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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Commission File Number 33-383063
Ended December 31, 1999
SFC NEW HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2173533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
520 Lake Cook Road
Suite 550 60015
Deerfield, IL (Zip Code)
(Address of principal executive offices)
(847) 405-5300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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State the aggregate market value of voting stock held by non-affiliates of
the Registrant. No market presently exists for the Registrant's Common Stock.
Number of shares of common stock outstanding as of March 20, 2000: 100
shares.
Documents incorporated by reference: None.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 7A.Quantitative and Qualitative Disclosure about Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes In and Disagreements with Accountants on Accounting and 14
Financial Disclosure
PART III
Item 10.Directors and Executive Officers of the Registrant 15
Item 11.Executive Compensation 18
Item 12.Security Ownership of Certain Beneficial Owners and Management 25
Item 13.Certain Relationships and Related Transactions 28
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K 30
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the federal securities laws, including, without limitation, Item 3 -
Legal Proceedings and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. These forward-looking statements reflect
the Company's expectations and are based on currently available information.
When used in this Report, the words "anticipates," "believes," "expects,"
"intends" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. Actual
results, performance, achievements or other information may vary materially from
those expressed in, or implied by such forward-looking statements and are
subject to numerous risks and uncertainties. Factors that could cause actual
results to differ materially from those in forward-looking statements include:
general economic conditions; industry conditions, including competition,
consolidation and cost and availability of raw materials; weather; interest
rates; access to capital markets and the timing of and value received in
connection with asset divestitures. No assurances can be given that any of the
events anticipated by the forward-looking statements will transpire or occur, or
if any of them do so, what impact they will have on the results of operations
and financial condition of the Company.
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PART I
ITEM 1. BUSINESS
SFC New Holdings, Inc. ("SFCNH"), a subsidiary of SFAC New Holdings, Inc.
("SFACNH"), is a Delaware Corporation and is a leading producer, marketer and
distributor of bakery products. The continuing bakery operations include
Mother's Cake & Cookie Co. ("Mother's"), Archway Cookies, Inc. ("Archway") and
Andre-Boudin Bakeries, Inc. ("Boudin"). SFCNH and their operating subsidiaries
Mother's, Archway, and Boudin, are referred to herein as the "Company".
SFCNH was formed to exchange its debt securities for certain debt securities
issued by Specialty Foods Corporation ("SFC"). SFC contributed its interest in
the operating subsidiaries and other assets to SFC-Sub, Inc. ("SFC-Sub"), which
in turn contributed such operating subsidiaries and other assets to SFACNH.
SFACNH then contributed such operating subsidiaries and other assets to SFCNH.
As a result of the debt exchange and revised corporate structure, completed June
11, 1999, Specialty Foods Acquisition Corporation ("SFAC") remains the ultimate
parent company of SFC, SFC-Sub, SFACNH, and SFCNH. SFCNH is the successor
company for reporting purposes.
OPERATIONS
The Company operates principally in the bakery products segment in which it
produces, markets and distributes cookies, specialty breads and related products
through a network of approximately 1,045 direct-store-delivery ("DSD") routes
throughout the United States.
The company's cookie business is operated through two wholly-owned subsidiaries,
Mother's Cake and Cookie Co. and Archway Cookies, Inc. The Company believes its
cookie operations are the third largest in the nation. Mother's, founded in 1914
and based in Oakland, California, is the second largest retail cookie producer
and distributor in the Western United States. Mother's products are marketed
under the Mother's, Bakery Wagon and Marie Lu brand names. Mother's sells its
cookie products primarily to retail grocers and other outlets in 18 western
states through its DSD system. Archway, established in Battle Creek, Michigan in
1936, is the nation's leading producer of specialty cookie varieties. Archway
bakes more than one billion cookies annually, producing more than 60 varieties
of cookies, including Homestyle, holiday and sugar free products under the
Archway brand name. Archway distributes its cookies nationally and in Canada.
Boudin, founded in 1849 and based in San Francisco, is a leading marketer of
premium branded specialty breads and bread-related products. Boudin sells most
of its products through 38 company owned and operated bakery cafes and kiosks in
California and Illinois, as well as three additional licensed cafes at two
California airports. Boudin also distributes some of its products through its
own direct-mail catalog, its Internet website (www.boudinbakery.com) and retail
grocers.
ACQUISITION STRATEGY
In the past two years, the Company has completed eight acquisitions of bakery
companies that complement the Company's businesses, expand its geographic scope
and strengthen its competitive position. The Company's acquisition strategy is
consistent with that of many of the other larger companies in the rapidly
consolidating baking industry. These acquisitions are being driven by the
opportunity to increase sales and market share, and reduce costs through the
combining of manufacturing, distribution and administrative capabilities. The
Company believes that strategic acquisitions completed by its former subsidiary,
Metz Baking Company ("Metz"),
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significantly contributed to the value realized in its recently completed sale
of Metz, discussed below under "Divestitures."
On January 20, 2000, the Company completed the acquisition of Lew-Mark Baking
Company, Inc. for $23.1 million. Lew-Mark was a licensee of Archway which
manufactured and distributed cookies and related food products in the
Northeastern United States, primarily New York and New Jersey, principally
through its independent distributors. Lew-Mark had fiscal 1999 sales of
approximately $25 million.
During October 1998, the Company acquired Archway for $116 million. The
acquisition of Archway, which together with Mother's created the nation's third
largest cookie business, provided the Company with a strong established brand
name, more diversified product lines and a nationwide presence.
DIVESTITURES
On March 20, 2000, the Company completed the sale of its Metz subsidiary to The
Earthgrains Company for $625 million. Metz is a leading retail bread company
serving the Midwestern United States. The Company expects to report a gain on
the sale of approximately $405 million for the quarter ending March 31, 2000. At
closing, $20 million of the purchase price was paid into an escrow to secure
potential future indemnification obligations arising out of the sale. Depending
on the amount of any potential future indemnification obligations, the escrow
will release $10 million after one year following the closing and the remaining
amount two years after closing.
On April 12, 1999, the Company sold its subsidiary, H&M Food Systems Company,
Inc. ("H&M") for $132 million. H&M is a producer of custom formulated,
pre-cooked meat products that are sold primarily to national restaurant chains
and prepared-food producers. The Company reported a gain on the sale of H&M of
$30 million during 1999. At closing, $5 million of the purchase price was paid
into an escrow to secure potential future indemnity obligations arising out of
the sale for a one-year period.
Both divestitures are reported as discontinued operations in the Company's
financial statements.
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FINANCING STRUCTURE
During 1999, the Company completed exchange offers that provided investors that
held debt of the predecessor company, SFC, the opportunity to exchange their
debt securities for the debt securities of the successor reporting company,
SFCNH. Concurrent with the exchange offers, the Company amended and restated its
Term Loan and Revolving Credit Facilities, and amended its off-balance sheet
Accounts Receivable Facility to extend the maturity date of these facilities and
permit the exchange offers.
As of December 31, 1999 the Company's debt consisted of the following:
Revolving Credit Facility $ 97,801
Term Loan Facility 167,343
11.25% Sr. Notes due 2001 224,870
12.125% Sr. Notes due 2002 149,975
13.25% Sr. Sub. Notes due 2003 200,532
Other 3,461
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Total $843,982
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Additionally, as of December 31, 1999, the Company had $37 million outstanding
under its off-balance sheet Accounts Receivable Facility.
Subsequently, on March 20, 2000, the Company completed the sale of its Metz
operating unit for $625 million. The sale of Metz resulted in immediately
available net cash proceeds of approximately $545 million (net of a $20 million
escrow, approximately $40 million to terminate the Accounts Receivable Facility
at closing, and an estimated $20 million for taxes and other expenses associated
with the transaction). Under its existing debt arrangements, the Company is
required to apply 75% of the Metz net proceeds, or approximately $410 million,
to reduce debt. As a result, concurrent with the closing, the Company paid in
full amounts outstanding under the Revolving and Term Loan Facilities totaling
approximately $265 million and terminated these arrangements. Within thirty days
after the closing, the Company is required to commence a tender offer for a
portion (approximately $145 million) of the Company's Senior Notes. The Company
is currently evaluating the cash requirements of its remaining businesses and is
considering using a portion of the residual Metz net cash proceeds (in excess of
the approximately $145 million required tender) to further reduce debt.
SFCNH and each subsidiary of SFCNH is a separate corporate entity. Since the
Company conducts substantially all of its business through its subsidiaries, the
ability of SFCNH to meet their obligations will be dependent on the earnings and
cash flow of its subsidiaries and the ability of its subsidiaries to pay
dividends and to advance funds to it. In addition, the rights of SFCNH and the
rights of such companies' creditors and securities holders, including the
holders of debt securities, to participate in the assets of any subsidiary upon
such subsidiary's liquidation or recapitalization will be subject to prior
claims of such subsidiary's creditors, except to the extent that such company
may itself be a creditor with recognized claims against any such subsidiary.
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COMPETITION
The Company's bakery businesses compete in the highly competitive bakery
products industry. Competition is likely to increase due to continued industry
consolidation and overcapacity in certain areas of the country. Competitors
include cookie companies with national distribution (such as Keebler and
Nabisco) and numerous smaller regional and local companies. Many of the
Company's larger competitors have significantly greater financial, marketing and
other resources than the Company, while smaller competitors may have lower fixed
costs and greater operating flexibility. The Company is also more highly
leveraged than most of its competitors, which may place it at a competitive
disadvantage. The Company does not encounter material foreign competition.
Competition is based on a number of factors including price, quality, brand
loyalty, service, freshness, marketing effectiveness and obtaining access to
retail outlets and adequate shelf space.
RAW MATERIALS
The Company is a purchaser of flour, sugar, vegetable oils, and other food
ingredients, as well as plastic, paper and corrugated products for packaging
materials. Although the Company has some long-term contracts, the bulk of such
raw materials is purchased on the open market or pursuant to short-term
agreements. The prices paid for food product raw materials generally reflect
external forces, among which weather conditions and commodity market activities
are the most significant. Although the prices of the principal raw materials
used by the Company can be expected to fluctuate as a result of government
actions and/or market forces (which would directly affect the cost of products
and value of inventories), such materials are generally in adequate supply and
available from numerous sources. Occasionally, and where possible, the Company
makes advance purchases of commodities significant to its business in order to
lock in what is perceived to be favorable pricing and to protect itself from
basic market price fluctuations. The Company's ability to pass through increases
in the costs of commodity ingredients is dependent primarily upon competitive
conditions and pricing methodologies employed in the various geographies in
which the Company conducts its business.
TRADEMARKS, PATENTS AND LICENSES
The Company owns or licenses a number of trademarks and tradenames which
management believes provide significant value to several of the Company's
product lines because of their recognition by customers and consumers. The
Company owns or licenses a number of patents, but such patents and licenses are
not considered material to the conduct of the Company's businesses, and the
Company does not believe that any of its businesses are substantially dependent
on patent protection.
SEASONALITY, WORKING CAPITAL
The Company's business is moderately seasonal with lower sales, operating profit
and cash flows generally occurring in the first quarter of the year. This
seasonality is due primarily to higher cookie sales in the second and third
quarters and the holiday season.
CUSTOMERS, SALES AND BACKLOG
The Company has one retail supermarket customer that accounted for 12.8%, 14.1%
and 12.0% of net sales in 1999, 1998, and 1997, respectively. No other customer
accounts for more than 10% of the Company's net sales. In general, the backlog
of orders is not deemed to be significant or material for an understanding of
the Company's businesses.
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ENVIRONMENTAL MATTERS
The past and present business operations of the Company and the past and present
ownership and operation of real property by the Company are subject to extensive
and changing federal, state and local environmental laws and regulations
pertaining to the discharge of materials into the environment, the handling and
disposition of wastes (including solid and hazardous wastes) or otherwise
relating to protection of the environment. Compliance with federal, state and
local environmental laws and regulations is not expected to have a material
impact on the Company's capital expenditures, earnings or competitive position.
No assurance can be given, however, that additional environmental issues
relating to presently known matters or identified sites or to other matters or
sites will not require additional, currently unanticipated investigation,
assessment or expenditures.
REGULATION
PUBLIC HEALTH
The Company is subject to the Federal Food, Drug and Cosmetic Act and
regulations administered by the Food and Drug Administration ("FDA"). These
comprehensive regulatory schemes govern, among other things, the manufacture,
composition, ingredient labeling, packaging and safety of food. For example, the
FDA regulates manufacturing practices for food through its current "good
manufacturing practices" regulations, specifies the called standards of identity
("recipes") for certain foods, including many of the kinds of products marketed
by the Company, and prescribes the format and content of certain information
required to appear on the labels of food products.
The Company's product labeling complies with regulations promulgated by the FDA
pursuant to the Nutrition Labeling and Education Act of 1990. These regulations
require nutritional labeling on all foods that are a meaningful source of
nutrition, including many of the Company's products, and place limitations on
the use of certain terms while requiring the use of other terms.
The operations and the products of the Company's business are also subject to
state and local regulation through such measures as licensing of plants,
enforcement by state health agencies of various state standards and inspection
of facilities.
FEDERAL TRADE COMMISSION
The Company is subject to certain regulations by the Federal Trade Commission
("FTC"). Advertising of the Company's businesses is subject to regulation by the
FTC pursuant to the Federal Trade Commission Act and the regulations promulgated
thereunder.
EMPLOYEE SAFETY REGULATIONS
The Company is subject to certain health and safety regulations including
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.
EMPLOYEES
As of March 20, 2000, the Company employed approximately 2,200 persons.
Approximately 30% of the Company's labor force was covered by collective
bargaining agreements.
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ITEM 2. PROPERTIES
The Company uses various owned and leased plants, warehouses, and other
facilities in its operations. These facilities are located primarily in
California, New York and Ohio. Management believes that the facilities are
properly equipped with machinery suitable for their use. Such facilities and
related equipment are well maintained generally and are adequate for the conduct
of current operations. Management also believes that the Company's facilities
have sufficient capability and capacity to meet the Company's long-term needs.
The following is a summary of significant facilities that were operated by the
Company as of March 20, 2000.
NUMBER OF FACILITIES
------------------------------------
OWNED LEASED TOTAL
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6 56 62
In addition, the Company operates a number of bakery cafes.
ITEM 3. LEGAL PROCEEDINGS
Cacique
On May 20, 1993, prior to the SFC acquisition from Artal Group S.A., Cacique,
Inc. ("Cacique") commenced proceedings against certain former subsidiaries of
the Company ("Stella") in the California Superior Court, Alameda County relating
to Hispanic-style cheese ("Product") produced by Stella between 1993 and
September 1994 (the "Cacique Case"). In November 1997, Stella was sold to the
Saputo Group ("Saputo"), but the Company has indemnified Saputo with respect to
the liability associated with the Cacique Case. Although SFACNH and SFCNH are
not defendants in the litigation, the Company continues to control the defense.
Cacique's complaint asserts causes of action for misappropriation of trade
secrets, trademark interference, inducing breach of contract, interference with
business relations, unfair competition and conspiracy to commit certain of the
causes previously stated. As previously reported, in September 1999, a jury in
the Los Angeles Superior Court returned a verdict of $4.5 million of
compensatory damages against Stella and certain other defendants in the Cacique
Case. In addition, the Court assessed approximately $1.7 million of interest on
the compensatory damages and aggregate punitive damages of approximately $12.5
million against Stella and C. Dean Metropoulos, the former CEO of Stella,
jointly and severally. The Court also awarded approximately $5 million in
attorney's fees and costs to be paid by the Stella defendants. The Company
strongly disagrees with the verdict in this case. Furthermore, the Company
believes, and has been advised by counsel, that numerous reversible errors
occurred at trial. The Company will vigorously pursue all available post-trial
rights and remedies, as well as its right of appeal. While it is impossible to
predict the results on appeal, the Company believes it has several meritorious
grounds of appeal.
As previously disclosed, three additional lawsuits have arisen stemming from the
Cacique matter. First, the Company and the other defendants in the Cacique Case
have filed suit against certain insurance carriers of both the Company and
Stella seeking a declaratory judgment that such insurance carriers are
responsible for certain of the damages in the Cacique Case. Second, following
the verdict in the Cacique Case, Saputo filed suit against the Company seeking
injunctive relief and alleging that the Company is obligated to post a bond on
Saputo's behalf in the Cacique Case equal to 150% of the aggregate verdict while
the Cacique Case is under appeal. The Company disagrees with the allegations in
the Saputo lawsuit and intends to vigorously defend the matter. Third,
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C. Dean Metropoulos filed suit against SFC, Stella and certain other defendants
alleging, among other things, that the Company and its agents interfered with
Mr. Metropoulos' right to indemnification from Stella for damages arising out of
the Cacique Case. The Company believes that Mr. Metropoulos' lawsuit is entirely
without merit and intends to vigorously defend against this action.
Bondholder Claim
In December 1999, one of the holders ("Bondholder") of SFCNH's 11-1/4% Senior
Notes filed a lawsuit (the "Bondholder Suit") relating to the distribution of
net proceeds following the pending Metz Sale. The Bondholder has indicated to
the Company that it is concerned with the priority of distribution of such
proceeds as between the 11-1/4% Senior Notes and the Company's 12-1/8% Senior
Notes, which were exchanged for notes that were originally issued as a
refinancing of a portion of the Company's term debt in 1995. Shortly after being
filed, the Bondholder Suit was withdrawn without prejudice, based on an
agreement between the Bondholder and the Company, pursuant to which the Company
agreed, among other things, that it would negotiate in good faith in order to
resolve the issues raised in the Bondholder Suit and, in any event, that it
would not distribute the proceeds of the Metz Sale to holders of the Company's
Senior Notes without ten days' prior written notice to the Bondholder.
Other Litigation
In addition, the Company is involved in contractual disputes, administrative and
legal proceedings and investigations of various types, arising out of the
ordinary course of business.
Legal Proceedings Summary
Although any litigation, proceeding or investigation has an element of
uncertainty, the Company believes that it will successfully defend against the
actions described above. On that basis, it is unlikely that the ultimate
resolution of these matters will have a material adverse effect on the Company's
financial condition or results of operations. However, the Company does
anticipate that it will incur significant legal expenses as it pursues a
vigorous defense against each of these actions. In addition, the Company will
enter into discussions to settle a particular case, if the Company believes that
it is in the best interest of its stakeholders to do so. While the Company
believes that it will successfully defend against or otherwise resolve these
actions, no assurances can be given as to: (i) the outcome of these or any other
legal proceedings and (ii) the related impact of an unanticipated adverse
outcome of any one or more of these proceedings on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 13, 2000, SFAC, the ultimate parent of SFCNH, received the vote of
seventy-seven percent of the voting power of all outstanding stock of SFAC
approving certain employee benefit arrangements with certain executives of the
Company relative to the tax deductibility of such benefit payments under Section
280(G) of the Internal Revenue Code. Approval was obtained by written consent in
lieu of a meeting.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for the common stock, par value $.01 per share
("Common Stock"), of SFCNH, all of which is held by SFACNH.
SFCNH has never paid any cash dividends on shares of the Common Stock. The
ability of SFCNH to pay dividends is restricted by provisions of its indentures.
Refer to footnote 11 to the accompanying financial statements for additional
discussion of such restrictions.
ITEM 6. SELECTED FINANCIAL DATA
[ALL FIGURES IN MILLIONS OF DOLLARS]
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
Net Sales $ 285 $ 206 $ 197 $ 185 $ 185
===== ===== ===== ===== =====
(Loss) from continuing $(116) $ (85) $ (98) $(206) $(141)
operations (1)(2) ===== ===== ===== ===== =====
Income (loss) from discontinued
operations(1)(2)(3)(4) $ 64 $ 39 $ 195 $(241) $(129)
===== ===== ===== ===== =====
Total Assets $ 428 $ 457 $ 431 $ 434 $ 882
===== ===== ===== ===== =====
Long-Term Debt $ 841 $ 820 $ 753 $ 833 $ 831
===== ===== ===== ===== =====
(1) In 1996, the loss from continuing operations included a goodwill write-down
of $91 million and discontinued operations included a goodwill write-down
of $265 million.
(2) In 1995, the loss from continuing operations included a goodwill write-down
of $74 million and discontinued operations included a goodwill write-down
of $179 million.
(3) Includes gains on sale of businesses of $27 million in 1999 and $133
million in 1997.
(4) Interest expense is not allocated to discontinued operations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report or Form 10-K contains forward-looking statements within the
meaning of the federal securities laws that reflect the Company's expectations
and are based on currently available information. Actual results, performance,
achievements or other information may vary materially from such statements and
are subject to future known and unknown risks and uncertainties and events
including those discussed herein.
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items in the Company's statements of operations.
1999 1998 1997
----- ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 42.1 43.0 44.3
----- ------ ------
Gross profit 57.9 57.0 55.7
Operating expenses:
Selling, distribution, general and 57.0 57.5 58.8
administrative 1.0 0.3 0.0
Amortization of intangible assets ----- ------ ------
Total operating expenses 58.0 57.8 58.8
----- ------ ------
Operating profit (loss) (0.1)% (0.8)% (3.1)%
===== ====== ======
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Consolidated net sales from continuing operations increased 38.2% to $284.6
million in 1999 compared to $206.0 million in 1998. This increase was primarily
due to the full year inclusion of the Archway business, expansion of Archway's
sales in Mother's geography, volume growth in Mother's core brands, new product
introductions and pricing.
The Company's gross profit margin improved to 57.9% in 1999 from 57.0% in 1998.
The gross profit margin was favorably impacted by product mix at Mother's and an
improvement in the profit contribution from the Boudin cafes.
Selling, distribution, general and administrative ("SDG&A") expenses increased
$43.7 million or 36.9% in 1999 to $162.1 million, primarily due to the inclusion
of a full year of operating expense from the acquisitions made in 1998 and
higher depreciation expense. However, as a percentage of sales, SDG&A expenses
decreased one-half percentage point to 57.0% in 1999 due to cost reductions
realized from post-acquisition integration activities. Amortization expense
increased to $2.9 million in 1999 compared to $0.5 million in 1998 due to a full
year of Archway's goodwill amortization in 1999.
Interest expense, net in 1999, increased $19.3 million or 23.3% to $102.3
million from $83.0 million in 1998. The increase resulted from: (i) higher
revolver borrowings in 1999; (ii) increased interest rates and debt issuance
amortization cost attributed to the debt exchange and refinancing; and (iii)
lower interest income in 1999.
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In 1999, $9.8 million of third-party financing fees were expensed in connection
with the debt exchange and refinancing.
Other expense, net was $3.9 million in 1999 compared to $1.5 million in 1998.
The increase is primarily due to the loss on disposal of property, plant and
equipment in 1999.
As a result of the above factors, net loss from continuing operations increased
to $116.4 million in 1999 compared to $85.5 million in 1998.
The Company reports minimal state income tax and no federal income tax due to
its net operating loss position for tax purposes.
1998 COMPARED TO 1997
Consolidated net sales from continuing operations increased 4.6% to $206.0
million in 1998 compared to $196.9 million in 1997. The increase in net sales
was attributed to the inclusion of ten weeks of Archway sales in 1998, partially
offset by changes in product mix and lower pricing at Mother's and one less
week of sales in 1998 versus the 53 weeks in 1997.
The Company's gross profit margin increased to 57.0% in 1998 from 55.7% in 1997.
The gross profit margin percentage was favorably impacted by product mix at
Mother's. Offsetting these favorable trends were inflationary increases in
manufacturing costs and higher depreciation expense.
SDG&A expenses increased $2.5 million or 2.2% in 1998 to $118.4 million. SDG&A
increases were attributed to the inclusion of Archway for ten weeks in 1998.
However, as a percentage of sales, 1998 SDG&A expenses decreased 1.3 percentage
points to 57.5 %.
Interest expense, net in 1998, decreased $6.8 million or 7.6% to $83.0 million
from $89.8 million in 1997. The decrease was primarily due to reduced borrowings
under the Revolving Credit Facility throughout the year and interest earned on
cash equivalents.
Other expense, net was $1.5 million in 1998 compared to $2.1 million in 1997.
The reduction is primarily due to lower administrative costs related to the
Company's Accounts Receivable Facility.
As a result of the above factors, net loss from continuing operations decreased
to $85.5 million in 1998 compared to $98.2 million in 1997.
The Company reports minimal state income tax and no federal income tax due to
its net operating loss position for tax purposes.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION ("EBITDA")
Due to the Company's highly leveraged capital structure, EBITDA is an important
performance measure used by the Company and its stakeholders. The Company
believes that EBITDA provides additional information for determining its ability
to meet future obligations and debt service requirements. However, EBITDA is not
indicative of operating income or cash flow from operations as determined under
generally accepted accounting principles. The EBITDA for the Company's Metz,
Mother's/Archway and Boudin operating units, net of SFCNH's headquarters
expense, was $81.9 million in 1999 and $58.7 million in 1998. Net sales for
these units were $881.5 million in 1999 and $742.3 million in 1998.
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LIQUIDITY AND CAPITAL RESOURCES
In 1999, net cash used in operating activities totaled $89.0 million, including
cash requirements of $75.6 million related to continuing operations, $8.6
million related to working capital, and $4.8 million for discontinued
operations. The $75.6 million of cash used by continuing operations resulted
from $91.5 million of cash interest expense offset by cash flow from operating
activities. The cash used for working capital purposes related principally to an
increase in accounts receivable due to lower funding from the Company's accounts
receivable facility and an increase in other current assets due to the cash
deposited in escrow in connection with the H&M sale.
In 1998, net cash used in operating activities totaled $136.3 million, including
cash requirements of $68.2 million related to continuing operations, $6.3
million related to working capital and $61.8 million for discontinued
businesses. The $68.2 million used by continuing operations was due to $80.7
million of cash interest expense offset by cash flow from operating activities.
The cash used for working capital purposes resulted principally from a decrease
in accrued liabilities associated with acquisition liabilities and restructuring
payments offset by a decrease in accounts receivable. Net cash used in operating
activities in 1997 was $126.1 million. The net cash used in operating activities
in 1997 was primarily attributable to cash interest payments and the cash
requirements of discontinued operations.
Net cash provided by investing activities totaled $114.1 million in 1999 and was
primarily due to the proceeds from the sale of H&M, offset by capital
expenditures. Net cash used by investing activities totaled $147.9 million in
1998. The activity in 1998 was primarily attributable to the use of $117.2
million to acquire businesses and capital expenditures of $19.2 million. In
1997, cash provided by investing activities of $373.0 million was primarily
attributable to the net proceeds from the divestiture of business units.
Net cash used by financing activities totaled $2.3 million in 1999 due to
payments of debt refinancing costs and debt principal offset by increased
revolver borrowings. Net cash provided by financing activities amounted to $55.3
million in 1998, primarily due to additional borrowings under the Company's
Revolving Credit Facility, offset by refinancing costs and scheduled payments on
long-term debt. Net cash used in financing activities amounted to $62.6 million
in 1997 as a reduction of revolving credit borrowings and scheduled payments on
long-term debt were partially offset by an issuance of redeemable preferred
stock
Based upon the above, the net increase (decrease) in cash in 1999, 1998 and 1997
was $22.8 million, $(228.9) million and $184.3 million, respectively.
On March 20, 2000 the Company completed the sale of its Metz operating unit for
$625 million. The sale of Metz results in immediately available net cash
proceeds of approximately $545 million (net of a $20 million escrow, an
approximate $40 million to terminate at closing the accounts receivable facility
and an estimated $20 million for taxes and other expenses associated with the
transaction). Under its existing debt arrangements, the Company is required to
apply 75% of the Metz net proceeds, or approximately $410 million, to reduce
debt. As a result, concurrent with the Metz closing, the Company has paid in
full amounts outstanding under the Revolving and Term Loan facilities totaling
approximately $265 million and terminated these arrangements. Within thirty days
after the Metz closing, the Company is required to commence a tender offer for a
portion (approximately $145 million) of the Company's Senior Notes.
After the completion of the Metz sale, the Company will use available cash
proceeds to fund operating and investing activities since it has terminated its
Accounts Receivable, Revolving and Term Loan Facilities. After the Metz
transaction, the Company expects to have approximately $100 million of available
cash following payment of transaction-related expenses, cash collateralizing
remaining letters of credit, and payment of the required debt reduction and
related accrued interest, but excluding other cash requirements of its
continuing operations. The Company is currently evaluating such cash
requirements of its existing businesses and is considering using a portion of
the available cash for further debt reduction.
13
<PAGE> 14
Management believes that the available cash balance should be adequate to fund
the Company's 2000 operating and investing activities. However, there can be no
assurance that available funds will be adequate to meet such needs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
During 1999, a significant portion of the Company's debt issues were fixed rate
obligations and a portion of the Company's floating rate debt was fixed through
an interest rate swap. As of March 20, 2000, the Company repaid all of its
outstanding floating rate indebtedness. As a result, the risk from changes in
interest rates is not material to the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Information on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Ten individuals serve on the Board of Directors of SFCNH. Set forth below are
the names, ages, other positions and offices held and a brief account of the
business experience for each director. Each member of the Board of Directors
serves until a successor is elected.
<TABLE>
<CAPTION>
NAME AGE OTHER POSITIONS
- ---- --- ---------------
<S> <C> <C>
Robert B. Haas 52 Chairman of the Board of SFAC and SFC since June 1993, Chairman
of the Board of SFACNH and SFCNH since June 1999 and Chairman
of the Board of Haas Wheat & Partners Incorporated, a private
investment firm, since 1992; Chairman of the Board of Haas &
Partners Incorporated, a private investment firm, since 1989.
Mr. Haas is Chairman of the Board of Playtex Products, Inc., NBC
Acquisition Corp. and Nebraska Book Company, Inc. and a
Director of Sybron International Corporation.
Thomas J. Baldwin 41 Director of SFAC and SFC since May 1996; Director of SFACNH and
SFCNH since June 1999; Chief Executive Officer of Christmas
Corner, Inc. since January 1995 and President of PB Ventures
since July 1994. Mr. Baldwin was also Managing Director of
Invus Group, Ltd. from 1990 through February 1995.
Lawrence S. Benjamin 44 Director of SFAC and SFC since February 1997; Director of
SFACNH and SFCNH since June 1999; President and Chief Executive
Officer of SFAC and SFC since January 1997; President and Chief
Executive Officer of SFACNH and SFCNH since June 1999; and
President and Chief Executive Officer of Stella from August,
1994 until December 1997. Mr. Benjamin held various positions
from 1986 through August 1994 with operating units of Kraft
Foods, Inc., including President of All American Gourmet
Company, Vice President of Kraft Frozen Products Group and Vice
President and General Manager of the Specialty Ingredients Unit
of Kraft.
J. Taylor Crandall 46 Director of SFAC and SFC since August 1993; Director of SFACNH
and SFCNH since June 1999; Vice President and Chief Operating
Officer of Keystone, Inc. since August 1998; Vice President and
Chief Financial Officer of Keystone, Inc. from October 1986 to
August 1998; President, Director and sole stockholder of Acadia
MGP, Inc. (managing general partner of Acadia FW Partners,
L.P., the sole general partner of Acadia, an affiliate of the
Company) since March 1992. Mr. Crandall also is a Director of
Bell & Howell Company, U.S.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
Oncology, Inc., Sunterra Corp. and Washington Mutual.
Jerry M. Meyer 59 Director of SFAC and SFC since June 1996; Director of SFACNH
and SFCNH since June 1999. Mr. Meyer has been the Chairman and
Chief Executive Officer of Valhalla Holdings, Inc. since August
1998. Mr. Meyer is also a Director of Oreck Corporation, Wall
Industries and Nebraska Book Company, Inc.
Andrew J. Nathanson 42 Director of SFAC and SFC since August 1993; Director of SFACNH
and SFCNH since June 1999. Managing Director of Donaldson,
Lufkin & Jenrette Securities Corporation since January 1991.
Mr. Nathanson also is a Director of Duane Reade, Inc.
David G. Offensend 46 Director of SFAC and SFC since August 1993; Director of SFACNH
and SFCNH since June 1999. Founder of Evercore Partners, LLC
since October 1995. Mr. Offensend was also Managing Director
of Oak Hill Partners, Inc. and its predecessor from April 1990
to September 1995; Vice President and Director of Acadia MGP,
Inc. from March 1992 to September 1995; and Vice President of
Keystone from March 1992 to September 1995.
Marc C. Particelli 45 Director of SFAC and SFC since November 1997; Director of
SFACNH and SFCNH since June 1999. Managing Director of Oak
Hill Partners, Inc. since August 1997. Mr. Particelli was
Principal of Odyssey Partners L.P. from October 1995 to August
1997 and Senior Vice President of Booz Allen & Hamilton Inc.
prior to October 1995.
Anthony P. Scotto 53 Director of SFAC and SFC since August 1993; Director of SFACNH
and SFCNH since June 1999. Managing Director of Oak Hill
Partners, Inc. and its predecessor since March 1988. Managing
Director of Oak Hill Advisors, Inc. since September 1999. Mr.
Scotto was also a Consultant to Oak Hill Capital Management,
Inc. from November 1998 to September 1999. Mr. Scotto also is
a Director of Ivex Packaging Corporation, Holophane Corporation
and Grove Worldwide LLC
Douglas D. Wheat 49 Director of SFAC and SFC since June 1993; Director of SFACNH
and SFCNH since June 1999. President of Haas Wheat and Partners
Incorporated since November 1992; Mr. Wheat was Co-Chairman of
Grauer & Wheat, Inc., a private investment firm, from April
1989 to October 1992. Mr. Wheat also is a Director of Playtex
Products, Inc., NBC Acquisition Corporation, and Nebraska Book
Company, Inc.
</TABLE>
16
<PAGE> 17
EXECUTIVE OFFICERS
Set forth below are the names, ages, positions held and a brief account of the
business experience for each executive officer of SFCNH and certain executive
officers of the Company who may be deemed executive officers of SFCNH. No family
relationship exists among the identified executive officers. Executive officers
of SFCNH are elected by and serve at the discretion of the Board of Directors of
SFCNH.
NAME AGE OTHER POSITIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Lawrence S. Benjamin 44 See Directors.
Robert L. Fishbune 44 Vice President and Chief Financial Officer of SFAC and SFC
since May 1996; Vice President and Chief Financial Officer of
SFACNH and SFCNH since June 1999. Mr. Fishbune was a Partner
at Coopers & Lybrand L.L.P. from 1988 until May 1996.
Patrick J. O'Dea 38 President and Chief Executive Officer of Mother's since April
1997. Mr. O'Dea was Vice President, Retail of Stella from
1995 to March 1997. Prior to joining Stella, Mr. O'Dea spent
12 years with Procter & Gamble, most recently as Director of
Marketing for its Snack Food Business.
David E. Schreibman 32 Vice President, Secretary and General Counsel of SFAC and SFC
since May 1999; Vice President and General Counsel - Business
Units of SFAC and SFC from October 1998 to April 1999; and
Vice President, Secretary and General Counsel of SFACNH and
SFCNH since June 1999. Mr. Schreibman was Chief Counsel -
Mergers and Acquisitions for the Sara Lee Corporation from
October 1995 to October 1998. Prior to October 1995, Mr.
