts as they mature, or applies for, consents to,
or acquiesces in, the appointment of a trustee, receiver or other
custodian for the Borrower, such other Obligor or such Subsidiary, or for
a substantial part of the property of the Borrower, such other Obligor or
such Subsidiary, or makes a general assignment for the benefit of
creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for the
Borrower, any other Obligor or any Subsidiary or for a substantial part of
the property of the Borrower, any other Obligor or any Subsidiary and is
not discharged or dismissed within 30 days; or any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy
or insolvency law, or any dissolution or liquidation proceeding, is
instituted by or against the Borrower, any other Obligor or any
Subsidiary; or any warrant of attachment or similar legal process is
issued against any substantial part of the property of the Borrower, any
other Obligor or any Subsidiary;
(f) ERISA. The institution by the Borrower or any ERISA Affiliate
of steps to terminate any Plan if, in order to effectuate such
termination, the Borrower or any ERISA Affiliate would be required to make
a contribution to such Plan or would incur a liability or obligation to
such Plan, in excess of $100,000; or the institution by the PBGC of steps
to terminate any Plan;
(g) NON-COMPLIANCE WITH THIS AGREEMENT.
(i) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in Section 3.5 of this Agreement
and Section 5 of Supplement A); or
(ii) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in this Agreement (and not
constituting an Event of Default under any of the other
subsections of this Section 7.1, including,
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without limitation, Section 7.1(g)(i)), and such failure to comply shall
continue for ten days;
(h) NON-COMPLIANCE WITH LOAN DOCUMENTS. Failure by the Borrower, any other
Obligor or any Subsidiary to comply with any of its respective agreements set
forth in any Loan Documents other than this Agreement (and not constituting an
Event of Default under any of the other subsections of this Section 7.1), and
such failure to comply shall continue after the grace period (if any) set forth
therein;
(i) WARRANTY. Any warranty made by the Borrower or any other Obligor in
any of the Loan Documents is untrue or misleading in any material respect when
made or deemed made; or any schedule, statement, report, notice, certificate or
other writing furnished by the Borrower or any other Obligor to the Lender is
untrue or misleading in any material respect on the date as of which the facts
set forth therein are stated or certified; or any certification made or deemed
made by the Borrower or any other Obligor to the Lender is untrue or misleading
in any material respect on or as of the date made or deemed made;
(j) LITIGATION. There shall be entered against any one of the Borrower, any
other Obligor or any Subsidiary one or more judgments or decrees in excess of
$100,000 in the aggregate at any one time outstanding, excluding those
judgments or decrees (i) that shall have been outstanding less than 30 calendar
days from the entry thereof or (ii) for and to the extent which the Borrower,
such Obligor or such Subsidiary, as applicable, is insured and with respect to
which the insurer has assumed responsibility in writing or for and to the
extent which the Borrower, such Obligor or such Subsidiary, as applicable, is
otherwise indemnified if the terms of such indemnification are satisfactory to
the Lender;
(k) DEATH OF OBLIGOR. If any natural person who is an Obligor, partner in
a partnership which is an Obligor, or owner of a material interest in a
corporate Obligor, shall die or be declared legally incompetent;
(l) VALIDITY. If the validity or enforceability of any of the Loan
Documents shall be challenged by the Borrower, any other Obligor or any other
Person, or shall fail to remain in full force and effect;
(m) CONDUCT OF BUSINESS. If the Borrower, any other Obligor or any
Subsidiary is enjoined, restrained or in any way prevented by court order,
which has not been dissolved or stayed within five Business Days, from
conducting all or any material part of its business affairs;
(n) ADVERSE EVENT. The Lender shall have determined in good faith (which
determination shall be conclusive) that (i) an Adverse Event has occurred or
(ii) the Lender's interest in any material Collateral or Third Party Collateral
has been adversely affected or impaired, or the value thereof to the Lender has
been diminished to a material extent, or (iii) the prospect of payment or
performance of any obligation or agreement of the Borrower or any other Obligor
under any of the Loan Documents is materially impaired, and the condition
giving rise to such determination does not
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constitute an Event of Default under any of the other subsections of this
Section 7.1; and
(o) OWNERSHIP. The Guarantor shall cease to own at least 20% of the shares
of all voting stock of the Borrower.
7.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.
(a) In the event that one or more Events of Default described in Section
7.1(e) shall occur, then the Credit extended under this Agreement shall
terminate and all Obligations hereunder and under any Notes shall be
immediately due and payable without demand, notice or declaration of any kind
whatsoever.
(b) In the event an Event of Default other than one described in Section
7.1(e) shall occur, then the Lender may declare all Obligations hereunder and
under any Notes immediately due and payable without demand or notice of any
kind whatsoever, whereupon the Credit extended under this Agreement shall
terminate and all Obligations hereunder and under any Notes shall be
immediately due and payable. The Lender shall promptly advise the Borrower of
any such declaration, but failure to do so shall not impair the effect of such
declaration.
(c) In the event of the occurrence of any Event of Default the Lender may
exercise any one or more or all of the following remedies, all of which are
cumulative and non-exclusive:
(i) any remedy contained in the Loan Documents or any Supplemental
Documentation;
(ii) any rights and remedies available to the Lender under the
Uniform Commercial Code as enacted in Minnesota as of the date of this
Agreement, and any other applicable law;
(iii) without notice, demand or legal process of any kind, the
Lender may take possession of any or all of the Collateral (in addition to
Collateral which it might already have in its possession), wherever it
might be found, and for that purpose may pursue the same wherever it may
be found, and may enter into any premises where any of the Collateral may
be or is supposed to be, and search for, take possession of, remove, keep
and store any of the Collateral until the same shall be sold or otherwise
disposed of, and the Lender shall have the right to store the same in any
of the Borrower's premises without cost to the Lender;
(iv) at the Lender's request, the Borrower will, at the Borrower's
expense, assemble the Collateral and make it available to the Lender at a
place or places to be designated by the Lender which is reasonably
convenient to the Lender and the Borrower; and
(v) the Lender at its option, and pursuant to notification given
to the Borrower as provided for below, may sell any Collateral actually
or constructively
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in its possession at public or private sale and apply the proceeds
thereof as provided below.
(d) In the event of the occurrence of any Event of Default or
Unmatured Event of Default the Lender may, without notice, demand or legal
process of any kind, draw on the Collateral Letter of Credit in a manner
consistent with its terms.
7.3 SETOFF. In addition to and not in limitation of all rights of offset
that the Lender or any other holder of a Note may have under applicable law,
the Lender or such other holder of a Note shall, upon the occurrence of any
Event of Default, or any Unmatured Event of Default described in Section 7.1(e)
hereof, have the right to appropriate and apply to the payment of the
Obligations any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter with the Lender, or any Affiliate, or other holder.
ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS
8.1 NOTICE OF DISPOSITION OF COLLATERAL. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least ten calendar days before such disposition.
8.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any proceeds of any
disposition by the Lender of any of the Collateral may be applied by the Lender
to the payment of expenses in connection with the taking possession of,
storing, preparing for sale, and disposition of Collateral, including
Attorneys' Fees and legal expenses, and any balance of such proceeds may be
applied by the Lender toward the payment of such of the Obligations, and in
such order of application, as the Lender may from time to time elect.
8.3 CARE OF COLLATERAL. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if it takes such action for that purpose as the Borrower requests in
writing, but failure of the Lender to comply with such request shall not, of
itself, be deemed a failure to exercise reasonable care, and no failure of the
Lender to preserve or protect any rights with respect to such Collateral
against prior parties, or to do any act with respect to the preservation of
such Collateral not so requested by the Borrower, shall be deemed a failure to
exercise reasonable care in the custody or preservation of such Collateral.
8.4 PERFORMANCE OF BORROWER'S OBLIGATIONS. The Lender shall have the
right, but shall not be obligated, to discharge any claims against or Liens,
and any Taxes at any time levied or placed upon any or all Collateral
including, without limitation, those arising under statute or in favor of
landlords, taxing authorities, government, public and/or private warehousemen,
common and/or private carriers, processors, finishers, draymen, coopers,
dryers, mechanics, artisans, laborers, attorneys, courts, or others. The Lender
may also pay for maintenance and preservation of Collateral. The Lender may,
but is not obligated to, perform or fulfill any of the Borrower's
responsibilities under this Agreement which the Borrower has failed to perform
or fulfill.
8.5 LENDER'S RIGHTS. None of the following shall affect the obligations
of the Borrower to the Lender under this Agreement or the Lender's rights with
respect to the remaining Collateral or any Third Party Collateral (any or all
of which actions may be taken by
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the Lender at any time, whether before or after an Event of Default, at its
sole and absolute discretion and without notice to the Borrower):
(a) acceptance or retention by the Lender of other property or
interests in property as security for the Obligations, or acceptance or
retention of any obligor(s), in addition to the Borrower, with respect to
any of the Obligations;
(b) release of its security interest in, or surrender or release
of, or the substitution or exchange of or for, all or any part of the
Collateral or any Third Party Collateral or any other property securing
any of the Obligations (including, without limitation, any property of any
Obligor other than the Borrower), or any extension or renewal for one or
more periods (whether or not longer than the original period), or
release, compromise, alteration or exchange, of any obligations of any
guarantor or other Obligor with respect to any Collateral or any such
property;
(c) extension or renewal for one or more periods (whether or not
longer than the original period), or release, compromise, alteration or
exchange of any of the Obligations, or release or compromise of any
obligation of any Obligor with respect to any of the Obligations; or
(d) failure by the Lender to resort to other security or pursue
any Person liable for any of the Obligations before resorting to the
Collateral.
ARTICLE IX CONDITIONS PRECEDENT
9.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of the
Lender to make the initial Loans shall be subject to the satisfaction of the
following conditions precedent, in addition to the applicable conditions
precedent set forth in Section 9.2:
9.1.1 NO CHANGE IN CONDITION. No change in the condition or
operations, financial or otherwise, of the Borrower, any other Obligor or
any Subsidiary, shall have occurred which change, in the sole credit
judgment of the Lender, may constitute an Adverse Event or have a material
adverse effect on any Collateral or Third Party Collateral or the Lender's
interest therein.
9.1.2 ACCOUNTING METHODS. The Borrower shall not have made any
material, as determined by the Lender, change in its accounting methods or
principles.
9.1.3 SURVEY. The Lender shall have completed its updated survey
of the business, operations and assets of the Borrower, each Subsidiary
and each other Obligor, and such survey shall provide the Lender with
results and information which, in the Lender's determination, are
satisfactory to the Lender.
9.1.4 NO MATERIAL TRANSACTION. None of the Borrower, any other
Obligor or any Subsidiary shall have entered into any material, as
determined by the Lender, commitment or transaction, including, without
limitation, transactions for borrowings and capital expenditures, which
are not in the ordinary course of their respective businesses.
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<PAGE> 45
9.1.5 LITIGATION. No litigation shall be outstanding or have been
instituted or threatened which the Lender determines to be material against the
Borrower, any other Obligor or any Subsidiary.
9.1.6 FILING OF DOCUMENTS. All financing statements, mortgages
and other documents relating to the Collateral and Third Party Collateral shall
have been filed or recorded, as appropriate.
9.1.7 DELIVERY OF DOCUMENTS. The Borrower shall have delivered to
the Lender with each of the following, each duly executed and dated the date of
the initial Loans or such earlier date as shall be acceptable to the Lender:
(a) RESOLUTIONS. A copy, duly certified by the secretary or
an assistant secretary of the Borrower, of (i) the resolutions
of the Board of Directors of the Borrower authorizing (1) the
borrowings by the Borrower hereunder, (2) the execution, delivery
and performance by the Borrower of the Loan Documents to which
the Borrower is a party or by which it is bound and (3) certain
officers or employees of the Borrower to request borrowings by
telephone and to execute Borrowing Base Certificates; (ii) all
documents evidencing other necessary corporate action; and (iii)
all approvals or consents, if any, with respect to the Loan
Documents;
(b) INCUMBENCY CERTIFICATE. A certificate of the secretary
or an assistant secretary of the Borrower, certifying the names
of the officers of the Borrower authorized to sign the Loan
Documents to which it is a party and any Supplemental
Documentation, together with the true signatures of such
officers;
(c) COLLATERAL LETTER OF CREDIT. The duly executed
Collateral Letter of Credit;
(d) GUARANTY. The duly executed Guaranty;
(e) ASSIGNMENT OF LIFE INSURANCE. The duly executed
Assignment of Life Insurance;
(f) SUBORDINATION AGREEMENTS. A duly executed Subordination
Agreement from each Subordinated Lender;
(g) OPINION. A legal opinion of Brennan, Steil, Basting &
McDougall, S.C., counsel to the Borrower, substantially in the
form set forth as Exhibit H;
(h) BORROWER'S CERTIFICATE. The certificate of the
President of the Borrower certifying, to the best of his/her
knowledge after diligent inquiry, to the fulfillment of all
conditions precedent to closing and funding the secured financing
transaction contemplated by this Agreement and to the truth and
accuracy, as of such date, of the representations and warranties
of the Borrower contained in the Loan Documents to which the
Borrower is a party;
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<PAGE> 46
(i) INSURANCE. Evidence satisfactory to the Lender of the
existence of insurance on the Collateral and Third Party
Collateral in amounts and with insurers acceptable to the
Lender, together with evidence establishing that the Lender is
named as a loss payee on all related insurance policies;
(j) BYLAWS. A copy, duly certified by the secretary or an
assistant secretary of the Borrower, of the Borrower's Bylaws;
(k) ARTICLES OF INCORPORATION. A copy, duly certified by
the secretary or an assistant secretary of the Borrower, of the
Borrower's Articles of Incorporation;
(l) GOOD STANDING CERTIFICATES. Certificates of good
standing as to the Borrower and each of other corporate or
partnership Obligor issued by the Secretary of State of the state
in which the Borrower or such other Obligor, as applicable, is
organized, and each other state in which the failure of the
Borrower or such other Obligor, as applicable, to be in good
standing would constitute an Adverse Event or have a material
adverse effect on the Lender's rights in any Collateral or Third
Party Collateral;
(m) DISBURSEMENT LETTER. Written authorization and
instructions from the Borrower, in form satisfactory to the
Lender, for disbursement of the proceeds of the initial Loans;
(n) PAYOFF LETTER. Evidence satisfactory to the Lender
that all obligations of the Borrower to (a) Norwest Business
Credit, Inc., (b) Norwest Equipment Finance, Inc., (c) Bank of Sun
Prairie, (d) West Central Minnesota Initiative Fund, and (e) Bank
Leumi Le-Israel have been paid in full and that each has
terminated, or agreed to terminate, all of its Liens, if any, on
the property of the Borrower and all public record filings
evidencing such Liens;
(o) LANDLORDS; MORTGAGEES AND WAREHOUSEMEN WAIVERS. If
required by the Lender, (i) from each lessor or landlord
identified on Schedule 4.12 or Schedule 4.13, a landlord waiver,
(ii) from each mortgagee identified on Schedule 4.12 or Schedule
4.13, a mortgagee waiver, and (iii) from each operator of a public
warehouse where Inventory is stored, a letter from such operator,
in each case in form acceptable to the Lender; and
(p) OTHER. Such other documents, instruments or agreements
as the Lender shall determine to be necessary or desirable.
9.1.8 SECURITY INTEREST. The Lien in the Collateral and Third Party
Collateral granted to the Lender to secure the Obligations shall be
senior, perfected Liens except as otherwise agreed by the Lender.
9.1.9 RESTRICTED ACCESS LOCKBOX; COLLATERAL ACCOUNT AND
DISBURSEMENT ACCOUNT AGREEMENT. The Borrower shall have entered into a
Restricted Access Lockbox; Collateral Account and Disbursement Account
Agreement, substantially in the
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<PAGE> 47
form of Exhibit I, with the Lender and FBNA, for, among other things,
the collection and remittance to the Lender of cash proceeds of the
Collateral.
9.1.10 EFFECT OF LAW. No law or regulation affecting the Lender's
entering into the secured financing transaction contemplated by this
Agreement shall impose upon the Lender any material obligation, fee,
liability, loss, cost, expense or damage.
9.1.11 EXHIBITS; SCHEDULES. All Exhibits and Schedules to the Loan
Documents shall have been completed in form and substance satisfactory
to the Lender and shall contain no facts or information which the
Lender, in its sole judgment, determines to be unacceptable.
9.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to
make any Loan or issue, or cause to be issued, any Letter of Credit
(including the initial Loans) shall be subject to the satisfaction of the
following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Borrower and each other Obligor set forth in the Loan
Documents to which the Borrower or such other Obligor, as applicable, is
a party shall be true and correct.
(b) EVENT OF DEFAULT. Immediately before and after making such Loan or
issuing, or causing to be issued such Letter of Credit, no Event of
Default or Unmatured Event of Default shall exist or be continuing.
ARTICLE X INDEMNITY
10.1 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. The Borrower hereby
indemnifies the Lender and agrees to hold the Lender harmless from and
against any and all losses, liabilities, damages, injuries, costs, expenses
and claims of any and every kind whatsoever (including, without limitation,
court costs and Attorneys' Fees) which at any time or from time to time may
be paid, incurred or suffered by, or asserted against, the Lender for, with
respect to, or as a direct or indirect result of the violation by the
Borrower or any Subsidiary, of any Environmental Law or Occupational Safety
and Health Law; or with respect to, or as a direct or indirect result of (a)
the presence on or under, or the escape, seepage, leakage, spillage,
disposal, discharge, emission or release from, properties utilized by the
Borrower and/or any Subsidiary in the conduct of its business into or upon
any land, the atmosphere, or any watercourse, body of water or wetland, of
any Hazardous Material or other hazardous, toxic or dangerous waste,
substance or constituent, or other substance (including, without limitation,
any losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under the Environmental Laws) or (b) the existence of
any unsafe or unhealthful condition on or at any premises utilized by the
Borrower and/or any Subsidiary in the conduct of its business. The
provisions of and undertakings and indemnification set out in this Section
10.1 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
10.2 GENERAL INDEMNITY. In addition to the payment of expenses pursuant
to Section 12.3, whether or not the transactions contemplated hereby shall
be consummated, the Borrower agrees to indemnify, pay and hold the Lender
and any holder of any Notes, and the officers, directors, employees, agents,
and affiliates of the Lender and such holders
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<PAGE> 48
(collectively called the "Indemnitees") harmless from and against, any and
all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for any of such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or
threatened, whether or not any of such Indemnitees shall be designated a
party thereto), that may be imposed on, incurred by, or asserted against the
Indemnitees, in any manner relating to or arising out of the Loan Documents,
the statements contained in any commitment letters delivered by the Lender,
the Lender's agreement to make the Loans or to issue Letters of Credit
hereunder, or the use or intended use of any Letters of Credit, or the use
or intended use of the proceeds of any of the Loans (the "Indemnified
Liabilities"); provided, however, that the Borrower shall have no obligation
to an Indemnitee hereunder with respect to indemnified liabilities arising
from the gross negligence or willful misconduct of an Indemnitee. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall contribute the maximum portion that
it is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or
any of them. The provisions of the undertakings and indemnification set out
in this Section 10.2 shall survive satisfaction and payment of the
Obligations and termination of this Agreement.
10.3 CAPITAL ADEQUACY. If the Lender shall reasonably determine that
the application or adoption of any law, rule, regulation, directive,
interpretation, treaty or guideline regarding capital adequacy, or any
change therein or in the interpretation or administration thereof, whether
or not having the force or law (including, without limitation, application
of changes to Regulation H and Regulation Y of the Federal Reserve Board
issued by the Federal Reserve Board on January 19, 1989 and regulations of
the Comptroller of the Currency, Department of the Treasury, 12 CFR Part 3,
Appendix A, issued by the Comptroller of the Currency on January 27, 1989)
increases the amount of capital required or expected to be maintained by the
Lender or any Person controlling the Lender, and such increase is based upon
the existence of the Lender's obligations hereunder and other commitments of
this type, then from time to time, within 10 days after demand from the
Lender, the Borrower shall pay to the Lender such amount or amounts as will
compensate the Lender or such controlling Person, as the case may be, for
such increased capital requirement. The determination of any amount to be
paid by the Borrower under this Section 10 shall take into consideration the
policies of the Lender or any Person controlling the Lender with respect to
capital adequacy and shall be based upon any reasonable averaging,
attribution and allocation methods. A certificate of the Lender setting
forth the amount or amounts as shall be necessary to compensate the Lender
as specified in this Section 10.3 shall be delivered to the Borrower and
shall be conclusive in the absence of manifest error.
ARTICLE XI ADDITIONAL PROVISIONS
Additional provisions are set forth in Supplement A.
ARTICLE XII GENERAL
12.1 BORROWER'S WAIVER. Except as otherwise provided for in this
Agreement, the Borrower waives (a) presentment, demand and protest and
notice of presentment, protest, default, non-payment, maturity, release,
compromise, settlement, one or more extensions or
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renewals of any or all commercial paper, accounts, documents, instruments,
chattel paper and guaranties at any time held by the Lender on which the
Borrower may in any way be liable and hereby ratifies and confirms whatever
the Lender may do in this regard; (b) all rights to notice and a hearing
prior to the Lender's taking possession or control of, or the Lender's
relevy, attachment or levy on or of, the Collateral or any bond or security
which might be required by any court prior to allowing the Lender to
exercise any of the Lender's remedies; and (c) the benefit of all
valuation, appraisement and exemption laws. The Borrower acknowledges that
it has been advised by counsel of its choice with respect to this Agreement
and the transactions evidenced by this Agreement.
12.2 EXPENSES; ATTORNEY'S FEES. The Borrower agrees, whether or not any
Loan is made hereunder, to pay the Lender upon demand for all expenses and
Attorneys' Fees, including, without limitation, those incurred by the
Lender in connection with (a) the preparation, negotiation and execution of
the Loan Documents, (b) the preparation of any and all amendments to the
Loan Documents and all other instruments or documents provided for therein
or delivered or to be delivered thereunder or in connection therewith, (c)
the collection or enforcement of the Borrower's or any other Obligor's
obligations under any of the Loan Documents and (d) the collection or
enforcement of any of the Lender's rights in or to any Collateral or Third
Party Collateral. The Borrower also agrees (y) to indemnify and hold the
Lender harmless from any loss or expense which may arise or be created by
the acceptance of telephonic or other instructions for making Loans and (z)
to pay, and save the Lender harmless from all liability for, any stamp or
other taxes which may be payable with respect to the execution or delivery
of this Agreement or the issuance of any Note or of any other instruments
or documents provided for herein or to be delivered hereunder or in
connection herewith. The Borrower's foregoing obligations shall survive any
termination of this Agreement.
12.3 LENDER FEES AND CHARGES. The Borrower agrees to pay the Lender, or
any Affiliate, on demand the customary fees and charges of the Lender, or
such Affiliate, for maintenance of accounts with the Lender, or such
Affiliate, or for providing other services to the Borrower. The Lender may,
in its sole and absolute discretion, provide for such payment by charging
the Disbursment Account or any other account of the Borrower with FBNA or
advancing the amount thereof to the Borrower as a Loan.
12.4 NO WAIVER BY LENDER; AMENDMENTS. No failure or delay on the part
of the Lender in the exercise of any power or right, and no course of
dealing between the Borrower and the Lender shall operate as a waiver of
such power or right, nor shall any single or partial exercise of any power
or right preclude other or further exercise thereof or the exercise of any
other power or right. The remedies provided for herein are cumulative and
not exclusive of any remedies which may be available to the Lender at law or
in equity. No notice to or demand on the Borrower not required hereunder
shall in any event entitle the Borrower to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right
of the Lender to any other or further action in any circumstances without
notice or demand. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed and delivered by the Lender.
Any waiver of any provision of this Agreement, and any consent to any
departure by the Borrower from the terms of any provision of this Agreement,
shall be effective only in the specific instance and for the specific
purpose for which given.
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12.5 NOTICE. Except as otherwise expressly provided herein, any notice
hereunder to the Borrower or the Lender shall be in writing (including
telegraphic, telex, or telecopy communication) and shall be given to the
Borrower or the Lender at its address, telex number or fax number set forth
on the signature pages hereof or at such other address, telex number or
telecopier number as the Borrower or the Lender may, by written notice,
designate as its address, telex number or fax number for purposes of notice
hereunder. All such notices shall be deemed to be given when transmitted by
telex and the appropriate answer back is received, transmitted by fax,
delivered to the telegraph office, delivered by courier, personally
delivered or, in the case of notice by mail, three days following deposit in
the United States mails, properly addressed as herein provided, with proper
postage prepaid.
