FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2O549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended _September 30, 1995_________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number __0-7166____________
DOUGHTIE'S FOODS, INC.
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0903892
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2410 WESLEY STREET, PORTSMOUTH, VIRGINIA 23707
(Address of principal executive offices)
(804) 393-6007
(Registrant's telephone number, including area code)
______________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
Yes _X__ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value - 1,005,518 shares as of November 7, 1995.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited) <F1>
<CAPTION>
September 30, December 31,
1995 1994
_____________ ____________
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 989,007 $ 1,361,207
Accounts receivable, net:
Trade 5,798,117 4,839,764
Finance 0 1,279,467
Officers and employees 5,227 16,289
Inventories 5,221,286 4,521,753
Deferred income taxes 248,296 248,296
Prepaid expenses and other
current assets 398,820 139,886
_____________ ____________
Total Current Assets 12,660,753 12,406,662
_____________ ____________
PROPERTY, PLANT AND EQUIPMENT -
AT COST:
Land 280,827 283,304
Buildings 4,290,985 4,320,960
Delivery equipment 375,409 495,767
Plant and refrigeration equipment 4,268,585 4,057,168
Office equipment 682,117 951,842
Leasehold improvements 157,619 217,680
_____________ ____________
10,055,542 10,326,721
Less - accumulated depreciation 5,861,646 6,071,055
_____________ ____________
4,193,896 4,255,666
_____________ ____________
OTHER ASSETS 1,159,132 135,535
_____________ ____________
$ 18,013,781 $ 16,797,863
_____________ ____________
_____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 133,333 $ 133,333
Accounts payable 1,853,122 2,095,099
Income taxes payable 0 399,504
Accrued salaries, commissions and
bonuses 45,993 127,917
Accrued employee group insurance 226,780 215,409
Other accrued liabilities 358,164 45,603
_____________ ____________
Total Current Liabilities 2,617,392 3,016,865
LONG-TERM DEBT - less current portion 7,201,667 5,031,667
DEFERRED INCOME TAXES 48,900 48,900
_____________ ____________
Total Liabilities 9,867,959 8,097,432
_____________ ____________
STOCKHOLDERS' EQUITY:
Common stock - $1 par value;
authorized 2,000,000 shares, issued
and outstanding 1,005,518 shares 1,005,518 1,008,518
Additional paid-in capital 2,832,570 2,841,570
Retained earnings 4,307,734 4,850,343
_____________ ____________
Total Stockholders' Equity 8,145,822 8,700,431
_____________ ____________
$ 18,013,781 $ 16,797,863
_____________ ____________
_____________ ____________
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<F1>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
____________________________________ ___________________________________
September 30, September 24, September 30, September 24,
1995 1994 1995 1994
_____________ ____________ _____________ ____________
<S> <C> <C> <C> <C>
NET SALES $ 21,273,919 $ 19,462,662 $ 58,697,877 $ 54,811,469
COST OF GOODS SOLD 17,867,469 15,848,105 48,594,098 44,503,305
_____________ _____________ _____________ ____________
GROSS PROFIT 3,406,450 3,614,557 10,103,779 10,308,164
_____________ _____________ _____________ ____________
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,384,705 3,288,711 10,169,557 9,657,027
INTEREST EXPENSE 124,493 74,504 342,429 199,061
_____________ _____________ _____________ ____________
3,509,198 3,363,215 10,511,986 9,856,088
_____________ _____________ _____________ ____________
INCOME (LOSS) BEFORE INCOME TAXES (102,748) 251,342 (408,207) 452,076
INCOME TAX EXPENSE 19,100 94,200 13,500 169,500
_____________ _____________ _____________ ____________
NET INCOME (LOSS) $ (121,848) $ 157,142 $ (421,707) $ 282,576
_____________ _____________ _____________ ____________
_____________ _____________ _____________ ____________
NUMBER OF SHARES USED IN COMPUTING
EARNINGS AND CASH DIVIDENDS PER
SHARE 1,008,518 1,010,918 1,008,518 1,011,896
_____________ _____________ _____________ ____________
_____________ _____________ _____________ ____________
EARNINGS (LOSS) PER SHARE $ (.12) $ .16 $ (.42) $ .28