Schreibman was in private law practice with Sidley & Austin.
Lawrence J. Strain 47 President of Boudin since January 1999. Vice President of
Bakery Operations for Boudin from August 1990 to December
1998. Prior to 1990, Mr. Strain was Vice President and
operating partner of Boudin International, Inc.
</TABLE>
17
<PAGE> 18
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows compensation for the years ended December 31, 1999,
1998 and 1997 of Mr. Benjamin, the President and Chief Executive Officer of
SFACNH and SFCNH ("CEO"), and each of the four most highly compensated executive
officers (excluding the CEO) of the Company (including its operating
subsidiaries). The Company has an annual bonus plan and a long-term incentive
plan pursuant to which executive officers of the Company may participate.
The compensation set forth in this table is repeated in the Summary Compensation
Table listed in SFACNH's Annual Report on Form 10-K for the year-ended December
31, 1999. The CEO and four most highly compensated executive officers of the
Company hold their respective positions for both SFACNH and SFCNH. However,
these officers are not compensated separately by each entity.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS ($) COMPENSATION OPTIONS/SARS (#)(3) COMPENSATION ($)
------------------ ---- --------- --------- ------------ ------------------- ----------------
($)(1)(2) (4)(5)(6)
--------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence S. Benjamin 1999 655,000 811,000 90,000 -- 1,615,000
President and Chief 1998 625,000 703,000 89,000 -- 1,170,000
Executive Officer of 1997 560,000 420,000 84,000 1,600,000 684,000
SFACNH and SFCNH
Robert L. Fishbune 1999 394,000 495,000 64,000 -- 727,000
Vice President and Chief 1998 376,000 428,000 62,000 -- 238,000
Financial Officer SFACNH 1997 350,000 -- 62,000 100,000 378,000
and SFCNH
Henry J. Metz 1999 100,000 88,500 548,000 -- 1,000
Chairman of Metz (7) 1998 338,000 262,500 -- -- 500
1997 334,000 251,000 -- -- 1,000
Patrick J. O'Dea 1999 349,000 160,125 413,000 -- 31,000
President and Chief 1998 295,000 225,000 -- -- 30,300
Executive Officer of 1997 260,000 210,000 -- -- 258,000
Mother's
Robert B. Aiken 1999 395,000 354,000 440,000 -- 78,000
President and Chief 1998 354,000 285,000 68,000 -- 245,000
Executive Officer of 1997 -- 17,000 51,000 100,000 365,000
Metz (7)
</TABLE>
(1) The amounts set forth for Mr. Benjamin include $76,000, $76,000 and
$71,000 for tax reimbursement payments made in 1999, 1998 and 1997,
respectively. The amounts for Mr. Fishbune in 1999, 1998 and 1997
include $51,000, $49,000 and $49,000, respectively, for tax
reimbursement payments. The amounts for Mr. Aiken in 1999, 1998 and
1997 include $61,000, $54,000 and $39,000, respectively, for tax
reimbursement payments.
18
<PAGE> 19
(2) In 1999, the amounts include payments received under the Company's
Deferred Bonus Agreements of $548,000, $405,000 and $365,000 for
Messrs. Metz, O'Dea and Aiken, respectively.
(3) Options were generally granted to employees of the Company, including
the named executive officers, pursuant to the 1994 Stock Option Plan,
which was amended in February, 1995 (the "Stock Option Plan"). Options
granted are either non-qualified stock options ("NQSOs") or incentive
stock options ("ISOs"). Options granted generally have a ten-year term.
(4) The amounts include divestiture awards for the sale of businesses for
Mr. Benjamin of $1,517,000, $997,500 and $595,000 for 1999, 1998 and
1997, respectively. The amounts include divestiture awards for the sale
of businesses for Mr. Fishbune of $663,000, $100,500 and $298, 000 for
1999, 1998 and 1997, respectively. The amounts include divestiture
awards for the sale of businesses for Mr. Aiken of $100,500 and $298,
000 for 1998 and 1997, respectively.
(5) In 1999, the Company made contributions to retirement accounts
maintained by Messrs. Benjamin, Fishbune, and Aiken of $91,000, $57,000
and 70,000, respectively. Messrs. Benjamin, Fishbune and Aiken have
established such accounts into which they contribute up to 15% of base
pay (on an after-tax basis) to annuity or money-market funds. The
Company provides contributions to the employee's retirement account and
a reimbursement for taxes incurred as a result of such contributions.
(6) The amounts set forth in 1999 include life insurance premiums of
$1,000 for Messrs. Benjamin, Fishbune, Aiken, and O'Dea and
personal financial planning services of $6,000, $6,000 and $7,000
for Messrs. Benjamin, Fishbune, and Aiken, respectively. In 1999,
Mr. Metz received a $1,000 relocation reimbursement. In 1999,
Mr. O'Dea received a $30,000 relocation allowance.
(7) As of the March 20, 2000 sale of Metz, Messrs. Metz and Aiken are no
longer executive officers of the Company.
AGGREGATED OPTIONS/SARS EXERCISED IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES
The following table sets forth for the named executive officers aggregated
information concerning the number of shares of Common Stock underlying
unexercised stock options at December 31, 1999 and the value of unexercised,
in-the-money options at that date.
19
<PAGE> 20
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
Lawrence S. Benjamin 1,175,000/325,000 (1)
President and Chief
Executive Officer of
SFAC, SFC, SFACNH and SFCNH
Robert L. Fishbune 150,000/50,000 (1)
Vice President and Chief
Financial Officer of SFAC,
SFC, SFACNH and SFCNH
Henry J. Metz 185,000/0 (1)
Chairman of Metz
Patrick J. O'Dea 35,000/0 (1)
President and Chief
Executive Officer of
Mother's
170,000/300,000 (1)
Robert B. Aiken
President and Chief Executive
Officer of Metz
(1) All of the options listed in this table have an exercise price of
$0.021322 per share of Common Stock. Due to the fact that the Common
Stock is not publicly traded, it is not currently possible to calculate
a precise value for the Common Stock. In October 1997, the Board of
Directors of SFAC realized that certain previously granted stock
options had exercise prices which exceeded the fair market value of the
Common Stock. In view of the diminished value, the Board of Directors
of SFAC determined that adjusting the exercise price of stock options
previously awarded to existing employees (including the named executive
officers) was in the best interests of the Company. On October 30,
1997, the Board of Directors of SFAC repriced the exercise price of
existing options from $0.726703211 to $0.021322 per share of Common
Stock, which the Board of Directors of SFAC determined was not below
the fair market value of the Common Stock.
METZ-MOTHER'S CONSOLIDATED PENSION PLAN FOR NON-UNION EMPLOYEES
The following table indicates the estimated annual benefits payable upon
retirement for the specified compensation and years of service classifications
under the Metz-Mother's Consolidated Pension Plan for Non-Union Employees (the
"Pension Plan"). Within 180 days of closing of the sale of Metz, the Pension
Plan assets relating to active Metz employees will be transferred to a defined
benefit pension plan sponsored by The Earthgrains Company. Messrs. Metz, Aiken
and O'Dea are the only named executive officers participating in the Pension
Plan.
20
<PAGE> 21
PENSION TABLE FOR THE PENSION PLAN
ANNUAL FINAL
AVERAGE
COMPENSATION YEARS OF SERVICE
15 20 25 30 35
125,000 $23,619 $32,118 $40,616 $49,114 $49,114
150,000 $28,963 $39,368 $49,772 $60,176 $60,176
175,000 $33,321 $45,955 $58,589 $71,223 $71,223
200,000 $36,602 $51,143 $65,683 $80,223 $80,223
225,000 $39,884 $56,330 $72,776 $89,223 $89,223
250,000 $41,306 $58,579 $75,852 $93,125 $93,125
300,000 $41,306 $58,579 $75,852 $93,125 $93,125
350,000 $41,306 $58,579 $75,852 $93,125 $93,125
400,000 $41,306 $58,579 $75,852 $93,125 $93,125
450,000 $41,306 $58,579 $75,852 $93,125 $93,125
500,000 $41,306 $58,579 $75,852 $93,125 $93,125
Compensation under the Pension Plan generally refers to total annual cash
compensation (up to $160,000 for 1999, as limited by the Internal Revenue Code
of 1986, as amended (the "Code") section 401(a)(17)), including pre-tax salary
deferrals, but excluding certain specified items such as compensation received
under the Metz Long-Term Incentive Compensation Plan, the Mother's Long-Term
Incentive Compensation Plan, the Metz Annual Bonus Incentive Plan and the
Mother's Annual Bonus Incentive Plan.
The amount of compensation covered under the Plan in 1999 for Messrs. Metz and
O'Dea was $160,000 (as limited by Code section 401(a)(17). As of December 31,
1999, Mr. Metz had approximately 28 years of credited service under the Pension
Plan, Mr. Aiken had approximately one year of credited service under the Pension
Plan, and Mr. O'Dea had approximately two and one-half years of credited service
under the Pension Plan. Benefits are computed on a straight life annuity basis
and are not subject to deduction for Social Security or other offset amounts.
21
<PAGE> 22
CERTAIN EMPLOYMENT ARRANGEMENTS
The following summaries of certain employment agreements and arrangements are
not necessarily complete and are subject to, and are qualified in their entirety
by reference to, the text of the agreements and arrangements, copies of which
are listed as exhibits hereto and have either been filed as exhibits herewith or
incorporated by reference herein.
Employment Agreement with Mr. Benjamin
SFAC, SFC and certain subsidiaries of SFAC and SFC (collectively, the
"Employers") entered into an Amended and Restated Executive Employment Agreement
dated as of March 15, 1999 with Mr. Benjamin (the "Benjamin Employment
Agreement") effective January 1, 1999. The Benjamin Employment Agreement
provides for the initial term of employment to end June 30, 2001, which term
will automatically be renewed for additional one-year extension periods unless
the renewal is canceled by the Employers or Mr. Benjamin upon six months prior
notice. In addition, upon termination in certain circumstances, the Employers
will make post-termination salary and bonus payments to such executive (or his
estate). The Benjamin Employment Agreement provides for an initial base salary
of $655,000 and an annual target bonus of 75% of base salary upon attainment of
specified performance targets.
The Benjamin Employment Agreement also provides that Mr. Benjamin may be
entitled to receive, under certain circumstances, payments to offset (at least
in part) certain tax consequences to him as a result of his exercise of stock
options, the receipt of certain payments and/or his termination in connection
with a change of control of SFAC or SFC. These payments are limited in some
circumstances to the tax savings actually realized by the Employers and in other
circumstances by various dollar amounts.
Mr. Benjamin has agreed to be bound by certain confidentiality, non-competition
and non-solicitation restrictions set forth in the Benjamin Employment
Agreement.
Employment Agreement with Mr. Fishbune
SFAC, SFC and certain subsidiaries of SFAC and SFC (collectively, the
"Employers") entered into an Amended and Restated Executive Employment Agreement
dated as of March 15, 1999 with Mr. Fishbune (the "Fishbune Employment
Agreement") effective January 1, 1999. The Fishbune Employment Agreement
provides for the initial term of employment to end December 31, 2000, which term
will automatically be renewed for additional one-year extension periods unless
the renewal is canceled by the Employers or Mr. Fishbune upon six months prior
notice. In addition, upon termination in certain circumstances, the Employers
will make post-termination salary and bonus payments to such executive (or his
estate). The Fishbune Employment Agreement provides for an initial base salary
of $400,000 and an annual target bonus of 75% of base salary upon attainment of
specified performance targets.
The Fishbune Employment Agreement also provides that Mr. Fishbune may be
entitled to receive, under certain circumstances, payments to offset (at least
in part) certain tax consequences to him as a result of his exercise of stock
options, the receipt of certain payments and/or his termination in connection
with a change of control of SFAC or SFC. These payments are limited in some
circumstances to the tax savings actually realized by the Employers and in other
circumstances by various dollar amounts.
Mr. Fishbune has agreed to be bound by certain confidentiality, non-competition
and non-solicitation restrictions set forth in the Fishbune Employment
Agreement.
22
<PAGE> 23
Employment Agreement with Mr. O'Dea
SFC, Mother's and MCC-DSD Holdings, Inc., a subsidiary of the Company,
(collectively, the "Employers") entered into an Amended and Restated Executive
Employment Agreement with Mr. O'Dea effective July 15, 1997 (the "O'Dea
Employment Agreement"). The O'Dea Employment Agreement provides for the initial
term of employment to end December 31, 2000, subject to earlier termination
under certain enumerated circumstances. In addition, upon termination in certain
circumstances, the Employers will make post-termination salary and bonus
payments to such executive (or his estate). The O'Dea Employment Agreement
provides for an initial base salary of $280,000 and an annual target bonus of
75% of base salary upon attainment by the Company of specified performance
targets.
The O'Dea Employment Agreement also provides that Mr. O'Dea may be entitled to
receive, under certain circumstances, payments to offset (at least in part)
certain tax consequences to him as a result of his exercise of stock options,
the receipt of certain payments and/or his termination in connection with a
change of control of SFAC or SFC. These payments are limited in some
circumstances to the tax savings actually realized by the Employers and in other
circumstances by various dollar amounts.
Mr. O'Dea has agreed to be bound by certain confidentiality, non-competition and
non-solicitation restrictions set forth in the O'Dea Employment Agreement.
Employment Agreement with Mr. Aiken
SFAC and SFC (collectively, the "Employers") entered into an Amended and
Restated Executive Employment Agreement dated as of April 1, 1998 with Mr. Aiken
(the "Aiken Employment Agreement") effective January 1, 1998. In connection with
the sale of Metz, the acquirer of Metz has assumed the obligations pursuant to
the Aiken Employment Agreement. The Aiken Employment Agreement provides for the
initial term of employment to end April 30, 2001, subject to earlier termination
in certain circumstances. In addition, upon termination in certain
circumstances, the Employers will make post-termination salary and bonus
payments to such executive (or his estate). The Aiken Employment Agreement
provides for an initial base salary of $380,000 and an annual target bonus of
75% of base salary upon attainment by the Company of specified performance
targets.
The Aiken Employment Agreement also provides that Mr. Aiken may be entitled to
receive, under certain circumstances, payments to offset (at least in part)
certain tax consequences to him. These payments are limited in some
circumstances to the tax savings actually realized by the Employers and in other
circumstances by various dollar amounts.
Mr. Aiken has agreed to be bound by certain confidentiality, non-competition and
non-solicitation restrictions set forth in the Aiken Employment Agreement.
Divestiture Award Agreements
Certain of the executive officers and other key employees of the Company,
including Messrs. Benjamin, Fishbune, Aiken, and Metz have entered into
Divestiture Award Agreements with the Company. Pursuant to these agreements, a
recipient will receive or has received a percentage of the net cash proceeds
received by the Company (after deducting fees and expenses) in the sale of
various operating subsidiaries of the Company. In connection with the sale of
Metz, the acquirer of Metz has agreed to pay the future responsibility for
amounts owed to Messrs. Aiken and Metz under these agreements.
23
<PAGE> 24
Change in Control Arrangements
Under the Mother's Amended and Restated Supplemental Long-Term Incentive
Compensation Plan, adopted in 1999 (the "Mother's LTIP"), certain management
employees, which include certain named executive officers, are eligible to
receive awards based upon the total value of Mother's. Determination of award
payments under the Mother's LTIP will be made on June 1, 2001 or earlier in the
event of a change in control. The amounts of the awards under the Mother's LTIP
are offset, in certain cases, by amounts payable under certain of the Retention
Bonus Agreements described below.
Certain of the executive officers and other key employees of the Company,
including Messrs. Benjamin, Fishbune, Metz, O'Dea and Aiken entered into
Retention Bonus Agreements with the Company, pursuant to which these employees
are entitled to receive retention bonus payments in amounts equal to their bonus
payments under the Company's annual bonus plans. Payments of amounts vested will
be made on March 31, 2001. However, in the event of a change in control, the
awards that relate to bonuses earned prior to the change in control vest
immediately and will be paid within 90 days. In connection with the sale of
Metz, the acquirer of Metz has agreed to pay the amounts owed to Messrs. Aiken
and Metz under this plan.
Compensation of Directors
Employees of SFACNH, SFCNH or their subsidiaries do not receive any additional
compensation for services as a director or on committees of the Board of
Directors of SFACNH, SFCNH or any of their subsidiaries. Directors of SFACNH,
SFCNH or their subsidiaries are reimbursed for reasonable out-of-pocket expenses
incurred in connection with attendance at Board of Directors and committee
meetings and are covered by director's liability insurance. Each of Messrs.
Baldwin and Meyer also receive a director's fee of $20,000 annually.
Compensation Committee Interlocks and Insider Participation In Compensation
Decisions
J. Taylor Crandall, Robert B. Haas, Anthony P. Scotto and Douglas D. Wheat are
all of the members of the compensation committee of the Board of Directors of
each of SFAC, SFC, SFACNH and SFCNH (the "Compensation Committee"). Each of
Messrs. Crandall, Haas, Scotto and Wheat owns a beneficial interest in or is an
executive officer of one or more of the entities that have entered into
financial advisory arrangements with SFCNH as described below.
Messrs. Haas and Wheat are controlling shareholders and are Chairman of the
Board and President, respectively, of Haas Wheat and Partners Incorporated. Haas
Wheat is a party to a financial advisory agreement with SFCNH pursuant to which
Haas Wheat agrees to provide certain financial advisory and other consulting
services to SFCNH in consideration for an annual fee of $700,000. In September
1999, the Board of Directors approved a one-year extension of the agreement
until December 2000.
J. Taylor Crandall is Vice President and Chief Operating Officer of Keystone,
Inc. and is President, Director and sole stockholder of Acadia MGP, Inc., the
managing general partner of Acadia FW Partners, L.P., the sole general partner
of Acadia. Mr. Scotto is a Managing Director of Oak Hill and its predecessor.
Each of Penobscot-MB Partners ("Penobscot"), an affiliate of Acadia, and
Keystone is a party to a financial advisory agreement with SFCNH, pursuant to
which they agree to provide certain financial advisory and other consulting
services to SFCNH in consideration for an annual fee of $200,000 per year in the
case of Penobscot and $100,000 per year in the case of Keystone. In September
1999, the Board of Directors approved a one-year extension of the agreements
until December 2000.
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<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the capital stock of SFCNH is held by SFACNH. The following table sets
forth, as of January 26, 2000, certain information regarding the beneficial
ownership of voting securities of SFAC, the ultimate parent of SFACNH, by (i)
each person known by SFACNH to be the beneficial owner of more than 5% of any
class of SFAC's voting securities, (ii) each of the directors and named
executive officers of SFACNH, and (iii) all executive officers and directors of
SFACNH.
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK (A)
- ------------------------------------ --------------- ----------------
Acadia Partners, L.P. (b) 27,063,347 40.86%
201 Main Street
Fort Worth, Texas 76102
Keystone, Inc. (c) 9,358,502 14.13%
201 Main Street
Fort Worth, Texas 76102
Artal Luxembourg S.A. (d) 5,959,327 9.49%
Aandorenstraat 2
3300 Tienen, Belgium
Robert B. Haas (e) 5,881,496 9.26%
300 Crescent Court, Suite 1700
Dallas, Texas 75201
UBS Capital LLC (f) 5,366,913 8.55%
299 Park Avenue
New York, New York 10171
DLJ Merchant Banking Partners, L.P. (g) 3,812,562 6.07%
277 Park Avenue
New York, New York 10172
Thomas J. Baldwin -- --
J. Taylor Crandall (b) -- --
Jerry M. Meyer -- --
Andrew J. Nathanson (g) -- --
David G. Offensend -- --
Marc C. Particelli -- --
Anthony P. Scotto (b) -- --
Henry J. Metz (i) 1,217,750 1.93%
Lawrence S. Benjamin (j) 1,326,771 2.07%
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<PAGE> 26
Douglas D. Wheat (h) 276,264 --*
Robert L. Fishbune (k) 150,000 --*
Robert B. Aiken (l) 214,231 --*
Patrick J. O'Dea (m) 35,000 --*
All directors and executive officers 9,087,281 13.59%
as a group (b)(g)
- -------------
*Less than 1%.
(a) The holdings of all of the stockholders listed in this table may be
diluted by the exercise of warrants set forth in footnotes (b), (c) and
(e) below or options which, under employment arrangements and stock
option plans approved by the Company, may be granted to certain
employees. The Stock Option Plan makes available to certain operating
company employees and headquarter employees options to purchase
5,852,917 shares of Common Stock.
(b) Acadia's shares of Common Stock include shares owned by
FWHY-Coinvestments VII Partners, L.P. ("FWHY"), SFC Partners, L.P.
("SFCP") and SFC Partners II, L.P. ("SFCII"), parties related to
Acadia. Acadia's shares of Common Stock also include 3,467,002 shares
of Common Stock issuable upon the exercise of 8,775 Warrants issued by
SFAC in favor of Acadia pursuant to a Warrant Agreement dated June 27,
1997. See "Item 13 - Certain Relationships and Related Transactions."
The general partner of Acadia is Acadia FW, the managing general
partner of which is Acadia MGP, a corporation controlled by J. Taylor
Crandall. In addition, Mr. Crandall controls Group 31, Inc., the
general partner of each of FWHY, SFCP and SFCII. Therefore, Acadia FW
and Acadia MGP may be deemed to beneficially own the shares of Common
Stock held by Acadia, SFCP, SFCII and FWHY. Mr. Scotto is a limited
partner of SFCII and disclaims beneficial ownership of the shares of
Common Stock held by SFCII. The address of Acadia FW, Acadia MGP, FWHY,
SFCP, SFCII and Mr. Crandall is 201 Main Street, Fort Worth, Texas
76102.
(c) Keystone's shares of Common Stock include 3,467,002 shares of Common
Stock issuable upon the exercise of 8,775 Warrants issued by SFAC in
favor of Keystone pursuant to a Warrant Agreement dated June 27, 1997.
See "Item 13-Certain Relationships and Related Transactions." Keystone
is controlled by Robert M. Bass. As such, Mr. Bass may be deemed to
beneficially own the shares of Common Stock held by Keystone. The
address of Mr. Bass and Keystone is 201 Main Street, Fort Worth, Texas
76102.
(d) The parent entity of Artal Luxembourg S.A. is Artal Group S.A., a
Luxembourg company.
(e) Mr. Haas' shares of Common Stock include 101,011 shares owned by HWP
Specialty Subsidiary Partners, 25,253 shares owned by HWP Specialty
Subsidiary Partners II, and 1,000,000 shares owned by the Haas Family
Long-Term Trust. Mr. Haas' shares of Common Stock also include 770,445
shares of Common Stock issuable upon the exercise of 1,950 Warrants
issued by SFAC in favor of Mr. Haas pursuant to a Warrant Agreement
dated September 19, 1997. See "Item 13 - Certain Relationships and
Related Transactions." The shares owned by HWP Specialty Subsidiary
Partners and HWP Specialty
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<PAGE> 27
Subsidiary Partners II also are beneficially owned by Mr. Douglas
Wheat.
(f) Union Bank of Switzerland owns indirectly 100% of the capital stock of
UBS Capital LLC.
(g) The following entities hold shares of Common Stock: DLJ Merchant
Banking Partners, L.P. ("DLJMBP"); DLJ International Partners, C.V.
("DLJIP"); DLJ Offshore Partners, C.V. ("DLJOP"); DLJ Merchant Banking
Funds, Inc. ("DLJMBF"); DLJ First ESC L.L.C. ("DLJESC"), an "employee
securities corporation" (as defined in the Investment Company Act of
1940) formed to hold securities of employees of DLJMBP, DLJIP, DLJOP
and DLJESC; and Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "DLJ Entities"). Except for his allocable portion of
the shares held by DLJESC, Mr. Nathanson disclaims beneficial ownership
of the shares of Common Stock held by the DLJ Entities.
(h) Mr. Wheat's shares of Common Stock include 101,011 shares owned by HWP
Specialty Subsidiary Partners and 25,253 shares owned by HWP Specialty
Subsidiary Partners II, which also are beneficially owned by Mr. Robert
B. Haas and 150,000 shares owned by the Wheat Children's Trust FBO Adam
B. Wheat, the Wheat Children's Trust FBO Mary C. Wheat, the Wheat
Children's Trust FBO Kyler D. Wheat.
(i) Mr. Metz's shares of Common Stock include 185,000 shares that Mr. Metz
has the right to acquire upon the exercise of options.
(j) Mr. Benjamin's shares of Common Stock include 1,250,000 shares that Mr.
Benjamin has the right to acquire upon the exercise of options.
(k) Mr. Fishbune's shares of Common Stock include 150,000 shares that Mr.
Fishbune has the right to acquire upon the exercise of options.
(l) Mr. Aiken's shares of Common Stock include 170,000 shares that Mr.
Aiken has the right to acquire upon the exercise of options.
(m) Mr. O'Dea's shares of Common Stock include 35,000 shares that Mr. O'Dea
has the right to acquire upon the exercise of options.
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<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
On August 16, 1993, Haas Wheat, Acadia, Keystone, UBS Capital, Artal Luxembourg
S.A. and DLJMBP (in some cases acting through affiliates) (collectively, with
certain of their affiliates, the "Principal Stockholders") entered into a
stockholders' agreement governing the relationships among such stockholders (the
"Stockholders' Agreement") of SFAC, the ultimate parent of SFCNH. Subsequent
transferees of the Common Stock that are affiliates of the Principal
Stockholders or members of management have also agreed to be bound by the
Stockholders' Agreement. The Stockholders' Agreement imposes on the parties
thereto certain restrictions and conditions on the transfer of Common Stock,
subject to certain exceptions. The Stockholders' Agreement provides the parties
with the right to participate in certain sales of Common Stock by other parties.
The parties to the Stockholders' Agreement were granted certain preemptive
rights with respect to issuance of Common Stock by SFAC and the right, in
certain circumstances, to have their Common Stock registered for public sale
under the Securities Act of 1933, as amended. The Stockholders' Agreement also
sets forth provisions relating to corporate governance of SFAC. Pursuant to the
Stockholders' Agreement, Acadia has the right to nominate three Directors,
Keystone has the right to nominate two Directors, Haas Wheat has the right to
nominate two Directors, and UBS Capital, Artal Luxembourg S.A. and DLJMBP each
have the right to nominate one Director. Under certain conditions Acadia and
Keystone can increase the number of Directors they can nominate.
CERTAIN TRANSACTIONS WITH STOCKHOLDERS OF SFAC
Certain of the Principal Stockholders and their affiliates were paid financial
advisory fees by the Company in 1999 pursuant to financial advisory agreements
with the Company. In September 1999, the Board of Directors of SFCNH extended
the terms of the financial advisory agreements between SFCNH and each of Haas
Wheat, Penobscot and Keystone for one year until December 2000. In 1999, SFCNH
paid Haas Wheat an annual fee of $700,000, Penobscot an annual fee of $200,000
and Keystone an annual fee of $100,000. See "Item 11 - Executive Compensation -
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions."
In September 1999, the Company retained Donaldson, Lufkin and Jenrette
Securities Corporation ("DLJ", an affiliate of DLJMBP) to serve as the Company's
financial advisor in connection with its proposed sale of Metz. Upon completion
of the sale of Metz, DLJ received approximately $3,800,000 as compensation for
such financial advisory services.
In January 1999, the Company engaged DLJ to provide investment banking services
in connection with the sale of H&M, which, at that time, was a wholly-owned
subsidiary of SFAC. DLJ received $1,600,000 in connection with the sale of H&M.
In 1999, the Company paid Donaldson, Lufkin & Jenrette Capital Funding ("DLJCF")
$500,000 in connection with the Company's exchange offer and the amendment and
restatement of its Revolving Credit Facility and Term Loan. Also, DLJCF acted as
the Syndication Agent and Collateral Agent under both loan agreements prior to
the termination in connection with the Metz sale.
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<PAGE> 29
TAX SHARING AGREEMENT
SFAC and its subsidiaries have entered into certain tax sharing agreements that
obligate SFAC's subsidiaries to pay a portion of SFAC's consolidated Federal
income tax liability (including for all purposes, alternative minimum tax
liability). Pursuant to one such agreement, SFC shall pay to SFAC an amount of
money generally equal to the Federal income tax liability of SFC, SFC Sub,
SFACNH and SFCNH (calculated as if such entities were a separate consolidated
group that did not include the subsidiaries of SFACNH). SFCNH has agreed to pay
to SFAC an amount of money generally equal to the Federal income tax liability
of SFCNH and all of its subsidiaries (calculated as if such entities were
considered a separate consolidated group). Moreover, each subsidiary of SFCNH
shall pay SFCNH (directly or indirectly through its parent corporation) an
amount of money generally equal to its share of such separately calculated SFCNH
group Federal income tax liability.
29
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
Reference is made to the information set forth in Part II, Item 8 of
this Report, which information is incorporated herein by reference.
Pro forma financial information reflecting the Company's disposition of
Metz Baking Company, as required by Item 7 (b) (1) of Form 8-K, is
included herein.
(A)(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required under the related instructions, are not
applicable, or the information has been provided in the consolidated
financial statements or the notes thereto.
(B) REPORTS ON FORM 8-K
The following Reports on Form 8-K were filed by the Company during the
fourth quarter of 1999 and the first quarter of 2000:
(1) A Current Report on Form 8-K dated November 15, 1999 was filed
under Item 5 - Other Events and Item 7 - Exhibits:
Announcement of execution of definitive agreement to sell Metz
to Earthgrains.
(2) A Current Report on Form 8-K dated December 17, 1999 was filed
under Item 5 - Other Events: Announcement of a December 17,
1999 request from the Department of Justice to the Company and
Earthgrains for additional information under the HSR Act.
(3) A Current Report on Form 8-K dated January 5, 2000 was filed
under Item 5 - Other Events: Update concerning the Cacique
Litigation and Bondholder Matter. Summary Comment by the
Company included.
(4) A Current Report on Form 8-K dated March 20, 2000 was filed
under Items 2 and 7 -Disposition of Assets: Announcement of
the closing of the sale of Metz to Earthgrains.
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<PAGE> 31
(C) EXHIBITS
Exhibit
Number Description of Document
------- -----------------------
2.1* Stock Purchase Agreement, dated as of November 15, 1999,
between SFC New Holdings, Inc. and The Earthgrains Company.
3.1 Certificate of Incorporation of SFACNH. (Incorporated by
reference to Exhibit 3.1 to SFACNH's Registration Statement on
Form S-4 (Registration No. 33-383063))
3.2 Certificate of Amendment of SFACNH. (Incorporated by reference
to Exhibit 3.2 to SFACNH's Registration Statement on Form S-4
(Registration No. 33-383063))
3.3 Certificate of Amendment of SFACNH. (Incorporated by reference
to Exhibit 3.3 to SFACNH's Registration Statement on Form S-4
(Registration No. 33-383063))
3.4 By-Laws of SFACNH. (Incorporated by reference to Exhibit 3.4
to SFACNH's Registration Statement on Form S-4 (Registration
No. 33-383063))
3.5 Certificate of Designation of SFACNH (Incorporated by
reference to Exhibit 3.5 to SFACNH's Registration Statement on
Form S-4 (Registration No. 33-383063))
4.1 Registration Rights Agreement, dated as of August 16, 1993,
among SFAC, SFC and the purchasers named therein.
(Incorporated by reference to Exhibit 4.3 to SFAC's
Registration Statement on Form S-4 (Registration No.
33-68958))
4.2 Registration Rights Agreement, dated as of June 11, 1999,
among SFCNH and holders of its 11 1/4% Senior Notes due 2001,
its 12 1/8% Senior Notes due 2002 and its 13 1/4% Senior
Subordinated Notes due 2003 (Incorporated by reference to
Exhibit 4.1 to SFCNH's Registration Statement on Form S-4
(Registration No. 33-383063))
4.3 Indenture, dated as of June 11, 1999, between SFCNH and United
States Trust Company of New York, as trustee, governing the 11
1/4% Senior Notes due 2001 issued by SFCNH (Incorporated by
reference to Exhibit 4.2 to SFCNH's Registration Statement on
Form S-4 (Registration No. 33-383063))
4.4 Indenture, dated as of June 11, 1999, between SFCNH and United
States Trust Company of New York, as trustee, governing the 12
1/8% Senior Notes due 2002 issued by SFCNH. (Incorporated by
reference to Exhibit 4.3 to SFCNH's Registration Statement on
Form S-4 (Registration No. 33-383063))
4.5 Indenture, dated as of June 11, 1999, between SFCNH and U.S.
Trust Company of Texas, N.A., as trustee, governing the
13-1/4% Senior Subordinated Notes due
31
<PAGE> 32
2003 issued by SFCNH (Incorporated by reference to Exhibit 4.4
to SFCNH's Registration Statement on Form S-4 (Registration
No. 33-383063))
10.1 Stock Purchase Agreement, dated as of August 9, 1993, among
the sellers party thereto and SFC. (Incorporated by reference
to Exhibit 10.1 to SFAC's Registration Statement on Form S-4
(Registration No. 33-68958))
10.2 Amendment No. 1, dated as of August 16, 1993, to the Stock
Purchase Agreement among the sellers party thereto and SFC.
(Incorporated by reference to Exhibit 10.2 to SFAC's
Registration Statement on Form S-4 (Registration No.
33-68958))
10.3 Purchase Agreement, dated as of August 16, 1993, among SFAC,
SFC and the purchasers named therein. (Incorporated by
reference to Exhibit 10.4 to SFAC's Registration Statement on
Form S-4 (Registration No. 33-68958))
10.4 Securities Purchase Agreement, dated as of August 16, 1993,
among SFAC and the purchasers named therein. (Incorporated by
reference to Exhibit 10.5 to SFAC's Registration Statement on
Form S-4 (Registration No. 33-68958))
10.5 Amendment No. 1 to Securities Purchase Agreement, dated as of
December 20, 1993, among SFAC and the purchasers named
therein. (Incorporated by reference to Exhibit 10.6 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1993)
10.6 Stockholders Agreement, dated as of August 16, 1993, among
SFAC and certain of its stockholders. (Incorporated by
reference to Exhibit 10.7 to SFAC's Registration Statement on
Form S-4 (Registration No. 33-68958))
10.7 Amendment No. 1, dated as of December 20, 1993, to
Stockholders Agreement among SFAC and certain of its
stockholders. (Incorporated by reference to Exhibit 10.9 to
SFAC's Registration Statement on Form 10-K for the year ended
December 31, 1993)
10.8 Stockholders Agreement, dated as of August 16, 1993, among
SFAC and its stockholders. (Incorporated by reference to
Exhibit 10.8 to SFAC's Registration Statement on Form S-4
(Registration No. 33-68958))
10.9 Amendment No. 1 to the Stockholders Agreement, dated as of
August 19, 1994, among SFAC and its stockholders.
