SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report August 2, 1994
(Date of earliest event reported)
CURTICE-BURNS FOODS, INC.
(Exact name of registrant as specified in its charter)
New York 1-7605 16-0845824
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
90 Linden Place, P.O. Box 681
Rochester, NY 14603
(Address of principal executive offices)
(716) 383-1850
(Registrant's telephone number, including area code)
<PAGE>2
Item 5. Other Events
As previously announced, on July 11, 1994, the
Company commenced arbitration proceedings against Pro-Fac
Cooperative, Inc. ("Pro-Fac") under the Integrated
Agreement. The Company's Demand for Arbitration is attached
as an exhibit to the Company's Form 8-K dated July 11, 1994.
On August 2, 1994, the Company filed a petition in the
Supreme Court of New York for an order compelling Pro-Fac to
proceed with the arbitration.
On August 4, 1994, Pro-Fac served the Company with
Pro-Fac's Response and Counterdemand for Arbitration, a copy
of which is attached as Exhibit 1 hereto (the "Response").
In the Response, Pro-Fac asserted (1) that Pro-Fac is
entitled to a 50% share of the profits from the consummation
of the pending acquisition proposal from Dean Foods Company
("Dean"), which share Pro-Fac calculates to be greater than
$5.75 per share, (2) that the Company cannot terminate the
Integrated Agreement until, at the earliest, June 1996,
(3) that the book value of Pro-Fac's assets for the purposes
of calculating the price at which the Company may buy those
assets and terminate the Integrated Agreement should not
take into account specified writedowns by the Company of
those assets, (4) that the Company is in default under the
Integrated Agreement for improper termination of crops and
(5) that the Company is in default under the Integrated
Agreement for failing to manage the business of Pro-Fac.
Pro-Fac also claimed damages that it estimated at more than
$50 million. In the Response, Pro-Fac also generally denied
the Company's allegations in its Demand for Arbitration.
The Company believes that Pro-Fac's allegations
are without merit and intends to resist them vigorously.
On August 5, 1994, and August 9, 1994, the Company
received letters from Pro-Fac setting forth a proposal by
Pro-Fac to acquire all the outstanding common stock of the
Company for $19 per share in cash. Copies of the letters
from Pro-Fac are attached as Exhibits 2 and 3 hereto. The
Company does not expect to take any definitive action with
respect to the Pro-Fac proposal until a number of
contingencies involved in the proposal have been clarified
or resolved. A copy of the Company's press release relating
to the Pro-Fac proposal is attached as Exhibit 4 hereto.
<PAGE>3
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
hereunto duly authorized.
CURTICE-BURNS FOODS, INC.
Date: August 12, 1994 By: /s/ J. William Petty
J. William Petty, President
and Chief Executive Officer
<PAGE>4
EXHIBIT INDEX
Response and Counterdemand for Arbitration by
Pro-Fac Cooperative, Inc. dated August 3, 1994 . . . . 1
Letter from Pro-Fac Cooperative, Inc., dated
August 4, 1994 . . . . . . . . . . . . . . . . . . . . 2
Letter from Pro-Fac Cooperative, Inc., dated
August 9, 1994 . . . . . . . . . . . . . . . . . . . . 3
Press release dated August 12, 1994 . . . . . . . . . . . 4
<PAGE>5
EXHIBIT 1
-------------------------------
In the matter of an
arbitration between
CURTICE BURNS FOODS, INC.,
Claimant,
-against-
PRO-FAC COOPERATIVE, INC.,
Respondent and
Counterclaimant.
-------------------------------
RESPONSE AND COUNTERDEMAND FOR ARBITRATION
BY PRO-FAC COOPERATIVE, INC.
Pro-Fac Cooperative Inc. ("Pro-Fac") submits this
response and counterdemand to the demand for arbitration by
Curtice-Burns Foods, Inc. ("Curtice-Burns") dated July 8,
1994.
Basic Facts
1. Pro-Fac and Curtice-Burns were formed as a
joint enterprise in 1961 (the "Enterprise") and have
operated continuously since that time. The general terms of
the Enterprise are set forth in an Integrated Agreement
between them, which has been amended and restated from time
to time (the "Agreement"). A copy of the Agreement is
attached as Exhibit A. The terms of the Enterprise have
also been supplemented and interpreted by the operating
<PAGE>6
experience and practice of the parties working together
under the Agreement for over thirty years.
2. The Enterprise was organized by Agway Inc., a
farmers' supply cooperative ("Agway"), which owns nearly all
the class B shares of Curtice-Burns entitling it to elect
70% of the Curtice-Burns board of directors. Agway thereby
controls Curtice-Burns.
3. In the operation of the Enterprise, Curtice-
Burns, a food processor, receives investment capital and
other financing from Pro-Fac, a farmers' cooperative with
over 700 members. Pro-Fac bears the typical risks and
enjoys the rewards of an equity investment: Pro-Fac profits
from the success of the Enterprise and shares with Curtice-
Burns its losses. Pro-Fac and Curtice-Burns each also
benefit from, respectively, a steady market for, and supply
of, the crops used in Curtice-Burns products.
4. Both Curtice-Burns's shareholders and the
members of Pro-Fac have invested substantial equity in the
Enterprise. The Curtice-Burns shareholders, including
Agway, have equity of approximately $80 million in the
Enterprise. The Pro-Fac members have approximately $150
million in equity invested in the Enterprise. This includes
approximately $80 million of common equity, referred to in
the Agreement as Pro-Fac's "deemed equity" in Curtice-Burns.
<PAGE>7
Pro-Fac also uses its long term borrowing capacity to pass
through low cost financing from the federal farm credit
system.
5. Pro-Fac provides this capital, totalling
approximately $297 million as of June 1994, through its
deemed equity, loans, purchase and ownership of facilities
and intangibles, and deferrals of crop payments.
6. The Agreement includes complicated formulas to
determine the profit split of the Enterprise but primarily
allocates profit and losses in proportion to the deemed
equity of Pro-Fac and Curtice-Burns's shareholders' equity.
The Boards of Directors of both companies annually have
agreed, as permitted under Section 51(d) of the Agreement,
to split the profits and losses on a 50-50 basis.
7. Under the Agreement, Curtice-Burns is charged
with managing Pro-Fac. It thereby assumes fiduciary duties
to Pro-Fac in addition to its duties to its Class A and
Class B shareholders. Over the years, Curtice-Burns has
recommended and managed Pro-Fac's investments and managed
the Enterprise as a whole with the goal of balancing both
current income and long-term growth for Pro-Fac as well as
the Curtice-Burns shareholders. Pro-Fac's reasonable
expectation in acquiescing in the recommended investments
and in allowing Curtice-Burns to manage Pro-Fac was that
<PAGE>8
Pro-Fac would get its fair return, both currently and long-
term, from these investments.
8. As the businesses evolved, Curtice-Burns
expanded into food processing areas not directly relevant to
Pro-Fac farmers, such as meat snacks and chili. Pro-Fac
continued to accede to the investments as requested by
Curtice-Burns, purchasing these facilities in Pro-Fac's own
name and providing the initial capital, as well as much of
the working capital, in exchange for half of the profits and
losses of the Enterprise.
9. The arrangement has been commonly
characterized by Curtice-Burns as a joint venture, including
in recent speeches and letters by the Chief Executive
Officer of Curtice-Burns. (Examples of these are attached
as Exhibit B.) The Agreement itself in some places refers
to the venture as a "financing" arrangement and in others
refers to Pro-Fac's equity investment; it also states that
the arrangement is not a "partnership". These
characterizations were intended to comply with definitions
of those terms in tax law, and particularly to special
provisions applicable to farm cooperatives. These
characterizations were agreed by both parties to be
beneficial to the Enterprise.
<PAGE>9
10. The real economic effect of the venture - for
example, the obligation by Pro-Fac to take half the losses
on asset sales - bears no resemblance to any conventional
financing mechanism. It has virtually all the basic char-
acteristics of a long-term equity investment and joint
venture.
11. The Agreement contains a provision for
termination, providing that Curtice-Burns can terminate the
Agreement and repay to Pro-Fac its book value of the assets
(Agreement, paragraph 36). The Agreement nowhere permits
Curtice-Burns, while managing Pro-Fac, to organize a
transaction with an extraordinary gain in such a manner as
to keep Pro-Fac from securing its half of the profit
resulting from the appreciation in value of Pro-Fac's
investment. Nor is there any provision in the Agreement
that contemplates the sale or liquidation of Curtice-Burns's
share of the Enterprise, or Pro-Fac's rights in that event.
12. By its express terms, the Agreement, upon
termination, remains in effect through the end of the period
that Pro-Fac is obligated to process crops from its members.
That provision of Section 36 states:
this Agreement . . . shall remain in effect until
such crops are processed and marketed.
<PAGE>10
Those commitments continue through June 1995 for about half
of the members, June 1996 for many more members, and longer
for certain new members.
13. The termination provision, which has remained
largely unchanged since 1961, was included in the Agreement
to provide a mechanism allowing Curtice-Burns to operate
independently if the then newly formed venture between
processors and growers did not prove workable. Upon
termination under the Agreement, Curtice-Burns is required
to pay Pro-Fac its book value. Book value is nowhere
defined, but the intent is to assure repayment to Pro-Fac of
its investment. The Agreement provides safeguards that
would not permit Curtice-Burns to have the unilateral right
to reduce what it has to pay Pro-Fac under this provision.
14. Pro-Fac has the right to terminate the
Agreement upon a default by Curtice-Burns. Under
paragraph 25 of the Agreement, Pro-Fac is entitled to
receive as liquidated damages all amounts that would have
been payable through the term of the Agreement, without
releasing Curtice-Burns from its other obligations under the
Agreement.
<PAGE>11
The Existing Controversies
15. Agway, Curtice-Burns's controlling
shareholder, announced in early 1993 that it intended to
sell its interest in Curtice-Burns to meet its own cash
needs. At the time, the Curtice-Burns stock was trading in
the range of $12 to $13.50 per share.
16. Curtice-Burns decided to pursue various
options, including a restructuring in which assets would be
sold and a sale of the company. Well aware that a sale of
assets would require dividing the profits with Pro-Fac,
Curtice-Burns acknowledged to Pro-Fac that it was trying to
plan a transaction to deny Pro-Fac its interest in the gain
and threatened that it would terminate the Agreement to
accomplish this goal. Pro-Fac strongly objected that this
plan was a breach of Curtice-Burns's ongoing contractual and
other duties.
17. Curtice-Burns demanded that unless Pro-Fac
offered to buy Curtice-Burns at almost double the previous
stock value, Pro-Fac could end up with only a fraction of
its current economic value in the Enterprise. During this
period Curtice-Burns also wrote down for financial reporting
purposes the value of certain businesses by approximately
$60 million and asserted that this would lower Pro-Fac's
book value for purposes of its proposed termination by
<PAGE>12
almost $30 million. The Agreement provides no basis to
permit Curtice-Burns to unilaterally reduce the book value;
to permit such a unilateral write-down is like granting a
purchaser the power to reduce the purchase price.
18. The write-downs occurred at a time when,
based on the Dean Food's recent valuation, the value of the
assets (other than those written down) were more than $100
million in excess of Pro-Fac's investment. Curtice-Burns's
effort to write down assets while at the same time planning
an extraordinary gain in such a way as to deny Pro-Fac its
profit from its years of investment in those assets
constitutes a violation of the Agreement as well as of basic
principles of fiduciary duty, good faith and fair dealing.
19. In July 1994, Curtice-Burns advised Pro-Fac
that it intended to write down approximately $10 million of
assets of the Nalley's division and further reduce the
amount it owes Pro-Fac on termination. This occurs at the
same time as Curtice-Burns has announced the sale of the
remainder of Nalley's for a profit of $90 million over the
book value, which Curtice-Burns intends to keep for itself.
20. Instead of discharging its fiduciary duty to
Pro-Fac, upon information and belief, Curtice-Burns
intentionally frustrated Pro-Fac's efforts to resolve the
change of control issue. In addition to the acts described
<PAGE>13
above, Curtice-Burns, contrary to established practice,
unilaterally terminated more than half of the crop purchases
(canceling nearly half of Pro-Fac's members) and, in the
auction it subsequently conducted for the sale of the
company, gave advantages to bidders other than Pro-Fac.
21. In June 1994, Curtice-Burns announced that it
had reached a tentative deal to sell itself to Dean Foods
Company for "a maximum cash price of $20 per share." Upon
information and belief, this price would be reduced by extra
amounts determined to be owed Pro-Fac under either the
profit split or upon the rejection of Curtice-Burns's
unilateral attempt to adjust Pro-Fac's book value. Pro-
Fac's 50% share of the profits at a $20 sale price would be
over $5.75 per share or $50 million more than is set forth
in paragraph 7 of Curtice-Burns Demand for Arbitration.
Giving effect to Pro-Fac's profit split, the Dean Foods
offer is $14.25 per share of Curtice-Burns.
22. Pro-Fac also made a bid for Curtice-Burns of
$17.00 ($16.87 after dilution for stock options), a price
which both reflected Curtice-Burns's legal obligations to
Pro-Fac under the Agreement and offered a significant
premium over the trading value of the shares when Agway
first announced its intention to sell.
<PAGE>14
First Claim: Pro-Fac's Right to the Profit Split
23. The intent of the Agreement is that Pro-Fac
and Curtice-Burns divide profits and losses. Pro-Fac
receives this split not, as Curtice-Burns implies, for
passing through a low cost source of financing, but because
Pro-Fac invested in all the Curtice-Burns businesses and
took its share of the risk of their success or failure.
24. So long as it is managing Pro-Fac's business,
Curtice-Burns has a fiduciary duty to organize and operate
the Enterprise in Pro-Fac's best interest as well as its
own.
25. Curtice-Burns also owes Pro-Fac a duty of
good faith and fair dealing in Curtice-Burns's
administration of, and in its interpretation and compliance
with, the Agreement.
26. Whatever Curtice-Burns's contractual options
to terminate the relationship with Pro-Fac and continue in
business alone, it cannot, while managing Pro-Fac's
investment, lawfully organize a sale transaction to capture
all the accumulated gain in their investment for itself in a
virtually simultaneous transaction in which it terminates
Pro-Fac. Under the Agreement, Pro-Fac is entitled to its
profit split on the proposed sale of Curtice-Burns.
<PAGE>15
Second Claim: Continuation of Profit Split
While Crops are Processed
27. Under paragraph 36 of the Agreement, even
after termination the Agreement remains in effect for such
period as Pro-Fac has obligations to its members to process
and market crops. This provision requires Curtice-Burns to
honor the profit split, including the split of profits from
sales of businesses, as well as comply with its other duties
to Pro-Fac, at least through June 1996. Curtice-Burns, as
the manager of Pro-Fac, has negotiated those agreements with
Pro-Fac's members and cannot abandon them.
Third Claim: The Write-Downs Do Not Diminish
Pro-Fac's Book Value
28. The purpose of the buyout provision at book
value is to repay Pro-Fac its unrecovered investment in
assets used by Curtice-Burns in the business of the
Enterprise. The Agreement provides no support that book
value due to Pro-Fac is based on Curtice-Burns's book value
for financial reporting purposes as determined by Curtice-
Burns's management. Under the Agreement, write-downs are
not shared unless incurred in an actual sale of assets,
which requires Pro-Fac's consent. Such a write-down, if
accepted by Pro-Fac, would virtually wipe out the earned
surplus Pro-Fac has saved (and reinvested in the Enterprise)
over the life of the Enterprise. For these reasons, the
<PAGE>16
accounting write-downs by Curtice-Burns in fiscal 1993 do
not reduce the amounts owed Pro-Fac upon termination.
