<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
REGISTRATION NO. 333-41679
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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 & 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 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: [X]
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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: [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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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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Representative's Warrants................................... $150 $0.04
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Common Stock, $.001 par value, underlying Representative's
Warrants.................................................. $1,440,000 $424.80
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Previously Paid............................................. -- $4,071.00
- -------------------------------------------------------------------------------------------------------
Amount Owed................................................. -- $424.84
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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, APRIL 30, 1998
PROSPECTUS
1,500,000 SHARES
PRIMERA FOODS CORPORATION LOGO
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 "PRMF."
Cham Foods (Israel), Ltd. ("Cham Foods"), the Company's sole stockholder,
will receive approximately $2.0 million of the net proceeds of this offering.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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.
<TABLE>
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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 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 LOGO
The date of this Prospectus is , 1998.
<PAGE> 3
Primera is a leading producer and wholesale distributor of value-added dried egg
products.
(PICTURE OF AUTOMATED EGG BREAKING SYSTEM)
The Company uses
automated processing
systems to break shell eggs
and separate and extract
the components.
(PICTURE OF SPRAY DRYING SYSTEM)
The Company uses
automated spray drying
systems to remove the water
from the liquid egg
components.
------------------------
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
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 1997, the Company processed liquid egg into
19.5 million pounds of value-added dried 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, according to
United States Department of Agriculture ("USDA") statistics, the dried egg
industry has grown at an average annual compounded rate of 3.7% 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 $43.1 million
in 1997. In early 1997, the Company redirected its sales and marketing strategy
to concentrate on customers recognizing the value of Primera's quality products
and services. As a result of this shift, the Company's raw materials purchasing
practices and improved operating efficiencies, Primera's gross margin increased
to 14.4% for 1997 as compared to 9.5% in 1996. The Company has established
long-term relationships with many 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 is not engaged in any
negotiations and has not entered into any letter of intent or agreement
regarding any acquisition.
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
RISK FACTORS
Investors should carefully consider the matters discussed under "Risk
Factors" prior to making an investment decision regarding the Common Stock
offered hereby. Such risks include those relating to: (i) the volatility of
shell and liquid egg prices; (ii) the Company's dependence on third party raw
material suppliers; (iii) permitting, financing, construction and operation of
the proposed egg-laying and breaking facility; (iv) the Company's acquisition
strategy and management of the Company's planned growth; (v) the Company's
significant outstanding indebtedness; (vi) customer concentration and
international sales; (vii) general agricultural industry and environmental
matters; (viii) the impact of any future decline for egg products; (ix) the
impact of governmental regulations; (x) competition; (xi) the Company's
dependence upon key personnel and two independent food brokers; (xii) the
Company's proposed repayment of $2.0 million to Cham Foods; and (xiii) Cham
Foods' majority ownership of the Company's Common Stock upon completion of this
offering.
THE OFFERING
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<S> <C>
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........... PRMF
</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.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $32,903 $31,593 $33,136 $53,708 $50,375 $13,992 $11,626
Income from operations....... 607 769 1,356 2,876 5,150 1,352 1,250
Net income (loss)............ (58) (1,119) 542 1,174 3,042 788 650
Net income (loss) per share
basic and diluted......... $ (0.01) $ (0.29) $ 0.14 $ 0.30 $ 0.78 $ 0.20 $ 0.17
Weighted average common and
common equivalent shares
outstanding............... 4,844 3,875 3,875 3,875 3,875 3,875 3,875
OPERATING DATA:
Dozens of eggs
processed(1).............. 42,092 46,925 53,858 73,025 74,801 18,283 18,164
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
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ACTUAL AS ADJUSTED(2)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 2,965 $ 9,347
Total assets.............................................. 19,200 23,582
Long-term debt, less current maturities................... 5,426 2,029
Stockholders' equity...................................... 4,855 14,635
</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."
5
<PAGE> 7
RISK FACTORS
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.
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 two to six months that fix the price of the
Company's products to be delivered in the future. These contracts have had an
adverse effect on the Company's margins and results of operations when the cost
of shell or liquid eggs increased during the term of the contract and may have a
similar effect in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Business --
Customers."
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. Such a disruption or interruption of
the Company's supply of shell or liquid eggs could have a material adverse
effect on the Company's business, financial condition and results of operations.
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,
6
<PAGE> 8
Wisconsin location. In March 1998, the Dunn County Board of Adjustment granted
the Company a special exception permit for the construction and operation of the
egg-laying and breaking facility. In April 1998, Jerome Foods, Inc., a turkey
producer with facilities located near the proposed egg-laying and breaking
facility, filed a complaint against the Dunn County Board of Adjustment in
Wisconsin Circuit Court, alleging that the granting of the special exception
permit to the Company was improper. In the event the Company is prohibited from
constructing the egg-laying and breaking facility at the current site, the
Company intends to seek alternate locations for such facility which would
necessitate additional delays and costs.
Additionally, the Company has not yet obtained the other required state and
local approvals, any commitment for the debt financing necessary to construct
the facility or the consent of First Bank Systems Business Finance ("FBS"),
which is required pursuant to the terms of the Company's line of credit (the
"Line of Credit") prior to the Company incurring any additional indebtedness.
There can be no assurance the Company will obtain the necessary approvals,
financing or consent on terms acceptable to the Company, or at all. If the
Company is unable to obtain such approvals, financing or consent, it would be
unable to construct the egg-laying and breaking facility and would continue to
rely on third party suppliers for its raw material needs.
Subject to the foregoing, the Company expects to begin placement of
egg-laying hens and commence operations in March 1999. The facility is expected
to be completed in 2000. 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 limited 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 -- Raw
Material Supply."
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 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."
7
<PAGE> 9
SIGNIFICANT OUTSTANDING AND FUTURE INDEBTEDNESS; SECURITY INTERESTS
In order to finance its capital requirements, the Company has incurred
significant indebtedness. At March 31, 1998, there was outstanding approximately
$3.4 million of indebtedness under the Line of Credit and $310,000 of
indebtedness under a term note (the "Term Loan") with FBS, $4.0 million under
unsecured promissory notes to Cham Foods and Egis Holdings Ltd. ("Egis"), the
largest stockholder of Cham Foods and $1.5 million under promissory notes to
United Community Bank and Bank of Sun Prairie. On April 1, 1998 the Company
repaid Egis with proceeds borrowed from Cham Foods. 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 $5.4 million of the proceeds of
this offering to repay $2.0 million of the unsecured notes owed to Cham Foods
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."
DEPENDENCE ON KEY CUSTOMERS
In 1997, the Company's ten largest customers accounted for over 69% of the
Company's net sales. The Pillsbury Company and Bender-Goodman Company accounted
for over 26% and 14%, respectively, 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
8
<PAGE> 10
publicity regarding eggs and egg products could adversely affect demand.
Although according to the USDA, 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
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 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, Jon D. Goetze, Chief Financial Officer and
Michael Shevi, Chairman. The loss of the services of Mr. Luikart, Mr. Goetze 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. 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. The Company does not have
an employment agreement with Mr. Goetze. 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 Chief
9
<PAGE> 11
Executive Officer and Chairman have had limited experience in executing
acquisitions and managing an egg-laying facility. As such, the Company recently
hired a Chief Financial Officer and a Production Manager for the proposed
egg-laying and breaking operations and is seeking to fill the position of Vice
President of Operations. 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, Weinberg Foods, Inc. of Kirkland, Washington and Bender-Goodman Company
of Jersey City, New Jersey, to market its egg products. Net sales through such
brokers accounted for approximately 36% of the Company's net sales during 1997.
The Company has an exclusive agreement with only one of these brokers. The
Company has no written agreement with the other broker. 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."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; BENEFITS TO RELATED PARTIES
Approximately $2.4 million of the estimated net proceeds from this offering
(24.4% 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. See "Use of Proceeds" and "Certain Transactions."
RISKS ASSOCIATED WITH INTERNATIONAL CUSTOMERS
The Company generally requires international customers to secure a letter
of credit in U.S. dollars before the Company will deliver any of its products.
However, the Company may reserve allocation of its products at the time an
international customer places an order. If an international customer fails to
secure a letter of credit after the Company has reserved products for the
international customer's order, the Company may be unable to reallocate such
products to other customers which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company's international sales may be adversely affected by the strengthening
of the U.S. dollar relative to foreign currencies and by foreign import
restrictions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview" and "Business -- Customers."
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.
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,
10
<PAGE> 12
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 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
11
<PAGE> 13
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.
Until Cham Foods disposes of all of its shares of Common Stock in the
Company, Golden Oval, pursuant to its supply agreement with the Company, has a
right of first refusal under certain circumstances to acquire all of the
Company's assets in the event of a proposed sale of such assets. The agreement
also grants Golden Oval a right of first refusal to acquire all of the shares of
Common Stock owned by Cham Foods in the event of a proposed sale by Cham Foods
of all of such shares. Golden Oval must respond to any offer made to it within
thirty days. These provisions 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 $4.84 per share, or 64.5%, 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, including to finance acquisitions, purchasers of the shares offered
hereby may incur additional dilution. See "Dilution."
12
<PAGE> 14
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.................................. $5,400,000
Construct egg-laying and breaking facility.................. 2,000,000
Acquisitions, working capital and general corporate
purposes.................................................. 2,400,000
----------
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 which
bear interest at a rate 7.5% per annum. The Company also intends to reduce its
Line of Credit by $3.4 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 late 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 $2.4 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 is not engaged in any negotiations and has not
entered into any letter of intent or 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.