(Incorporated by reference to Exhibit 10.51 to SFAC's
Registration Statement on Form 10-Q for the Quarter ended
September 30, 1994)
10.10 Financial Advisory Agreement, dated as of August 16, 1993,
among SFAC, SFC and Penobscot. (Incorporated by reference to
Exhibit 10.10 to SFAC's Registration Statement on Form S-4
(Registration No. 33-68758))
10.11 Financial Advisory Agreement, dated as of August 16, 1993,
among SFAC, SFC and Keystone. (Incorporated by reference to
Exhibit 10.11 to the SFAC's Registration Statement on Form S-4
(Registration No. 33-68958))
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<PAGE> 33
10.12 Financial Advisory Agreement, dated as of August 16, 1993,
among SFAC, SFC and Haas Wheat. (Incorporated by reference to
Exhibit 10.12 to SFAC's Registration Statement on Form S-4
(Registration No. 33-68958))
10.13 Corporate Services Agreement, dated as of June 30, 1994,
between SFAC and SFC. (Incorporated by reference to Exhibit
10.14 to SFC's Registration Statement on Form 10-K for the
year ended December 31, 1994)
10.14 Equity Investment Agreement, dated as of May 13, 1997, by and
among SFAC, Acadia, Keystone and Haas Wheat. (Incorporated by
reference to Exhibit 10.93 to SFAC's Registration Statement on
Form 10-Q for the Quarter ended June 30, 1997)
10.15 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among SFAC, SFC and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.50 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1998)
10.16 Executive Securities Purchase Agreement, dated as of December
15, 1994, among Lawrence S. Benjamin, SFAC and SFC.
(Incorporated by reference to Exhibit 10.58 to SFAC's
Registration Statement on Form 10-K for the year ended
December 30, 1995)
10.17 Stock Purchase Agreement, dated as of June 15, 1995, between
Lawrence S. Benjamin and SFAC. (Incorporated by reference to
Exhibit 10.59 to SFAC's Registration Statement on Form 10-K
for the year ended December 30, 1995)
10.18 Securities Purchase Agreement, dated as of August 1, 1995,
between Lawrence S. Benjamin and SFAC. (Incorporated by
reference to Exhibit 10.60 to SFAC's Registration Statement on
Form 10-K for the year ended December 30, 1995)
10.19 Amendment to Securities Purchase Agreement, dated as of
January 2, 1996, between Lawrence S. Benjamin and SFAC.
(Incorporated by reference to Exhibit 10.61 to SFAC's
Registration Statement on Form 10-K for the year ended
December 30, 1995)
10.20 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among SFAC, SFC and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.50 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1998)
10.21 Executive Employment Agreement, dated as of July 15, 1997,
among SFC, Mother's, MCC-DSD Holdings, Inc. and Patrick J.
O'Dea. (Incorporated by reference to Exhibit 10.51 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1998)
10.22 Stock Purchase Agreement dated as of June 15, 1995, between
Henry J. Metz and SFAC. (Incorporated by reference to Exhibit
10.46 to SFC's Registration Statement on Form S-4
(Registration No. 33-94836))
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<PAGE> 34
10.23 Form of Executive Securities Purchase Agreement among certain
named executive officers, respectively, and the Principal
Stockholders, SFAC and SFC (with schedule showing differing
material terms for each such officer's agreement).
(Incorporated by reference to Exhibit 10.40 SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1993)
10.24 Mother's Cake & Cookie Co. Amended and Restated Supplemental
Long Term Incentive Compensation Plan (Incorporated by
reference to Exhibit 10.55 to SFAC's Registration Statement on
Form 10-K for the year ended December 31, 1998)
10.25 Stock Option Agreement, dated as of October 27, 1997, between
SFAC and Lawrence S. Benjamin. (Incorporated by reference to
Exhibit 10.52 to SFAC's Registration Statement on Form 10-K
for the year ended December 31, 1997)
10.26 Retention Bonus Agreement, dated March 15, 1999, between SFC
and Lawrence S. Benjamin. (Incorporated by reference to
Exhibit 10.59 to SFAC's Registration Statement on Form 10-K
for the year ended December 31, 1998)
10.27 Participation Award Agreement, dated as of March 15, 1999,
between Mother's and Lawrence S. Benjamin (Incorporated by
reference to Exhibit 10.60 to SFAC's Registration Statement on
Form 10-K for the year ended December 31, 1998)
10.28 Retention Bonus Agreement, dated March 15, 1999, between SFC
and Robert L. Fishbune. (Incorporated by reference to Exhibit
10.62 to SFAC's Registration Statement on Form 10-K for the
year ended December 31, 1998)
10.29 Deferred Bonus Agreement, dated June 16, 1998, between Boudin
and Larry Strain. (Incorporated by reference to Exhibit 10.63
to SFAC's Registration Statement on Form 10-K for the year
ended December 31, 1998)
10.30 Retention Bonus Agreement, dated March 15, 1999, between
Mother's and Patrick J. O'Dea. (Incorporated by reference to
Exhibit 10.66 to SFAC's Registration Statement on Form 10-K
for the year ended December 31, 1998)
10.31 Divestiture Award Agreement, dated March 15, 1999, between
Mother's and Robert L. Fishbune. (Incorporated by reference to
Exhibit 10.78 to SFAC's Registration Statement on Form 10-K
for the year ended December 31, 1998)
10.32 Divestiture Award Agreement, dated March 15, 1999, between
Boudin and Robert L. Fishbune. (Incorporated by reference to
Exhibit 10.79 to SFAC's Registration Statement on Form 10-K
for the year ended December 31, 1998)
10.33 Amended and Restated SFAC 1994 Stock Option Plan.
(Incorporated by reference to Exhibit 10.39 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1994)
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<PAGE> 35
10.34 Amended and Restated Metz Baking Company Pension Plan for
Non-Union Employees. (Incorporated by reference to Exhibit
10.52 to SFAC's Registration Statement on Form 10-K for the
year ended December 31, 1994)
10.35 Amended and Restated Mother's Cake & Cookie Co. Retirement
Plan. (Incorporated by reference to Exhibit 10.51 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1994)
10.36 Coordination Document for the Metz-Mother's Cake & Cookie Co.
Consolidated Pension Plan (Incorporated by reference to
Exhibit 10.87 to SFAC's Registration Statement on Form 10-K
for the year ended December 31, 1998)
10.37 Stock Purchase Agreement, dated as of November 26, 1996,
between SFC and B Companies Acquisition Corporation.
(Incorporated by reference to Exhibit 10.80 to SFAC's
Registration Statement on Form 10-K for the year ended
December 31, 1996)
10.38 Stock Purchase Agreement, dated as of November 7, 1997, by and
among SFC, Saputo Group Inc. and Saputo Acquisition, Inc.
(Incorporated by reference to Exhibit 10.94 to SFAC's
Registration Statement on Form 8-K dated as of December 22,
1997)
10.39 Stock Purchase Agreement, dated as of October 13, 1998, by and
among SFC, Archway and the Archway Shareholders. (Incorporated
by reference to Exhibit 10.83 SFAC's Registration Statement on
Form 8-K dated as of October 26, 1998)
10.40 Stock Purchase Agreement, dated as of March 9, 1999, between
SFC and IBP, Inc. (Incorporated by reference to Exhibit 10.86
of SFC's Report on From 10-Q for the Quarter ended March 31,
1999)
10.41* Form of 2000 Specialty Foods Corporation Annual Bonus Plan
10.42* Form of 2000 Specialty Foods Corporation Subsidiary Annual
Bonus Plan
10.43* Key Employee Retention Plan
10.44 First Amended and Restated SFC Group Tax Sharing Agreement,
dated as of June 11, 1999, among SFAC, SFCNH and certain
subsidiaries of SFCNH (Incorporated by reference to Exhibit
10.2 to SFCNH's Registration Statement on Form S-4
(Registration No. 333-83063)).
10.45 First Amended and Restated SFAC Tax Sharing Agreement, dated
as of June 11, 1999, among SFAC and SFCNH (Incorporated by
reference to Exhibit 10.4 to SFCNH's Registration Statement on
Form S-4 (Registration No. 333-83063))
10.46 SFAC and SFC Group Tax Sharing Agreement, dated as of June 11,
1999, between SFAC, SFC, SFC Sub and SFACNH, (Incorporated by
reference to Exhibit 10.5 to SFACNH's Registration Statement
on Form S-4 (Registration No. 333-83149))
35
<PAGE> 36
10.47 Assignment and Assumption Agreement, dated as of June 11,
1999, between SFC and SFCNH (Incorporated by reference to
Exhibit 10.5 to SFCNH's Registration Statement on Form S-4
(Registration No.33-83063))
10.48 Executive Employment Agreement, dated as of May 1, 1999, by
and among SFAC, SFC, Metz, Mother's, Archway, Boudin and David
E. Schreibman (Incorporated by reference to Exhibit 10.87 to
SFC's Registration Statement on Form 10-Q for the Quarter
ended March 31, 1999)
10.49 Amended and Restated Retention Bonus Agreement, dated as of
May 1, 1999, by and between SFC and David E. Schreibman.
(Incorporated by reference to Exhibit 10.88 to SFC's
Registration Statement on Form 10-Q for the Quarter ended
March 31, 1999)
10.50 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Metz and David E. Schreibman.
(Incorporated by reference to Exhibit 10.89 to SFC's
Registration Statement on Form 10-Q for the Quarter ended
March 31, 1999)
10.51 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Mother's and David E. Schreibman.
(Incorporated by reference to Exhibit 10.90 to SFC's
Registration Statement on Form 10-Q for the Quarter ended
March 31, 1999)
10.52 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Boudin and David E. Schreibman.
(Incorporated by reference to Exhibit 10.91 to SFC's
Registration Statement on Form 10-Q for the Quarter ended
March 31, 1999)
10.53 Participation Award Agreement, dated as of May 1, 1999,
between Mother's and Patrick J. O'Dea. (Incorporated by
reference to Exhibit 10.92 to SFC's Registration Statement on
Form 10-Q for the Quarter ended March 31, 1999)
21.1* Subsidiaries of SFAC
27* Financial Data Schedule
* Filed herewith.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SFC NEW HOLDINGS, INC.
By: /s/ LAWRENCE S. BENJAMIN
------------------------
Lawrence S. Benjamin
President and Chief Executive
Officer
March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE CAPACITY DATE
<S> <C> <C>
/s/ LAWRENCE S. BENJAMIN Principal Executive Officer and March 29, 2000
- -------------------------- Director
Lawrence S. Benjamin
President and Chief Executive
Officer
/s/ ROBERT L. FISHBUNE Principal Financial and Accounting March 29, 2000
- ---------------------- Officer
Robert L. Fishbune
Vice President and Chief Financial
Officer
</TABLE>
37
<PAGE> 38
SIGNATURE AND TITLE CAPACITY DATE
- ------------------- -------- ----
/s/ ROBERT B. HAAS Chairman of the Board of March 29, 2000
- ------------------ Directors
Robert B. Haas
/s/ THOMAS J.BALDWIN Director March 29, 2000
- --------------------
Thomas J. Baldwin
/s/ J. TAYLOR CRANDALL Director March 29, 2000
- ----------------------
J. Taylor Crandall
/s/ JERRY M. MEYER Director March 29, 2000
- ------------------
Jerry M. Meyer
/s/ ANDREW J. NATHANSON Director March 29, 2000
- -----------------------
Andrew J. Nathanson
/s/ DAVID G. OFFENSEND Director March 29, 2000
- ----------------------
David G. Offensend
/s/ MARC C. PARTICELLI Director March 29, 2000
- ----------------------
Marc C. Particelli
/s/ ANTHONY P. SCOTTO Director March 29, 2000
- ---------------------
Anthony P. Scotto
/s/ DOUGLAS D. WHEAT Director March 29, 2000
- --------------------
Douglas D. Wheat
38
<PAGE> 39
INDEX TO FINANCIAL INFORMATION
Page
Audited Financial Information:
Independent Auditors' Report F-2
Consolidated Balance Sheets -
December 31, 1999 and 1998 F-3
Consolidated Statements of Operations -
Years ended December 31, 1999, 1998, and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1999, 1998, and 1997 F-5
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998, and 1997 F-6
Notes to Financial Statements F-7 to F-23
Pro Forma Financial Information - Metz Divestiture F-24
All other financial statement schedules are omitted as not applicable or because
the required information is presented in the consolidated financial statements
or related notes.
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SFC New Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of SFC New
Holdings, Inc. and Subsidiaries as of December 31, 1999 and of Specialty Foods
Corporation and Subsidiaries as of December 31, 1998 (collectively, "the
Company") and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows of the Company for each of the years in
the three-year period ended December 31, 1999. 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 the Company as of
December 31, 1999 and 1998 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 20, 2000
F-2
<PAGE> 41
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS (Successor) (Predecessor)
Current assets:
Cash and cash equivalents $ 28,545 $ 5,714
Accounts receivable, net 15,826 9,988
Inventories 10,895 12,178
Net assets of discontinued operations 169,980 216,784
Other current assets 8,680 4,292
--------- ---------
Total current assets 233,926 248,956
Property, plant, and equipment, net 67,248 72,127
Intangible assets, net 96,954 96,696
Other noncurrent assets 29,564 39,261
--------- ---------
Total assets $ 427,692 $ 457,040
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,867 $ 3,439
Accounts payable 12,999 12,861
Accrued expenses 44,700 41,098
--------- ---------
Total current liabilities 60,566 57,398
Long-term debt 841,115 820,309
Due to Specialty Foods Acquisition Corporation 7,507 7,499
Other noncurrent liabilities 22,615 22,808
--------- ---------
Total liabilities 931,803 908,014
--------- ---------
Stockholders' equity:
Additional paid-in capital 275,300 275,000
Accumulated deficit (779,411) (725,974)
--------- ---------
Total stockholders' equity (504,111) (450,974)
--------- ---------
Total liabilities and stockholders' equity $ 427,692 $ 457,040
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 42
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(Successor)(Predecessor) (Predecessor)
<S> <C> <C> <C>
Net sales $ 284,574 $ 206,003 $ 196,923
Cost of sales 119,761 88,676 87,204
--------- --------- ---------
Gross profit 164,813 117,327 109,719
--------- --------- ---------
Operating expenses:
Selling, distribution, general and
administrative expenses 162,103 118,448 115,866
Amortization of intangibles 2,873 544 56
--------- --------- ---------
164,976 118,992 115,922
--------- --------- ---------
Operating loss (163) (1,665) (6,203)
Other:
Interest expense, net 102,347 82,981 89,781
Third-party financing fees 9,781 -- --
Other expense, net 3,923 1,542 2,087
--------- --------- ---------
Loss before income taxes (116,214) (86,188) (98,071)
Provision (benefit) for income taxes 189 (727) 165
--------- --------- ---------
Loss from continuing operations (116,403) (85,461) (98,236)
Discontinued operations:
Earnings 37,175 39,896 62,181
Gain (loss) on disposal 26,791 (601) 133,130
--------- --------- ---------
63,966 39,295 195,311
--------- --------- ---------
Income (loss) before extraordinary items (52,437) (46,166) 97,075
Extraordinary items -- -- (5,714)
--------- --------- ---------
Net income (loss) $ (52,437) $ (46,166) $ 91,361
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 43
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common stock Additional
------------ paid-in Accumulated
Shares Amount Capital deficit
------ ------- ---------- ---------
<S> <C> <C> <C> <C>
Predecessor Company Balance
at December 31, 1996 100 $ - $ 275,000 $ (769,043)
Dividend to parent - - - (1,122)
Net income - - - 91,361
------ ------- ---------- ---------
Predecessor Company Balance
at December 31, 1997 100 - 275,000 (678,804)
Dividend to parent - - - (1,004)
Net loss - - - (46,166)
------ ------- ---------- ---------
Predecessor Company Balance
at December 31, 1998 100 - 275,000 (725,974)
Effects of debt exchange:
Eliminate Predecessor's Common Stock (100) - - -
Issue Successor's Common Stock 100 - - -
Financial instruments retained by
Predecessor
o Untendered notes 325
o Other, net - - (25) -
Dividend to parent - - - (1,000)
Net loss - - - (52,437)
------ ------- ---------- ---------
Successor Company Balance
at December 31, 1999 100 $ - $ 275,300 $(779,411)
====== ======= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 44
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(Successor) (Predecessor)(Predecessor)
Cash flows from operating activities:
Loss from continuing operations $(116,403) $ (85,461) $ (98,236)
Adjustments to reconcile to net cash
from continuing operating activities:
Depreciation and amortization 16,569 7,452 5,551
Debt issuance cost amortization 10,729 9,500 5,511
Accretion of interest 702 -- --
Loss on disposal of property, plant,
and equipment, net 3,039 309 250
Write-off of refinancing fees 9,781 -- --
Changes in assets and liabilities,
net of effects from acquisitions of
businesses:
Accounts receivable (5,838) 9,572 8,664
Inventories 1,283 962 1,182
Prepaid expenses and other assets (4,388) (659) 2,865
Accounts payable 138 (2,722) (3,724)
Accrued expenses and other 251 (13,400) (5,033)
--------- --------- ---------
Net cash used by continuing operating activities (84,137) (74,447) (82,970)
Net cash used by discontinued operations (4,842) (61,815) (43,164)
--------- --------- ---------
Net cash used by operating activities (88,979) (136,262) (126,134)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired -- (117,151) --
Net proceeds from divestitures of businesses 117,886 -- 384,096
Capital expenditures (6,442) (19,186) (11,978)
Cash restricted for the purchase of property,
plant and equipment -- (7,119) --
Other 2,648 (4,472) 928
--------- --------- ---------
Net cash provided (used) by investing activities 114,092 (147,928) 373,046
Cash flows from financing activities:
Increase (decrease) in revolving credit 22,801 75,000 (78,300)
Payments on long-term debt (3,648) (5,981) (3,056)
Payments of debt issuance costs (20,968) (12,879) --
Issuance of redeemable preferred stock -- -- 19,500
Other (467) (880) (738)
--------- --------- ---------
Net cash provided (used) by financing activities (2,282) 55,260 (62,594)
Increase (decrease) in cash and cash equivalents 22,831 (228,930) 184,318
Balance - beginning of year 5,714 234,644 50,326
--------- --------- ---------
Balance - end of year $ 28,545 $ 5,714 $ 234,644
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 45
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) COMPANY BACKGROUND
SFC New Holdings, Inc. (together with its Subsidiaries, the "Successor
Company") was formed to exchange debt securities issued by the Company
for certain debt securities of Specialty Foods Corporation ("Predecessor
Company" or "SFC"), as described in Note 11. As required by the context,
the "Company" refers to the Successor Company or the Predecessor Company.
SFC contributed its interest in the operating subsidiaries and other
assets through a wholly-owned subsidiary, SFC-Sub, to SFAC New Holdings,
Inc., the direct parent of SFC New Holdings, Inc. SFAC New Holdings, Inc.
then contributed those interests to SFC New Holdings, Inc. As a result of
the debt exchange and revised corporate structure, completed on June 11,
1999, SFC New Holdings, Inc. is treated as a successor company for
reporting purposes.
The Company is a leading producer, marketer and distributor of bakery
products. The continuing operations of the Company consist of the
following operating companies:
- - Mother's Cake & Cookie Co. ("Mother's") - Mother's is the second largest
retail cookie producer and distributor in the Western United States.
Mother's sells its branded cookie products primarily to retail grocers.
- - Archway Cookies, Inc. ("Archway") - Acquired in 1998, Archway is one of
the nation's leading cookie makers, producing more than one billion
cookies annually. Archway sells its branded cookie products to
supermarkets, restaurants and to retail grocers throughout the U.S. and
Canada.
- - Andre-Boudin Bakeries, Inc. ("Boudin") - Boudin is a leading marketer of
premium branded specialty breads and bread-related products. Boudin sells
its products to supermarkets, restaurants and through a chain of 38
bakery cafes and kiosks located in California and the greater Chicago
area.
The Company's discontinued operations are described in Note 3.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's financial statements are presented on a consolidated basis.
All significant intercompany accounts and transactions have been
eliminated. Acquisitions recorded as purchases are included in the
Consolidated Statement of Operations from the date of acquisition.
Divestitures reported as discontinued operations have been removed from
continuing operations and reclassified to discontinued operations in
accordance with Accounting Principles Board Opinion No. 30.
F-7
<PAGE> 46
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The 1999 operating results for the Successor Company consists of: (i) the
Predecessor Company's operations for the period of January 1, 1999
through the June 11, 1999 debt exchange and (ii) the post June 11, 1999
operations of the Successor Company. Prior period financial information
of the Predecessor Company is based on its historical financial
information.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and related disclosures at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts included in the 1998 and 1997 financial statements have
been reclassified to conform to the manner in which the 1999 financial
statements have been presented.
CASH EQUIVALENTS
Cash equivalents represent investments in overnight bank deposits and
commercial paper with an original maturity of less than three months.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally by the first-in, first-out (FIFO) method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is
provided by the straight-line method over the assets' estimated useful
lives or, in the case of leasehold improvements, over the terms of the
leases, if shorter, as follows:
Years
Buildings and improvements 7-40
Machinery and equipment 3-20
Office furniture and vehicles 3-10
Expenditures for maintenance, repairs, and minor replacements are charged
to current operations. Expenditures for major replacements and betterment
are capitalized.
F-8
<PAGE> 47
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The cost and related accumulated depreciation of property and equipment
retired or sold is eliminated from the property and equipment accounts at
the time of retirement or sale, and the resulting gain or loss is
reported in the Consolidated Statement of Operations.
INTANGIBLE ASSETS
Intangible assets, which consist primarily of the excess of cost over
fair value of net assets acquired, are amortized on a straight-line basis
over the periods of expected benefit, which range from five to forty
years. The Company annually evaluates whether events and circumstances
have occurred that indicate that the remaining estimated useful life of
intangible assets may warrant revision or that the remaining balance of
intangible assets may not be recoverable. When factors indicate that
intangible assets should be evaluated for possible impairment, the
Company assesses recoverability of intangible assets based on its
expectations concerning operating cash flows after interest and capital
expenditures. An impairment is recorded if the discounted value of such
cash flows is less than the recorded value of the intangible assets. The
Company utilizes a discount rate which reflects its weighted average cost
of capital.
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are being amortized by the straight-line
method over the terms of the related debt agreements and are classified
as other noncurrent assets.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
(3) DISCONTINUED OPERATIONS
On March 20, 2000, SFC New Holdings, Inc. completed the sale of its
subsidiary, Metz Baking Company ("Metz"), to the Earthgrains Company for
$625,000. Accordingly, Metz is reported as a discontinued operation in
the Consolidated Financial Statements. Metz is a leading retail bread
company serving the Midwestern United States. . Upon closing, $20,000 of
the purchase price was paid into an escrow to secure potential future
indemnification obligations of SFC New Holdings, Inc. arising out the
sale. Depending on the amount of any potential future indemnification
obligations, the escrow will release $10,000 one year after closing and
the remaining amount two years after the closing.
For financial reporting purposes, the Company will report a gain on the
sale of Metz for the quarter ending March 31, 2000. This gain is
estimated to approximate $405,000.
In April 1999, the Company sold its subsidiary, H&M Food Systems Company,
Inc. ("H&M"), for $132,000. H&M is a producer of custom formulated,
pre-cooked meat products that are sold primarily to national restaurant
chains and prepared-food producers.
F-9
<PAGE> 48
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
In addition, during 1997 the Company divested of:
- Stella Foods, Inc. ("Stella") - One of the largest
specialty cheese producers in the United States with
distribution to retail grocers, foodservice accounts, and
commercial food processors. The sale of Stella was
completed in December 1997 for $405,000.
- Gai's Seattle French Baking Company ("Gai's") - A
restaurant and institutional bakery operation serving the
northwestern United States. The sale of Gai's was completed
in February 1997.
- San Francisco French Bread ("SFFB") - A sourdough hearth
bread operation located in California. The sale of SFFB was
completed in March 1997.
These divestitures have been reported as discontinued operations in the
accompanying financial statements in accordance with Accounting
Principles Board Opinion No. 30. Operating results for these businesses
during their ownership by SFC, including revenues of $641,956, $717,349,
and $1,456,606 for 1999, 1998, and 1997, respectively, have been
reclassified to discontinued operations. No interest expense has been
allocated to discontinued operations.
In 1999, the earnings from discontinued operations include the full year
operating results of Metz and the operating results of H&M through the
April 1999 closing date. The net gain on disposal of discontinued
operations for 1999 consists primarily of the gain on the sale of H&M. In
1998, the earnings from discontinued operations relates to H&M and Metz.
The net loss on disposal of discontinued operations for 1998 consists of
revisions to the estimated losses on prior year dispositions. In 1997,
the earnings from discontinued operations relate to Stella, H&M and Metz.
The net gain on disposal of discontinued operations for 1997 consisted
principally of the gain realized on the sale of Stella.
Net assets of the discontinued operations as of December 31, 1999 related
to Metz and the net assets of the discontinued operations as of December
31, 1998 related to Metz and H&M and consisted of the following:
1999 1998
---- ----
Accounts receivable, net of allowance $ 11,507 $ 12,926
Inventories 15,467 28,011
Plant and equipment, net 173,030 216,023
Other assets 3,800 8,128
Goodwill, net 44,712 34,812
Accounts payable (30,658) (31,645)
Accrued expenses and other liabilities (47,878) (51,471)
--------- ---------
$ 169,980 $ 216,784
========= =========
F-10
<PAGE> 49
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(4) ACQUISITIONS
In October 1998, SFC acquired all of the outstanding capital stock of
Archway, a privately held Michigan corporation, from the previous
stockholders. The purchase price totaled approximately $116,000.
The acquisition was accounted for as a purchase and, accordingly, the
respective purchase price was allocated to the applicable assets and
liabilities based upon their estimated fair values as of the acquisition
date. The excess of the purchase price over the fair values of the net
assets acquired was approximately $92,000 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 40
years. The acquisition was funded by a combination of cash and borrowings
under SFC's existing revolving credit facility. Operating results of
Archway have been included in the Consolidated Statements of Operations
since the acquisition date.
In January 2000, the Company acquired the Lew-Mark Baking Company for
$23,100. Lew-Mark Baking holds the exclusive license to the Archway brand
in the states of New York and New Jersey and had 1999 unaudited sales of
approximately $25,000.
(5) ACQUISITION LIABILITIES
In connection with the formation of the Company and subsequent
acquisitions, estimated liabilities were recorded for the expected cash
expenditures to consolidate facilities, streamline operations, and settle
environmental, legal and tax matters. As of December 31, 1999, there are
$7,959 of remaining acquisition liabilities, of which $4,278 is
classified as current. Cash expenditures associated with acquisition
liabilities were $6,133, $2,976, and $1,662 for 1999, 1998, and 1997,
respectively.
(6) EXTRAORDINARY ITEMS
In the first quarter of 1998, the Company refinanced its accounts
receivable, revolver, and term loan financing facilities. Due to this
early extinguishment of debt, the Company wrote-off deferred debt
issuance costs related to the previous facilities of $5,714 and recorded
the write-off as an extraordinary item in 1997.
(7) ACCOUNTS RECEIVABLE
Specialty Foods Finance Corporation ("SFFC"), a wholly-owned subsidiary
of the Company, was established for the purpose of acquiring
substantially all of the trade accounts receivable generated by the
operating subsidiaries of the Company. Under the terms of the Accounts
Receivable Facility ("Facility"), SFFC sells for cash an undivided
interest in eligible accounts receivable. Under the terms of the
Facility, the maximum amount of eligible receivables that can be sold to
the Facility is $50,000. The amount outstanding under the Facility varies
based upon the level of eligible receivables and advance rate factors. As
of December 31, 1999, the amount outstanding under the Facility was
$37,048. The discount on receivables sold is included in other expense
and totaled $917, $985, and $817 in 1999, 1998, and 1997, respectively.
Trade accounts receivable are reported net of the allowance for doubtful
accounts of $656 and $513 in 1999 and 1998, respectively.
F-11
<PAGE> 50
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Concurrent with the closing of the sale of Metz in March 2000, the
Facility was terminated.
The Company has one customer that accounted for 12.8%, 14.1% and 12.0% of
net sales in 1999, 1998, and 1997, respectively. No other customer
accounts for more than 10% of the Company's net sales.
(8) INVENTORIES
The components of inventories are as follows:
1999 1998
-------- --------
Raw materials and packaging $ 5,275 $ 5,382
Work in progress 190 264
Finished goods 4,158 5,657
Other 1,742 1,779
-------- --------
11,365 13,082
Less obsolescence and other allowances (470) (904)
-------- --------
$ 10,895 $ 12,178
======== ========
(9) PROPERTY, PLANT, AND EQUIPMENT
The components of property, plant and equipment are as follows:
1999 1998
--------- ---------
Land $ 1,532 $ 1,532
Buildings and improvements 33,443 36,596
Machinery and equipment 54,648 44,972
Office furniture and vehicles 16,936 12,519
Construction in progress 5,076 9,294
--------- ---------
111,635 104,913
Less accumulated depreciation (44,387) (32,786)
--------- ---------
$ 67,248 $ 72,127
========= =========
Depreciation expense was $13,696, $6,908, and $5,495 in 1999, 1998, and
1997, respectively.
F-12
<PAGE> 51
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(10) ACCRUED EXPENSES
The components of accrued expenses are as follows:
1999 1998
------- -------
Accrued payroll $ 3,768 $ 3,875
Other taxes payable 739 981
Workers' compensation 2,816 3,030
Compensated absences 2,792 2,248
Accrued marketing 1,295 2,192
Accrued interest 23,398 21,869
Acquisition liabilities 4,278 2,508
Other 5,614 4,395
------- -------
$44,700 $41,098
======= =======
(11) LONG-TERM DEBT
DEBT
During 1999, the Company completed exchange offers that provided
investors that held debt of the predecessor companies, SFC and Specialty
Foods Acquisition Corporation ("SFAC"), the direct parent of SFC, the
opportunity to exchange their debt securities for the debt securities of
SFC-Sub, Inc. (the direct parent of SFAC New Holdings, Inc.) and the two
successor companies, SFAC New Holdings, Inc. and SFC New Holdings, Inc.
Concurrent with the exchange offers, the Company amended and restated its
Term Loan and Revolving Credit facilities, and amended its off-balance
sheet Accounts Receivable facility to extend the maturity date of these
facilities and permit the exchange offers.
F-13
<PAGE> 52
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The following table reconciles the debt reported by the Predecessor
Company at December 31, 1998 to the debt reported by the Successor
Company at December 31, 1999.
<TABLE>
<CAPTION>
Predecessor Debt Normal Successor
December 31, not Operating December 31,
1998 exchanged Activity 1999
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revolving Credit Facility $ 75,000 $ - $ 22,801 $ 97,801
Term Loan Facility 169,080 - (1,737) 167,343
Senior Notes due August 2001 225,000 (130) - 224,870
Senior Notes due October 2002 150,000 (25) - 149,975
Senior Subordinated Notes due
August 2003 200,000 (170) 702 200,532
Other 4,668 (1,207) 3,461
------------ ------------- ----------- ----------
-
823,748 (325) 20,559 843,982
Less current portion (3,439) - 572 (2,867)
------------ ------------- ---------- -----------
$ 820,309 $ (325) $ 21,131 $ 841,115
============ ============= ========== ===========
</TABLE>
The Successor Company issued debt replacing the Predecessor Company's debt. The
differences in key provisions are noted below.
- - Senior Notes due August 2001 - The coupon rate was increased from 10-1/4%
to 11-1/4%.
- - Senior Notes due October 2002 - The coupon rate was increased from
11-1/8% to 12-1/8%.
- - Senior Subordinated Notes due August 2003 - The coupon rate was increased
from 11-1/4% to 13-1/4% with 12-1/4% payable in cash and 1% payable in
kind.
- - Term Loan and Revolver - The interest rate increased by 75 basis points
("bps") to LIBOR + 450 bps for the Term Loan and LIBOR + 325 bps for the
Revolver. The maturity dates of these facilities were extended one year
to January 2001.
The Company has incurred approximately $21,900 in fees and expenses
related the exchange offers and refinancing. Approximately $12,100 of
fees have been paid to debtholders and have been classified as a
long-term asset on the Company's Consolidated Balance Sheet. The
remaining $9,800 of fees and expenses were paid to third parties and have
been recorded as a non-operating expense on the Company's Consolidated
Statement of Operations.
The 11 1/4% and 12 1/8% Senior Notes and the 13 1/4% Senior Subordinated
Notes are unsecured. Semi-annual interest payments are required through
maturity on the 11 1/4% Senior Notes and the 13 1/4% Senior Subordinated
Notes on February 15 and August 15 each year. Semi-annual interest
payments are required through maturity on the 12 1/8% Senior Notes on
April 1 and October 1 each year.
The Company has certain limitations regarding sales of assets, loans and
investments, encumbrances of assets and assumption of additional
indebtedness. In addition, the indentures governing the Senior Notes and
the Senior Subordinated Notes contain certain restrictive covenants,
including, to the detriment of the holders of
F-14
<PAGE> 53
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
the Senior Secured Discount Debentures, certain covenants that restrict
or prohibit (with de minimis exceptions) SFC New Holdings, Inc.'s ability
to pay dividends or make other distributions to SFAC New Holdings, Inc.
Specifically, as a result of SFC New Holdings, Inc.'s net losses and
accumulated deficit, its ability to make distributions to SFAC New
Holdings, Inc. under the indentures of the Senior Notes and the Senior
Subordinated Notes has been impaired and these indentures will require
modification before any such distribution to SFAC New Holdings, Inc. can
be made.
Cash paid for interest was $91,474, $80,739, and $84,595 for the years
ended December 31, 1999, 1998, and 1997, respectively.
Aggregate maturities of debt are as follows:
2000 $ 2,867
2001 488,690
2002 150,427
2003 200,797
2004 261
Thereafter 940
---------
Total aggregate maturities $ 843,982
-========
On March 20, 2000 the Company completed the sale of its Metz operating
unit for $625,000. The sale of Metz results in immediately available net
cash proceeds of approximately $545,000 (net of a $20,000 escrow, an
approximate $40,000 to terminate at closing the accounts receivable
facility and an estimated $20,000 for taxes and other expenses associated
with the transaction). Under its existing debt arrangements, the Company
is required to apply 75% of the Metz net proceeds, or approximately
$410,000, to reduce debt. As a result, concurrent with the Metz closing,
the Company has paid in full amounts outstanding under the Revolving and
Term Loan facilities totaling approximately $265,000 and terminated these
arrangements. Within thirty days after the Metz closing, the Company is
required to commence an asset sale tender offer for a portion
(approximately $145,000) of the Company's Senior Notes.
(12) FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
The Company's exposure to credit loss in the event of nonpayment of
accounts receivable by customers is represented in the net amount of
those receivables. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from
those customers. As of December 31, 1999, the Company does not believe it
has any significant concentration of credit risk with respect to its
trade accounts receivable.