29. Further, Curtice-Burns cannot, consistent
with its duties, write down assets and charge those write-
downs to Pro-Fac at the same time that it is contemplating
the sale of other assets at a large gain, the benefit of
which it does not intend to share with Pro-Fac. Such
conduct is contrary to the purpose of the Agreement,
breaches Curtice-Burns's fiduciary duties to Pro-Fac,
violates the duty of good faith and fair dealing and
constitutes manipulation and unconscionable exploitation.
It also constitutes a default under the terms of the
Agreement.
Fourth Claim: Default by Curtice-Burns For Improper
Termination of Crops
30. For 33 years Curtice-Burns and Pro-Fac have
operated under an arrangement in which purchases of crops
each year are mutually determined, in good faith, after
deliberations by representatives of both Pro-Fac and
Curtice-Burns. This arrangement is required under Section
42 of the Agreement. On March 25, 1994, Curtice-Burns sent
a letter to Pro-Fac without having had such meetings,
purporting unilaterally to terminate 70% by volume and 50%
by value of crops supplied by Pro-Fac. Curtice-Burns knew
<PAGE>17
that such a notice would require Pro-Fac to terminate those
growers from membership, or else be liable for crops for
which it had no market.
31. Curtice-Burns's actions came less than four
weeks prior to the date that Pro-Fac's final bid under
Curtice-Burns's bidding process was due. Pro-Fac at that
time was arranging financing for its bid, including raising
additional equity from its members. On information and
belief, Curtice-Burns believed that terminating Pro-Fac
members might impair Pro-Fac's ability to make a viable
offer to purchase Curtice-Burns.
32. Upon information and belief, the purpose of
this attempted termination was to try to gain a tactical
advantage by forcing Pro-Fac to terminate a number of its
members and to make the continued viability of Pro-Fac
questionable. In addition, by attempting to terminate the
supply of crops, Curtice-Burns, contrary to its ongoing
duties to Pro-Fac, sought to reduce the obligations a
potential buyer would have upon termination without regard
to the effect on Pro-Fac.
33. Such partial termination of Pro-Fac is not
permitted under Section 36 of the Agreement and violates
Section 42 and other provisions of the Agreement, as well as
<PAGE>18
Curtice-Burns's fiduciary duty and obligation of good faith
and fair dealing.
Fifth Claim: Default by
Curtice-Burns in Duty to Manage
34. The schemes and events set forth above
constitute a default in Curtice-Burns's obligation to manage
Pro-Fac.
Responses to Curtice-Burns's Demand
35. Pro-Fac generally denies the allegations set
forth in Curtice-Burns's Demand for Arbitration. Pro-Fac
further observes that the declaratory relief seeks
inappropriately to have the panel interpret provisions of
the Agreement without regard to other provisions and to
answer abstract questions without consideration of the
actual circumstances. Pro-Fac specifically responds to
certain allegations as follows.
36. In response to Paragraph 6 of Curtice-Burns's
Demand, the Agreement nowhere give Curtice-Burns an
"unconditional right" to terminate at book value without
regard to the circumstances or Curtice-Burns's other duties
to Pro-Fac. Further, while the Agreement provides that it
shall "automatically terminate" upon the exercise of the
option, the same paragraph also provides that "this
agreement . . . shall remain in effect until such crops are
<PAGE>19
processed and marketed", which would continue until at least
June 1996.
37. In response to Paragraph 7, the book value
and other obligations required to be repaid by Curtice-Burns
upon a termination of the Agreement, exclusive of Pro-Fac's
right to the profit split, are approximately $297 million as
of June 24, 1994.
38. In response to Paragraph 8, Pro-Fac
specifically denies that the intent of the Agreement was
that book value for buy-out purposes should be adjusted by
taking write-downs under generally accepted accounting
principles for Curtice-Burns's financial reporting purposes.
Moreover, the Agreement was not designed to permit one party
to unilaterally reduce an obligation to the other party.
Nor, in the circumstances, would any write-down be valid
without also balancing it against write-ups that would be
appropriate for a liquidating dividend. Under Curtice-
Burns's interpretation, it could reorganize itself to
maximize losses to Pro-Fac without giving Pro-Fac the
benefit of gains.
39. In response to Paragraph 14, Pro-Fac has
consistently advised Curtice-Burns that while it is managing
Pro-Fac it is a breach of Curtice-Burns's duties to plan a
transaction which is designed to deprive Pro-Fac of its
<PAGE>20
interest in the value of Pro-Fac's assets. The letter dated
November 4, 1993 is mischaracterized, and is attached hereto
as Exhibit C.
40. With respect to Paragraph 19, Pro-Fac has
continually made itself available to discuss resolution of
the terms including with Agway, with Curtice-Burns and with
Dean Foods to discuss an acceptable arrangement. Curtice-
Burns has ignored the meetings in the weeks before it filed
its Demand for Arbitration and has refused to permit Pro-Fac
to meet with Dean Foods, except for a perfunctory
presentation by Dean Foods to the Pro-Fac board of
directors.
41. With respect to Paragraph 21, 22 and 23, Pro-
Fac denies each and every allegation.
WHEREFORE, Pro-Fac respectfully requests a
declaration:
(1) that it is entitled to half the gains from any
sale in any transaction planned by Curtice-Burns under
the circumstances set forth herein;
(2) that the book value of the assets is Pro-Fac's
investment in the assets, together with other
obligations due on proper termination, is approximately
$297 million at June 24, 1994 not counting the profit
<PAGE>21
split or, in the alternative, that no write-down is
appropriate in the circumstances set forth herein;
(3) that Curtice-Burns cannot further unilaterally
write down assets against Pro-Fac's investment;
(4) that Curtice-Burns by its conduct is in
default under the Agreement and has therefore forfeited
any right to buy out Pro-Fac, and Pro-Fac is entitled
to all the remedies set forth in the Agreement,
including, but not limited to, liquidated damages
estimated at more than $50 million; and
(5) That Pro-Fac and its members are entitled to
damages as a result of the unlawful termination of
crops.
Pro-Fac also requests such other relief as the
panel finds proper.
Howard, Darby & Levin
By: /s/ Philip K. Howard
Philip K. Howard
Attorneys for Pro-Fac
Cooperative, Inc.
1330 Avenue of the Americas
New York, New York 10019
(212) 841-1000
August 3, 1994
<PAGE>22
EXHIBIT A
INTEGRATED AGREEMENT
Since 1961 the working relationship between
Curtice Burns Foods, Inc. ("Curtice Burns") and Pro-Fac
Cooperative, Inc. ("Pro-Fac") has been expressed in a series
of four inter-related agreements between them. Based upon
the experience of 30 years of operations it now is
appropriate to set forth in this Integrated Agreement the
assumptions and considerations on which those agreements are
based and to integrate and renew the agreements.
The members and patrons of Pro-Fac are active
growers who have joined together in their cooperative to
market their crops at a fair price and to try to achieve as
much stability and continuity as is possible in agriculture.
While Pro-Fac and its members and patrons have considerable
expertise in the growing of crops, they do not have such
expertise in the processing and sale of those crops in the
form of commercially viable processed food products.
Curtice Burns has long been engaged in the
processing, distribution and sale of processed foods, now on
a diversified geographical basis, but it lacks expertise in
the farming and growing of the crops on which it depends for
a reliable source of supply for its products.
<PAGE>23
Pro-Fac and Curtice Burns have come together
because of the need of Pro-Fac to find a stable market for
crops grown by its members and patrons and because of the
need of Curtice Burns for a reliable supply of such crops.
While Curtice Burns believes that it has available to it
adequate funds to finance its own operations, in order to
process and market Pro-Fac products Curtice Burns requires
significant additional sources of financing in the form of
working capital and facilities necessary to give it the
capacity to provide a reliable and stable market for Pro-Fac
products. Consequently, the willingness of Curtice Burns to
enter into its relationship with Pro-Fac depends upon the
commitment of Pro-Fac to provide financing for Curtice Burns
from a variety of sources not directly available to Curtice
Burns. Pro-Fac provides such financing in order to achieve
its primary objective of a guaranteed and stable market for
crops grown by its members and patrons.
Since Pro-Fac and Curtice Burns have different
areas of expertise in the production and sale of food
products, as well as access to different sources of funds
necessary to conduct their operations, each retains its
independence for their mutual benefit.
This Integrated Agreement shall be for the fiscal
year of the parties beginning June 27, 1992 and for the
<PAGE>24
ensuing four additional fiscal years ending in June of 1997,
as well as for such further period as to which the parties
may agree or for which the agreement may be extended in
accordance with paragraph 72.
OPERATIONS FINANCING
1. Loan of Funds. To the extent that funds
available to Pro-Fac are not invested in its ownership of
facilities or otherwise needed in the conduct of its own
business, Pro-Fac agrees to lend such funds to Curtice Burns
on terms and conditions herein provided. Curtice Burns
shall pay interest to Pro-Fac for the use of such funds as
provided in paragraphs 3, 4, 5 and 6, as well as the payment
described in paragraph 50.
2. Source of Funds to Be Lent to Curtice Burns.
Pro-Fac shall determine the source of funds which it lends
to Curtice Burns pursuant to this agreement. The following
is the present priority of funds derived from the sources
indicated for the use of funds by Pro-Fac to finance
ownership of its facilities and other aspects of its
business:
a. Common stock
b. Retains
C. Allocated tax paid reserve
d. Earned surplus
<PAGE>25
e. Preferred stock
f. Long-term debt
g. Seasonal debt
It is anticipated that the sources of funds to be lent to
Curtice Burns will be in inverse order from that listed
above.
3. Loan of Equity Funds. The equity of Pro-Fac
shall be lent upon the following conditions:
a. Curtice Burns shall pay no interest on loans
of funds derived from the proceeds from the sale and
issuance of Pro-Fac common stock.
b. To the extent that Pro-Fac lends Curtice Burns
funds derived from the issuance of Pro-Fac preferred
stock and to the extent that such funds are not lent to
Curtice Burns but are used by Pro-Fac to pay for its
facilities, Curtice Burns shall annually pay interest
on such an aggregate amount at a rate equal to the
average interest rate paid by Pro-Fac and Curtice Burns
for term borrowing. All interest payable under this
paragraph shall be based upon the average amount of the
loans outstanding pursuant to this paragraph during the
year. To the extent that funds derived from retains
lent without interest pursuant to paragraph 5 mature
into preferred stock of Pro-Fac, Curtice Burns agrees
<PAGE>26
to pay interest on such funds as provided in this
paragraph for the full fiscal year in which such
preferred stock derived from retains is issued.
4. Loan of Proceeds from Pro-Fac Loans. To the
extent that Pro-Fac lends Curtice Burns funds derived from
both seasonal and term loans to Pro-Fac from the Springfield
Bank for cooperatives or such other source from which Pro-
Fac may borrow and to the extent such funds are used by Pro-
Fac to pay for its facilities, Curtice Burns shall pay
interest on such funds at a rate equal to that payable by
Pro-Fac to the source from which Pro-Fac has obtained such
funds. To the extent necessary to enable Pro-Fac to obtain
funds, Curtice Burns agrees to guarantee repayment of all
loans obtained by Pro-Fac and further agrees to repay funds
borrowed from Pro-Fac at the termination of this agreement.
However, the amount Curtice Burns is so obligated to repay
to Pro-Fac shall be reduced by any amount Curtice Burns has
paid to any third party under its guaranty of Pro-Fac debt.
If by the terms of any agreement by which Pro-Fac has
obtained funds subsequently lent to Curtice Burns Pro-Fac
must repay such funds before the termination of this
agreement, then Curtice Burns shall repay such funds to Pro-
Fac in time to enable Pro-Fac to make such repayment.
<PAGE>27
5. Loan of Retained Funds. To the extent that
Pro-Fac lends Curtice Burns funds allocated to members of
Pro-Fac pursuant to retains but retained by Pro-Fac, Curtice
Burns shall not pay interest to Pro-Fac for the use of such
funds, except as provided in paragraph 3(b).
6. Loan of Allocated Tax Paid Reserves and Earned
Surplus. To the extent that Pro-Fac lends Curtice Burns
funds derived from the allocated tax paid reserves and from
the earned surplus of Pro-Fac, Curtice Burns shall pay no
interest for the use of such funds for the first five fiscal
years following the fiscal year in which such funds
originated in Pro-Fac. Thereafter Curtice Burns shall pay
interest for the use of such funds on the same basis and at
the same rate as is payable for the use of funds derived
from the issuance of preferred stock as described in
paragraph 3(b).
7. Record of Loans. The amount and nature of the
indebtedness of Curtice Burns to Pro-Fac shall be as is set
forth and reflected from time to time on the books and
records of Curtice Burns and Pro-Fac; no promissory note or
notes shall be necessary to evidence such indebtedness.
8. Right to Recall Funds. Pro-Fac shall
determine and advise Curtice Burns at the end of each fiscal
year the amount of loans payable from Curtice Burns which
<PAGE>28
may reasonably be due currently so as to provide Pro-Fac
with current assets at least equivalent to its current
liabilities. Should Pro-Fac not receive through interest
payments as herein provided, or from other sources, funds
sufficient to meet its requirements for the conduct of its
business, then Curtice Burns shall, upon reasonable notice
from Pro-Fac, repay all or any portion of funds lent by Pro-
Fac to Curtice Burns as so requested, so as to provide Pro-
Fac with funds necessary to meet its legitimate business
purposes. In giving such notice, Pro-Fac shall provide
Curtice Burns with as much advance notification as possible
so as to enable Curtice Burns to arrange for any refinancing
necessary for it to make such repayment.
9. Prepayment. Curtice Burns may, at its
election, pre-pay any funds borrowed from Pro-Fac upon
written notice Of not less than five days to Pro-Fac,
without penalty or premium, and any such prepayment in part
may be applied to such particular payments provided for
hereunder as Curtice Burns may designate.
10. Bond. Curtice Burns will obtain a blanket
bond insuring the interest of both Pro-Fac and Curtice Burns
as such interest may appear and providing coverage in an
amount satisfactory to the boards of directors of both
Curtice Burns and Pro-Fac for such employees of Curtice
<PAGE>29
Burns as shall handle moneys of Pro-Fac in behalf of Curtice
Burns. The expense of such bond shall be charged by Curtice
Burns as a direct sales, general and administrative expense.
FACILITIES FINANCING
11. Premises. In consideration of the financing
payments to be made to Pro-Fac by Curtice Burns as
hereinafter specified, Pro-Fac hereby makes available for
the use of Curtice Burns (which is hereinafter deemed to
include any subsidiary of Curtice Burns which shall be
designated by Curtice Burns to operate the facilities) all
real property owned by Pro-Fac, together with all buildings,
plants, structures, improvements, water and sewer rights,
easements, and all rights of any sort or kind belonging or
appertaining thereto (such real property hereinafter
referred to as the "Premises"). Unless specifically
excluded by resolution of the boards of directors of Pro-Fac
and Curtice Burns, the Premises shall also include any real
property subsequently acquired by Pro-Fac during the term of
this agreement.
12. Equipment. Pro-Fac hereby further makes
available for the use of Curtice Burns all fixtures, food
processing equipment, machinery, office equipment, motor
vehicles and all other equipment of every kind and
description owned by Pro-Fac now or hereafter attached to,
<PAGE>30
or now or hereafter used on or procured for use upon the
Premises or elsewhere (such personal property hereafter
referred to as the "Equipment"). Unless specifically
excluded by resolution of the boards of directors of Pro-Fac
and Curtice Burns, the Equipment shall also include any
equipment subsequently acquired by Pro-Fac during the term
of this agreement. The Premises and the Equipment are
sometimes referred to in the aggregate as the "Facilities".