13
<PAGE> 15
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."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998, 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>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt(1)..................... $ 3,780 $ 1,780
======= =======
Long-term debt, less current maturities..................... 5,426 2,029
------- -------
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................................ 263 10,042
Retained earnings......................................... 4,588 4,588
------- -------
Total stockholders' equity................................ 4,855 14,635
------- -------
Total capitalization........................................ $10,281 $16,664
======= =======
</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.
15
<PAGE> 17
DILUTION
The net tangible book value of the Company as of March 31, 1998 was $4.2
million, or $1.09 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 March 31, 1998 would have been $14.3 million, or $2.66 per share. This
represents an immediate increase in net tangible book value of $1.57 per share
to the existing stockholder and an immediate dilution in net tangible book value
of $4.84 per share to investors purchasing shares of Common Stock in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $7.50
Net tangible book value per share at March 31, 1998....... $1.57
Increase in net tangible book value per share attributable
to new investors....................................... 1.09
Net tangible book value per share after the offering........ 2.66
-----
Dilution per share to new investors......................... $4.84
=====
</TABLE>
The following table summarizes as of March 31, 1998, 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.
16
<PAGE> 18
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, 1996 and
1997 and for each of the years in the three-year period ended December 31, 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 four-year period ended December 31, 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 the year
ended December 31, 1993, and as of and for each of the three months ended March
31, 1997 and 1998, 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 three-month period ended March 31, 1998 are not
necessarily indicative of results for the full year ending December 31, 1998.
The information presented below under the caption "Operating Data" is unaudited.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales.......................... $32,903 $31,593 $33,136 $53,708 $50,375 $13,992 $11,626
Cost of sales...................... 29,935 28,680 29,897 48,626 43,117 12,114 9,852
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 2,968 2,913 3,239 5,082 7,258 1,878 1,774
Selling, general and administrative
expenses......................... 2,361 2,144 1,884 2,206 2,108 526 524
------- ------- ------- ------- ------- ------- -------
Income from operations........ 607 769 1,355 2,876 5,150 1,352 1,250
Other income (expense):
Write-off of related party
receivables................... (90) (771) 0 0 0 0 0
Gain from officer life
insurance..................... 0 0 202 0 0 0 0
Interest expense................. (575) (1,111) (1,149) (1,061) (835) (229) (206)
Other income (expense) net....... 0 (6) 134 0 42 6 4
------- ------- ------- ------- ------- ------- -------
Total other income
(expense)................... (665) (1,888) (813) (1,061) (793) (223) (202)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (58) (1,119) 542 1,815 4,357 1,129 1,048
Income tax expense................. 0 0 0 (641) (1,315) (341) (398)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ (58) $(1,119) $ 542 $ 1,174 $ 3,042 $ 788 $ 650
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share basic
and diluted...................... $ (0.01) $ (0.29) $ 0.14 $ 0.30 $ 0.78 $ 0.20 $ 0.17
======= ======= ======= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding.... 4,844 3,875 3,875 3,875 3,875 3,875 3,875
OPERATING DATA:
Dozens of eggs processed(1)... 42,092 46,925 53,858 73,025 74,801 18,283 18,164
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1998
----------------------------------------------- ------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(2)
---- ---- ---- ---- ---- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 2,590 $ 1,412 $ 4,159 $ 3,509 $ 2,701 $ 2,965 $ 9,347
Total assets................. 14,484 14,828 15,947 17,790 18,726 19,200 23,582
Long-term debt, less current
maturities................ 10,266 9,757 11,263 9,265 5,923 5,426 2,029
Stockholders' equity
(deficit)................. 633 (553) (10) 1,163 4,205 4,855 14,635
</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.
17
<PAGE> 19
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. In 1997, 83.5% and 13.7% of the Company's net sales were
attributable to sales of its value-added dried egg products and of liquid egg,
respectively. 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. In 1997, Primera redirected its sales and marketing strategy to
concentrate on customers recognizing the value of Primera's quality products and
services. These actions resulted in a modest reduction in the number of
customers served and contributed to improvements in the Company's 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.
In 1997, Primera purchased approximately 39% of its liquid egg requirements
directly from egg processors. The Company's single largest supplier of liquid
egg is Golden Oval, which in 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 (or 180 days prior
written notice of termination and the payment of a $500,000 termination fee),
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.
In 1997, Primera purchased shell eggs from egg suppliers for subsequent
liquid extraction in the Company's facilities. The extracted liquid represented
approximately 61% 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
18
<PAGE> 20
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. See "Business -- Raw Material Supply."
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. In 1997, breaking stock
shell egg prices for the Midwest region ranged from $0.41 to $0.66 per dozen,
according to Urner Barry Publications, Inc., 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 February 1999. The
Company expects to complete the facility by late 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.
In 1997, net sales to international customers, principally in Europe,
represented 11.2% of the Company's net sales. Primera generally reserves
products for international shipment upon receipt of the customer's order, but
requires the international customer to provide a letter of credit in U.S.
dollars prior to shipment of products. The Company's results of operations may
be adversely affected to the extent that an international customer places an
order but does not ultimately provide the necessary letter of credit. In
addition, the Company's net sales to international customers may be adversely
affected by a strengthening of the U.S. dollar relative to foreign currencies
and by international import restrictions.
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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 90.2 90.5 85.6 86.6 84.7
----- ----- ----- ----- -----
Gross margin.................................... 9.8 9.5 14.4 13.4 15.3
Selling, general and administrative expenses.... 5.7 4.1 4.2 3.8 4.5
----- ----- ----- ----- -----
Income from operations.......................... 4.1 5.4 10.2 9.6 10.8
Total other income (expense).................... (2.5) (2.0) (1.6) (1.6) (1.8)
----- ----- ----- ----- -----
Income (loss) before income taxes............... 1.6 3.4 8.6 8.0 9.0
Income tax expense.............................. (0.0) (1.2) (2.6) (2.4) (3.4)
----- ----- ----- ----- -----
Net income (loss)............................... 1.6% 2.2% 6.0% 5.6% 5.6%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
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. Although the pounds of value-added dried egg products sold by the
Company increased during the three months ended March 31, 1998 as compared to
the same period in 1997, net sales decreased $2.4 million or 16.9% to $11.6
million for the three months ended March 31, 1998, from $14.0 million for the
same period in 1997. This decrease was principally attributable to a decline in
open market egg prices which affected the average sales price for the Company's
products. The
19
<PAGE> 21
Company's international sales decreased to 1.5% of net sales for the three month
period ended March 31, 1998 from 13.4% for the same period in 1997. This
decrease was principally attributable to the strengthening of the U.S. dollar
relative to foreign currencies.
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 $2.3
million or 18.7% to $9.9 million for the three months ended March 31, 1998 from
$12.1 million for the same period in 1997. Gross profit decreased $104,000 or
5.5% to $1.8 million for the three months ended March 31, 1998 from $1.9 million
for the same period in 1997. However, the gross margin increased to 15.3% for
the three months ended March 31, 1998 from 13.4% for the same period in 1997.
The gross margin increased in the 1998 fiscal period primarily because the
Company's raw material costs decreased at a greater rate than net sales.
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 decreased $2,000
or 0.3% to $524,000, but increased to 4.5% of net sales, for the three months
ended March 31, 1998 from $526,000, or 3.8% of net sales, for the same period in
1997. The increase as a percentage of sales in the 1998 fiscal period is
principally attributable to the decline in net sales without a commensurate
decrease in selling, general and administrative expenses.
INCOME FROM OPERATIONS. Income from operations decreased $102,000 or 7.5%
to $1.3 million, but increased to 10.8% of net sales, for the three months ended
March 31, 1998 from $1.4 million, or 9.7% of net sales, for the same period in
1997. The increase as a percentage of sales was principally attributable to the
Company's improved gross margin.
TOTAL OTHER INCOME (EXPENSE). Total other income (expense) includes
interest expense and other miscellaneous income and expense not attributable to
the Company's operations. Total other expense declined $21,000 or 9.5% to
$202,000, but increased to 1.7% of net sales, for the three months ended March
31, 1998 from $223,000, or 1.6% of net sales, for the same period in 1997. The
dollar decrease is principally attributable to a reduction in the weighted
average outstanding borrowings.
INCOME TAX EXPENSE. Income tax expense increased $57,000 or 16.8% to
$398,000, or 3.4% of net sales, for the three months ended March 31, 1998, from
$341,000, or 2.4% of net sales, for the same period in 1997. The increase was
primarily attributable to the increase in the Company's effective federal and
state income tax rate to 38% for the three months ended March 31, 1998 from 30%
for the same period of 1997.
NET INCOME. As a result of the above, net income decreased $138,000 or
17.5% to $650,000, for the three months ended March 31, 1998 from $788,000 for
the same period in 1997. As a percentage of net sales, net income remained
constant at 5.6%.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Although the number of dozens of eggs processed by the Company
increased during 1997, net sales decreased $3.3 million or 6.2% to $50.4 million
in 1997 from $53.7 million in 1996. The decline in net sales was principally
attributable to (i) management's concentration on customers recognizing the
value of Primera's quality 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 11.2% of net sales in 1997 from 6.0% in 1996.