_____________ _____________ _____________ ____________
_____________ _____________ _____________ ____________
CASH DIVIDENDS PER SHARE $ .04 $ .04 $ .12 $ .12
_____________ _____________ _____________ ____________
_____________ _____________ _____________ ____________
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <F1>
<CAPTION>
NINE MONTHS ENDED
___________________________________
September 30, September 24,
1995 1994
_____________ ____________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (421,707) $ 282,576
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operations:
Depreciation 490,907 362,719
Gain on sale of property, plant
and equipment (133,130) (11,134)
(Increase) decrease in assets:
Accounts receivable, net 332,176 304,699
Inventories (699,533) (1,325,424)
Prepaid expenses and other current
assets (258,934) (278,377)
Other assets (1,023,597) (64,756)
Increase (decrease) in liabilities:
Accounts payable (241,977) 683,049
Income taxes payable (399,504) 137,838
Accrued salaries, commissions and
bonuses (81,924) 28,948
Accrued employee group insurance 11,371 35,698
Other accrued liabilities 312,561 220,669
_____________ ____________
(2,113,291) 376,505
_____________ ____________
Cash flows from investing activities:
Additions to property, plant and
equipment (435,465) (552,565)
Proceeds from sale of property,
plant and equipment 139,458 11,133
_____________ ____________
(296,007) (541,432)
_____________ ____________
Cash flows from financing activities:
Changes in long-term debt, including
current portion 2,170,000 270,000
Acquisition of treasury stock (12,000) (11,003)
Cash dividends (120,902) (121,428)
_____________ ____________
2,037,098 137,569
_____________ ____________
Net decrease in cash (372,200) (27,358)
Cash at beginning of period 1,361,207 238,286
_____________ ____________
Cash at end of period $ 989,007 $ 210,928
_____________ ____________
_____________ ____________
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 -
The consolidated financial statements include the accounts of Doughtie's
Foods, Inc. (the "Company") and its two majority-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Although the accompanying financial statements are unaudited, management
believes that they contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 1995 and December 31, 1994, results of operations for
the quarters ended September 30, 1995 and September 24,1994 and the nine
months ended September 30, 1995 and September 24,1994, and cash flows for
the nine months ended September 30, 1995 and September 24, 1994. The
results of operations for the periods cited above are not necessarily
indicative of the results to be expected for the full year.
Note 2 -
On April 1, 1994, the Company entered into an agreement to sell certain
properties in Carrol County, Maryland. The net book values of these
properties total approximately $250,000. If all conditions of the sale
are met, settlement will occur over a five- year period with a total sale
price of $1,200,000. If settlement occurs, the Company intends to use
the proceeds, net of applicable income taxes, to reduce its long-term
debt.
On July 20, 1995, the Company sold certain other properties located in
Carrol County, Maryland. The gross sale price was $165,000, with net
cash proceeds of $135,000. The cash was used to reduce the Company's
long-term debt. The net gain on the sale was $130,000.
On September 3, 1995, the Company sold substantially all of the assets of
the Home Food Service operation to Value Added Food Services, Inc., a
Maryland corporation ("VAFS"), and ceased operations in the consumer portion
of its business due to unprofitability. Vernon W. Mules, Chairman of the
Board of the Company, and his wife are the principal stockholders of VAFS.
All finance receivables, inventory, delivery equipment, processing equipment
and office equipment were sold. The total sale price was $1,154,173 with a
$115,417 cash downpayment and the balance of $1,038,756 in the form of a
secured note, which is included in the Other Assets section of the Consolidated
Balance Sheet. The note is due in twelve monthly payments beginning September
3, 1996. Interest is due monthly at the prime rate of the Company's bank.