F-15
<PAGE> 54
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value and carrying amount of long term debt including
current maturities at December 31, 1999 are as follows:
Estimated
Carrying Fair
Amounts Values
------- ------
Financial liabilities:
Long-term debt, including
current maturities $ 843,982 $ 776,214
The fair value of long-term debt has been determined based on quoted
market prices at December 31, 1999.
(13) LEASE COMMITMENTS
The Company leases equipment and facilities under various noncancelable
operating leases. Future minimum lease payments under all noncancelable
operating leases are as follows:
2000 $ 5,531
2001 5,348
2002 4,656
2003 3,856
2004 3,104
Thereafter 7,693
-----
Total minimum lease payments $ 30,188
======
Total rental expense for 1999, 1998, and 1997 was $7,584, $7,100, and
$6,396 respectively.
(14) INCOME TAXES
The provision (benefit) for income taxes for 1999, 1998, and 1997 relates
to state income taxes payable (refundable). An effective tax rate
reconciliation is not presented since the Company has no federal tax
currently payable or deferred income tax expense due to its net operating
loss position.
F-16
<PAGE> 55
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The components of net deferred taxes are as follows:
1999 1998
------- -------
Deferred tax assets related to:
Accrued expenses and other liabilities $13,306 $11,444
Net operating losses 22,786 40,840
Other 498 2,472
------- -------
Total deferred tax assets 36,590 54,756
Valuation allowance 32,059 52,260
------- -------
Total net deferred tax assets 4,531 2,496
Deferred tax liabilities related to:
Depreciation 3,260 2,015
Amortization 1,271 481
------- -------
Total deferred tax liabilities 4,531 2,496
------- -------
Net deferred tax asset (liability) $ -- $ --
======= =======
At December 31, 1999, the Company has federal net operating loss
carryforwards of $59,000 including $9,000 of loss carryforwards which are
subject to limitations that may substantially limit future utilization.
Also at December 31, 1999, the Company has $51,000 of state net operating
loss carryforwards. The net operating loss carryforwards exclude
allocable portions related to discontinued operations. Net operating loss
carryforwards expire in varying amounts through the year 2019.
Cash paid (received) for income taxes was $128, $(614), and $15 for 1999,
1998, and 1997, respectively.
(15) LITIGATION AND OTHER CONTINGENCIES
The Company has indemnified the acquirer of Stella for the liability
associated with an existing lawsuit. In 1993, Stella was alleged to have
misappropriated confidential and proprietary trade secrets of a
competitor and infringed upon the competitor's purported trademark
("Cacique Case"). During 1999, a verdict of $4,500 in compensatory
damages was returned against Stella and certain other defendants. In
addition, the Court assessed approximately $1,700 of interest on
compensatory damages, $5,000 of plaintiff attorney fees to be paid by the
defendants, and $12,500 of aggregate punitive damages jointly and
severally against Stella and C. Dean Metropoulos, the former CEO of
Stella. The Company strongly disagrees with the verdict in this case and
believes that numerous reversible errors occurred at the trial and the
Company will vigorously pursue all available remedies.
F-17
<PAGE> 56
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Recently, three additional lawsuits have arisen stemming from the Cacique
matter. First, the Company and the other defendants in the Cacique Case
have filed suit against certain insurance carriers of both the Company
and Stella seeking declaratory relief that such insurance companies are
responsible for certain of the damages in the Cacique Case. Second,
following the verdict in the Cacique Case, Saputo filed suit against the
Company seeking injunctive relief and alleging that the Company is
obligated to post a bond on Saputo's behalf in the Cacique Case equal to
150% of the aggregate verdict while the Cacique Case is under appeal. The
Company disagrees with the allegations in the Saputo lawsuit and intends
to vigorously defend the matter. Third, C. Dean Metropoulos filed suit
against SFC, Stella and certain other defendants alleging, among other
things, that the Company and its agents interfered with Mr. Metropoulos'
rights to indemnification from Stella for damages arising out of the
Cacique Case. The Company believes that Mr. Metropoulos' lawsuit is
entirely without merit. The Company intends to vigorously defend against
this action. Although any litigation has an element of uncertainty,
management believes the ultimate outcome of the Cacique matter will not
have a material adverse effect on the Company's financial condition or
results of operations.
In addition to the Cacique matter, in the normal course of business
activities, the Company is a party to certain legal proceedings and
claims. Although the outcome of such matters cannot be determined with
certainty, it is management's opinion that, after consideration of the
relevant matters of each case and the accruals recorded, the final
outcome will not have a material adverse effect on the Company's
financial position or results of operations.
OTHER
Various operating subsidiaries are self-insured or retain a portion of
losses with the respect to workers' compensation claims. Accordingly, the
Company provides irrevocable letters of credit or surety bonds which
total $4,352 at December 31, 1999 to state regulatory agencies or
insurance companies.
(16) EMPLOYEE BENEFITS
PENSION AND OTHER POST-RETIREMENT BENEFITS
Certain of the operating subsidiaries sponsor single-employer,
non-contributory, defined benefit pension plans. The operating
subsidiaries also participate in numerous multi-employer,
non-contributory, defined benefit pension plans. Substantially all of the
Company's employees are covered by the defined benefit or multi-employer
plans. Certain of the subsidiaries also sponsor post-retirement health
care benefit plans.
Benefits for employees under the single-employer, defined benefit pension
plans are based on various factors including length of service and
average compensation. Contributions are funded to the extent deductible
for federal income tax purposes.
F-18
<PAGE> 57
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The following table provides a reconciliation of the changes in the
plans' benefit obligations and fair value of assets during the years
ended December 31, 1999 and December 31, 1998 and a summary of the funded
status as of December 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
Pension Plans Post-retirement Medical
-----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $ 51,412 $ 48,403 $ 2,585 $ 2,271
Service cost 2,077 1,846 119 102
Interest cost 3,536 3,245 168 156
Participant Contributions -- -- 32 29
Plan amendments 985 -- -- --
Settlement (gain) or loss -- -- -- --
Benefits paid (3,133) (2,991) (97) (87)
Actuarial (gain) or loss (6,300) 909 (307) 114
-------- -------- -------- --------
Benefit obligation at end of year $ 48,577 $ 51,412 $ 2,500 $ 2,585
======== ======== ======== ========
Change in Plan Assets
Fair value of plan assets at
beginning of year $ 54,278 $ 50,551 $ -- $ --
Actual return on plan assets 12,288 5,911 -- --
Benefits paid (3,133) (2,991) -- --
Other -- 807 -- --
-------- -------- -------- --------
Fair value of plan assets at end of year $ 63,433 $ 54,278 $ -- $ --
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Plans Post-retirement Medical
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Summary of Funded Status
Funded status $ 14,856 $ 2,866 $ (2,500) $ (2,585)
Unrecognized transition amount (166) (274) -- --
Unrecognized prior service cost 1,293 438 -- --
Unrecognized net (gain) or loss (20,723) (9,357) 6 314
-------- -------- -------- --------
Accrued benefit cost $ (4,740) $ (6,327) $ (2,494) $ (2,271)
======== ======== ======== ========
Amounts Recognized in Consolidated
Balance Sheets
Other noncurrent liabilities $ (843) $ (336) $ -- $ --
Net assets of discontinued operation (3,897) (5,991) (2,494) (2,271)
-------- -------- -------- --------
$ (4,740) $ (6,327) $ (2,494) $ (2,271)
======== ======== ======== ========
</TABLE>
F-19
<PAGE> 58
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Upon closing of the Metz sale transaction, Earthgrains will assume the
liability for the portion of the pension plan related to the active Metz
employees and, accordingly, the fair value of plan assets and the benefit
obligation at December 31, 1999 would be reduced by $19,206 and $17,456,
respectively.
The following table provides the components of net periodic benefit cost
for the plans for the fiscal years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Pension Plans Post-retirement Medical
----------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during
the period $ 635 $ 603 $ 534 $ 119 $ 102 $ 82
Interest cost on the benefit obligation 636 630 647 168 156 144
Expected return on plan assets (709) (773) (651) -- -- --
Net amortization and deferral
Transition amount (108) (108) (108) -- -- --
Prior service costs 53 53 53 -- -- --
(Gain)/loss -- (28) -- 4 -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost $ 507 $ 377 $ 475 $ 291 $ 258 $ 226
===== ===== ===== ===== ===== =====
</TABLE>
Gains and losses in excess of 10% of the benefit obligation are amortized
over five years for the post-retirement plan. The Company sponsors
defined benefit health care plans that provide post-retirement medical
and life benefits to certain full-time employees who meet minimum age and
service requirements. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features
such as deductibles and co-insurance. The accounting for these plans
anticipates future cost-sharing changes to the written plans that are
consistent with the Company's expressed intent to increase the retiree
contribution rate annually for the expected general inflation rate for
the year.
F-20
<PAGE> 59
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:
Post-retirement
Pension Plans Medical
1999 1998 1999 1998
---- ---- ---- ----
Discount rate 8.00% 6.75% 7.50% 6.50%
Salary scale 4.00% 4.00% N/A N/A
Long term rate of return on assets 10.50% 10.00% N/A N/A
For measurement purposes, a 9.0% annual rate of increase in the per
capita cost of covered benefits (i.e. health care cost trend rate) was
assumed for 1999, gradually decreasing to 6.0% by the year 2007 and
remaining at that level thereafter. A 4.5% annual rate of increase in the
per capita costs of the dental plan was assumed for all years. Because of
the cap on employer costs, there would be an insignificant change in
liabilities due to a one percent change in trend rates.
Certain of the operating subsidiaries also participate in various
multi-employer, defined benefit pension plans on behalf of employees
pursuant to various collective bargaining agreements. Contributions to
these plans included in continuing operations amounted to approximately
$2,546, $2,613, and $2,428 for the years ended December 31, 1999, 1998,
and 1997, respectively.
The Company has various defined contribution plans which cover
non-bargaining unit employees meeting eligibility requirements.
Contributions to these plans were approximately $1,347, $841, and $453
for the years ended December 31, 1999, 1998, and 1997, respectively.
LONG TERM INCENTIVE COMPENSATION PLANS
The Company has adopted long-term incentive compensation plans for
several of its businesses which provide for cash awards upon the
achievement of specified earnings or enterprise values. Amounts related
to long-term incentive plans are expensed when amounts due participants
vest. As of December 31, 1999, no amounts have been accrued.
(17) RELATED PARTY TRANSACTIONS
CERTAIN TRANSACTIONS WITH STOCKHOLDERS OF AND AFFILIATES OF STOCKHOLDERS
OF SFAC
Certain of SFAC's stockholders and their affiliates previously entered
into financial advisory arrangements (the "Financial Advisory
Agreements") with SFAC New Holding, Inc.'s subsidiary, SFC New Holdings,
Inc. Haas Wheat & Partners ("Haas Wheat"), Penobscot ("Penobscot"), an
affiliate of Acadia Partners, L.P. ("Acadia"), and Keystone, Inc.
("Keystone") each entered into such Financial Advisory Agreements. In
September 1999, the Board of Directors approved a one-year extension of
the financial advisory arrangements.
F-21
<PAGE> 60
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Under the terms of the Financial Advisory Agreements, SFC New Holdings,
Inc. pays Haas Wheat an annual fee of $700 ( a portion of which Haas
Wheat is obligated by agreement to remit to Acadia), Penobscot an annual
fee of $200, and Keystone an annual fee of $100.
The Company retained Donaldson, Lufkin, & Jenrette Securities Corporation
("DLJ", an affiliate of DLJMBP, which is a stockholder of SFAC), to serve
as the Company's financial advisor in connection with the divestitures of
Stella, H&M and Metz. The Company paid DLJ $1,600 for such services in
1999 related to the H&M sale and $5,400 in 1997 in connection with the
Stella sale. Upon the closing of the Metz sale, the Company paid DLJ
$3,800.
DLJ also serves as the Syndication Agent for the Revolving Credit and
Term Loan Facility. In 1998, upon the initial syndication of these
facilities, the Company paid DLJ approximately $5,100. During 1999, as
part of the exchange offer and the amendment to the Revolving Credit and
Term Loan Facilities, the Company paid DLJ $500.
(18) OTHER EXPENSE (INCOME)
Other expense (income) is comprised of the following:
1999 1998 1997
------- ------- -------
Loss on disposal of property, plant
and equipment $ 3,039 $ 309 $ 250
Discount on receivables sold 917 985 817
Other (33) 248 1,020
------- ------- -------
$ 3,923 $ 1,542 $ 2,087
======= ======= =======
F-22
<PAGE> 61
SFC NEW HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(19) SUPPLEMENTAL SALES DISCLOSURES (UNAUDITED)
Over 95% of the Mother's/Archway products are distributed through a
one-step, direct store delivery ("DSD") system comprised of approximately
1,025 routes. Approximately 25% of the routes are Company-owned routes
while the balance of the routes are operated by independent distributors.
Products sold through Company-owned routes are generally sold at
wholesale price. Products sold to independent distributors, however, are
generally sold at discounts to the wholesale price ranging from 16% to
21%.
For comparison purposes, the following table illustrates the Company's
sales as if its products were sold through a Company-owned DSD system at
wholesale and including the 1999 pro forma net sales of Lew-Mark acquired
in January 2000:
1999
----------------
Net sales as reported (excluding Lew-Mark) $ 284,574
Lew-Mark pro forma net sales 25,100
Independent distributor discount (estimated) 37,946
----------------
Pro forma net sales at wholesale price $ 347,620
----------------
F-23
<PAGE> 62
SFC NEW HOLDINGS, INC.
METZ DIVESTITURE - PRO FORMA FINANCIAL INFORMATION
DESCRIPTION OF SALE
On March 20, 2000, SFC New Holdings, Inc., a subsidiary of SFAC New Holdings,
Inc. completed the sale of its subsidiary, Metz Baking Company ("Metz"), to the
Earthgrains Company for $625 million. Accordingly, Metz is reported as a
discontinued operation in the Consolidated Financial Statements. Metz is a
leading retail bread company serving the Midwestern United States. Upon closing,
$20 million of the purchase price was paid into an escrow to secure potential
future indemnification obligations of SFC New Holdings, Inc. arising out the
sale. Depending on the amount of any potential future indemnification
obligations, the escrow will release $10 million one year after closing and the
remaining amount two years after the closing.
The sale of Metz results in immediately available net cash proceeds of
approximately $545 million (net of a $20 million escrow, an approximate $40
million to terminate at closing the accounts receivable facility and an
estimated $20 million for taxes and other expenses associated with the
transaction). Under its existing debt arrangements, the Company is required to
apply 75% of the Metz net proceeds, or approximately $410 million, to reduce
debt. As a result, concurrent with the Metz closing, the Company has paid in
full amounts outstanding under the Revolving Credit and Term Loan facilities
totaling approximately $265 million and has terminated these arrangements.
Within thirty days after the Metz closing, the Company is required to commence
an asset sale tender offer for a portion (approximately $145 million) of the
Company's Senior Notes.
After the completion of the Metz sale, the Company will use available cash
proceeds to fund operating and investing activities since it has terminated its
Accounts Receivable, Revolving and Term Loan Facilities. After the Metz
transaction, the Company expects to have approximately $100 million of available
cash following payment of transaction-related expenses, cash collateralizing
remaining letters of credit, and payment of the required debt reduction and
related accrued interest, but excluding other cash requirements of its
continuing operations. The Company is currently evaluating such cash
requirements of its existing businesses and is considering using a portion of
the available cash for further debt reduction. Management believes that the
available cash balance should be adequate to fund the Company's 2000 operating
and investing activities. However, there can be no assurance that available
funds will be adequate to meet such needs.
INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pro forma financial statements reflect the estimated impact of the
Metz sale transaction on the Consolidated Balance Sheet and Consolidated
Statement of Operations for the year ended December 31, 1999. For purposes of
reporting the pro forma balance sheet, it is assumed that the business was sold
on December 31, 1999 and the required debt reduction occurred on that date. For
purposes of reporting the pro forma results of operations, it is assumed that
the business was sold on January 1, 1999. The pro forma financial information is
not intended to reflect the actual results of operations or financial position
of the Company which would have resulted if the sale had occurred on the assumed
dates.
F-24
<PAGE> 63
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFC New SFC New
Holdings, Inc. Pro Forma Holdings, Inc.
Historical Adjustments Pro Forma
------------- ----------- ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 28,545 $ 127,461 (1) $ 156,006
Accounts receivable, net 15,826 9,386 (2) 25,212
Net assets of discontinued operations 169,980 (169,980)(3) --
Other current assets 19,575 14,300 (4) 33,875
--------- --------- ---------
Total current assets 233,926 (18,833) 215,093
Noncurrent assets 193,766 (1,005)(5) 192,761
--------- --------- ---------
Total assets $ 427,692 $ (19,838) $ 407,854
========= ========= =========
Current maturities of long-term debt $ 2,867 $ (1,738)(7) $ 1,129
Accounts payable and accrued expenses 57,699 (4,489)(6) 53,210
--------- --------- ---------
Total current liabilities 60,566 (6,227) 54,339
Long-term debt 841,115 (407,012)(7) 434,103
Other noncurrent liabilities 30,122 -- 30,122
--------- --------- ---------
Total liabilities 931,803 (413,239) 518,564
Stockholders' equity (504,111) 393,401 (8) (110,710)
--------- --------- ---------
Total liabilities and stockholders' equity $ 427,692 $ (19,838) $ 407,854
========= ========= =========
</TABLE>
See accompanying notes to pro forma financial statements.
F-25
<PAGE> 64
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
SFC New SFC New
Holdings, Inc. Pro Forma Holdings, Inc.
Historical Adjustments Pro Forma
---------- ----------- ---------
Net sales $ 284,574 $ -- $ 284,574
Cost of sales 119,761 -- 119,761
---------- ----------- ---------
Gross profit 164,813 -- 164,813
Operating expenses:
General and administrative expenses 162,103 -- 162,103
Amortization of intangibles 2,873 -- 2,873
---------- ----------- ---------
Total operating expenses 164,976 -- 164,976
Loss from operations (163) -- (163)
Other:
Interest expense, net 102,347 (46,765)(9) 55,582
Third party financing fees 9,781 -- 9,781
Other expense, net 3,923 -- 3,923
---------- ----------- ---------
Loss before income taxes (116,214) 46,765 (69,449)
Income tax expense 189 -- 189
---------- ----------- ---------
Loss from continuing operations (116,403) 46,765 (69,638)
---------- ----------- ---------
Discontinued operations:
Earnings 37,175 -- 37,175
Gain on disposal 26,791 404,406 (10) 431,197
---------- ----------- ---------
63,966 404,406 468,372
Extraordinary item -- (16,540)(11) (16,540)
---------- ----------- ----------
Net income (loss) $ (52,437) $ 434,631 $ 382,194
========== =========== ==========
See accompanying notes to pro forma financial statements.
F-26
<PAGE> 65
SFC NEW HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(1) Represents sales price net of the funds placed in escrow, the repurchase
of off-balance sheet accounts receivable from the Accounts Receivable
Securitization Facility, the cash collateralizing remaining letters of
credit, the required debt reduction and the payment of estimated expenses
related to the transaction.
(2) Represents the amount of accounts receivable from continuing operations
which was repurchased from the Accounts Receivable Securitization
Facility that was terminated upon the closing of the sale of Metz.
(3) Reflects the elimination of assets transferred to and liabilities assumed
by the buyer.
(4) Represents the current portion of the escrow account and the cash
collateralizing letters of credit.
(5) Elimination of deferred financing fees related to the Revolving Credit
Facility, Term Loan Facility and a portion of the Senior Notes, net of
noncurrent portion of escrow.
(6) Elimination of accrued interest related to the Revolving Credit Facility,
Term Loan Facility and a portion of the Senior Notes.
(7) Required payoff of amounts outstanding under the Term Loan and Revolving
Credit Facilities and a portion of the Company's Senior Notes.
(8) Represents the gain on the sale less the write-off of deferred fees
related to the Term Loan Facility, Revolving Credit Facility and a
portion of the Senior Notes.
(9) Eliminates interest expense related to the Term Loan Facility, Revolving
Credit Facility and Senior Notes and the amortization of the related
deferred financing fees.
(10) Represents the gain on the sale.
(11) Represents the write-off of the deferred financing fees related to the
Term Loan and Revolving Credit Facilities and a portion of the Senior
Notes.
F-27
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
by and among
SFC NEW HOLDINGS, INC.,
METZ HOLDINGS, INC.
and
THE EARTHGRAINS COMPANY
dated as of
November 15, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of November 15, 1999 (this
"Agreement"), by and among SFC New Holdings Inc., a Delaware corporation (the
"Selling Stockholder"), Metz Holdings, Inc., a Delaware corporation (the
"Company") and The Earthgrains Company, a Delaware corporation (the
"Purchaser").
WHEREAS, the Selling Stockholder is the owner of all the
outstanding shares of the Company;
WHEREAS, on the terms and subject to the conditions set forth
herein, the Selling Stockholder desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Selling Stockholder, all of the capital
stock of the Company;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
Section 1.1 Purchase and Sale of Shares. Upon the terms and subject to
conditions of this Agreement, at the Closing (as defined in Section 1.2 hereof),
the Selling Stockholder shall sell, transfer, assign, convey and deliver to the
Purchaser, and the Purchaser shall accept from the Selling Stockholder, all of
the issued and outstanding shares of common stock, par value $.01 per share, of
the Company (referred to herein as "Shares" or "Company Common Stock"), free and
clear of any and all Liens, for an aggregate purchase price determined in
accordance with Article II of this Agreement.
Section 1.2 Closing. The closing of the purchase and sale of the Shares
and the other transactions contemplated hereby (the "Closing") will take place
at 10:00 a.m., New York time, on a date to be specified by the parties, which
shall be no later than the fifth business day after satisfaction or waiver of
all of the conditions set forth in Article VI hereof (other than those
conditions which by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) (the "Closing Date"), at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP in New York, New York unless
another date or place is agreed to in writing by the parties hereto.
1
<PAGE> 3
Section 1.3 Payment on the Closing Date. Subject to the satisfaction or
waiver of all the conditions set forth in Article VI hereof, at the Closing the
Purchaser shall pay the Selling Stockholder the Share Purchase Price (as defined
in Section 2.1 hereof), less the Escrow Amount (as defined in the Escrow
Agreement (as defined in Section 5.12 hereof)) and less any fee(s) previously
paid pursuant to Section 5.3 hereof, by wire transfer in immediately available
funds to the account or accounts specified by the Selling Stockholder in a
written notice delivered to the Purchaser. In addition to the payment of the
Share Purchase Price, the Purchaser shall also pay the Accounts Receivable
Purchase Price (as defined in Section 2.1 hereof) in accordance with the terms
of the Accounts Receivable Purchase Agreement (as defined in Section 5.12
hereof).
Section 1.4 Deliveries by the Selling Stockholder. At the Closing, the
Selling Stockholder shall deliver to the Purchaser:
(1) A stock certificate or stock certificates representing the Shares,
duly endorsed in blank or accompanied by other duly executed instruments of
transfer;
(2) All other documents required to be delivered by the Selling
Stockholder on or prior to the Closing Date pursuant to this Agreement;
(3) Resolutions of the Board of Directors of the Selling Stockholder
authorizing the execution, delivery and performance of this Agreement and a
certificate of the secretary or assistant secretary of the Selling Stockholder
dated as of the Closing Date, to the effect that such resolutions were duly
adopted and are in full force and effect; and
(4) A "good standing" certificate or telegram for the Company and each
active Subsidiary of the Company, and a copy of the Certificate of Incorporation
and all amendments thereto (or equivalent document), certified by the Secretary
of State of the jurisdiction of incorporation of each such entity, each dated as
of a date within five calendar days prior to the Closing Date.
Section 1.5 Deliveries by the Company. At the Closing, the Company
shall deliver to the Purchaser:
(1) The resignations of the members of the Board of Directors of the
Company and each Subsidiary (as defined in Section 3.1 hereof) of the Company;
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(2) Resolutions of the Board of Directors of the Company authorizing
the execution, delivery and performance of this Agreement and a certificate of
the secretary or assistant secretary of the Company dated as of the Closing
Date, to the effect that such resolutions were duly adopted and are in full
force and effect, together with copies of the Company's Certificate of
Incorporation and Bylaws certified by such secretary or assistant secretary; and
(3) The stock books, stock ledgers, minute books and corporate seal of
the Company; provided that any of the foregoing items shall be deemed to have
been delivered pursuant to this Section 1.5(b) if such item has been delivered
to, or is otherwise located at, the offices of the Company.
Section 1.6 Deliveries by the Purchaser. In addition to the payment of
the Share Purchase Price (less the Escrow Amount and any fee(s) previously paid
pursuant to Section 5.3 hereof) and the Accounts Receivable Purchase Price
pursuant to Section 1.3 hereof, at the Closing the Purchaser shall deliver to
the Selling Stockholder:
(1) All other documents required to be delivered by the Purchaser on or
prior to the Closing Date pursuant to this Agreement; and
(2) Resolutions of the Board of Directors of the Purchaser authorizing
the execution, delivery and performance of this Agreement and a certificate of
the secretary or assistant secretary of the Purchaser dated as of the Closing
Date, to the effect that such resolutions were duly adopted and are in full
force and effect, together with copies of the Purchaser's Certificate of
Incorporation and Bylaws certified by such secretary or assistant secretary.
ARTICLE II
PURCHASE PRICE
Section 1.7 Purchase Price and Payment. The purchase price for the
Shares (the "Share Purchase Price") shall be an amount equal to $625 million,
decreased on the Closing Date dollar-for-dollar by the total consideration paid
to Specialty Foods Finance Corporation ("SFFC") at the Closing pursuant to the
Accounts Receivable Purchase Agreement (such consideration, the "Accounts
Receivable Purchase Price"). As used in this Agreement, the term "Aggregate
Purchase Price" shall mean the sum of (i) the Share Purchase Price, as adjusted
in accordance with the
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terms of this Section 2.1 and Section 2.2 hereof plus (ii) the Accounts
Receivable Purchase Price.
Section 1.8 Post-Closing Adjustments. Following the Closing, the
following adjustments, if applicable, shall be made in accordance with
subsection (c) of this Section 2.2 as follows:
(1) Accounts Receivable Adjustment.
(1) The Share Purchase Price shall be increased by the amount, if
any, by which the Accounts Receivable Purchase Price is reduced after the
Closing pursuant to Section 2.2(a)(ii) of the Accounts Receivable Purchase
Agreement; and
(2) The Share Purchase Price shall be reduced by the amount, if
any, by which the Accounts Receivable Purchase Price is increased after the
Closing pursuant to Section 2.2(a)(i) of the Accounts Receivable Purchase
Agreement.
(2) Working Capital Adjustment.
(1) The Selling Stockholder shall pay the Purchaser the amount, if
any, that the Working Capital (as defined in Section 2.2(b)(vi) hereof) of
the Company as set forth on the Closing Date Balance Sheet (the "Final
Working Capital") is less than $(6.6) million. The Purchaser shall pay the
Selling Stockholder the amount, if any, that the Final Working Capital
exceeds $(1.6) million. Any adjustment made pursuant to this Section
2.2(b)(i) hereof shall be determined in accordance with the procedures set
forth in this Section 2.2(b) and shall be referred to herein as the "Final
Working Capital Adjustment."
(2) As promptly as practicable, but in no event later than sixty
(60) days after the Closing Date, the Purchaser shall, at its expense,
cause to be prepared and furnished to the Selling Stockholder an audited
balance sheet for the Metz Baking Company and its consolidated Subsidiaries
as of the Closing Date (the "Closing Date Balance Sheet"), including a
computation of Final Working Capital and a calculation of the post-closing
adjustment, if any, required pursuant to Section 2.2(b)(i) hereof (the
"Working Capital Adjustment Calculation").
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(3) The Selling Stockholder and its independent accountants shall
have the right to review the books and records and supporting workpapers of
the Purchaser for a period of forty-five (45) days after the receipt of the
Closing Date Balance Sheet and the Working Capital Adjustment Calculation
for the purposes of verifying the Closing Date Balance Sheet and the
Working Capital Adjustment Calculation and to present in writing to the
Purchaser any objections thereto, setting forth in reasonable detail the
specific item on the Closing Date Balance Sheet to which such objection
relates and the specific basis for such objection (the "Written
Objections"). The Closing Date Balance Sheet and the Working Capital
Adjustment Calculation shall be deemed to be acceptable to the Selling
Stockholder, and shall become final and binding on all parties, except to
the extent that the Selling Stockholder has made a Written Objection
thereto within such forty-five (45)-day period. If the Selling Stockholder
raises any such objection within such forty-five (45)-day period, then the
Selling Stockholder and the Purchaser shall attempt in good faith to
resolve any dispute concerning the item or items subject to such objection.
(4) If the Selling Stockholder and the Purchaser are unable to
resolve any such dispute within thirty (30) days (or such longer period as
the Selling Stockholder and the Purchaser shall mutually agree in writing)
of the Selling Stockholder's delivery of a Written Objection, such dispute
shall be resolved by the Independent Accounting Firm (as defined below)
acting as arbitrator, and such determination shall be final and binding on
the parties; provided that only items specified in the Written Objection
shall be subject to adjustment by the Independent Accounting Firm. The
Selling Stockholder and the Purchaser shall mutually select a nationally
recognized firm of certified public accountants then having no significant
ongoing relationship with either the Selling Stockholder or the Purchaser
or their respective affiliates, but if the Selling Stockholder and the
Purchaser cannot mutually agree on the identity of such firm, then the
Selling Stockholder and the Purchaser shall each submit to the other
party's independent auditor the name of a national accounting firm other
than the firm whose report accompanied the Closing Date Balance Sheet or
the Written Objections to the Working Capital Adjustment Calculation and
other than any firm that has in the prior two years provided services to
the Selling Stockholder, the Purchaser or any of their respective
affiliates, and a firm shall be selected by lot from these two firms by the
independent auditors of the two parties. The accounting firm selected
pursuant to the foregoing procedures shall be referred to as the
"Independent Accounting Firm." (If no national accounting firm shall be
willing to serve as the Independent Accounting Firm, then an arbitrator
qualified under the rules of the American Arbitra-
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tion Association shall be selected to serve as such, such selection
to be according to the above procedures.) The fees and expenses relating to
the engagement of the Independent Accounting Firm shall be allocated
between the Selling Stockholder and the Purchaser in the same proportion
that the aggregate amount of the items unsuccessfully disputed by each
party (as Finally Determined (as defined below) by the Independent
Accounting Firm) bear to the total amount of all disputed items submitted
to the Independent Accounting Firm. Within five (5) days of the submission
of the dispute to the Independent Accounting Firm, each of the parties
shall submit a written position paper (the "Position Paper") to the
Independent Accounting Firm outlining such party's calculations and/or
objections that are the subject of dispute. The Independent Accounting Firm
shall be instructed to use every reasonable effort to perform its services
within thirty (30) days of submission of the Position Papers to it and, in
any case, as promptly as practicable after such submission. The
determination of the Independent Accounting Firm shall be final and binding
on the parties without further right of appeal.
(5) The Final Working Capital Adjustment shall be equal to (A) the
adjustment amount determined in the Working Capital Adjustment Calculation,
if no Written Objections are submitted by the Selling Stockholder; (B) any
amount agreed upon between the Selling Stockholder and the Purchaser in the
event a Written Objection is delivered and the parties resolve such
dispute; or (C) the amount determined by the Independent Accounting Firm in
the event the procedures in paragraph (iv) above are implemented.
(6) For purposes of this Section 2.2, "Working Capital" shall mean
the Total Current Assets of the Company and its Subsidiaries, on a
consolidated basis, less the Total Current Liabilities of the Company and
its Subsidiaries, on a consolidated basis. "Total Current Assets" shall be
equal to the sum of (A) cash plus (B) trade accounts receivable (including
any trade accounts receivable that have been conveyed to SFFC by any
Subsidiary of the Company pursuant to the accounts receivable
securitization facility) plus (C) inventory plus (D) other current assets
plus (E) any amounts paid by the Company prior to the Closing relating to
the Incentive Agreements (as defined in Section 5.6(a) hereof). "Total
Current Liabilities" shall be equal to the sum of (A) accounts payable plus
(B) accrued expenses and other current liabilities; provided that any
amounts payable pursuant to the Incentive Agreements (as defined in Section
5.6(a) hereof) shall be excluded from the calculation of Total Current
Liabilities. Each item used in the determination of "Total Current Assets"
and "Total Current Liabilities" shall be determined in a manner
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consistent with the accounting principles and procedures set forth
on Schedule 2.2(b)(vi) of the disclosure schedule delivered by the Company
to the Purchaser on or prior to the date of this Agreement, as amended from
time to time in accordance with Section 5.14 hereof (the "Disclosure
Schedule").
(3) All adjustments or payments due under this Section 2.2 shall bear
interest at the rate of 7% per annum, simple interest, and shall be paid with
accrued interest by wire transfer in immediately available funds promptly but in
any event no later than five (5) days after any such adjustment becomes final
and binding upon the parties (i) in the case of any adjustments made pursuant to
clause (a) above, in accordance with the terms of the Accounts Receivable
Purchase Agreement and (ii) in the case of the Final Working Capital Adjustment,
in accordance with the provisions of Section 2.2(b) hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SELLING STOCKHOLDER
The Company and the Selling Stockholder represent and warrant
to the Purchaser as follows:
Section 1.9 Organization. The Company and each of its Subsidiaries is a
corporation or other entity duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation or
organization, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so organized, existing and in good standing or to have such
power and authority, or to be so qualified or licensed is not reasonably likely
to have a Material Adverse Effect (as hereinafter defined).
As used in this Agreement, the term "Material Adverse Effect" shall
mean a material adverse effect on the business, assets, results of operations or
financial condition of the Company and its Subsidiaries taken as a whole;
provided, however, that a Material Adverse Effect shall not include (a) any
change or effect relating or due to general economic or industry-wide conditions
and (b) any change or effect directly relating to the identity of the Purchaser.
As used in this Agreement, the term "Subsidiary" shall mean, with respect to any
Person, any corporation or other entity of which
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50% or more of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such entity is directly or
indirectly owned by such Person. "Person" shall mean an individual, partnership,
joint venture, trust, corporation, unincorporated entity or Governmental Entity.
Section 1.10 Capitalization.
(1) The authorized capital stock of the Company consists of 1,000
shares of Company Common Stock. As of the date hereof, (i) 100 shares of Company
Common Stock are issued and outstanding and (ii) no shares of Company Common
Stock are issued and held in the treasury of the Company. All the outstanding
shares of the Company's capital stock are duly authorized, validly issued, fully
paid and non-assessable and are owned, directly or indirectly, by the Selling
Stockholder. Except as set forth on Schedule 3.2(a) of the Disclosure Schedule,
there are no existing (i) options, warrants, calls, pre-emptive rights,
subscriptions or other rights, convertible securities, agreements or commitments
of any character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in the
Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any capital stock of the Company or any Subsidiary of the Company, (iii)
voting trusts or similar agreements to which the Company is a party with respect
to the voting of the capital stock of the Company, or (iv) liens, claims,
charges, security interests, mortgages, pledges or other restrictions or
encumbrances (collectively, "Liens") on the shares of capital stock of the
Company.