12.6 PARTICIPATIONS; INFORMATION. The Borrower hereby consents to the
Lender's grant of participations in or sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of the Loan
Documents, or of any portion of any thereof, including without limitation
lender's rights, titles, interests, remedies, powers and/or duties. The
Lender may furnish any information concerning the Borrower in the possession
of the Lender from time to time to assignees of the rights and/or
obligations of the Lender hereunder and to participants in any Loan
(including prospective assignees and participants) and may furnish
information in response to credit inquiries consistent with general banking
practice.
12.7 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.8 SUCCESSORS. This Agreement shall be binding upon the Borrower and
the Lender and their respective successors and assigns, and shall inure to
the benefit of the Borrower and the Lender and the successors and assigns of
the Lender. The Borrower shall not assign its rights or duties hereunder
without the consent of the Lender.
12.9 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrower and the
Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
12.11 CONSTRUCTION. The Borrower acknowledges that this Agreement shall
not be binding upon the Lender or become effective until and unless accepted
by the Lender, in writing. If so accepted by the Lender, THE LOAN DOCUMENTS
AND ANY SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND
SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF, THE STATE OF MINNESOTA AS
TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF
LAW, AND IN ALL OTHER RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY
OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF
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SECURITY INTERESTS AND LIENS WHICH SHALL BE GOVERNED AND CONTROLLED BY THE
LAWS OF THE RELEVANT JURISDICTION.
12.12 CONSENT TO JURISDICTION. To induce the Lender to accept this
Agreement, the Borrower, irrevocably, agrees that, subject to the Lender's
sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR
RESPECT, ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY
SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS
HAVING SITUS WITHIN THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. THE
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE BORROWER, AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE
BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
12.13 SUBSIDIARY REFERENCE. Any reference herein to a Subsidiary or
Subsidiaries of the Borrower, and any financial definition, ratio,
restriction or other provision of this Agreement which is stated to be
applicable to "the Borrower" and the Subsidiaries or which is to be
determined on a "consolidated" or "consolidating" basis, shall apply only to
the extent the Borrower has any Subsidiaries and, where applicable, to the
extent any such Subsidiaries are consolidated with the Borrower for
financial reporting purposes.
12.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the
date first written above.
PRIMEGG, LTD.
By: Mark Krasno
--------------------------------
Title: President
-----------------------------
Address: 6515 Grand Teton Plaza
Madison, Wisconsin 53719
Attention: Mark S. Krasno
President
Telephone: (608) 833-3669
Fax No.: (608) 833-9763
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FBS BUSINESS FINANCE CORPORATION
By: William Phelps
--------------------------
Title: Vice President
-----------------------
Address: First Bank Place MPFP0804
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Business Credit Division
Telephone: (612) 973-0611
Fax No.: (612) 973-0829
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SUPPLEMENT A
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF APRIL 8, 1994 BETWEEN
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
PRIMEGG, LTD. (THE "BORROWER")
1 . CREDIT AGREEMENT REFERENCE. This Supplement A, as it may be amended
or modified from time to time, is a part of the Credit and Security
Agreement, dated as of April 8, 1994, between the Borrower and the Lender
(together with all amendments, modifications and supplements thereto, the
"Credit Agreement"). Terms used herein which are defined in the Credit
Agreement shall have the meanings given such terms in the Credit Agreement
unless the context otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit Amount"
shall mean the maximum amount of Revolving Loans which the Lender will
make available to the Borrower which amount shall not exceed NINE
MILLION AND NO/100 DOLLARS ($9,000,000) (unless such amount is
increased by the Lender in its sole and absolute discretion); provided,
however, that the aggregate outstanding principal balance of the
Revolving Loans plus the Letter of Credit Obligations shall not exceed
the Revolving Credit Amount.
2.2 BORROWING BASE. The term "Borrowing Base" shall mean:
(a) an amount of up to 85% of the net amount (as determined by
the Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary) of the Borrower's Eligible
Accounts Receivable; plus
(b) an amount of up to the lesser of (1) the sum of (A) 65% of
the net value (the lower of the cost, determined on a first in
first out basis, or market value of such Inventory, as determined
by the Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's Eligible
Inventory which does not constitute Eligible Committed Inventory,
plus (B) 75% of the net value (the cost, determined on a first in
first out basis, of such Committed Inventory, as determined by the
Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary) of the Borrower's Eligible
Committed Inventory; or (2) $5,000,000; plus
(c). during the period commencing March 31, 1994 through and
including March 30, 1995, an amount equal to 100% of the face
amount of the Collateral Letter of Credit.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit
Sublimit" shall mean $500,000.
<PAGE> 54
2.4 TERMINATION DATE. The term "Termination Date" shall mean March
31, 1997.
3. INTEREST; FEES.
3.1 LOANS.
(a) REVOLVING LOANS. The unpaid principal balance of the Revolving
Loans (other than Overdraft Loans and Over Advances) shall bear
interest to maturity at the Reference Rate in effect from time to time
plus .75% per annum.
(b) TERM LOAN A. The unpaid principal balance of Term Loan A shall
bear interest to maturity at the Reference Rate in effect from time to
time plus 1% per annum; provided, however, the Borrower may, upon five
Business Days' prior written notice to the Lender, request that Term
Loan A be converted from a Variable Rate Loan to a Fixed Rate Loan
whereupon the unpaid principal balance of Term Loan A shall bear
interest to the date of such conversion at the Reference Rate in effect
from time to time plus 1% per annum and thereafter to maturity at the
Fixed Rate plus 3.60% per annum.
(c) TERM LOAN B. The unpaid principal balance of Term Loan B shall
bear interest to maturity at the Reference Rate in effect from time to
time plus 1.50% per annum.
(d) DEFAULT RATE. If any amount of the Loans is not paid when due,
whether by acceleration or otherwise, the entire unpaid principal
balance of the Loans (other than Overdraft Loans and Over Advances)
shall bear interest until paid at a rate per annum equal to the greater
of (i) the Reference Rate from time to time in effect plus 4% or (ii)
4% above the Reference Rate in effect at the time such amount became
due.
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over Advances
shall bear interest at the rate(s) determined pursuant to Section 2.7 or
Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a commitment
fee for the period from the date hereof to the date the Credit terminates in
an amount equal to three-eighths of one percent (3/8%) per annum on the
average daily Unused Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or any
Affiliate, a commission on the undrawn amount of each Letter of Credit and
on each L/C Draft accepted by the Lender, or such Affiliate, in an amount
equal to two percent (2%) per annum.
3.5 CREDIT TERMINATION FEE. Upon termination or cancellation of the
Credit by the Borrower prior to the Termination Date, the Borrower shall pay
to the Lender a termination fee in an amount equal to $100,000.
2
<PAGE> 55
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable
must not be unpaid on the date that is 61 days after the date of the invoice
envidencing such Account Receivable. If invoices representing 10% or more of
the unpaid amount of all Accounts Receivable from any one Account Debtor are
unpaid more than 60 days after the dates of such invoices, then all Accounts
Receivable relating to such Account Debtor shall cease to be Eligible
Accounts Receivable.
5. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrowers Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall
otherwise consent in writing, it will not, and will not permit any
Subsidiary to, do any of the following:
5.1 CAPITAL BASE. During each of the periods set forth below, not
permit the Borrower's Capital Base to be less than the amount set forth
opposite such period at any time:
PERIOD CAPITAL BASE
March 31, 1994 through and
including June 29, 1994 $4,300,000
June 30, 1994 through and
including September 29, 1994 $4,350,000
September 30, 1994 through
and including December
30, 1994 $4,400,000
December 31, 1994 through
and including March 30, 1995 $4,600,000
March 31, 1995 through and
including September 29, 1995 $4,700,000
September 30, 1995 through
and including March 30, 1996 $4,800,000
March 31, 1996 through and
including September 29, 1996 $5,100,000
September 30, 1996 and
thereafter $5,400,000
3
<PAGE> 56
5.2 LEVERAGE RATIO. During each of the periods set forth below, not
permit the ratio of (a) the sum of (i) the Borrower's consolidated total
liabilities, minus (ii) Subordinated Debt, to (b) the Borrower's Capital
Base to be greater than the ratio set forth below opposite such period at
any time:
PERIOD LEVERAGE RATIO
March 31, 1994 through and
including September 29, 1994 3.3 to 1.0
September 30, 1994 through and
including September 29, 1995 3.1 to 1.0
September 30, 1995 through and
including September 29, 1996 3.0 to 1.0
September 30, 1996 and thereafter 2.5 to 1.0
5.3 CAPITAL EXPENDITURES. Make Capital Expenditures in an amount
exceeding $500,000 on a consolidated basis in any fiscal year.
5.4 CASH FLOW COVERAGE RATIO. During each of the periods set forth
below, as of the last day of each month for the period commencing on the
first day of the Borrower's fiscal year and ending on such date, permit the
Borrower's Cash Flow Coverage Ratio to be less than the ratio set forth
below opposite such period:
PERIOD CASH FLOW COVERAGE RATIO
March 31, 1994 through and
including September 30, 1994 1.00 to 1.0
October 1, 1994 through and
including September 30, 1995 1.10 to 1.0
October 1, 1995 through and
including September 30, 1996 1.20 to 1.0
October 1, 1996 and thereafter 1.50 to 1.0
Borrower's Initials MK
-----
Lender's Initials WP
-------
Dated: as of April 8, 1994
4
<PAGE> 57
FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
------------------------------------------------
THE FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this "Amendment")
made and entered into as of July 18, 1994 is by and between PRIMEGG, LTD., a
Delaware corporation (the "Borrower"), and FBS BUSINESS FINANCE CORPORATION, a
Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994 (the "Credit Agreement"); and
2. The Borrower desires to amend certain provisions of the Credit
Agreement, and the Lender has agreed to make such amendments, subject to the
terms and conditions set forth in this Amendment.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 Definition of Capital Base. The definition of "Capital
Base" in Article I of the Credit Agreement is amended in its entirety as
follows:
"Capital Base": At any determination date, the total
of (a) the sum of (i) all assets appearing on a consolidated
balance sheet of the Borrower at such date, prepared in
accordance with GAAP, after deducting all proper reserves
(including reserves for depreciation, obsolescence and
amortization), plus (ii) Subordinated Debt; minus (b) all
liabilities which in accordance with GAAP would be included on
the liability side of a consolidated balance sheet; provided,
that adjustments to assets or liabilities made since the last
date of determination shall be taken into account only to the
extent that the
<PAGE> 58
Lender determines, in its sole discretion, that such adjustments
reflect actual, current operating results of the Borrower.
2.2 Investments. Section 6.11 of the Credit Agreement is amended in
its entirety as follows:
6.11 Investments. Acquire for value, make, have or hold any
investments, except (a) advances to Related Parties (excluding Cham
Foods) not to exceed (i) $650,000 in the aggregate for the period from
and after April 8, 1994, to and including April 30, 1994, (ii)
$801,000, plus accrued and unpaid interest in the amount of
$68,000.00, in the aggregate for the period from and after May 1, 1994
to and including October 30, 1994, subject to adjustments by the
Borrower following review by the Borrower, its accountants or other
consultants of the Borrower's books and records for periods prior to or
ending on May 31, 1994, or (iii) $650,000 in the aggregate from and
after October 31, 1994, including, in each case, any Investments listed
on Schedule 6.11, provided that, during the period from June 1, 1994 to
and including October 30, 1994, no additional advances to Related
Parties in any amount shall be made; (b) advances to Cham Foods not to
exceed $200,000 in the aggregate, including any Investments listed on
Schedule 6.11; (c) advances to employees of the Borrower or any
Subsidiary for travel or other ordinary business expenses, provided
that the aggregate amount outstanding at any one time shall not exceed
$10,000 for any single employee and $50,000 in the aggregate for all
employees; (d) advances to subcontractors and suppliers in maximum
aggregate amounts reasonably acceptable to the Lender; (e) extensions
of credit in the nature of Accounts Receivable or notes receivable
arising from the sale of goods and services in the ordinary course of
business; (f) shares of stock, obligations or other securities received
in settlement of claims arising in the ordinary course of business; (g)
Investments (other than investments in the nature of loans or advances)
outstanding on the date hereof in subsidiaries by the Borrower and
other Subsidiaries; (h) other Investments outstanding on the date
hereof and listed on Schedule 6.11; and (i) other investments consented
to by the Lender in writing.
2.3 Management Change. Section 6.19 of the Credit Agreement is
amended in its entirety as follows:
6.19 Change in Management or Line(s) of Business. Make any
substantial change in the senior management of the Borrower or any
Subsidiary, including, without limitation, any failure of the Guarantor
to continue as president of the Borrower from April 8, 1994 to and
- 2 -
<PAGE> 59
including May 12, 1994 or Michael Shevi to continue as Chief Operating
Officer of the Borrower from and after May 12, 1994, or any change in
the Borrower's or any Subsidiary's line(s) of business.
2.4 Capital Base. Section 5.1 of Supplement A to the Credit Agreement
is amended in its entirety as follows:
5.1 Capital Base. During each of the periods set forth below,
not permit the Borrower's Capital Base to be less than the amount set forth
opposite such period at any time:
<TABLE>
<CAPTION>
Period Capital Base
------ ------------
<S> <C>
March 31, 1994 through and
including June 29, 1994 $4,300,000
June 30, 1994 through and
including July 30, 1994 $3,400,000
July 31, 1994 through and
including August 30, 1994 $3,900,000
August 31, 1994 to and
including September 29, 1994 $4,000,000
September 30, 1994 to and
including December 30, 1994 $4,400,000
December 31, 1994 through and
including March 30, 1995 $4,600,000
March 31, 1995 through and
including September 29, 1995 $4,700,000
September 30, 1995 to and
including March 30, 1996 $4,800,000
March 31, 1996 through and
including September 29, 1996 $5,100,000
September 30, 1996 and
thereafter $5,400,000
</TABLE>
- 3 -
<PAGE> 60
2.5 Leverage Ratio. Section 5.2 of Supplement A to the
Credit Agreement is amended in its entirety as follows:
5.2 Leverage Ratio. During each of the periods set
forth below, not permit the ratio of (a) the sum of (i) the
Borrower's consolidated total liabilities, less (ii)
Subordinated Debt, to (b) the Borrower's Capital Base to be
greater than the ratio set forth below opposite such period at
any time:
Period Leverage Ratio
------ --------------
March 31, 1994 through and
including June 29, 1994 3.3 to 1.0
June 30, 1994 through and
including July 30, 1994 4.0 to 1.0
July 31, 1994 through and
including October 30, 1994 3.5 to 1.0
October 31, 1994 through and
including September 29, 1995 3.1 to 1.0
September 30, 1995 through and
including September 29, 1996 3.0 to 1.0
September 30, 1996 and
thereafter 2.5 to 1.0
2.6 Cash Flow Coverage Ratio. Section 5.4 of Supplement A
to the Credit Agreement is amended in its entirety as follows:
5.4 Cash Flow Coverage Ratio. During each of the
periods set forth below, as of the last day of each month for
the period commencing on the first day of the Borrower's fiscal
year and ending on such date, permit the Borrower's Cash Flow
Coverage Ratio to be less than the ratio set forth below
opposite such period:
Period Cash Flow Coverage Ratio
------ ------------------------
March 31, 1994 through and
including May 31, 1994 1.00 to 1.0
October 31, 1994 through and
-4-
<PAGE> 61
including September 30, 1995 1.10 to 1.0
October 1, 1995 through and
including September 30, 1996 1.20 to 1.0
October 1, 1996 and thereafter 1.50 to 1.0
Section 3. Effectiveness of Amendments. The amendments contained
in this Amendment shall become effective upon delivery of the following to the
Lender.
3.1 This Amendment, duly executed by the Borrower and the
Lender.
3.2 A copy of the resolutions of the Board of Directors of the
Borrower showing the most recent election or appointment, as the case
may be, of the Chairman of the Board and President of the Borrower, and
resolutions of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Amendment certified as true
and accurate by its Secretary or Assistant Secretary, along with a
certification by such Secretary or Assistant Secretary (i) certifying
that there has been no amendment to the Certificate of Incorporation or
Bylaws of the Borrower since true and accurate copies of the same were
delivered to the Lender with a certificate of the Secretary of the
Borrower dated April 21, 1994; and (ii) identifying each officer of the
Borrower authorized to execute this Amendment and any other instrument
or agreement executed by the Borrower in connection with this Amendment
(collectively, the "Amendment Documents"), and certifying as to
specimens of such officer's signature and such officer's incumbency in
such offices as such officer holds.
3.3 The Borrower shall have paid to the Lender $2,000.00 of the
$8,000.00 amendment fee for this Amendment.
3.4 The Borrower shall have received proceeds of not less than
$600,000 from new Subordinated Debt owed to the [Subordinated Lenders],
which Subordinated Debt shall be on terms acceptable to the Lender
including, without limitation, the requirement that no such new
Subordinated Debt shall be paid prior to February 1, 1995 or at any time
an Event of Default or Unmatured Event of Default has occurred and is
continuing, and such proceeds shall be deposited to the Lender
immediately upon receipt by the Borrower.
3.5 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including
-5-
<PAGE> 62
payment of all unpaid legal fees and expenses incurred by the Lender through
the date of this Amendment in connection with the Credit Agreement or the
Amendment Documents.
Section 4. Defaults and Waivers.
4.1 Events of Default and Unmatured Events of Default.
(a) Financial Statement. Under Section 5.1.1(c) of the
Credit Agreement, the Borrower agreed to deliver monthly
financial statements within 20 days after the end of each
month. The Borrower failed to deliver its monthly financial
statement for the monthly period ending April 30, 1994 on or
before May 20, 1994.
(b) Investments. Under Section 6.11 of the Credit
Agreement, the Borrower is limited in the advances it makes to
Related Parties (excluding Cham Foods) to an amount not to
exceed $650,000 in the aggregate. The Borrower has advised
the Lender that, as of May 31, 1994 and through the date of
this Amendment, such advances exceeded $650,000 in the
aggregate.
(c) Transactions with Related Parties. Under Section
6.18 of the Credit Agreement, the Borrower has agreed
not to enter into or be a party to any transaction with any
Related Party except in the ordinary course of business and on
terms no less favorable than in a comparable arms-length
transaction with a Person which is not a Related Party. The
Borrower has advised the Lender that certain of its
transactions occurring on or before May 31, 1994 with a Related
Party occurred on terms more favorable than it would obtain in a
comparable arms-length transaction.
(d) Management Change. Under Section 6.19 of the Credit
Agreement, the Borrower agreed not to make any substantial
change in the senior management of the Borrower including,
without limitation, any failure of the Guarantor to continue
as president of the Borrower. The Borrower has advised the
Lender that the Guarantor, as of May 18, 1994 and through the
date of this Amendment, is no longer the president of the
Borrower.
(e) Capital Base. Under Section 5.1 of Supplement A to
the Credit Agreement, the Borrower agreed not to permit its
-6-
<PAGE> 63
Capital Base to be less than $4,300,000 as of May 31, 1994.
The Borrower had advised the Lender that its Capital Base,
as of May 31, 1994 and through the date of this Amendment,
was less than $4,300,000.
(f) Leverage Ratio. Under Section 5.2 of Supplement A
to the Credit Agreement, the Borrower agreed not to permit
the ratio of (a) the sum of (i) the Borrower's consolidated
liabilities, less (ii) Subordinated Debt, to (b) the
Borrower's Capital Base, to be greater than 3.3 to 1.0 as
of May 31, 1994. The Borrower has advised the Lender that,
as of May 31, 1994 and through the date of this Amendment,
such ratio was greater than 3.3 to 1.0.
(g) Cash Flow Coverage. Under Section 5.4 of
Supplement A to the Credit Agreement, the Borrower agreed
that its Cash Flow Coverage Ratio would not be less than 1.0
to 1.0 as of May 31, 1994. The Borrower has advised the
Lender that its Cash Flow Coverage Ratio, as May 31, 1994
and through the date of this Amendment, was less than 1.0 to
1.0.
4.2 Waiver. Upon the date on which this Amendment becomes
effective, the Lender hereby waives the Borrower's Unmatured Events of
Default and Events of Default described in the preceding Sections 4.1
(a) through 4.1(g). The waivers set forth herein shall not constitute
a waiver by the Lender of any other Unmatured Event of Default or
Event of Default, if any, under the Credit Agreement, and shall not
be, and shall not be deemed to be, a course of action with respect
thereto upon which the Borrower may rely in the future and the
Borrower hereby expressly waives any claim to such effect.
Section 5. Representations; No Default. The Borrower hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as of the date hereof
as though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they are true and correct as of such earlier date, and (b) there will
exist no Unmatured Event of Default or Event of Default on such date which has
not been waived by the Lender. The Borrower represents and warrants that the
Borrower has the power and legal right and authority to enter into the
Amendment Documents and has duly authorized as appropriate the execution and
delivery of the Amendment Document and other agreements and documents executed
and delivered by the Borrower in connection herewith or therewith by proper
corporate action, and none of the Amendment Documents nor the agreements
contained therein contravene or constitute a default under any
-7-
<PAGE> 64
agreement, instrument or indenture to which the Borrower is a party or a
signatory or a provision of the Borrower's Certificate of Incorporation, Bylaws
or, to the best of the Borrower's knowledge, any other agreement or requirement
of law. The Borrower represents and warrants that no consent, approval or
authorization of or registration or declaration with any Person, including but
not limited to any governmental authority, is required in connection with the
execution and delivery by the Borrower of the Amendment Documents or other
agreements and documents executed and delivered by the Borrower in connection
therewith or the performance of obligations of the Borrower therein described.
Section 6. Affirmation, Further References. The Lender and the
-------------------------------
Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. All
references in any document or instrument to the Credit Agreement are hereby
amended and shall refer to the Credit Agreement as amended by this Amendment.
Section 7. Merger and Integration, Superseding Effect. This
------------------------------------------
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersede and have merged into
them all prior oral and written agreements on the same subjects by and between
the parties hereto with the effect that this Amendment, shall control with
respect to the specific subjects hereof and thereof.
Section 8. Amendment Fee; Legal Expenses. The Borrower agrees to pay
-----------------------------
installments of $2,000 of the amendment fee owed to the Lender in connection
with this Amendment on October 1, 1994, January 1, 1995 and March 1, 1995. As
provided in Section 12.2 of the Credit Agreement, the Borrower agrees to
reimburse the Lender, upon execution of this Amendment, for all reasonable
out-of-pocket expenses (including attorneys' fees and legal expenses of Dorsey
& Whitney, counsel for the Lender) incurred in connection with the Credit
Agreement, including in connection with the negotiation or preparation of this
Amendment and all other documents negotiated and prepared in connection with
this Amendment.
Section 9. Headings. The headings of various sections of this
--------
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 10. Counterpart. This Amendment may be executed in several
-----------
counterparts, all or any of which shall be regarded as one and the same
document and either party to such agreements may execute any such agreement by
executing a counterpart of such agreement.
-8-
<PAGE> 65
Section 11. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict of
law principles thereof, but giving effect to federal laws applicable to
national banks.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: Aron Frankel Aron Frankel
---------------------------------
Title: Member--Board of Directors
------------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: ???
---------------------------------
Title: Vice President
------------------------------
-9-
<PAGE> 66
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this "Amendment")
made and entered into as of March 30, 1995 is by and between PRIMEGG, LTD., a
Delaware corporation (the "Borrower"), and FBS BUSINESS FINANCE CORPORATION, a
Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994, as amended by a First Amendment to Credit
and Security Agreement dated as of July 18, 1994 (the "Credit Agreement"); and
2. The Borrower and the Lender desire to amend certain provisions
of the Credit Agreement, subject to the terms and conditions set forth in this
Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as follows:
2.1 Definitions of Adjusted Subordinated Debt and of
Collateral Letter of Credit Subordinated Debt. Article I of the Credit
Agreement is amended to add the definitions "Adjusted Subordinated Debt" and
"Collateral Letter of Credit Subordinated Debt" as follows:
"Adjusted Subordinated Debt": Subordinated Debt less Collateral
Letter of Credit Subordinated Debt.
"Collateral Letter of Credit Subordinated Debt": Subordinated
Debt in the principal amount of $1,250,000 owed by the Borrower
to Egis Holdings Limited as a result of payment by Egis Holdings
Limited to Bank Leumi Le-Israel as reimbursement for the draw
made on the Collateral Letter of Credit plus such additional
Subordinated Debt as the Borrower may incur subsequent to April
30, 1995.