The assets were sold primarily at net book value, except for finance receiv-
ables which were discounted by ten percent. The net loss on the sale,
including abandoned assets and other write-offs, was $96,498.
Note 3 -
Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Because inventory valuations under the LIFO method are based on
an annual determination, estimates must be made at interim dates of
year-end costs and levels of inventories. The possibility of variations
between estimated year-end costs and levels of LIFO inventories and the
actual year-end amounts may materially affect the results of operations
as finally determined for the full year.
Note 4 -
Cash paid for interest totaled $124,493 and $74,995 for the quarters
ended September 30, 1995 and September 24, 1994 and $342,429 and
$208,535 for the nine months ended September 30, 1995 and September 24,
1994, respectively.
Cash paid for income taxes totaled $5,676 and $15,777 for the quarters
ended September 30, 1995 and September 24, 1994 and $456,676 and $62,518
for the nine months ended September 30, 1995 and September 24, 1994,
respectively.
Note 5 -
During the third quarter of 1994, the Company entered into a joint
venture agreement with a gourmet food business. The Company owns seventy
percent of the joint venture, which did not commence operations until the
fourth quarter of 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Sales for the quarter ended September 30, 1995 were $21.3
million or 9.3% higher than sales for the prior year's third quarter
of $19.5 million. Sales for the nine months ended September 30, 1995
were $58.7 million or 7.1% higher than sales of $54.8 million for the
prior year's first nine months. Steady improvement has been accom-
plished in the commercial distribution and manufacturing sectors of
the Company.
The Company's gross profit margin (gross profit as a percentage
of net sales) decreased from 18.6% in the quarter ended September 24,
1994 to 16.0% for the quarter ended September 30, 1995. The gross
profit margin for the nine months decreased from 18.8% in 1994 to
17.2% in 1995. The overhead costs associated with the start-up of
the gourmet food operation were the major cause of the decline in
gross profit margin. Increased manufacturing costs associated with
a new product line also contributed to this decline.
The Company's selling, general and administrative expenses,
expressed as a percentage of net sales remained relatively stable
for both the quarter and nine months ended September 30, 1995
compared to corresponding periods in 1994.
Interest expense for the quarter ended September 30, 1995
increased to .59% of sales compared to .38% of sales for the third
quarter of 1994 and increased to .58% of sales for the nine months
ended September 30, 1995 compared to .36% of sales for the first nine
months of 1994. Higher interest rates during 1995 together with
increased borrowing levels were the causes of the increased expense.
As the interest on the Company's debt is prime related, interest
expense will increase or decrease in subsequent periods based on
fluctuations in the prime rate and the borrowing levels of the
Company.
Income tax expense was $13,500 for the nine months ended September
30, 1995 compared to an income tax expense of $169,500 for the
corresponding period of 1994. The lower effective tax rate in 1995
resulted from the non-recognition of tax benefits for the net
operating loss of a subsidiary that is not a member of the
controlled group for income tax purposes.
The Company reported a net loss of $421,700 or $.42 per share for
the first nine months of 1995 compared to net income of $282,600 or
$.28 per share in the first nine months of 1994. Losses incurred
by TWB Gourmet Foods, Inc. accounted for $.44 of the 1995 per share
net loss.
Liquidity
The Company uses a number of liquidity indicators for internal
evaluation purposes. Certain of these measures as of September 30,
1995 and December 31, 1994 are set forth below:
September 30, December 31,
1995 1994
____________ ____________
Total Debt to Total Debt Plus
Stockholders' Equity .47 .37
Current Assets to Current
Liabilities 4.84 4.11
Inventory Turnover (The
Annualized Cost of Goods
Sold to Ending Inventory) 12.41 13.06
The ratio of current assets to current liabilities increased to
4.84 at September 30, 1995 from 4.11 at December 31, 1994 primarily
due to a decrease in accounts payable and income taxes payable,
along with an increase in long-term debt. The increase in long-term
debt is primarily due to the funding of the gourmet food joint
venture start-up business.