COST OF SALES AND GROSS PROFIT. Cost of sales decreased $5.5 million or
11.3% to $43.1 million in 1997 from $48.6 million in 1996. Gross profit
increased $2.2 million or 42.8% to $7.3 million in 1997 from $5.1 million in
1996. The gross margin increased to 14.4% in 1997 from 9.5% in 1996. The gross
margin increased in 1997 primarily because the Company's raw materials costs
decreased at a greater rate than net sales. In addition, the gross margin for
1996 was adversely affected by rising raw material costs. The Company also
realized the benefits of operating improvements during 1997.
20
<PAGE> 22
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $98,000 or 4.4% to $2.1 million, but increased
to 4.2% of net sales, in 1997 from $2.2 million, or 4.1% of net sales, in 1996.
The increase in such expense as a percentage of net sales was primarily
attributable to the decline in net sales without a commensurate decrease in
selling, general and administrative expenses.
INCOME FROM OPERATIONS. Income from operations increased $2.3 million or
79.1% to $5.1 million, or 10.2% of net sales in 1997, from $2.9 million, or 5.4%
of net sales, in 1996. The increase was principally attributable to the
Company's improved gross profit.
TOTAL OTHER INCOME (EXPENSE). Total other expense declined $267,000 or
25.2% to $793,000, or 1.6% of net sales in 1997 as compared to $1.1 million, or
2.0% of net sales, 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 $673,000 or 105.0% to $1.3
million, or 2.6% of net sales in 1997 from $641,000, or 1.2% of net sales in
1996. The Company's effective federal and state income tax rate declined to
30.2% in 1997 from 35.3% during 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. Based on the Company's history of losses and
break-even operating performance management established valuation allowances as
of December 31, 1996. Management concluded at the time that it was not "more
likely than not" that the Company would be able to realize all of its deferred
tax assets given its operating history. In 1997 the Company had strong operating
results and has completed seven consecutive profitable quarters. Therefore,
management has concluded that a valuation allowance against the remaining
deferred tax assets is no longer warranted.
NET INCOME. As a result of the above, net income increased $1.9 million or
159.2% to $3.0 million, or 6.0% of net sales in 1997 from $1.2 million, or 2.2%
of net sales 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. The Company's international
sales increased to 6.0% of net sales in 1996 from 3.8% in 1995.
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, in 1996 from $3.2 million in
1995. However, the gross margin decreased to 9.5% in 1996 from 9.8% 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 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
21
<PAGE> 23
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. Prior to the year ended December 31,
1995, the Company had experienced either loss or break-even results for nine
years. While the Company was profitable in the third quarter of 1995, it
returned to a loss position in the fourth quarter of 1995 and again in the first
quarter of 1996. Based on the Company's history of losses and break-even
operating performance management established valuation allowances as of December
31, 1995 and 1996. Management concluded at the time that it was not "more likely
than not" that the Company would be able to realize all of its deferred tax
assets given its operating history.
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.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly financial data
for the four quarters in 1996 and 1997 and the first quarter of 1998. 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
---------------------------------------------------------------------------------------
1996 1997 1998
------------------------------------- ------------------------------------- -------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $13,939 $11,707 $14,412 $13,649 $13,992 $11,438 $12,477 $12,468 $11,626
Cost of sales............... 13,356 10,510 12,686 12,074 12,114 9,655 10,588 10,760 9,852
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ 583 1,197 1,726 1,575 1,878 1,783 1,889 1,708 1,774
Selling, general and
administrative expenses... 500 544 594 568 526 508 555 519 524
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................ 83 653 1,132 1,007 1,352 1,275 1,334 1,189 1,250
Total other income
(expense)................. (330) (235) (223) (272) (223) (207) (201) (162) (202)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes..................... (247) 418 909 735 1,129 1,068 1,133 1,027 1,048
Income tax expense.......... 0 0 (387) (254) (341) (324) (331) (319) (398)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ (247) $ 418 $ 522 $ 481 $ 788 $ 744 $ 802 $ 708 $ 650
======= ======= ======= ======= ======= ======= ======= ======= =======
</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 $8.0 million at March 31, 1998,
substantially all of which is expected to be filled in 1998. The Company carried
a backlog of $3.1 million at December 31, 1997 as compared to a backlog of $7.7
million at December 31, 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.
22
<PAGE> 24
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 $3.5 million, $2.7 million and $3.0 million at December 31,
1997 and 1996 and March 31, 1998, respectively. The decrease in working capital
is primarily attributable to the changes to current maturities of certain long
term debt.
Cash provided by operating activities for 1997 and 1996 was $1.9 million
and $3.0 million, respectively. The decrease was primarily attributable to a
decrease in accounts payable and an increase in inventories. Cash provided by
operating activities for 1996 and 1995 was $3.0 million and $2.7 million,
respectively. The increase 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 1997 and 1996 was $1.1 million and
$956,000, respectively. The increase was principally attributable to a $139,000
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 was principally attributable to a $626,000 increase in purchases of
property, plant and equipment.
Cash used in financing activities for 1997 was $855,000. This was primarily
related to a net repayment of $1.3 million in related party and other debt
offset partially by increases in checks outstanding and borrowings under the
Company's Line of Credit. 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 March 31, 1998, the Company's borrowings consisted principally of (i)
$4.0 million of unsecured debt due on demand to Cham Foods and Egis, (ii)
$310,000 under the Term Loan due June 30, 2000, (iii) $3.4 million under the
Line of Credit due June 30, 2000 and (iv) $1.5 million of secured real estate
mortgage debt consisting of $1.1 million owed to United Community Bank and
$360,000 owed to Bank of Sun Prairie due February 1, 1999 and December 17, 1998,
respectively. On April 1, 1998 the Company repaid Egis with proceeds borrowed
from Cham Foods. The Company's required debt service payments under the Line of
Credit, the Term Loan and the mortgage debts total $52,000 per month. 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. 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
$5.4 million of the estimated net proceeds from this offering to reduce the debt
owed to Cham Foods by $2.0 million and to reduce the Line of Credit to $0.
Capital expenditures were $1.1 million and $975,000 in 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 late 1998, and expects to complete construction
of the facility in 2000. 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
23
<PAGE> 25
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) for at least the next twelve months.
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.
24
<PAGE> 26
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 1997, the Company processed liquid egg into 19.5 million pounds of
value-added dried 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 information provided to the Company by PESI, Incorporated ("PESI"),
an industry reporting service. The food processing industry remains highly
fragmented despite the presence of several large and well-known branded food
companies. According to Factset Research Systems Inc., 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 PESI.
The processed egg industry is highly consolidated, with 12 companies
accounting for over 90% of the market in 1996, according to PESI. According to
USDA statistics, the dried egg industry has grown at an average annual
compounded rate of 3.7% 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.
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
25
<PAGE> 27
focusing on enhancing the convenience for its customers in receiving, storing
and handling its products and incorporating them into consumer food products.
- - 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. In 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."
In 1997, Primera purchased approximately 39% of its liquid egg requirements
directly from egg processors. The Company's single largest supplier of liquid
egg is Golden Oval, which in 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.
In 1997, Primera purchased breaking stock eggs from egg suppliers for
subsequent liquid extraction in the Company's facilities. The extracted liquid
represented approximately 61% of the Company's raw material supply. The Company
purchases the bulk of its breaking stock eggs at negotiated prices based on
prevailing
26
<PAGE> 28
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.
Generally, these agreements require the suppliers to exclusively commit all or a
portion of their egg production to the Company or to grant the Company a right
of first refusal to acquire all or a portion of the supplier's eggs. The
agreements vary in length up to approximately two years. 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 Company expects to begin
placement of egg-laying hens and commence operations in March 1999 and the
entire project is expected to be completed in 2000. 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
drying 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 1997, Primera redirected its sales and marketing
strategy to concentrate on customers recognizing the value of Primera's quality
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 1997. Sales to international customers, primarily in Europe,
accounted for 11.2%, 6.0% and 3.8% of the Company's net sales in 1997, 1996 and
1995, respectively. During 1997, the Pillsbury Company and Bender-Goodman
Company accounted for over 26% and 14%, respectively, of the Company's net
sales. No other customer represented 10% or more of the Company's net sales in
1997.
Customers generally purchase the Company's products on an as-needed basis.
However, in order to manage their exposure to fluctuations in egg market prices,
certain of the Company's larger customers occasionally seek contracts ranging
from two to six months that fix the price of the Company's products to be
delivered in the future.
27
<PAGE> 29
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
Weinberg Foods, Inc. the Company's Washington-based, and Bender-Goodman Company,
the Company's New Jersey-based, independent brokers together accounted for
approximately 36%, 40% and 37% of the Company's net sales during 1997, 1996 and
1995, respectively. The Company has an exclusive marketing arrangement with
Weinberg Foods, Inc. The agreement provides that the commissions payable to
Weinberg Foods, Inc. will be determined at the time of each sale. Either party
may terminate the agreement upon six months' notice to the other party. The
Company does not have a written agreement with Bender-Goodman Company.
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.
28
<PAGE> 30
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. During 1997, these facilities
operated on a combined average of approximately 75% of total estimated capacity.
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 March 31, 1998, the Company had a total of 147 full-time employees,
of whom 135 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.
29
<PAGE> 31
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.................... 45 President, Chief Executive Officer and
Director
Jon D. Goetze..................... 39 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 a B.S. degree in food
science and technology from the University of Minnesota and a M.B.A. degree from
the University of St. Thomas.