<PAGE> 67
2.2 Definition of Capital Base. The definition of "Capital
Base" in Article I of the Credit Agreement is amended in its entirety as
follows:
"Capital Base": At any determination date, the total of
(a) the sum of (i) all assets appearing on a consolidated
balance sheet of the Borrower at such date, prepared in
accordance with GAAP, after deducting all proper reserves
(including reserves for depreciation, obsolescence and
amortization), plus (ii) Adjusted Subordinated Debt;
minus (b) all liabilities which in accordance with GAAP
would be included on the liability side of a consolidated
balance sheet.
2.3 Definition of Cash Flow Coverage Ratio. The definition
of "Cash Flow Coverage Ratio" in Article I of the Credit Agreement is amended
in its entirety as follows:
"Cash Flow Coverage Ratio": For any period, the ratio
of (a) the Borrower's EBITDA to (b) the sum of (i)
consolidated interest expense (including, without
limitation, imputed interest expense on Capitalized
Leases), plus (ii) mandatory principal payments on
Long-Term Debt (exclusive of Subordinated Debt) minus
(iii) increases in Long Term Debt plus (iv) Capital
Expenditures.
2.4 Term Loan B. Section 2.1.3(b) of the Credit Agreement is
amended in its entirety as follows:
(b) Principal of Term Loan B in the amount of $400,000
shall be due and payable in eight equal monthly
installments of $44,445 each, commencing April 15, 1995
and on the fifteenth day of each month thereafter until
December 15, 1995, upon which date the remaining
principal balance shall be due and payable in full.
2.5 Restricted Payments. Section 6.8 of the Credit Agreement
is hereby amended in its entirety as follows:
6.8 RESTRICTED PAYMENTS. Purchase or redeem any shares
of its stock, declare or pay any dividends thereon
(other than stock dividends and dividends payable to the
Borrower), make any distribution to stockholders as such
(other than the Borrower) or set aside any funds for any
such purpose, and not prepay, purchase or redeem any
subordinated Indebtedness of the Borrower or any
Subsidiary; provided that, subordinated
-2-
<PAGE> 68
Indebtedness in the amount of $200,000 loaned by M.
Shevi Family Asset Ltd. to the Borrower on or about
February 27, 1995 may be repaid by the Borrower after
September 30, 1995, so long as no Unmatured Event of
Default or Event of Default is outstanding at the time
of repayment or would occur upon such repayment.
2.6 Leases. Section 6.10 of the Credit Agreement is
amended by deleting the amount "$100,000" that appears therein and substituting
therefor the amount "$250,000" and is further amended by deleting the amount
"$30,000" that appears therein and substituting therefor the amount
"$210,000".
2.7 Investments. Clause (a) of Section 6.11 of the Credit
Agreement is amended in its entirety as follows:
...(a) advances to Related Parties (excluding Cham
Foods) not to exceed $125,000 in the aggregate,
including any Investments listed on Schedule 6.11; ...
2.8 Supplement A. Supplement A to the Credit Agreement is
amended and restated in its entirety in the form of Exhibit A hereto.
Section 3. Effectiveness of Amendments. The amendments contained in this
Amendment shall become effective as of March 30, 1995 upon delivery of the
following to the Lender:
3.1 This Amendment, duly executed by the Borrower and the
Lender and Supplement A, duly initialed by Borrower and Lender.
3.2 A copy of the resolutions of the Board of Directors of
the Borrower authorizing the execution, delivery and performance of this
Amendment certified as true and accurate by its Secretary or Assistant
Secretary, along with a certification by such Secretary or Assistant Secretary
(i) certifying that there has been no amendment to the Certificate of
Incorporation or Bylaws of the Borrower since true and accurate copies of the
same were delivered to the Lender with a certificate of the Secretary of the
Borrower dated April 21, 1994; and (ii) identifying each officer of the
Borrower authorized to execute this Amendment and any other instrument or
agreement executed by the Borrower in connection with this Amendment
(collectively, the "Amendment Documents"), and certifying as to specimens of
such officer's signature and such officer's incumbency in such offices as such
officer holds.
3.3 A certificate of the Secretary or Assistant Secretary
of the Borrower certifying that Mr. Aron Frankel is and has been the Treasurer
of the Borrower since May 12, 1994, and executed the First Amendment to Credit
and
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<PAGE> 69
Security Agreement dated as of July 18, 1994 between the Borrower and the
Lender (the "First Amendment") in such capacity.
3.4 Copies of all instruments and documents (which
instruments and documents shall be in form and substance satisfactory to the
Lender) evidencing new Subordinated Debt of the Borrower in the amount of
$600,000 in the aggregate ("New Subordinated Debt") that was loaned to the
Borrower by one or more Subordinated Lenders in connection with the First
Amendment, certified by the Secretary or Assistant Secretary of the Borrower as
being true, correct and complete copies of such instruments and documents and
as embodying all the terms and conditions governing the New Subordinated Debt.
3.5 Evidence satisfactory to the Lender that M. Shevi Family
Asset Ltd. has advanced to the Borrower additional subordinated Indebtedness in
the principal amount of $200,000, payable after September 30, 1995 and subject
to the restriction that repayment may be made only if permitted by the terms of
the Credit Agreement, together with copies of all instruments and documents
(which instruments and documents shall be in form and substance satisfactory to
the Lender) evidencing such subordinated Indebtedness, certified by the
Secretary or Assistant Secretary of the Borrower as being true, correct and
complete copies of such instruments and documents and as embodying all the
terms and conditions governing such Indebtedness.
3.6 An affirmation, substantially in the form of Exhibit B
hereto, duly executed by each Subordinated Lender.
3.7 A Subordination Agreement, substantially in the form of
Exhibit C hereto, duly executed by M. Shevi Family Asset Ltd. and acknowledged
by the Borrower.
3.8 A copy of the resolutions of the Board of Directors of
M. Shevi Family Asset Ltd. authorizing the execution, delivery and performance
of the Subordination Agreement required to be delivered pursuant to Section
3.7, certified as true and accurate by its Secretary or Assistant Secretary,
along with a certificate by such Secretary or Assistant Secretary identifying
each officer of M. Shevi Family Asset Ltd. authorized to execute such
Subordination Agreement and certifying as to specimens of such officer's
signature and such officer's incumbency in such offices as such officer holds.
3.9 Evidence satisfactory to the Lender that Perham State
Bank and Bank of Sun Prairie, respectively, have waived breaches by the
Borrower of the terms of the respective mortgage loans made to it by Perham
State Bank and Bank of Sun Prairie.
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<PAGE> 70
3.10 Evidence satisfactory to the Lender that all the holders of
Subordinated Debt have agreed that accrued and unpaid interest on Subordinated
Debt through February 28, 1995 shall be paid only to the extent that such
interest exceeds $100,000 and shall be paid in no fewer than three
installments, subject to no Unmatured Event of Default or Event of Default
being outstanding at the time of any payment or likely to occur as a result of
such payment.
3.11 A copy of the settlement agreement entered into with Mark
Krasno, certified by the Secretary or Assistant Secretary of the Borrower as
being a true, correct and complete copy and embodying all the terms and
conditions of such settlement and a Mutual Release in the form heretofore
furnished to the Borrower by the Lender, duly executed by Mark Krasno.
3.12 A letter from the Borrower identifying the officers of the
Borrower authorized to make requests for loans, including telephonic requests.
3.13 Certificates duly executed by Michael Shevi and Mark Frankel, as
trustee for Michael Shevi, substantially in the forms of Exhibits D and E
hereto, respectively.
3.14 Payment of principal on Term Loan B in the aggregate amount of
$88,890 as payment of the installments due on April 15, 1995 and on May 15,
1995.
3.15 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including payment
of all unpaid legal fees and expenses incurred by the Lender through the date
of this Amendment in connection with the Credit Agreement or the Amendment
Documents.
Section 4. Defaults and Waivers. Upon the date upon which this Amendment
becomes effective, the Lender hereby waives any Unmatured Events of Default or
Events of Default arising prior to March 30, 1995 under Section 6.10 (Leases)
of the Credit Agreement and under any of Sections 5.1 (Capital Base), 5.2
(Leverage Ratio) or 5.4 (Cash Flow Coverage Ratio) of Supplement A to the
Credit Agreement and waives any Unmatured Event of Default or Event of Default
arising from the Borrower's settlement with Mark Krasno. The Lender further
waives any Unmatured Event of Default or Event of Default relating to the
failure of Mr. Michael Shevi to disclose to the Lender that at the time that he
executed and delivered to the Lender the Guaranty and Pledge Agreement dated
April 4, 1995, the shares of common stock subject thereto were in the name of
Mark Frankel, as trustee for Michael Shevi. The waivers set forth herein shall
not constitute a waiver by the Lender of any other Unmatured Event of Default
or Event of Default, if any, under the Credit Agreement, and shall not be, and
shall not be deemed to be, a course of action with respect thereto upon which
the Borrower may rely in the future and the Borrower hereby expressly waives
any claim to such effect.
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<PAGE> 71
Section 5. Additional Covenants.
(a) The Borrower will deliver to the Lender on or before June
15, 1995 duly executed collateral assignments of life insurance
policies, in form and substance satisfactory to the Lender, on
the lives of Thomas Wiles, Jon Luikart and Joseph
Sczygiel, respectively, in the aggregate amount of
$1,100,000, together with the original life insurance policies
being so assigned.
(b) At the request of the Lender, the Borrower will promptly
reissue in the name of Michael Shevi and deliver to the Lender,
with blank stock powers relating thereto duly executed by Michael
Shevi, share certificates numbered 5 and 15, representing 244
shares of common stock and 172.68 shares of common stock,
respectively, of the Borrower, which shares have been pledged to
the Lender by Michael Shevi and were transferred to Michael Shevi
by Mark Frankel, as trustee for Michael Shevi.
Section 6. Representations; No Default. The Borrower hereby represents that
on and as of the date hereof and after giving effect to this Amendment (a) all
of the representations and warranties contained in the Credit Agreement are
true, correct and complete in all respects as of the date hereof as though made
on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they are true
and correct as of such earlier date, and (b) there will exist no Unmatured
Event of Default or Event of Default on such date which has not been waived by
the Lender. The Borrower represents and warrants that the Borrower has the
power and legal right and authority to enter into the Amendment Documents and
has duly authorized as appropriate the execution and delivery of the Amendment
Document and other agreements and documents executed and delivered by the
Borrower in connection herewith or therewith by proper corporate action, and
none of the Amendment Documents nor the agreements contained therein contravene
or constitute a default under any agreement, instrument or indenture to which
the Borrower is a party or a signatory or a provision of the Borrower's
Certificate of Incorporation, Bylaws or, to the best of the Borrower's
knowledge, any other agreement or requirement of law. The Borrower represents
and warrants that no consent, approval or authorization of or registration or
declaration with any Person, including but not limited to any governmental
authority, is required in connection with the execution and delivery by the
Borrower of the Amendment Documents or other agreements and documents executed
and delivered by the Borrower in connection therewith or the performance of
obligations of the Borrower therein described.
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<PAGE> 72
Section 7. Affirmation, Acknowledgement, Further References. The
Lender and the Borrower each acknowledge and affirm that the Credit
Agreement, as hereby amended, is hereby ratified and confirmed in all
respects and all terms, conditions and provisions of the Credit Agreement,
except as amended by this Amendment, shall remain unmodified and in full
force and effect. The Borrower acknowledges that this Amendment and all
amendments to the Credit Agreement are Loan Documents. All references in any
document or instrument to the Credit Agreement are hereby amended and shall
refer to the Credit Agreement as amended by this Amendment.
Section 8. Acknowledgement of Lender. The Lender acknowledges that
since the date of the First Amendment to Credit and Security Agreement, Jon
Luikart has become President of the Borrower.
Section 9. Merger and Integration, Superseding Effect. This
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersede and have merged into
them all prior oral and written agreements on the same subjects by and
between the parties hereto with the effect that this Amendment, shall
control with respect to the specific subjects hereof and thereof.
Section 10. Legal Expenses. As provided in Section 12.2 of the
Credit Agreement, the Borrower agrees to reimburse the Lender, upon
execution of this Amendment, for all reasonable out-of-pocket expenses
(including attorneys' fees and legal expenses of Dorsey & Whitney P.L.L.P,
counsel for the Lender) incurred in connection with the Credit Agreement,
including in connection with the negotiation or preparation of this
Amendment and all other documents negotiated and prepared in connection with
this Amendment.
Section 11. Headings. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to
be a part of this Amendment.
Section 12. Counterpart. This Amendment may be executed in several
counterparts, all or any of which shall be regarded as one and the same
document and either party to such agreements may execute any such agreement
by executing a counterpart of such agreement.
Section 13. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict
of law principles thereof, but giving effect to federal laws applicable to
national banks.
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<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: [SIG]
----------------------------------
Title: Chairman of the Board
-------------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: Brian C. O'Neill
----------------------------------
Title: Vice President
-------------------------------
-8-
<PAGE> 74
EXHIBIT A TO
SECOND AMENDMENT
SUPPLEMENT A
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF APRIL 8, 1994 BETWEEN
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
PRIMEGG, LTD. (THE "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as amended and
restated as of March 30, 1995, and as it may be further amended or modified
from time to time, is a part of the Credit and Security Agreement, dated as of
April 8, 1994, between the Borrower and the Lender (together with all
amendments, modifications and supplements thereto, the "Credit Agreement").
Capitalized terms used herein which are defined in the Credit Agreement shall
have the meanings given such terms in the Credit Agreement unless the context
otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit
Amount" shall mean the maximum amount of Revolving Loans which the Lender will
make available to the Borrower which amount shall not exceed SEVEN MILLION FIVE
HUNDRED THOUSAND AND No/100 DOLLARS ($7,500,000) (unless such amount is
increased by the Lender in its sole and absolute discretion); provided,
however, that the aggregate outstanding principal balance of the
Revolving Loans plus the Letter of Credit Obligations shall not exceed the
Revolving Credit Amount.
2.2 BORROWING BASE. The term "Borrowing Base" shall mean:
(a) an amount of up to 85% of the net amount (as determined by
the Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's
Eligible Accounts Receivable; plus
(b) an amount of up to the lesser of (1) the sum
of (A) 65% of the net value (the lower of the cost, determined
on a first in first out basis, or market value of such
Inventory, as determined by the Lender after deduction of such
reserves and allowances as the Lender deems proper and
necessary) of the Borrower's Eligible Inventory which does not
constitute Eligible Committed Inventory, plus (B) 70% of the net
value (the cost, determined on a first in first out basis, of
such Committed Inventory, as determined by the Lender after
deduction of such reserves and
<PAGE> 75
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Committed Inventory, as determined by the
Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary of the Borrower's Eligible
Committed Inventory; or (2) $5,000,000.
(c) during the period commencing March 31, 1995 through and
including March 31, 1996, an amount equal to 100% of the face
amount of the Collateral Letter of Credit.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit
Sublimit" shall mean $500,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean
March 31, 1997.
3. INTEREST; FEES.
3.1 LOANS.
(a) REVOLVING LOANS. The unpaid principal balance of the
Revolving Loans (other than Overdraft Loans and Over
Advances) shall bear interest to maturity at the Reference Rate
in effect from time to time plus 1.50% per annum.
(b) TERM LOAN A. The unpaid principal balance of Term
Loan A shall bear interest to maturity at the Reference Rate in
effect from time to time plus 1.50% per annum; provided,
however, the Borrower may, upon five Business Days' prior written
notice to the Lender, request that Term Loan A be converted from
a Variable Rate Loan to a Fixed Rate Loan whereupon the unpaid
principal balance of Term Loan A shall bear interest to the date
of such conversion at the Reference Rate in effect from time to
time plus 1.50% per annum and thereafter to maturity at the
Fixed Rate plus 4.10% per annum.
(c) TERM LOAN B. The unpaid principal balance of Term
Loan B shall bear interest to maturity at the Reference Rate in
effect from time to time plus 1.50% per annum.
(d) DEFAULT RATE. If any amount of the Loans is not paid when
due, whether by acceleration or otherwise, the entire unpaid
principal balance of the Loans (other than Overdraft Loans and
Over Advances) shall bear interest until paid at a rate per
annum equal to the greater of (i) the Reference Rate from time
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<PAGE> 76
to time in effect plus 4% or (ii) 4% above the Reference Rate
in effect at the time such amount became due.
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over Advances
shall bear interest at the rate(s) determined pursuant to Section 2.7 or
Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a commitment
fee for the period from the date hereof to the date the Credit terminates in
an amount equal to three-eighths of one percent (3/8%) per annum on the
average daily Unused Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or
any Affiliate, a commission on the undrawn amount of each Letter of Credit and
on each L/C Draft accepted by the Lender, or such Affiliate, in an amount
equal to two percent (2%) per annum.
3.5 CREDIT TERMINATION FEE. Upon termination or cancellation of the
Credit by the Borrower prior to the Termination Date, the Borrower shall pay
to the Lender a termination fee in an amount equal to $100,000.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable
must not be unpaid on the date that is 61 days after the date of the invoice
evidencing such Account Receivable. If invoices representing 10% or more of
the unpaid amount of all Accounts Receivable from any one Account Debtor are
unpaid more than 60 days after the dates of such invoices, then all Accounts
Receivable relating to such Account Debtor shall cease to be Eligible
Accounts Receivable.
5. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:
5.1 CAPITAL BASE. During each of the periods set forth below, not
permit the Borrower's Capital Base to be less than the amount set forth
opposite such period at any time:
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<PAGE> 77
PERIOD CAPITAL BASE
March 31, 1995 through and
including October 30, 1995 $3,200,000
October 31, 1995 through and
including March 30, 1996 $3,300,000
March 31, 1996 to and
including October 30, 1996 $3,400,000
October 31, 1996 and thereafter $3,500,000
5.2 LEVERAGE RATIO. During each of the periods set forth below, not
permit the ratio of (a) the sum of (i) the Borrower's consolidated total
liabilities, less (ii) Adjusted Subordinated Debt, to (b) the Borrower's
Capital Base to be greater than the ratio set forth below opposite such period
at any time:
PERIOD LEVERAGE RATIO
March 31, 1995 through and
including October 30, 1995 4.2 to 1.0
October 31, 1995 through and
and including March 30, 1996 4.0 to 1.0
March 31, 1996 through and
including October 30, 1996 3.5 to 1.0
October 31, 1996 and thereafter 3.3 to 1.0
5.3 CAPITAL EXPENDITURES. Make Capital Expenditures in an amount
that on a consolidated basis exceeds $500,000 in fiscal year 1995 and $700,000
in each of fiscal years 1996 and 1997.
5.4 CASH FLOW COVERAGE RATIO. For the period commencing March 31,
1995 through and including the Termination Date, as of the last day of each
month for the period commencing on the first day of the Borrower's fiscal year
and ending on such date, permit the Borrower's Cash Flow Coverage Ratio to be
less than 1.0 to 1.0.
Borrower's Initials
-------------------------
Lender's Initials
-------------------------
Date: As of March 30, 1995
-------------------------
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<PAGE> 78
THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") made and entered into as of September 12, 1995 is by and between
PRIMEGG, LTD., a Delaware corporation (the "Borrower"), and FBS BUSINESS
FINANCE CORPORATION, a Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994, as amended by a First Amendment to Credit
and Security Agreement dated as of July 18, 1994 and a Second Amendment to
Credit and Security Agreement dated as of March 30, 1995 (as so amended, the
"Credit Agreement"); and
2. The Borrower and the Lender desire to amend certain provisions of
the Credit Agreement, subject to the terms and conditions set forth in this
Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as follows:
2.1 Definition of Reconstituted Inventory. Article I of the Credit
Agreement is amended to add the definition "Reconstituted Inventory" as
follows:
"Reconstituted Inventory": Inventory which consists of dried
egg powder (a) which is (i) salable in the ordinary course of
business or (ii) suitable for blending with other powder blends
to create salable product and (b) (i) is excess production, or
(ii) is a powder blend cleaned out of the dryer prior to drying
another powder blend, or (iii) did not meet specifications.
2.2 Supplement A. Supplement A to the Credit Agreement is
amended and restated in its entirety in the form of Exhibit A hereto.
<PAGE> 79
Section 3. Effectiveness of Amendments. The amendments contained in this
Amendment shall become effective upon delivery of the following to the Lender:
3.1 This Amendment, duly executed by the Borrower and the Lender and
Supplement A, duly initialed by Borrower and Lender.
3.2 The Reaffirmation of Guaranty, substantially in the form of
Exhibit B attached hereto, duly executed by Michael Sheri.
3.3 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including payment
of all unpaid legal fees and expenses incurred by the Lender through the date
of this Amendment in connection with the Credit Agreement or this Amendment.
Section 4. Representations; No Default. The Borrower hereby represents
that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as of the date hereof
as though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they are true and correct as of such earlier date, and (b) there will
exist no Unmatured Event of Default or Event of Default on such date which has
not been waived by the Lender. The Borrower represents and warrants that the
Borrower has the power and legal right and authority to enter into this
Amendment and has duly authorized as appropriate the execution and delivery of
the Amendment and other agreements and documents executed and delivered by the
Borrower in connection herewith by proper corporate action, and neither the
Amendment nor the agreements contained herein contravene or constitute a
default under any agreement, instrument or indenture to which the Borrower is a
party or a signatory or any provision of the Borrower's Certificate of
Incorporation, Bylaws or, to the best of the Borrower's knowledge, any other
agreement or requirement of law. The Borrower represents and warrants that no
consent, approval or authorization of or registration or declaration with any
Person, including but not limited to any governmental authority, is required in
connection with the execution and delivery by the Borrower of the Amendment or
other agreements and documents executed and delivered by the Borrower in
connection therewith or the performance of obligations of the Borrower therein
described.
Section 5. Affirmation, Acknowledgement, Further References. The Lender
and the Borrower each acknowledge and affirm that the Credit Agreement,
as hereby amended, is hereby ratified and confirmed in all respects and all
terms, conditions and provisions of the Credit Agreement, except as amended by
this Amendment, shall remain unmodified and in full force and effect. The
Borrower acknowledges that this Amendment and all amendments to the Credit
Agreement are Loan Documents. All references in any document or instrument to
the Credit
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<PAGE> 80
Agreement are hereby amended and shall refer to the Credit Agreement as amended
by this Amendment.
Section 6. Merger and Integration, Superseding Effect. The Credit
Agreement, as amended by this Amendment, from and after the date hereof,
embodies the entire agreement and understanding between the parties hereto and
supersede and have merged into them all prior oral and written agreements on the
same subjects by and between the parties hereto with the effect that the Credit
Agreement, as amended by this Amendment, shall control with respect to the
specific subjects hereof and thereof.
Section 7. Legal Expenses. As provided in Section 12.2 of the Credit
Agreement, the Borrower agrees to reimburse the Lender, upon execution
of this Amendment, for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses of Dorsey & Whitney P.L.L.P, counsel for the
Lender) incurred in connection with the Credit Agreement, including in
connection with the negotiation or preparation of this Amendment and all other
documents negotiated and prepared in connection with this Amendment.
Section 8. Headings. The headings of various sections of this Amendment
have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 9. Counterpart. This Amendment may be executed in several
counterparts, all or any of which shall be regarded as one and the same
document and either party to such agreements may execute any such agreement by
executing a counterpart of such agreement.
Section 10. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to
conflict of law principles thereof, but giving effect to federal laws applicable
to national banks.
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<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: [SIG]
---------------------------------------
Title: CHAIRMAN OF THE BOARD
------------------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: /s/ William C. Phelps
---------------------------------------
Title: Vice President
------------------------------------
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<PAGE> 82
EXHIBIT A TO
THIRD AMENDMENT
SUPPLEMENT A
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF APRIL 8, 1994 BETWEEN
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
PRIMEGG, LTD. (THE "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as amended and
restated as of September 12, 1995, and as it may be further amended or modified
from time to time, is a part of the Credit and Security Agreement, dated as of
April 8, 1994, between the Borrower and the Lender (together with all
amendments, modifications and supplements thereto, the "Credit Agreement").
Capitalized terms used herein which are defined in the Credit Agreement shall
have the meanings given such terms in the Credit Agreement unless the context
otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit Amount"
shall mean the maximum amount of Revolving Loans which the Lender will
make available to the Borrower which amount shall not exceed SEVEN MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($7,500,000) (unless such amount is
increased by the Lender in its sole and absolute discretion); provided,
however, that the aggregate outstanding principal balance of the
Revolving Loans plus the Letter of Credit Obligations shall not exceed the
Revolving Credit Amount.