On April 1, 1994, the Company entered into an agreement to sell
certain properties in Carrol County, Maryland. The net book values
of these properties total approximately $250,000. If all conditions
of the sale are met, settlement will occur over a five-year period
with a total sale price of $1,200,000. If settlement occurs, the
Company intends to use the proceeds, net of applicable income taxes,
to reduce its long-term debt.
On July 20, 1995, the Company sold certain other properties
located in Carrol County, Maryland. The gross sale price was $165,000,
with net cash proceeds of $135,000. The cash was used to reduce the
Company's long-term debt. The net gain on the sale was $130,000.
On September 3, 1995, the Company sold substantially all of
the assets of the Home Food Service operation to Value Added Food
Services, Inc., a Maryland corporation ("VAFS"), and ceased operations
in the consumer portion of its business due to unprofitability. Vernon
W. Mules, Chairman of the Board of the Company, and his wife are the
principal stockholders of VAFS. All finance receivables, inventory,
delivery equipment, processing equipment and office equipment were sold.
The total sale price was $1,154,173 with a $115,417 cash downpayment
and the balance of $1,038,756 in the form of a secured note, which is
included in the Other Assets section of the Consolidated Balance Sheet.
The note is due in twelve monthly payments beginning September 3, 1996.
Interest is due monthly at the prime rate of the Company's bank. The
assets were sold primarily at net book value, except for finance receiv-
ables which were discounted by ten percent. The net loss on the sale,
including abandoned assets and other write-offs, was $96,498.
Capital Resources
The Company's debt financing at September 30, 1995, consisted
of the following:
A $7,500,000 revolving bank note at prime. The prime rate at
September 30, 1995, was 8.75%. The note is due three years after
the annual renewal date, currently July, 1997, subject to annual
renewal. As of September 30, 1995, the Company had borrowed
$6,435,000 against this credit line and had $1,065,000 of additional
borrowing capacity.
A $2,000,000 Industrial Revenue Bond from a bank for the purpose
of expanding the Company's plant and office facilities in Portsmouth,
Virginia at an annual interest rate of 91.50% of prime. As of
September 30, 1995, the Company had fully utilized the Industrial
Revenue Bond and the outstanding balance was $900,000.
While the Company does not anticipate a material increase in
its capital requirements in the near future, such an increase, if it
occurs, is likely to be met through additional long-term debt
financing.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company
or any of its subsidiaries is a party or to which any of their
property is the subject.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a). Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended December 29, 1984).
3(b). Bylaws of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form
10-K for the year ended December 26, 1992).
4(a). Amended and Restated Revolving Credit Agreement
dated as of November 15, 1994, between the Company and Crestar Bank
relating to a $7,500,000 revolving credit commitment (incorporated
by reference to Exhibit 4(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
4(b). Amended and Restated Promissory Note dated
November 15, 1994, made by the Company in favor of Crestar Bank in
the principal amount of $7,500,000 (incorporated by reference to
Exhibit 4(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10(a)(1). Agreement dated October 24, 1992 between
the Company and the Bakery, Confectionery and Tobacco Workers'
International Union, Local No. 66 (incorporated by reference to
Exhibit 10(a)(1) to the Company's Annual Report on Form 10-K for
the year ended December 26, 1992).
10(b)(1). Lease dated June 9, 1989 between the
Company and Cardon Associates relating to premises located at
800-840 Florida Avenue, Portsmouth, Virginia (incorporated by
reference to Exhibit 10(b)(1) to the Company's Annual Report on
Form 10-K for the year ended December 30, 1989).