(2) Set forth on Schedule 3.2(b) of the Disclosure Schedule is a
complete list of (i) each Subsidiary of the Company and its jurisdiction of
incorporation or organization, (ii) the number of issued and outstanding shares
of each class of capital stock of each Subsidiary and (iii) each jurisdiction in
which each Subsidiary is qualified to do business. Except as set forth on
Schedule 3.2(b) of the Disclosure Schedule, all of the outstanding shares of
capital stock (or equivalent equity interests of entities other than
corporations) of each of the Company's Subsidiaries are beneficially owned,
directly or indirectly, by the Company, free and clear of all Liens.
Section 1.11 Authorization; Validity of Agreement.
(1) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated
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hereby. The execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company (the "Board") and no other
corporate proceedings on the part of the Company are necessary to authorize the
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
of this Agreement by the Purchaser, is a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except to
the extent such enforcement may be subject to or limited by (i) bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally and (ii) the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). (1)
(2) The Selling Stockholder has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by the Selling
Stockholder of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Selling Stockholder, and no other corporate proceedings on the part of the
Selling Stockholder are necessary to authorize the execution and delivery of
this Agreement by the Selling Stockholder and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Selling Stockholder and, assuming due authorization, execution
and delivery of this Agreement by the Purchaser, is a valid and binding
obligation of the Selling Stockholder enforceable against the Selling
Stockholder in accordance with its terms, except to the extent such enforcement
may be subject to or limited by (i) bankruptcy, insolvency or other similar
laws, now or hereafter in effect, affecting creditors' rights generally and (ii)
the effect of general principles of equity (regardless of whether enforceability
is considered in a proceeding at law or in equity).
Section 1.12 No Violations; Consents and Approvals.
(1) Neither the execution and delivery of this Agreement by the Company
or the Selling Stockholder nor the consummation by the Company or the Selling
Stockholder of the transactions contemplated hereby will (i) violate any
provision of the certificate of incorporation or bylaws of either the Company or
the Selling Stockholder, (ii) except as set forth on Schedule 3.4(a) of the
Disclosure Schedule, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any
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loan or credit agreement, note, bond, mortgage, indenture, guarantee,
other evidence of indebtedness, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries or the
Selling Stockholder is a party or by which any of them or any of their assets
may be bound or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Company, any of its Subsidiaries or the Selling
Stockholder or any of their respective properties or assets; except in the case
of clauses (ii) or (iii) above for such violations, breaches or defaults which
are not reasonably likely to have a Material Adverse Effect.
(2) Except as disclosed on Schedule 3.4(b) of the Disclosure Schedule,
no filing or registration with, notification to, or authorization, consent or
approval of, any foreign, federal, state, local, municipal, county or other
governmental, administrative or regulatory authority, body, agency, court,
tribunal, commission or similar entity (including any branch, department or
official thereof) (a "Governmental Entity") is required in connection with the
execution and delivery of this Agreement by the Company and the Selling
Stockholder or the consummation by the Company and the Selling Stockholder of
the transactions contemplated hereby, except for (i) any applicable requirements
under Competition Laws (as defined in Section 5.3(d) hereof) and (ii) such other
consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings the failure of which to be obtained or made is not
reasonably likely to have a Material Adverse Effect.
Section 1.13 Financial Statements. The audited financial statements for
Metz Baking Company and its consolidated Subsidiaries for the years ended
December 31, 1998 and December 31, 1997, and the unaudited financial statements
for Metz Baking Company and its consolidated Subsidiaries for the eight-month
period ended August 28, 1999 (the "August 28 Balance Sheet," and collectively,
the "Company Financial Statements") have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as otherwise noted therein) and fairly
present in all material respects the consolidated financial position and the
consolidated results of operations and cash flows of Metz Baking Company and its
consolidated Subsidiaries as at the dates thereof or for the periods presented
therein (subject, in the case of the unaudited financial statements, to normal
year-end adjustments and the absence of related notes).
Section 1.14 Absence of Certain Changes. Except as (i) disclosed on
Schedule 3.6 of the Disclosure Schedule, (ii) required by applicable law, by any
Material Contract or any plan, contract or agreement set forth on Schedule
3.11(a) or
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Schedule 3.12(a) of the Disclosure Schedule, since August 28, 1999 until the
date of this Agreement:
(1) there has not been any change in the business, assets, results of
operations or financial condition of the Company and its Subsidiaries, taken as
a whole, that is reasonably likely to have a Material Adverse Effect;
(2) the Company and its Subsidiaries have conducted their business in
the Ordinary Course of Business (as defined in Section 5.1(a) hereof), except
where the failure to do so is not reasonably likely to have a Material Adverse
Effect;
(3) the Company and its Subsidiaries have not amended their respective
certificates of incorporation or bylaws;
(4) the Company and its Subsidiaries have not made any capital
expenditure or entered into any contract or commitment therefor in excess of
$1,000,000, except in the Ordinary Course of Business;
(5) the Company and its Subsidiaries have not entered into any contract
for the purchase of real property or exercised or granted any option to extend
any lease listed on Schedule 3.16(b) of the Disclosure Schedule, except in the
Ordinary Course of Business;
(6) the Company and its Subsidiaries have not entered into any contract
for the sale of fixed assets or real property, the fair market value of which
does not exceed $250,000 individually or $500,000 in the aggregate;
(7) the Company and its Subsidiaries have not (i) other than in the
Ordinary Course of Business, declared, set aside or paid any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock, (ii) issued, sold, transferred, pledged, disposed of or encumbered any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of the Company or its Subsidiaries, or (iii)
redeemed, purchased or otherwise acquired directly or indirectly any of their
capital stock;
(8) neither the Company nor its Subsidiaries have (i) except for normal
increases in the Ordinary Course of Business or to reflect promotions, granted
any increase in the compensation payable or to become payable by the Company or
any of its Subsidiaries to any employee, (ii) except in the Ordinary Course of
Business,
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adopted, amended or otherwise increased, or accelerated the payment or
vesting of the amounts payable or to become payable under any existing bonus,
incentive compensation, deferred compensation, severance, profit sharing, stock
option, appreciation right, restricted stock purchase, insurance, pension,
retirement or other employee benefit plan agreement or arrangement, or (iii)
except in the Ordinary Course of Business, entered into or amended any existing
employment or severance agreement with, or granted any severance or termination
pay to, any officer, director or employee of the Company or any of its
Subsidiaries;
(9) the Company and its Subsidiaries have not (i) settled or
compromised any Action, other than such Actions in which the amount paid in
settlement or compromise, including the cost to the Company and its Subsidiaries
of complying with any provision of such settlement or compromise other than cash
payments did not exceed $250,000, without regard to any amount covered by
insurance; or (ii) other than in the Ordinary Course of Business, modified,
amended or terminated any Material Contract; or
(10) the Company and its Subsidiaries have not effectuated (i) a "plant
closing" (as defined in the Worker Adjustment and Retraining Notification Act
(the "WARN Act") affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the business of the
Company or any of its Subsidiaries or (ii) a "mass layoff" (as defined in the
WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facilities of the business of
the Company or any of its Subsidiaries, except, in either case, after fully
complying with the notice and other requirements of the WARN Act.
Section 1.15 Litigation. Except as set forth on Schedule 3.7 of the
Disclosure Schedule and except for claims under Environmental Laws (as defined
in Section 3.14(e) hereof) (which are the subject of Section 3.14 hereof), there
is no suit, claim, action, arbitration, proceeding or investigation (each, an
"Action") pending or, to the knowledge of the Company, threatened, against the
Company or any of its Subsidiaries or any of their respective assets, properties
or businesses which if determined adversely to the Company or such Subsidiaries
would be reasonably likely to have a Material Adverse Effect.
Section 1.16 No Undisclosed Liabilities. Except as set forth on
Schedule 3.8 of the Disclosure Schedule or as is not reasonably likely to have a
Material Adverse Effect, the Company and its Subsidiaries have no liability,
commitment or obligation of any kind or any nature required under GAAP applied
in a
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manner consistent with past practice to be reflected on a balance sheet,
except for such liabilities, commitments or obligations reflected on or reserved
against in the August 28 Balance Sheet, or incurred since August 28, 1999 in the
Ordinary Course of Business.
Section 1.17 Compliance with Law.
(1) Except as set forth on Schedule 3.9(a) of the Disclosure Schedule
and except for Environmental Laws (which are the subject of Section 3.14
hereof), the operations of the Company and its Subsidiaries are not being
conducted in violation of any law, statute, regulation, award, decision,
settlement, judgment, decree, order or injunction of any Governmental Entity
(each, an "Order"), except where such violations are not reasonably likely to
have a Material Adverse Effect.
(2) The Company and its Subsidiaries hold all licenses, permits,
variances and approvals of Governmental Entities (collectively, "Permits")
necessary for the lawful conduct of their respective businesses as currently
conducted except for Permits under Environmental Laws (which are the subject of
Section 3.14 hereof) and except where the failure to hold such Permits is not
reasonably likely to have a Material Adverse Effect.
Section 1.18 Intellectual Property.
(1) Schedule 3.10(a) of the Disclosure Schedule sets forth, (i) for the
Intellectual Property (as hereinafter defined) owned by the Company or any of
its Subsidiaries, a list of all United States and foreign (A) patents and patent
applications; (B) trademark registrations and applications (including Internet
domain name registrations) and material unregistered trademarks; and (C)
copyright registrations and applications, and material unregistered copyrights;
and (ii) for the Intellectual Property used by the Company or any of its
Subsidiaries, a list of all material United States and foreign licenses relating
thereto. As used in this Agreement, "Intellectual Property" shall mean
trademarks, service marks, trade names, Internet domain names, logos, designs,
slogans, and general intangibles of like nature, together with all goodwill,
registrations and applications related to the foregoing; patents (including any
registrations, continuations, continuations in part, renewals and applications
for any of the foregoing); copyrights (including any registrations and
applications for any of the foregoing); software; databases; technology, trade
secrets and other confidential information, know-how, proprietary processes,
formulae, algorithms, models, and methodologies.
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(2) Except as set forth on Schedule 3.10(b) of the Disclosure Schedule
or as is not reasonably likely to have a Material Adverse Effect:
(1) the Company and its Subsidiaries own, or possess licenses or
other valid rights to use, all of the Intellectual Property necessary in
connection with the conduct of the business of the Company and its
Subsidiaries as currently conducted and, to the knowledge of the Company,
all of the Intellectual Property listed on Schedule 3.10(a) of the
Disclosure Schedule is valid and subsisting;
(2) there are no claims or suits pending or, to the knowledge of
the Company, threatened, alleging that the Company's activities or the
conduct of the Company's business infringes upon the Intellectual Property
of a third-party, or challenging the ownership, validity or enforceability
of any Intellectual Property necessary in connection with the conduct of
business by the Company and its Subsidiaries as currently conducted; and
(3) to the knowledge of the Company, no Person is infringing upon
any Intellectual Property of the Company or its Subsidiaries.
(3) Except for the matters set forth on Schedule 3.10(c) of the
Disclosure Schedule, as of the Closing Date, all computer software and systems
(including hardware, firmware, operating system software, utilities, embedded
processors and applications software) used in and material to the business of
the Company and its Subsidiaries and owned by the Company or its Subsidiaries
will operate during and after the calendar year 2000 to accurately process data
(including but not limited to calculating, comparing and sequencing) from, into
and between the Twentieth and Twenty-First Centuries, including leap-year
calculations ("Year 2000 Compliant"). To the knowledge of the Company, there is
no inability on the part of any material supplier, customer, vendor or service
provider to ensure that their software and systems are Year 2000 Compliant.
Section 1.19 Employee Benefit Plans; ERISA.
(1) Schedule 3.11(a) of the Disclosure Schedule contains a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
employment, deferred bonus, retention or divestiture award, profit-sharing,
pension, or retirement plan, program, agreement or arrangement or other
"employee benefit plan" (within the
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meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), and each other material employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to by
the Company or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company would be deemed a "single employer"
within the meaning of Section 4001 of ERISA, for the benefit of any employee or
former employee or director or former director of the Company or any of its
Subsidiaries (collectively, the "Plans").
(2) With respect to each Plan, the Company has heretofore made
available to the Purchaser true and complete copies of each of the following
documents:
(1) the Plan;
(2) the most recent annual report and actuarial report, if required
under ERISA;
(3) the most recent Summary Plan Description required under ERISA
with respect thereto;
(4) if the Plan is funded through a trust or any third-party
funding vehicle, the trust or other funding agreement and the latest
financial statements thereof; and
(5) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan intended to qualify under section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
(3) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code (including the Consolidated Omnibus Budget
Reconciliation Act of 1985). Since January 1, 1998, neither the Company nor any
of its Subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period of such transaction expired as of the date of this
Agreement, could subject the Company or any Subsidiary to a Tax or penalty
imposed by either section 4975 of the Code or section 502(i) of ERISA in an
amount which is reasonably likely to be material.
(4) There are no pending, or to the knowledge of the Company,
threatened, claims by or on behalf of any Plan, by any employee or beneficiary
covered
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under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits), except for such claims which are not reasonably
likely to have a Material Adverse Effect.
(5) Each Plan which is an "employee pension benefit plan" within the
meaning of section 3(2) of ERISA (but not including any "multiemployer pension
plan," as defined in section 3(37) of ERISA) and which is intended to be
"qualified" within the meaning of section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified, and each trust maintained
thereunder has been determined by the Internal Revenue Service to be exempt from
taxation under section 501(a) of the Code with respect to "TRA" (as defined in
Section 1 Rev. Proc. 93-39); to the knowledge of the Company, no event has
occurred since the date of such determination that would materially affect such
qualification.
(6) No liability under Title IV of ERISA (other than any liability
under or relating to any multiemployer pension plan) has been incurred by the
Company or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any of its
Subsidiaries of incurring a liability under such title (other than any liability
under or relating to any multiemployer pension plan), other than liability for
contributions due in the ordinary course and premiums due the Pension Benefit
Guaranty Corporation ("PBGC") (which contributions and premiums have been paid
when due).
(7) With respect to each Plan subject to Title IV of ERISA (other than
any multiemployer pension plan), the aggregate present value of the accrued
benefits of such Plans, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such Plans' actuary
with respect to such Plans, did not exceed, as of the latest valuation date, the
then-current aggregate value of the assets of such Plans allocable to such
accrued benefits.
(8) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any Plan, except as set forth on
Schedule 3.11(a) of the Disclosure Schedule.
Section 1.20 Material Contracts.
(1) Schedule 3.12(a) of the Disclosure Schedule lists (x) all of the
contracts material to the business of the Company and its Subsidiaries and (y)
the following contracts and agreements to which the Company or any of its
Subsidiaries is
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a party to or by which it is bound as of the date of this Agreement (such
contracts and agreements described below being "Material Contracts"):
(1) contracts and agreements for the purchase of inventories by, or
for the furnishing of services to, the Company or any of its Subsidiaries
that (A) require payments by the Company or its Subsidiaries in excess of
$750,000 and (B) have a term ending after the first anniversary hereof and
are not terminable by the Company or its Subsidiaries, as the case may be,
on notice of one hundred and eighty days or less without penalty;
(2) contracts and agreements for the sale of inventories, or for
the furnishing of services, by the Company or any of its Subsidiaries that
(A) require payments to the Company or its Subsidiaries in excess of
$750,000 and (B) have a term ending after the first anniversary of this
Agreement and are not terminable by the Company or its Subsidiaries, as the
case may be, on notice of one hundred and eighty (180) days or less;
(3) material sales and distribution contracts and agreements;
(4) contracts and agreements governing the terms of indebtedness
for borrowed money of, or lending by, the Company or its Subsidiaries to
third parties in excess of $250,000 principal amount, contracts or
agreements governing the terms of "synthetic leases" pursuant to which the
Company or its Subsidiaries have financial obligations in excess of
$500,000, or contracts pursuant to which the Company or any Subsidiary of
the Company has guaranteed (including guarantees by way of acting as
surety, co-signer, endorser, co-maker, indemnitor or otherwise) any
obligation of any other Person (other than the Company or any Subsidiary of
the Company);
(5) material contracts and agreements between the Company and any
of its affiliates;
(6) shareholder, voting trust or similar contracts and agreements
relating to the voting of shares or other equity interests of the Company
or its Subsidiaries;
(7) contracts and agreements entered into since January 1, 1997
providing for the acquisition or disposition of businesses as a going
concern that have a value in excess of $1,000,000;
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(8) licenses and agreements relating to Intellectual Property which
are material to the Company and its Subsidiaries or which would reasonably
be expected to call for aggregate commitments to be paid by or to the
Company or its Subsidiaries in excess of $1,000,000 during the term of any
such license or agreement;
(9) leases of personal property with a term extending more than one
year from the date of this Agreement and an annual lease payment obligation
in excess of $250,000;
(10) non-competition agreements or agreements that would otherwise
limit the ability of the Company to conduct its business in any geographic
market; and
(11) joint venture agreements.
(2) Except as set forth on Schedule 3.12(b) of the Disclosure Schedule,
each (i) Material Contract set forth on Schedule 3.12(a) of the Disclosure
Schedule, (ii) Lease set forth on Schedule 3.16(b) of the Disclosure Schedule,
(iii) license to use Intellectual Property set forth on Schedule 3.10(a) of the
Disclosure Schedule and (iv) collective bargaining or other union agreement set
forth on Schedule 3.15 of the Disclosure Schedule is in full force and effect
and neither the Company nor any of its Subsidiaries is in breach of, or default
under, any such agreement, except for such failures to be in full force and
effect or defaults which are not reasonably likely to have a Material Adverse
Effect.
Section 1.21 Tax Matters.
(1) Except as set forth on Schedule 3.13(a) of the Disclosure Schedule,
all Returns (as defined in Section 3.13(e) hereof) required to be filed or
extended with any taxing authority by, or with respect to, the Company and its
Subsidiaries (since the date they became Subsidiaries of the Company) have been
filed or extended in accordance with all applicable laws, and the Company and
its Subsidiaries (since the date they became Subsidiaries of the Company) have
timely paid all Taxes shown as due and payable on the Returns that have been so
filed. (1)
(2) Except as set forth on Schedule 3.13(b) of the Disclosure Schedule,
all deficiencies asserted or assessments made as a result of any examination of
the Returns have been paid in full or are being challenged in good faith through
appropriate proceedings.
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(a) Except as set forth on Schedule 3.13(c) of the Disclosure Schedule,
no statute of limitations has been waived with respect to the Taxes of the
Company and its Subsidiaries.
(3) Notwithstanding anything to the contrary contained in this
Agreement, nothing in this Section 3.13 shall cause the Selling Stockholder to
be liable for any Taxes for which the Selling Stockholder is not expressly
liable pursuant to Section 5.4 hereof.
(4) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
levies or other like assessments, charges or fees (including estimated taxes,
charges and fees) applicable to the Company and its Subsidiaries, including,
without limitation, income, corporation, advance corporation, gross receipts,
transfer, excise, property, sales, use, value-added, license, payroll,
withholding, social security and franchise or other governmental taxes or
charges, imposed by the United States or any foreign country, including any
state, county or local government or subdivision or agency thereof, and such
term shall include any interest, penalties or additions to tax attributable to
such taxes; and (ii) "Return" shall mean any report, return, statement or other
written information required to be supplied to a taxing authority in connection
with Taxes.
Section 1.22 Environmental Matters.
(1) Except as set forth on Schedule 3.14(a) of the Disclosure Schedule,
the Company and its Subsidiaries are in compliance with all applicable
Environmental Laws (as defined in Section 3.14(e) hereof), which compliance
includes the possession of permits and governmental authorizations required
under applicable Environmental Laws and compliance with the terms and conditions
thereof, except where such non-compliance is not reasonably likely to have a
Material Adverse Effect.
(2) Except as set forth on Schedule 3.14(b) of the Disclosure Schedule,
there are no Environmental Claims (as defined in Section 3.14(e) hereof) pending
or, to the knowledge of the Company, threatened, against the Company or its
Subsidiaries that are reasonably likely to have a Material Adverse Effect.
(3) Except as set forth on Schedule 3.14(c) of the Disclosure Schedule,
there have been no releases, spills or discharges of Hazardous Substances on or
underneath any of the real property currently, or, to the knowledge of the
Company,
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formerly, owned or leased by the Company (the "Real Property") that are
reasonably likely to have a Material Adverse Effect.
(4) The Purchaser acknowledges that (i) the representations and
warranties contained in this Section 3.14 are the only representations and
warranties being made by the Company with respect to compliance with, or
liability or claims under, Environmental Laws or with respect to permits issued
or required under Environmental Laws, (ii) no other representation by the
Company contained in this Agreement shall apply to any such matters and (iii) no
other representation or warranty, express or implied, is being made with respect
thereto.
(5) As used in this Agreement:
(1) the term "Environmental Claim" means any claim, action,
investigation or notice to the Company or its Subsidiaries by any Person
alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental response
costs, natural resource damages, personal injuries, or penalties) arising
out of, based on, or resulting from (a) the presence, or release into the
environment, of any Hazardous Substance (as hereinafter defined) at any
location, whether or not owned or operated by the Company or its
Subsidiaries or (b) circumstances forming the basis of any violation, or
alleged violation, of any applicable Environmental Law;
(2) the term "Environmental Laws" means all federal, state, and
local laws and regulations, as in effect and as interpreted as of the date
of this Agreement, relating to pollution or protection of the environment,
and human health and safety including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Substances, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, presence,
transport or handling of Hazardous Substances; and
(3) the term "Hazardous Substance" means all substances defined as
such in the National Oil and Hazardous Substances Pollution Contingency
Plan, 40 C.F.R. ss. 300.5, or defined as such by any other Environmental
Law, or regulated as such under, any Environmental Law, including, but not
limited to, petroleum, lead, asbestos, or polychlorinated biphenyls.
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Section 1.23 Labor Matters.
(1) Schedule 3.15 of the Disclosure Schedule contains a list of all
material collective bargaining or other union agreement covering employees of
the Company and its Subsidiaries.
(2) Except as set forth on Schedule 3.15(b) of the Disclosure Schedule,
since January 1, 1998, there have been no strikes, disputes, lockouts or work
stoppages pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries that have had or are reasonably likely to
have a Material Adverse Effect.
Section 1.24 Real Property Matters.
(1) Schedule 3.16(a) of the Disclosure Schedule contains a complete and
correct list of all the real property owned by the Company and its Subsidiaries
(the "Owned Real Property"). The Company and its Subsidiaries have good, valid
and marketable fee simple title to the Owned Real Property, free and clear of
all Liens other than Permitted Liens (as defined in Section 3.16(c) hereof). To
the knowledge of the Company, the current use and operation of the Owned Real
Property does not violate any instrument of record affecting the Owned Real
Property. The Owned Real Property is in compliance with all applicable laws and
all licenses, building permits, zoning and variance ordinances, certificates of
occupancy and other approvals and authorizations required by any Governmental
Entity, except where such non-compliance is not reasonably likely to have a
Material Adverse Effect.
(2) Schedule 3.16(b) of the Disclosure Schedule contains a complete and
correct list of all interests of the Company and its Subsidiaries in real
property pursuant to leases, licenses or other occupancy or use agreements
(collectively, the "Leases"). The Company and its Subsidiaries have good, valid
and marketable title to, and is in peaceful undisturbed possession of, the
leasehold estate or other interest created under the Leases, free and clear of
all Liens other than Permitted Liens. The Company has previously made available
to the Purchaser true, correct and complete copies of all Leases, together with
all amendments and modifications thereof and supplements thereto. Except as set
forth on Schedule 3.16(b) of the Disclosure Schedule or where such default is
not reasonably likely to have a Material Adverse Effect, the Company is not in
default under any Lease.
(3) For purposes of this Agreement, "Permitted Liens" means (i)
mechanics', carriers', workers', repairers', materialmens', warehousemens' and
other
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similar Liens arising or incurred in the ordinary course of business for
sums not yet due and payable or such Liens as are being contested by the Company
in good faith and for which reserves have been set up on the August 28 Balance
Sheet in accordance with, and to the extent required by, GAAP, (ii) Liens for
Taxes not yet due and payable or which are being contested in good faith by the
Company, (iii) any other covenants, conditions, restrictions, reservations,
rights, Liens, easements and other matters affecting title, which do not
individually or in the aggregate with other such Liens, materially impair the
value or marketability of the property subject to such Lien or materially
interfere with use of such property in the conduct of the business of the
Company and its Subsidiaries as it is currently being conducted thereon; and
(iv) matters set forth on Schedules 3.16(a) and 3.16(c) of the Company
Disclosure Schedule. Neither the Company nor any of its Subsidiaries is a
"foreign person" as defined in section 1445 of the Code.
Section 1.25 Title to Property. Except as set forth on Schedule 3.17 of
the Disclosure Schedule, the Company has good, valid and marketable title to, or
holds a valid and existing lease or license to use, all of the material
properties, contracts, rights and other assets (of every kind, character and
description, whether real, personal or mixed) used in the business of the
Company and its Subsidiaries as it is currently conducted, in each case, free
and clear of all Liens other than Permitted Liens.
Section 1.26 Condition and Sufficiency of Assets. The buildings,
plants, structures, equipment and other assets currently utilized in the
operations of the business of the Company and its Subsidiaries are in
satisfactory operating condition and repair, except for ordinary wear and tear,
and are adequate for the uses to which they are currently being put. The
buildings, plants, structures and other assets of the Company and its
Subsidiaries are sufficient for the continued conduct of the business of the
Company and its Subsidiaries after the Closing in substantially the same manner
as conducted prior to the Closing and are suitable for operation after the
Closing in substantially the same manner as conducted prior to the Closing.
Section 1.27 Insurance. The Company has made available to the Purchaser
a true and complete list of all insurance policies owned or held by the Company
and its Subsidiaries on the date of this Agreement, which may cover the Company,
its assets and operations. As of the date of this Agreement, all such policies
are in full force and effect and no written notice of cancellation or
termination has been received with respect to any such policy.
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Section 1.28 Products and Warranties. The products manufactured, sold
or delivered by the Company prior to the date of this Agreement have been
manufactured, sold or delivered in compliance with all applicable laws,
ordinances and regulations in effect where such products have been sold at the
time of such sale, except for such violations that are not reasonably likely to
have a Material Adverse Effect.
Section 1.29 Brokers. Except for Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Selling Stockholder is solely
responsible for the fees and expenses of DLJ.
Section 1.30 Interests of Related Persons. Except as set forth in
Schedule 3.22 of the Disclosure Schedule:
(1) Since January 1, 1998, no director or executive officer of the
Selling Stockholder, the Company, or any of their Subsidiaries (i) has any
interest in any material property, real or personal, tangible or intangible, of
the Company or its Subsidiaries, (ii) to the Company's knowledge, has brought
any Action whatsoever against the Company or any of its Subsidiaries or their
respective assets, properties or business, (iii) other than in the Ordinary
Course of Business, owes any material amount to, or is owed any material amount
by, the Company or any of its Subsidiaries, or (iv) owns, directly or
indirectly, any debt, equity or other interest or investment in any Person that
has (x) had business dealings or a material financial interest in any
transaction with the Company or any of its Subsidiaries (other than arm's length
business transactions conducted in the Ordinary Course of Business at
substantially prevailing market prices and on substantially prevailing market
terms) or (y) directly engaged in competition with the Company or any of its
Subsidiaries with respect to the business of the Company or any of its
Subsidiaries or any line of the products or services of the Company or any of
its Subsidiaries (a "Competing Business") in any market presently served by the
Company or any of its Subsidiaries (except for less than ten percent of the
outstanding capital stock of any Competing Business).
(2) There are no agreements, indebtedness, arrangements,
understandings, obligations or other rights or obligations in effect between the
Company or any of its Subsidiaries, on the one hand, and any director or
executive officer of the Company or any of its Subsidiaries, on the other hand,
other than employment relationships and the Incentive Agreements.
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Section 1.31 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither the
Company nor any other Person makes any other express or implied representation
or warranty on behalf of the Company or any of its affiliates, and, for the
avoidance of doubt, neither the Company nor any of its affiliates makes any
express or implied representation or warranty with respect to the information
contained in the Confidential Information Memorandum dated August 1999,
including the projections set forth therein, or any projections, forecasts or
forward-looking information otherwise provided to the Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
Section 1.32 Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Delaware. The
Purchaser has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
is qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so organized, existing or in good standing would not (x) impair the ability
of the Purchaser to perform its obligations hereunder or (y) delay the
consummation of the transactions contemplated by this Agreement. The Purchaser
has previously delivered to the Company complete and correct copies of its
certificate of incorporation and bylaws, in each case as currently in effect.
Section 1.33 Authorization; Validity of Agreement. The Purchaser has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery by the Purchaser of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Purchaser, and no other corporate proceedings on the part of
the Purchaser are necessary to authorize the execution and delivery of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Purchaser
and, assuming due authorization,
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execution and delivery of this Agreement by the Company, is a valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms, except to the extent such enforcement may be subject to or limited by
(i) bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the effect of general principles
of equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
Section 1.34 Consents and Approvals; No Violations.
(1) Neither the execution and delivery of this Agreement by the
Purchaser nor the consummation by the Purchaser of the transactions contemplated
hereby will (i) violate any provision of the certificate of incorporation or
bylaws of the Purchaser, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, contract, agreement
or other instrument or obligation to which the Purchaser or any of its
Subsidiaries is a party or by which any of them or any of their assets may be
bound or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Purchaser, any of its Subsidiaries or any of their
properties or assets, except in the case of clauses (ii) and (iii) for
violations, breaches or defaults which would not (x) impair the ability of the
Purchaser to perform its obligations hereunder or (y) delay the consummation of
the transactions contemplated by this Agreement.
(2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement by the Purchaser or the
consummation by the Purchaser of the transactions contemplated hereby, except
(i) applicable requirements under Competition Laws and (ii) such other consents,
approvals, orders, authorizations, notifications, registrations, declarations
and filings the failure of which to be obtained or made would not (x) impair the
ability of the Purchaser to perform its obligations hereunder or (y) delay the
consummation of the transactions contemplated by this Agreement.
Section 1.35 Financing. The Purchaser has sufficient liquid funds
available (through existing credit arrangements or otherwise) to pay the
Aggregate Purchase Price and to satisfy and perform its obligations hereunder
and under the Accounts Receivable Purchase Agreement.
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Section 1.36 Brokers. Except for Warburg Dillon Read, no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser. The Purchaser is
solely responsible for the fees and expenses of Warburg Dillon Read.
Section 1.37 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV, neither the
Purchaser nor any other Person makes any other express or implied representation
or warranty on behalf of the Purchaser or any of its affiliates.
ARTICLE V
COVENANTS
Section 1.38 Interim Operations of the Company. The Company covenants
and agrees that, except as (i) expressly contemplated by this Agreement, (ii)
disclosed on Schedule 5.1 of the Disclosure Schedule, (iii) required by
applicable law, by any Material Contract or any contract or agreement disclosed
on Schedule 3.12(a) of the Disclosure Schedule or by any Plan disclosed on
Schedule 3.11(a) of the Disclosure Schedule or (iv) agreed to in writing by the
Purchaser, after the date of this Agreement and prior to the Closing:
(1) the business of the Company and its Subsidiaries shall be conducted
only in the ordinary course of business substantially consistent with past
practice (the "Ordinary Course of Business") and, to the extent consistent
therewith, the Company shall use its reasonable best efforts to preserve its
properties, business and business organization and the properties, business and
business organization of its Subsidiaries intact and maintain existing relations
with customers, suppliers and employees;
(2) the Company and its Subsidiaries shall not amend their respective
certificates of incorporation or bylaws;
(3) the Company and its Subsidiaries shall not make any capital
expenditure or enter into any contract or commitment therefor in excess of
$1,000,000, except in the Ordinary Course of Business;
(4) the Company and its Subsidiaries shall not enter into any contract
for the purchase or sale of fixed assets or real property the fair market value
of
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which does not exceed $250,000 individually or $500,000 in the aggregate or
exercise or grant any option concerning any real property, except in the
Ordinary Course of Business;
(5) the Company and its Subsidiaries shall not create, incur, guarantee
or assume any indebtedness for borrowed money (other than money borrowed or
advances from affiliates in the Ordinary Course of Business);
(6) the Company shall not, other than consistent with past practice,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock; and neither the Company nor
its Subsidiaries shall (i) issue, sell, transfer, pledge, dispose of or encumber
any additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or its Subsidiaries or (ii)
redeem, purchase or otherwise acquire directly or indirectly any of its capital
stock;
(7) neither the Company nor its Subsidiaries shall (i) except for
normal increases in the Ordinary Course of Business or as required by any
amendment to any, or new, collective bargaining agreement to which the Company
or its Subsidiaries is, or is to be, a party, or to reflect promotions, grant
any increase in the compensation payable or to become payable by the Company or
any of its Subsidiaries to any employee; (ii) adopt, amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock appreciation right,
restricted stock purchase, insurance, pension, retirement or other employee
benefit plan agreement or arrangement; or (iii) enter into or amend any existing
employment or severance agreement with, or, except in the Ordinary Course of
Business, grant any severance or termination pay to, any officer, director or
employee of the Company or any of its Subsidiaries;
(8) the Company and its Subsidiaries shall operate, maintain and manage
their properties and assets in a manner consistent with the Ordinary Course of
Business, and shall maintain insurance coverage with respect to the business of
the Company and each Subsidiary of the Company in a manner consistent with the
Ordinary Course of Business;
(9) the Company and its Subsidiaries shall not, except in the Ordinary
Course of Business, enter into, amend or terminate, any contract involving a
commitment of the Company or any of its Subsidiaries extending for more than one
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year and involving a total remaining commitment by the Company or any of its
Subsidiaries of at least $500,000;
(10) the Company and its Subsidiaries shall not (i) cancel or waive any
claims or rights of the Company or any of its Subsidiaries or settle or
compromise any Action, other than such cancellations, waivers, settlements or
compromises pursuant to which the amount paid in connection therewith, including
the cost to the Company and its Subsidiaries of complying with any provision of
such cancellation, waiver, settlement or compromise other than cash payments,
(1) in respect of any such cancellation, waiver, settlement or compromise which
occurred prior to the date of this Agreement does not exceed $500,000 in excess
of the amount covered by insurance, and (2) in respect of any such cancellation,
waiver, settlement or compromise occurring after the date of this Agreement,
does not exceed $500,000 in excess of the amount covered by insurance; or (ii)
other than in the Ordinary Course of Business, modify, amend or terminate any
Material Contract;
(11) the Company and its Subsidiaries shall not effectuate (i) a "plant
closing" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the business of the Company or any of its Subsidiaries or (ii) a "mass layoff"
(as defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facilities of the
business of the Company or any of its Subsidiaries, except, in either case,
after fully complying with the notice and other requirements of the WARN Act;
(12) the Company and its Subsidiaries shall not alter or modify their
accounting principles or procedures; and
(13) neither the Company nor its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing.