2.2 BORROWING BASE. The term "Borrowing Base" shall mean:
(a) an amount of up to 85% of the net amount (as determined
by the Lender after deduction of such reserves and allowances
as the Lender deems proper and necessary) of the Borrower's
Eligible Accounts Receivable; plus
(b) an amount of up to the lesser of (1) the sum of (A) 65% of
the net value (the lower of the cost, determined on a first in
first out basis, or market value of such Inventory, as
determined by the Lender after deduction of such reserves and
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Inventory which does not constitute
Eligible Committed Inventory, plus (B) 70% of the net value
(the cost, determined on a first in first out basis, of such
Committed Inventory, as determined by the Lender after
deduction of such reserves and
<PAGE> 83
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Committed Inventory, as determined by
the Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary of the Borrower's Eligible
Committed Inventory, plus (C) 35% of the net value (as determined
by the Lender) of the Borrower's Reconstituted Inventory; or
(2) $5,000,000.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit Sublimit"
shall mean $500,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean March
31, 1997.
3. INTEREST; FEES.
3.1 LOANS.
(a) REVOLVING LOANS. The unpaid principal balance of the
Revolving Loans (other than Overdraft Loans and Over
Advances) shall bear interest to maturity at the Reference Rate
in effect from time to time plus 1.50% per annum.
(b) TERM LOAN A. The unpaid principal balance of Term
Loan A shall bear interest to maturity at the Reference Rate in
effect from time to time plus 1.50% per annum; provided,
however, the Borrower may, upon five Business Days' prior
written notice to the Lender, request that Term Loan A be
converted from a Variable Rate Loan to a Fixed Rate Loan
whereupon the unpaid principal balance of Term Loan A shall
bear interest to the date of such conversion at the Reference
Rate in effect from time to time plus 1.50% per annum and
thereafter to maturity at the Fixed Rate plus 4.10% per annum.
(c) TERM LOAN B. The unpaid principal balance of Term
Loan B shall bear interest to maturity at the Reference Rate in
effect from time to time plus 1.50% per annum.
(d) DEFAULT RATE. If any amount of the Loans is not paid when
due, whether by acceleration or otherwise, the entire unpaid
principal balance of the Loans (other than Overdraft Loans and
Over Advances) shall bear interest until paid at a rate per
annum equal to the greater of (i) the Reference Rate from time
to time in effect plus 4% or (ii) 4% above the Reference Rate in
effect at the time such amount became due.
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<PAGE> 84
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over Advances
shall bear interest at the rate(s) determined pursuant to Section 2.7 or
Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a commitment
fee for the period from the date hereof to the date the Credit terminates
in an amount equal to three-eighths of one percent (3/8%) per annum on the
average daily Unused Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or any
Affiliate, a commission on the undrawn amount of each Letter of Credit and on
each L/C Draft accepted by the Lender, or such Affiliate, in an amount equal
to two percent (2%) per annum.
3.5 CREDIT TERMINATION FEE. Upon termination or cancellation of the
Credit by the Borrower prior to the Termination Date, the Borrower shall pay
to the Lender a termination fee in an amount equal to $100,000.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable
must not be unpaid on the date that is 61 days after the date of the invoice
evidencing such Account Receivable. If invoices representing 10% or more of
the unpaid amount of all Accounts Receivable from any one Account Debtor are
unpaid more than 60 days after the dates of such invoices, then all Accounts
Receivable relating to such Account Debtor shall cease to be Eligible Accounts
Receivable.
5. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:
5.1 CAPITAL BASE. During each of the periods set forth below, not
permit the Borrower's Capital Base to be less than the amount set forth
opposite such period at any time:
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<PAGE> 85
PERIOD CAPITAL BASE
March 31, 1995 through and
including October 30, 1995 $3,200,000
October 31, 1995 through and
including March 30, 1996 $3,300,000
March 31, 1996 to and
including October 30, 1996 $3,400,000
October 31, 1996 and thereafter $3,500,000
5.2 LEVERAGE RATIO. During each of the periods set forth below, not
permit the ratio of (a) the sum of (i) the Borrower's consolidated total
liabilities, less (ii) Adjusted Subordinated Debt, to (b) the Borrower's
Capital Base to be greater than the ratio set forth below opposite such period
at any time:
PERIOD LEVERAGE RATIO
March 31, 1995 through and
including October 30, 1995 4.2 to 1.0
October 31, 1995 through and
and including March 30, 1996 4.0 to 1.0
March 31, 1996 through and
including October 30, 1996 3.5 to 1.0
October 31, 1996 and thereafter 3.3 to 1.0
5.3 CAPITAL EXPENDITURES. Make Capital Expenditures in an amount
that on a consolidated basis exceeds $700,000 in any of fiscal years 1995,
1996 or 1997.
5.4 CASH FLOW COVERAGE RATIO. For the period commencing March 31,
1995 through and including the Termination Date, as of the last day of each
month for the period commencing on the first day of the Borrower's fiscal year
and ending on such date, permit the Borrower's Cash Flow Coverage Ratio to be
less than 1.0 to 1.0.
Borrower's Initials
---------------------------------
Lender's Initials
---------------------------------
Date: As of September 12, 1995
---------------------------------
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<PAGE> 86
FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") made and entered into as of November 17, 1995 is by and between
PRIMEGG, LTD., a Delaware corporation (the "Borrower"), and FBS BUSINESS
FINANCE CORPORATION, a Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994, as amended by a First Amendment to
Credit and Security Agreement dated as of July 18, 1994, a Second Amendment
to Credit and Security Agreement dated as of March 30, 1995 (the "Second
Amendment") and a Third Amendment to Credit and Security Agreement dated as
of September 12, 1995 (as so amended, the "Credit Agreement"); and
2. The Borrower and the Lender desire to amend certain provisions of
the Credit Agreement, subject to the terms and conditions set forth in this
Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby
covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 Restricted Payments. Section 6.8 of the Credit Agreement is
hereby amended in its entirety as follows:
6.8 RESTRICTED PAYMENTS. Purchase or redeem any shares of its
stock, declare or pay any dividends thereon (other than stock
dividends and dividends payable to the Borrower), make any
distribution to stockholders as such (other than the
Borrower) or set aside any funds for any such purpose, and
not prepay, purchase or redeem any subordinated Indebtedness
of the Borrower or any Subsidiary; provided, that,
subordinated Indebtedness in the amount of $200,000 loaned by
M. Shevi Family Asset Ltd. to the Borrower on or about
February 27, 1995
<PAGE> 87
may be repaid by the Borrower after December 31, 1995, so long
as no Unmatured Event of Default or Event of Default is
outstanding at the time of repayment or would occur upon such
repayment.
2.2 Additional Covenants. Section 5(a) of the Second Amendment
is deleted in its entirety.
2.3 Supplement A. Supplement A to the Credit Agreement is
amended and restated in its entirety in the form of Exhibit A hereto.
Section 3. Effectiveness of Amendments. The amendments contained in
this Amendment shall become effective upon delivery of the following to the
Lender:
3.1 This Amendment, duly executed by the Borrower and the
Lender and Supplement A, duly initialed by Borrower and Lender.
3.2 The Reaffirmation of Guaranty, substantially in the form
of Exhibit B attached hereto, duly executed by Michael Shevi.
3.3 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including
payment of all unpaid legal fees and expenses incurred by the Lender through
the date of this Amendment in connection with the Credit Agreement or this
Amendment.
Section 4. Defaults and Waivers. Upon the date on which this Amendment
becomes effective, the Lender hereby waives any Unmatured Events of Default
or Events of Default arising as a result of the failure of the Borrower to
comply with Section 5.4 (Cash Flow Coverage Ratio) of Supplement A to the
Credit Agreement as of August 31, 1995 and September 30, 1995 and waives any
Unmatured Event of Default or Event of Default arising as a result of the
failure of the Borrower to comply with Section 5(a) of the Second Amendment
with respect to Thomas Wiles to the extent of $300,000. The waivers set
forth herein shall not constitute a waiver by the Lender of any other
Unmatured Event of Default or Event of Default, if any, under the Credit
Agreement, and shall not be, and shall not be deemed to be, a course of
action with respect thereto upon which the Borrower may rely in the future
and the Borrower hereby expressly waives any claim to such effect.
Section 5. Representations; No Default. The Borrower hereby represents
that on and as of the date hereof and after giving effect to this Amendment
(a) all of the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as of the date
hereof as though made on and as of such date, except to the extent such
representations and warranties specifically
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<PAGE> 88
relate to an earlier date, in which case they are true and correct as of
such earlier date, and (b) there will exist no Unmatured Event of Default or
Event of Default on such date which has not been waived by the Lender. The
Borrower represents and warrants that the Borrower has the power and legal
right and authority to enter into this Amendment and has duly authorized as
appropriate the execution and delivery of the Amendment and other agreements
and documents executed and delivered by the Borrower in connection herewith
by proper corporate action, and neither the Amendment nor the agreements
contained herein contravene or constitute a default under any agreement,
instrument or indenture to which the Borrower is a party or a signatory or
any provision of the Borrower's Certificate of Incorporation, Bylaws or, to
the best of the Borrower's knowledge, any other agreement or requirement of
law. The Borrower represents and warrants that no consent, approval or
authorization of or registration or declaration with any Person, including
but not limited to any governmental authority, is required in connection
with the execution and delivery by the Borrower of the Amendment or other
agreements and documents executed and delivered by the Borrower in
connection therewith or the performance of obligations of the Borrower
therein described.
Section 6. Affirmation, Acknowledgement, Further References. The Lender
and the Borrower each acknowledge and affirm that the Credit Agreement, as
hereby amended, is hereby ratified and confirmed in all respects and all
terms, conditions and provisions of the Credit Agreement, except as amended
by this Amendment, shall remain unmodified and in full force and effect. The
Borrower acknowledges that this Amendment and all amendments to the Credit
Agreement are Loan Documents. All references in any document or instrument
to the Credit Agreement are hereby amended and shall refer to the Credit
Agreement as amended by this Amendment.
Section 7. Merger and Integration, Superseding Effect. The Credit
Agreement, as amended by this Amendment, from and after the date hereof,
embodies the entire agreement and understanding between the parties hereto
and supersede and have merged into them all prior oral and written
agreements on the same subjects by and between the parties hereto with the
effect that the Credit Agreement, as amended by this Amendment, shall
control with respect to the specific subjects hereof and thereof.
Section 8. Legal Expenses. As provided in Section 12.2 of the Credit
Agreement, the Borrower agrees to reimburse the Lender, upon execution of
this Amendment, for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses of Dorsey & Whitney P.L.L.P, counsel for
the Lender) incurred in connection with the Credit Agreement, including in
connection with the negotiation or preparation of this Amendment and all
other documents negotiated and prepared in connection with this Amendment.
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<PAGE> 89
Section 9. Headings. The headings of various sections of this Amendment
have been inserted for reference only and shall not be deemed to be a part
of this Amendment.
Section 10. Counterpart. This Amendment may be executed in several
counterparts, all or any of which shall be regarded as one and the same
document and either party to such agreements may execute any such agreement
by executing a counterpart of such agreement.
Section 11. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict
of law principles thereof, but giving effect to federal laws applicable to
national banks.
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<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: [SIG]
------------------------------
Title: Chairman
---------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: William C. Phelps
------------------------------
Title: Vice President
---------------------------
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<PAGE> 91
EXHIBIT A TO
FOURTH AMENDMENT
SUPPLEMENT A
to
CREDIT AND SECURITY AGREEMENT
Dated as of April 8,1994 Between
FBS BUSINESS FINANCE CORPORATION (the "Lender")
and
PRIMEGG, LTD. (the "Borrower")
1. Credit Agreement Reference. This Supplement A, as amended and
restated as of November 17, 1995, and as it may be further amended or
modified from time to time, is a part of the Credit and Security Agreement,
dated as of April 8, 1994, between the Borrower and the Lender (together
with all amendments, modifications and supplements thereto, the "Credit
Agreement"). Capitalized terms used herein which are defined in the Credit
Agreement shall have the meanings given such terms in the Credit Agreement
unless the context otherwise requires.
2. Definitions.
2.1 Revolving Credit Amount. The term "Revolving Credit
Amount" shall mean the maximum amount of Revolving Loans which the Lender
will make available to the Borrower which amount shall not exceed SEVEN
MILLION FIVE HUNDRED THOUSAND AND N01100 DOLLARS ($7,500,000) (unless such
amount is increased by the Lender in its sole and absolute discretion);
provided however that the aggregate outstanding principal balance of the
Revolving Loans plus the Letter of Credit Obligations shall not exceed the
Revolving Credit Amount.
2.2 Borrowing Base. The term "Borrowing Base" shall mean:
(a) an amount of up to 85% of the net amount (as determined by
the Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's
Eligible Accounts Receivable; plus
(b) an amount of up to the lesser of (1) the sum of (A) 65% of
the net value (the lower of the cost, determined on a first in
first out basis, or market value of such Inventory, as
determined by the Lender after deduction of such reserves and
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Inventory which does not constitute
Eligible Committed Inventory, plus (B) 70% of the net value
(the cost, determined on a first in first out basis, of such
Committed Inventory, as determined by the Lender after
deduction of such reserves and
<PAGE> 92
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Committed Inventory, as determined by the
Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary of the Borrower's Eligible
Committed Inventory, plus (C) 35% of the net value (as
determined by the Lender) of the Borrower's Reconstituted
Inventory; or (2) $5,000,000.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit Sublimit"
shall mean $500,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean
March 31, 1997.
2.5 FOURTH AMENDMENT. The term "Fourth Amendment" shall mean that
certain Fourth Amendment to Credit and Security Agreement dated as of
November 17, 1995, by and between the Lender and the Borrower.
2.6 FOURTH AMENDMENT EFFECTIVE DATE. The term "Fourth Amendment
Effective Date" shall mean the date on which the conditions to the effectiveness
of the Fourth Amendment set forth in Section 3 thereof shall have been
satisfied.
3. INTEREST; FEES.
3.1 LOANS.
(a) REVOLVING LOANS. The unpaid principal balance of the
Revolving Loans (other than Overdraft Loans and Over Advances)
shall bear interest to maturity at the Reference Rate in effect
from time to time plus 1.50% per annum.
(b) TERM LOAN A. The unpaid principal balance of Term Loan A
shall bear interest to maturity at the Reference Rate in effect
from time to time plus 1.50% per annum; provided, however, the
Borrower may, upon five Business Days' prior written notice to
the Lender, request that Term Loan A be converted from a
Variable Rate Loan to a Fixed Rate Loan whereupon the unpaid
principal balance of Term Loan A shall bear interest to the
date of such conversion at the Reference Rate in effect from
time to time plus 1.50% per annum and thereafter to maturity at
the Fixed Rate plus 4.10% per annum.
(c) TERM LOAN B. The unpaid principal balance of Term Loan B
shall bear interest to maturity at the Reference Rate in
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<PAGE> 93
effect from time to time plus 1.50% per annum.
(d) DEFAULT RATE. If any amount of the Loans is not paid when
due, whether by acceleration or otherwise, the entire unpaid
principal balance of the Loans (other than Overdraft Loans and
Over Advances) shall bear interest until paid at a rate per
annum equal to the greater of (i) the Reference Rate from time
to time in effect plus 4% or (ii) 4% above the Reference Rate
in effect at the time such amount became due.
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to Section
2.7 or Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the Credit
terminates in an amount equal to three-eighths of one percent (3/8%) per
annum on the average daily Unused Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or
any Affiliate, a commission on the undrawn amount of each Letter of Credit
and on each L/C Draft accepted by the Lender, or such Affiliate, in an
amount equal to two percent (2%) per annum.
3.5 CREDIT TERMINATION FEE. Upon termination or cancellation of
the Credit by the Borrower prior to the Termination Date, the Borrower shall
pay to the Lender a termination fee in an amount equal to $100,000.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. tHE aCCOUnt Receivable
must not be unpaid on the date that is 61 days after the date of the invoice
evidencing such Account Receivable. If invoices representing 10% or more of
the unpaid amount of all Accounts Receivable from any one Account Debtor are
unpaid more than 60 days after the dates of such invoices, then all Accounts
Receivable relating to such Account Debtor shall cease to be Eligible
Accounts Receivable.
5. ADDITIONAL NEGATIVE COVENANTS. From the date of the Credit
Agreement and thereafter until all of the Borrower's Obligations under the
Credit Agreement are paid in full, the Borrower agrees that, unless the
Lender shall otherwise consent in writing, it will not, and will not permit
any Subsidiary to, do any of the following:
5.1 CAPITAL BASE. During each of the periods set forth below, not
permit the Borrower's Capital Base to be less than the amount set forth
opposite such period at any time:
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<PAGE> 94
PERIOD CAPITAL BASE
March 31, 1995 through and
including October 30, 1995 $3,200,000
October 31, 1995 through and
including March 30, 1996 $3,300,000
March 31, 1996 to and including
October 30, 1996 $3,400,000
October 31, 1996 and thereafter $3,500,000
5.2 LEVERAGE RATIO. During each of the periods set forth below,
not permit the ratio of (a) the sum of (i) the Borrower's consolidated total
liabilities, less (ii) Adjusted Subordinated Debt, to (b) the Borrower's
Capital Base to be greater than the ratio set forth below opposite such
period at any time:
PERIOD LEVERAGE RATIO
March 31, 1995 through and
including October 30, 1995 4.2 to 1.0
October 31, 1995 through and
and including March 30, 1996 4.0 to 1.0
March 31, 1996 through and
including October 30, 1996 3.5 to 1.0
October 31, 1996 and thereafter 3.3 to 1.0
5.3 CAPITAL EXPENDITURES. Make Capital Expenditures in an amount
that on a consolidated basis exceeds $700,000 in any of fiscal years 1995,
1996 or 1997.
5.4 CASH Flow COVERAGE RATIO. For the period commencing October 1,
1995 through and including December 31, 1995, as of the last day of each
month for the period commencing on the first day of the Borrower's fiscal
year and ending on such date, permit the Borrower's Cash Flow Coverage Ratio
to be less than 0.90 to 1.0. For the period commencing January 1, 1996
through and including the Termination Date, as of the last day of each month
for the period commencing on the first day of the Borrower's fiscal year and
ending on such date, permit the Borrower's Cash Flow Coverage Ratio to be
less than 1.0 to 1.0.
6. ADDITIONAL AFFIRMATIVE COVENANTS.
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<PAGE> 95
6.1 LIFE INSURANCE. The Borrower will deliver to the Lender
on or before the Fourth Amendment Effective Date duly executed collateral
assignments of life insurance policies, in form and substance satisfactory
to the Lender, on the lives of Jon Luikart and Joseph Sczygiel,
respectively, in the aggregate amount of $800,000, together with the
original life insurance policies being so assigned.
Borrower's Initials
---------------------
Lender's Initials
-----------------------
Date: As of November 17, 1995
-----------------------
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<PAGE> 96
FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") made and entered into as of June 1, 1996 is by and between
PRIMEGG, LTD., a Delaware corporation (the "Borrower"), and FBS BUSINESS
FINANCE CORPORATION, a Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994, as amended by a First Amendment to
Credit and Security Agreement dated as of July 18, 1994, a Second Amendment
to Credit and Security Agreement dated as of March 30, 1995 (the "Second
Amendment"), a Third Amendment to Credit and Security Agreement dated as of
September 12, 1995 and a Fourth Amendment to Credit and Security Agreement
dated as of November 17, 1995 (as so amended, the "Credit Agreement"); and
2. The Borrower and the Lender desire to amend certain provisions of
the Credit Agreement, subject to the terms and conditions set forth in this
Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby
covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 Additional Definitions. Section 1.1 of the Credit Agreement is
hereby amended by inserting the following definitions in appropriate
alphabetical order:
"Equipment Credit Amount": The term "Equipment Credit
Agreement" shall have the meaning given such term in
Supplement A.
"Equipment Loan": The term "Equipment Loan" shall have
the meaning given such term in Section 2.1.3.
<PAGE> 97
"Equipment Loan Amortization Schedule": A schedule
substantially in the form of Exhibit B hereto delivered in
connection with an Equipment Loan and setting forth the
amortization schedule applicable to such Equipment Loan.
"Equipment Loan Availability": The term "Equipment Loan
Availability" shall mean, with respect to any given Equipment
Loan, the lesser of (a) the Equipment Credit Amount, minus
the aggregate amount of all Equipment Loans previously made
by the Lender and (b) 80% of the cost of the equipment
acquired with such Equipment Loan.
2.2 Amended Definitions. Section 1.1 of the Credit Agreement is
hereby further amended by deleting the definitions of "Capital Base",
"Loan", and "Term Loan(s)" in their entirety and substituting the following
therefor:
"Capital Base": At any determination date, the total of
(a) the sum of (i) all assets appearing on a consolidated
balance sheet of the Borrower at such date, prepared in
accordance with GAAP, after deducting all proper reserves
(including reserves for depreciation, obsolescence
and amortization), plus (ii) Subordinated Debt; minus (b)
all liabilities which in accordance with GAAP would be
included on the liability side of a consolidated balance
sheet.
"Loan": Any Revolving Loan made by the Lender to the
Borrower pursuant to Section 2.1.1 Term Loan A made by the
Lender to the Borrower pursuant to Section 2.1.2, any
Equipment Loan made by the Lender to the Borrower pursuant
to Section 2.1.3, and any other loan or advance made by the
Lender to the Borrower under or pursuant to this Agreement.
"Term Loan(s)": Individually or collectively, Term Loan
A and the Equipment Loans.
2.3 Deleted Definitions. Section 1.1 of the Credit Agreement is
hereby further amended by deleting the definitions of the terms "Adjusted
Subordinated Debt", "Collateral Letter of Credit Subordinated Debt", and
"Term Loan B".
2.4 Equipment Loans. Section 2.1.3 of the Credit Agreement is
deleted in its entirety and the following is substituted therefor:
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<PAGE> 98
2.1.3 Equipment Loans
(a) Subject to the terms and conditions of the Loan
Documents, and in reliance upon the warranties of the Borrower set
forth herein and in the other Loan Documents, the Lender agrees to
make such loans or advances (individually, an "Equipment Loan",
and collectively, the "Equipment Loans") to the Borrower as the
Borrower may from time to time request, up to but not in excess of
the Equipment Loan Availability.
(b) Unless otherwise required to be sooner paid pursuant to
this Agreement, the principal of each Equipment Loan shall mature
and be payable in accordance with the Equipment Loan Amortization
Schedule delivered by the Lender in connection with such Equipment
Loan, and a final installment in the outstanding principal balance
of such Equipment Loan on the Termination Date.
(c) During any period in which an Equipment Loan is a
Variable Rate Loan, the Borrower may, upon three Business Days.'
notice to the Lender, prepay the principal of such Equipment Loan
in whole or in part without premium. Any partial prepayment of
principal of an Equipment Loan shall be in a minimum amount of the
lesser of (i) the outstanding principal balance of such Equipment
Loan and (ii) $10,000 or an integral multiple thereof, and shall
be applied to the unpaid installments of such Equipment Loan in
the inverse order of their maturities. Any principal of an
Equipment Loan which is repaid may not be reborrowed.
(d) During any period in which an Equipment Loan is a Fixed
Rate Loan, the Borrower may, upon five Business Days' prior
written notice to the Lender, prepay the principal of such
Equipment Loan in whole or in part. Any partial prepayment of
principal of an Equipment Loan shall be in a minimum amount of the
lesser of (i) the outstanding principal balance of such Equipment
Loan and (ii) $10,000 or an integral multiple thereof, and shall
be applied to the unpaid installments of such Equipment Loan in
the inverse order of their maturities. If at the time of any
prepayment (whether voluntary or involuntary, including, without
limitation, any payment prior to the scheduled maturity following
acceleration of an Equipment Loan), the Interest Differential is
greater than zero, the Borrower shall pay to the Lender a
prepayment premium equal to the present value (determined in
accordance with standard financial
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<PAGE> 99
practice) of the product of (1) the Interest Differential, (2) the
amount prepaid, and (3) the Average Maturity Period. The amount of
the prepayment premium shall be calculated as follows: The amount
prepaid shall be multiplied by the product of (A) the Interest
Differential, and (B) a fraction, the numerator of which is the
number of days in the Average Maturity Period and the denominator
of which is 360. The resulting product shall then be divided by
the number of whole months (using a thirty day month) in the
Average Maturity Period, yielding a quotient (the "Quotient"). The
amount of the prepayment premium shall be the present value
(determined in accordance with standard financial practice) on the
date of prepayment (using Government Yield as of the date of such
prepayment as the discount factor) of a stream of equal monthly
payments in number equal to the number of whole months (using a
thirty day month) in the Average Maturity Period, with the amount
of each hypothetical monthly payment being equal to the Quotient
and with the first payment payable thirty days after the date of
prepayment.