13. Facilities Financing Payments. The
Facilities are accounted for as capitalized lease assets
which will be depreciated by Curtice Burns. The parties
agree that the central purpose of this agreement is to
provide a security interest to Pro-Fac through its retention
of title to the Facilities to assure the recovery by Pro-Fac
of all costs of acquisition, financing and associated
carrying costs involved with the Facilities. Curtice Burns
shall pay Facilities financing payments to Pro-Fac in an
amount equal to the total annual depreciation each year on
the Facilities determined on a straight line basis in
accordance with generally accepted accounting principles or
in some other fashion which is acceptable to Pro-Fac.
Curtice Burns further agrees to pay all taxes, charges for
water, utilities and assessments against the Facilities of
any sort, ordinary and extraordinary, which may be levied,
<PAGE>31
assessed or imposed upon the Facilities, accruing or
becoming due and payable during the term of this agreement
and the cost of insurance as provided in paragraph 15. It
is the intention of the parties that Pro-Fac shall receive
the Facilities financing payments free from all taxes,
charges, expenses or deductions of every description, and
that Curtice Burns shall pay all such items and expenses
which, except for the execution and delivery of this
agreement, would have been chargeable against the Facilities
and payable by Pro-Fac.
14. Interest on Default. Any payment accruing
under the provisions of this agreement which shall not be
paid when due shall bear interest at the judgment rate then
prevailing in the State of New York from the date it is
payable under the terms of this agreement until it shall
have been paid by Curtice Burns to Pro-Fac.
15. Insurance. Curtice Burns shall procure and
maintain policies of insurance at its own cost and expense
insuring:
a. The interest in the Facilities of Pro-Fac,
Curtice Burns and any mortgagee thereof, against loss
or damage by fire, lightning, wind, hail, aircraft,
vehicles, smoke, explosion, riot or civil commotion.
The insurance coverage shall be for not less than the
<PAGE>32
full replacement cost of the Facilities (unless a
lesser coverage is approved by Pro-Fac upon
recommendation of Curtice Burns), with all proceeds of
insurance payable jointly to Pro-Fac and any such
mortgagee. The full replacement cost shall be -
determined annually or at such other intervals as may
be reasonable, either through periodic appraisals paid
for by Curtice Burns or through some other method of
valuation acceptable to both parties.
b. Pro-Fac and Curtice Burns from all claims,
demands or actions for injury to or death of any person
in an amount not less than $1,000,000.00 per occurrence
for bodily injury, including death, and property
damage, and not less than $1,000,000.00 annual
aggregate made by, or in behalf of, any person or
persons, firm or corporation arising from, related to
or connected with the Facilities. In addition to the
foregoing minimum coverage, Curtice Burns shall also
obtain umbrella coverage against liability for personal
injury and property damage totalling not less than
$50 million which shall include full contractual
liability coverage.
c. Pro-Fac and Curtice Burns, in an amount which
shall be reasonably satisfactory to Pro-Fac, against
<PAGE>33
risks customarily covered by boiler and machinery
insurance and business interruption.
16. Form of Insurance. The insurance to be
obtained as herein provided shall be with companies and in
form, substance, and amount (where not stated above)
satisfactory to Pro-Fac and any mortgagee of Pro-Fac. The
aforesaid insurance shall not be subject to cancellation
except after at least 10 days prior written notice to Pro-
Fac and any mortgagee of Pro-Fac. The original insurance
policies (or certificates thereof satisfactory to Pro-Fac)
together with satisfactory evidence of payment of the
premiums thereon, shall be deposited with Pro-Fac at the
beginning of the term hereof, and renewals thereof shall be
similarly deposited not less than 30 days prior to the end
of the term of such coverage.
17. Waiver of Subrogation Rights. Whenever
(a) any loss, cost, damage or expense resulting from a fire,
explosion or any other casualty or occurrence is incurred by
either of the parties to this agreement in connection with
the Facilities, and (b) such party is then covered in whole
or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured hereby releases
the other party from any liability it may have on account of
such loss, cost, damage or expense to the extent of any
<PAGE>34
amount recovered by reason of such insurance and waives any
right of subrogation which might otherwise exist in or
accrue to any person on account thereof.
18. Damage and Reconstruction. If the Equipment
or the buildings on the Premises shall be damaged or
partially destroyed by fire or any other cause at any time
during the term hereof, Curtice Burns shall forthwith
replace such equipment and cause the damage to the buildings
to be repaired with all reasonable dispatch, provided that
such replacement and repair are economically justifiable in
the judgment of the boards of directors of both Pro-Fac and
Curtice Burns. Should a building at any time on the
Premises be so damaged by fire or otherwise that repair or
restoration will be impracticable, then Curtice Burns shall
forthwith demolish and remove such damaged buildings and
proceed with the erection and construction of suitable
replacement buildings on the Premises. Any such necessary
repairs shall be made and such buildings replaced in
accordance with plans and specifications submitted by
Curtice Burns and approved by Pro-Fac. In order to pay for
the cost of such repair or reconstruction, Curtice Burns
shall be entitled to obtain from Pro-Fac any sum received as
insurance for such damage (to the extent permitted by any
mortgagee of Pro-Fac which may have a right to such
<PAGE>35
insurance proceeds), which shall be paid to Curtice Burns as
hereinafter provided, to be held by Curtice Burns as a trust
fund for such repairs. Curtice Burns shall not be obligated
under this paragraph to make any repairs or undertake any
reconstruction beyond that which may be paid for through the
use of funds to be provided Curtice Burns by Pro-Fac for
such purpose pursuant to this paragraph. If the holder of
any mortgage on the Premises and Equipment shall require
that the proceeds of insurance policies be paid in reduction
or payment of such mortgage, then Pro-Fac covenants with
Curtice Burns to provide for the use of Curtice Burns as
aforesaid a sum equal to the amount of such insurance
proceeds so paid to any mortgagee. Pro-Fac shall, from time
to time, as certified by Curtice Burns and to an extent not
exceeding 80% of the value of the work, labor and material
entered into in the erection of such new buildings or the
repair of old buildings, pay over to Curtice Burns the
proceeds of insurance actually collected by Pro-Fac, or such
other funds in substitution thereof as Pro-Fac may be
required to provide Curtice Burns as hereinbefore provided.
The balance of such insurance proceeds or other funds shall
be paid by Pro-Fac to Curtice Burns after the buildings are
fully repaired, completed and paid for. Curtice Burns shall
promptly pay construction cost or costs of repair when
<PAGE>36
incurred. Curtice Burns shall obtain adequate general
liability insurance protecting and indemnifying Pro-Fac from
claims or damages arising out of the repair or demolition of
any buildings on the premises and the erection and
construction of any new buildings.
19. Maintenance and Repair. The Facilities shall
during the term hereof be kept by Curtice Burns in good
order and repair at the sole cost and expense of Curtice
Burns. Curtice Burns will comply with all orders,
regulations, rules and requirements of every kind and nature
relating to the Facilities now or hereafter in effect, of
the federal, state, municipal, or other governmental
authorities, whether they be usual or unusual, ordinary or
extraordinary, and whether they or any of them relate to
structural changes or requirements of whatever nature, or to
changes or requirements incident to or as the result of, any
use or occupation thereof or otherwise. Should Curtice
Burns determine that compliance with any such order,
regulation, rule or requirement would be uneconomical and
that instead the parties should terminate active operation
of any portion of the Premises which would be affected
thereby, then Curtice Burns shall so recommend to Pro-Fac;
if the parties agree that such operation should be so
terminated rather than to contest or comply with such order,
<PAGE>37
rule, regulation or requirement, then the parties agree to
terminate such operation forthwith upon such determination.
If following such recommendation by Curtice Burns Pro-Fac
does not agree thereto, then the matter shall be resolved by
arbitration under the procedure for arbitration as described
herein. Should the parties not agree that such operations
should be suspended, or should arbitration so determine,
then Curtice Burns will pay all cost and expenses incidental
to such compliance and will indemnify and save harmless Pro-
Fac from all expense by reason of any notices, orders,
violations or penalties filed against or imposed upon the
Premises or Equipment, or against Pro-Fac as owner thereof,
because of the failure of Curtice Burns to comply with this
covenant. However, Curtice Burns shall have the right to
contest or review any order issued against the Premises or
Equipment by legal proceeding or in such other manner as it
may deem advisable, and may have such order modified,
cancelled, removed or revoked without compliance therewith.
Any such action or proceeding instituted shall be conducted
promptly at the expense of Curtice Burns. The term "legal
proceeding" as used herein shall be construed as including
appeals from judgments, decrees or orders. If and whenever
any such order shall become final and binding, Curtice Burns
shall then comply therewith with due diligence; in default
<PAGE>38
thereof by Curtice Burns, Pro-Fac may comply therewith, and
the cost expense of so doing may be paid by Pro-Fac and
shall be charged against Curtice Burns, becoming due on the
next June 22 following such payment by Pro-Fac. In such
event, Pro-Fac shall have recourse to all the remedies
herein and conferred upon Pro-Fac in respect to the
collection of payments due hereunder or to the recovery of
the possession of the Premises and Equipment because of
default in any payment required of Curtice Burns.
20. Indemnity. Curtice Burns will protect,
indemnify and save harmless Pro-Fac from and against all
liabilities, obligations, claims, damages, penalties, causes
of action, costs and expenses (including without limitation
reasonable attorneys' fees and expenses) imposed upon or
incurred by or asserted against Pro-Fac by reason of any
accident, injury to or death of persons or loss of or damage
to property of others occurring on or about the Premises or
any part thereof or the adjoining properties, sidewalks,
curbs, streets, or way. In case of any action, suit, or
proceeding brought against Pro-Fac by reason of any such
occurrence, Curtice Burns will, at its expense, resist and
defend such action, suit or proceeding, or cause it to be
resisted and defended by counsel approved by Pro-Fac.
<PAGE>39
21. Utilities. The cost of all utilities and
services, including but not limited to gas, water, sewer and
electricity, shall be paid by Curtice Burns.
22. Quiet Enjoyment. So long as Curtice Burns is
not in default under the covenants and agreements of this
agreement, the quiet and peaceful enjoyment by Curtice Burns
of the Premises and Equipment shall not be disturbed or
interfered with by Pro-Fac or by any person claiming by,
through or under Pro-Fac. However, nothing herein shall
affect the rights of the holder of any mortgage or other
security interest given by Pro-Fac applicable to the
Premises or Equipment.
23. Subordination. This agreement and all rights
of Curtice Burns herein shall be subject and subordinate to
any mortgage or mortgages or any renewals or replacements
thereof which are now or may hereafter be placed on the
Premises and Equipment, and Curtice Burns agrees that at the
time of the placing of any such mortgage or renewal thereof
on the Premises or Equipment and at the request of Pro-Fac,
Curtice Burns will execute and deliver any further
instruments necessary to subordinate its rights under this
agreement to any such mortgage or renewal thereof. Pro-Fac
agrees that it will notify Curtice Burns of the execution
and delivery of any such mortgage and that it will, upon the
<PAGE>40
request of Curtice Burns, exhibit to Curtice Burns at least
5 days before the expiration of any default period provided
in such mortgage satisfactory evidence showing that interest
due thereunder and any installment of principal has been
paid. If at such time any installment of interest or
principal has not been paid in accordance with the terms of
said mortgage, Curtice Burns may pay the same, together with
any interest accrued thereon, and the amount so paid by
Curtice Burns and the interest thereon at the judgment rate
then prevailing in the State of New York from the time of
payment shall be paid by Pro-Fac to Curtice Burns on demand,
or may be offset by Curtice Burns against any amount payable
hereunder until the whole amount thereof shall have been
repaid to Curtice Burns by Pro-Fac.
24. Default. The occurrence of any one of the
following events shall be considered an event of default by
Curtice Burns under this agreement:
a. Curtice Burns shall be adjudged a bankrupt, or
a decree or order approving, as properly filed, a
petition or answer asking reorganization of Curtice
Burns under the federal bankruptcy laws, or under the
laws of any state, shall be entered, and any such
decree or judgment or order shall not have been vacated
<PAGE>41
or stayed or set aside within 30 days from the date of
the entry or granting thereof; or
b. Curtice Burns shall file or admit the
jurisdiction of the court and the material allegations
contained in, any petition in bankruptcy, or any
petition pursuant or purporting to be pursuant to the
federal bankruptcy laws, or Curtice Burns shall
institute any proceedings for any relief of Curtice
Burns under any bankruptcy or insolvency laws or any
laws relating to the relief of debtors, readjustment of
indebtedness, organization, arrangements, composition
or extension; or
c. Curtice Burns shall make any assignment for
the benefit of creditors or shall apply for or consent
to the appointment of a receiver for Curtice Burns or
any of the property of Curtice Burns; or
d. A decree or order appointing a receiver of the
property of Curtice Burns shall be made and such decree
or order shall not have been vacated, stayed or set
aside within 90 days from the date of entry or granting
thereof; or
e. Curtice Burns shall vacate the Premises or
abandon the same during the term hereof; or
<PAGE>42
f. Curtice Burns shall make default in any
payment required to be paid by Curtice Burns hereunder
when due as herein provided and such default shall
continue for 30 days after notice thereof in writing by
Pro-Fac to Curtice Burns; or
g. Curtice Burns shall make default in any of the
other covenants and agreements herein contained to be
kept, observed and performed by Curtice Burns, and such
default shall continue for 30 days after notice thereof
in writing by Pro-Fac to Curtice Burns.
25. Remedies. Upon the occurrence of any one or
more of such events of default, Pro-Fac may terminate this
agreement. Upon termination of this agreement, Pro-Fac may
re-enter the Premises and take possession of the Premises
and the Equipment, with or without process of law, and Pro-
Fac shall not be liable for any damages resulting therefrom.
Such re-entry and repossession shall not work a forfeiture
of any amounts to be paid and the covenants to be performed
by Curtice Burns during the full term hereof. Upon such
repossession of the Premises, Pro-Fac shall be entitled to
recover as liquidated damages and not as a penalty a sum of
money equal to the value of the amounts provided herein to
be paid by Curtice Burns to Pro-Fac for the remainder of the
term hereof. Should Curtice Burns default in payment of any
<PAGE>43
taxes, water charges, assessments, or any other charges to
be paid by Curtice Burns pursuant to paragraph 13, Pro-Fac
may if it so desires pay the same, and the amount so paid,
with interest thereon at the judgment rate then prevailing
in the State of New York from the date of payment, shall be
added to the next payment to be made by Curtice Burns.
However, any such payment by Pro-Fac shall not be deemed to
waive or release the default in the payment thereof by
Curtice Burns, or the right of Pro-Fac immediately to
terminate this agreement and recover possession of the
Premises and Equipment by reason of such default as
hereinabove provided.
26. Remedies Cumulative. No remedy herein or
otherwise conferred upon or reserved to Pro-Fac shall be
considered to exclude or suspend any other remedy, but the
same shall be cumulative and shall be in addition to every
other remedy given hereunder now or hereafter existing at
law or in equity or by statute, and every power and remedy
given by this agreement to Pro-Fac may be exercised from
time to time and as often as occasion may arise or as may be
deemed expedient. Neither the receipt of any payment after
default, nor any delay or omission of Pro-Fac to exercise
any right or power arising from any default, shall impair
any such right or power or shall be construed to be a waiver
<PAGE>44
of any such default or any acquiescence therein. Neither
the rights herein given to receive, collect, sue for or
distrain for any payments due hereunder or to enforce the
terms, provisions and conditions of this agreement, or to
prevent the breach or nonobservance thereof, or the exercise
of any such right or of any other right or remedy hereunder
or otherwise granted or arising, shall in any way affect or
impair the right or power of Pro-Fac to declare this
agreement ended, and to terminate this agreement as provided
for herein, because of any default in or breach of the
covenants, provisions or conditions of this agreement.