Mr. Goetze has served as Chief Financial Officer of the Company since April
1998. Between 1996 and April 1998, Mr. Goetze served as President of Capital
Solutions, Inc., a company specializing in advising businesses in connection
with mergers and acquisitions and business valuations. From 1990 to 1996, Mr.
Goetze was employed by Larson, Allen Weishair & Co., most recently as Director
of Management Advisory Services. Between 1987 and 1990, Mr. Goetze was employed
by Wipfli, Ulrich, Berteleson, CPA's, most recently as a Senior Manager in
charge of the business consulting division. From 1984 to 1986, he was employed
by Touche Ross & Co., where he specialized in corporate strategy, operational
analysis and business acquisitions. Mr. Goetze received a B.S. degree in
business administration from the University of Minnesota and a M.B.A. degree
from the Wharton School.
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
30
<PAGE> 32
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 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 a B.A. degree from
Stanford University and a 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:
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 a 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 a B.S. degree in food science from
the University of Wisconsin.
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 a B.A. degree from Metropolitan State University.
Peter J. Mumm was hired in January 1998 to serve as the Production Manager
of the Company's proposed egg-laying and breaking operation. Prior to joining
Primera, Mr. Mumm worked for five years in various capacities in the egg-laying
operations of Creekwood Farms. Mr. Mumm received a B.S. degree in poultry
science from the University of Wisconsin.
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.
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.
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."
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<PAGE> 33
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 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 initially 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. Goetze was hired as the Company's Chief Financial Officer effective
April 1, 1998. Mr. Goetze has not entered into an employment agreement with the
Company. Mr. Goetze's base salary for 1998 is $99,000. In addition, the Board
may, at its discretion, pay Mr. Goetze a year-end cash bonus. Mr. Goetze has the
use of a Company-owned automobile.
32
<PAGE> 34
EXECUTIVE COMPENSATION
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.
SUMMARY COMPENSATION TABLE
<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............. 1997 $120,000 $91,000 $1,000
1996 $ 94,000 $45,000 $1,000
1995 $ 61,000 $10,000 $1,000
</TABLE>
- -------------------------
(1) Represents life insurance premiums paid by the Company on a policy owned by
Mr. Luikart.
To date, there has been no exercise of stock options granted by the
Company. Mr. Luikart is the only current executive officer granted stock options
during the year ended December 31, 1997. Prior to 1997, no stock options were
granted by the Company.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL YEAR PRICE EXPIRATION ----------------------
NAME GRANTED 1997 PER SHARE(1) DATE 5% 10%
---- ---------- -------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jon E. Luikart............ 125,000 75.9% $7.50 Oct. 2007 $590,000 $1,494,000
</TABLE>
- -------------------------
(1) The exercise price per share is based upon an assumed initial public
offering price of $7.50 per share. The actual exercise price will be equal
to the initial public offering price to investors in this offering.
(2) Based upon an assumed initial public offering price of $7.50 per share and
on annual appreciation of such value minus the option exercise price,
through the expiration date of such options, at the stated rates. These
amounts represent assumed rates of appreciation only and may not necessarily
be achieved. Actual gains, if any, depend on the future performance of the
Common Stock, as well as the continued employment of Mr. Luikart for the
full term of the options.
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
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<PAGE> 35
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.
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
Options and Non-Qualified 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 Non-Qualified Options to the Company's former Chief
Financial Officer to purchase an aggregate of 29,300 shares of Common Stock.
Incentive Options to purchase an aggregate of 15,400 shares of Common Stock were
granted to six other employees. Additionally, in April 1998, the Company granted
Mr. Goetze Incentive Options and Non-Qualified Options to purchase an aggregate
of 37,500 and 12,500 shares of Common Stock, respectively. 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 the former Chief
Financial Officer terminates his employment with the Company within 12 months of
the date of grant, 50% of such former officer's 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 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> 36
CERTAIN TRANSACTIONS
As of March 31, 1998, 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 $333,000 of interest to these related
parties during 1996 and 1997, respectively. The notes payable to related parties
at March 31, 1998 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. On April 1, 1998 the
Company repaid Egis with proceeds borrowed from Cham Foods. The Company intends
to use proceeds from this offering to repay a portion of the notes to Cham
Foods. See "Use of Proceeds."
The Company purchased $1.3 million, $870,000 and $268,000 of products from
Cham Foods during the year ended December 31, 1996 and 1997 and the three month
period ended March 31, 1998, respectively. The Company had accounts payable to
Cham Foods on such purchases of $934,000, $575,000 and $581,000 at December 31,
1996 and 1997 and at March 31, 1998, respectively. The products purchased from
Cham Foods principally consisted of dehydrated vegetable products. These
products were purchased by the Company for resale to its customers. The Company
and Cham Foods do not have a written agreement under which the Company purchases
the products. The Company purchases these products in such amounts and at such
prices as market conditions warrant. The Company historically paid interest at
an annual rate of 8% on Cham Foods payables outstanding over 90 days. In April
1998, the interest rate on such payables was lowered to 7.5%. The Company also
had accounts receivable due from Cham Foods of $168,000, $198,000 and $13,000 on
December 31, 1996 and 1997 and on March 31, 1998, respectively, primarily for
equipment. 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
which was repaid in the period ended March 31, 1998. Mr. Luikart received a
second loan from the Company of $30,000 in February 1997. The second loan is due
in February 2007. The outstanding principal balance on the second loan is
$30,000. This loan is evidenced by a promissory note and bears interest at an
annual rate of 6.0%.
The Company's current policy is that 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 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. The
transactions described above were entered into before adoption of the Company's
current policy relating to such transactions. Therefore, the terms of each of
the transactions described above are not necessarily as favorable as terms the
Company could have received from disinterested third parties.
35
<PAGE> 37
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)........................................ -- -- --
Jon D. Goetze(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.
36
<PAGE> 38
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
37
<PAGE> 39
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.
Until Cham Foods disposes of all of its shares of Common Stock in the
Company, Golden Oval, pursuant to its supply agreement with the Company, has a
right of first refusal under certain circumstances to acquire all of the
Company's assets in the event of a proposed sale of all of such assets. The
agreement also grants Golden Oval a right of first refusal to acquire all of the
shares of Common Stock owned by Cham Foods in the event of a proposed sale by
Cham Foods of all of such shares. Golden Oval must respond to any offer made to
it within thirty days. These provisions could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. The
interests of investors in this offering may be adversely affected to the extent
that Golden Oval exercises its right of first refusal to acquire all of the
Company's assets in contravention of a vote of stockholders to sell such assets
to a third party.
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.
38
<PAGE> 40
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
219,700 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.
39
<PAGE> 41
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 public
offering, the Representative may change the initial price to public, concession
and reallowance 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
40
<PAGE> 42
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 & Spaanstra, P.C.,
Denver, Colorado.
EXPERTS
The consolidated financial statements of Primera Foods Corporation and
subsidiary as of December 31, 1996 and 1997, and for each of the years in the
three year period ended December 31, 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.
41
<PAGE> 43
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.