(e) Any payment of an Equipment Loan may be made with the
proceeds of a Revolving Loan only if, immediately before and after
giving effect to such payment, no Event of Default or Unmatured
Event of Default then exists or would result therefrom.
2.5 Ownership. Section 7.1(o) of the Credit Agreement is deleted in
its entirety and the following is substituted therefor:
(o) OWNERSHIP. (i) The Guarantor shall cease to own at least
20% of the shares of all voting stock of the Borrower, except in
connection with the sale of such voting stock to Cham Foods in
connection with the acquisition by Cham Foods on or after July 1,
1996, of all of the shares of all voting stock of the Borrower,
and (ii) after the acquisition by Cham Foods of all of the shares
of all voting stock of the Borrower, Cham Foods shall cease to own
all of the shares of all voting stock of the Borrower.
2.6 Supplement A. Supplement A to the Credit Agreement is amended
and restated in its entirety in the form of Exhibit A hereto.
Section 3. Effectiveness of Amendments. The amendments contained in this
Amendment shall become effective as of June 1, 1996 upon delivery of the
following to the Lender:
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<PAGE> 100
3.1 This Amendment, duly executed by the Borrower and the Lender and
Supplement A, duly initialed by Borrower and Lender.
3.2 A copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Amendment,
certified as true and accurate by its Secretary or Assistant Secretary, along
with a certification by such Secretary or Assistant Secretary (i) certifying
that there has been no amendment to the Certificate of Incorporation or Bylaws
of the Borrower since true and accurate copies of the same were delivered to the
Lender with a certificate of the Secretary of the Borrower dated April 21, 1994;
and (ii) identifying each officer of the Borrower authorized to execute this
Amendment and any other instrument or agreement executed by the Borrower in
connection with this Amendment (collectively, the "Amendment Documents"), and
certifying as to specimens of such officer's signature and such officer's
incumbency in such offices as such officer holds.
3.3 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including payment
of all unpaid legal fees and expenses incurred by the Lender through the date of
this Amendment in connection with the Credit Agreement or this Amendment.
Section 4. Defaults and Waivers. Upon the date on which this Amendment becomes
effective, the Lender hereby waives any Unmatured Events of Default or Events of
Default arising as a result of the failure of the Borrower to comply with
Section 5.4 (Cash Flow Coverage Ratio) of Supplement A to the Credit Agreement
as of the end of each reporting period beginning December 31, 1995 and through
and including May 31, 1996. The waiver set forth herein shall not constitute a
waiver by the Lender of any other Unmatured Event of Default or Event of
Default, if any, under the Credit Agreement, and shall not be, and shall not be
deemed to be, a course of action with respect thereto upon which the Borrower
may rely in the future and the Borrower hereby expressly waives any claim to
such effect.
Section 5. Release. Upon receipt by the Lender of a certificate, duly executed
by each of Michael Shevi and Cham Foods, certifying as to the sale of the
Pledged Shares (as defined in the Guaranty and Pledge Agreement dated as of
April 10, 1995 (the "Guaranty") issued by Michael Shevi for the benefit of the
Lender) to Cham Foods, the Lender shall execute and deliver a Release,
substantially in the form of Exhibit C hereto, to Michael Shevi, together with
the Pledged Shares.
Section 6. Subordinated Debt. Upon the earlier of consummation of the sale of
Pledged Shares to Cham Foods or July 31, 1996, each existing Subordinated
Lender shall deliver to the Lender an executed affirmation in the form of
Exhibit D hereto, unless Cham Foods has acquired or replaced in full the
Subordinated Debt owed to such Subordinated Lenders. In the event that Cham
Foods acquires or replaces in whole or in part existing Subordinated Debt, Cham
Foods shall execute
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<PAGE> 101
and deliver to the Lender a subordination agreement in form and substance
acceptable to the Lender.
Section 7. Representations; No Default. The Borrower hereby represents that on
and as of the date hereof and after giving effect to this Amendment (a) all of
the representations and warranties contained in the Credit Agreement are true,
correct and complete in all respects as of the date hereof as though made on and
as of such date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they are true and correct
as of such earlier date, and (b) there will exist no Unmatured Event of Default
or Event of Default on such date which has not been waived by the Lender. The
Borrower represents and warrants that the Borrower has the power and legal right
and authority to enter into this Amendment and has duly authorized as
appropriate the execution and delivery of the Amendment and other agreements and
documents executed and delivered by the Borrower in connection herewith by
proper corporate action, and neither the Amendment nor the agreements contained
herein contravene or constitute a default under any agreement, instrument or
indenture to which the Borrower is a party or a signatory or any provision of
the Borrower's Certificate of Incorporation, Bylaws or, to the best of the
Borrower's knowledge, any other agreement or requirement of law. The Borrower
represents and warrants that no consent, approval or authorization of or
registration or declaration with any Person, including but not limited to any
governmental authority, is required in connection with the execution and
delivery by the Borrower of the Amendment or other agreements and documents
executed and delivered by the Borrower in connection therewith or the
performance of obligations of the Borrower therein described.
Section 8. Affirmation, Acknowledgement, Further References. The Lender and
the Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. The Borrower
acknowledges that this Amendment and all amendments to the Credit Agreement are
Loan Documents. All references in any document or instrument to the Credit
Agreement are hereby amended and shall refer to the Credit Agreement as amended
by this Amendment.
Section 9. Merger and Integration, Superseding Effect. The Credit Agreement,
as amended by this Amendment, and the other Loan Documents from and after the
date hereof, embody the entire agreement and understanding between the parties
hereto and supersede and have merged into them all prior oral and written
agreements on the same subjects by and between the parties hereto with the
effect that the Credit Agreement, as amended by this Amendment, shall control
with respect to the specific subjects hereof and thereof.
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<PAGE> 102
Section 10. Legal Expenses. As provided in Section 12.2 of the Credit
Agreement, the Borrower agrees to reimburse the Lender, upon execution of this
Amendment, for all reasonable out-of-pocket expenses (including attorneys' fees
and legal expenses of Dorsey & Whitney P.L.L.P, counsel for the Lender) incurred
in connection with the Credit Agreement, including in connection with the
negotiation or preparation of this Amendment and all other documents negotiated
and prepared in connection with this Amendment.
Section 11. Headings. The headings of various sections of this Amendment have
been inserted for reference only and shall not be deemed to be a part of this
Amendment.
Section 12. Counterpart. This Amendment may be executed in several
counterparts, all or any of which shall be regarded as one and the same document
and either party to such agreements may execute any such agreement by executing
a counterpart of such agreement.
Section 13. Governing Law. This Amendment shall be governed by the internal
laws of the State of Minnesota, without giving effect to conflict of law
principles thereof, but giving effect to federal laws applicable to national
banks.
[Remainder of page intentionally left blank]
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<PAGE> 103
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: Jon E. Luikart
-------------------------------
Title: President
----------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: William C. Phelps
-------------------------------
Title: Vice President
----------------------------
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<PAGE> 104
SUPPLEMENT A
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF APRIL 8, 1994 BETWEEN
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
PRIMEGG, LTD. (THE "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as amended and
restated as of June 1, 1996, and as it may be further amended or modified
from time to time, is a part of the Credit and Security Agreement, dated as
of April 8, 1994, between the Borrower and the Lender (together with all
amendments, modifications and supplements thereto, the "Credit Agreement").
Capitalized terms used herein which are defined in the Credit Agreement
shall have the meanings given such terms in the Credit Agreement unless the
context otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit Amount"
shall mean the maximum amount of Revolving Loans which the Lender will make
available to the Borrower which amount shall not exceed SEVEN MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($7,500,000)(unless such amount is
increased by the Lender in its sole and absolute discretion); provided,
however, that the aggregate outstanding principal balance of the Revolving
Loans plus the Letter of Credit Obligations shall not exceed the Revolving
Credit Amount.
2.2 BORROWING BASE. The term "Borrowing Base" shall mean:
(a) an amount of up to 85% of the net amount (as determined by
the Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's
Eligible Accounts Receivable; plus
(b) an amount of up to the lesser of (1) the sum of (A) 65% of
the net value (the lower of the cost, determined on a first in
first out basis, or market value of such Inventory, as
determined by the Lender after deduction of such reserves and
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Inventory which does not constitute
Eligible Committed Inventory, plus (B) 70% of the net value
(the cost, determined on a first in first out basis, of such
Committed Inventory, as determined by the Lender after
deduction of such reserves and allowances as the Lender deems
proper and necessary) of the Borrower's Eligible Committed
Inventory, as determined by the
<PAGE> 105
Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary of the Borrower's Eligible
Committed Inventory, plus (C) 35% of the net value (as
determined by the Lender) of the Borrower's Reconstituted
Inventory; or (2) $5,000,000.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit
Sublimit" shall mean $500,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean
June 30, 1998.
2.5 EQUIPMENT CREDIT AMOUNT. The term "Equipment Credit Amount"
shall mean the maximum amount of Equipment Loans which the Lender will make
available to the Borrower which amount shall not exceed ONE MILLION AND NO/100
DOLLARS ($1,000,000) (unless such amount is increased by the Lender in its sole
and absolute discretion).
3. INTEREST; FEES.
3.1 LOANS.
(a) REVOLVING LOANS. The unpaid principal balance of the
Revolving Loans (other than Overdraft Loans and Over
Advances) shall bear interest to maturity at the Reference
Rate in effect from time to time plus 0.75% per annum.
(b) TERM LOANS. The unpaid principal balance of each Term
Loan shall bear interest to maturity at the Reference Rate in
effect from time to time plus 0.75% per annum; provided,
however, the Borrower may, upon five Business Days' prior
written notice to the Lender, request that a Term Loan be
converted from a Variable Rate Loan to a Fixed Rate Loan
whereupon the unpaid principal balance of such Term Loan
shall bear interest to the date of such conversion at the
Reference Rate in effect from time to time plus 0.75% per
annum and thereafter to maturity at the Fixed Rate plus 3.35%
per annum.
(c) DEFAULT RATE. If any amount of the Loans is not paid when
due, whether by acceleration or otherwise, the entire unpaid
principal balance of the Loans (other than Overdraft Loans
and Over Advances) shall bear interest until paid at a rate
per annum equal to the greater of (i) the Reference Rate from
time to time in effect plus 4% or (ii) 4% above the Reference
Rate in effect at the time such amount became due.
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<PAGE> 106
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to Section 2.7
or Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the Credit
terminates in an amount equal to three-eighths of one percent (3/8%) per annum
on the average daily Unused Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or
any Affiliate, a commission on the undrawn amount of each Letter of Credit and
on each L/C Draft accepted by the Lender, or such Affiliate, in an amount equal
to two percent (2%) per annum.
3.5 CREDIT TERMINATION FEE. Upon termination or cancellation of
the Credit by the Borrower prior to the Termination Date, the Borrower shall pay
to the Lender a termination fee in an amount equal to (a) $100,000, if such
termination occurs at any time prior to March 31, 1997, or (b) $75,000 at any
time thereafter.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable
must not be unpaid on the date that is 61 days after the date of the invoice
evidencing such Account Receivable. If invoices representing 10% or more of the
unpaid amount of all Accounts Receivable from any one Account Debtor are unpaid
more than 60 days after the dates of such invoices, then all Accounts Receivable
relating to such Account Debtor shall cease to be Eligible Accounts Receivable.
5. ADDITIONAL NEGATIVE COVENANTS. From the date of the Credit
Agreement and thereafter until all of the Borrower's Obligations under the
Credit Agreement are paid in full, the Borrower agrees that, unless the Lender
shall otherwise consent in writing, it will not, and will not permit any
Subsidiary to, do any of the following:
5.1 CAPITAL BASE. During each of the periods set forth below, not
permit the Borrower's Capital Base to be less than the amount set forth opposite
such period at any time:
PERIOD CAPITAL BASE
June 1, 1996 through and
including June 30, 1996 $4,600,000
July 1, 1996 through and
including December 31, 1996 $4,700,000
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<PAGE> 107
January 1, 1997 to and
including December 31, 1997 $4,900,000
January 1, 1998 and thereafter $5,100,000
5.2 LEVERAGE RATIO. During each of the periods set forth below,
not permit the ratio of (a) the sum of (i) the Borrower's consolidated total
liabilities, less (ii) Subordinated Debt, to (b) the Borrower's Capital Base
to be greater than the ratio set forth below opposite such period at any
time:
PERIOD LEVERAGE RATIO
June 1, 1996 through and
including December 31, 1996 3.0 to 1.0
January 1, 1997 through and
including December 31, 1997 2.7 to 1.0
January 1, 1998 and thereafter 2.5 to 1.0
5.3 CAPITAL EXPENDITURES. During the calendar year set forth
below, make Capital Expenditures in such calendar year in an amount that on
a consolidated basis exceeds the amount set forth below opposite such
calendar year:
CALENDAR YEAR CAPITAL EXPENDITURES
1996 $1,300,000
1997 $ 500,000
1998 $ 600,000
5.4 CASH FLOW COVERAGE RATIO. During each of the periods set forth
below, as of the last day of each month occurring in such period for the
period commencing on January 1st of the year in which such month occurs and
ending on such date, permit the Borrower's Cash Flow Coverage Ratio to be
less than the ratio set forth below opposite such period:
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<PAGE> 108
CASH FLOW
PERIOD COVERAGE RATIO
June 1, 1996 through and
including August 31, 1996 .50 to 1.0
September 1, 1996 through and
including November 30, 1996 .65 to 1.0
December 1, 1996 through and
including December 31, 1996 .75 to 1.0
January 1, 1997 and thereafter 1.05 to 1.0
Borrower's Initials JL
----------------
Lender's Initials WP
----------------
Date: as of 6/1/96
----------------
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<PAGE> 109
SIXTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
(this "Amendment") made and entered into as of January 6, 1997 is by and
between PRIMEGG, LTD., a Delaware corporation (the "Borrower"), and FBS
BUSINESS FINANCE CORPORATION, a Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994, as amended by a First Amendment to
Credit and Security Agreement dated as of July 18, 1994, a Second Amendment
to Credit and Security Agreement dated as of March 30, 1995, a Third
Amendment to Credit and Security Agreement dated as of September 12, 1995, a
Fourth Amendment to Credit and Security Agreement dated as of November 17,
1995 and a Fifth Amendment to Credit and Security Agreement dated as of June
1, 1996 (as so amended, the "Credit Agreement"); and
2. The Borrower and the Lender desire to amend certain provisions of
the Credit Agreement, subject to the terms and conditions set forth in this
Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby
covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 Restricted Payments. Section 6.8 of the Credit Agreement is hereby
amended in its entirety as follows:
6.8 RESTRICTED PAYMENTS. Purchase or redeem any shares of its
stock, declare or pay any dividends thereon (other than stock
dividends and dividends payable to the Borrower), make any
distribution to stockholders as such (other than the
Borrower) or set aside any funds for any such purpose, and
not prepay, purchase or redeem any Subordinated Debt of the
Borrower or any Subsidiary; provided, that, an aggregate
amount of $800,000
<PAGE> 110
of Subordinated Debt may be repaid by the Borrower after
December 31, 1996, so long as no Unmatured Event of Default
or Event of Default is outstanding at the time of repayment
or would occur upon such repayment.
Section 3. Effectiveness of Amendments. The amendments contained in
this Amendment shall become effective as of January 6, 1997, upon delivery
of the following to the Lender:
3.1 This Amendment, duly executed by the Borrower and the Lender.
3.2 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including
payment of all unpaid legal fees and expenses incurred by the Lender through
the date of this Amendment in connection with the Credit Agreement or this
Amendment.
Section 4. Representations; No Default. The Borrower hereby represents that
on and as of the date hereof and after giving effect to this Amendment (a) all
of the representations and warranties contained in the Credit Agreement are
true, correct and complete in all respects as of the date hereof as though made
on and as of such date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they are true and correct
as of such earlier date, and (b) there will exist no Unmatured Event of Default
or Event of Default on such date which has not been waived by the Lender. The
Borrower represents and warrants that the Borrower has the power and legal right
and authority to enter into this Amendment and has duly authorized as
appropriate the execution and delivery of the Amendment and other agreements and
documents executed and delivered by the Borrower in connection herewith by
proper corporate action, and neither the Amendment nor the agreements contained
herein contravene or constitute a default under any agreement, instrument or
indenture to which the Borrower is a party or a signatory or any provision of
the Borrower's Certificate of Incorporation, Bylaws or, to the best of the
Borrower's knowledge, any other agreement or requirement of law. The Borrower
represents and warrants that no consent, approval or authorization of or
registration or declaration with any Person, including but not limited to any
governmental authority, is required in connection with the execution and
delivery by the Borrower of the Amendment or other agreements and documents
executed and delivered by the Borrower in connection therewith or the
performance of obligations of the Borrower therein described.
Section 5. Affirmation, Acknowledgement, Further References. The Lender and
the Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. The Borrower
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<PAGE> 111
acknowledges that this Amendment and all amendments to the Credit Agreement
are Loan Documents. All references in any document or instrument to the
Credit Agreement are hereby amended and shall refer to the Credit Agreement
as amended by this Amendment.
Section 6. Merger and Integration, Superseding Effect. The Credit
Agreement, as amended by this Amendment, and the other Loan Documents from
and after the date hereof, embody the entire agreement and understanding
between the parties hereto and supersede and have merged into them all prior
oral and written agreements on the same subjects by and between the parties
hereto with the effect that the Credit Agreement, as amended by this
Amendment, shall control with respect to the specific subjects hereof and
thereof.
Section 7. Legal Expenses. As provided in Section 12.2 of the Credit
Agreement, the Borrower agrees to reimburse the Lender, upon execution of
this Amendment, for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses of Dorsey & Whitney P.L.L.P, counsel for
the Lender) incurred in connection with the Credit Agreement, including in
connection with the negotiation or preparation of this Amendment and all
other documents negotiated and prepared in connection with this Amendment.
Section 8. Headings. The headings of various sections of this Amendment
have been inserted for reference only and shall not be deemed to be a part
of this Amendment.
Section 9. Counterpart. This Amendment may be executed in several
counterparts, all or any of which shall be regarded as one and the same
document and either party to such agreements may execute any such agreement
by executing a counterpart of such agreement.
Section 10. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict
of law principles thereof, but giving effect to federal laws applicable to
national banks.
[Remainder of page intentionally left blank]
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<PAGE> 112
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: Jon E. Luikart
-------------------------------
Title: President
----------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: William C. Phelps
-------------------------------
Title: Vice President
----------------------------
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<PAGE> 113
SEVENTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this
"Amendment") made and entered into as of May 30, 1997 is by and between
PRIMEGG, LTD., a Delaware corporation (the "Borrower"), and FBS BUSINESS
FINANCE CORPORATION, a Delaware corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Credit and Security
Agreement dated as of April 8, 1994, as amended by a First Amendment to
Credit and Security Agreement dated as of July 18, 1994, a Second Amendment
to Credit and Security Agreement dated as of March 30, 1995, a Third
Amendment to Credit and Security Agreement dated as of September 12, 1995, a
Fourth Amendment to Credit and Security Agreement dated as of November 17,
1995, a Fifth Amendment to Credit and Security Agreement dated as of June 1,
1996 and a Sixth Amendment to Credit and Security Agreement dated as of
January 6, 1997 (as so amended, the "Credit Agreement"); and
2. The Borrower and the Lender desire to amend certain provisions of
the Credit Agreement, subject to the terms and conditions set forth in this
Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby
covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 Additional Definitions. Section 1.1 of the Credit
Agreement is hereby amended by inserting the following definitions in
appropriate alphabetical order:
"Adjusted Eurodollar Rate:" With respect to each Interest
Period applicable to a Eurodollar Rate Loan, the rate (rounded
upward, if necessary, to the next one sixteenth of one percent)
determined by dividing the Eurodollar Rate for such Interest Period
by 1.00 minus the Eurodollar Reserve Percentage.
<PAGE> 114
"Applicable Margin: With respect to:
(a) Variable Rate Loans -- 0.25%
(b) Eurodollar Rate Loans -- 2.50%
(c) Term Rate Loans -- 2.60%
"Eurodollar Business Day": A Business Day which is also a day
for trading by and between banks in United States dollar deposits in
the interbank Eurodollar market and a day on which banks are open
for business in New York, New York.
"Eurodollar Rate": With respect to each Interest Period
applicable to a Eurodollar Rate Loan, the average offered rate for
deposits in United States dollars (rounded upward, if necessary, to
the nearest one sixteenth of one percent) for delivery of such
deposits on the first day of such Interest Period, for the number of
months in such Interest Period, which appears on the Reuters Screen
LIBO pages as of 11:00 a.m., London time (or such other time as of
which such rate appears) two Eurodollar Business Days prior to the
first day of such Interest Period, or the rate for such deposits
determined by the Lender at such time based on such other published
service of general application as shall be selected by the Lender
for such purpose; provided, that in lieu of determining the rate in
the foregoing manner, the Lender may determine the rate based on
rates at which United States dollar deposits are offered to the
Lender in the interbank Eurodollar market at such time for delivery
in Immediately Available Funds on the first day of such Interest
Period in an amount approximately equal to the Loan to which such
Interest Period is to apply (rounded upward, if necessary, to the
nearest one sixteenth of one percent). "Reuters Screen LIBO page"
means the display designated as page "LIBO" on the Reuters Monitor
Money Rate Screen (or such other page as may replace the LIBO page
on such service for the purpose of displaying London interbank
offered rates of major banks for United States dollar deposits).
"Eurodollar Rate Loan": A Loan with respect to which the
interest rate is determined by reference to the Adjusted Eurodollar
Rate.
"Eurodollar Reserve Percentage": As of any day, that
percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board for determining the maximum reserve
requirement (including any basic, supplemental or emergency
reserves) for a member bank of the Federal Reserve System, with
deposits comparable in amount to those held by the Lender and its
corporate parent, in respect of "Eurocurrency Liabilities" as such
term is defined in Regulation D of the Board. The rate of interest
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<PAGE> 115
applicable to any outstanding Eurodollar Rate Loans shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Interest Period": With respect to each Eurodollar Rate Loan, the
period commencing on the date of such Loan or on the last day of the
immediately preceding Interest Period and ending one, two, three, six or
twelve months thereafter, as the Borrower may elect in the applicable notice
of borrowing, continuation or conversion; provided, that:
(a) Any Interest Period applicable to a Eurodollar Rate Loan that
would otherwise end on a day which is not a Eurodollar Business Day shall be
extended to the next succeeding Eurodollar Business Day unless such
Eurodollar Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar Business Day;
(b) Any Interest Period applicable to a Eurodollar Rate Loan that
begin on the last Eurodollar Business Day of a calendar month (or a day for
which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Eurodollar Business Day
of a calendar month;
(c) No Interest Period may end after the Termination Date, and no
Interest Period applicable to a Term Loan may end after the scheduled
maturity of such Term Loan; and
(d) Interest Periods shall be selected so that the installment
payments on the Term Loans can be paid without having to pay a Eurodollar
Rate Loan prior to the last day of the Interest Period applicable thereto.
"Loan Date": The Business Day on which a Loan is to be made, and
which, in the case of a Loan to be made as in a Eurodollar Rate Loan, shall
be a Eurodollar Business Day.
"Make-Whole Amount": In connection with any prepayment of or failure
to borrow any Eurodollar Rate Loan, the excess, if any, of (i) the aggregate
present value as of the date of such prepayment or failure to borrow of each
dollar of principal of such Eurodollar Rate Loan being prepaid or not being
borrowed and the amount of interest (exclusive of interest accrued to the
date of prepayment) that would have been payable in respect of such
Eurodollar Rate Loan if such prepayment had not been made or if such Loan
had been borrowed, determined by discounting such amounts at the
Reinvestment Rate from the respective dates on which they would have been
payable, over (ii) 100% of the principal amount of the Eurodollar Rate Loan
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<PAGE> 116
being prepaid or not being borrowed. For purposes of any determination of
the Make-Whole Amount:
"Reinvestment Rate" shall mean with respect to any Loan
prepaid or not borrowed, the sum of (i) the Adjusted Eurodollar Rate
that would apply to a new Loan made on the date of prepayment or
failure to borrow in an amount equal to the amount prepaid or not
borrowed and having an Interest Period equal to the Weighted Average
Life to Maturity of the Loan prepaid or not borrowed, and (ii) the
Applicable Margin applicable to the Loan prepaid or not borrowed. If
no quote of the Eurodollar Rate, as applicable, is available for the
exact Weighted Average Life to Maturity, the applicable rate for the
two available maturities most closely corresponding to such Weighted
Average Life to Maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight line
basis.