27. No Waiver. No waiver of any breach of any of
the covenants herein shall be construed, taken or held to be
a waiver of any other breach or waiver, acquiescence in or
consent to any further or succeeding breach of the same
covenant.
28. Condemnation. If any part of any of the
Premises shall be condemned and as a result thereof the
balance of such Premises can be used by Curtice Burns, this
agreement shall not terminate and Curtice Burns, pursuant to
plans submitted by Pro-Fac and at the expense of Pro-Fac,
shall repair and restore the Premises and all improvements
thereon. Curtice Burns shall promptly and diligently
proceed to make a complete architectural unity of the
<PAGE>45
remainder of the improvements in accordance with such plans
as are first approved by Pro-Fac. Curtice Burns shall have
no right to any condemnation award applicable to the
Premises. Pro-Fac shall receive and hold in trust the
amount of the award relating to the improvements on the
Premises and shall (to the extent permitted by the holder of
any mortgage on the Premises which may be entitled to such
award) disburse such award to Curtice Burns to apply to the
cost of said repairing or restoration in accordance with the
procedure set forth in paragraph 18. If Curtice Burns does
not make a complete architectural unit of the remainder of
the improvements within a reasonable period after such
taking or condemnation then, in addition to whatever other
remedies Pro-Fac may have either under this agreement, at
law or in equity, Pro-Fac may retain the entire award, and
the total amount payable by Curtice Burns to Pro-Fac under
paragraph 18 shall be reduced by the amount of such award so
retained, prorated over the remaining payments due. Except
as hereinbefore provided, there shall be no abatement or
reduction in any payment due from Curtice Burns because of
such taking or condemnation.
29. Right to Contest Tax Assessments. Curtice
Burns shall have the right to review by legal proceedings,
promptly instituted and conducted at the expense of Curtice
<PAGE>46
Burns, any taxes, assessments, water rates, or other charges
imposed upon or against the Premises or Equipment, and in
case any such taxes, assessments, water rates or other
charges shall, as a result of such proceedings or otherwise,
be reduced, cancelled, set aside or to any extent discharged
or modified, Curtice Burns shall pay any amount that shall
be finally assessed or imposed against the Premises or
Equipment or adjudicated to be due and payable on any such
disputed or contested items. The term "legal proceedings"
as here used shall be construed to include appropriate
appeals from any judgments, decrees or orders.
30. No Warranty by Pro-Fac. Curtice Burns
accepts the Premises and Equipment in their present
condition and without any representation or warranty by Pro-
Fac as to the condition of the Premises and Equipment, or as
to the use or occupancy which may be made thereof. Pro-Fac
shall not be responsible for any latent or other defect or
change in their condition, and the payments hereunder shall
in no case be withheld or diminished because of any defect
or change in their condition, or because of any damage
occurring thereto during the term hereof.
31. Liens Against Premises. If any mechanics or
other liens or order for the payment of money shall be filed
against the Premises or Equipment by reason of or arising
<PAGE>47
out of any labor or material furnished or alleged to have
been furnished, or to be furnished, to or for Curtice Burns
at the Premises for or by reason of any change, alteration
or addition or the cost of expenses thereof, or any contract
relating thereto, or against Pro-Fac as owner thereof,
Curtice Burns shall cause the same to be cancelled and
discharged of record, by bond, or otherwise at the election
and expense of Curtice Burns. Curtice Burns shall also
defend on behalf of Pro-Fac at the sole cost and expense of
Curtice Burns any action, suit or proceeding which may be
brought thereon or for the enforcement of such lien, or
order, and Curtice Burns will pay any damages or discharge
any judgment entered therein and save harmless Pro-Fac from
any claim or damages resulting therefrom.
32. Alterations and Improvements. Curtice Burns
shall have the right to make alterations and improvements to
the Premises from time to time without the written consent
of Pro-Fac upon condition, however, that the cost of such
alterations or improvements shall not exceed the sum of
$150,000.00 for any such alteration or improvement. If any
such alteration or improvement shall cost more than
$150,000.00 (or such other amount as may be agreed to by the
parties as appropriate), the written consent of Pro-Fac
shall be obtained before work is commenced. Pro-Fac shall
<PAGE>48
not withhold such consent unreasonably and covenants to
consent thereto, provided that such alteration or
improvement shall not tend to decrease the space or the
value of any building upon the Premises. All improvements
to the Premises shall become the property of Pro-Fac.
33. Proper Use. Curtice Burns covenants not to
use the buildings on the premises for any illegal or
unlawful purpose.
34. Additional Equipment. Should Curtice Burns
in its discretion deem it necessary for the continued
successful operation of the Facilities by Curtice Burns for
the purpose of the business of Curtice Burns to install
additional machinery or equipment of its own, Curtice Burns
may do so; such additional machinery or equipment shall not
be deemed the property of Pro-Fac and part of the Premises,
and Curtice Burns shall have the right to remove such
additional machinery and equipment at its own cost and
expense on the termination hereof.
35. Surrender of Premises and Equipment. At the
expiration of this agreement Curtice Burns will surrender
and deliver to Pro-Fac the Premises and Equipment in good
repair and condition, reasonable wear and tear excepted.
36. Purchase Rights of Curtice Burns. In the
event of the termination of this agreement or at any time at
<PAGE>49
the option of Curtice Burns upon written notice of 60 days
to Pro-Fac, Curtice Burns shall have the right to purchase
the Facilities at the book value thereof at the time of
purchase. Upon the exercise of the option to purchase the
Facilities as specified in this paragraph, this agreement
shall also automatically terminate. Should Curtice Burns
exercise this option at a time of year when Pro-Fac is
obligated to process crops for its members, then
notwithstanding the exercise of the option by Curtice Burns
pursuant to this paragraph, Curtice Burns shall nevertheless
complete the processing of such crops for that year pursuant
to this agreement, which shall remain in effect until such
crops are processed and marketed.
37. Purchase of Trademarks by Pro-Fac. Should
this agreement be terminated for any reason and upon such
termination Curtice Burns does not purchase the Facilities
as herein provided, then Pro-Fac shall have the right to
purchase all trademarks, tradenames and copyrights of
Curtice Burns at their then book value.
38. Intangibles. Pro-Fac owns an undivided
interest in goodwill and other intangible assets obtained in
the course of the acquisition of various businesses by Pro-
Fac and Curtice Burns ("Intangibles"). The Intangibles do
not include any interest in trademarks or the goodwill
<PAGE>50
associated with trademarks. In future business acquisitions
by the parties during the term of this agreement Pro-Fac
shall purchase an undivided interest in all intangibles
acquired with such businesses ("Future Intangibles"). Pro-
Fac shall pay for Future Intangibles an amount equal to the
same percentage of the entire purchase price for such Future
Intangibles that the adjusted deemed equity investment of
Pro-Fac bears to the combined adjusted deemed equity
investment of both Pro-Fac and Curtice Burns as defined in
paragraph 51 hereof. While the purchase price to be paid by
Pro-Fac for its interest in Future Intangibles shall be
based upon the price paid in the course of the acquisition
for all Future Intangibles (including trademarks and the
goodwill associated therewith), the undivided interest in
such Future Intangibles so acquired by Pro-Fac shall not
include any interest in such trademarks or the goodwill
associated therewith, except as provided in Paragraph 37
hereof.
39. License of Intangibles. Pro-Fac hereby
grants to Curtice Burns the exclusive right to use the
interest of Pro-Fac in the Intangibles and Future
Intangibles in conducting their business pursuant to this
agreement. For such use, Curtice Burns shall pay to Pro-Fac
<PAGE>51
annually the amount by which the interest of Pro-Fac in the
Intangibles and Future Intangibles is amortized each year.
40. Purchase of Intangibles by Curtice Burns.
Should Curtice Burns purchase the facilities of Pro-Fac in
accordance with paragraph 36 hereof, Curtice Burns shall
also be obligated to repurchase from Pro-Fac at the then
book value thereof the interest of Pro-Fac in the
Intangibles and Future Intangibles.
41. Purchase of Intangibles by Pro-Fac. Should
Pro-Fac purchase the trademarks, tradenames and copyrights
of Curtice Burns and the goodwill associated therewith as
provided in paragraph 37 hereof, then at such time Pro-Fac
shall also be obligated to purchase the Curtice Burns
interest in the Intangibles and Future Intangibles at the
book value thereof at the time of purchase.
MARKETING
42. Delivery of Crops. Pro-Fac agrees to sell
and deliver to Curtice Burns all crops of the type and in
the amounts set forth by acreage or tonnage in the raw
product section of the profit plan as approved each year by
the board of directors of each party during the term hereof
to be marketed in behalf of the grower-members of Pro-Fac
pursuant to the terms of the agreements between Pro-Fac and
its members. Subject only to its inability to do so because
<PAGE>52
of the vagaries of weather or other causes validly
preventing growing such crops as set forth in the agreements
between Pro-Fac and its members (the form of which shall be
approved by Curtice Burns), Pro-Fac shall deliver to Curtice
Burns the crops described in the profit plan, and Curtice
Burns agrees to process and market such crops as herein
provided.
43. Marketing Discretion. Curtice Burns shall in
its discretion determine in what form the finished processed
products shall appear for marketing and what label or labels
shall appear on such finished processed products. Curtice
Burns shall establish the price at which it shall sell
products originating in whole or in part from Pro-Fac
products. To facilitate the marketing of the finished
products by Curtice Burns, title to the Pro-Fac crops shall
pass to Curtice Burns at the time such crops are graded and
accepted by Curtice Burns.
44. Agency. To the extent necessary to enable
Pro-Fac to receive crops from its members and deliver such
crops to Curtice Burns pursuant to the terms and conditions
of this agreement, Curtice Burns will act as agent for Pro-
Fac and charge the cost thereof to overhead as provided
herein. Curtice Burns will indemnify and save Pro-Fac
<PAGE>53
harmless from any loss or damage incurred in acting as such
agent.
SETTLEMENT
45. Definitions. When used in this agreement, the
following terms shall have the definitions indicated:
a. "Commercial market value" of crops sold by
Pro-Fac to Curtice Burns shall mean the price paid for
such crops by commercial processors for similar crops
used for similar or related purposes sold under pre-
season contracts and in the open market in the same or
similar marketing areas. Where such price cannot be
readily determined, then commercial market value shall
be determined by some other method acceptable to each
party. Commercial market value shall be determined as
provided in paragraph 46 hereof.
b. "Pro-Fac products" shall mean all products
sold by Curtice Burns which were processed from crops
supplied by Pro-Fac. The determination of what is a
Pro-Fac product shall be made in an annual examination
of products made from crops supplied by Pro-Fac. If
made from crops supplied by Pro-Fac and from similar
crops purchased directly by Curtice Burns to supplement
and facilitate the marketing of crops by Pro-Fac, then
such product shall be considered to be a Pro-Fac
<PAGE>54
product, provided that the value of such crops
purchased by Curtice Burns for use in the product is
not greater than the value of crops supplied by Pro-Fac
for the product. If Pro-Fac supplied less than half
the value of crops necessary to make the product, then
only that portion of the product actually made from
crops supplied by Pro-Fac shall be considered a Pro-Fac
product.
c. "Net proceeds" shall mean the entire proceeds
received by Curtice Burns from the sale of Pro-Fac
products less the costs incurred by Curtice BurnS in
its own behalf or in behalf of Pro-Fac in processing
and selling such products. Such costs shall be
determined in accordance with generally accepted
accounting practices in the food industry as modified
by past practices and accounting methods used by the
parties and shall include all variable product costs, a
pro rata share of plant and warehousing overhead costs
based upon the estimated usage of facilities and a pro
rata share of selling, general and administrative,
overhead and financial expenses. Such costs shall
include payments by Curtice Burns to Pro-Fac under this
agreement but shall not include commercial market value
paid pursuant to paragraph 48, any additional payment
<PAGE>55
for Pro-Fac crops pursuant to paragraph 49 or any
payment pursuant to paragraph 52.
d. "Earnings (losses) on Pro-Fac products" shall
mean the amount by which the net proceeds received by
Curtice Burns from the sale of Pro-Fac products in any
fiscal year exceeds or is less than the commercial
market value of crops supplied by Pro-Fac.
e. "Commission" shall mean a commission due
Curtice Burns for its services in the processing and
marketing of all Pro-Fac products in the amount of 30%
of all earnings on Pro-Fac products. The remaining 70%
of all such earnings shall be due to Pro-Fac for its
crops as provided in paragraphs 48 and 49 herein. If
Curtice Burns incurs a loss on the sale of Pro-Fac
products then Curtice Burns shall not be entitled to
receive any commission.
46. Commercial Market Value. Commercial market
value shall be determined by a committee established jointly
by the boards of directors of Pro-Fac and Curtice Burns and
consisting of two members appointed by the president of Pro-
Fac, two members appointed by the chairman of the board of
Curtice Burns and a fifth member appointed by the other four
members of the committee.
<PAGE>56
47. Calculation of Earnings and Losses. The
determination of earnings and losses on Pro-Fac products and
of any commission due Curtice Burns as herein provided shall
be made on the basis of all Pro-Fac products considered in
the aggregate each year as of the end of the fiscal year for
each party.
48. Payment for Crops. Curtice Burns shall pay
to Pro-Fac as the minimum purchase price for the crops
purchased from Pro-Fac each year the commercial market value
of those crops, together with any additional payment which
may be due Pro-Fac pursuant to paragraph 49 hereof. The due
date for payment of the purchase price shall coincide with
the time of payment for crops by Pro-Fac to its members.
49. Additional Payment for Crops. Curtice Burns
shall as of the end of each fiscal year remit to Pro-Fac all
earnings on the sale of Pro-Fac products, less the
commission due Curtice Burns on the sale of such products.
However, should the earnings on the sale of Pro-Fac products
less the commission exceed the amount allocated to Pro-Fac
pursuant to paragraphs 50, 52 and 53 hereof, then the
obligation of Curtice Burns to make payments as herein
provided shall be limited to the amount specified in said
paragraphs.
<PAGE>57
50. Division of Earnings. As further
consideration to Pro-Fac for the use of its facilities and
funds in the production and marketing of food products,
Curtice Burns shall pay annually to Pro-Fac a portion of its
earnings as herein provided.