10(b)(2). Lease dated September 22, 1975 and Renewal
of Lease dated March 6, 1980 between Doughtie's Barbecue of
Maryland, Inc. and Tuxedo Properties relating to premises located
at 5111 Creston Street, Tuxedo, Maryland (incorporated by
reference to Exhibit 10 to the Company's Annual Report on Form
10-K for the year ended December 27, 1975 and Exhibit 10(b)(2)
to the Company's Annual Report on Form 10-K for the year ended
December 27, 1980). Doughtie's Barbecue of Maryland, Inc.,
a wholly-owned subsidiary of the Company, was dissolved in
December 1985.
10(b)(3). Sublease Agreement dated May 6, 1985 between
Doughtie's Barbecue of Maryland, Inc. and John Sexton & Co. relating
to premises located at 5111 Creston Street, Tuxedo, Maryland
(incorporated by reference to Exhibit 10(b)(3) to the Company's
Annual Report on Form 10-K for the year ended December 28, 1985).
Doughtie's Barbecue of Maryland, Inc., a wholly-owned subsidiary of
the Company, was dissolved in December 1985.
10(b)(4). Lease dated June 19, 1989 between Keen Leasing,
Inc. of Carlisle, Pennsylvania and Doughtie's Foods, Inc. and related
agreements relating to the sale and lease back of the Company's
existing fleet of trucks (incorporated by reference to Exhibit
10(b)(8) to the Company's Annual Report on Form 10-K for the year
ended December 30, 1989).
10(b)(5). Lease dated May 10, 1990 between Rouse-Teachers
Properties, Inc. and Dutterer's of Manchester Corporation relating to
premises located at 2700 Lord Baltimore Drive, Baltimore, Maryland
(incorporated by reference to Exhibit 10(b)(7) to the Company's Annual
Report on Form 10-K for the year ended December 29, 1990).
10(b)(6). Truck lease and Service Agreement dated May 2,
1991 between Lend Lease Trucks, Inc. and Dutterer's of Manchester
Corporation and certain amendments thereto relating to the leasing of
certain trucks (incorporated by reference to Exhibit 10(b)(10) to
the Company's Annual Report on Form 10-K for the year ended December
28, 1991).
10(b)(7). Industrial Lease Agreement dated as of August
17, 1994, between Wendell's Machine & Welding, Inc., lessor,
TWB Gourmet Foods, Inc., lessee, and Riddle Associates, Inc., agent,
relating to premises located at 2620 Elmhurst Lane, Portsmouth,
Virginia (incorporated by reference to Exhibit 10(b)(7) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10(c)(1). Amended and Restated Security Agreement
dated as of November 15, 1994 made by the Company to Crestar Bank
granting a security interest in inventory and certain intangibles
(incorporated by reference to Exhibit 10(c)(1) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10(c)(2). Security Agreement dated as of November 15,
1994, made by Dutterer's of Manchester Corporation to Crestar Bank
granting a security interest in inventory and certain intangibles
(incorporated by reference to Exhibit 10(c)(2) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10(c)(3). Guaranty Agreement dated as of November 15,
1994, made by Dutterer's of Manchester Corporation for the benefit
of Crestar Bank (incorporated by reference to Exhibit 10(c)(3) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(d)(1). Crestar Bank Defined Contribution Master
Plan and Trust Agreement, Basic Plan Document #01, an employee
benefit plan under which the Company became a participating
employer on January 1, 1992 (incorporated by reference to Exhibit
10(d)(1) to the Company's Annual Report on Form 10-K for the year
ended December 26, 1992).
10(d)(2). Crestar Bank Adoption Agreement #005, Non
Standardized Code 401(k) Profit Sharing Plan, an agreement by which
the Company became a participating employer in the Crestar Bank
Defined Contribution Master Plan and Trust Agreement dated June 5,
1992 (incorporated by reference to Exhibit 10(d)(2) to the
Company's Annual Report on Form 10-K for the year ended December
26, 1992).