42
<PAGE> 44
PRIMERA FOODS CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-2
Consolidated Statements of Operations..................... F-3
Consolidated Statements of Stockholders'
Equity/(Deficit)....................................... F-4
Consolidated Statements of Cash Flows..................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
PRIMERA FOODS CORPORATION:
We have audited the accompanying consolidated balance sheets of Primera
Foods Corporation and subsidiary (the Company) as of December 31, 1996 and 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, 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, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 6, 1998
F-1
<PAGE> 46
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
------------------------- -----------
1996 1997 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Trade accounts receivable, less allowance for
doubtful accounts of $60,000, $65,000 and $40,000
at December 31, 1996 and 1997, and March 31,
1998, respectively............................... $ 4,023,004 $ 3,710,388 $ 4,161,748
Accounts receivable -- related parties.............. 168,289 198,413 13,262
Notes receivable due from related parties........... 23,694 42,500 30,000
Inventories......................................... 5,620,167 6,204,825 6,558,362
Prepaid expenses and other current assets........... 100,144 102,337 78,714
Deferred tax assets................................. 109,162 83,078 83,078
----------- ----------- -----------
Total current assets........................ 10,044,460 10,341,541 10,925,164
----------- ----------- -----------
Property, plant, and equipment, net of accumulated
depreciation........................................ 7,409,633 7,806,100 7,643,907
Goodwill, net of accumulated amortization............. 329,375 318,750 316,093
Other assets, net of accumulated amortization......... 6,953 259,714 314,406
----------- ----------- -----------
Total assets................................ $17,790,421 $18,726,105 $19,199,570
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of cash balances............ $ 623,592 $ 1,050,664 $ 305,225
Accounts payable.................................... 3,564,960 2,695,325 2,426,641
Accounts payable -- related parties................. 934,044 575,070 581,131
Accrued liabilities................................. 610,155 431,156 455,291
Accrued interest payable............................ 127,922 48,813 64,704
Accrued income tax payable.......................... 171,126 18,957 347,237
Current maturities of long-term debt................ 503,455 820,156 1,780,079
Current maturities of notes payable -- related
parties.......................................... -- 2,000,000 2,000,000
----------- ----------- -----------
Total current liabilities................... 6,535,254 7,640,141 7,960,308
----------- ----------- -----------
Long-term liabilities:
Notes payable -- related parties.................... 4,828,550 2,028,550 2,028,550
Long-term debt, less current maturities............. 4,436,756 3,894,206 3,397,680
Deferred income taxes............................... 826,598 958,110 958,110
----------- ----------- -----------
Total long-term liabilities................. 10,091,904 6,880,866 6,384,340
----------- ----------- -----------
Total liabilities........................... 16,627,158 14,521,007 14,344,648
----------- ----------- -----------
Commitments and contingencies (notes 7 and 9)
Stockholders' equity:
Preferred stock -- $1.00 par value; 1,000,000 shares
authorized; no shares issued and outstanding as
of December 31, 1996, 1997 and March 31, 1998.... -- -- --
Common stock -- $.001 par value; 25,000,000 shares
authorized; 3,875,000 shares issued and
outstanding at December 31, 1996, 1997 and March
31, 1998......................................... 3,875 3,875 3,875
Additional paid-in capital.......................... 262,791 262,791 262,791
Retained earnings................................... 896,597 3,938,432 4,588,256
----------- ----------- -----------
Total stockholders' equity.................. 1,163,263 4,205,098 4,854,922
=========== =========== ===========
Total liabilities and stockholders'
equity.................................... $17,790,421 $18,726,105 $19,199,570
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 47
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales...................... $33,135,649 $53,707,977 $50,375,043 $13,992,336 $11,626,196
Cost of sales.................. 29,896,451 48,626,198 43,116,844 12,114,488 9,851,897
----------- ----------- ----------- ----------- -----------
Gross profit.............. 3,239,198 5,081,779 7,258,199 1,877,848 1,774,299
Selling, general, and
administrative expenses...... 1,883,547 2,206,210 2,108,441 525,804 524,205
----------- ----------- ----------- ----------- -----------
Income from operations.... 1,355,651 2,875,569 5,149,758 1,352,044 1,250,094
Other income (expense):
Gain from officer life
insurance................. 201,955 -- -- -- --
Interest expense............. (878,149) (677,613) (492,792) (136,669) (123,209)
Interest expense -- related
party..................... (271,334) (383,606) (342,605) (92,819) (82,768)
Other income/(expense) net... 134,097 765 42,100 6,288 3,987
----------- ----------- ----------- ----------- -----------
Total other income
(expense)............... (813,431) (1,060,454) (793,297) (223,200) (201,990)
----------- ----------- ----------- ----------- -----------
Income before income
taxes................... 542,220 1,815,115 4,356,461 1,128,844 1,048,104
Income tax expense............. -- (641,413) (1,314,626) (341,000) (398,280)
----------- ----------- ----------- ----------- -----------
Net income................ $ 542,220 $ 1,173,702 $ 3,041,835 $ 787,844 $ 649,824
=========== =========== =========== =========== ===========
Basic earnings per share....... $ 0.14 $ 0.30 $ 0.78 $ .20 $ 0.17
=========== =========== =========== =========== ===========
Diluted earnings per share..... 0.14 0.30 0.78 .20 0.17
=========== =========== =========== =========== ===========
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> 48
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
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............................. -- -- -- 3,041,835 3,041,835
--------- ------ -------- ---------- ----------
Balance at December 31, 1997............. 3,875,000 3,875 262,791 3,938,432 4,205,098
Net income (unaudited)................. -- -- -- 649,824 649,824
--------- ------ -------- ---------- ----------
Balance at March 31, 1998 (unaudited).... 3,875,000 $3,875 $262,791 $4,588,256 $4,854,922
========= ====== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
PRIMERA FOODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
----------------------------------------- ------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 542,220 $ 1,173,702 $ 3,041,835 $ 787,845 $ 649,824
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of property, plant, and
equipment.......................... 452,234 624,264 702,488 155,715 186,829
Amortization of goodwill and other
assets............................. 13,896 13,894 13,895 3,474 3,474
Write-down of property, plant, and
equipment.......................... 269,645 -- -- -- --
Write-off of employee advance........ 6,000 -- -- -- --
Write-off of note receivable......... 75,000 -- -- -- --
Net (gain) loss from disposition of
property, plant, and equipment..... 3,805 10,860 (17,592) (5,050) --
Provision for deferred taxes......... -- 462,436 157,596 (41,072) --
Provision for losses on trade
accounts receivable................ 40,128 63,378 5,000 -- (25,000)
Change in operating assets and
liabilities:
Trade accounts receivable.......... 1,309,855 (881,301) 307,616 (215,809) (426,360)
Accounts receivable -- related
parties......................... (159,209) 16,866 (30,124) 12,603 185,151
Notes receivable due from related
parties......................... 16,870 (18,768) (18,806) (27,429) 12,500
Inventories........................ (380,739) (693,791) (584,658) 667,568 (353,537)
Prepaid expenses and other current
assets.......................... (76) (3,976) (2,193) 39,501 23,623
Accounts payable................... (22,637) 1,423,457 (869,635) (1,820,886) (268,684)
Accounts payable -- related
parties......................... 780,104 153,940 (358,974) (41,723) 6,061
Accrued liabilities................ (37,740) 408,693 (178,999) 1,163,410 24,135
Accrued interest payable........... (189,577) 37,765 (79,109) 5,565 15,891
Accrued income taxes payable....... -- 171,126 (152,169) 161,375 328,280
----------- ----------- ----------- ----------- ---------
Net cash provided by operating
activities.................... 2,719,779 2,962,545 1,936,171 845,087 362,187
----------- ----------- ----------- ----------- ---------
Cash flows from investing activities:
Additions to property, plant, and
equipment............................ (349,618) (975,402) (1,114,063) (476,386) (24,636)
Proceeds from sale of property, plant,
and equipment........................ 191,152 19,500 32,700 5,050 --
Other assets........................... 27,264 -- -- -- --
----------- ----------- ----------- ----------- ---------
Net cash used in investing
activities.................... (131,202) (955,902) (1,081,363) (471,336) (24,636)
----------- ----------- ----------- ----------- ---------
Cash flows from financing activities:
Proceeds from related party debt
issuances............................ 1,450,000 2,462,850 820,950 -- --
Payments of related party debt......... (60,000) (2,500,000) (1,620,950) (600,000) --
Proceeds from issuance of long-term
debt................................. 109,000 -- -- -- --
Repayments of long-term debt........... (1,190,786) (624,264) (503,580) (125,982) (126,848)
Increase (decrease) in checks issued in
excess of cash balances.............. 240,995 36,003 427,072 (623,592) (745,439)
Net increase (decrease) on revolving
credit agreement..................... (518,076) (1,381,232) 277,731 1,042,415 590,245
Other assets........................... -- -- (256,031) -- (55,509)
----------- ----------- ----------- ----------- ---------
Net cash provided by (used in)
financing activities.......... 31,133 (2,006,643) (854,808) (307,159) (337,551)
----------- ----------- ----------- ----------- ---------
Net change in cash.............. 2,619,710 -- -- 66,592 --
Cash at beginning of the period.......... -- -- -- -- --
----------- ----------- ----------- ----------- ---------
Cash at end of the period................ $ 2,619,710 $ -- $ -- $ 66,592 $ --
=========== =========== =========== =========== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest paid........................ $ 1,285,270 $ 975,952 $ 914,506 $ 223,923 $ 190,086
Taxes paid........................... 3,178 7,851 1,281,398 179,626 70,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
(A) 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.
(B) 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.
(C) INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined on the average cost method. Inventory costs include raw materials,
direct labor, and manufacturing overhead.
(D) 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.
(E) 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.
(F) 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.
(G) 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.
(H) 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
F-6
<PAGE> 51
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
(I) REVENUE RECOGNITION
The Company recognizes revenue from product sales based on the terms of the
contract, which is generally at the time of shipment.
(J) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. A
significant portion of the Company's sales are to customers in the food industry
and, as such, the Company is directly affected by the well-being of that
industry. The Company monitors its credit risks associated with trade
receivables by assessing the creditworthiness of its customers. The Company does
not require collateral on trade receivables. Historically, the Company has not
experienced significant losses on trade receivables.
(K) 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 common and common equivalent shares outstanding during the period.
There have been no issuances of common stock, warrants, or options for nominal
consideration during the periods presented.
RIGHT OF FIRST REFUSAL
In connection with entering into the Company's supply contract with Golden
Oval, the Company agreed that in the event Cham Foods decides to sell all of the
assets of the Company or all of Cham Food's stock in the Company to any party
not directly or indirectly associated with the current ownership of Cham Foods
or their families, Golden Oval will be given the right of first refusal to
purchase all such assets or stock under the same terms. This right shall exist
for thirty days after written notification by the Company to Golden Oval, unless
otherwise agreed in writing by both parties. (see note 9)
(L) NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
which establishes new standards for computing and presenting earnings per share
information. The Company adopted the new standard beginning in 1997. Prior
period information has been restated to conform with the requirements of the new
standard.
In 1997, the FASB also issued SFAS 129, SFAS 130, and SFAS 131. SFAS 129,
Disclosure of Information about Capital Structure, consolidates existing
disclosure requirements and had no impact on the Company's financial statements.
SFAS 130, Reporting Comprehensive Income, establishes standards for reporting
and displaying the components of comprehensive income and was adopted by the
Company in the first quarter of 1998. The adoption had no impact on the Company.
SFAS 131, Disclosures about Segments of
F-7
<PAGE> 52
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
an Enterprise and Related Information, establishes standards for determining
operating segments and reporting operating segment information. SFAS 131 is
required to be adopted beginning with the Company's 1998 year-end annual report.
The Company has not yet evaluated the effects of this pronouncement to determine
what changes, if any, to its current reporting format will be required.