51. Definitions for Division of Earnings. For
purposes of the computation of the division of earnings, the
following terms shall have the definitions indicated:
a. "Curtice Burns products and services" shall
mean all products sold by Curtice Burns which are not
Pro-Fac products as defined in paragraph 45(b) and all
services performed by Curtice Burns for others, except
those services performed for Pro-Fac for which Curtice
Burns is specifically paid by Pro-Fac.
b. "Adjusted equity investment" shall as to
Curtice Burns mean the sum of:
(1) the par value of the outstanding common
stock of both classes as of the end of the fiscal
year preceding the year for which that
determination is to be made;
(2) the additional paid in capital as to
such stock;
(3) the retained earnings of Curtice Burns
as of the end of the fiscal year preceding the
<PAGE>58
year for which that determination is to be made;
and
(4) the par value and additional paid in
surplus of stock sold during the fiscal year for
which that determination is to be made, weighted
in proportion to the number of days during the
year for which the determination is to be made
that the proceeds from the sale of such stock are
available for use by Curtice Burns.
c. As to Pro-Fac "adjusted deemed equity
investment" shall mean generally all funds of Pro-Fac
for which Pro-Fac does not receive interest from
Curtice Burns, more particularly the sum of:
(1) the par value of the outstanding common
shares of Pro-Fac as of the end of the fiscal year
preceding the year from which that determination
is to be made, excluding the par value of any
shares subscribed but not paid for;
(2) the par value of common stock issued and
paid for during the fiscal year for which that determination
is to be made, weighted in proportion to the number of days
during the year for which the determination is to be made
that the proceeds from the sale of such stock are available
for use by Pro-Fac;
<PAGE>59
(3) the aggregate amount of all retains of
Pro-Fac, determined as of the end of the fiscal
year preceding the year for which that
determination is to be made, excluding, however,
retains which mature into preferred stock during
the fiscal year for which that determination is to
be made;
(4) all earnings of Pro-Fac as to which Pro-
Fac has paid income taxes, including earned
surplus and allocated tax paid reserves ("earned
surplus"), whether or not such earned surplus has
been allocated to the accounts of or for the
benefit of members or other patrons of Pro-Fac,
determined as of the end of the fiscal year
preceding the year for which that determination is
to be made ("determination date"). However, for
purposes of this determination there shall only be
included in the earned surplus of Pro-Fac that
which originated within the five years preceding
the determination date;
(5) 20 percent of the commercial market
value of crops furnished by Pro-Fac for the crop
year applicable to the fiscal year for which the
determination is to be made, unless some other
<PAGE>60
amount is agreed to by the parties as appropriate
to take into consideration the delay in payment
for crops by Curtice Burns to Pro-Fac;
(6) the aggregate amount for all fiscal
years of Pro-Fac from that ended on March 31, 1962
through that ended on June 25, 1976 by which
payment by Curtice Burns to Pro-Fac for crops was
less than the commercial market value of such
crops; and
(7) the aggregate amount for all fiscal
years of Pro-Fac during the term hereof by which
Pro-Fac is paid less than the interest payable
under this agreement.
d. Notwithstanding the foregoing, the amount of
Pro-Fac adjusted deemed equity investment may be
modified by resolutions duly adopted by the boards of
directors of Pro-Fac and Curtice Burns during the
fiscal year affected by revising the amount of funds on
which Curtice Burns pays interest to Pro-Fac. To the
extent that the amount of allocated tax paid reserves,
earned surplus or retained funds on which Curtice Burns
pays interest to Pro-Fac as provided in paragraphs 5
and 6 hereof, or the amount of funds derived from the
issuance of preferred stock on which Curtice Burns pays
<PAGE>61
interest as provided in paragraph 3-b hereof, is
reduced, then the adjusted deemed equity of Pro-Fac
shall be treated as increased by the amount of such
reduction. Conversely, to the extent that the amount
of allocated tax paid reserves, earned surplus or
retained funds on which Curtice Burns pays interest to
Pro-Fac as provided in paragraphs 5 and 6 hereof may be
increased, the adjusted deemed equity of Pro-Fac shall
be treated as decreased by the amount of such increase.
52. Payment of Earnings to be Divided. Subject
to the provisions of paragraph 53, Curtice Burns shall pay
to Pro-Fac as of the close of each fiscal year of Pro-Fac in
each year during the term of this agreement an amount based
upon the profits of Curtice Burns as herein provided. In
determining the earnings (or losses) of Curtice Burns, there
shall be included in such computation all earnings (or
losses) of all subsidiaries of Curtice Burns. The resultant
combined earnings or losses shall be allocated between the
parties in proportion to their respective aggregate adjusted
equity and deemed equity investments as determined pursuant
to this agreement. From that portion so allocable to Pro-
Fac there shall be deducted the amount paid to Pro-Fac as
provided in paragraphs 48 and 49 hereof. The balance of the
combined earnings or losses of Curtice Burns allocable to
<PAGE>62
Pro-Fac pursuant to this paragraph shall be paid by Curtice
Burns to Pro-Fac. Should it be determined as herein
provided that a loss is allocable to Pro-Fac as a result of
the computations made pursuant to this paragraph, then
Curtice Burns shall make no payment to Pro-Fac pursuant to
this paragraph and the interest payable by Curtice Burns to
Pro-Fac shall be reduced by the amount of such loss
allocable to Pro-Fac.
53. Further Adjustments to Division of Earnings.
Notwithstanding the provisions of paragraph 52 herein, the
following additional adjustments shall be made in
determining the division of earnings:
a. In determining the earnings of Curtice Burns
there shall be taken into account and charged to the
operations of Curtice Burns the gain or loss on the
sale or other disposition of assets of Pro-Fac which
are leased to Curtice Burns.
b. The amount of any payment due Pro-Fac from
Curtice Burns pursuant to paragraph 52 shall be reduced
by 50% of any dividend received by Pro-Fac from the
Springfield Bank for Cooperatives during the year for
which earnings are to be divided.
54. Payments to Members of Pro-Fac. While
pursuant to paragraph 48 hereof Pro-Fac will receive from
<PAGE>63
Curtice Burns at least the commercial market value of all
crops purchased each year, Pro-Fac shall not be obligated to
pay out that amount to its members and others who sold those
crops to Pro-Fac. It is the intent of the parties hereto
that Pro-Fac will pay or allocate to its grower-members and
others entitled thereto the payments made by Curtice Burns
pursuant to this agreement to the extent deemed advisable by
the board of directors of Pro-Fac after retaining such funds
as may be necessary for the payment of any dividends which
may be declared and for the creation of such reserve funds
as may be deemed fair and reasonable.
MANAGEMENT
55. Management Services. Pro-Fac hereby employs
Curtice-Burns to supervise and manage the business and
properties of Pro-Fac, including the performance of its
responsibilities under this agreement and also including
responsibility for handling the business of Pro-Fac with the
Springfield Bank for Cooperatives and any other banks with
which Pro-Fac may do business.
56. Asset Management. Pro-Fac agrees that
Curtice-Burns shall have possession of its properties, both
real and personal, money, all other assets and the business
of Pro-Fac during the term hereof for the purpose of
<PAGE>64
carrying on the business of Pro-Fac as authorized by its
certificate of incorporation and bylaws.
57. Financial Management. All moneys and
receipts derived from the business of Pro-Fac shall be the
property of Pro-Fac but shall be deposited in such
depositories in the name of Curtice-Burns as shall be
determined by resolution of the board of directors of
Curtice-Burns, subject to withdrawal by Curtice-Burns in the
course of Pro-Fac business.
58. Financial Agency. All checks, drafts, orders
or other instruments for the payment of money shall be
signed and endorsed by Curtice-Burns in the name of Pro-Fac.
59. Payment of Expenses. From revenue derived
from the operation of Pro-Fac business Curtice-Burns shall
pay all costs and expenses of such business, including, but
not limited to, taxes, insurance, interest, depreciation,
amortization, repairs, refunds, bonuses, legal and
accounting fees, licenses, transportation, service,
promotion, and any and all other expenses necessary or
incident to operate the business of and comply with the
legal commitments made by Pro-Fac.
60. Books of Account. All accounting records and
books of account necessary for Curtice-Burns to perform its
<PAGE>65
obligations hereunder shall be kept at such office of
Curtice-Burns as it deems appropriate.
61. Standard of Care. Curtice-Burns will manage
the business of Pro-Fac according to the best ability of its
officers, but without accountability for mistakes or errors
of judgment or for any losses arising from negligence, fire,
water or casualty or from any other causes except for such
losses resulting from gross negligence or willful
misconduct.
62. Policy Established by Pro-Fac Board of
Directors. The supervision and management of the business
of Pro-Fac by Curtice-Burns pursuant to this agreement shall
be in accordance with the general policies formulated and
approved by the board of directors of Pro-Fac, which by this
agreement only delegates to Curtice-Burns the authority to
manage and operate the business of Pro-Fac in its normal
course, limited by the provisions of law as to the
delegation of authority by a corporate board of directors.
Curtice-Burns shall consult Pro-Fac and its board of
directors on any matter which, by reason of its size or its
nature, is not in the ordinary course of business.
63. Access to Records. Pro-Fac, through its
officers and board of directors, shall have free access to
all the books and records of both Curtice-Burns and Pro-Fac
<PAGE>66
related to the business of Pro-Fac. Curtice-Burns will also
make available to the Pro-Fac officers and board of
directors such operating and financial statements as the
board may deem necessary and proper to keep Pro-Fac fully
informed of the operation of its business.
64. Hiring Authority. Curtice-Burns shall hire,
pay and at its pleasure discharge or transfer, supervise and
direct all persons employed in the business of Pro-Fac
during the term of this agreement. The chief executive
officer of Curtice-Burns, with the approval of the board of
directors of Pro-Fac, shall hire and discharge or transfer
the chief executive officer of Pro-Fac, who shall be an
officer of Pro-Fac with the title of general manager.
Employees handling money shall be bonded in accordance with
the requirements of the New York Cooperative Corporation Law
and in such amounts as may be determined by the board of
directors of Pro-Fac. Employees operating under this
agreement shall, for all purposes, be employees of Curtice-
Burns, shall be paid by Curtice-Burns, and shall be entitled
to welfare, pension and insurance and similar benefits,
either statutory or voluntary, on the same basis and under
the same rules as other employees of Curtice-Burns who are
similarly situated. Pro-Fac shall reimburse curtice-Burns
for the cost of such employees.
<PAGE>67
GENERAL
65. Assignment. This agreement may not be
assigned by either party without the written consent of the
other.
66. Arbitration. Should any dispute arise under
this agreement, such dispute shall be resolved by three
arbitrators, one appointed by Pro-Fac, one appointed by
Curtice Burns and a third chosen by the two arbitrators so
selected by the parties. The determination by a majority of
the arbitrators shall be final.
67. Election of Directors. So long as this
agreement is in effect the nominating committee of the board
of directors of Curtice Burns shall nominate a person
designated by Pro-Fac for election each year as a director
of Curtice Burns, and the Pro-Fac board of directors shall
as provided in the Pro-Fac bylaws elect as a public director
of Pro-Fac the person so designated by Curtice Burns.
68. Not A Partnership. Nothing in this agreement
shall be construed to have created a partnership between the
parties hereto.
69. Amendment. This agreement may be amended or
modified only by a written statement of such amendment or
modification duly signed by each of the parties.
<PAGE>68
70. Headings. The headings preceding the text of
paragraphs of this agreement are for convenience only and
shall not be deemed part of this agreement.
71. Applicable Law. This agreement shall be
governed by and construed in accordance with the laws of the
State of New York.
72. Renewal Option. Curtice Burns shall have the
right to extend this agreement for a period of five years
beginning June 28, 1997 upon written notice to Pro-Fac
before June 30, 1996. Thereafter, Curtice Burns shall also
have an additional right to extend this agreement for
another five years beginning June 29, 2002 upon written
notice to Pro-Fac no later than June 30, 2001. At the time
notice of renewal is given by Curtice Burns under either
option to renew, either party may propose a change in the
amounts to be paid by Curtice Burns as provided in
paragraph 52 hereof during the term of such renewal. The
amounts to be paid by Curtice Burns during such term shall
then be promptly negotiated by the parties. If the parties
are unable to agree, then the issue shall be settled by
arbitration as provided in paragraph 67. Any dispute
concerning such amounts to be paid pursuant to the
provisions of this paragraph shall in no way invalidate the
exercise of either renewal option by Curtice Burns, and upon
<PAGE>69
such exercise the agreement shall be deemed renewed, subject
only to the resolution of any dispute as to the amount to be
paid as herein provided.
IN WITNESS WHEREOF the parties have each caused
this agreement to be entered into and executed as of
June 27, 1992.
Pro-Fac Cooperative, Inc.
By: /s/ Robert V. Call
Robert V. Call, Jr. - President
By: /s/ Roy A. Myers
Roy A. Myers - General Manager
Curtice Burns Foods, Inc.
By: /s/ Donald E. Pease
Donald E. Pease
Chairman of the Board
By: /s/ David J. McDonald
David J. McDonald - President
<PAGE>70
EXHIBIT B
CBF PRESENTATION - PRO-FAC ANNUAL MEETING
GRAND RAPIDS - JANUARY, 1993
WHICH WAY TO THE FUTURE?
(SLIDE 1 - TITLE) GOOD AFTERNOON, LADIES AND GENTLEMEN. AS
YOU CAN SEE FROM THE TITLE OF THIS PRESENTATION, I'M NOT
GOING TO SPEND TIME TODAY ON THE PAST -- I'M GOING TO LOOK
TO THE FUTURE OF THIS GREAT AND UNIQUE JOINT VENTURE BETWEEN
CURTICE BURNS FOODS AND PRO-FAC CO-OPERATIVE. I SEE A VERY
EXCITING AND SUCCESSFUL FUTURE FOR OUR JOINT VENTURE, IF --
AND ONLY IF -- WE STRENGTHEN OUR WILL TO ACCELERATE THE
CHANGES WE HAVE ALREADY BEGUN IN OUR ORGANIZATION AND IN OUR
STRATEGIES SO THAT WE CAN COPE MORE EFFECTIVELY WITH THE
INCREASED RATE OF CHANGE AND THE INCREASED COMPETITIVE
PRESSURES NOW UNFOLDING IN THE FOOD BUSINESS.
ACTUALLY, THE FUTURE OF THE FOOD BUSINESS IS HERE WITH US
TODAY!
(SLIDE 2 - SALES SLOWDOWN & PROFIT PRESSURE) CHANGES HAVE
BEEN OCCURRING IN THE FOOD BUSINESS DURING THE PAST TEN
YEARS AT AN ACCELERATING RATE, AND AS OF TODAY THEY HAVE
REACHED A CRITICAL MASS WHICH IS NEGATIVELY IMPACTING OUR
JOINT VENTURE -- SLOWING THE RATE OF SALES GROWTH AND
<PAGE>71
PLACING SIGNIFICANT PRESSURES ON PROFITABILITY. HERE IS
WHAT THE FUTURE OF THE FOOD BUSINESS LOOKS LIKE -- TODAY!
1. (SLIDE 3 -- INDUSTRY CONSOLIDATION) FIRST, THERE IS
THE CONSOLIDATION OF THE INDUSTRY. THIS HAS REACHED
CRITICAL MASS IN BOTH AREAS OF THE INDUSTRY -- OUR
COMPETITORS AND OUR CUSTOMERS.
CONSOLIDATION OF OUR CUSTOMERS HAS GENERATED A REDUCED
NUMBER OF VERY LARGE CUSTOMERS WHO ARE BEGINNING TO DOMINATE
THE BUSINESS -- EITHER DIRECTLY, OR BY THE MANNER IN WHICH
THEY CAUSE THEIR COMPETITORS TO EMULATE THEIR BUSINESS
PRACTICES. WAL-MART NOW HAS OVER 1,800 STORES STRETCHING
FROM COAST TO COAST -- AND THEIR PIE FILLING BUSINESS NOT
ONLY IS A VERY LARGE PIECE OF BUSINESS FOR US, BUT ALSO SETS
THE PRICING STRUCTURE FOR MUCH OF THE REMAINDER OF OUR PIE
FILLING BUSINESS. FOOD LION, A TRADITIONAL GROCERY ACCOUNT
WHICH NOW STRETCHES FROM FLORIDA TO PENNSYLVANIA AND FROM
THE CAROLINAS TO TEXAS, IS THAT NEW ANIMAL ON THE SCENE --
THE "POWER BUYER".