10(e)(1). Stockholders' Agreement dated as of August
5, 1994, between TWB Gourmet Foods, Inc., the Company, and
Loetitia Adam-St. James and Chris L. St. James (incorporated
by reference to Exhibit 10(e)(1) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10(e)(2). License Agreement dated as of August 5,
1994, between Chris L. St. James and Loetitia Adam-St. James,
licensors, and TWB Gourmet Foods, Inc., licensee (incorporated
by reference to Exhibit 10(e)(2) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10(e)(3). Agreement dated as of August 5, 1994,
between the Company and TWB Gourmet Foods, Inc., establishing
a $600,000 line of credit (incorporated by reference to
Exhibit 10(e)(3) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10(e)(4). Security Agreement dated as of August
5, 1994, made by TWB Gourmet Foods, Inc. to the Company
granting the Company a security interest in accounts, equipment,
inventory, and general intangibles (incorporated by reference
to Exhibit 10(e)(4) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10(e)(5). Line of Credit Note dated August 5, 1994,
made by TWB Gourmet Foods, Inc. in favor of the Company in the
principal amount of $600,000 (incorporated by reference to
Exhibit 10(e)(5) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10(f). Agreement of Sale dated as of April 1, 1994,
between Dutterer's of Manchester Corporation, seller, and
Westwood Development of Manchester, Inc., buyer, relating to
the sale of certain real property situated in Carroll County,
Maryland (incorporated by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(g)(1). Closing Agreement dated as of September 3,
1995, among Dutterer's of Manchester Corporation, Doughtie's Foods,
Inc., Value Added Food Services, Inc., Vernon W. Mules, and Kathryn
M. Mules.
10(g)(2). Term Note of Value Added Food Services, Inc.
dated as of September 3, 1995, in the original principal amount
of $1,077,821.00.
10(g)(3). Amendment to Term Note dated as of October
1, 1995, between Value Added Food Services, Inc. And Dutterer's of
Manchester Corporation.
10(g)(4). Assumption of Liabilities and Obligations
dated as of September 3, 1995, by Value Added Food Services, Inc. and
Vernon W. Mules and Kathryn M. Mules for the benefit of Dutterer's
of Manchester Corporation and Doughtie's Foods, Inc.
10(g)(5). Bill of Sale dated as of September 3,
1995 by Doughtie's Foods, Inc. and Dutterer's of Manchester
Corporation to Value Added Food Services, Inc.
10(g)(6). Guaranty dated as of September 3, 1995,
by Kathryn M. Mules, in favor of Dutterer's of Manchester
Corporation.
10(g)(7). Guaranty dated as of September 3, 1995,
by Vernon W. Mules, in favor of Dutterer's of Manchester
Corporation.
10(g)(8). Security Agreement dated as of September
3, 1995, between Value Added Food Services, Inc. And Dutterer's
of Manchester Corporation.
27. Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
quarter ended September 30, 1995.
Pursuant to the requirements of the Securities Exchange
Act of 1934 the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
DOUGHTIE'S FOODS, INC.
November 13, 1995 By: Marion S. Whitfield, Jr.
(Signature)
Senior Vice President
(Principal Financial and
Chief Accounting Officer)
<PAGE>
CLOSING AGREEMENT
This Closing Agreement (the "Agreement") is made and entered into as
of this 3rd day of September, 1995, by and between DUTTERER'S OF MANCHESTER
CORPORATION, a Maryland corporation ("Dutterer's"), and DOUGHTIE'S FOODS,
INC., a Virginia corporation ("Doughtie's") (Dutterer's and Doughtie's are
sometimes referred to as, collectively, the "Seller"); VALUE ADDED FOOD
SERVICES, INC., a Maryland corporation (the "Purchaser"); VERNON W. MULES and
KATHRYN M. MULES (collectively, the "Guarantors").