Notwithstanding the foregoing, nothing in this Agreement shall prohibit the
Company and its Subsidiaries from (i) paying or making regular or special cash
dividends or other cash distributions with respect to the Company Common Stock,
(ii) making, accepting, paying, repaying or settling intercompany receivables,
payables, loans or advances to, from or with one another or with the Selling
Stockholder or any other affiliate or (iii) engaging in any transaction incident
to the cash management procedures of the Selling Stockholder and its affiliates,
in the case of each of the clauses (i), (ii) or (iii), to the extent consistent
with the Company's past practice.
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Section 1.39 Due Diligence Inspection and Reviews; Further Access to
Information.
(1) The Purchaser acknowledges and agrees that it has, prior to its
execution of this Agreement, conducted due diligence inspections and reviews of
the Company and will bear all of its own costs, expenses and charges incurred in
connection with its due diligence inspections and reviews.
(2) From the date of this Agreement until the Closing, the Company
shall afford to the Purchaser and its authorized representatives reasonable
access during normal business hours upon reasonable prior notice to all of its
books and records and, during such period, the Company shall furnish promptly to
the Purchaser such other information concerning its business, properties and
personnel as the Purchaser may reasonably request; provided that nothing
contained in this Agreement shall require the Company to provide the Purchaser
access to any proprietary or confidential information regarding formulas,
recipes, ingredient specifications, process information or mixing instructions,
or cost information relating to the Company and its operations prior to Closing,
the provision of which would be a violation of applicable law. The Purchaser and
its authorized representatives will conduct all such inspections in a manner
which will minimize any disruptions of the business and operations of the
Company and its Subsidiaries. Until the Closing has occurred, the Purchaser will
hold any such information in accordance with the provisions of the
confidentiality agreement between the Selling Stockholder and the Purchaser,
dated as of August 17, 1999 (the "Confidentiality Agreement"), and will cause
such information to be so held by their respective Representatives (as defined
in the Confidentiality Agreement). Upon a termination of this Agreement pursuant
to Section 7.1 hereof, the Purchaser and its Representatives shall return (and
hold confidential) all information provided pursuant to this Section 5.2 and all
other Evaluation Material (as defined in the Confidentiality Agreement) pursuant
to the procedures set forth in the Confidentiality Agreement.
Section 1.40 Further Action; Best Efforts; Competition Laws;
Non-Refundable Fee.
(1) Upon the terms and subject to the conditions herein provided, each
of the parties hereto agrees to use its reasonable best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using reasonable best efforts to satisfy the conditions precedent to
the obligations of any of the parties hereto, to
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obtain all necessary authorizations, consents and approvals, and to
effect all necessary registrations and filings; provided, however, that such
action shall not include any requirement on the part of the Selling Stockholder
or the Company or their respective affiliates to expend money (other than
routine out-of-pocket expenses), commence or participate in any litigation or
offer or grant any accommodation (financial or otherwise) to any Person. Each of
the parties hereto will furnish to the other parties such necessary information
and reasonable assistance as such other parties may reasonably request in
connection with the foregoing and will provide the other parties with copies of
all filings made by such party with any Governmental Entity or any other
information supplied by such party to a Governmental Entity in connection with
this Agreement and the transactions contemplated hereby.
(2) Notwithstanding anything set forth herein to the contrary, the
Selling Stockholder and the Purchaser shall, as soon as practicable, but in no
event later than five (5) days after the date of this Agreement, file
Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and shall use their reasonable best efforts to respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation. Without limiting the foregoing, the
Purchaser and the Selling Stockholder shall use reasonable best efforts to take
or cause to be taken all actions necessary, proper or advisable to obtain any
consent, waiver, approval or authorization relating to, and to resolve, as
promptly as practicable, any objections to the transactions contemplated hereby
that may be asserted under, any Competition Law (each as may be required for the
consummation of the transactions contemplated by this Agreement). Without
limiting the foregoing, each party agrees, if necessary, to negotiate in good
faith with any Governmental Entity and to litigate in good faith any judicial
action brought by any Governmental Entity through the later of (i) the entry of
a decision in the trial court on an application seeking a preliminary injunction
to enjoin, in whole or in part, the transactions contemplated herein, and (ii)
the date specified pursuant to Section 7.1(f) hereof; provided, however, that in
no event shall the Purchaser or the Selling Stockholder be obligated to litigate
any such action beyond the date specified pursuant to Section 7.1(f) hereof.
Notwithstanding the foregoing, neither the Purchaser nor the Selling Stockholder
shall be under any obligation to take any action or accept any settlement with
any Governmental Entity with respect to any Competition Laws which would
materially impair the economic benefits of the overall transaction to the
Purchaser or the Selling Stockholder, as the case may be, as determined by such
party acting in good faith and exercising commercially reasonable judgment.
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(3) Non-Refundable Fee. Notwithstanding the Purchaser's compliance with
the requirements of this Section 5.3 and notwithstanding anything else contained
in this Agreement to the contrary, in the event the transactions contemplated
hereby have not been consummated (A) on or prior to February 3, 2000 the
Purchaser shall then immediately pay the Selling Stockholder a non-refundable
fee of three percent (3%) of the Aggregate Purchase Price and (B) on or prior to
March 6, 2000 the Purchaser shall then immediately pay the Selling Stockholder a
second non-refundable fee of an additional three percent (3%) of the Aggregate
Purchase Price. All payments made pursuant to this Section 5.3(c) shall be (i)
made in immediately available funds to the account or accounts specified by the
Selling Stockholder in a written notice delivered to the Purchaser and (ii)
applied to the amount of the Share Purchase Price payable by the Purchaser at
the Closing, if the Closing occurs.
(4) For purposes of this Agreement, "Competition Laws" means statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines, and
other laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization, lessening of competition
or restraint of trade and includes the HSR Act.
(5) To the extent reasonably possible, each party hereto shall promptly
inform the other party in advance of any proposed meetings, discussions or other
material communications with the FTC, the Antitrust Division or any other
Governmental Entity regarding the transactions contemplated hereby (and as soon
as practicable following any communication from any such entity), and shall, if
practicable, provide the other party with the opportunity to participate in such
meetings or discussions. If either party or any of their respective affiliates
receives a request for additional information or documentary material from the
FTC, the Antitrust Division or any other Governmental Entity with respect to the
transactions contemplated hereby, then such party will endeavor in good faith to
make, or cause to be made, as soon as practicable and after consultation with
the other party, an appropriate response in compliance with such request. The
Purchaser shall advise the Selling Stockholder in respect of any understandings,
undertakings or agreements (oral or written) that the Purchaser proposes to make
or enter into with the FTC, the Antitrust Division or any other Governmental
Entity with respect to the transactions contemplated hereby.
Section 1.41 Tax Matters.
(1) Liability for Taxes.
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(1) The Selling Stockholder shall be liable for and shall pay all Taxes
(A) imposed on the Company and its Subsidiaries pursuant to Treas. Reg. ss.
1.1502-6 or any similar provision of foreign, state or local law as a result of
the Company and its Subsidiaries having been members of an "affiliated group"
(as such term is defined in Section 1504(a) of the Code) that includes the
Selling Stockholder or (B) imposed on the Company and its Subsidiaries for any
taxable year or period ending on or prior to the Closing Date and, with respect
to any taxable year beginning before and ending after the Closing Date (a
"Straddle Period"), the portion of such Straddle Period ending on and including
the Closing Date; provided, however, that the Selling Stockholder shall not be
liable for or pay (I) any Taxes up to the amount of such Taxes that are accrued
on the Closing Balance Sheet (as defined in Section 2.2(b) hereof), (II) any
Taxes that result from any actual or deemed election under Section 338 of the
Code or any similar provisions of any other relevant Tax law relating to the
transactions contemplated by this Agreement, or that result from the Purchaser
or any of its affiliates engaging in any activity or transaction that would
cause the transactions contemplated by this Agreement to be treated as a sale of
assets of the Company and its Subsidiaries for federal, state, local or other
Tax purposes and (III) any Taxes imposed on the Company and its Subsidiaries as
a result of transactions occurring on the Closing Date that are properly
allocable (based on, among other relevant factors, factors set forth in Treas.
Reg. ss. 1.1502-76(b)(1)(ii)(B)) to periods after the Closing (Taxes described
in items (I) through (III) above, "Excluded Taxes"). The Purchaser and the
Selling Stockholder agree that, with respect to any transaction described in
item (III) of the preceding sentence, the Company and its Subsidiaries and all
Persons related to the Company and its Subsidiaries under Section 267(b) of the
Code immediately after the Closing shall treat the transaction for all federal
income Tax purposes (in accordance with Treas. Reg. ss. 1.1502-76(b)(1)(ii)(B)),
and (to the extent permitted) for other income Tax purposes, as occurring at the
beginning of the day immediately following the Closing Date. The Selling
Stockholder shall be entitled to any refund of (or credit for) Taxes allocable
to any taxable year or period that ends on or before the Closing Date and, with
respect to any Straddle Period, the portion of such Straddle Period ending on
and including the Closing Date; provided, however, that the Selling Stockholder
shall not be entitled to any refund or credit that is accrued on the Closing
Date Balance Sheet.
(2) The Purchaser shall be liable for and shall pay (A) all Taxes
imposed on the Company and its Subsidiaries for any taxable years or periods
beginning after the Closing Date and, with respect to any Straddle
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Period, the portion of such Straddle Period beginning after the Closing
Date and (B) Excluded Taxes. Except as otherwise provided herein, the Purchaser
shall be entitled to any refund of (or credit for) Taxes allocable to any
taxable year or period that begins after the Closing Date and, with respect to
any Straddle Period, the portion of such Straddle Period beginning after the
Closing Date.
(3) For purposes of paragraphs (a)(i) and (a)(ii) above, whenever it is
necessary to determine the liability for Taxes of the Company and its
Subsidiaries for a portion of any Straddle Period, the determination of the
Taxes of the Company and its Subsidiaries for the portion of the Straddle Period
ending on and including, and the portion of the Straddle Period beginning after,
the Closing Date shall be determined by assuming that the Straddle Period
consisted of two taxable years or periods, one which ended at the close of the
Closing Date and the other which began at the beginning of the day immediately
following the Closing Date, and items of income, gain, deduction, loss or credit
of the Company and its Subsidiaries for the Straddle Period shall be allocated
between such two taxable years or periods on a "closing of the books basis" by
assuming that the books of the Company and its Subsidiaries were closed at the
close of the Closing Date; provided, however, that (I) transactions occurring on
the Closing Date that are properly allocable (based on among other relevant
factors, factors set forth in Treas. Reg. ss.1.1502-76(b)(1)(ii)(B)) to the
portion of the Straddle Period after the Closing Date shall be allocated to the
taxable year or period that is deemed to begin at the beginning of the day
following the Closing Date, and (II) exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, shall
be apportioned between such two taxable years or periods on a daily basis.
Notwithstanding the foregoing provisions of this paragraph (a)(iii), if the
transactions contemplated by this Agreement result in the reassessment of the
value of any property owned by the Company and its Subsidiaries for property Tax
purposes, or the imposition of any property Taxes at a rate which is different
than the rate that would have been imposed if such transactions had not
occurred, then (x) the portion of such property Taxes for the portion of the
Straddle Period ending on and including the Closing Date shall be determined on
a daily basis, using the assessed value and Tax rate that would have applied had
such transactions not occurred, and (y) the portion of such property Taxes for
the portion of such Straddle Period beginning after the Closing Date shall be
the total property Taxes for the Straddle Period minus the amount described in
clause (x) of this sentence.
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(4) The Selling Stockholder and the Purchaser agree that the Selling
Stockholder makes no representation, warranty or covenant with respect to the
Purchaser's or the Company's ability to utilize any net operating loss
carryovers, net capital loss carryovers, credits or similar items of the Company
or any of its Subsidiaries. Notwithstanding the foregoing, the Selling
Stockholder represents and warrants that as of the date of this Agreement, the
sum of the Company's Federal net operating loss carryovers and net capital loss
carryovers existing as of the date of this Agreement ("NOLs") will not be less
than $66.0 million in the aggregate. The Selling Stockholder hereby agrees that
if the amount of NOLs existing as of the date of this Agreement is reduced below
$66.0 million on or prior to the Final Release Date under the Escrow Agreement
as a result of any (A) action taken by the Selling Stockholder, the Company or
any of its Subsidiaries on or prior to the last day of the taxable year of the
Selling Stockholder in which the Closing occurs (such taxable year, the "Closing
Year"), or (B) position taken on the consolidated Return of the Selling
Stockholder with respect to the Closing Year, in each case (A) and (B) so as to
result in the reduction (other than solely as a result of a deferral of the NOLs
attributable to any timing difference of any item of income, gain, loss or
deduction) of such amount of NOLs existing as of the date of this Agreement,
then the Selling Stockholder shall promptly pay in accordance with subsection
(c) of this Section 5.4 and Article VIII hereof to the Purchaser an amount equal
to 38% of such reduction.
(5) Notwithstanding anything herein to the contrary, the Purchaser
shall be liable for and shall pay any real property transfer or gains Tax, stamp
Tax, stock transfer Tax, or other similar Tax imposed on the transactions
contemplated by this Agreement, together with any penalties or interest with
respect to such Taxes.
(6) Neither the Purchaser nor the Selling Stockholder, nor any of their
respective affiliates, shall make an election described in section 338 of the
Code, including section 338(h)(10) or any corresponding election under any other
relevant Tax laws for which a separate election is permissible with respect to
the transactions contemplated by this Agreement.
(2) Tax Returns.
(1) The Selling Stockholder shall timely file or cause to be timely
filed when due (taking into account all extensions properly obtained) all
Returns that are required to be filed by or with respect to the Company and
its
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Subsidiaries for taxable years or periods ending on or before the Closing
Date (in the case of Returns required to be filed by or with respect to the
Company and its Subsidiaries on a combined, consolidated or unitary basis
with the Selling Stockholder or any affiliate thereof other than solely the
Company and its Subsidiaries) or due on or before the Closing Date (with
respect to other Returns), and in each case the Selling Stockholder shall
remit or cause to be remitted any Taxes shown to be due in respect of such
Returns, and the Purchaser shall timely file or cause to be timely filed
when due (taking into account all extensions properly obtained) all other
Returns that are required to be filed by or with respect to the Company and
its Subsidiaries and the Purchaser shall remit or cause to be remitted any
Taxes shown to be due in respect of such Returns. With respect to Returns
to be filed by the Purchaser pursuant to the preceding sentence that relate
to the Straddle Period, (x) such Returns shall be filed in a manner
consistent with positions taken, elections made or methods used in prior
periods in filing such Returns (including, without limitation, any position
which would have the effect of accelerating income to periods for which the
Selling Stockholder is liable or deferring deductions to periods for which
the Company is liable) and (y) such Returns and the workpapers and
calculations supporting the Taxes due in respect of such Returns shall be
submitted to the Selling Stockholder not later than thirty (30) days prior
to the due date for filing such Tax Returns (or, if such due date is within
forty-five (45) days following the Closing Date, as promptly as practicable
following the Closing Date) for review and approval by the Selling
Stockholder, which approval may not be unreasonably withheld, but may in
all cases be withheld if such Returns were not prepared in accordance with
clause (x) of this sentence. The Selling Stockholder, on the one hand, or
the Purchaser, on the other hand, shall pay the other party for the Taxes
for which the Selling Stockholder or the Company, respectively, is liable
pursuant to Section 5.4(a) hereof but which are payable with any Return to
be filed by the other party pursuant to this paragraph (b) upon the written
request of the party entitled to payment, setting forth in detail the
computation of the amount owed by the Selling Stockholder or the Company,
as the case may be, but in no event earlier than ten (10) days prior to the
due date for paying such Taxes.
(2) Neither the Purchaser nor any of its affiliates shall (or shall
cause or permit the Company and its Subsidiaries to) amend, refile or
otherwise modify (or grant an extension of any statute of limitations with
respect to) any Return relating in whole or in part to the Company and its
Subsidiaries with respect to any taxable year or period ending on or before
the Closing Date (or with respect to any Straddle Period) without the prior
written
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consent of the Selling Stockholder, which consent may be withheld in the
sole discretion of the Selling Stockholder.
(3) With respect to the taxable period in 1999 on and prior to the
Closing Date, the Purchaser shall promptly cause the Company and its
Subsidiaries to prepare and provide to the Selling Stockholder a package of
tax information materials, including, without limitation, schedules and
work papers (the "Tax Package"), required by the Selling Stockholder to
enable the Selling Stockholder to prepare and file all Returns required to
be prepared and filed by them pursuant to paragraph (b)(i) above. The Tax
Package shall be completed in accordance with past practice including past
practice as to providing such information, and as to the method of
computation as separate taxable income or other relevant measure of income
of the Company and each of its Subsidiaries. The Purchaser and the Company
shall cause the Tax Package to be delivered to the Selling Stockholder
within sixty (60) days after the Closing Date.
(3) Contest Provisions. The Purchaser and the Company shall promptly
notify the Selling Stockholder in writing upon receipt by the Purchaser, the
Company or any of its Subsidiaries, or any of their respective affiliates, of
notice of any pending or threatened federal, state, or local Tax audits,
examinations or assessments which may affect any Tax liability for which the
Selling Stockholder is liable pursuant to Section 5.4(a) hereof; provided that
failure to comply with this provision shall not affect the Purchaser's rights
hereunder, except to the extent such failure impairs the Selling Stockholder's
ability to contest any such Tax liabilities.
The Selling Stockholder shall have the sole right (i) to represent the
interests of the Company or any of its Subsidiaries in any Tax audit or
administrative or court proceeding relating to (A) taxable periods ending on or
before the Closing Date and (B) any of the matters discussed in Section
5.4(a)(v) hereof, and (ii) in connection therewith, to employ counsel of its
choice and expense. The Selling Stockholder shall have the sole right to settle,
either administratively or after the commencement of litigation, any proceeding
relating (in whole or in part) to Taxes of the Company and its Subsidiaries for
any period ending on or before the Closing Date. In the case of any Straddle
Period, the Selling Stockholder shall be entitled to participate, at its
expense, in any Tax audit or administrative or court proceeding relating (in
whole or in part) to Taxes attributable to the portion of such Straddle Period
ending on and including the Closing Date and, with the written consent of the
Purchaser, and at the Selling Stockholder's sole expense, may assume the entire
control of such audit or proceeding. Neither the Purchaser nor the Company, nor
any of their respective
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Subsidiaries and affiliates, may agree to settle any Tax claim which
relates to or arises from any Taxes for which the Selling Stockholder is liable
pursuant to Section 5.4(a)(i) or Section 5.4(a)(v) hereof without the prior
written consent of the Selling Stockholder, which consent shall not be
unreasonably withheld.
(4) Assistance and Cooperation. After the Closing Date, each of the
Selling Stockholder and the Purchaser shall (and shall cause their respective
affiliates to) reasonably:
(1) assist the other party in preparing any Returns which such
other party is responsible for preparing and filing in accordance with
paragraph (b) of this Section 5.4;
(2) cooperate fully in preparing for any audits of or disputes with
taxing authorities regarding any Returns of the Company and its
Subsidiaries; (1)
(3) make available to the other and to any taxing authority as
reasonably requested all information, records and documents relating to
Taxes of the Company and its Subsidiaries;
(4) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company and its Subsidiaries
for taxable periods for which the other may have a liability under this
Section 5.4;
(5) furnish the other with copies of all correspondence received
from any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period;
(6) timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an exemption from (or otherwise
reduce), or file Returns or other reports with respect to, Taxes described
in paragraph (a)(vi) of this Section 5.4; and
(7) timely provide to the other party powers of attorney or similar
authorizations necessary to carry out the purposes of this Section 5.4.
Section 1.42 Labor Matters. The Purchaser shall cause the Company and
its Subsidiaries, after the Closing, to assume and honor without modification
the
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terms of any collective bargaining agreement in effect with any union
recognized by the Company or any of its Subsidiaries prior to the Closing.
Section 1.43 Employee Benefits.
(1) The Purchaser hereby agrees that individuals who are employed by
the Company and the Subsidiaries as of the Closing Date shall remain employees
of the Company and the Subsidiaries following the Closing Date. The Purchaser
hereby assumes, agrees to honor without modification or contest, and agrees to
cause the Company to honor without modification or contest, and to make required
payments when due under, all contracts, agreements, arrangements, policies,
plans and commitments of the Selling Stockholder or any of its Subsidiaries in
effect as of the date hereof which are applicable with respect to any employee,
officer, director or executive or former employee, officer, director or
executive of the Company or any Subsidiary thereof, including (i) any
compensation arrangements, employment agreements and employee or director
benefit plans, programs and policies in existence as of the date hereof and (ii)
those commission, incentive and bonus plans and arrangements set forth on
Schedule 5.6(a) of the Disclosure Schedule (collectively, the "Incentive
Agreements"); provided, however, that the Purchaser shall not assume or honor or
be required to make any payments under any plans, policies, contracts or
agreements providing for equity awards. Neither this Section 5.6 nor any other
provision of this Agreement shall limit the ability or right of the Company and
its Subsidiaries to terminate the employment of any of their respective
employees after the Closing Date (subject to any rights of any such employee
pursuant to any contract, agreement, arrangement, policy, plan or commitment).
(2) For purposes of all employee benefit plans, programs and
arrangements maintained by or contributed to by the Purchaser and its
Subsidiaries (including, after Closing, the Company), the Purchaser shall, or
shall cause its Subsidiaries to, cause each such plan, program or arrangement to
treat the prior service with the Company and its affiliates of each person who
is an employee or former employee of the Company or its Subsidiaries immediately
prior to the Closing (a "Company Employee") (to the same extent such service is
recognized under analogous plans, programs or arrangements of the Company or its
affiliates prior to the Closing) as service rendered to the Purchaser or its
Subsidiaries, as the case may be, for purposes of eligibility to participate in
and vesting thereunder (but not benefit accrual); provided, however, that such
crediting of service shall not operate to duplicate any benefit or the funding
of such benefit and shall not apply to any non-union or salaried employee plan
providing retiree medical or life benefits maintained or contributed to by the
Purchaser or any of its Subsidiaries. Company Employees shall also be given
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credit for any deductible or co-payment amounts paid in respect of the plan year
in which the Closing occurs, to the extent that, following the Closing, they
participate in any other plan for which deductibles or co-payments are required.
The Purchaser shall also cause each Purchaser Plan (as hereinafter defined
below) to waive any preexisting condition which was waived under the terms of
any Plan immediately prior to the Closing or waiting period limitation which
would otherwise be applicable to a Company Employee on or after the Closing. The
Purchaser shall recognize any accrued but unused vacation of the Company
Employees as of the Closing Date, and the Purchaser shall cause the Company and
its Subsidiaries to provide such paid vacation. For purposes of this Agreement,
a "Purchaser Plan" shall mean any employee benefit plan, as defined in Section
3(3) of ERISA, or whatever nonqualified employee benefit or deferred
compensation plan, stock option, bonus or incentive plan or other employee
benefit or fringe benefit program, that may be in effect generally for employees
of the Purchaser and its Subsidiaries from time to time. (1)
(3) The Purchaser shall assume all liability for severance pay and
similar obligations payable to any Company Employee who is terminated by the
Purchaser or the Company, or any of their respective Subsidiaries, on or after
the Closing Date.
(1) Effective as of the Closing Date, Purchaser shall amend one of
Purchaser's defined benefit pension plans (the "Transferee Pension Plan")
for the benefit of employees of the Company and the Subsidiaries (and their
beneficiaries) who participated in the Metz-Mother's Cake & Cookie Company
Consolidated Pension Plan (the "Seller Retirement Plan"). Such employees of
the Company and the Subsidiaries (and beneficiaries) are referred to
hereinafter as the "Retirement Plan Employees"). The Transferee Pension
Plan shall (A) recognize for all purposes thereunder the service of the
Retirement Plan Employees which was recognized under the Seller Retirement
Plan, provided that such service need not be recognized for purposes of
benefit accrual until the transfer of assets referred to below and (B)
provide, upon such transfer, the benefit liabilities of the Retirement Plan
Employees under the Transferee Pension Plan shall in no event be less than
their benefit liabilities under the Seller Retirement Plan as of the
Closing Date.
(2) Selling Stockholder shall cause to be transferred from the
trust under the Seller Retirement Plan to the trust under the Transferee
Pension Plan assets in cash acceptable to Purchaser, the value of which
shall be equal to the "accumulated benefit obligation" (as defined in the
Statement of Financial Accounting Standards No. 87) attributable to the
Retirement Plan
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Employees who are employed by the Company after the Closing
Date under the Seller Retirement Plan as of the Closing Date (the
"Accumulated Benefit Obligation"), plus the amount by which the fair market
value of plan assets in the Seller Retirement Plan as of the Closing Date
attributable to those Retirement Plan Employees who are employed by the
Company after the Closing Date exceeds such Accumulated Benefit Obligation,
plus or minus, as the case may be, an additional amount from the Closing
Date to the date of transfer calculated at a rate for such period equal to
a pro rata portion of the percentage increase or decrease, if any, during
such period in the market value of the assets held by the trust under the
Seller Retirement Plan on the Closing Date. In no event will the amount
transferred exceed the amount with respect to such benefit liabilities
which may be transferred under the provisions of section 414(l) of the
Code. Such amount shall be reduced by the amount of any benefit payments
made with respect to the Retirement Plan Employees after the Closing Date
but prior to the date of transfer. The benefit liabilities of the
Retirement Plan Employees shall be determined on the basis of the actuarial
assumptions for the Seller Retirement Plan as contained in the most recent
actuarial report for such Plan as of the date of this Agreement, with the
exception of the discount rate, which shall be 7.5%. Such determination
shall be made by the actuary for the Seller Retirement Plan, subject to the
review of an actuary designated by Purchaser. If the actuaries do not agree
on the amount to be transferred, the dispute shall be submitted to an
actuary selected by mutual agreement of Selling Stockholder and Purchaser,
the fees and expenses of which shall be shared equally by the parties. The
decision of such third actuary shall be binding on all parties.
(3) The transfer of assets referred to above shall take place
within 180 days after the Closing Date; provided, however, that in no event
shall such transfer take place until the last to occur of the following:
(i) the Purchaser has furnished to the Selling Stockholder a favorable
determination letter from the Internal Revenue Service with respect to the
qualification of the Transferee Pension Plan under section 401(a) of the
Code and (ii) the receipt by the Purchaser of a favorable determination
letter from the Internal Revenue Service with respect to the continued
qualification of the Seller Retirement Plan under section 401(a) of the
Code and to provide for the transfer of assets and benefit liabilities
referred to in this Section 5.6. Notwithstanding anything contained herein
to the contrary, no such transfer shall take place until the 31st day
following the filing of all required Forms 5310-A in connection therewith.
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(4) Pending the completion of the transfer described in this
paragraph, Selling Stockholder and Purchaser shall make arrangements for
any required payments to the Retirement Plan Employees from the Seller
Retirement Plan. Selling Stockholder and Purchaser shall provide each other
with access to information reasonably necessary in order to carry out the
provisions of this paragraph.
(4) The Purchaser acknowledges that for purposes of the plans,
agreements and arrangements of the Selling Stockholder or any of its
Subsidiaries in effect as of the date hereof which are applicable with respect
to any employee, officer, director or executive or former employee, officer,
director or executive of the Company or any Subsidiary thereof, the consummation
of the transactions contemplated by this Agreement will constitute a "Change in
Control" or "Sale" of the Company (as such terms are defined in such plans,
agreements and arrangements), provided, however, that nothing set forth herein
shall be deemed to render the consummation of the transactions herein a "Change
in Control" or "Sale" of the Company for any other purpose. The Purchaser agrees
(i) to cause the Company after consummation of the transactions contemplated by
this Agreement to pay all amounts provided under such agreements and
arrangements in accordance with their terms, and the Purchaser agrees to
guarantee the payment by the Company of all such amounts and (ii) to honor and
to cause the Company to honor, all rights and privileges to or with respect to
any such plans, agreements and arrangements.
(5) Except as provided in this Section 5.6, nothing in this Agreement
shall limit or restrict in any way the rights of the Purchaser or the Company to
modify, amend, terminate or establish employee benefit plans or arrangements, in
whole or in part, at any time after the Closing Date.
(6) The Purchaser agrees to comply with, and shall be responsible for
all liabilities or obligations under, the Workers Adjustment and Retraining
Notification Act and the rules and regulations promulgated thereunder, with
respect to all Company Employees from the actions of the Purchaser or the
Company following the Closing.
Section 1.44 Cash Management. The Company and its Subsidiaries
participate in the cash management system for the Selling Stockholder and its
affiliates and shall continue to so participate in accordance with prior
practice until Closing. Accordingly, nothing contained in this Agreement shall
prohibit the Company and its Subsidiaries from distributing any cash on hand
from time to time to the Selling Stockholder or any of its affiliates.
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Section 1.45 Elimination of Intercompany Accounts. Effective
immediately before the Closing, all receivables, payables and loans
(collectively, the "Intercompany Accounts") then existing between the Company
and any of its Subsidiaries, on the one hand, and the Selling Stockholder, on
the other hand, shall be settled by way of a capital contribution in kind (with
respect to a net intercompany amount due from the Selling Stockholder to the
Company or any of its Subsidiaries) or by way of a dividend in kind (with
respect to a net intercompany amount due from the Company or any of its
Subsidiaries to the Selling Stockholder). Any such settlement shall be
accomplished in the manner reasonably selected by the Selling Stockholder in its
sole discretion. None of the actions contemplated by this Section 5.8 shall be
taken into account for purposes of calculating the Final Working Capital.
Section 1.1
Section 1.46 Substitution of Guarantees.
(1) On or before the Closing Date, the Purchaser shall cause itself to
be substituted in all respects for the Selling Stockholder or any affiliate of
the Selling Stockholder, and shall cause the Selling Stockholder or any such
affiliate to be fully released, in respect of all obligations of Selling
Stockholder or any such affiliate under any guarantee, letter of credit, bid
bond or performance bond identified on Schedule 5.9 of the Disclosure Schedule
(the "Guarantees"). Notwithstanding anything to the contrary contained in this
Agreement, the Purchaser shall not be substituted for the Selling Stockholder
with respect to the guarantee by the Selling Stockholder of the obligations of
Gai's Seattle French Baking Company which may arise under Waters, et al. v.
Gai's Seattle French Baking Company, Case No. 95-2-28578-3SEA in the Superior
Court of Washington, Kings County (the "Gai's Guarantee"). If, prior to the
Closing, the Purchaser is unable to effect such substitution and release with
respect to any Guarantee after using its best efforts to do so, the Purchaser
shall obtain letters of credit, on terms and from financial institutions
reasonably satisfactory to the Selling Stockholder, with respect to the
obligations covered by each of the Guarantees for which the Purchaser is unable
to effect such substitution and release. As a result of the substitution and
release contemplated by the first sentence of this Section 5.9 and/or the
letters of credit contemplated by the second sentence of this Section 5.9, the
Purchaser shall cause the Selling Stockholder and any affiliates from and after
the Closing to cease to have any obligation whatsoever arising from or in
connection with the Guarantees, except for obligations (if any) for which the
Selling Stockholder or the appropriate affiliate will be fully indemnified
pursuant to a letter of credit. Without limiting the foregoing, after the
Closing Date, the Purchaser will not, nor shall it permit any of its affiliates
to, renew, extend, amend or supplement any loan, contract, lease or other
agreement which is covered by a Guarantee without
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providing the Selling Stockholder with satisfactory evidence that its
(or any of its affiliates') Guarantee has been released. Any cash or other
collateral posted by the Selling Stockholder or any of its affiliates in respect
of any Guarantee shall be delivered to the Selling Stockholder.
(2) The Purchaser acknowledges that the Selling Stockholder may take
any action to cause that one certain Promissory Note, dated February 24, 1997,
of United States Bakery in favor of Gai's Seattle French Baking Co., as amended,
to be assigned to the Selling Stockholder or its designee, prior to the Closing,
and the Purchaser agrees to promptly remit or cause the Company to remit, to the
Selling Stockholder any amount, received by the Purchaser or the Company
pursuant to such promissory note after the Closing.
Section 1.47 Release of Liens; No Indebtedness. At or before the
Closing, the Selling Stockholder shall cause all Liens which secure the
indebtedness of the Selling Stockholder or its affiliates under the Senior
Credit Facilities (as defined below) and which encumber the capital stock and
assets of the Company and its Subsidiaries to be released, and shall cause all
indebtedness for borrowed money of the Company and its Subsidiaries to be repaid
in full. For purposes of this Agreement, "Senior Credit Facilities" shall mean
(i) the Amended and Restated Term Loan Agreement, dated as of June 11, 1999, by
and among the Selling Stockholder, the various financial institutions named
therein as Lenders, DLJ Capital Funding, Inc., as Syndication Agent and
Collateral Agent, ABN AMRO Bank N.V., as Administrative Agent, and Banque
Paribas, as Documentation Agent; and (ii) the Amended and Restated Revolving
Credit Agreement, dated as of June 11, 1999, by and among certain Subsidiaries
of the Selling Stockholder, the various financial institutions named therein as
Lenders, DLJ Capital Funding, Inc., as Syndication Agent and Collateral Agent,
ABN AMRO Bank N.V., as Administrative Agent, and Banque Paribas, as
Documentation Agent. For the avoidance of doubt, it is the intention of both the
Purchaser and the Selling Stockholder that at the Closing the Purchaser shall
acquire the Company and its Subsidiaries (both active and inactive) free of all
indebtedness, liens or encumbrances (other than Permitted Liens). In addition,
the Company (on a stand-alone basis) shall not have any debt or liabilities as
of the Closing Date.
Section 1.48 Acquisition Proposals.
(1) The Company and the Selling Stockholder agree that they shall not,
and shall cause their Subsidiaries and shall use their best efforts to cause its
affiliates and each of their respective directors, officers, employees, agents,
consultants, advisors or other representatives, including legal counsel,
accountants and
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advisors (collectively, "Representatives"), not to, directly or
indirectly, solicit, initiate, encourage, or otherwise facilitate, any inquiries
or the making of any proposals or offers from, discuss or negotiate with,
provide any confidential information or data to, any inquiries, proposals or
offers from, any Person (other than the Purchaser) relating to any transaction
(including by way of merger, consolidation, business combination or similar
transaction involving the Selling Stockholder or any affiliate of the Selling
Stockholder) involving the direct or indirect sale or transfer of the Company or
any of its Subsidiaries or any of their respective assets (any such inquiry,
proposal or offer being hereinafter referred to as an "Acquisition Proposal").
The Company and the Selling Stockholder shall, and shall cause their affiliates
and each of their respective Representatives to, immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The Company
and the Selling Stockholder shall promptly notify the Purchaser if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with or about the Company or any of its Subsidiaries or
any of their respective assets and shall promptly request each Person which has
heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Company or any of its Subsidiaries or any of
their respective assets to return all confidential information heretofore
furnished to such Person by or on behalf of the Selling Stockholder.