FOOD LION HAS CENTRALIZED IN ONE OFFICE THEIR BUYING FOR ALL
OF THEIR 1,000 STORES, AND IN SELLING TO FOOD LION IN THIS
ENVIRONMENT IT HAS ALMOST REACHED THE POINT AT WHICH THEY
<PAGE>72
TELL YOU WHAT YOUR PRICE WILL BE RATHER THAN YOU TELL THEM.
PUBLIX AND WINN DIXIE BOTH HAVE TO COMPETE WITH FOOD LION IN
MUCH OF THEIR TERRITORY, AND AS YOU MIGHT EXPECT, THESE
ACCOUNTS -- WHO USED TO HAVE GENTLEMANLY, GOOD OLD BOY
BUYERS THROUGHOUT THEIR DIVISIONALIZED BUYING OFFICES --
HAVE NOW CENTRALIZED THEIR BUYING TO COMPETE WITH FOOD LION,
AND BELIEVE ME, THERE AIN'T NO MORE MR. NICE GUY.
DOING BUSINESS NOW WITH THESE GIANT ACCOUNTS ARE GIANT FOOD
COMPANIES -- 0UR COMPETITORS. THE TOP 50 FOOD PROCESSORS IN
THIS COUNTRY ACCOUNTED FOR 65% OF THE ASSETS EMPLOYED IN THE
FOOD BUSINESS IN 1980; IN 1992, THEY ACCOUNTED FOR 87% OF
THESE ASSETS.
SO WE HAVE GIANT FOOD PROCESSORS BEGINNING TO DOMINATE DOING
BUSINESS WITH GIANT FOOD RETAILERS AND WHOLESALERS, WHILE
THE MID-SIZE COMPANIES -- SUCH AS OUR NINE OPERATING
DIVISIONS -- FIND IT MORE AND MORE DIFFICULT TO STAND OUT IN
THIS ENVIRONMENT.
2. (SLIDE 4 - PRICE COMPETITION) HISTORICALLY IN THE FOOD
BUSINESS, PROCESSORS HAVE BEEN ABLE TO RAISE PRICES TO
COVER INFLATIONARY INCREASES AND PROTECT MARGINS.
INDEED, FOR MUCH OF THE DECADE OF THE 80'S, FOOD
<PAGE>73
PROCESSORS WERE ABLE TO RAISE PRICES BEYOND THE RATE OF
INFLATION TO INCREASE MARGINS. THOSE DAYS ARE GONE!
DRIVEN BY A NUMBER OF FACTORS -- IN PART BY THE CURRENT
RECESSIONARY ECONOMY, IN LARGER MEASURE BY THE SHIFT IN
CONSUMER ATTITUDES TO AN EMPHASIS ON VALUE, AND PERHAPS IN
LARGEST MEASURE BY THEIR GROWING POWER OVER SUPPLIERS -- OUR
CUSTOMERS ARE PUTTING UNPARALLELED PRESSURE ON HOLDING
SUPPLIER PRICES DOWN, AND WITH INFLATION STILL A REALITY IN
OUR ECONOMY ALBEIT AT A LOWER RATE, THIS PRICING PRESSURE
PUTS NEGATIVE PRESSURE ON PROCESSOR MARGINS.
AS DICK CURRIE, CHAIRMAN OF LOBLAW COMPANIES IN CANADA, HAS
REPEATEDLY WARNED SUPPLIERS: WE WILL NO LONGER ACCEPT YOUR
PRICE INCREASES. PERIOD!
3. (SLIDE 5 - PRIVATE LABEL) THE EUROPEANIZATION OF
AMERICA IS WELL ON ITS WAY -- AT LEAST IN THE GROCERY
BUSINESS. DID YOU KNOW THAT RETAILERS DOING 24% OF
GROCERY VOLUME IN THE UNITED STATES ARE OWNED BY
EUROPEAN COMPANIES?
IN EUROPE, RETAILERS HAVE FOR SEVERAL DECADES BEEN
DEVELOPING STRONG PRIVATE LABELS WHICH SERVE AS THEIR
<PAGE>74
MEANS OF DIFFERENTIATING THEMSELVES FROM THEIR
COMPETITORS.
VISIT A MARKS & SPENCERS RETAIL FOOD OUTLET IN THE
U.K., AND YOU WILL FIND I WOULD ESTIMATE 80 - 90% OF
THE SHELF SPACE OCCUPIED BY THEIR PRIVATE LABEL.
VISIT A LOBLAWS STORE IN CANADA, AND YOU WILL SEE THE
MOST SOPHISTICATED PRIVATE LABEL PROGRAM ON THIS
CONTINENT -- A DUAL LEVEL PRIVATE LABEL PROGRAM WITH A
PRESIDENT'S CHOICE PRIVATE LABEL WHICH PROVIDES QUALITY
EQUAL TO OR BETTER THAN THE BRANDS AT AN EQUAL OR ONLY
SLIGHTLY LOWER PRICE, AND A NO-NAME STORE LABEL PROGRAM
WHICH PROVIDES DRAMATIC PRICE REDUCTIONS BUT AT SOME
REDUCED QUALITY LEVEL. ONE MEASURE OF THE STRENGTH OF
THIS PROGRAM IS THE FACT THAT LOBLAW WHICH OWNS ONLY
25% OF THE TOTAL GROCERY BUSINESS, CONTROLS 50% OF THE
CHOCOLATE CHIP COOKIE BUSINESS WITH THEIR PRESIDENT'S
CHOICE DECADENT CHOCOLATE CHIP COOKIE.
WHAT DOES THIS MEAN FOR FOOD PROCESSORS? IT MEANS THAT
THE SHELF OF THE FUTURE IN LARGE CATEGORIES WILL
CONTAIN NO MORE THAN ONE OR TWO BRANDS WHICH HAVE MAJOR
CONSUMER FRANCHISES SUPPORTED BY HEAVY ADVERTISING, AND
<PAGE>75
ONE TO TWO PRIVATE LABEL ENTRIES. IN SMALLER, NICHE
CATEGORIES, THERE WILL PROBABLY ONLY BE PRIVATE LABEL
REPRESENTATION.
4. (SLIDE 6 - ZERO SUM GAME) AND FINALLY, IT IS IMPORTANT
TO NOTE THAT THE FOOD BUSINESS IS ESSENTIALLY A ZERO
SUM GAME. BY THIS I MEAN THAT THERE IS NO MAJOR GROWTH
IN THE FOOD BUSINESS, BEYOND POPULATION GROWTH -- WHICH
IS RUNNING AROUND ONLY 1% PER YEAR.
THIS IS MUCH MORE SIGNIFICANT THAN IT MAY APPEAR AT
FIRST. THE FUNCTION OF MANAGEMENT IS TO INCREASE
SHAREHOLDER VALUE, AND YOU DO THIS BY INCREASING
DIVIDENDS AND GENERATING STOCK APPRECIATION FOR OUR CBF
INVESTORS -- AND BY INCREASING EARNINGS ABOVE CMV AND
INCREASING AGRICULTURAL TONNAGE SALES FOR OUR PRO-FAC
INVESTORS. INCREASES IN DIVIDENDS AND EARNINGS ABOVE
CMV AND STOCK APPRECIATION ARE DRIVEN BY INCREASED
EARNINGS. IN EVEN A MILDLY INFLATIONARY ECONOMY, AND
WITH STABLE TO DECLINING MARGINS, IT IS IMPOSSIBLE OVER
THE LONG HAUL TO COST REDUCE YOURSELF TO THE KIND OF
PROFITABILITY GAINS NECESSARY TO DRIVE THESE FACTORS.
YOU MUST GET THESE PROFITABILITY GAINS FROM SALES
GROWTH.
<PAGE>76
HOWEVER, IF THERE IS NO MARKET GROWTH -- A ZERO-SUM
GAME -- YOU MUST GET YOUR GROWTH FROM YOUR COMPETITOR
YOU MUST TAKE IT AWAY FROM HIM. AND BELIEVE ME, HE'S
TRYING TO DO THE SAME THING -- TAKE IT AWAY FROM YOU.
(SLIDE 7 - WINNERS/LOSERS) WHAT THIS MEANS IS REALLY
QUITE SIMPLE: THERE ARE ONLY TWO TYPES OF FOOD
PROCESSORS TODAY AND ON INTO THE FUTURE -- LOSERS OR
WINNERS. YOU EITHER GIVE AND YOU'RE A LOSER, OR YOU
TAKE AND YOU'RE A WINNER!
OUR JOINT VENTURE HAS A LONG HISTORY OF BEING A WINNER.
FROM THE BEGINNING OF THE JOINT VENTURE UP THROUGH THE EARLY
80'S, OUR STRATEGY WORKED REMARKABLY WELL.
WE BOUGHT SMALL REGIONAL FOOD PROCESSORS AT BARGAIN PRICES,
IMPROVED THEIR OPERATING RESULTS, AND USED THE INCREASED
EARNINGS TO KEEP THE CYCLE GOING.
(SLIDE 8 - WHICH WAY TO THE FUTURE?) IN THE MID-80'S WHEN
FOOD COMPANY ACQUISITION PRICES SKYROCKETED, THIS STRATEGY
HIT SOME VERY ROCKY GROUND. AND AS BRANDED COMPETITION
INTENSIFIED IN THE LATE 80'S, OUR EFFORTS TO COMPETE WITH
THE MAJOR BRANDS IN THIS COUNTRY MET WITH ONLY MIXED SUCCESS
<PAGE>77
-- TODAY WE HAVE MORE OF OUR BRANDED PRODUCTS GOING DOWN IN
SHARE THAN WE HAVE STEADY OR GAINING IN SHARE. CLEARLY, WE
MUST INTENSIFY OUR EFFORTS TO CHANGE IN ORDER TO DEAL WITH
THE REALITIES OF TODAY'S FOOD BUSINESS. HERE IS WHAT WE ARE
DOING.
(SLIDE 9 - CORP. STRATEGY REVIEW/DEVELOPMENT) A TASK GROUP
HAS BEEN FORMED OF SENIOR OFFICERS -- INCLUDING ROY MYERS,
PRO-FAC'S GENERAL MANAGER -- TO REVIEW STRATEGY OPTIONS FOR
CURTICE BURNS FOODS, AND TO SELECT THE OPTIMUM STRATEGY.
THIS GROUP IS SEEKING TO BRING TO BEAR THE BEST POSSIBLE
RESOURCES IN DEVELOPMENT OF NEW STRATEGIES, INCLUDING
OUTSIDE STRATEGIC CONSULTING ORGANIZATIONS. THIS IS NOT AN
EASY TASK -- IT WILL BE AN ARDUOUS AND TIME CONSUMING
ENDEAVOR, AND WE EXPECT THAT IT WILL NOT BE COMPLETED UNTIL
JANUARY '94.
THE NEW INITIATIVE REPRESENTS THE REALIZATION THAT NEW
DIRECTIONS ARE REQUIRED TO DEAL WITH THE REALITIES OF THE
FOOD BUSINESS OF TODAY -- IT REPRESENTS THE DETERMINATION TO
TIGHTEN OUR FOCUS, TO STRENGTHEN OUR COMMITMENT TO CERTAIN
SPECIFIC DIRECTIONS, AND TO IMPLEMENT WITH A COHESIVENESS
AND INTENSITY A STRATEGY WHICH WILL CARRY FORWARD THE
WINNING TRADITION OF THIS GREAT JOINT VENTURE.
<PAGE>78
BUT JANUARY '94 IS A LONG WAY OFF. WHAT ARE WE DOING IN THE
MEANTIME TO GROW THE EARNINGS AND THE AGRICULTURAL TONNAGE
OF THIS JOINT VENTURE?
(SLIDE 10 - CLEAR THE DECKS) WE ARE ACCELERATING OUR
EFFORTS TO "CLEAR THE DECKS". WE CAME INTO F'93 WITH THREE
TROUBLED ACQUISITIONS.
IN THE CASE OF OUR LUCCA FROZEN ENTREE BUSINESS, THE
CONSOLIDATION WITH NALLEY'S U.S. WHICH WAS COMPLETED AT THE
END OF F'92 PRODUCED A DRAMATIC REDUCTION IN THE LOSSES
GENERATED BY THIS BUSINESS -- BUT THE BUSINESS WAS STILL
LOSING MONEY, AND IT DID NOT APPEAR THAT WE COULD FIX THE
PROBLEM. AS A RESULT, THE LUCCA BUSINESS HAS BEEN SOLD TO A
FIRM WITH THE SYNERGIES NECESSARY TO MAKE THAT FROZEN ENTREE
BUSINESS PROFITABLE FOR THEM. THANKS TO THE EFFORTS OF DAVE
MCDONALD, THE "DECKS HAVE BEEN CLEARED" WITH REGARD TO THE
LUCCA FROZEN ENTREE BUSINESS. WE STILL HAVE TWO REMAINING
SIGNIFICANT PROBLEMS, AND DAVE HAS AGGRESSIVE PROGRAMS
UNDERWAY TO GET THOSE BUSINESSES ON A PROFITABLE FOOTING IN
THE VERY NEAR TERM -- AND IF THAT DOES NOT PROVE TO BE
PRACTICAL, WE WILL HAVE TO SELL THOSE BUSINESSES ALSO.
<PAGE>79
EITHER WAY, WE'VE GOT TO GET THOSE PROBLEMS BEHIND US
RELATIVELY QUICKLY -- WE'VE GOT TO "CLEAR THE DECKS", SO
THAT WE CAN FOCUS ON MOVING THIS BUSINESS FORWARD.
(SLIDE 11 -- INTENSIFY CURRENT EFFORTS) ADDITIONALLY, WE'VE
GOT TO INTENSIFY THE EFFORTS CURRENTLY UNDERWAY TO BUILD OUR
SALES VOLUME AND REDUCE OUR COSTS. THESE EFFORTS ARE MANY
AND VARIED, AND THEY CUT ACROSS ALL DIVISIONS. ROY MYERS
TOUCHED ON A NUMBER OF THE MAJOR COST REDUCTION PROGRAMS.
IN THE LIMITED TIME I HAVE THIS AFTERNOON, IT'S IMPOSSIBLE
TO COVER THE FULL SPECTRUM OF DIVISION ACTIVITIES TO GROW
THEIR SALES VOLUME. HOWEVER, I WOULD LIKE TO HIGHLIGHT
THREE SUCH PROGRAMS.
(SLIDE 12 - NALLEY'S U.S. PICKLE SALES VOLUME) THE FIRST IS
THE NALLEY U.S. PICKLE BUSINESS. THIS IS A CLASSIC EXAMPLE
OF THE SUCCESSFUL COLLABORATION OF PRO-FAC AND CURTICE BURNS
TO BUILD AGRICULTURAL TONNAGE AND EARNINGS IN THE FOOD
BUSINESS. IT BEGAN WITH THE CONSTRUCTION OF A NEW PICKLE
PLANT IN 1982. IT CONTINUED WITH THE ACQUISITION OF THE
FARMAN BROS. PICKLE COMPANY IN 1987, AND THE SUCCESSFUL
INTEGRATION OF THAT BUSINESS INTO THE NALLEY'S OPERATION.
THE RESULTS SPEAK FOR THEMSELVES -- A 35% INCREASE IN PICKLE
POUND SALES OVER THAT PERIOD OF TIME. (SLIDE 13 - NALLEY
<PAGE>80
PICKLE EARNINGS) AND IN THAT SAME PERIOD OF TIME THE
EARNINGS OF OUR JOINT VENTURE FROM THE NALLEY U.S. PICKLE
BUSINESS MORE THAN QUADRUPLED.