"Weighted Average Life to Maturity: of the principal amount of
the Loan being prepaid or not being borrowed shall mean, as of the
time of any determination thereof, the number of years obtained by
dividing the then Remaining Dollar-Years of such Loan by the aggregate
amount of such principal.
"Remaining Dollar-Years" of any Loan shall mean the amount
obtained by (i) multiplying (x) the remainder of (1) the amount of
such Loan that would have become due, or which respect to which the
Interest Period would have ended, on each scheduled date therefor if
such prepayment had not been made or if such amount had been borrowed,
less (2) the amount of such Loan scheduled to become due, or with
respect to which the Interest Period was scheduled to end, on each
such date after giving effect to such prepayment and the application
thereof in accordance with the provisions of Section 2.10, by (y) the
number of years (calculated to the nearest one-twelfth) which will
elapse between the date of determination and each such scheduled date,
and (ii) totalling the products obtained in (i).
"Regulatory Change": Any change after May 31, 1997, in federal, state
or foreign laws or regulations or the adoption or making after such date of
any interpretations, directives or requests applying to a class of banks
including the Lender's corporate parent under any federal, state or foreign
laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
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<PAGE> 117
2.2 Amended Definitions. Section 1.1 of the Credit Agreement is
hereby further amended by deleting the definition of "Equipment Credit Amount"
in its entirety and substituting the following therefor:
"Equipment Credit Amount": The term "Equipment Credit Amount" shall
have the meaning given such term in Supplement A.
2.3 Revolving Loans. Section 2.1.1(a) of the Credit Agreement is
hereby amended in its entirety as follows:
(a) Subject to the terms and conditions of the Loan
Documents, and in reliance upon the warranties of the Borrower set
forth herein and in the other Loan Documents, the Lender agrees to
make such loans or advances (individually, a "Revolving Loan" and
collectively, the "Revolving Loans") to the Borrower as the Borrower
may from time to time request up to but not in excess of the Revolving
Loan Availability. Subject to Section 2.16, Revolving Loans made by
the Lender may be repaid and, subject to the terms and conditions
hereof, reborrowed to the Termination Date unless the Credit extended
under this Agreement is otherwise terminated as provided in this
Agreement.
2.4 Term Loan A - Eurodollar Loans. Section 2.1.2 of the Credit
Agreement is hereby amended by adding the following new section (f) to the end
thereof:
(f) During any period in which Term Loan A is a Eurodollar
Rate Loan, the Borrower may, subject to Section 2.16, upon three
Business Days' prior written notice to the Lender, prepay the
principal of Term Loan A in whole or in part. Any partial prepayment
of principal of Term Loan A shall be in a minimum amount of the lesser
of (i) the outstanding principal balance of Term Loan A and (ii)
$10,000 or an integral multiple thereof, and shall be applied to the
unpaid installments of Term Loan A in the inverse order of their
maturities. Any principal of Term Loan A which is repaid may not be
reborrowed.
2.5 Equipment Loans - Variable Rate Loans. Section 2.1.3(c) is
hereby amended in its entirety as follows:
(c) During any period in which an Equipment Loan is a
Variable Rate Loan, the Borrower may, upon three Business Days' notice
to the Lender, prepay the principal of such Equipment Loan in whole or
in part without premium. Any partial prepayment of principal of an
Equipment Loan shall be in a minimum amount of the lesser of (i) the
outstanding principal balance of such Equipment Loan
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and (ii) $10,000 or an integral multiple thereof, and shall be applied
to the unpaid installments of such Equipment Loan in the inverse order
of their maturities. Any principal of an Equipment Loan which is
repaid may not be reborrowed.
2.6 Equipment Loans - Eurodollar Rate Loans; Requests. Section
2.1.3 is hereby further amended by adding the following new section to the end
thereof:
(f) During any period in which an Equipment Loan is a
Eurodollar Rate Loan, the Borrower may, subject to Section 2.16
hereof, upon five Business Days' notice to the Lender, prepay the
principal of such Equipment Loan in whole or in part. Any partial
prepayment of principal of an Equipment Loan shall be in a minimum
amount of the lesser of (i) the outstanding principal balance of such
Equipment Loan and (ii) $10,000 or an integral multiple thereof, and
shall be applied to the unpaid installments of such Equipment Loan in
the inverse order of their maturities. Any principal of an Equipment
Loan which is repaid may not be reborrowed.
(g) Any request by the Borrower for an Equipment Loan
hereunder shall be in writing, or by telephone promptly confirmed in
writing and must be given so as to be received by the Lender not later
than 2:00 p.m. (Minneapolis time) two Eurodollar Business Days prior
to the requested Loan Date if an Equipment Loan is requested as a
Eurodollar Rate Loan, not later than 11:00 a.m. (Minneapolis time) on
the requested Loan Date if an Equipment Loan is requested as a
Variable Rate Loan and not later than 11:00 a.m. (Minneapolis time)
two Business Days prior to the requested Loan Date, if an Equipment
Loan is requested as a Fixed Rate Loan. Each request for an Equipment
Loan hereunder shall be irrevocable and shall be deemed a
representation by the Borrower that on the requested Loan Date and
after giving effect to the requested Equipment Loan, the applicable
conditions specified in Article IX have been and will be satisfied.
Each request for an Equipment Loan hereunder shall specify (i) the
requested Loan Date, (ii) the amount of the Equipment Loan to be made
on such date which, in the case of an Equipment Loan made as a
Eurodollar Rate Loan, shall be in a minimum amount of $100,000, (iii)
whether such Equipment Loan is to be funded as a Variable Rate Loan, a
Eurodollar Rate Loan or a Fixed Rate Loan and (iv) in the case of a
Eurodollar Rate Loan, the initial Interest Period applicable thereto.
Without in any way limiting the Borrower's obligation to confirm in
writing any telephone request for an Equipment Loan hereunder, the
Lender may rely on any such request which it believes in good faith to
be genuine; and the Borrower hereby waives the right to dispute the
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Lender's record of the terms of such telephone request. The Borrower's
failure to confirm any telephonic notice or otherwise comply with the
provisions of this Section 2.1.3(g) shall not in any manner affect the
obligation of the Borrower to repay such Equipment Loan in accordance
with the terms of this Agreement.
2.7 Requests for Revolving Loans. Section 2.5(a) of the Credit
Agreement is hereby amended in its entirety as follows:
(a) Procedure for Revolving Loans. Any request by the Borrower for a
Revolving Loan hereunder shall be in writing, or by telephone promptly
confirmed in writing and must be given so as to be received by the Lender
not later than 2:00 p.m. (Minneapolis time) two Eurodollar Business Days
prior to the requested Loan Date if a Revolving Loan is requested as a
Eurodollar Rate Loan, and not later than 11:00 a.m. (Minneapolis time) on
the requested Loan Date if a Revolving Loan is requested as a Variable Rate
Loan. Each request for a Revolving Loan hereunder shall be irrevocable and
shall be deemed a representation by the Borrower that on the requested Loan
Date and after giving effect to the requested Revolving Loan, the
applicable conditions specified in Article IX have been and will be
satisfied. Each request for a Revolving Loan hereunder shall specify (i)
the requested Loan Date, (ii) the aggregate amount of the Revolving Loan to
be made on such date which, in the case of a Revolving Loan made as a
Eurodollar Rate Loan, shall be in a minimum amount of $100,000, (iii)
whether such Revolving Loan is to be funded as a Variable Rate Loan or
Eurodollar Rate Loan and (iv) in the case of a Revolving Loan to be funded
as a Eurodollar Rate Loan, the initial Interest Period applicable thereto.
Without in any way limiting the Borrowers' obligation to confirm in writing
any telephone request for a Revolving Loan hereunder, the Lender may rely
on any such request which it believes in good faith to be genuine; and the
Borrower hereby waives the right to dispute the Lender's record of the
terms of such telephone request. The Borrower's failure to confirm any such
telephonic notice or otherwise comply with the provisions of this Section
2.5(a) shall not in any manner affect the obligation of the Borrower to
repay such Revolving Loan in accordance with the terms of this Agreement.
2.8 Additional Eurodollar Provisions. Article II of the Credit
Agreement is hereby further amended by adding the following sections to the end
thereof:
2.12 INTEREST RATE NOT ASCERTAINABLE, ETC. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the
Interest Period for any Eurodollar Rate Loan, the Lender determines (which
determination shall be conclusive and binding, absent manifest error) that:
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(a) deposits in dollars (in the applicable amount) are not being
made available to the Lender or to its corporate parent in the
relevant market for such Interest Period, or
(b) the Adjusted Eurodollar Rate will not adequately and
fairly reflect the cost to the Lender or to its corporate parent of
funding or maintaining Eurodollar Rate Loans for such Interest Period,
the Lender shall forthwith give notice to the Borrower of such determination,
whereupon the obligation of the Lender to make or continue, or to convert any
Loans to Eurodollar Rate Loans shall be suspended until the Lender notifies the
Borrower that the circumstances giving rise to such suspension no longer exist.
While any such suspension continues, all further Loans by the Lender requested
as Eurodollar Rate Loans shall be made as Variable Rate Loans. No such
suspension shall affect the interest rate then in effect during the applicable
Interest Period for any Eurodollar Rate Loan outstanding at the time such
suspension is imposed.
2.13 INCREASED COST. If any Regulatory Change:
(a) shall subject the Lender or its corporate parent to any
tax, duty or other charge with respect to its Eurodollar Rate Loans,
its Notes, or its obligation to make Eurodollar Rate Loans, or shall
change the basis of taxation of payment to the Lender of the principal
of or interest on its Eurodollar Rate Loans, or any other amounts due
under this Agreement in respect of its Eurodollar Rate Loans, or its
obligation to make Eurodollar Rate Loans (except for changes in the
rate of tax on the overall net income of the Lender imposed by the
jurisdiction in which the Lender is located); or
(b) shall impose, modify or deem applicable any reserve,
special deposit, capital requirement or similar requirement
(including, without limitation, any such requirement imposed by the
Board, but excluding with respect to any Eurodollar Rate Loan any such
requirement to the extent included in calculating the applicable
Adjusted Eurodollar Rate) against assets of, deposits with or for the
account of, or credit extended by, or shall impose on or on the
interbank eurodollar market, any other condition affecting its
Eurodollar Rate Loans, the Notes or its obligation to make Eurodollar
Rate Loans; and the result of any of the foregoing is to increase the
cost to the Lender or its corporate parent of making or maintaining
any Eurodollar Rate Loan, or to reduce the amount of any sum received
or receivable by the Lender under this Agreement or under the Notes,
then, within 30 days after demand by the Lender, the Borrower shall
pay to the Lender such additional amount or amounts as will
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compensate the Lender for such increased cost or reduction. The Lender
will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle the
Lender to compensation pursuant to this Section 2.13; provided, that
the failure by the Lender to provide such notice shall not in any way
limit the Lender's right to receive compensation under this Section
2.13. A certificate of the Lender claiming compensation under this
Section 2.13, setting forth the additional amount or amounts to be
paid to it hereunder and stating in reasonable detail the basis for
the charge and the method of computation, shall be conclusive in the
absence of manifest error. In determining such amount, the Lender may
use any reasonable averaging and attribution methods. Failure on the
part of the Lender to demand compensation for any increased costs or
reduction in amounts received or receivable with respect to any
Interest Period shall not constitute a waiver of such Bank's rights to
demand compensation for any increased costs or reduction in amounts
received or receivable in any subsequent Interest Period.
2.14 ILLEGALITY. If any Regulatory Change shall make it unlawful or
impossible for the Lender to make, maintain or fund any Eurodollar Rate
Loans, the Lender shall notify the Borrower, whereupon the obligation of
the Lender to make or continue, or to convert any Loans to, Eurodollar Rate
Loans shall be suspended until the Lender notifies the Borrower that the
circumstances giving rise to such suspension no longer exist. If the Lender
determines that it may not lawfully continue to maintain any Eurodollar
Rate Loans to the end of the applicable Interest Periods, all of the
affected Loans shall be automatically converted to Variable Rate Loans as
of the date of the Lender's notice, and upon such conversion the Borrower
shall indemnify the Lender in accordance with Section 2.16.
2.15 CAPITAL ADEQUACY. In the event that any Regulatory Change reduces
or shall have the effect of reducing the rate of return on the Lender's
capital or the capital of its corporate parent (by an amount the Lender
deems material) as a consequence of Commitments and/or the Loans to a level
below that which the Lender or its corporate parent could have achieved but
for such Regulatory Change (taking into account the Lender's policies and
the policies of its corporate parent with respect to capital adequacy),
then the Borrower shall, within ten days after written notice and demand
from the Lender, pay to the Lender additional amounts sufficient to
compensate the Lender and its corporate parent for such reduction. Any
determination by the Lender under this Section and any certificate as to
the amount of such reduction given to the Borrower by the Lender shall be
final, conclusive and binding for all purposes, absent manifest error.
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2.16 FUNDING LOSSES. The Borrower shall pay the Lender the
Make-Whole Amount with respect to any Eurodollar Rate Loan: (i) if for any
reason, other than a default by the Lender, a funding of a Eurodollar
Rate Loan does not occur on the date specified therefor in the Borrower's
request or notice as to such Loan under Section 2.1.3(g) or 2.5(a), or
(ii) if, for whatever reason (including, but not limited to, acceleration
of the maturity of the Obligations following an Event of Default), any
repayment of a Eurodollar Rate Loan, or a conversion pursuant to Section
2.14, occurs on any day other than the last day of the Interest Period
applicable thereto. The Lender's request for compensation shall set forth
the calculation of the Make-Whole Amount and shall be final, conclusive and
binding, absent manifest error.
2.17 DISCRETION OF LENDERS AS TO MANNER OF FUNDING. The Lender shall
be entitled to fund and maintain its funding of Eurodollar Rate Loans in
any manner it may elect, it being understood, however, that for the
purposes of this Agreement all determinations hereunder (including, but not
limited to, determinations under Section 2.16) shall be made as if the
Lender had actually funded and maintained each Eurodollar Rate Loan during
the Interest Period for such Loan through the purchase of deposits having a
maturity corresponding to the last day of the Interest Period and bearing
an interest rate equal to the Eurodollar Rate for such Interest Period.
2.9 Supplement A. Supplement A to the Credit Agreement is amended
and restated in its entirety in the form of Exhibit A hereto.
Section 3. Effectiveness of Amendments. The amendments contained in this
Amendment shall become effective upon delivery of the following to the Lender:
3.1 This Amendment, duly executed by the Borrower and the Lender
and Supplement A, duly initialed by Borrower and Lender.
3.2 A copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Amendment,
certified as true and accurate by its Secretary or Assistant Secretary, along
with a certification by such Secretary or Assistant Secretary (i) certifying
that there has been no amendment to the Certificate of Incorporation or Bylaws
of the Borrower since true and accurate copies of the same were delivered to the
Lender with a certificate of the Secretary of the Borrower dated April 21, 1994;
and (ii) identifying each officer of the Borrower authorized to execute this
Amendment and any other instrument or agreement executed by the Borrower in
connection with this Amendment (collectively, the "Amendment Documents"), and
certifying as to specimens of such officer's signature and such officer's
incumbency in such offices as such officer holds.
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3.3 The Borrower shall have satisfied such other conditions as
reasonably specified by the Lender or counsel to the Lender, including payment
of all unpaid legal fees and expenses incurred by the Lender through the date of
this Amendment in connection with the Credit Agreement or this Amendment.
Section 4. Defaults and Waivers. Upon the date on which this Amendment
becomes effective, the Lender hereby waives any Unmatured Events of Default or
Events of Default arising as a result of the failure of the Borrower to comply
with Section 5.4 (Cash Flow Coverage Ratio) of Supplement A to the Credit
Agreement as of the end of the reporting period ending January 31, 1997. The
waiver set forth herein shall not constitute a waiver by the Lender of any other
Unmatured Event of Default or Event of Default, if any, under the Credit
Agreement, and shall not be, and shall not be deemed to be, a course of action
with respect thereto upon which the Borrower may rely in the future and the
Borrower hereby expressly waives any claim to such effect.
Section 5. Representations; No Default. The Borrower hereby represents
that on and as of the date hereof and after giving effect to this Amendment (a)
all of the representations and warranties contained in the Credit Agreement are
true, correct and complete in all respects as of the date hereof as though made
on and as of such date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they are true and correct
as of such earlier date, and (b) there will exist no Unmatured Event of Default
or Event of Default on such date which has not been waived by the Lender. The
Borrower represents and warrants that the Borrower has the power and legal right
and authority to enter into this Amendment and has duly authorized as
appropriate the execution and delivery of the Amendment and other agreements and
documents executed and delivered by the Borrower in connection herewith by
proper corporate action, and neither the Amendment nor the agreements contained
herein contravene or constitute a default under any agreement, instrument or
indenture to which the Borrower is a party or a signatory or any provision of
the Borrower's Certificate of Incorporation, Bylaws or, to the best of the
Borrower's knowledge, any other agreement or requirement of law. The Borrower
represents and warrants that no consent, approval or authorization of or
registration or declaration with any Person, including but not limited to any
governmental authority, is required in connection with the execution and
delivery by the Borrower of the Amendment or other agreements and documents
executed and delivered by the Borrower in connection therewith or the
performance of obligations of the Borrower therein described.
Section 6. Affirmation, Acknowledgement, Further References. The Lender
and the Borrower each acknowledge and affirm that the Credit Agreement, as
hereby amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. The Borrower
acknowledges that this Amendment and all amendments to the Credit Agreement
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are Loan Documents. All references in any document or instrument to the Credit
Agreement are hereby amended and shall refer to the Credit Agreement as amended
by this Amendment.
Section 7. Merger and Integration, Superseding Effect. The Credit
Agreement, as amended by this Amendment, and the other Loan Documents from and
after the date hereof, embody the entire agreement and understanding between the
parties hereto and supersede and have merged into them all prior oral and
written agreements on the same subjects by and between the parties hereto with
the effect that the Credit Agreement, as amended by this Amendment, shall
control with respect to the specific subjects hereof and thereof.
Section 8. Legal Expenses. As provided in Section 12.2 of the Credit
Agreement, the Borrower agrees to reimburse the Lender, upon execution of this
Amendment, for all reasonable out-of-pocket expenses (including attorneys' fees
and legal expenses of Dorsey & Whitney LLP, counsel for the Lender) incurred in
connection with the Credit Agreement, including in connection with the
negotiation or preparation of this Amendment and all other documents negotiated
and prepared in connection with this Amendment.
Section 9. Headings. The headings of various sections of this Amendment
have been inserted for reference only and shall not be deemed to be a part of
this Amendment.
Section 10. Counterpart. This Amendment may be executed in several
counterparts, all or any of which shall be regarded as one and the same document
and either party to such agreements may execute any such agreement by executing
a counterpart of such agreement.
Section 11. Governing Law. This Amendment shall be governed by the
internal laws of the State of Minnesota, without giving effect to conflict of
law principles thereof, but giving effect to federal laws applicable to national
banks.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: PRIMEGG, LTD.
By: Jon E. Luikart
----------------------------------
Title: President
-------------------------------
LENDER: FBS BUSINESS FINANCE CORPORATION
By: Kim Leppanen
----------------------------------
Title: Assistant Vice President
-------------------------------
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EXHIBIT A TO
SEVENTH AMENDMENT
SUPPLEMENT A
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF APRIL 8,1994 BETWEEN
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
PRIMEGG, LTD. (THE "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as amended and restated
as of May 30, 1997, and as it may be further amended or modified from time to
time, is a part of the Credit and Security Agreement, dated as of April 8, 1994,
between the Borrower and the Lender (together with all amendments, modifications
and supplements thereto, the "Credit Agreement"). Capitalized terms used herein
which are defined in the Credit Agreement shall have the meanings given such
terms in the Credit Agreement unless the context otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit Amount"
shall mean the maximum amount of Revolving Loans which the Lender will make
available to the Borrower which amount shall not exceed FIVE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($5,500,000) (unless such amount is
increased by the Lender in its sole and absolute discretion); provided, however,
that the aggregate outstanding principal balance of the Revolving Loans plus the
Letter of Credit Obligations shall not exceed the Revolving Credit Amount.
2.2 BORROWING BASE. The term "Borrowing Base" shall mean:
(a) an amount of up to 85% of the net amount (as determined by
the Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's
Eligible Accounts Receivable; plus
(b) an amount of up to the lesser of (1) the sum of (A) 65% of
the net value (the lower of the cost, determined on a first in
first out basis, or market value of such Inventory, as
determined by the Lender after deduction of such reserves and
allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Inventory which does not constitute Eligible
Committed Inventory, plus (B) 70% of the net value (the cost,
determined on a first in first out basis, of such Committed
Inventory, as determined by the Lender after deduction of such
reserves and
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allowances as the Lender deems proper and necessary) of the
Borrower's Eligible Committed Inventory, as determined by the
Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary of the Borrower's Eligible
Committed Inventory, plus (C) 35% of the net value (as determined
by the Lender) of the Borrower's Reconstituted Inventory; or (2)
$4,000,000.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit Sublimit"
shall mean $500,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean June
30, 2000.
2.5 EQUIPMENT CREDIT AMOUNT. The term "Equipment Credit Amount"
shall mean the maximum amount of Equipment Loans which the Lender will make
available to the Borrower which amount shall not exceed ONE MILLION AND NO/100
DOLLARS ($1,000,000) (unless such amount is increased by the Lender in its sole
and absolute discretion).
3. INTEREST; FEES.
3.1 LOANS.
(a) VARIABLE RATE LOANS. The unpaid principal balance of the
Variable Rate Loans (other than Overdraft Loans and Over
Advances) shall bear interest to maturity at the Reference Rate
in effect from time to time plus the Applicable Margin.
(b) EURODOLLAR RATE LOANS. The unpaid principal balance of each
Eurodollar Rate Loan shall bear interest during the Interest
Period applicable to such Eurodollar Rate Loan at the Adjusted
Eurodollar Rate applicable to such Interest Period plus the
Applicable Margin.
(c) FIXED RATE LOANS. The unpaid principal balance of each Term
Loan converted to a Fixed Rate Loan pursuant to Section 3.2 of
this Supplement A shall bear interest to maturity at the Fixed
Rate applicable as of the date of such conversion, plus the
Applicable Margin.
(d) DEFAULT RATE. If any amount of the Loans is not paid when
due, whether by acceleration or otherwise, the entire unpaid
principal balance of the Loans (other than Overdraft Loans and
Over Advances) shall bear interest until paid at a rate per
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annum equal to the greater of (i) the Reference Rate from time to time
in effect plus 4% or (ii) 4% above the Reference Rate in effect at the
time such amount became due.
3.2 CONVERSIONS AND CONTINUATIONS.
(a) REVOLVING LOANS. On the terms and subject to the limitations
hereof, the Borrower shall have the option at any time and from time
to time to convert all or any portion of the Revolving Loans into a
Variable Rate Loan or Eurodollar Rate Loan, or to continue a
Eurodollar Rate Loan as such; provided, however, that a Eurodollar
Rate Loan may be converted or continued only on the last day of the
Interest Period applicable thereto and no Revolving Loan may be
converted to or continued as a Eurodollar Rate Loan if an Unmatured
Event of Default or Event of Default has occurred and is continuing on
the proposed date of continuation or conversion. Revolving Loans may
be converted to, or continued as, a Eurodollar Rate Loan only in an
amount equal to or greater than $100,000. The Borrower shall give the
Lender written notice of any continuation or conversion of any
Revolving Loans and such notice must be given so as to be received by
the Lender not later than 11:00 A.M. (Minneapolis time) on the date of
the requested conversion to a Variable Rate Loan, and not later than
2:00 P.M. (Minneapolis time) two Eurodollar Business Days prior to the
date of the requested continuation of or conversion to a Eurodollar
Rate Loan. Each such notice shall specify (i) the amount to be
continued or converted, (ii) the date for the continuation or
conversion (which must be (A) the last day of the preceding Interest
Period for any continuation of a Eurodollar Rate Loan, and (B) a
Business Day in the case of conversions to a Variable Rate Loan, and a
Eurodollar Business Day in the case of a continuation as or conversion
to a Eurodollar Rate Loan), and (iii) in the case of a conversion to
or continuation as a Eurodollar Rate Loan, the Interest Period
applicable thereto. Any notice given by the Borrower under this
Section shall be irrevocable. If the Borrower shall fail to notify the
Lender within the time required by this Section of the continuation of
a Eurodollar Rate Loan, such Loan shall, on the last day of the
Interest Period applicable thereto, automatically be converted into a
Variable Rate Loan of the same principal amount.