(2) INVENTORIES
The components of inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------------- ----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Supplies................................. $ 296,364 $ 291,745 $ 310,473
Raw materials............................ 665,945 449,220 450,968
Finished products........................ 4,657,858 5,463,860 5,796,921
---------- ---------- ----------
$5,620,167 $6,204,825 $6,558,362
========== ========== ==========
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
The components of property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
ESTIMATED -------------------------- -----------
USEFUL LIVES 1996 1997 1998
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Land........................ -- $ 118,957 $ 118,957 $ 118,957
Buildings................... 32-40 years 3,140,654 3,717,242 3,717,242
Machinery and equipment..... 5-15 years 6,925,800 7,749,471 7,766,369
Vehicles.................... 3-4 years 364,500 413,119 413,119
Furniture and fixtures...... 3-15 years 147,912 173,654 173,654
Construction in progress.... -- 454,228 34,987 42,725
----------- ----------- ----------- -----------
11,152,051 12,207,430 12,232,066
Less accumulated
depreciation.............. (3,742,418) (4,401,330) (4,588,159)
----------- ----------- -----------
$ 7,409,633 $ 7,806,100 $ 7,643,907
=========== =========== ===========
</TABLE>
Accumulated depreciation is associated with the following components:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------- ----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Buildings.................................. $ 587,204 $ 680,147 $ 705,368
Machinery and equipment.................... 2,841,425 3,333,988 3,468,735
Vehicles................................... 269,588 312,004 329,378
Furniture and fixtures..................... 44,201 75,191 84,678
---------- ---------- ----------
Total accumulated depreciation........... $3,742,418 $4,401,330 $4,588,159
========== ========== ==========
</TABLE>
In 1995, the Company recorded a write-down of $269,645 for various
equipment, which continued to be held and used, to properly reflect management's
estimated net realizable values, which were 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.
F-8
<PAGE> 53
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(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 at December 31, 1997 and March 31, 1998 of $425,015 and $310,016,
respectively, and unused available Equipment Loan with a maximum amount of $1
million. As of December 31, 1997 and March 31, 1998, the Company had only drawn
amounts under the revolving credit facility and Term Loan A. The revolving
credit facility bears interest at the bank's base rate plus 0.25% 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 0.75%. 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, 1996
and 1997 and at March 31, 1998 was 8.25%, 8.50% and 8.50%, respectively. The
Company pays a commitment fee of 0.0375% 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.
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 as of
December 31, 1996 and 1997 and March 31, 1998.
As of December 31, 1996, 1997 and March 31, 1998, the available unused
revolving credit note was $4,770,000, $2,642,410 and $2,052,165, respectively.
The weighted average interest rate for the years ended December 31, 1996
and 1997 and the three month period ended March 31, 1998 was 9.6%, 8.8% and
8.4%, respectively.
F-9
<PAGE> 54
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------ ----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Notes payable--First Bank Systems Business Finance:
Revolving credit note of $5.5 million.................. $2,529,859 $2,807,590 $3,397,836
Note payable in monthly installments of $38,333, plus
interest at prime rate plus 0.25% 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, 1996 and 1997
and at March 31, 1998 was 8.25%, 8.50% and 8.50%,
respectively........................................ 885,011 425,015 310,016
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................................................. 1,154,781 1,121,758 1,112,781
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........................................ 370,560 359,999 357,126
---------- ---------- ----------
4,940,211 4,714,362 5,177,759
Less current maturities.................................. (503,455) (820,156) (1,780,079)
---------- ---------- ----------
Total long-term debt................................ $4,436,756 $3,894,206 $3,397,680
========== ========== ==========
</TABLE>
Aggregate annual maturities of long-term debt as of December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998........................................................ $ 820,156
1999........................................................ 1,086,616
2000........................................................ 2,807,590
----------
$4,714,362
==========
</TABLE>
F-10
<PAGE> 55
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(5) INCOME TAXES
The tax provision for the years ended December 31, 1995, 1996 and 1997 and
the three month period ended March 31, 1998 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
---------------------------------- MARCH 31
1995 1996 1997 1998
---- ---- ---- --------
<S> <C> <C> <C> <C>
Computed tax expense at statutory rate........... $ 184,000 $617,139 $1,481,197 $356,355
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of federal
income benefit.............................. 28,000 118,128 93,221 44,938
Change in the beginning of the year balance of
the valuation allowance for deferred tax
assets allocated to income tax expense...... (218,000) (96,371) (436,613) --
Adjustment to provision for additional taxes... -- -- 170,456 --
Other.......................................... 6,000 2,517 6,365 (3,013)
---------- -------- ---------- --------
$ -- $641,413 $1,314,626 $398,280
========== ======== ========== ========
</TABLE>
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Federal...................................... $ -- $ -- $ --
State........................................ -- -- --
---------- -------- ----------
$ -- $ -- $ --
========== ======== ==========
YEAR ENDED DECEMBER 31, 1996
Federal...................................... 178,977 283,454 462,431
State........................................ -- 178,982 178,982
---------- -------- ----------
$ 178,977 $462,436 $ 641,413
========== ======== ==========
YEAR ENDED DECEMBER 31, 1997
Federal...................................... 1,032,251 141,131 1,173,382
State........................................ 124,779 16,465 141,244
---------- -------- ----------
$1,157,030 $157,596 $1,314,626
========== ======== ==========
THREE MONTH PERIOD ENDED MARCH 31, 1998
Federal...................................... 313,831 16,361 330,192
State........................................ 64,933 3,155 68,088
---------- -------- ----------
$ 378,764 $ 19,516 $ 398,280
========== ======== ==========
</TABLE>
F-11
<PAGE> 56
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO 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,
1996 and 1997 and March 31, 1998 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 218,551 $ -- $ --
AMT credit carryforwards..................... 362,281 -- --
Self-insured health insurance................ 24,287 -- --
Bad debt..................................... 23,402 24,739 15,224
Uniform capitalization....................... 41,006 49,364 49,860
Accrued interest............................. -- 982 982
Other........................................ 3,510 7,993 17,012
--------- -------- --------
Gross deferred asset...................... 673,037 83,078 83,078
Valuation allowance............................ (436,613) -- --
--------- -------- --------
Net deferred tax asset.................... $ 236,424 $ 83,078 $ 83,078
========= ======== ========
Deferred tax liabilities:
Depreciation................................. 940,314 958,110 958,110
Other........................................ 13,546 -- --
--------- -------- --------
Deferred tax liabilities.................. $ 953,860 $958,110 $958,110
========= ======== ========
</TABLE>
Prior to the year ended December 31, 1995, the Company had experienced
either loss or break-even results for nine years. While the Company was
profitable in the third quarter of 1995, it returned to a loss position in the
fourth quarter of 1995 and again in the first quarter of 1996. Based on the
Company's history of losses and break-even operating performance management
established valuation allowances as of December 31, 1995 and 1996. Management
concluded at the time that it was not "more likely than not" that the Company
would be able to realize all of its deferred tax assets given its operating
history. In 1997 the Company had strong operating results and has now completed
seven consecutive profitable quarters. Therefore, management has now concluded
that a valuation allowance against the remaining deferred tax assets is no
longer warranted.
The net change in the total valuation allowance for the years ended
December 31, 1996 and 1997 was a decrease of $96,371 and $436,613, respectively,
related primarily to operating loss and alternative minimum tax credit
carryforwards. The reduction in the amount of the valuation allowance each year
has been based on the amount of the deferred tax assets which more likely than
not have been realized coupled with management's estimate of the deferred tax
assets that will be realized due to profitable operations in future periods and
the future reversals of existing taxable temporary differences.
At December 31, 1996 and 1997, the Company had federal income tax
carryforwards of net operating losses of approximately $526,000 and $0,
respectively. The 1996 carryforwards were used to offset taxable income in 1997.
The Company, in 1997, 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.
F-12
<PAGE> 57
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(6) STOCKHOLDERS' EQUITY
(a) Stock Options
In 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. Under the Stock Option Plan,
the number of options granted may not exceed 400,000. Options have a 10-year
life. With the completion of the Company's initial public offering, 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 the date of grant.
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE OPTIONS
EXERCISE PRICE AVAILABLE OPTIONS OPTIONS
PER SHARE FOR GRANT OUTSTANDING EXERCISABLE
---------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996...... $ -- -- -- --
1997 Plan......................... -- 400,000 -- --
Granted........................... 7.50* 230,300 169,700 --
----- ------- ------- --
Balance at December 31, 1997...... $7.50 230,300 169,700 --
===== ======= ======= ==
</TABLE>
- -------------------------
* Equal to the initial public offering price estimated to be $7.50 per share.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock options. Under APB Opinion
No. 25, when the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the grant date, there is no
compensation expense recognized.
Pro forma information regarding net income is required by SFAS 123,
Accounting for Stock-Based Compensation, which also requires that the
information be determined as if the Company has accounted for its employee stock
options granted under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using the minimum value
method of an option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Expected dividend yield..................................... 0.00%
Risk-free interest rate..................................... 5.91%
Weighted average expected life.............................. 5 years
</TABLE>
Option valuation models were developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-13
<PAGE> 58
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
If the Company had elected to recognize compensation cost consistent with
the methodology prescribed under SFAS No. 123, the Company's net income and
basic/diluted earnings per share for the year ended December 31, 1997 would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net income as reported...................................... $3,041,835
Pro forma net income........................................ 2,933,295
----------
Basic/diluted earnings per share............................ $ 0.78
Pro forma earnings per share................................ 0.76
==========
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts as additional awards in future years are
anticipated.