IS THIS THE END OF THE STORY? NO WAY. OUR PROGRESS IN THE
PICKLE BUSINESS CONTINUES ON A VARIETY OF FRONTS. OUR
NORTHWEST CUCUMBER GROWERS ARE WORKING WITH MECHANICAL
HARVESTING TO LOWER GROWING COSTS. OUR NALLEY'S U.S. SALES
AND MARKETING TEAM CONTINUES TO DEVELOP PROGRAMS TO BUILD
THEIR VOLUME. (SLIDE 14 - NALLEY PLASTIC JAR) ONE EXAMPLE
IS THEIR TEST INTRODUCTION OF A PLASTIC 46 OZ. PICKLE JAR --
THE FIRST IN THE INDUSTRY.
FOR THOSE CONSUMERS WITH CONCERNS ABOUT BREAKAGE WITH THE
LARGE GLASS PICKLE JAR -- PARTICULARLY THOSE CONSUMERS WITH
YOUNG CHILDREN, RESEARCH HAS INDICATED THIS SHATTERPROOF JAR
WILL BE A VERY ATTRACTIVE PACKAGE.
(SLIDE 15 - WALLA WALLA ONION DILL AND DILLEST DILL)
NALLEY'S CONTINUES TO BE ACTIVE WITH NEW PICKLE PRODUCTS --
THE LATEST BEING NALLEY'S WALLA ONION DILLS AND NALLEY'S
DILLEST DILLS, BOTH CONTINUING NALLEY'S REGIONAL SELLING
PROPOSITION: THE UNIQUE FLAVORS OF THE GREAT NORTHWEST.
LISTEN TO THIS RADIO ADVERTISING WITH WHICH NALLEY'S HAS
<PAGE>81
INTRODUCED THESE NEW PRODUCTS (SLIDE 16 - VIDEO TAPE OF
NALLEY'S JARS AND AUDIO OF RADIO COMMERCIAL).
(SLIDE 17 - DEL MONTE CO-PACK) TO TOP IT ALL OFF, NALLEY'S
U.S. MANAGEMENT IS JUST ABOUT TO SIGN A MULTI-YEAR CONTRACT
WITH THE DEL MONTE CORPORATION TO CO-PACK DEL MONTE'S
PICKLES, REPLACING THE VLASIC DIVISION OF CAMPBELL SOUP AS
CO-PACKER. THE CONTRACT CALLS FOR THIS PRODUCTION TO BEGIN
WITH THE CALENDAR '94 CROP, ALTHOUGH NALLEY'S MANAGEMENT IS
FOR OBVIOUS REASONS PUSHING TO BEGIN WITH THE CALENDAR '93
CROP.
THE RESULTS WILL BE VERY SIGNIFICANT WITH REGARD TO THE
PICKLE BUSINESS OF OUR JOINT VENTURE, WITH POUND SALES
INCREASING 16% BEYOND THE LEVELS WHICH I SHOWED YOU EARLIER
-- AND OUR JOINT VENTURE EARNINGS INCREASING 31%.
(SLIDE 18 - NALLEY'S CANADA EARNINGS) LET'S TAKE A QUICK
TRIP NORTH OF NALLEY'S U.S. TO NALLEY'S CANADA, WHERE AS YOU
CAN SEE OUR JOINT VENTURE EARNINGS HAVE INCREASED 46% OVER
THE LAST FIVE YEARS, SETTING ALL TIME HISTORICAL RECORDS.
(SLIDE 19 - NALLEY CHIP AND SNACK EARNINGS) THIS HAS BEEN
DRIVEN PRIMARILY BY A DRAMATIC EARNINGS TURNAROUND IN THE
<PAGE>82
NALLEY CANADA CHIP AND SNACK BUSINESS, WHICH WAS IN A LOSS
POSITION FIVE YEARS AGO AND NOW ACCOUNTS FOR OVER 60% OF THE
DIVISIONS'S EARNINGS.
(SLIDE 20 - NALLEY'S CANADA CHIP AND SNACK VOLUME) THIS
IMPRESSIVE GAIN IN JOINT VENTURE EARNINGS HAS BEEN DRIVEN BY
A SPECTACULAR INCREASE IN POUND SALES VOLUME -- AS YOU CAN
SEE FROM THIS CHART, THE POUND SALES HAVE ALMOST QUADRUPLED
IN THIS SAME FIVE-YEAR PERIOD OF TIME. THESE IMPRESSIVE
VOLUME GAINS HAVE BEEN DRIVEN BY A VARIETY OF CREATIVE AND
AGGRESSIVELY PURSUED MARKETING AND SALES PROGRAMS --
(SLIDE 20-A - PHOTO OF SUPER CRUNCH) -- ONE OF WHICH IS THE
INTRODUCTION OF NALLEY'S SUPER CRUNCH POTATO CHIPS WHICH
BUILDS ON THE INCREDIBLE POPULARITY OF THE NATIONAL HOCKEY
LEAGUE IN CANADA.
LET'S TAKE A LOOK AT THE ADVERTISING FOR THIS NEW PRODUCT
LINE (SLIDE 21 - SUPER CRUNCH COMMERCIAL).
(SLIDE 22 - CMF TURN-AROUND) AND NOW AN EXAMPLE OF HOW WE
ARE INTENSIFYING OUR EFFORTS TO IMPROVE EARNINGS WHICH IS
CLOSER TO HOME FOR MOST OF YOU HERE. COMSTOCK MICHIGAN
FRUIT, AS YOU KNOW, EMBARKED ON A MAJOR TURN-AROUND PROGRAM
FOLLOWING A DRAMATIC DECLINE IN EARNINGS FROM F'88 TO F'90.
<PAGE>83
AS YOU WILL SEE HERE, THE AGGRESSIVE AND CREATIVE EFFORTS BY
ALL MEMBERS OF OUR JOINT VENTURE TEAM ARE SUCCEEDING MORE
RAPIDLY THAN WE HAD EXPECTED -- THE CMF TURN-AROUND IS WELL
ON ITS WAY!
(SLIDE 23 - PIE FILLING EARNINGS) AS YOU CAN SEE FROM THIS
CHART, ONE OF THE MAIN DRIVERS OF THIS TURN-AROUND IS OUR
PIE FILLING BUSINESS, WHERE JOINT VENTURE EARNINGS IN F'93
WILL SET AN ALL-TIME HISTORICAL RECORD.
(SLIDE 24 - PIE FILLING POUND SALES) HOWEVER, THE POUND
SALES PICTURE ON CMF PIE FILLING IS NOT AS STRONG -- WHILE
POUND SALES ARE UP 20% IN F'93 OVER F'88, THEY ARE DOWN 3%
VERSUS THEIR PEAK IN F'90. WE ARE NOT SATISFIED WITH THIS
TREND, BECAUSE WE RECOGNIZE OUR RESPONSIBILITY TO THE JOINT
VENTURE TO GENERATE LONG-TERM GAINS IN AGRICULTURAL RAW
MATERIAL. BASED ON A SUGGESTION WHICH CAME TO MY ATTENTION
AT A MICHIGAN REGIONAL PRO-FAC MEETING A COUPLE OF YEARS
AGO, WE DID SOME RESEARCH ON THE IDEA OF INCREASING THE
FRUIT CONTENT OF OUR PIE FILLINGS. (SLIDE 23 - PHOTOS OF
INCREASED FRUIT CHERRY PIE FILLING) CONSUMERS REACTED VERY
WELL TO THE CONCEPT OF A PIE FILLING WITH INCREASED FRUIT
CONTENT, MARKETED UNDER THE SELLING PROPOSITION OF "MORE
FRUIT -- MORE FLAVOR".
<PAGE>84
COMSTOCK ENTERED TWO MARKETS TO TEST THIS SELLING
PROPOSITION IN THE FALL OF '92, USING THE PRODUCTS AND
LABELS YOU SEE HERE -- IN ONE TEST MARKET COMPLETELY
REPLACING THE EXISTING LINE WITH THE INCREASED FRUIT
PRODUCT, AND IN THE OTHER TEST MARKET ADDING THE INCREASED
FRUIT PRODUCT AS A LINE EXTENSION WHILE LEAVING THE PRESENT
PRODUCTS ON THE SHELF. LET'S TAKE A LOOK AT THE TWO
COMMERCIALS USED IN THESE TEST MARKETS -- REMEMBERING THAT
ONE IS FOR THE LINE EXTENSION AND THE OTHER FOR A COMPLETE
REPLACEMENT PRODUCT. (SLIDE 26 - INCREASED FRUIT PIE
FILLING COMMERCIALS) IT IS AT THIS POINT IN TIME TOO EARLY
TO READ THE RESULTS OF THESE TEST MARKETS. REST ASSURED WE
WILL DO SO AT THE EARLIEST POSSIBLE DATE, AND IF THE RESULTS
ARE POSITIVE, EXPAND AS RAPIDLY AS POSSIBLE.
WE UNDERSTAND THE VERY POSITIVE IMPLICATIONS OF THIS TEST
FOR THOSE PRO-FAC MEMBERS WHO SUPPLY FRUIT FOR OUR PIE
FILLINGS.
(SLIDE 27 - CMF TURN-AROUND) WE HAVE SEEN A VERY EXCITING
TURN-AROUND IN THE EARNINGS OF THE COMSTOCK MICHIGAN FRUIT
DIVISION DURING THE PAST 2 1/2 YEARS.
<PAGE>85
(SLIDE 28 - PHOTO OF CMF MISSION/CULTURE STATEMENT) ONE OF
THE MAJOR DRIVERS OF THAT TURN-AROUND IS THE NEW CULTURE
THAT WE ARE IN THE PROCESS OF BUILDING WITHIN CMF. LET ME
READ TO YOU A FEW OF THE KEY PHRASES FROM THIS CULTURE
STATEMENT: "PEOPLE IN OUR ORGANIZATION SHOULD EXHIBIT AN
INDOMITABLE WILL TO WIN, THE FLEXIBILITY TO ADAPT TO
CONTINUING CHANGE IN THE MARKETPLACE, AND THE EXTRA
CREATIVITY AND DISCIPLINE NECESSARY TO TAKE ADVANTAGE OF OUR
OPPORTUNITIES. IN ORDER TO ENCOURAGE THAT COMMITMENT AND
SUPPORT, WE MUST CREATE AN ENVIRONMENT WHICH RESPECTS THE
INDIVIDUAL, EMPOWERS HIS OR HER CONTRIBUTION THROUGH
COMMUNICATION AND TRAINING, TREATS MISTAKES AS A LEARNING
EXPERIENCE, AND REWARDS SUCCESS." SLIDE 29 - UNBEATABLE
TEAM LOGO) WE BELIEVE WE HAVE WITHIN COMSTOCK MICHIGAN
FRUIT THE CAPABILITY TO BE THE UNBEATABLE TEAM!"
(SLIDE 30 - UNBEATABLE TEAM LOGO WITH CBF AND PRO-FAC LOGO)
I BELIEVE THAT WE HAVE WITHIN OUR JOINT VENTURE -- CURTICE
BURNS FOODS AND PRO-FAC CO-OPERATIVE -- THE CAPABILITY TO BE
THE UNBEATABLE TEAM! THANK YOU.
<PAGE>86
Curtice Burns Foods
March 23, 1993
To: The Curtice Burns Foods Team
From: Bill Petty
Subject: Potential Purchase of Agway Interest in Curtice
Burns Foods
As many of you know, Agway Inc. has been thinking about
selling their interest in Curtice Burns Foods since last
fall. Agway's decision to consider the sale of its Curtice
Burns shares is part of their overall strategic plan of
focusing on their agriculture, consumer retailing, energy,
insurance and leasing businesses. Today the board of
directors of Agway authorized Agway management to actively
explore this sale.
The board of directors of Pro-Fac Cooperative, our
joint venture partner and the organization which finances
Curtice Burns Foods, has declared its desire to purchase the
Agway interest in Curtice Burns Foods. The objective of
Pro-Fac's purchase would be to preserve the present
structure of the unique and strong joint venture which is
Curtice Burns Foods and Pro-Fac Cooperative. Such a
purchase would retain for Pro-Fac's grower-members across
the United States the substantial benefits of this joint
venture, including development of markets for their raw
product and sharing in earnings of the joint venture. A
Special Committee of the Pro-Fac board has been formed to
spearhead this purchase effort.
A Special Committee of the Curtice Burns board of
directors has also been formed. Curtice Burns has, as I
believe many of you are aware, the right of first refusal on
the purchase of Agway's Curtice Burns Class B shares.
This situation has very positive possibilities for us,
in that it could put control of our future in the hands of
our own joint venture (the interest Agway is selling
includes 99 percent of the Class B common stock, which
elects two thirds of the Curtice Burns Board of directors).
At the same time, it has risk for us, in that outside
interests could possibly acquire control of Curtice Burns.
<PAGE>87
A decision by the Agway board to actually sell their
interest in Curtice Burns is of course dependent upon their
receiving an offer which is satisfactory to them regarding
price, terms, etc., whether from Pro-Fac or another source.
We have no way of knowing how long it will take to bring
this possible purchase of Agway's interest to a conclusion,
but we will keep you informed of significant developments as
they occur.
Right now, the best thing each of us can do is to focus
single-mindedly on the day-to-day challenges of building the
sales and earnings of each of our businesses. This is the
key to putting us in the strongest possible position for the
future. And it is what you all do so well - it's what makes
you THE UNBEATABLE TEAM!
J. William Petty
President
<PAGE>88
EXHIBIT C
PROFAC COOPERATIVE, INC.
90 Linden Oaks Office Park
Post Office Box 682
Rochester, New York 14603
Phone: (716) 383-1850
Fax: (716) 383-1281
November 4, 1993
To the Directors of Curtice Burns and Agway
Pro-Fac has recently been advised that unless it agrees
to several demands from Curtice Burns, at the meeting of the
Curtice Burns board on November 11 management will recommend
that Curtice Burns terminate its 32 year joint venture with
Pro-Fac.
Pro-Fac strongly believes that its relationship with
Curtice Burns has been good for both sides and should be
preserved if at all possible. An abrupt decision to
terminate the relationship, particularly in the absence of a
clear alternative course, does not appear prudent in any
circumstance. Such a termination would violate duties owed
to Pro-Fac by both Curtice Burns and Agway and will embroil
you in litigation over management of the joint venture.
Pro-Fac has bent over backwards to try to accommodate
the legitimate goals of Curtice Burns, including agreeing to
the sale of National Oats over the objection of our largest
member. Pro-Fac has also agreed to the sale of Hiland and
Meat Snacks on the same terms as National Oats, subject only
to those sale not being used to the detriment of Pro-Fac.
Curtice Burns and Agway, by contrast, have tried to shut
Pro-Fac out of the process, despite the clear need to
involve Pro-Fac in any sale of Curtice Burns.
The Special Committee of the Pro-Fac board has prepared
this statement for you in the hope that it will help you to
understand the position of Pro-Fac on these issues and to
show how they may be resolved without acrimonious litigation
over an attempt to terminate the Integrated Agreement.
<PAGE>89
Trust Between Venturers
Pro-Fac and Curtice Burns have long operated as a joint
venture between growers and processors for their mutual
benefit. Pro-Fac has always provided at least half the
equity and most of the borrowed funds used in the venture.
The mission statement adopted by the Curtice Burns board
appropriately states that Curtice Burns is to be operated
for the benefit of the members of Pro-Fac as well as for the
shareholders of Curtice Burns. Curtice Burns has stated
that to fulfill its mission it will ". . . assure the
continuity of our successful relationship with Pro-Fac . . .
whose . . . members . . . share in the economic risks and
rewards of the enterprise."