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(b) TERM LOANS. On the terms and subject to the limitations hereof,
the Borrower shall have the option at any time and from time to time
to convert any Term Loan into a Variable Rate Loan, a Eurodollar Rate
Loan or a Fixed Rate Loan, or to continue a Eurodollar Rate Loan as
such; provided, however, that (i) a Eurodollar Rate Loan may be
converted or continued only on the last day of the Interest Period
applicable thereto, (ii) a Term Loan may not be converted to a Fixed
Rate Loan or a Eurodollar Rate Loan or continued as a Eurodollar Rate
Loan if an Unmatured Event of Default or Event of Default has occurred
and is continuing on the proposed date of continuation or conversion,
and (iii) any Term Loan converted to a Fixed Rate Loan shall remain a
Fixed Rate Loan until the maturity of such Term Loan. A Term Loan may
be converted to, or continued as a Eurodollar Rate Loan only to the
extent the outstanding principal amount of such Term Loan is greater
than or equal to $100,000. The Borrower shall give the Lender written
notice of any continuation or conversion of any Term Loan and such
notice must be given so as to be received by the Lender not later than
11:00 a.m. (Minneapolis time) on the date of requested conversion to a
Variable Rate Loan, not later than 2:00 p.m. (Minneapolis time) two
Eurodollar Business Days prior to the date of a requested continuation
of or conversion to a Eurodollar Rate Loan, and not later than 2:00
p.m. (Minneapolis time) five Business Days prior to the date of a
requested conversion to a Fixed Rate Loan. Each such notice shall
specify (A) the Term Loan to be continued or converted, (B) the date
for the continuation or conversion which must be (I) the last day of
the preceding Interest Period for any continuation of or conversion
from a Eurodollar Rate Loan, and (II) a Business Day in the case of
conversions to a Variable Rate Loan or Fixed Rate Loan and a
Eurodollar Business Day in the case of a continuation as or conversion
to a Eurodollar Rate Loan), and (C) in the case of a conversion to or
continuation as a Eurodollar Rate Loan, the Interest Period applicable
thereto. Any notice given by the Borrower under this Section shall be
irrevocable. If the Borrower shall fail to notify the Lender within
the time required by this Section of the continuation of any
Eurodollar Rate Loan, such Term Loan shall, on the last day of the
Interest Period applicable thereto, automatically be converted into a
Variable Rate Loan of the same principal amount.
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3.3 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to Section 2.7
or Section 2.8 of the Credit Agreement, as applicable.
3.4 COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the Credit
terminates in an amount equal to three-eighths of one percent (3/8%) per annum
on the average daily Unused Credit Amount.
3.5 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or
any Affiliate, a commission on the undrawn amount of each Letter of Credit and
on each L/C Draft accepted by the Lender, or such Affiliate, in an amount equal
to two percent (2%) per annum.
3.6 CREDIT TERMINATION FEE. Upon termination or cancellation of
the Credit by the Borrower prior to the Termination Date, the Borrower shall pay
to the Lender a termination fee in an amount equal to one percentage (1%) of the
Revolving Credit Amount.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable
must not be unpaid on the date that is 61 days after the date of the invoice
evidencing such Account Receivable. If invoices representing 10% or more of the
unpaid amount of all Accounts Receivable from any one Account Debtor are unpaid
more than 60 days after the dates of such invoices, then all Accounts Receivable
relating to such Account Debtor shall cease to be Eligible Accounts Receivable.
5. ADDITIONAL NEGATIVE COVENANTS. From the date of the Credit
Agreement and thereafter until all of the Borrower's Obligations under the
Credit Agreement are paid in full, the Borrower agrees that, unless the Lender
shall otherwise consent in writing, it will not, and will not permit any
Subsidiary to, do any of the following:
5.1 CAPITAL BASE. During each of the periods set forth below, not
permit the Borrower's Capital Base to be less than the amount set forth opposite
such period at any time:
PERIOD CAPITAL BASE
January 1, 1997 to and
including December 31, 1997 $4,900,000
January 1, 1998 to and
including December 31, 1998 $5,400,000
January 1, 1999 and thereafter $5,900,000
A-5
<PAGE> 131
5.2 LEVERAGE RATIO. During each of the periods set forth below, not
permit the ratio of (a) the sum of (i) the Borrower's consolidated total
liabilities, less (ii) Subordinated Debt, to (b) the Borrower's Capital Base to
be greater than the ratio set forth below opposite such period at any time:
PERIOD LEVERAGE RATIO
January 1, 1997 through and
including December 31, 1997 2.7 to 1.0
January 1, 1998 to and
including December 31, 1998 2.5 to 1.0
January 1, 1999 and thereafter 2.3 to 1.0
5.3 CAPITAL EXPENDITURES. During the calendar year set forth
below, make Capital Expenditures in such calendar year in an amount that on a
consolidated basis exceeds the amount set forth below opposite such calendar
year:
CALENDAR YEAR CAPITAL EXPENDITURES
1997 $2,000,000
1998 $1,500,000
1999 $1,500,000
2000 $1,500,000
5.4 CASH FLOW COVERAGE RATIO. As of the last day of each month for
the period commencing on January 1st of the calendar year in which such month
occurs and ending on such date, permit the Borrower's Cash Flow Coverage Ratio
to be less than 1.05 to 1.0.
Borrower's Initials JEL
---------
Lender's Initials KAL
---------
Date: 5-30-97
---------
A-6
<PAGE> 1
EXHIBIT 10.4
Certain portions of this Exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions have been separately filed with the
Commission and marked in this Exhibit by replacing the omitted portions with
asterisks.
EGG SUPPLY AGREEMENT #1
BETWEEN
GOLDEN OVAL EGGS
(A DIVISION OF MIDWEST INVESTORS OF RENVILLE, INC.)
AND
PRIMEGG, LTD.
THIS SUPPLY AGREEMENT ("Agreement") is entered into to be effective by
5/1/97, by and between Golden Oval Eggs, a division of Midwest Investors of
Renville, Inc., a Minnesota cooperative association ("Golden Oval") and
Primegg, Ltd., a Delaware corporation ("Primegg").
RECITALS
A. Golden Oval is in the business of, among other things, producing
and processing eggs from layer-hens maintained at its egg laying facilities.
Primegg is in the business of, among other things, producing and supplying
processed egg products, including dried products.
B. Golden Oval and Primegg have conducted business with each other
under an agreement entitled "Egg Supply Agreement between Midwest Investors of
Renville, Inc. and Primegg, Ltd." effective November 15, 1994 ("the Original
Agreement").
C. During 1996, Golden Oval and Primegg held numerous discussions
regarding the original agreement and this agreement reflects the results of
those discussions and provides an improved framework for building a long term
association between the two companies.
D. Since May 13, 1996, Primegg has provided Golden Oval with the
opportunity to supply Egg Products in Position Sales and Golden Oval has taken
a position in such sales.
E. Golden Oval and Primegg acknowledge that the egg industry is
cyclical and that at times, sale prices for egg products may be at levels that
are not consistent with the profit goals of either company.
F. Both parties believe that, over the term of this Agreement,
opportunities will exist under the provisions of this Agreement that will
enable Golden Oval to realize a fair price for its eggs and will enable Primegg
to maintain its position as a stable primary producer of dried Egg Products to
its customers at competitive prices.
G. Primegg desires to purchase liquid eggs from Golden Oval and
Golden Oval desires to sell liquid eggs to Primegg upon the terms and
conditions set forth in this Agreement.
<PAGE> 2
IN CONSIDERATION of the foregoing and the undertakings described in
this Agreement, Golden Oval and Primegg agree as follows:
1.00 TERM OF AGREEMENT
1.01 INITIAL TERM. Unless this Agreement is terminated by either
Golden Oval or Primegg pursuant to the provisions of Paragraphs 1.05, or 5.01
of this Agreement, the initial term of this Agreement (the "Initial Term")
shall begin on the effective date of this Agreement stated above, and shall
continue until midnight, C.S.T. November 15, 2001.
1.02 TERMINATION OF INITIAL TERM. Either Golden Oval or Primegg may
notify the other in writing on or before November 15, 1999 (which is two years
prior to the expiration date of the Initial Term) that the party desires not to
extend the term of this Agreement beyond the Initial Term. If the termination
notice is given under this paragraph this Agreement terminates at the end of
the Initial Term.
1.03 EVERGREEN EXTENSION TERMS. Unless the Initial Term is terminated
as provided in Paragraph 1.02, the Initial Term shall automatically be renewed
for successive one (1) year periods until terminated pursuant to Paragraph
1.04.
1.04 TERMINATION. This Agreement may be terminated by either party
effective as of the end of any one (1) year extension by either party giving
written notice of termination ("Termination Notice") to the other party at
least two (2) years prior to the end of the applicable extension period. To
terminate the Agreement for any one year extension period, the terminating
party shall give the Termination Notice to the other party between May 15 and
October 15 two (2) years prior to the proposed termination date. After a
properly given Termination Notice, the Agreement shall terminate as of Midnight
CST on November 15 of the second year after notice is given. For example, to
terminate this Agreement on November 15, 2002, the terminating party must give
a written Termination Notice to the other party between May 15, 2000 and
October 15, 2000.
1.05 VOLUNTARY TERMINATION. This Agreement may be voluntarily
terminated by either party pursuant to the provisions of section 5.01 (b).
2.00 PAYMENT OF PURCHASE PRICE AND ANNUAL PRICING REVIEWS. During the
term of this Agreement, Golden Oval shall produce, process, deliver, and sell
liquid eggs to Primegg and Primegg shall purchase and receive liquid eggs from
Golden Oval upon the following terms and conditions:
2.01 SALES VOLUME OF LIQUID EGGS.
(a) Required Sales and Purchases. Primegg shall purchase from
Golden Oval and Golden Oval shall deliver to Primegg an amount equal to *
pounds of liquid egg per day for each month. Prior to the beginning of each
month, Golden Oval will notify Primegg as to any shortfall or surplus liquid
that it expects to deliver during the next month.
2
* Information omitted pursuant to a request for confidential treatment filed
with the Commission. The omitted material has been filed separately with the
Commission.
<PAGE> 3
(b) Shortfall of Product. Golden Oval shall make arrangements
to correct any shortfall for any month by replacing deliveries from another
acceptable source for the month as necessary.
2.02 SOLIDS DETERMINATION.
(a) Egg Product Types. Golden Oval will ship liquid eggs, at
its own expense, to Primegg's drying facilities at Perham, Minnesota and
Cameron, Wisconsin as Primegg shall direct. The Net Weight of Golden Oval
liquid eggs shall be determined on the basis of solids for the following three
types of liquid egg products: (1) egg whites; (2) egg yolks; and (3) whole eggs
(herein referred to collectively as "Egg Products").
(b) Documentation of Egg Product Solids ftom Liquid Eggs
Received. To document the Egg Product solids for the three different types of
liquid Egg Products received by Primegg from Golden Oval hereunder, each week
Primegg will provide Golden Oval with a listing of tankers received at
Primegg's drying facilities and the solid content of the tanker by Egg Product
type. Primegg will pay Golden Oval based on the total amount of Egg Product
solids (in pounds) received by Primegg from Golden Oval as provided in Section
3.
3.00 PURCHASE PRICE FOR EGG PRODUCTS.
3.01 PRIORITY OF SALES. Payment by Primegg to Golden Oval will be
based on the dried whole egg, egg yolk and egg whites ("dried Egg Products
solids") sold by Primegg in the following three types of sales and in the
following order of priority: (1) sales of dried Egg Product solids in which
Golden Oval has taken a position, (herein referred to as "Position Sales"); (2)
sales of liquid Egg Products (herein referred to as "Liquid Sales"); and (3)
other "spot" sales of dried Egg Product solids, which are for smaller amounts
(generally less than 40,000 pounds) and for irnmediate shipment (herein
referred to as "Non-Position Sales").
3.02 POSITION SALES.
(a) Taking A Position. Primegg shall identify and communicate all significant
sales to a particular customer ("Designated Customer Sales") for each type of
dried Egg Product solids (dried whole egg, egg yolk and egg whites) which sales
generally shall be greater than 40,000 pounds, and Primegg will offer Golden
Oval the opportunity to take a position in the Designated Customer Sales for
some or all of the dried Egg Product solids consistent with the projected
receipt of liquid Egg Products to be received from Golden Oval during the time
frame of the particular Designated Customer Sale. A "Position Sale" will occur
when Golden Oval accepts the offer to supply an agreed upon percentage of
the dried Egg Product solids of a particular Designated Customer Sale. Golden
Oval will be offered positions by Primegg through delivery of sales information
outlining the Designated Customer Sale and a Position Sale confirmation form by
facsimile. Golden Oval may accept the offer to take a position in any
Designated Customer Sales by signing or initialing the Position Sale
confirmation form and delivering it by facsimile to Primegg. If no response is
received within 3 business days, the offer to take a position in the Designated
Customer Sale will be deemed accepted by Golden Oval.
3
<PAGE> 4
(b) Price. The price to be paid by Primegg to Golden Oval for
a Position Sale shall be equal to (a) the price received by Primegg from the
Designated Customer Sale, minus (b)(i) Primegg's contribution charge (under
section 3.06 of this Agreement) and (ii) any out-of-pocket commission and/or
freight incurred by Primegg.
(c) Documentation of Position Sales. Payment for the dried Egg
Product solids produced from Golden Oval's liquid eggs will be set forth by the
type of dried Egg Product solids sold by Primegg in the Designated Customer
Sales in which Golden Oval has taken a position. Such reports shall accompany
payments made by Primegg to Golden Oval for its liquid eggs. As new Designated
Customers Sales are made by Primegg and Position Sales are taken by Golden
Oval, the new Designated Customer Sales and Golden Oval's Position Sales
therein will be added to the report for each type of dried Egg Product solids
based on the month in which the shipment of the Golden Oval dried Egg Product
solids is expected to be made by Primegg. As liquid eggs are received by
Primegg from Golden Oval each month, the Position Sales identified for that
month will be used first in calculating the amount of the payment to Golden
Oval for the dried Egg product solids content of its liquid eggs. Primegg will
provide monthly shipping reports of dried Egg Product solids identifying
Position Sales separately from Non-Position sales.
(d) Excess Position Sales. If the dried egg product solids in
golden oval's Position Sales exceed the amount of dried Egg Product solids
delivered by golden oval TO Primegg in any one month, the unused Position Sales
will be filled first during the subsequent month.
3.03 SALES OF LIQUID EGG PRODUCTS.
(a) Liquid Sales. If the Egg Product solids delivered to
Primegg by Golden Oval are in excess of the Golden Oval Egg Products solids
used in Position Sales in a month, Liquid sales, if any, will then be used to
determine the payment owed to Golden Oval for such additional Egg Product
solids. Golden Oval will participate in Liquid Sales made by Primegg based on
the monthly average percentage of each type of liquid Egg Products delivered by
Golden Oval in relation to the total liquid Egg Products produced by Primegg
each month. Purchases of liquid Egg Products by Primegg from other sellers
shall not affect this calculation.
(b) Price. The price paid Golden Oval for the Liquid Sales
will be the gross price received by Primegg for such Liquid Sales less (i) a
* per pound sales fee for Primegg and (ii) any freight or other commission
expenses associated with the Liquid Sales.
(c) Conversion to Solids. In making the settlement for all Egg
Product solids provided through Liquid Sales for a month, the Liquid Sales will
be converted to Egg Product solids based on the following standard solid
factors: (1) Yolk - 43.6 percent, (2) Egg whites - 11.8 percent; and (3) Whole
eggs - 24.2 percent. Golden Oval and Primegg recognize that actual solids may
vary slightly from these standards, but both parties agree the difference is
not significant enough to warrant using actual results in the calculation of
payment amounts.
4
* Information omitted pursuant to a request for confidential treatment filed
with the Commission. The omitted material has been filed separately with
the Commission.
<PAGE> 5
\
(d) Example. As an example, assuming that Golden Oval provides
45 percent of the total liquid egg yolk solids produced by Primegg during a
month, Golden Oval would receive payment based on 45 percent of the liquid yolk
solids sold in Liquid Sales for the month. If 900,000 pounds of liquid yolk
solids are sold by Primegg during the month in question, Golden Oval's share
would be 405,000 pounds (45% of 900,000 pounds). If the average sales price for
the liquid is $0.80 per pound, the rate used to compensate Golden Oval for its
portion of these Liquid Sales would be $0.79 per pound less any freight or
other commission expenses associated with the sale. The amount of dried Egg
Product solids attributable to the Liquid Sales (43.6% of 405,000 liquid pounds
or 176,580 pounds of dried egg yolk) shall be subtracted from the dried Egg
Product solids received by Primegg hereunder.
3.04 NON-POSITION SALES. If the Egg Product solids delivered by
Primegg to Golden Oval are in excess of the Golden Oval dried Egg Product
solids used in Position Sales and Liquid Sales, the purchase price for the
remaining Egg Product solids will be equal to the average sales price of
Non-Position Sales of each type of dried Egg Product solids shipped by Primegg
during the month less (i) Primegg's Contribution Charge and (ii) any freight or
other commission expenses associated with the Non-Position Sale. At the end of
each month, Primegg shall provide Golden Oval with a report separately
identifying all Position Sales and Non-Position Sales that were shipped for the
month showing how the average sale price of the Non-Position Sales was
determined.
3.05 LEVEL OF FUTURE POSITION SALES. The parties acknowledge that the
amount of Position Sales accepted by Golden Oval may vary from time to time,
but overall the parties will endeavor to maintain Position Sales at least at
the * level annually for the Egg Product solids supplied by Golden Oval.
3.06 CONTRIBUTION CHARGE ADJUSTMENT. Primegg's Contribution Charge
will be determined based on the factors set forth in Exhibit A and may be
adjusted once a year during the term of this Agreement based on changes that
occur in the variable cost components of the Contribution Charge that are
beyond Primegg's control and reflected generally in the industry. Any
adjustment shall be effective when reasonably documented in writing by Primegg
to Golden Oval.
The base Contribution Charge is based on the costs in effect in * (the
"Base Year") as follows:
Base Year
---------
*
The Contribution Charge was changed as follows *
5
* Information omitted pursuant to a request for confidential treatment filed
with the Commission. The omitted material has been filed separately with
the Commission.
<PAGE> 6
*
The base year for determining future adjustments shall continue to be
the year beginning *
Under no circumstances shall an increase in Primegg's fixed production
costs cause a proportional increase in the Contribution Charge.
3.07 PAYMENT. Primegg will pay weekly for eggs received from Golden
Oval no later than 30 days after the date of delivery. To ease the process of
making payments, advances will be made by Primegg to Golden Oval throughout the
month and a final settlement check will be provided once information is fully
available on all sales made for a particular month. In the event both parties
want to build inventories because of favorable market conditions, Golden Oval
may extend payment terms beyond 30 days provided Primegg documents the higher
inventory levels and the need for extended terms.
4.00 FULL DISCLOSURE OF FINANCIAL INFORMATION. Primegg and Golden Oval
shall provide full confidential disclosure of their financial conditions to
each other on a periodic basis as they may agree, but not less than on an
annual basis. Full disclosure will include balance sheet and income statements,
weekly shipping and sales reports showing amounts necessary to make all
calculations under this agreement, production reports, inventory levels,
accounts receivable information, market information, and any other information
which both parties agree is appropriate for a full understanding of the
financial aspects relating to this Agreement. In addition, Primegg shall
provide Golden Oval with copies of its list of brokers and commission
schedules. In the event additional brokers are added, Golden Oval will be made
aware of such addition and will be provided a complete explanation of the
appropriateness of such addition. This information may be shared, as necessary
on a confidential basis, with the lending institutions for each party. This
information will be maintained as confidential as provided in Paragraph 10.00.
5.00 TERMINATION.
5.01 CONDITION FOR TERMINATION. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned as follows:
(a) Mutual Consent. By mutual consent of the parties; or
6
* Information omitted pursuant to a request for confidential treatment filed
with the Commission. The omitted material has been filed separately with the
Commission.
<PAGE> 7
(b) Material Changes in the Marketplace. By voluntary
termination by either of the parties, where material changes in the marketplace
affecting production costs and/or prices of goods related to this Agreement
causes either party to incur significant and recurring losses under the terms
and conditions of this Agreement as measured by generally accepted industry
standards; either party may terminate this Agreement by giving the other party
180 days advance notice accompanied by an early termination payment equal to
$500,000 (referred to herein as the "Early Termination Payment". Such voluntary
termination shall not be effective unless accompanied by the Early Termination
Payment. Both parties shall continue to perform under this Agreement until the
effective date of the termination, or
(c) Upon Default. By either of the parties upon material
breach of any material term of this Agreement by the other party (exclusive of
any material breach caused by the events described in Paragraph 6.00) which is
not cured within a commercially reasonable time after receiving written notice
from the non-breaching party to cure such breach. The party giving notice shall
state the commercially reasonable time period for cure in the notice. If the
breaching party disagrees with the duration of the cure period, the breaching
party shall give a response notice in writing to the non-breaching party
stating why the duration of the cure period is not commercially reasonable. If
the breaching party and non-breaching party cannot reasonably agree upon the
duration of the cure period, the parties shall resolve the dispute as provided
in Paragraph 9.00. If the breach is not cured by the breaching party prior to
the expiration of the agreed upon cure period, the breaching party shall be
deemed to be in default of this Agreement and the nondefaulting party shall
have the option to terminate this Agreement upon giving the breaching party 180
days notice of termination. The parties shall continue to perform and be
entitled to recover damages as provided in Paragraph 7.00; or
(d) Force Majeure. By either party if it is unable to
perform its obligations under this Agreement as a result of an occurrence or
event described in Paragraph 6.00.
5.02 NOTICE AND ENFORCEMENT BY INJUNCTION. Prior to the effective
date of termination under paragraphs 5.00 (b) or (c), the parties agree to
perform their respective obligations hereunder, and this Agreement may be
enforced by either party obtaining a mandatory injunction against the party
refusing to perform during the 180 day period whether or not the Early
Termination Payment is paid under paragraph 5.00 (b) or payment of damages is
offered or paid under paragraph 5.00 (c). In the event either party is required
to seek an injunction to enforce performance under this Agreement, the other
party shall be responsible for all costs in obtaining the injunction, including
all attorney's fees.
5.03 TERMINATION DOES NOT ACT AS WAIVER. Termination of this
Agreement by Primegg or Golden Oval shall not act as a waiver of any other
rights either Primegg or Golden Oval may have against each other under the
terms of this Agreement or applicable law.
7
<PAGE> 8
6.00 FORCE MAJEURE. Golden Oval will exercise reasonable diligence to
assure the prompt shipment of eggs to Primegg, and Primegg will exercise
reasonable diligence in taking delivery of eggs from Golden Oval, but neither
Golden Oval nor Primegg shall be liable to the other for any delay of
performance due to causes beyond its control, including without limitation,
fire, epidemics, floods, accidents, delays in transportation, shortage of
transportation vehicles, shortages of fuel or other materials, war, riot, civil
commotion, radiological contamination, blockades, embargoes, acts or demands or
requirements of the United States or any other country, state, municipality or
governmental body, restraining order of any court, acts of God or other force
majeure. This provision is a limitation on the right to collect damages only
and is not intended to restrict in any way the rights of termination contained
elsewhere in this Agreement.
7.00 DAMAGES IN THE EVENT OF TERMINATION RESULTING FROM BREACH. In the
event this Agreement is terminated under section 5.00 (b) or is terminated by
the nondefaulting party under section 5.00 (c), the party voluntarily
terminating or the breaching party will compensate the other party by paying:
(1) $500,000 ($.50 per layer hen for 1,000,000 layers) or (2) the actual
damages incurred by the nonbreaching or nonterminating party, if actual
damages are greater. Such amount shall be due and payable upon demand by the
party entitled to the payment.