Section 1.49 Additional Agreements. At or before the Closing, each of
the Purchaser, the Company and the Selling Stockholder shall execute and deliver
(i) an Accounts Receivable Purchase Agreement substantially in the form of
Exhibit A hereto (the "Accounts Receivable Purchase Agreement") and (ii) an
Escrow Agreement substantially in the form of Exhibit B hereto (the "Escrow
Agreement").
Section 1.50 Publicity. Neither the Company, the Purchaser nor any of
their respective affiliates shall issue or cause the publication of any press
release or other announcement with respect to this Agreement or the transactions
contemplated hereby without the prior consultation of the other party, except as
may be required by law or by any listing agreement with a national securities
exchange, in which cases the other party shall be advised and the parties shall
use their reasonable best efforts to cause a mutually agreeable release or
announcement to be issued.
Section 1.51 Supplemental Disclosures. The Selling Stockholder and the
Company shall have the right from time to time prior to the Closing Date to
supplement the Disclosure Schedule with respect to any matter hereafter arising
which, if existing or known by the Company as of the date of this Agreement,
would have
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been required to be set forth or described in such Disclosure Schedule
(a "Disclosure Schedule Update"). Any such supplemental disclosure will be
deemed to have been disclosed as of the date of this Agreement for purposes of
determining whether or not the conditions set forth in Article VI hereof have
been satisfied so that such supplemental disclosures may not be the basis of a
failure to consummate the transactions contemplated hereby; provided, however,
that such supplemental disclosures will not be deemed to have cured any breach
of any representation or warranty made in this Agreement for the purposes of
indemnification pursuant to Article VIII hereof. Section 1.1
Section 1.52 Retention of and Access to Books and Records.
(1) For a period of seven (7) years following the Closing, or for such
longer periods as may be required to satisfy applicable laws, regulations or
agreements, the Purchaser shall cause the Company to retain all material books
and records of the Company relating to the operations of the Company prior to
the Closing Date, including, without limitation, books and records (i) relating
to Taxes, including, without limitation, accounting and tax records and
information pertaining to events occurring prior to the Closing Date, (ii)
required to be retained pursuant to obligations imposed by any statute, rule,
regulation or pendency of any litigation or other legal proceeding, (iii)
relevant and necessary to defend any claim of liability under Section 5.4(a)
hereof or (iv) relevant and necessary in connection with the defense or conduct
of any litigation, arbitration, audit, settlement proceedings or negotiations
with third parties with respect to the pre-Closing conduct, actions or omissions
of the Company ("Legal Proceedings") (such books and records of the Company
collectively, the "Records").
(2) From and after the Closing Date and upon reasonable advance notice
from the Selling Stockholder setting forth a reasonable purpose for requesting
access, the Purchaser shall cause the Company to afford the Selling Stockholder
with the opportunity to examine and to make copies of all of the Records. All
such information and access by the Selling Stockholder and its employees and
representatives shall comply with the Company's security procedures and shall be
conducted in a manner which does not unreasonably interfere with the operations
of the Company.
If originals or copies of any Records, articles, objects or
things, are required to respond to legal process in connection with the conduct
or defense by the Selling Stockholder of any Legal Proceeding, such party,
subject to applicable laws, regulations or agreements (including the
attorney-client privilege), shall be permitted to remove the Records, articles,
objects or things temporarily from the other party's premises; provided that
such party shall return such original documents to such other
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party as promptly as practicable after such time when such original
documents are no longer required in connection with such Legal Proceeding.
If, in connection with Legal Proceedings, the Selling Stockholder shall
require the assistance of the Company's employees, the Purchaser shall cause the
Company to provide such employees to the Selling Stockholder as are reasonably
required. The Selling Stockholder shall pay the Company's out-of-pocket costs
incurred in connection with such use of its employees.
Section 1.53 Confidentiality. The Purchaser and the Selling Stockholder
each agree not to disclose or permit the disclosure for any purpose other than
the transactions contemplated hereby of any non-public, confidential or
proprietary information furnished to such party by the other party hereto in
connection with the transactions contemplated by this Agreement; provided that
such disclosure may be made (a) to any person who is an officer, director or
employee of such party, or to counsel, accountants and financial advisors to
such party solely for their use in evaluating the transactions contemplated by
this Agreement, (b) with the prior written consent of the other party or (c)
pursuant to a subpoena or court order issued by a court, arbitrator, agency or
official of any Governmental Entity.
Section 1.54 Indemnification of Directors and Officers. Neither the
Purchaser nor the Company (nor any of their successors) shall amend, or cause to
be amended, any provision in the certificate of incorporation or bylaws of the
Company or any of its Subsidiaries if the effect of any such amendment would
impair or inhibit any right to indemnification for acts and omissions occurring
on or prior to the Closing Date now existing in favor of the current or former
directors and officers of the Company and its Subsidiaries.
Section 1.55 Further Assurances. At any time and from time to time
after the Closing Date, the parties hereto agree to (i) furnish upon reasonable
request to each other such further assurances, information, documents,
instruments of transfer or assignment, files and books and records, (ii)
promptly execute, acknowledge, and deliver any such further assurances,
documents, instruments of transfer or assignment, files and books and records,
and (iii) do all such further acts and things, as such other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to herein.
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ARTICLE VI
CONDITIONS
Section 1.56 Conditions to Each Party's Obligation. The respective
obligation of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction or, to the extent permitted by
applicable law, waiver at or prior to the Closing of each of the following
conditions:
(1) No statute, rule, order, decree or regulation shall have been
enacted or promulgated by any Governmental Entity of competent jurisdiction
which prohibits the transactions contemplated by this Agreement or makes such
transactions illegal;
(2) There shall be no order or injunction of a Governmental Entity of
competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the transactions contemplated by this Agreement and
there shall be no suit, action, proceeding or investigation by a Governmental
Entity seeking to restrain, enjoin or prohibit the transactions contemplated by
this Agreement;
(3) The applicable waiting period under the HSR Act shall have expired
or been terminated; and
(4) All authorizations, consents and approvals of all Governmental
Entities required to be obtained prior to consummation of the transactions
contemplated by this Agreement shall have been obtained, except for such
authorizations, consents and approvals the failure of which to be obtained is
not reasonably likely to have a Material Adverse Effect.
Section 1.57 Conditions to the Obligation of the Selling Stockholder.
The obligation of the Selling Stockholder to effect the transactions
contemplated by this Agreement is further subject to the satisfaction or waiver
at or prior to the Closing of the following conditions:
(1) The representations and warranties of the Purchaser contained in
this Agreement (i) to the extent qualified as to materiality shall be true and
correct and (ii) to the extent not so qualified shall be true and correct,
except that this clause (ii) shall be deemed satisfied so long as any failures
of such representations
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and warranties to be true and correct, taken together, do not have a
Material Adverse Effect; in the case of each of (i) and (ii), as of the date
hereof and at and as of the time of the Closing as if made at and as of such
time, except to the extent such representations and warranties speak as of an
earlier date, in which case they shall be true and correct in all material
respects as of such earlier date;
(2) The Purchaser shall have performed in all respects its obligations
under Section 5.3(b) of this Agreement and shall have performed in all material
respects all of its other obligations under this Agreement required to be
performed by it at or prior to the Closing pursuant to the terms hereof;
(3) The Company shall have received a certificate signed by an
executive officer of the Purchaser, dated the Closing Date, to the effect that
the conditions set forth in Sections 6.2(a) and 6.2(b) hereof have been
satisfied;
(4) The Accounts Receivable Closing (as such term is defined in the
Accounts Receivable Purchase Agreement) shall have occurred; and
(5) The Purchaser shall have entered into the Escrow Agreement.
Section 1.58 Conditions to Obligation of the Purchaser. The obligation
of the Purchaser to effect the transactions contemplated hereby are further
subject to the satisfaction or, to the extent permitted by applicable law,
waiver at or prior to the Closing of the following conditions:
(1) The representations and warranties of each of the Company and the
Selling Stockholder contained in this Agreement (i) to the extent qualified as
to materiality shall be true and correct and (ii) to the extent not so qualified
shall be true and correct, except that this clause (ii) shall be deemed
satisfied so long as any failures of such representations and warranties to be
true and correct, taken together, do not have a Material Adverse Effect; in the
case of each of (i) and (ii), as of the date hereof and as of the time of the
Closing as if made at and as of such time, except to the extent such
representations and warranties speak as of an earlier date, in which case they
shall be true and correct in all material respects as of such earlier date;
(2) Each of the Company and the Selling Stockholder shall have
performed in all material respects each of their respective obligations under
this Agreement required to be performed by them at or prior to the Closing
pursuant to the terms hereof;
(3) The Purchaser shall have received a certificate signed by an
executive officer of the Company, dated the Closing Date, to the effect that the
conditions set forth in Sections 6.3(a) and 6.3(b) hereof have been satisfied;
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(4) The Company and its Subsidiaries shall not have any outstanding
indebtedness for borrowed money, and the capital stock and assets of the Company
and its Subsidiaries shall not be encumbered by any Liens; (1)
(5) At the Closing, the Purchaser shall have received from the Selling
Stockholder a certificate or certificates evidencing all of the Shares, duly
endorsed in blank or accompanied by stock powers duly executed in blank, in
proper form for transfer, with all signatures guaranteed and with any requisite
stock transfer tax stamps properly affixed thereto; and
(6) The Company and the Selling Stockholder shall have entered into the
Escrow Agreement.
ARTICLE VII
TERMINATION
Section 1.59 Termination. Notwithstanding anything herein to the
contrary, this Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time before the Closing occurs:
(1) By the mutual written consent of the Purchaser and the Selling
Stockholder;
(2) By either the Selling Stockholder or the Purchaser, if any
Governmental Entity shall have issued a statute, order, decree or regulation or
taken any other action (which statute, order, decree, regulation or other action
the parties hereto shall use their best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or making the transactions contemplated hereby
illegal and such statute, order, decree, regulation or other action shall have
become final and non-appealable;
(3) By the Selling Stockholder, in the event of a material breach by
the Purchaser of any of the representations and warranties contained in Article
IV hereof or of any of the covenants, agreements or other provisions contained
in Article V hereof and such breach is not cured within thirty (30) days after
receipt by the Purchaser of written notice specifying particularly such breach;
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(4) By the Purchaser, in the event of a material breach by the Selling
Stockholder or the Company of any of their respective representations and
warranties contained in Article III hereof or of any of the covenants,
agreements or other provisions contained in Article V hereof, and such breach is
not cured within thirty (30) days after receipt by the Selling Stockholder of
written notice specifying particularly such breach;
(5) By the Selling Stockholder, if the Closing shall not have occurred
by the date which is five (5) days after the date on which the waiting period
under the HSR Act shall expire or terminate; provided that the failure to
consummate the transactions contemplated by this Agreement on or before such
date did not result from the failure of the Company or the Selling Stockholder
to fulfill any obligation under this Agreement that the Company or the Selling
Stockholder is required to fulfill prior to the Closing; and provided, further,
that all other closing conditions set forth in Sections 6.1, 6.2 and 6.3 hereof
(other than those conditions which by their nature are to be satisfied at the
Closing) shall have been satisfied prior to such date; or
(6) By the Selling Stockholder or the Purchaser, if the Closing shall
not have occurred on or prior to the date that is two hundred and twenty-five
(225) days after the date of this Agreement, or on such other date, if any, as
the Purchaser and the Selling Stockholder shall agree in writing; provided,
however, that the failure of any condition (other than those conditions which by
their nature are to be satisfied at the Closing) set forth in Article VI hereof
to be satisfied on or prior to such date did not result from the failure by the
party seeking to terminate this Agreement (and, if the party seeking to
terminate this Agreement is the Selling Stockholder, the Company) to fulfill any
obligation under this Agreement, including without limitation the obligations
set forth in Section 5.3, that such party is required to fulfill prior to the
Closing.
Section 1.60 Effect of Termination.
(1) In the event of the termination of this Agreement as provided in
Section 7.1 hereof, written notice thereof shall forthwith be given to the other
party or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void,
and there shall be no liability on the part of the Purchaser, the Selling
Stockholder or the Company except liabilities with respect to any prior breach;
provided that the agreements contained in Section 7.3 and Article IX hereof, and
the confidentiality provisions contained in Section 5.2 hereof, shall survive
the termination of this Agreement; and provided further that the Confidentiality
Agreement shall remain in full force and effect.
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(2) In the event of the termination of this Agreement as provided in
Section 7.1 hereof, the Purchaser shall redeliver, and will cause its agents to
redeliver, all documents, workpapers and other materials of the Company and its
Subsidiaries relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof.
Section 1.61 Non-Refundable Fee; Fees and Expenses.
(1) Notwithstanding anything herein to the contrary, in the event of
termination of this Agreement pursuant to Section 7.1 hereof, the Selling
Stockholder shall retain the amount of any non-refundable fee paid pursuant to
Section 5.3(c) hereof and shall have no liability to the Purchaser with respect
to any such fee.
(2) Except for any fees in connection with all filings made under the
HSR Act (which such fees shall be borne in full by the Purchaser), all costs and
expenses incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses, except that all such expenses incurred by the Company or any of its
Subsidiaries shall be paid by the Selling Stockholder.
ARTICLE VIII
INDEMNIFICATION
Section 1.62 Indemnification by the Selling Stockholder. From and after
the Closing, subject to Section 8.4 hereof, the Selling Stockholder shall
indemnify and hold harmless the Purchaser, the Company, each of the Company's
Subsidiaries and their respective successors, assigns, stockholders, affiliates,
directors, officers, employees, agents and advisors (collectively, the "Seller
Indemnified Parties") from and against any and all liabilities, commitments or
obligations of any kind or nature whatsoever, Actions, losses, deficiencies,
expenses (including costs of investigations and defense and reasonable
attorneys' and accountants' fees) or damages of any kind or nature whatsoever,
whether or not involving a third-party claim (collectively, "Damages") incurred
thereby or caused thereto, directly or indirectly, arising out of or resulting
from:
(1) Subject to the limitations set forth in Section 8.3(a) and 8.3(b)
hereof, any breach of or inaccuracy in any representation or warranty made by
the Selling Stockholder or the Company in this Agreement or any other
certificate or document delivered or required to be delivered pursuant to this
Agreement;
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(2) Any breach or violation of, or failure to perform, any covenant,
agreement, undertaking or obligation of the Selling Stockholder or the Company
set forth in this Agreement, including, without limitation, the covenants
contained in Sections 5.9 and 5.10 hereof but excluding the covenants contained
in Section 5.4 hereof;
(3) Any breach or violation of, or failure to perform, any covenant,
agreement, undertaking or obligation of the Selling Stockholder or the Company
set forth in Section 5.4 hereof (other than Section 5.4(a)(v) hereof which is
the subject of clause (d) below);
(4) Any breach or violation of, or failure to perform, any covenant,
agreement, undertaking or obligation of the Selling Stockholder or the Company
set forth in Section 5.4(a)(v) hereof (provided that 50% of any Damages (as
determined in accordance with Section 5.4(a)(v) hereof) payable pursuant to this
clause (d) shall be subject to the limitations set forth in Section 8.3(b)
hereof);
(5) Any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with the Selling Stockholder, the
Company or any Subsidiary of the Company (or any Person acting on their behalf)
in connection with any of the transactions contemplated herein; and
(6) (i) Waters, et al. v. Gai's Seattle French Baking Company, Case No.
95-2-28578-3 SEA in the Superior Court of Washington, Kings County (ii) Losacco
v. Gai's et al., (iii) that certain Asset Purchase Agreement, by and among Metz
Baking Company, SFFB Holdings, Inc., San Francisco French Bread Co., San
Francisco Bay Area Equipment and Supply, San Francisco Sourdough Bakeries, Inc.,
San Francisco Baking Cultures, San Francisco Sourdough Company, Larraburu
Bakeries, Inc. and Interstate Brands Corporation, and (iv) that certain Asset
Purchase Agreement, by and among United States Bakery, Specialty Foods
Corporation, Belsea Holdings, Inc., Gai's Seattle French Baking Company,
Langendorf Baking Company of Seattle, Inc., General Bagels Corporation, Oregon
French Baking Corporation and Seattle Muffin Company.
Section 1.63 Indemnification by the Purchaser. From and after the
Closing, subject to Section 8.4 hereof, the Purchaser shall indemnify and hold
harmless the Selling Stockholder and its respective successors, assigns,
stockholders, directors, officers, employees, affiliates, agents and advisors
(collectively, the "Purchaser
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Indemnified Parties") from and against any and all Damages incurred
thereby or caused thereto, directly or indirectly, arising out of or resulting
from:
(1) Any breach or violation of, or failure to perform, any covenant,
agreement, undertaking or obligation of the Purchaser set forth in this
Agreement, including, without limitation, the covenants contained in Sections
5.3, 5.4, 5.9 and 5.10 hereof; and
(2) Any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with the Purchaser or any
Subsidiary of the Purchaser (or any Person acting on their behalf) in connection
with any of the transactions contemplated herein.
Section 1.64 Limitations on Indemnification Amount.
(1) The Selling Stockholder shall not be liable for Damages arising in
connection with its indemnification obligations under Section 8.1(a) hereof
until the amount of Damages incurred by the Seller Indemnified Parties exceeds
$5 million in the aggregate. If the aggregate amount of such Damages under
Section 8.1(a) exceeds $5 million, the Selling Stockholder shall be liable for
all such Damages in excess of the first $5 million.
(2) The Selling Stockholder shall have no indemnification obligations
pursuant to (i) Section 8.1(a) (other than with respect to any indemnification
obligation arising out of any Disclosure Schedule Update) or (ii) Section 8.1(d)
(in accordance with its terms), in excess of the Escrow Amount, as adjusted from
time to time in accordance with the Escrow Agreement, and the Escrow Amount, as
adjusted from time to time in accordance with the Escrow Agreement, shall be the
sole source and remedy with respect to any monetary obligation of the Selling
Stockholder pursuant to (i) Section 8.1(a) (other than with respect to any
indemnification obligation arising out of any Disclosure Schedule Update) or
(ii) Section 8.1(d) hereof (in accordance with its terms).
Section 1.65 Other Limitations.
(1) The amount of any Damages suffered by a Seller Indemnified Party or
a Purchaser Indemnified Party, as the case may be, shall be reduced by any
third-party insurance or other indemnification benefits which such party or any
of its Representatives receives in respect of or as a result of such Damages. If
any Damages
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for which indemnification is provided hereunder is subsequently
reduced by any third-party insurance or other indemnification benefit, recovery,
the amount of the reduction shall be remitted to the Seller Indemnified Party or
Purchaser Indemnified Party, as the case may be.
(2) Any calculation of Damages for purposes of Section 8.1 or 8.2
hereof shall be net of any tax benefit to the Seller Indemnified Party or
Purchaser Indemnified Party seeking indemnification pursuant to Section 8.1 or
8.2 hereof, as the case may be (such party seeking indemnification, the
"Indemnified Party," and the other party, the "Indemnifying Party").
(3) No Action for indemnification, reimbursement or any other remedy
pursuant to this Article may be brought with respect to breaches of
representations and warranties contained herein after the applicable expiration
date set forth in Section 9.1(a) hereof; provided, however, that, if, prior to
such expiration date, an Indemnified Party shall have notified the Indemnifying
Party in writing of a specific Action for indemnification under this Article
(only, in the case of third-party claims, if a suit or other Action shall have
been commenced in connection with such Action) and such notice identifies the
nature of such Action with reasonable specificity, such Indemnified Party shall
be entitled to be indemnified with respect to such Action in accordance with
this Article notwithstanding the occurrence by such expiration date.
Section 1.66 Notice and Payment of Claims.
(1) Notice. Any Indemnified Party shall notify the Indemnifying Party
(with reasonable specificity) promptly after it becomes aware of facts
supporting an Action for indemnification under this Article, and shall provide
to the Indemnifying Party as soon as practicable thereafter all information and
documentation necessary to support and verify any Damages associated with such
Action. The failure to so notify or provide information to the Indemnifying
Party shall not relieve the Indemnifying Party of any liability that it may have
to any Indemnified Party, except to the extent that the Indemnifying Party
demonstrates that it has been materially prejudiced by the Indemnified Party's
failure to give such notice, in which case the Indemnifying Party shall be
relieved from its obligations hereunder.
(2) Payment. In the event an Action for indemnification under this
Article shall have been Finally Determined (as defined below) (i) in the case of
a Seller Indemnified Party, the amount of the related Damages shall be paid
solely from the funds comprising the Escrow Amount pursuant to the Escrow
Agreement to the Seller Indemnified Party, in immediately available funds in
U.S. dollars within two (2)
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business days after such Final Determination, and (ii) in the case of a
Purchaser Indemnified Party, the amount of the related Damages shall be paid by
the Purchaser to the Purchaser Indemnified Party, in immediately available funds
in U.S. dollars within two (2) business days after such Final Determination. For
purposes of this Agreement and the Escrow Agreement, the terms "Finally
Determined," "Final Determination" and other similar phrases shall mean with
respect to any Action, and the liability for and amount of Damages therefor,
when the parties to such Action have so determined by mutual agreement or, if
disputed, when a final, non-appealable decision has been rendered in accordance
with Article IX hereof.
(3) Third-Party Claims. In the event that the Indemnifying Party may be
required to indemnify an Indemnified Party pursuant to this Article against any
Action made or brought by a third-party (a "Third-Party Claim"), indemnification
shall be provided in accordance with the following procedures:
(1) Upon receipt by an Indemnified Party of notice of the
commencement of a Third-Party Claim against it, such Indemnified Party
shall, if an Action is to be made against the Indemnifying Party under this
Article, give notice to the Indemnifying Party of the commencement of such
Third-Party Claim as soon as practicable, but in no event later than five
(5) days after the Indemnified Party shall have been served with process,
but the failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability that it may have to any Indemnified
Party, except to the extent that the Indemnifying Party demonstrates that
its defense of such Third-Party Claim has been materially prejudiced by the
Indemnified Party's failure to give such notice, in which case the
Indemnifying Party shall be relieved from its obligations hereunder.
(2) If a Third-Party Claim is brought against an Indemnified Party
and it gives proper notice to the Indemnifying Party of the commencement of
such Third-Party Claim, the Indemnifying Party will be entitled (unless the
Action involves Taxes in which case defense will be handled as set forth in
Section 5.4 hereof or unless the Indemnifying Party is also a party to such
Third-Party Claim and the Indemnifying Party determines in good faith that
joint representation would be appropriate) to assume the control of defense
of such Third-Party Claim with counsel reasonably satisfactory to the
Indemnified Party and, after notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such Third-Party
Claim, the Indemnifying Party shall not, as long as it conducts such
defense, be liable to the Indemnified Party under this Article for any fees
of other counsel or any other expenses
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with respect to the defense of such Third-Party Claim, in each case
subsequently incurred by the Indemnified Party in connection with the
defense of such Third-Party Claim.
(3) If the Indemnifying Party assumes the defense of a Third-Party
Claim, no compromise, discharge or settlement of or admission of liability
in connection with such Third-Party Claim may be effected by the
Indemnifying Party without the Indemnified Party's consent (which consent
shall not be unreasonably withheld or delayed) unless (A) the sole relief
provided is monetary damages that are paid in full by the Indemnifying
Party (if such claim by the Indemnified Party for indemnification is
successful) or (B) such settlement does not include terms other than
monetary Damages which in the good faith judgment of the Indemnified Party
could significantly adversely affect the Company's business operations
after the Closing.
Section 1.67 Tax Consequences. Any payment received by the Purchaser
under this Article shall be deemed to be a reduction in the Share Purchase
Price.
Section 1.68 Remedy. The indemnification rights provided by this
Article are in addition to, and not in substitution for, the right to seek
specific performance or other injunctive relief with respect to any breach or
violation of, or failure to fully perform, any covenant, agreement, undertaking,
or obligation of the parties hereto set forth in this Agreement; provided,
however, that from and after the Closing, except for claims based on fraud, the
sole remedy of either party in connection with a breach of representations and
warranties in this Agreement or any certificate or document delivered pursuant
hereto shall be as set forth in this Article VIII.
ARTICLE IX
MISCELLANEOUS
Section 1.69 Survival. (a) All of the representations and warranties of
the parties contained in this Agreement, the Disclosure Schedule and any other
certificate or document delivered pursuant to this Agreement shall survive the
Closing until twelve (12) months after the Closing Date, except for the
representations and warranties contained in (A) Section 3.2 (Capitalization)
hereof which shall survive the execution and delivery of this Agreement and the
Closing indefinitely, (B) Sections 3.11 (Employee Benefit Plans; ERISA); 3.13
(Tax Matters); and 3.15 (Environmental Matters) hereof which shall each survive
the execution and delivery of this Agreement
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and the Closing until two (2) years following the Closing Date, and (C)
Section 3.1(c) (Year 2000) hereof which shall survive the execution and delivery
of this Agreement and the Closing until ninety (90) days following the Closing
Date.
(1) All of the covenants, agreements, undertakings and obligations of
the parties contained in this Agreement, the Disclosure Schedule and any other
certificate or document delivered pursuant to this Agreement shall survive until
fully performed or fulfilled, unless non-compliance with such covenants,
agreements, undertakings or obligations is waived in writing by the party or
parties entitled to such performance.
Section 1.70 Amendment; Waiver.
(1) This Agreement may be amended, modified or supplemented by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(2) At any time prior to the Closing, the parties may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document, certificate
or writing delivered pursuant hereto or (iii) waive compliance with any of the
agreements, covenants or conditions of the other parties hereto contained
herein. Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
Section 1.71 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by
a standard overnight carrier or when delivered by hand or (c) the expiration of
five (5) business days after the day when mailed in the United States by
certified or registered mail, postage prepaid, addressed at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(1) if to the Selling Stockholder, to:
c/o Specialty Foods Corp.
520 Lake Cook Road, Suite 100
Deerfield, Illinois 60015
Telephone: (847) 405-5300
Facsimile: (847) 405-5310
Attention: General Counsel
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attention: Eileen Nugent Simon, Esq.
(2) if to the Purchaser, to:
The Earthgrains Company
8400 Maryland Avenue
St. Louis, Missouri 63105
Telephone: (314) 259-7000
Facsimile: (314) 259-7029
Attention: David Groce, Esq.
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telephone: (212) 558-4048
Facsimile: (212) 558-3588
Attention: Francis J. Aquila
Section 1.72 Interpretation.
(1) Neither the specification of any dollar amount in any
representation or warranty contained in this Agreement nor the inclusion of any
specific item in any Schedule hereto is intended to vary the definition of
"Material Adverse Effect" or to imply that such amount, higher or lower amounts,
or the term so included or other items, are or are not material, and no party
shall use the fact of the setting forth of any such amount or the inclusion of
any such item in any dispute or controversy between the parties as to whether
any obligation, item or matter not described herein or
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included in any Schedule is or is not material for the purposes of this
Agreement. Unless this Agreement specifically provides otherwise, neither the
specification of any item or matter in any representation or warranty contained
in this Agreement nor the inclusion of any specific item in any Schedule hereto
is intended to imply that such item or matter, or other items or matters, are or
are not in the Ordinary Course of Business, and no party shall use the fact of
the setting forth or the inclusion of any such item or matter in any dispute or
controversy between the parties as to whether any obligation, item or matter not
described herein or included in any Schedule is or is not in the Ordinary Course
of Business for purposes of this Agreement.
(2) References in this Agreement to the "knowledge of the Company" or
"known by the Company" shall mean the actual knowledge of Lawrence Benjamin,
Robert Fishbune, David Schreibman, Robert Aiken, Allan Swanson, Jody Wilmes, Ken
Franklin, Tim Brozovich, Don Knott, Kevin Keegan, Roy Lubetkin, Curt Kaufman,
Henry Metz and Mark Martin.
(3) For purposes of this Agreement, words in the singular shall be held
to include the plural and vice versa, and words of one gender shall be held to
include the other gender as the context requires. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The terms "hereof," "herein" and
"hereto" shall be interpreted to refer to this Agreement in its entirety and to
all of the Schedules and not to any particular provision, unless otherwise
stated. The use of the phrase "reasonable best efforts" in provisions relating
to the obligations of the parties to seek required consents and approvals of any
Person shall in no event contemplate payment of any amount to such Person that
is more than minimal or the incurrence of any liability or the agreement to the
modification of any existing obligation or arrangement in a manner that would be
adverse in any material respect to any party hereto in order to obtain any such
consent or approval. The phrase "made available" when used in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The term
"affiliate" when used in this Agreement shall have the meaning ascribed to it in
Rule 12b-2 under the Exchange Act. The phrase "beneficial ownership" and words
of similar import when used in this Agreement shall have the meaning ascribed to
it in Rule 13d-3 under the Exchange Act.
Section 1.73 Headings; Schedules. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise
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indicated. Any matter disclosed pursuant to any Schedule of the Disclosure
Schedule shall be deemed to be disclosed for all purposes under this
Agreement reasonably related thereto but such disclosure shall not be deemed to
be an admission or representation as to the materiality of the item so
disclosed.
Section 1.74 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall be considered one and the same agreement.
Section 1.75 Entire Agreement. This Agreement, together with the
Confidentiality Agreement, the Accounts Receivable Purchase Agreement and the
Escrow Agreement, constitutes the entire agreement, and supersedes all prior
agreements and understandings (written and oral), among the parties with respect
to the subject matter hereof.
Section 1.76 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 1.77 Damages; Specific Performance. From and after the Closing,
in no event (including in the case of an arbitration pursuant to Section 9.13
hereof) shall any party hereto be entitled to any punitive, incidental,
indirect, special or consequential damages resulting from or arising out of this
Agreement or the transactions contemplated hereby, including any damages for
lost revenues, income, profits or tax benefits, or any other damage or loss
resulting from any disruption to the business of the Purchaser or the Company.
Further, the parties acknowledge and agree that any breach of the terms of this
Agreement would give rise to irreparable harm for which money damages would not
be an adequate remedy and accordingly the parties agree that each shall be
entitled to enforce the terms of this Agreement by a decree of specific
performance without the necessity of proving the inadequacy of money damages as
a remedy.
Section 1.78 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
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Section 1.79 Submission to Jurisdiction. Each of the Selling
Stockholder, the Company and the Purchaser hereby irrevocably submit in any
action, suit or proceeding arising out of this Agreement or any of the
transactions contemplated hereby to the exclusive jurisdiction of the United
States District Court for the Southern District of New York and the jurisdiction
of any court of the State of New York located in the City of New York, Borough
of Manhattan. The parties hereto waive any and all objections to the laying of
venue of any such litigation in such jurisdiction and agree not to plead or
claim in any such litigation that such litigation has been brought in an
inconvenient forum.
Section 1.80 Waiver of Jury Trial. Each party acknowledges and agrees
that any controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this Agreement, or the transactions contemplated by this Agreement.
Each party certifies and acknowledges that (i) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each such party understands and has considered the implications of
this waiver, (iii) each such party makes this waiver voluntarily and (iv) each
such party has been induced to enter into this Agreement by, among other things,
the mutual waivers and certifications in this Section 9.12.
Section 1.81 Arbitration. From and after the Closing, the parties
hereby agree that any Action arising out of, in connection with, or in relation
to, this Agreement (or any other agreement contemplated by or related to this
Agreement), including without limitation any claim based on contract, tort or
statute, or the arbitrability of any claim hereunder ( a "Claim"), shall be
settled at the request of any party to this Agreement, exclusively by final and
binding arbitration conducted in New York, New York. Each of the Purchaser and
the Selling Stockholder shall appoint an arbitrator and the arbitrators selected
by the Purchaser and the Selling Stockholder shall jointly select another
arbitrator who shall be the chair of the tribunal. The final decision regarding
the Claim shall be determined by a majority vote of the arbitrators and in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association. The parties expressly agree that discovery and
disclosure of all matters relevant to any Claim shall be made to the extent and
in the manner provided by the Federal Rules of Civil Procedure. All questions
that may arise with respect to such discovery and disclosure shall be referred
to the arbitrators for determination and the arbitrators' determination shall be
final and conclusive. The Federal Rules of Evidence shall apply to any
proceedings under this Section 9.13. The
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arbitrators shall determine any Claim hereunder in accordance with the
substantive laws of the State of New York. Each party hereto expressly consents
to, and waives any future objection to, such forum and arbitration rules.
Judgment upon any award may be entered by any state or federal court having
jurisdiction thereof. Except as required by law or in any court proceedings
related to any arbitration under this Section 9.13, no party nor the arbitrators
shall disclose the existence, content or results of any arbitration hereunder
without the prior written consent of all parties. Except as provided herein, the
United States Arbitration Act, 9 U.S.C. ss. 1-16, shall govern the arbitration
proceedings and the enforcement of this arbitration agreement pursuant to this
Section 9.13 or any award thereunder. The arbitrators' fees and any filing or
other fees required by the Commercial Arbitration Rules shall, to the extent
required, initially be paid by the party requesting arbitration, but shall be
assessed against the party which does not prevail in the arbitration.
Adherence to this dispute resolution process shall not limit the right
of the parties hereto to obtain any provisional remedy, including without
limitation, injunctive or similar relief, from any court of competent
jurisdiction as may be necessary to protect their respective rights and
interests pending the appointment of the arbitration tribunal. Notwithstanding
the foregoing sentence, this dispute resolution procedure is intended to be the
exclusive method of resolving any Claims arising out of or relating to this
Agreement.
Section 1.82 Disclaimer of Warranties. EXCEPT AS TO THOSE MATTERS
EXPRESSLY COVERED BY THE REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT AND IN
THE CERTIFICATE DELIVERED PURSUANT TO SECTION 6.3(c) HEREOF, THE SELLING
STOCKHOLDER AND THE COMPANY DISCLAIM ALL OTHER WARRANTIES, REPRESENTATIONS AND
GUARANTIES, WHETHER EXPRESS OR IMPLIED, AS TO THE COMPANY AND ITS ASSETS AND
OPERATIONS. THE SELLING STOCKHOLDER AND COMPANY MAKE NO REPRESENTATIONS AS TO
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE AND NO IMPLIED WARRANTIES
WHATSOEVER. The Purchaser acknowledges that no other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any memoranda, charts, summaries or schedules heretofore made
available to the Purchaser by the Selling Stockholder or the Company or any of
their respective representatives or any other information which is not included
in this Agreement or the Disclosure Schedule. Neither the Selling Stockholder
nor the Company nor any of their respective representatives nor any other Person
will have or be subject to any liability to the Purchaser or any of its
affiliates or any other Person resulting from the distribution of any such
information to, or use of any such information
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by, the Purchaser, any of its affiliates, agents, accountants, counsel,
or other representatives.
Section 1.83 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns, and except to the extent necessary
to enforce the provisions of Sections 5.6, 5.9 and 5.17 hereof the provisions of
this Agreement are not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder. Section 1.1
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IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
SFC NEW HOLDINGS, INC.
By: /s/ David Schreibman
---------------------------------
Name: David Schreibman
Title: Vice President, Secretary and
General Counsel
METZ HOLDINGS, INC.