(b) 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 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.
(7) 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, 1995,
1996, and 1997 and for the three month period ended March 31, 1998 was $120,690,
$93,870, $244,532 and $53,698, respectively. Future minimum lease payments due
under these leases for the years ended December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 78,178
1999........................................................ 78,178
2000........................................................ 19,868
--------
$176,224
========
</TABLE>
F-14
<PAGE> 59
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) RELATED PARTIES AND RELATED PARTY TRANSACTIONS
Following is a schedule of amounts due to/due from related parties:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------ ----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Accounts receivable:
Cham Foods (Israel) Ltd.................. $ 168,289 $ 198,413 $ 13,262
Notes receivable:
Jon Luikart.............................. 12,500 42,500 30,000
Weinberg Foods........................... 11,194 -- --
---------- ---------- ----------
$ 191,983 $ 240,913 $ 43,262
========== ========== ==========
Payable:
Cham Foods Ltd........................... 934,044 575,070 581,131
Notes payable:
Cham Foods Ltd........................... 2,462,850 3,283,800 3,283,800
Canadian stockholders.................... 375,700 -- --
Egis Holdings Limited.................... 1,790,000 744,750 744,750
M. Shevi Family Asset Ltd................ 200,000 -- --
---------- ---------- ----------
4,828,550 4,028,550 4,028,550
---------- ---------- ----------
$5,762,594 $4,603,620 $4,609,681
========== ========== ==========
</TABLE>
The Company has unsecured notes payable to related parties totaling
$4,828,550, $4,028,550 and $4,028,550 at December 31, 1996 and 1997 and at March
31, 1998, respectively, 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 $358,774, $332,605 and $69,781 of interest to these related
parties during the years ended December 31, 1996 and 1997 and for the three
month period ended March 31, 1998, respectively. The Company owed interest of
$84,489, $10,000 and $21,647 on these notes at December 31, 1996 and 1997 and at
March 31, 1998, 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 year 1998, except
for $2 million, which will be repaid upon completion of the initial public
offering. As such, this amount is classified as a current liability.
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, director, and Chairman of the Board 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 $1,300,789, $870,187 and $267,911 of ingredients from Cham
Foods (Israel) Ltd. during the years ended December 31, 1996 and 1997 and the
three-month period ended March 31, 1998, 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 was paid by the Company for its
Stockton facility for each of the years ended December 31, 1996 and 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, $110,000 and $27,500 for the years ended December 31, 1996 and 1997 and
for the three month period ended March 31, 1998, respectively.
F-15
<PAGE> 60
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Mr. Luikart received a loan from the Company of $12,500 in October 1996.
This loan has been repaid in the period ended March 31, 1998. Mr. Luikart
received a second loan from the Company of $30,000 in February 1997. The second
loan is due in February 2007 and charges an annual interest rate of 6.0%.
(9) COMMITMENTS AND CONTINGENCIES
(a) 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.
(b) Sales Contracts
At December 31, 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 $3,127,000 and $8,023,000 as of December 31, 1997 and March 31,
1998, respectively.
(c) 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.
(d) 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.
(e) Warrants
In connection with the Company's proposed 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 representative 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.
F-16
<PAGE> 61
PRIMERA FOODS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(f) Egg-laying Operations (Unaudited)
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.
(10) 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 $1,104, $5,925, $13,844, and $5,663 for the years ended
December 31, 1995, 1996, and 1997, and for the three month period ended March
31, 1998, respectively.
(11) MAJOR CUSTOMERS AND SUPPLIERS
The following summarizes significant customers comprising 10% or more of
the Company's net sales:
<TABLE>
<CAPTION>
THREE MONTH
YEARS ENDED PERIOD ENDED
DECEMBER 31 MARCH 31
------------------ ------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Customer A....................................... 16% 20% 26% 29%
Customer B....................................... 10% 19% 14% 19%
</TABLE>
The Company received approximately 16.4%, 28.7%, 36.2% and 40.4% of its raw
material requirements for its liquid eggs from Midwest Investors--Golden Oval in
the years ended December 31, 1995, 1996, and 1997, and for the three-month
period ended March 31, 1998, respectively.
The Company has sales in the United States and 11 foreign countries for the
year ended December 31, 1997. Segment information by geographic area is as
follows:
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31 MARCH 31
--------------------------------------- ------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States............... $31,861,571 $50,484,025 $44,723,822 $11,446,890
Europe...................... 1,098,103 1,059,925 4,621,135 122,414
Other....................... 175,975 2,164,027 1,030,086 56,892
----------- ----------- ----------- -----------
$33,135,649 $53,707,977 $50,375,043 $11,626,196
=========== =========== =========== ===========
</TABLE>
(12) SUBSEQUENT EVENTS
During February 1998, a former officer entered into an employment agreement
that goes into effect on March 1, 1998. Under the new agreement, the former
officer will receive $3,000 per month plus a sales commission based on the
number of pounds of product he sells. In addition, the former officer will
retain benefits accorded employees of the Company and will be compensated for
travel and office expenses. This agreement supercedes all previous agreements
between the Company and the former officer.
F-17
<PAGE> 62
DISPLAY PHOTO OF CONSUMER FOOD PRODUCTS
Primera's value-added dried egg products are used as an ingredient by
consumer food companies for ready-to-eat and ready-to-prepare foods.
<PAGE> 63
=========================================================
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............................ 6
Use of Proceeds......................... 13
Dividend Policy......................... 14
Capitalization.......................... 15
Dilution................................ 16
Selected Consolidated Financial and
Operating Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 18
Business................................ 25
Management.............................. 30
Certain Transactions.................... 35
Principal Stockholders.................. 36
Description of Capital Stock............ 37
Shares Eligible for Future Sale......... 39
Underwriting............................ 40
Legal Matters........................... 41
Experts................................. 41
Additional Information.................. 42
Index to Financial Statements........... F-1
</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 LOGO
COMMON STOCK
CRUTTENDEN ROTH INCORPORATED LOGO
=========================================================
<PAGE> 64
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........................................ $ 4,495.84
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..................................... 135,000.00
Printing Expenses........................................... 45,000.00
Blue Sky Fees and Expenses.................................. 5,000.00
Transfer Agent Fees and Expenses............................ 1,000.00
Miscellaneous............................................... 2,624.16
-----------
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> 65
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. Additionally, in April
1998, the Registrant granted an aggregate of 50,000 stock options to one
employee. The Company believes that the grant of such options is exempt from
registration under the Securities Act because no sale of securities was
consummated. To the extent there was a sale, such sale was exempt under Section
4(2) and/or Rule 701 of Securities Act. The Company intends to file a
registration statement on Form S-8 under the Securities Act within 30 days after
the effective date of this Registration Statement.
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.
10.7 Agreement with Weinberg Foods, Inc.
10.8 Promissory Note from Jon E. Luikart.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Messerli & Kramer P.A. (included in Exhibit 5.1).
</TABLE>
II-2
<PAGE> 66
<TABLE>
<S> <C>
23.3 Consent of Urner Barry Publications, Inc.
23.4 Consent of PESI, Incorporated.
23.5 Consent of Factset Research Systems Inc.
23.6 Consent of Institute of Food Technologists (publisher of Food Technology Magazine).
24.1* Power of Attorney (included in signature page).
27.1 Financial Data Schedule (Edgar filing only).
</TABLE>
- -------------------------
* Previously filed as part of the Registration Statement.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
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.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering
II-3
<PAGE> 67
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cameron, State of Wisconsin, on April 30, 1997.
PRIMERA FOODS CORPORATION
By: /s/ JON E. LUIKART
------------------------------------
Jon E. Luikart,
President and Chief Executive
Officer
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 April 30, 1997
- ----------------------------------------------------- Officer and Director (Principal
Jon E. Luikart Executive Officer)
/s/ JON D. GOETZE Chief Financial Officer April 30, 1997
- ----------------------------------------------------- (Principal Financial and
Jon D. Goetze Accounting Officer)
/s/ JON E. LUIKART, ATTORNEY-IN-FACT Chairman of the Board and April 30, 1997
- ----------------------------------------------------- Director
Michael Shevi
/s/ JON E. LUIKART, ATTORNEY-IN-FACT Director April 30, 1997
- -----------------------------------------------------
Sandor Hofstadter
/s/ JON E. LUIKART, ATTORNEY-IN-FACT Director April 30, 1997
- -----------------------------------------------------
Alex Grossman
/s/ JON E. LUIKART, ATTORNEY-IN-FACT Director April 30, 1997
- -----------------------------------------------------
Gordon E. Hecker
</TABLE>
II-5
<PAGE> 69
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.
10.7 Agreement with Weinberg Foods, Inc.
10.8 Promissory Note from Jon E. Luikart
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Messerli & Kramer P.A. (included in Exhibit 5.1).
23.3 Consent of Urner Barry Publications, Inc.
23.4 Consent of PESI, Incorporated.
23.5 Consent of Factset Research Systems Inc.
23.6 Consent of Institute of Food Technologists (publisher of
Food Technology magazine).
24.1* Power of Attorney (included in signature page).