As part of the joint arrangements, Curtice Burns has
managed Pro-Fac for over three decades. Throughout that
period, at the recommendation of Curtice Burns, Pro-Fac has
consented to finance long-term investments at the expense of
current earnings. As you know, Pro-Fac has the contractual
right to a substantial share in the current earnings of the
business but agreed to those growth strategies because of
mutual expectations of the continuation of the joint
enterprise.
In recent months, Curtice Burns seems to have been
acting solely to further the interest of its shareholders,
disregarding the years of investments by Pro-Fac, reducing
the return to its members and instead having Agway and the
other shareholders of Curtice Burns. In fact, Agway has
advised us that it has instructed its directors of Curtice
Burns to conduct the business solely for the benefit of
shareholders of Curtice Burns, without any regard to Pro-
Fac. Having seen its growth strategy result in assets worth
substantially more than book value, Curtice Burns now is
attempting to deny Pro-Fac its rightful share of that value
and to penalize Pro-Fac by charging it with the Curtice
Burns' failures.
Pro-Fac Proposal
Pro-Fac continues to believe that its proposal to
acquire Curtice Burns at a substantial premium to market
provides the best solution for all parties.
Agway has complained that the proposal is contingent on
the sale of Nalley's at $217,000,000. But this is at the
<PAGE>90
low end of the Nalley values set forth by the Agway and
Curtice Burns' investment bankers. Moreover, Pro-Fac has
offered to give any overage to the shareholders. If the
Curtice Burns and Agway investment bankers are accurate in
valuing Nalley's at over $217 million, all shareholders
would receive approximately $22 per share.
Pro-Fac has requested the cooperation of management in
exploring the sale of Nalley's so that it may remove that
contingency from its offer. But Curtice Burns has said that
unless Pro-Fac agrees to a termination price, it will not
cooperate with Pro-Fac in the sale of Nalley's.
The attempts of Curtice Burns and Agway to prevent Pro-
Fac from perfecting its offer to buy the A and B shares of
Curtice Burns at a substantial premium over market violate
both their obligation to Pro-Fac in the joint venture and
their duty to negotiate any proposal for the benefit of the
non-Agway shareholders of Curtice Burns, who should be given
a chance to evaluate the Pro-Fac offer.
Nalley's may not be sold without the concurrence of
both Curtice Burns and Pro-Fac. They should cooperate to
see whether there is a buyer for Nalley's acceptable to both
at a price sufficient to meet the contingency in the Pro-Fac
offer to the shareholders of Curtice Burns. Pro-Fac has
already received substantial interest in Nalley's and
Curtice Burns should not stand in the way of discussions
with any responsible buyers.
Hiland and Meat Snacks
At the end of fiscal 1993, the Curtice Burns board
accepted a recommendation from management that it explore
termination of its relationship with Pro-Fac. At the same
time the value of Meat Snacks and Hiland was written down to
such an extent that it eliminated Pro-Fac earnings for the
year and caused a substantial reduction in Pro-Fac equity.
Now Curtice Burns proposes to take further advantage of the
write-down to reduce the cost of termination.
Pro-Fac has agreed to approve the sale of Hiland and
Meat Snacks, provided that the fact of the sale will not be
used against Pro-Fac in determining termination payments
under the integrated agreement. This condition is entirely
reasonable. Curtice Burns, on the other hand, is asking you
to approve a transaction which imposes substantial losses on
<PAGE>91
Pro-Fac (almost $30 million) without giving Pro-Fac its fair
share of the gain in appreciated companies. It cannot be
fair for Curtice Burns to take all of its book losses in one
year and reserve for itself the gains on appreciated assets
-- assets that Pro-Fac financed -- only after Pro-Fac has
been terminated.
The arrangement for the sale of Hiland and Meat Snacks
proposed by Pro-Fac preserves both the ability of Curtice
Burns to maintain that the year-end write-down was proper
and that is should reduce the amount payable upon
termination, as well as the ability of Pro-Fac to argue to
the contrary, should it ever be necessary to determine the
amount due on termination. Neither side gives up anything
from its current position, and Hiland and Meat Snacks are
sold to the benefit of everybody.
Negotiation of the Termination Payments
Curtice Burns has been most insistent that the amount
of termination payment under the integrated agreement be
negotiated and agreed to now. By its unyielding insistence
on the necessity of an agreed-upon termination amount,
Curtice Burns gives the impression that it would gain a
valuable advantage from such agreement. The position of
Curtice Burns seems to be "either you agree to a termination
price, or we will terminate you". This position is wrong
and impractical.
In summary, Pro-Fac wants to maintain a market for
crops of its members and to be treated fairly in light of
its investment and reliance on joint management of its
business by Curtice Burns. It also shares the Curtice Burns
objective of greater profitability, and it believes that it
is the party willing to pay the highest price for the shares
of Curtice Burns.
We are prepared to move forward promptly to resolve the
outstanding issues between us, most notably approval of the
sale of Hiland and Meat Snacks under the condition described
above. We also should cooperate to find a buyer for
Nalley's so that we may conclude negotiations for the sale
of Curtice Burns to Pro-Fac, the course of action we believe
is in the best interests of our members and your
shareholders. Pro-Fac is willing to consider any idea,
including modifying the integrated agreement.
<PAGE>92
The alternative -- an attempt to terminate the
integrated agreement -- will lead only to long and costly
litigation. Far from ending gridlock, it is likely to
intensify it through the hardening of attitudes that comes
with litigation.
Until recently, the relationship between Curtice Burns
and Pro-Fac has been that of productive partners. We want
to do whatever we can to restore that relationship. We hope
this letter will help to do so.
Very truly yours,
The Pro-Fac Special Committee:
Robert V. Call, Jr.
Albert Fazio
Bruce Fox
Steven Koinzan
<PAGE>93
EXHIBIT 2
PRO FAC COOPERATIVE, INC.
90 Linden Oaks Office Park
Post Office Box 682
Rochester, New York 14603
Phone: (716) 383-1850
Fax: (716) 383-1281
August 4, 1994
Board of Directors
Curtice Burns Foods, Inc.
90 Linden Place
Rochester, New York 14603
Gentlemen and Madam:
Through meetings with representatives of Curtice Burns,
Agway and Dean Foods and discussions among our respective
legal counsel and financial advisors during the past several
weeks, it appears that the parties still have significantly
different views of Pro-Fac's rights under the Integrated
Agreement. One thing on which we likely all agree is that
it is in no one's interest to prolong these matters.
Although we remain confident that in any dispute
resolution proceeding our position would prevail, we believe
a prompt resolution would permit management to go back to
business as usual and not continue to be diverted by the
change of control issue. To facilitate a timely resolution
of these issues and as part of our settlement discussions,
Pro-Fac is submitting this proposal to acquire all of the
Class A and Class B Common Stock of Curtice-Burns Foods,
Inc.
Proposal; Cash Consideration
Pro-Fac proposes, subject to the conditions in this
letter, to enter into a merger agreement with Curtice Burns,
pursuant to which Pro-Fac would purchase the Class A Common
Stock and Class B Common Stock of Curtice Burns at a price
of $19.00 per share in cash to the Curtice Burns
shareholders. This proposal is based on the assumption that
6,628,430 and 2,056,876 shares of Class A Common Stock and
Class B Common Stock, respectively, are outstanding, that
281,144 shares of Class A Common Stock are issuable pursuant
to in-the-money options outstanding, that gross proceeds of
<PAGE>94
approximately $3,700,000 would be received by Curtice Burns
upon the exercise of such options and that such shares
outstanding and such shares issuable upon the exercise of
in-the-money options (collectively, the "Shares") are the
only shares required to be purchased.
Additional Value
As part of the consummation of the transaction and as
additional considerable to Curtice Burns and its
shareholders, Pro-Fac would relinquish its claims against
Curtice Burns under the Integrated Agreement. As we have
discussed with your legal representatives, we believe that
the value of these claims represents at least $5.75 per
Share, based on the amount that would be due Pro-Fac upon
completion of the proposed transaction between Curtice Burns
and Dean Foods Company. Based on this value, Pro-Fac's
proposal to acquire the Shares is substantially higher than
Dean Foods' proposal. This additional value should not be
construed as an indication of what we would agree to in a
cash settlement of our claims. Rather, it signifies that
there may be additional value to Pro-Fac in acquiring
Curtice Burns. By making this offer, Pro-Fac is not waiving
any of its rights or claims.
Financing
Based on conversations with senior lenders, Dillon,
Reach & Co. Inc. ("Dillon Read") has received preliminary
indications of interest in financing an acquisition by Pro-
Fac of the Shares. The Springfield Bank for Cooperatives
and two other AAA rated financial institutions have each
individually indicated an interest in acting as agent bank
in providing between $275 million and $325 million of senior
secured financing commitments. In addition, Dillon Read has
indicated that upon satisfactory completion of its due
diligence investigation, it will issue a highly confident
letter with respect to up to $175 million of subordinate
debt.
Pro-Fac believes that it will be able to deliver to
Curtice Burns a highly confident letter from Dillon Read as
to the issuance of subordinated debt and firm commitment
letters from its commercial lenders providing senior
financing for the transaction within three weeks of Curtice
Burns' advising Pro-Fac of its acceptance of this proposal.
<PAGE>95
While our clear preference was to provide you with firm
commitments from senior lenders and a highly confident
letter from Dillon Read along with this letter, the senior
lenders and Dillon Read's high-yield representatives have
not been allowed to conduct their due diligence
investigation. As we have indicated to your representative,
these investigations are necessary to give such assurances.
Our financial advisors are available to discuss the proposed
financing structure and the status of the bank commitments
with Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette
Securities Corporation.
Member Approval
Pro-Fac has requested, by letter distributed today to
its members (a copy of which is attached as Exhibit A), the
approval of its members to a purchase by Pro-Fac of the
Shares as described in this proposal. Pro-Fac has scheduled
a series of informational meetings to discuss this proposal
and a special meeting of its members on August 31, 1994, in
Rochester, New York, to approve the proposed acquisition.
Given the significance of this transaction to its
members, Pro-Fac is seeking this formal approval. We
anticipate obtaining approval of the proposed acquisition by
a majority of Pro-Fac's members. During the past several
week, Pro-Fac's general manager and its directors have met
with approximately 200 members in Western New York,
Illinois, Illinois, Michigan, Nebraska, Georgia,
Pennsylvania, Oregon and Washington. Over 90% of these
members have supported an acquisition by Pro-Fac. These
meetings across the country and the meetings we will hold
during the next few weeks have been scheduled in order to
ensure that we have member approval for the proposed
acquisition in advance of the signing of definitive
documentation with Curtice Burns.
Management
Pro-Fac has previously reviewed with you its plan for
management of the ongoing business. Both the Springfield
Bank for Cooperatives and Dillon Read have accepted the plan
for financing purposes. The plan is summarized in Schedule
A to this letter.
<PAGE>96
Other Terms
Pro-Fac's proposal is, of course, contingent on
approval by the Board of Directors and shareholders of
Curtice Burns. This proposal also is contingent on Curtice
Burns terminating all negotiations with Dean Foods and
Hormel Foods, and any other party, regarding a sale of all
or part of the business of Curtice Burns, subject to the
exercise of the Curtice Burns Board of Director's fiduciary
duty pursuant to written advice of counsel to Curtice Burns.
Pro-Fac's proposal includes the assumption that Curtice
Burns' fees and expenses incurred in connection with the
change of control issue and disputes with Pro-Fac will not
exceed $7.5 million, including investment banking fees which
in the aggregate (assuming completion of the transaction)
will not exceed $4.985 million.
Except as otherwise indicated in this letter, a
purchase by Pro-Fac of the Shares would be subject to the
terms and conditions as set out in our June 7, 1994
proposal. We will be available to meet with the Curtice
Burns Board of Directors to discuss this proposal in more
detail, if you desire. In addition, our legal and financial
advisors are prepared to meet with your respective
representatives to discuss further this proposal. We would
appreciate your response to this proposal by 9:00 a.m.,
Eastern daylight time, on August 10, 1994, after which time
it may be withdrawn.
Very truly yours,
Roy A. Myers
General Manager
cc: Peter J. O'Neill
(Agway Inc.)
Joseph D. Gatto
(Goldman, Sachs & Co.)
L. Price Blackford
(Donaldson, Lukfin & Jenrette
Securities Corporation)
<PAGE>97
Alan C. Stephenson
(Cravath, Swaine & Moore)
Dennis S. Hersch
(Davis Polk & Wardwell)
Attachments:
Schedule A Management Plan
Exhibit A Letter to Members dated August 4, 1994
<PAGE>98
SCHEDULE A
Management Plan
Pro-Fac's management plan for Curtice Burns, in summary, is
as follows:
bullet Pro-Fac would own the stock of Curtice Burns, but
maintain its separate existence as an independent
company, following the National Grape-Welch's
model.
bullet To ensure its independence from the cooperative's
interest, Curtice Burns would have on its board of
directors eleven directors, at least three of whom
would be independent and three of whom would
represent Curtice Burns' management.
bullet Pro-Fac would leave existing management in place
except for the chief executive officer of Curtice
Burns. Pro-Fac, with the assistance of its
independent directors and with consultation with
Dillon Read and the senior lenders, would complete
Pro-Fac's current search for a chief executive
officer.
PRO-FAC COOPERATIVE, INC.
-7-
<PAGE>99
EXHIBIT 3
PRO FAC COOPERATIVE, INC.
90 Linden Oaks Office Park
Post Office Box 682
Rochester, New York 14603
Phone: (716) 383-1850
Fax: (716) 383-1281
August 9, 1994
Board of Directors
Curtice-Burns Foods, Inc.
90 Linden Place
Rochester, New York 14603
Gentleman and Madam:
Thank you for the opportunity to discuss our August 4
proposal with you in detail. We believe you should
understand the seriousness of the proposal and the financing
and Pro-Fac's intentions to complete a transaction on a
timely basis.
We also appreciated the frank discussion on your
concerns over resolving the outstanding disputes under the
Integrated Agreement. As part of the proposal outlined in
the August 4 letter, Pro-Fac will agree to an expedited
schedule for arbitration beginning on the signing of the
Merger Agreement, which we hope would occur immediately
following our August 31 member meeting. Our counsels can
work out the terms of that process during the period that
the banks and Dillon Read complete due diligence.
On signing Merger Agreement, we would require the
commitment of Curtice-Burns and Agway to give full support
to the completion of our financing.
The other terms of our August 4 letter remain the same.
This proposal expires at 9:00 a.m. on August 10, 1994.
Sincerely,
Roy A. Myers
General Manager
<PAGE>100
EXHIBIT 1
CURTICE BURNS FOODS RECEIVES REVISED
PRO-FAC ACQUISITION OFFER
Rochester, NY, August 12, 1994 -- Curtice-Burns
Foods, Inc. (AMEX: CBI) today announced that it received
letters from Pro-Fac Cooperative, Inc. setting forth a
proposal by Pro-Fac to acquire all the outstanding common
stock of Curtice Burns for $19.00 per share in cash. The
proposal was subject to a number of contingencies including
obtaining senior and subordinated debt financing (none of
which has been committed). This is the second proposal that
Pro-Fac has submitted; the first, which was for $16.87 per
share in cash, was rejected by the Curtice Burns Board of
Directors on June 8, 1994.
It is not expected that the Curtice Burns Board of
Directors will take any definitive action with respect to
the Pro-Fac proposal until a number of the contingencies
involved in the proposal have been clarified or resolved.
Curtice Burns Foods processes and markets 21
product lines of regional branded, private label, and food
service products through seven autonomously managed
divisions located throughout the United States and Western
Canada.