By: /s/ David Schreibman
---------------------------------
Name: David Schreibman
Title: Vice President, Secretary and
General Counsel
THE EARTHGRAINS COMPANY
By: /s/ Bryan A. Torcivia
----------------------------
Name: Bryan A. Torcivia
Title: Vice President Corporate
Planning and Development
S-1
<PAGE> 66
<TABLE>
<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES........................................................1
Section 1.1 Purchase and Sale of Shares........................................................1
Section 1.2 Closing............................................................................1
Section 1.3 Payment on the Closing Date........................................................2
Section 1.4 Deliveries by the Selling Stockholder..............................................2
Section 1.5 Deliveries by the Company..........................................................3
Section 1.6 Deliveries by the Purchaser........................................................3
ARTICLE II PURCHASE PRICE.....................................................................4
Section 2.1 Purchase Price and Payment.........................................................4
Section 2.2 Post-Closing Adjustments...........................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDER..........8
Section 3.1 Organization.......................................................................8
Section 3.2 Capitalization.....................................................................8
Section 3.3 Authorization; Validity of Agreement...............................................9
Section 3.4 No Violations; Consents and Approvals.............................................10
Section 3.5 Financial Statements..............................................................11
Section 3.6 Absence of Certain Changes........................................................11
Section 3.7 Litigation........................................................................13
Section 3.8 No Undisclosed Liabilities........................................................13
Section 3.9 Compliance with Law...............................................................14
Section 3.10 Intellectual Property.............................................................14
Section 3.11 Employee Benefit Plans; ERISA.....................................................15
Section 3.12 Material Contracts................................................................17
Section 3.13 Tax Matters.......................................................................19
Section 3.14 Environmental Matters.............................................................20
Section 3.15 Labor Matters.....................................................................22
Section 3.16 Real Property Matters.............................................................22
Section 3.17 Title to Property.................................................................23
Section 3.18 Condition and Sufficiency of Assets...............................................23
Section 3.19 Insurance.........................................................................24
Section 3.20 Products and Warranties...........................................................24
Section 3.21 Brokers...........................................................................24
Section 3.22 Interests of Related Persons......................................................24
Section 3.23 No Other Representations or Warranties............................................25
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................................25
Section 4.1 Organization......................................................................25
Section 4.2 Authorization; Validity of Agreement..............................................26
Section 4.3 Consents and Approvals; No Violations.............................................26
Section 4.4 Financing.........................................................................27
Section 4.5 Brokers...........................................................................27
Section 4.6 No Other Representations or Warranties............................................27
ARTICLE V COVENANTS.........................................................................27
Section 5.1 Interim Operations of the Company.................................................27
Section 5.2 Due Diligence Inspection and Reviews;
Further Access to Information.....................................................30
Section 5.3 Further Action; Best Efforts; Competition Laws;
Non-Refundable Fee................................................................31
Section 5.4 Tax Matters.......................................................................33
Section 5.5 Labor Matters.....................................................................39
Section 5.6 Employee Benefits.................................................................39
Section 5.7 Cash Management...................................................................43
Section 5.8 Elimination of Intercompany Accounts..............................................43
Section 5.9 Substitution of Guarantees........................................................44
Section 5.10 Release of Liens; No Indebtedness.................................................45
Section 5.11 Acquisition Proposals.............................................................45
Section 5.12 Additional Agreements.............................................................46
Section 5.13 Publicity.........................................................................46
Section 5.14 Supplemental Disclosures..........................................................46
Section 5.15 Retention of and Access to Books and Records......................................47
Section 5.16 Confidentiality...................................................................48
Section 5.17 Indemnification of Directors and Officers.........................................48
Section 5.18 Further Assurances................................................................48
ARTICLE VI CONDITIONS........................................................................48
Section 6.1 Conditions to Each Party's Obligation.............................................48
Section 6.2 Conditions to the Obligation of the Selling Stockholder...........................49
Section 6.3 Conditions to Obligation of the Purchaser.........................................50
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE VII TERMINATION.......................................................................51
Section 7.1 Termination.......................................................................51
Section 7.2 Effect of Termination.............................................................52
Section 7.3 Non-Refundable Fee; Fees and Expenses.............................................53
ARTICLE VIII INDEMNIFICATION...................................................................53
Section 8.1 Indemnification by the Selling Stockholder........................................53
Section 8.2 Indemnification by the Purchaser..................................................54
Section 8.3 Limitations on Indemnification Amount.............................................55
Section 8.4 Other Limitations.................................................................55
Section 8.5 Notice and Payment of Claims......................................................56
Section 8.6 Tax Consequences..................................................................58
Section 8.7 Remedy............................................................................58
ARTICLE IX MISCELLANEOUS.....................................................................58
Section 9.1 Survival..........................................................................58
Section 9.2 Amendment; Waiver.................................................................59
Section 9.3 Notices...........................................................................59
Section 9.4 Interpretation....................................................................61
Section 9.5 Headings; Schedules...............................................................62
Section 9.6 Counterparts......................................................................62
Section 9.7 Entire Agreement..................................................................62
Section 9.8 Severability......................................................................62
Section 9.9 Damages; Specific Performance.....................................................62
Section 9.10 Governing Law.....................................................................63
Section 9.11 Submission to Jurisdiction........................................................63
Section 9.12 Waiver of Jury Trial..............................................................63
Section 9.13 Arbitration.......................................................................63
Section 9.14 Disclaimer of Warranties..........................................................64
Section 9.15 Assignment........................................................................65
</TABLE>
iii
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iv
<PAGE> 70
v
<PAGE> 71
Exhibits
Exhibit A Form of Accounts Receivables Purchase Agreement
Exhibit B Form of Escrow Agreement
vi
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TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Accounts Receivable Purchase Agreement........................................................... 46
Accounts Receivable Purchase Price............................................................... 4
Accumulated Benefit Obligation................................................................... 41
Acquisition Proposal............................................................................. 45
Action .......................................................................................... 13
affiliate ....................................................................................... 62
affiliated group ................................................................................ 33
Aggregate Purchase Price......................................................................... 4
Agreement ....................................................................................... 1
Antitrust Division............................................................................... 31
August 28 Balance Sheet.......................................................................... 11
beneficial ownership............................................................................. 62
Board ........................................................................................... 9
Change in Control ............................................................................... 42
Closing ......................................................................................... 1
Closing Date .................................................................................... 1
Closing Date Balance Sheet....................................................................... 5
closing of the books basis....................................................................... 34
Closing Year .................................................................................... 35
Code ............................................................................................ 16
Company ......................................................................................... 1
Company Common Stock............................................................................. 1
Company Employee ................................................................................ 40
Company Financial Statements..................................................................... 11
Competing Business............................................................................... 24
Competition Laws ................................................................................ 32
Confidentiality Agreement........................................................................ 30
Damages ......................................................................................... 53
Disclosure Schedule.............................................................................. 7
DLJ ............................................................................................. 24
employee benefit plan............................................................................ 15
employee pension benefit plan.................................................................... 17
Environmental Claim.............................................................................. 21
Environmental Laws............................................................................... 21
ERISA ........................................................................................... 15
ERISA Affiliate ................................................................................. 16
Escrow Agreement................................................................................. 46
</TABLE>
vii
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<TABLE>
<S> <C>
Excluded Taxes ...................................................................................33
Final Determination...............................................................................57
Final Working Capital............................................................................. 4
Final Working Capital Adjustment.................................................................. 5
Finally Determined................................................................................57
foreign person ...................................................................................23
FTC ..............................................................................................31
GAAP .............................................................................................11
Gai's Guarantee ..................................................................................44
Governmental Entity...............................................................................11
Guarantees .......................................................................................44
Hazardous Substance...............................................................................22
herein ...........................................................................................61
hereof ...........................................................................................61
hereto ...........................................................................................61
HSR Act ..........................................................................................31
Incentive Agreements..............................................................................40
include ..........................................................................................61
includes .........................................................................................61
including ........................................................................................61
Indemnified Party ................................................................................56
Indemnifying Party................................................................................56
Independent Accounting Firm....................................................................... 6
Intellectual Property.............................................................................14
Intercompany Accounts.............................................................................43
knowledge of the Company..........................................................................61
Leases ...........................................................................................22
Legal Proceedings ................................................................................47
Liens ............................................................................................ 9
made available ...................................................................................61
Material Adverse Effect........................................................................... 8
Material Contracts................................................................................18
multiemployer pension plan........................................................................17
NOLs .............................................................................................35
Order ............................................................................................14
Ordinary Course of Business.......................................................................27
Owned Real Property...............................................................................22
PBGC .............................................................................................17
Permits...........................................................................................14
Permitted Liens ..................................................................................23
</TABLE>
viii
<PAGE> 74
<TABLE>
<S> <C>
Person .......................................................................................... 8
Plans ...........................................................................................16
Position Paper .................................................................................. 6
Purchaser ....................................................................................... 1
Purchaser Indemnified Parties ...................................................................54
Purchaser Plan ..................................................................................40
qualified .......................................................................................17
Real Property ...................................................................................21
reasonable best efforts .........................................................................61
Records .........................................................................................47
Representatives .................................................................................45
Retirement Plan Employees .......................................................................41
Return ..........................................................................................20
Sale ............................................................................................42
Seller Indemnified Parties ......................................................................53
Seller Retirement Plan ..........................................................................41
Selling Stockholder ............................................................................. 1
Senior Credit Facilities ........................................................................45
SFFC ............................................................................................ 4
Share Purchase Price ............................................................................ 4
Shares .......................................................................................... 1
single employer .................................................................................16
Straddle Period .................................................................................33
Subsidiary ...................................................................................... 8
synthetic leases ................................................................................18
Tax Package .....................................................................................37
Taxes ...........................................................................................20
Third-Party Claim ...............................................................................57
Total Current Assets ............................................................................ 7
Total Current Liabilities ....................................................................... 7
TRA .............................................................................................17
Transferee Pension Plan .........................................................................41
WARN Act ........................................................................................13
without limitation ..............................................................................61
Working Capital ................................................................................. 7
Working Capital Adjustment Calculation .......................................................... 5
Written Objections .............................................................................. 5
Year 2000 Compliant .............................................................................15
</TABLE>
ix
<PAGE> 1
EXHIBIT 10.41
- --------------------------------------------------------------------------------
SPECIALTY FOODS CORPORATION
ANNUAL BONUS PLAN
2000
- --------------------------------------------------------------------------------
<PAGE> 2
ANNUAL BONUS PLAN
1. PURPOSES
Specialty Foods Corporation ("SFC") has established the Annual Bonus Plan (the
"Plan") as a vehicle for motivating and rewarding designated executives whose
responsibilities have a significant impact on the key short-term business
objectives of SFC. Annual incentive awards are determined by the relative
success of SFC and in achieving specific annual business objectives. The Plan
provides the opportunity for participants to receive incentive compensation when
results meet or exceed these pre-established goals.
2. DEFINITION OF TERMS
The following defined terms will have the meanings set forth below for purposes
of the Plan:
a. Annual Salary shall mean the annualized base salary in effect for a
Participant on December 31, 2000.
b. Award shall mean the cash payment made to Participants under the Plan.
c. Cause shall mean the Participant's admission or conviction of a felony,
the Participant's commission of an act of dishonesty in the course of
his or her duties, the Participant's repeated disregard of policy
directives of SFC or the Subsidiaries, or the Participant's breach of
his or her fiduciary responsibilities or duties as an employee of SFC
or the Subsidiaries.
d. Compensation Committee shall mean the committee designated as such by
the Board of Directors of SFC.
e. Participant shall mean an employee designated by the Compensation
Committee to participate in the Annual Bonus Plan, provided the
authority to designate Participants may be delegated by the
Compensation Committee to SFC.
f. Performance Objectives shall mean the performance objective of SFC
determined by the Compensation Committee for the Plan Year.
g. Plan shall mean this Annual Bonus Plan.
h. Plan Year shall mean January 1, 2000 through December 31, 2000.
i. SFC shall mean Specialty Foods Corporation.
j. Subsidiary shall mean a direct or indirect subsidiary of SFC which is
included in SFC's consolidated tax return.
2
<PAGE> 3
3. ELIGIBILITY FOR PARTICIPATION
An Award may be granted for the Plan Year to each Participant who is in active
service during the Plan Year; provided, however, that such Participant has
completed at least two months of active service with SFC or a Subsidiary during
the Plan Year.
4. PERFORMANCE OBJECTIVES
Performance Objectives shall be recommended by the Chief Executive Officer of
SFC and approved by the Compensation Committee for the Plan Year and will be
reflected in the attached schedule entitled "2000 Annual Bonus Plan Performance
Objectives."
5. ADMINISTRATIVE GUIDELINES
A. ADJUSTMENTS IN FINANCIAL PERFORMANCE MEASUREMENTS
In order to effectuate the purpose of the Plan, the Compensation Committee may
make adjustments in the criteria established for the Plan Year which reflect any
extraordinary changes that may have occurred during the Plan Year or which
significantly alter the basis upon which such performance levels were
determined. Such changes may include, without limitation, changes in
acquisitions, accounting practices, tax, regulatory or other laws or
regulations, divestitures, financings, or economic changes not in the ordinary
course of business cycles. Any adjustments made by the Compensation Committee
can be made at any time and in any manner that the Compensation Committee in its
sole discretion deems appropriate, and any and all such adjustments shall be
conclusive and binding upon all parties concerned.
B. APPROVAL AND PAYMENT OF BONUS AWARDS
Award payments are subject to the approval of the Compensation Committee and
will normally occur concurrently with payment for the last pay period in
February of the year following the Plan Year. Payments will normally be made by
ordinary payroll methods.
6. GENERAL RULES
a. Effective Date. This Plan shall have an effective date of January 1,
2000.
b. Amendment. The Plan has been adopted by the Board of Directors of SFC
and may be amended from time to time, in any respect, by such Board.
Any such amendment may add to, amend, reduce or cancel any and all
rights in regard to the Plan.
c. Administration. The Compensation Committee shall be responsible for the
general operation and administration of the Plan and shall have the
authority to interpret the Plan and to adopt administrative rules and
regulations governing its operation, provided that the Compensation
Committee may delegate this responsibility to any officer of SFC.
d. Termination. The Plan may be terminated at any time by the Board of
Directors of SFC. Upon such termination, all rights of a Participant to
amounts not then awarded to
3
<PAGE> 4
Participants shall be null and void. However, amounts previously
accrued through the date of the Plan termination shall not be affected.
e. Continued Employment. Participation in the Plan shall not give any
employee any right to remain in the employment of SFC. The Plan is not
to be construed as a contract of employment for any period and does not
alter the "employee-at-will" employment status of any Participant.
f. Employment Taxes. Award payments under the Plan shall be treated as
wages and shall be subject to income, FICA and any other applicable
withholding taxes and deductions at the time received as required by
applicable law or regulation, as in effect from time to time.
g. Employment Agreements. If a Participant is party to an employment
agreement, the terms of which relate to annual bonuses and which are
inconsistent with the terms of this Plan, the terms of such employment
agreement shall govern to the extent of such inconsistency.
h. Unfunded Plan. The obligations under this Plan shall be unfunded.
Neither SFC nor any of the Subsidiaries shall be required to establish
any special or separate fund or to make any other segregation of assets
to assure the payment of any Award under this Plan.
i. Successors Bound. The rights and obligations of the Company hereunder
shall inure to the benefit of and be binding upon the successors of the
Company.
j. Assignment. Participants shall not assign any rights granted to them by
the terms of this Plan or encumber in any way their interests herein;
provided, however, that in the event of a Participant's death, any
payments then due and owing will be made when due prorated to the date
of death.
k. Effect of Plan. This Plan shall have a term expiring on the earlier of
(1) the date on which all Awards earned under the Plan, if any, are
paid to Participants and (2) the date on which a determination is made
by the Compensation Committee that no Awards have been earned under the
Plan (provided that the authority to determine that no Awards have been
earned under the Plan may be delegated by the Compensation Committee to
SFC). At such time, the Plan shall expire and be of no further force or
effect.
l. Governing Law/Jurisdiction. The substantive law (and not the law of
conflicts) of the State of Illinois will govern all questions
concerning the construction, validity and interpretation of this Plan
and the performance of the obligations imposed by this Plan. The
parties hereby waive their rights to request or demand a trial by jury
in the event controversy arises under this Plan.
m. Headings. The headings used herein are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Plan.
4
<PAGE> 1
EXHIBIT 10.42
- --------------------------------------------------------------------------------
SPECIALTY FOODS CORPORATION
ANNUAL BONUS PLAN
2000
[SUBSIDIARY NAME]
- --------------------------------------------------------------------------------
<PAGE> 2
ANNUAL BONUS PLAN
1. PURPOSES
Specialty Foods Corporation ("SFC") has established the Annual Bonus Plan (the
"Plan") as a vehicle for motivating and rewarding designated executives whose
responsibilities have a significant impact on the key short-term business
objectives of SFC and its Subsidiaries (as hereinafter defined). Annual
incentive awards are determined by the relative success of SFC and its Business
Units (as hereinafter defined) in achieving specific annual financial
objectives. The Plan provides the opportunity for participants to receive
incentive compensation when financial results meet or exceed these
pre-established goals.
2. DEFINITION OF TERMS
The following defined terms will have the meanings set forth below for purposes
of the Plan:
a. Annual Salary shall mean the annualized base salary in effect for a
Participant on December 31, 2000.
b. Award shall mean the cash payment made to Participants under the Plan.
c. Business Unit shall mean [Subsidiary Name].
d. Cause shall mean the Participant's admission or conviction of a felony,
the Participant's commission of an act of dishonesty in the course of
his or her duties, the Participant's repeated disregard of policy
directives of SFC or the Subsidiaries, or the Participant's breach of
his or her fiduciary responsibilities or duties as an employee of SFC
or the Subsidiaries.
e. Compensation Committee shall mean the committee designated as such by
the Board of Directors of SFC.
f. EBITDA shall mean, with respect to any Business Unit, an amount
reasonably determined by SFC as such Business Unit's income from
operations (including annual bonus accruals as an expense), plus
depreciation of property, plant and equipment, and amortization of
intangible assets, but not including gain/loss on asset sales. The
actual incremental 2000 EBITDA benefits related to acquisitions made in
2000, if any, will be excluded for purposes of determining 2000 EBITDA.
g. Participant shall mean an employee designated by the Compensation
Committee to participate in the Annual Bonus Plan, provided the
authority to designate Participants may be delegated by the
Compensation Committee to SFC and by SFC to the Business Units.
2
<PAGE> 3
h. Plan shall mean this Annual Bonus Plan.
i. Plan Year shall mean January 1, 2000 through December 31, 2000.
j. SFC shall mean Specialty Foods Corporation.
k. Subsidiary shall mean a direct or indirect subsidiary of SFC which is
included in SFC's consolidated tax return.
3. ELIGIBILITY FOR PARTICIPATION
An Award may be granted for the Plan Year to each Participant who is in active
service during the Plan Year; provided, however, that such Participant has
completed at least two months of active service with SFC or a Subsidiary during
the Plan Year. Except in the case of death, disability or retirement, a
Participant must be employed by SFC or a Subsidiary on December 31 of the Plan
Year to receive an Award.
The Award applicable to a Participant otherwise eligible to receive an Award
under the Plan shall be prorated over the Plan Year, or the Participant shall be
ineligible to receive an Award for the Plan Year, as determined below:
<TABLE>
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
(1) promotion into or demotion from a level of - prorate Award from the date of entrance or exit
management eligible for Awards after the
beginning of the Plan Year
- ----------------------------------------------------------- --------------------------------------------------------
(2) receipt of disability benefits for more than six - prorate Award to the nearest month based on
months in the Plan Year under SFC's or any time of service while not receiving
Subsidiary's disability plan disability benefits
- ----------------------------------------------------------- --------------------------------------------------------
(3) receipt of disability benefits for six months or - no reduction in applicable Award
less in the Plan Year under SFC's or any
Subsidiary's disability plan
- ----------------------------------------------------------- --------------------------------------------------------
(4) normal retirement, early retirement with the - prorate Award based on the date of retirement
approval of SFC or transfer to another or transfer
Subsidiary during the Plan Year
- ----------------------------------------------------------- --------------------------------------------------------
(5) leave of absence during the Plan Year - prorate Award based on the date when the
leave commences
- ----------------------------------------------------------- --------------------------------------------------------
(6) death during the Plan Year - prorate Award to date of death
- ----------------------------------------------------------- --------------------------------------------------------
(7) early retirement during the Plan Year without - no Award
the approval of SFC
- ----------------------------------------------------------- --------------------------------------------------------
(8) resignation during the Plan Year - no Award
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
(9) demotion during the Plan Year because of - no Award
unsatisfactory performance to a position that
is not covered
- ----------------------------------------------------------- --------------------------------------------------------
(10) termination without Cause during the Plan Year - no Award
- ----------------------------------------------------------- --------------------------------------------------------
(11) dismissal for Cause during or after the Plan - no Award
Year (but before payment) by SFC or a
Subsidiary
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
Notwithstanding any other provision of the Plan, with respect to eligible
Participants transferred between Subsidiaries during the Plan Year, the
Subsidiary last employing the Participant during the Plan Year shall determine
and pay the entire annual Award, if any, for the Plan Year. SFC shall have
discretion in making any accounting allocations between Subsidiaries to properly
reflect time spent with each Subsidiary.
4. PERFORMANCE MEASUREMENT
The standard used to determine performance of the Business Unit will be EBITDA
of such Business Unit. One hundred percent (100%) of the target is based on
EBITDA performance. The threshold (minimum), target and maximum EBITDA
objectives for the Business Unit have been recommended by the Chief Executive
Officer of SFC and approved by the Compensation Committee and are reflected in
the attached schedule entitled "2000 Annual Bonus Plan Payout Schedule."
5. INCENTIVE AWARD GUIDELINES
Target incentive awards will be expressed as a percent of annualized salary
(e.g., 10%). These percentages determine the amount that will be paid in the
event that the performance of the applicable Business Unit meets objectives.
Target incentive awards will be established for various levels of Participants.
Maximum award opportunities will be set for the Business Unit. However, this
maximum award may be exceeded with approval of the Compensation Committee.
Threshold (minimum) performance (at which a Participant receives 0% bonus) will
also be set for the Business Unit. See attached schedule entitled "2000 Annual
Bonus Plan Payout Schedule" for the target incentive awards and threshold levels
established for the Business Unit for this Plan Year.
To determine the Awards for actual performance between the threshold, target and
maximum EBITDA targets set by the Compensation Committee, a percent of the
target award will be calculated by means of interpolation (see attached schedule
entitled "2000 Annual Bonus Plan Payout Schedule").
4
<PAGE> 5
6. ADMINISTRATIVE GUIDELINES
A. ADJUSTMENTS IN FINANCIAL PERFORMANCE MEASUREMENTS
In order to effectuate the purpose of the Plan, the Compensation Committee may
make adjustments in the criteria established for the Plan Year which reflect any
extraordinary changes that may have occurred during the Plan Year or which
significantly alter the basis upon which such performance levels were
determined. Such changes may include, without limitation, changes in
acquisitions, accounting practices, tax, regulatory or other laws or
regulations, divestitures, financings, or economic changes not in the ordinary
course of business cycles. Any adjustments made by the Compensation Committee
can be made at any time and in any manner that the Compensation Committee in its
sole discretion deems appropriate, and any and all such adjustments shall be
conclusive and binding upon all parties concerned.
B. APPROVAL AND PAYMENT OF BONUS AWARDS
Award payments are subject to the approval of the Compensation Committee and
will normally occur concurrently with payment for the last pay period in
February of the year following the Plan Year. Payments will normally be made by
ordinary payroll methods.
Except in the case of death, disability or retirement, a Participant must be
employed by SFC or a Subsidiary on December 31 of the Plan Year to receive an
Award. In cases of death, disability or retirement, the Participant or the
designated beneficiary (as designated with respect to a Participant's life
insurance policy held through SFC or a Subsidiary) shall receive the Award to
the extent and in the amount specified in the Section 3 entitled "Eligibility
for Participation."
7. GENERAL RULES
a. Effective Date. This Plan shall have an effective date of January 1,
2000.
b. Amendment. The Plan has been adopted by the Board of Directors of SFC
and may be amended from time to time, in any respect, by such Board.
Any such amendment may add to, amend, reduce or cancel any and all
rights in regard to the Plan.
c. Accruals. SFC reserves the right, in its sole discretion, to determine
the nature and amount of all accruals that are to be recorded on the
books of the Subsidiaries at the end of a Plan Year.
d. Administration. The Vice President and General Counsel of SFC shall be
responsible for the general operation and administration of the Plan
and shall have the authority to interpret the Plan and to adopt
administrative rules and regulations governing its operation.
e. Termination. The Plan may be terminated at any time by the Board of
Directors of SFC. Upon such termination, all rights of a Participant to
amounts not then awarded to Participants shall be null and void.
However, amounts previously accrued through the date of the Plan
termination based pro rata on EBITDA shall not be affected.
5
<PAGE> 6
f. Continued Employment. Participation in the Plan shall not give any
employee any right to remain in the employment of SFC or any
Subsidiary. The Plan is not to be construed as a contract of employment
for any period and does not alter the "employee-at-will" employment
status of any Participant.
g. Employment Taxes. Award payments under the Plan shall be treated as
wages and shall be subject to income, FICA and any other applicable
withholding taxes and deductions at the time received as required by
applicable law or regulation, as in effect from time to time.
h. Employment Agreements. If a Participant is party to an employment
agreement, the terms of which relate to annual bonuses and which are
inconsistent with the terms of this Plan, the terms of such employment
agreement shall govern to the extent of such inconsistency.
i. Unfunded Plan. The obligations under this Plan shall be unfunded.
Neither SFC nor any of the Subsidiaries shall be required to establish
any special or separate fund or to make any other segregation of assets
to assure the payment of any Award under this Plan.
j. Successors Bound. The rights and obligations of the Company hereunder
shall inure to the benefit of and be binding upon the successors of the
Company.
k. Assignment. Participants shall not assign any rights granted to them by
the terms of this Plan or encumber in any way their interests herein;
provided, however, that in the event of a Participant's death, any
payments then due and owing will be made when due as provided in
Section 6(b) entitled "Approval and Payment of Bonus Awards."
l. Effect of Plan. This Plan shall have a term expiring on the earlier of
(1) the date on which all Awards earned under the Plan, if any, are
paid to Participants and (2) the date on which a determination is made
by the Compensation Committee that no Awards have been earned under the
Plan (provided that the authority to determine that no Awards have been
earned under the Plan may be delegated by the Compensation Committee to
SFC and by SFC to the Business Unit.) At such time, the Plan shall
expire and be of no further force or effect.
m. Governing Law/Jurisdiction. The substantive law (and not the law of
conflicts) of the State of Illinois will govern all questions
concerning the construction, validity and interpretation of this Plan
and the performance of the obligations imposed by this Plan. The
parties hereby waive their rights to request or demand a trial by jury
in the event controversy arises under this Plan.
n. Headings. The headings used herein are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Plan.
6
<PAGE> 1
EXHIBIT 10.43
KEY EMPLOYEE RETENTION PLAN
1. Purpose. The purpose of the Key Employee Retention Plan (the "Plan")
is to reinforce and encourage the continued loyalty, attention and dedication of
certain key employees of SFAC and its Affiliates (collectively, the "SFAC
Group").
2. Definitions. For purposes of this Plan:
(a) "Affiliate" shall mean any corporation or other business
entity directly or indirectly controlling, controlled by, or under common
control with the corporation or other business entity in question.
(b) "Board" shall mean the Board of Directors of SFC.
(c) "Effective Date" shall mean [the date on which the Plan is
approved by the stockholders of SFAC for purposes of Section 280G of the
Internal Revenue Code](1).
(d) "Employer(s)" shall mean, with respect to a Key Employee,
the member(s) of the SFAC Group by whom the Key Employee is employed as of the
Effective Date.
(e) "Existing Employment/Severance Agreements" shall mean any
employment agreement or severance agreement between one or more members of the
SFAC Group and any employee of any member of the SFAC Group, which agreement is
in effect on the Effective Date, as such agreement may have been amended,
supplemented or otherwise modified on or prior to the Effective Date, including
pursuant to the terms of the Plan.
(f) "Existing Incentive Agreements" shall mean any retention
bonus agreement, deferred bonus agreement, divestiture award agreement or LTIP
participation agreement between one or more members of the SFAC Group and any
employee of any member of the SFAC Group, which agreement is in effect on the
Effective Date, as such agreement may have been amended, supplemented or
____________
(1) Actual date will be inserted immediately following such approval.
<PAGE> 2
otherwise modified on or prior to the Effective Date, including pursuant to the
terms of the Plan.
(g) "Incentive Agreement Payment(s)" shall mean the payment(s)
that would be made under the Existing Incentive Agreement(s), assuming that all
conditions with respect to the payment of such amounts have been met; provided,
however, that the Incentive Agreement Payment(s) shall be reduced by any amounts
previously paid under such Existing Incentive Agreement(s) to the extent
necessary to avoid duplication of benefits.
(h) "Key Employee" shall mean an individual who is party to an
Existing Employment/Severance Agreement and/or Existing Incentive Agreement(s).
(i) "Retention Payment" shall mean, with respect to a
particular type of termination of employment, for a Key Employee with an
Existing Employment/Severance Agreement, an amount equal to (i) the payments
that would be made, and the value of the benefits that would be provided, under
such Existing Employment/Severance Agreement to such Key Employee in the case of
such termination of employment, without regard to the provisions of this Plan
minus (ii) the Salary Amount; provided, however, that the Retention Payment
shall be reduced by any severance amounts previously paid, and/or severance
benefits previously provided, under such Existing Employment/Severance Agreement
to the extent necessary to avoid duplication of benefits.
(j) "Salary Amount" shall mean, for a Key Employee with an
Existing Employment/Severance Agreement, an amount equal to such Key Employee's
annual salary.
(k) "SFAC" shall mean Specialty Foods Acquisition Corporation,
a Delaware corporation.
(l) "SFC" shall mean Specialty Foods Corporation, a Delaware
corporation.
3. Retention Payment; Incentive Agreement Payment(s).
(a) On the Effective Date, the Key Employee shall be deemed to
have earned, and shall be fully vested in, the Retention Payment, which
Retention Payment shall be paid to the Key Employee at the time that such
payment would have been made if all conditions with respect to the payment of
such amount, as set
2
<PAGE> 3
forth in the Existing Employment/Severance Agreement (the "Employment/Severance
Conditions"), had been met; provided, however, that such payment shall not be
made in installments, but rather shall be made in a lump sum within 10 business
days following termination of employment. Such Retention Payment shall be paid
only if such Employment/Severance Conditions are in fact met.
(b) On the Effective Date, the Key Employee shall be deemed to
have earned, and shall be fully vested in, the Incentive Agreement Payment(s),
which Incentive Agreement Payment(s) shall be paid to the Key Employee at the
time(s) that such payments would have been made if all conditions with respect
to the payment of such amounts, as set forth in the Existing Incentive
Agreement(s) (the "Incentive Conditions"), had been met, as if such agreements
were in effect. Any given Incentive Agreement Payment shall be paid only if the
relevant Incentive Conditions with respect to such Incentive Agreement Payment
are in fact met.
4. Existing Employment/Severance Agreements. The Existing
Employment/Severance Agreements are hereby amended, as of the Effective Date,
to:
(a) state that the maximum amount of severance payable to a
Key Employee pursuant to such Key Employee's Existing Employment/Severance
Agreement shall be limited to the Salary Amount; and
(b) provide that any future payment of the Salary Amount will
be made in a lump sum within 10 business days following termination of
employment.
5. Existing Incentive Agreements. The Existing Incentive
Agreements are hereby amended, as of the Effective Date, to:
(a) state that each such agreement shall be binding upon and
inure to the benefit of the parties thereto and their respective successors,
heirs and assigns;
(b) delete any provisions in such agreements providing for the
withholding of taxes from the amounts payable thereunder;
(c) delete any provisions in such agreements providing for the
termination of such agreements; and
(d) provide that the payments made under the Plan are in lieu
of any payments that would have been made under the Existing Incentive
Agreements.
3
<PAGE> 4
6. Joint and Several Obligations. Each member of the SFAC Group shall
be jointly and severally liable for each amount payable to or on behalf of each
Key Employee hereunder, but only to the extent that such member would have been
jointly and severally liable for such amount had the amount been paid under the
applicable Existing Employment/Severance Agreement or Existing Incentive
Agreement, as the case may be.
7. Plan Administration. The Plan shall be interpreted, administered and
operated by the Board, which shall have complete authority, in its sole and
absolute discretion and subject only to the express provisions of the Plan, to
make all determinations necessary or advisable for the administration of the
Plan.
8. Plan Modification or Termination. The Plan may not be terminated or
amended in a manner adverse to any Key Employee.
9. No Right to Employment. Neither the establishment of the Plan, nor
any modification thereof, nor the payment of any benefits hereunder shall be
construed as giving any Key Employee the right to be retained in the service of
the Employer(s), and all Key Employees shall remain subject to discharge to the
same extent as if the Plan had never been adopted.
10. Severability. If any provision of the Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and the Plan shall be construed and enforced as if such
provisions had not been included.
11. Successors. Each member of the SFAC Group shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of such
member to expressly assume and agree to perform such member's obligations under
the Plan in the same manner and to the same extent that such member would have
been required to perform them if no such succession had taken place.
12. Headings. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and
shall not be employed in the construction of the Plan.
4
<PAGE> 5
13. Governing Law. This Plan shall be construed and enforced according
to the laws of the State of Delaware, without regard to its principles of
conflict of laws.
5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SPECIALTY FOODS ACQUISITION CORPORATION
<TABLE>
<CAPTION>
<S> <C>
NAME STATE OF INCORPORATION
Specialty Foods Acquisition Corporation Delaware
Specialty Foods Corporation Delaware
SFC Sub, Inc. Delaware
SFAC New Holdings, Inc. Delaware
SFC New Holdings, Inc. Delaware
Specialty Foods Finance Corporation Delaware
SFC-SPV Corp. Delaware
GWI, Inc. Delaware
MA Holdings, Inc. Delaware
Mother's Cake & Cookie Co. California
Archway Cookies, LLC Delaware
Lew-Mark Baking Company New York
Garden State Cookies New York
Fawn Foods, Inc. New York
SFFB Holdings, Inc. Delaware
SanFran FB, Inc. California
Andre-Boudin Bakeries, Inc. California
Fisherman's Wharf Sourdough French Bread California
Bakeries, Inc.
Boudin International, Inc. California
Steve's Drayage California
Laura Todd of America California
A. Trocano Construction, Inc. California
Gelsi, Inc. California
Pane Corporate (dba San Diego Bread Company) California
San Francisco Bay Area Equipment and Supply California
SanFran SB Holdings, Inc. California
PBI Holdings, Inc. California
San Francisco Baking Cultures California
SFSC, Inc. California
Larraburu Bakery California
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