8.00 RIGHT OF FIRST REFUSAL. If Golden Oval increases its production
capacity at the Renville facility beyond two million layer-hens during the term
of this Agreement, Golden Oval shall offer Primegg the first option to enter
into an agreement to purchase all or a portion of the additional eggs produced
at the Renville facility upon substantially the same terms and conditions which
Golden Oval proposes to sell such additional egg output to any other person.
This option shall exist for thirty (30) days after notification is sent by
Golden Oval containing the offer unless otherwise agreed to in writing by the
parties. Thereafter, Golden Oval shall not offer to sell any portion of the
additional egg production to any other purchaser upon terms and conditions
substantially differing from the terms and conditions first offered to Primegg.
In the event the current owners of Primegg, which is Cham Foods
(Israel) Ltd., decide to sell all of the assets or stock of Primegg to any
third person not currently associated directly or indirectly with the current
ownership of Cham Foods (Israel) Ltd. or the families of the current owners,
Golden Oval will be given the right of first refusal to purchase all of such
assets or stock upon the same terms and conditions which Primegg proposes to
sell such assets or stock to any third person. This right of first refusal
shall exist for thirty days after written notification by Primegg to Golden
Oval unless otherwise agreed in writing by the parties. Thereafter, Primegg
shall not offer to sell such assets or stock to any third person upon terms or
conditions materially different from the terms and conditions first offered to
Golden Oval.
In the event the parties desire to clarify the terms of these rights
of first refusal, they shall enter into a separate agreement outlining such
terms.
8
<PAGE> 9
9.00 ALTERNATIVE DISPUTE RESOLUTION. Except for a claimed breach of
delivery of eggs by Golden Oval or payment for eggs or liquid eggs by Primegg
to which Golden Oval and Primegg respectively retain their rights to access to
the courts for appropriate injunctive relief, any and all claims, disputes,
controversies, and other matters arising out of or relating to this Agreement,
including but not limited to the formation (including any claim as to fraud in
the inducement), breach, performance, interpretation, or termination of this
Agreement shall be settled by mediation or, if mediation is unsuccessful, by
binding arbitration in accordance with the following procedure; provided
however that except where clearly prevented by the area in dispute, both
parties agree to continue to performing their respective obligations and
undertakings under this Agreement while the dispute is being resolved:
(a) Negotiation Through Mediation. If any dispute between the
parties to this Agreement is not resolved by negotiation, the parties hereby
agree to endeavor to settle the dispute by mediation. The neutral party
mediator will be selected from the Minnesota State Court Administrator's roster
of qualified neutrals, unless the parties agree otherwise.
(b) Termination of Mediation. Mediation shall continue until
all disputes have been resolved, an impasse has been declared by the mediator,
or until such time as Golden Oval or Primegg exercises their right to terminate
the mediation in accordance with the provisions of Minnesota Civil Mediation
Act, Minn. Stat. 572.31-572.40.
(c) Binding Arbitration. Thereafter, any disputes which
have not been resolved by mediation as provided herein shall be settled by
binding arbitration as follows:
(1) Notice. Notice of demand for binding arbitration shall be
filed in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and served on the other party to this Agreement. In no
event may notice of dispute of any kind be filed more than one (1) year after
the date the claim, dispute, controversy or other matter in question arose. If
such demand is not timely filed and served, the claim, dispute, controversy or
other matter in question referenced in the demand shall be deemed released,
waived, barred and unenforceable for all time, and barred as if by statute of
limitation.
(2) Arbitration Rules. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and shall be conducted in Minneapolis/St. Paul, Minnesota, by a
sole arbitrator.
(3) Arbitrator Selection. The sole arbitrator shall be selected
pursuant to the procedures of the American Arbitration Association and shall,
if possible, be a retired or former Justice of the Minnesota Supreme Court, or
a retired or former Judge of the Minnesota Court of Appeals or a Minnesota
District Court, or a retired or former Judge or Magistrate of a United States
District Court. If an arbitrator having the above qualifications is not
available, any otherwise qualified arbitrator may be selected under the Rules
of the American Arbitration Association.
9
<PAGE> 10
(4) Enforcement of Award. Any award rendered by the arbitrator
may be entered in any court having jurisdiction thereof in accordance
with the provisions of the Minnesota Uniform Arbitration Act, Minn.
Stat. 572.08-572.30.
(5) Costs of Arbitration. The costs of arbitration proceedings,
including without limitation the arbitrator's compensation and
expenses, hearing room charges, administrative fees, etc. shall be
borne by the parties equally or otherwise as the arbitrator may
determine. The arbitrator may award the party that prevails
substantially in its prehearing position part or all of its reasonable
attorney's fees and costs incurred in connection with the arbitration.
10.00 CONFIDENTIALITY. Under the terms of this Agreement, each
party shall submit to the other certain confidential information,
including without limitation, balance sheets, income statements,
production reports, inventory levels, accounts receivable information,
and market information. Except as otherwise provided in this agreement,
Primegg and Golden Oval agree that they will not disclose or use any such
confidential information other than in connection with the execution and
performance of the rights and obligations under this Agreement unless
such information (1) was or is in the public domain, or (2) was, in-fact,
known by Golden Oval or Primegg, as applicable, or their respective
agents or representatives prior to disclosure to Primegg or Golden Oval,
as applicable, or (3) becomes information generally available to the
public through no act or failure to act on the part of Golden Oval or
Primegg, as applicable; or (4) is required to be disclosed by order of an
agency or court of competent jurisdiction with reasonable time to get a
protective order.
11.00 MISCELLANEOUS PROVISIONS.
11.01 NOTICE. The contact persons with respect to the
undertakings and agreements of Golden Oval and Primegg set forth in this
Agreement shall be:
FOR GOLDEN OVAL:
Golden Oval
P.O. Box 615
Renville, MN 56284
Attn: Mr. Dana Persson
FOR PRIMEGG:
Primegg, Ltd.
612 South 8th Street
P.O. Box 373
Cameron, W1 54822
Attn: Mr. Jon Luikart
or such other person or persons as either Golden Oval or Primegg
shall designate in writing to the other.
10
<PAGE> 11
11.02 ENTIRE AGREEMENT. This Agreement contains the entire and
only agreement between Golden Oval and Primegg relating to the subject
matter hereunder; and this Agreement wholly cancels, terminates and
supersedes any other agreement written or verbally made or purported to
have been made between Primegg and Golden Oval with respect to the supply
of eggs.
11.03 SEVERABILITY. If any of the provisions of this Agreement
are in violation of or prohibited by any applicable law or regulation,
such provisions shall be deemed to be amended or deleted to conform to
such law or regulation without invalidating or amending or deleting any
of the other provisions of this Agreement.
11.04 AMENDMENT. No amendment or addition to or deletion from
this Agreement or any of its provisions shall be binding upon Golden Oval
or Primegg unless made in writing and signed by duly authorized officers
of both Primegg and Golden Oval.
11.05 THIS AGREEMENT SUPERSEDES PRIOR AGREEMENTS. This
Agreement supersedes and replaces prior agreements between Golden Oval
and Primegg on the effective date of this agreement. In particular this
agreement supersedes and replaces the Egg Supply Agreement between
Primegg and Golden Oval which became effective November 15, 1994.
11.06 WAIVER. No departure from or waiver of or omissions to
require compliance with any of the provisions of this Agreement by either
Primegg or Golden Oval shall be deemed to authorize any prior or
subsequent departure or waiver or permit or agree to any subsequent
departure or waiver, nor shall the acceptance of eggs by Primegg
constitute a waiver of any right of action which Primegg may have for
breach of warranty or any other cause.
11.07 ASSIGNMENT. Neither Primegg nor Golden Oval may assign
this Agreement without the prior written consent of the other, except
that no such consent is necessary with respect to Primegg's or Golden
Oval's assignment to any wholly-owned subsidiary or controlled affiliate.
An assignment by Primegg or Golden Oval to any wholly-owned subsidiary or
controlled affiliate shall not relieve Primegg or Golden Oval from any
obligation or responsibility provided for under the terms of this
Agreement. Any assignment attempted without such approval shall be null
and void.
11.08 GOVERNING LAW. The parties hereby agree that this
Agreement shall be construed, enforced and governed by the laws of the
State of Minnesota. Specifically, Golden Oval's egg products transferred
pursuant to this Agreement shall be subject to a wholesale produce
dealer's trust under Minnesota Statutes 27.138.
11.09 HEADINGS AND CAPTIONS. The headings and captions of
Paragraphs, subparagraphs and clauses of this Agreement are for
convenience of reference only and do not constitute a part of the
Agreement.
11
<PAGE> 12
11.10 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, Primegg and Golden Oval have signed this
Agreement effective as of the date and year set for at the beginning of
this Agreement.
MIDWEST INVESTORS OF RENVILLE, INC.
GOLDEN OVAL EGGS DIVISION PRIMEGG, LTD.
By: Dana Persson By: Jon E. Luikart
------------------------------ ------------------------
Its: President Its: President
-------------------------- --------------------
Date Signed: 5/1/97 Date Signed: 5/12/97
--------------------- ---------------
12
<PAGE> 1
EXHIBIT 10.5
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into
effective the 1st day of January 1997, by and between PRIMEGG, LTD., a Delaware
corporation with its principal office at 612 South 8th Street, Cameron,
Wisconsin 54822 (the "Company"), and CHAM FOODS (ISRAEL) LTD., an Israeli
corporation with its principal office at Herbert Samuel Street, No. 66, P.O.B.
299, 38102, Hadera, Israel ("Cham").
WHEREAS, Michael Shevi (the "Consultant"), the Managing Director of
Cham, has expertise in various financial and advisory services including
strategic planning, operations management and international markets
development; and
WHEREAS, the Company desires to engage the Consultant's services on the
terms and conditions of this Agreement; THEREFORE IT IS AGREED AS FOLLOWS:
RECITALS:
1. SERVICES TO BE PERFORMED. Cham shall make Consultant available to
the Company from time to time during the term of this Agreement for ongoing
management, sales, and marketing advice. The Consultant shall not be obligated
to devote any specific number of hours to the business of the Company and shall
be permitted to engage in other business activities.
2. COMPENSATION. As the sole compensation for the Consultant's
services, the Company agrees to pay Cham an annual fee of $110,000. Cham will
be responsible to pay Consultant out of such fee and to pay for all of
Consultant's expenses in providing services hereunder. The fee shall be
payable during each year in such increments and at such time or times as agreed
to between Cham and the Company.
3. TERM AND TERMINATION. The term of this Agreement is for three (3)
years, subject to earlier termination by written consent of the parties.
4. BINDING EFFECT. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective heirs, representatives,
successors, and assigns; provided, however, that the Consultant may not assign
his duties hereunder without the Company's prior written consent.
5. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Wisconsin, exclusive of its
conflict of laws rules.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their
signatures.
PRIMEGG, LTD.
By: /s/ Jon E. Luikart
-----------------------------------
Jon E. Luikart, President
CHAM FOODS (ISRAEL) LTD.
By: /s/ Michael Shevi
-----------------------------------
Michael Shevi, Managing Director
<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made effective as of the _____ day of
__________, 1997, by and between PRIMERA FOODS CORPORATION, a Delaware
corporation (the "Company"), and ___________________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors the most capable persons available;
WHEREAS, Indemnitee has recently become, or continues to serve as, a
director of the Company;
WHEREAS, the Bylaws of the Company require the Company to indemnify its
directors to the full extent permitted by law and Indemnitee is serving as a
director of the Company, in part, in reliance on such Bylaws; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to maintain Indemnitee's continued service
to the Company in an effective manner and Indemnitee's reliance on the
aforesaid Bylaws and, in part, to provide Indemnitee with specific contractual
assurance that the protection promised by such Bylaws will be available to
Indemnitee (regardless of, among other things, any amendment to or revocation
of such Bylaws or any change in the composition of the Company's Board of
Directors or any acquisition transaction relating to the Company), the Company
desires to provide in this Agreement for the indemnification of and the advance
of expenses to Indemnitee to the full extent (whether partial or complete)
permitted by law, as set forth in this Agreement and, to the extent officers'
and directors' liability insurance is maintained by the Company, to provide for
the continued coverage of Indemnitee under the Company's officers' and
directors' liability insurance policies;
NOW, THEREFORE, in consideration of the covenants contained herein and
of Indemnitee's continuing service to the Company directly or, at its request,
other enterprises, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL. A Change in Control shall be deemed to
have occurred if (i) any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20%
or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the
<PAGE> 2
Company, and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were (x) directors at the beginning of the period or
(y) whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority of the Board of Directors, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the Voting Securities of the Company outstanding immediately prior to
such a merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company (in one transaction or a series of transactions) of all or
substantially all of the Company's assets. A "Change of Control" shall
not be deemed to occur as a result of transactions in contemplation of
or in connection with the Company's initial public offering of Common
Stock, including without limitation, the election of Class I, Class II
and Class III directors or the issuance of Common Stock to the public
in the offering.
(b) CLAIM. Any threatened, pending, or completed action,
suit, arbitration, alternate dispute resolution mechanism,
investigation, or proceeding, and any appeal thereof, whether civil,
criminal, administrative, or investigative and/or any inquiry or
investigation, whether conducted by the Company or any other party that
Indemnitee in good faith believes might lead to the institution of any
such action.
(c) EXPENSES. Include attorneys' fees and all other costs,
expenses, and obligations, including retainers, court costs, transcript
costs, expert fees, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, and delivery
services fees, paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in any
claim relating to any Indemnifiable Event.
(d) INDEMNIFIABLE EVENT. Any event, occurrence, or
circumstance related to the fact that Indemnitee is or was a
director, officer, employee, trustee, agent, or fiduciary of the
Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of any other
corporation, partnership, joint venture, employee benefit plan, trust
or other enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL. Shall be deemed to have
occurred if (i) the Company enters into an agreement or arrangement, the
consummation of which would
-2-
<PAGE> 3
result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to
consider taking actions which if consummated would constitute a Change
in Control; (iii) any person (other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting
in such capacity or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), who is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
then outstanding Voting Securities increases his beneficial ownership
of such securities by 5% or more over the percentage so owned by such
person on the date hereof; or (iv) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in
Control has occurred. A "Potential Change of Control" shall not be
deemed to occur as a result of transactions in contemplation of or in
connection with the Company's initial public offering of Common Stock,
including without limitation, the election of Class I, Class II and
Class III directors or the issuance of Common Stock to the public in
the offering.
(f) REVIEWING PARTY. Any appropriate person or body
consisting of a member or members of the Company's Board of Directors
including the Special Independent Counsel referred to in Section 4 (or,
to the fullest extent permitted by law, any other person or body
appointed by the Board), who is not a party to the particular claim for
which Indemnitee is seeking indemnification.
(g) VOTING SECURITIES. Any securities of the Company which
vote generally in the election of directors.
2. AGREEMENT TO SERVE. Indemnitee agrees to continue to serve as a
director of the Company. 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). The Company shall have no obligation
under this Agreement to continue Indemnitee in any position with the Company.
3. BASIC INDEMNIFICATION AGREEMENT.
(a) In the event Indemnitee was, is or becomes a party to or
witness or other participant in, or is threatened to be made a party to
or witness or other participant in, a Claim by reason of (or airing in
party out of), an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law, as soon as
practicable but in any event no later than thirty days after written
demand is presented to the Company against any and all expenses,
judgments, fines, penalties, 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, fines,
penalties, or amounts paid in settlement) of such Claim.
Notwithstanding anything in this Agreement to the contrary, prior to a
Change in Control, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by
Indemnitee against the Company or any director
-3-
<PAGE> 4
or officer of the Company unless the Company has joined in or consented
to the initiation of such Claim. If so requested by Indemnitee, the
Company shall advance (within two business days of such request) any
and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of
the Company under Section 3(a) shall be subject to the condition
that any Reviewing Party shall not have determined in a written opinion
(in any case in which the Special Independent Counsel referred to in
Section 4 hereof is involved) that Indemnitee would not be permitted to
be indemnified under applicable law, and (ii) the obligation of the
Company to make an Expense Advance pursuant to Section 3(a) shall be
subject to the condition that if, when and to the extent that any
Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to
be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company, without interest) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced legal proceedings
in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by a Reviewing Party 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
Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). If there has not been a Change in Control, a
Reviewing Party shall be selected by the Board of Directors, and if
there has been such a Change in Control, a Reviewing Party shall be the
Special Independent Counsel referred to in Section 4 hereof. If there
has been no appointment or no determination by a Reviewing Party or if
a Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation in any court in
the States of Wisconsin or Delaware having subject matter jurisdiction
thereof and in which venue is proper seeking an initial determination
by the court or challenging any such determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual basis therefor, and the Company
hereby (i) consents to service of process and to appear in any such
proceeding, (ii) shall be precluded from asserting that the procedures
and presumptions of this Agreement are not valid, binding, and
enforceable, and (iii) shall stipulate in any such proceeding that the
Company is bound by all the provisions of this Agreement. Any
determination by the Reviewing Party otherwise shall be conclusive and
binding on the Company and Indemnitee.
4. CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which
has been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity
payment and Expense Advances under this Agreement or any other agreement, the
Company's Certificate of Incorporation, or the Company's Bylaws now or
hereafter in effect relating to Claims for Indemnifiable Events, the Company
shall seek legal advice only from "Special Independent
-4-
<PAGE> 5
Counsel" selected by Indemnitee and approved by the Company (which approval
shall not be unreasonably withheld), and who has not otherwise performed
services for the Company or Indemnitee within the last five years (other than
in connection with such matters). Such Special Independent Counsel, among
other things, shall render its written opinion to the Company and Indemnitee as
to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable
fees of the Special Independent Counsel referred to above and may fully
indemnify such Special Independent Counsel against any and all expenses
(including attorney's fees), claims, liabilities, and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
5. ESTABLISHMENT OF TRUST. In the event of Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a
"Trust" for the benefit of Indemnitee and from time to time upon written
request of Indemnitee shall fund such Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for and defending any
Claim relating to an Indemnifiable Event, and any and all judgments, fines,
penalties, and settlement amounts of any and all Claims relating to an
Indemnifiable Event from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in
the Trust pursuant to the foregoing funding obligation shall be determined by a
Reviewing Party, in any case in which the Special Independent Counsel referred
to above is involved. The Terms of the Trust shall provide that upon a Change
in Control (i) the Trust shall not be revoked or the principal thereof invaded,
without the written consent of the Indemnitee, (ii) the Trustee shall advance,
within two business days of a request by the Indemnitee, any and all Expenses
to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust
under the circumstances under which the Indemnitee would be required to
reimburse the Company under Section 3(b) of this Agreement, (iii) the Trust
shall continue to be funded by the Company in accordance with the funding
obligation set forth above, (iv) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (v) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a bank or trust company or other individual or
entity chosen by the Indemnitee and acceptable and approved by the Company.
Nothing in this Section 5 shall relieve the Company of any of its obligations
under this Agreement.
6. INDEMNIFICATION FOR ADDITIONAL EXPENSES. To the fullest extent
permitted by law, the Company shall indemnify against any and all Expenses
(including attorney's fees) and, if requested by Indemnitee, shall (within two
business days of such request) advance such Expenses to Indemnitee, which are
incurred by Indemnitee in connection with any Claim asserted against or action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement, the Company's Bylaws,
or Certificate of Incorporation hereafter in effect relating to Claims for
Indemnifiable Events and/or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company,
-5-
<PAGE> 6
regardless of whether Indemnitee ultimately is determined to be entitled to
such indemnification, Expense advance or insurance recovery, as the case may
be.
7. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or
a portion of the expenses, judgments, fines, penalties, and amounts paid in
settlement of a claim but not, however, for all of the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, all Claims relating in whole or in part to any Indemnifiable
Event or in defense of any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
8. CONTRIBUTION. If the indemnification provided in this
Agreement is unavailable and may not be paid to Indemnitee because such
indemnification is not permitted by law, then in respect of any threatened,
pending, or completed Claim in which the Company is jointly liable with
Indemnitee (or would be if joined in such Claim), the Company shall contribute,
to the full extent permitted by law, to the amount of expenses, judgments,
fines, penalties, 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, fines, penalties, or amounts paid in settlement)
actually incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
Claim arose, and (ii) the relative fault of the Company on the one hand and
Indemnitee on the other in connection with the events which resulted in such
expenses, judgments, fines, penalties, and amounts paid in settlement, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of Indemnitee on the other shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent the circumstances
resulting in such expenses, judgment, fines, penalties, and amounts paid in
settlement. The Company agrees that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
9. NO PRESUMPTION. For purposes of this Agreement, to the fullest
extent permitted by law, the termination of any Claim, action, suit, or
proceeding, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
10. NON-EXCLUSIVITY, ETC. The rights of the Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have under the Company's
Certificate of Incorporation or Bylaws or the Delaware General Corporation Law
or otherwise. To the extent that a change in the
-6-
<PAGE> 7
Delaware General Corporation Law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Certificate of Incorporation or Bylaws or this Agreement,
to the fullest extent permitted by law it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits so afforded
by such change immediately upon the occurrence of such change without further
action by the Company or Indemnitee.
11. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, 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 director or officer of the Company. The Board of Directors
of the Company shall determine the amount and coverage of such directors' and
officers' liability insurance from time to time.
12. PERIOD OF LIMITATIONS. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company
or any affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, and any claim or cause
of action of the Company or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
two-year period; provided, however, that if any shorter period of limitations
is otherwise applicable to any such cause of action such shorter period shall
govern.
13. AMENDMENTS, ETC.. 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.
14. SUBROGATION. In the event of 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 shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
15. NO DUPLICATION OF PAYMENTS. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Bylaws, or otherwise) of the amounts
otherwise indemnifiable hereunder.
16. BINDING EFFECT, ETC.. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successors by
purchase, merger, consolidation, or otherwise to all or substantially all of
the business and/or assets of the Company, spouses, heirs, and personal and
legal representatives. The Company shall require and cause any successor
(whether direct or
-7-
<PAGE> 8
indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as an officer or director
of the Company or of any other enterprise at the Company's requests.
17. SEVERABILITY. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph, or sentence) are held by a court
of competent jurisdiction to be invalid, void, or otherwise unenforceable in
any respect, and the validity and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired, and shall remain enforceable to the fullest extent permitted by law.
18. TERM. All obligations of the Company contained herein shall
continue during the period Indemnitee serves the Company in a capacity referred
to in Section 2 hereof, and shall continue thereafter so long as Indemnitee
shall be subject to any possible Claim relating to an Indemnifiable Event.
19. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such State without giving
effects to the principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their
signatures.
PRIMERA FOODS CORPORATION
By:
--------------------------------------------
Jon E. Luikart, Chief Executive Officer
INDEMNITEE
-----------------------------------------------
-8-
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Primera Foods Corporation:
The audits referred to in our report dated October 31, 1997, except as to Note
11, which is as of December 4, 1997, included the related financial statement
schedule for each of the years in the three-year period ended December 31,
1996, and the nine-month period ended September 30, 1997, included in the
registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Consolidated Financial and Operating
Data" and "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 0 517,393
<SECURITIES> 0 0
<RECEIVABLES> 4,274,987 4,034,341
<ALLOWANCES> 60,000 60,000
<INVENTORY> 5,620,167 5,426,353
<CURRENT-ASSETS> 10,044,460 10,215,417
<PP&E> 11,152,051 12,039,124
<DEPRECIATION> 3,742,418 4,205,268
<TOTAL-ASSETS> 17,790,421 18,395,179
<CURRENT-LIABILITIES> 6,535,254 9,346,111
<BONDS> 9,265,306 4,576,941
0 0
0 0
<COMMON> 3,875 3,875
<OTHER-SE> 1,159,388 3,493,355
<TOTAL-LIABILITY-AND-EQUITY> 17,790,421 18,395,179
<SALES> 53,707,977 37,906,750
<TOTAL-REVENUES> 53,707,977 37,906,750
<CGS> 48,626,198 32,357,383
<TOTAL-COSTS> 2,206,210 1,589,086
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,061,219) (661,632)
<INCOME-PRETAX> 1,815,115 3,329,605
<INCOME-TAX> (641,413) (995,638)
<INCOME-CONTINUING> 1,173,702 2,333,967
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,173,702 2,333,967
<EPS-PRIMARY> 0.30 0.60
<EPS-DILUTED> 0.30 0.60
</TABLE>