27.1 Financial Data Schedule (Edgar filing only).
</TABLE>
- -------------------------
* previously filed as part of the Registration Statement
II-6
<PAGE> 70
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, 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
======== ======== ========= ========
Year Ended December 31, 1997
Allowance for Doubtful Accounts...... $60,000 $ 5,000 $ -- $ 65,000
Deferred Tax Asset Valuation......... 436,613 -- (436,613) --
-------- -------- --------- --------
$496,613 $ 5,000 $(436,613) $ 65,000
======== ======== ========= ========
Three Months Ended March 31, 1998
Allowance for Doubtful Accounts...... $65,000 $ -- $(25,000) $ 40,000
Deferred Tax Asset Valuation......... -- -- -- --
-------- -------- --------- --------
$65,000 $ -- $(25,000) $ 40,000
======== ======== ========= ========
</TABLE>
S-1
<PAGE> 1
<TABLE>
<S><C>
COMMON SHARES [PRIMERA FOODS CORPORATION LOGO] COMMON SHARES
NUMBER SHARES
[ ] [ ]
INCORPORATED UNDER THE LAWS OF THE STATE OF:
DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP: 741582 10 0
THIS CERTIFIES THAT
IS THE OWNER OF
SHARES OF FULLY PAID AND NONASSESSABLE COMMON STOCK, PAR VALUE $.001 PER SHARE, OF
PRIMERA FOODS CORPORATION
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTRAR.
WITNESS THE FACSIMILE SIGNATURES OF THE CORPORATION'S DULY AUTHORIZED OFFICERS.
DATED:
[SIG] [SIG]
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE> 2
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
(MINNEAPOLIS, MINNESOTA) TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Messerli & Kramer P.A.]
April 30, 1998
Primera Foods Corporation
612 South 8th Street
Cameron, Wisconsin 54822
Re: Initial Public Offering
Ladies and Gentlemen:
We have acted as counsel to you in connection with the filing of a
Registration Statement on Form S-1, SEC File No. 333-41679 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), with
respect to the registration of 1,725,000 shares of Common Stock of Primera Foods
Corporation, a Delaware corporation (the "Shares"). We have examined such
documents, records and matters of law as we have deemed necessary for purposes
of this opinion. Based thereon, we are of the opinion that the Shares are duly
and validly authorized for issuance and, when issued and paid for, as described
in the Registration Statement, will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the heading "Legal Matters" in
the Prospectus. In giving such consent, we do not hereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Securities and Exchange Commission
promulgated under the Act.
Very truly yours,
/s/ Messerli & Kramer P.A.
<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 71,200
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
<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.
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<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.
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<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 10.7
[PRIMEGG LETTERHEAD]
December 5, 1997
Mr. David Weinberg
Weinberg Foods, Inc.
11410 N.E. 124th Street, Suite 264
Kirkland,, WA 98034
Dear David,
The purpose of this letter is to formalize our relationship with you
and your firm. Since the inception of Primegg, we have looked to you as the
sole representative for products offered by Primegg on the West Coast. We have
defined your sales territory generally as the area west of the Rocky Mountains.
In addition, as you have requested, we may select specific customers outside of
this area as your accounts. For our mutual benefit and understanding, attached
to this letter is a current list of companies which your firm is supplying
with our products. We have both reviewed this listing and agree that the
companies shown are yours exclusive for the sale of our products and any sales
to these companies will result in an earned commission for your firm, unless we
mutually agree otherwise as the result of some unusual situation.
Duration of this Agreement
Our intention is to continue our current relationship with you and your
firm for the foreseeable future. For purposes of this agreement, however, we
request a time frame of three years during which time both firms will be bound
by the provisions of this letter. Beginning January 1, 1998, through
December 31, 2001, we will continue our commitment as we have in the past to
your firm and as is spelled out in this letter. In return we have asked, and
you have agreed, not to offer to your accounts the products of any other
company which products could reasonably be provided by Primegg. After December
31, 2001, the agreement will continue in force on an annual basis unless either
party notifies the other party consistent with the terms set forth in the
paragraph that follows which relates to dissolving our association.
Dissolving our Association
While we are committed to our relationship with you and your firm, we feel
it is to our mutual best interest to provide a
<PAGE> 2
Mr. David Weinberg
Page 2
method for disassociating our firms should either or both of us decide this
separation is in either company's best interest. In order to provide both
firms with a reasonable time frame in which to find a replacement should either
company wish to discontinue this agreement, we jointly agree that we will
provide the other company with a written notice of any dissolution six months
before discontinuing the provisions of this agreement.
Commissions
Presently, we generally have paid you an average of three cents per pound
of product sold. As you know, this amount has been greater in some instances
and less in others. The exact amount has been the result of an agreement
between us at the time of the sale. Our intention is to continue this
practice. Commission payments to your firm are payable once we receive
payments from the customer. Payments to your firm will continue to be made
weekly.
Resolution of any Disagreement
In the past we always have been able to resolve any disagreements we have
had relative to a sale by discussing the various issues involved and reaching a
compromise agreement. Our intention is to continue this policy in the future.
We are prepared to meet with you at any location of our mutual choice and to
spend the time necessary to resolve any concerns that might arise relative to
our association.
If you agree that this letter provides a framework for our continued
success, please sign in the space provided below and return the letter to me.
The copy of the letter signed by us is for your files.
AGREED: AGREED:
/s/ DAVID WEINBERG /s/ JON E. LUIKART
- ------------------------ ------------------------
David Weinberg Jon E. Luikart
Weinberg Foods, Inc. Primegg, Ltd.
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
Face Amount: $30,000.00 Cameron, Wisconsin
February 1, 1997
FOR VALUE RECEIVED, Jon Luikart ( the "Maker") promises to pay to the
order of Primegg, Ltd., a Delaware corporation (the "Holder"), the principal
sum of Thirty Thousand and no/100 Dollars ($30,000.00) with interest and on the
terms and conditions set forth below:
1. Interest shall accrue on the unpaid principal balance hereof at the
rate of six percent (6%) per annum.
2. The outstanding principal of this Note and any then accrued interest
shall be due and payable by the Maker in a single lump on February 1, 2007.
3. The Maker may prepay all or any portion of this Note at any time
without penalty. Prepayments shall be applied first to accrued but unpaid
interest and then to principal.
4. The Maker agrees to pay the costs of collection, including attorneys'
fees, in the event that this Note is not paid when due.
5. The Maker waives demand, presentment, notice of dishonor and all
other notices in connection with any default hereunder.
6. This Note is governed by the laws of the State of Wisconsin,
exclusive of its conflict of laws rules.
IN WITNESS WHEREOF, the Maker has hereunto affixed his signature.
/s/ JON E. LUIKART
-------------------
Jon E. Luikart
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Primera Foods Corporation:
The audits referred to in our report dated February 6, 1998, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 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
Minneapolis, Minnesota
April 30, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT
APRIL 23, 1998
Board of Directors
Primera Foods Corporation
612 South 8th Street
Cameron, WI 54822
Gentlemen:
Urner Barry Publications, Inc. hereby consents to the use of our name in
your Form S-1 Registration Statement filed with the Securities and Exchange
Commission.
Sincerely,
/s/ Michael E. O'Shaughnessy
-----------------------------
Print Name M. O'SHAUGHNESSY
-------------------
Title PRESIDENT
------------------------
<PAGE> 1
EXHIBIT 23.4
CONSENT
JANUARY 27, 1998
Board of Directors
Primera Foods Corporation
612 South 8th Street
Cameron, WI 54822
Gentlemen:
It is my understanding that in the Prospectus forming a part of the
Registration Statement on Form S-1 (the " Registration Statement") which
Primera Foods Corporation ("Primera") is filing with the Securities and
Exchange Commission in connection with the proposed initial public offering of
shares of Primera Common Stock you will include the following information which
PESI Incorporated, formerly known as Poultry & Egg Fax ("PESI"), provided to you
at your request:
1. 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;
2. The market for processed egg products is expected to grow at an annual
rate of 8% over the next ten years; and
3. The processed egg industry is highly consolidated, with 12 companies
accounting for over 90% of the market in 1996.
I, Wendell R. Pedersen, the President of PESI, on its behalf, hereby
acknowledge that PESI provided the above information to Primera and consent to
the use of such information and PESI's name in the Registration Statement. I
further consent, on behalf of PESI, to the filing of this letter as an exhibit
to the Registration Statement.
Very truly yours,
PESI Incorporated
/s/ WENDELL R. PEDERSEN
---------------------------
By: Wendell R. Pedersen
Its President
<PAGE> 1
EXHIBIT 23.5
CONSENT
MARCH 5, 1998
Board of Directors
Primera Foods Corporation
612 South 8th Street
Cameron, WI 54822
Gentlemen:
Factset Research Systems Inc. hereby consents to the use of our name in
your Form S-1 Registration Statement filed with the Securities and Exchange
Commission.
Sincerely,
/s/ PHILIP A. HADLEY
------------------------------
Print Name PHILIP A. HADLEY
--------------------
Title Senior Vice President
-------------------------
<PAGE> 1
EXHIBIT 23.6
CONSENT
FEBRUARY 4, 1998
Board of Directors
Primera Foods Corporation
612 South 8th Street
Cameron, WI 54822
Gentlemen:
The Institute of Food Technologists hereby consents to the use of our name
and the reference to our publication Food Technology in your Form S-1
Registration Statement filed with the Securities and Exchange Commission.
Sincerely,
/s/ FRANCES KATZ
--------------------------
Frances Katz
Director of Publications,
Institute of Food Technologists
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