RECITALS
Seller has sold to Purchaser, and Purchaser has acquired from the
Seller certain Assets (the "Assets"), as said term is defined in that certain
Bill of Sale executed and delivered by the Seller, and accepted by the
Purchaser, contemporaneously herewith, relating to that certain home food
sales business operation (the "Business") located at 2700 Lord Baltimore
Drive, Baltimore, Maryland (the "Premises"), and the parties desire to
memorialize certain representations, warranties, covenants, terms,
conditions, and agreements in connection with the sale of the Assets.
NOW, THEREFORE, for and in consideration of the mutual agreements and
obligations contained in this Agreement and the other Transaction Documents
(hereinafter defined), the parties agree as follows:
ARTICLE 1
CLOSING; DOCUMENTATION; TERMS
1.1 Closing. The closing of the sale of the Assets (the
"Closing") has taken place on September 6, 1995 and shall be deemed to be
effective as of 12:01 a.m. on the date first above written.
1.2 Documentation. The documents executed (as applicable) and
delivered at the Closing in connection with the sale of the Assets are as
follows:
a. By the Seller:
(1) Bill of Sale;
(2) Unanimous consent resolution or certified minutes
of the Dutterer's Board of Director's meeting approving the sale of the
Assets;
(3) Unanimous consent resolution or certified minutes
of the Dutterer's Shareholders' meeting approving the sale of the Assets;
(4) Certificate of Good Standing for Dutterer's from
the Maryland Secretary of State;
(5) Certificate of Good Standing for Doughtie's from
the Virginia State Corporation Commission.
b. By the Purchaser:
(1) Term Note of even date herewith (the "Note") duly
executed by the Purchaser;
(2) Assumption of Liabilities and Obligations of even
date herewith (the "Assumption") duly executed by the Purchaser and the
Guarantors;
(3) Maryland UCC-1 Financing Statements (state and
local);
(4) Unanimous consent resolution or certified minutes
of the Board of Director's meeting approving the purchase of the Assets and
the execution and delivery of the Note and the other Transaction Documents;
(5) Certificate of Good Standing from the Maryland
Secretary of State.
c. By the Seller and the Purchaser:
(1) Security Agreement of even date herewith (the
"Security Agreement") duly executed by the Seller, the Purchaser, and
Dutter's Foods, Inc, a Maryland corporation.
d. By the Guarantors:
(1) Duly executed Guaranty of Vernon W. Mules;
(2) Duly executed Guaranty of Kathryn M. Mules;
e. By the Seller, the Purchaser, and the Guarantors:
(1) This Agreement.
This Agreement, the Note, the Security Agreement, the Assumption, and the
Guaranties are sometimes referred to as, collectively, the "Transaction
Documents."
1.3 Purchase Price. The amount to be paid for the Assets (the
"Purchase Price") is $1,197,579.00, calculated and allocated as the sum of a
+ b + c - d, all of which values have been agreed upon by the parties as the
values as of the Closing, subject to any adjustments made pursuant to
paragraph 1.6:
a. Value of accounts receivable
in accordance with the formula set forth below
in paragraph 1.4.
Approximately $1,023,544.00
b. Depreciated book value of
tangible assets (except leasehold improvements,
excluded assets, and inventory) as of a recent
date.
Approximately $50,538.00
c. Inventory at lower of cost
or market, less LIFO reserve, using methods
historically used by Dutterer's.
Approximately $158,497.00
d. Value of assumption of
food orders, calculated by adding (i) inventory
cost of food yet to be delivered and (ii) the
product of $25 times the total number of
assumed food orders.
Approximately $35,000.00
Total: Approximately $1,197,579.00
1.4 Accounts Receivable. The value of the accounts receivable
shall be ninety percent of the amount yielded by the following: the
then-current unpaid aggregate balance of the Amount Financed of all
Performing Contracts (as defined below), minus a reserve thereon calculated
on the basis of the ratio between:
(i) The average net amount of accounts charged off (charged-off amount
less recoveries on such charged-off accounts) by Dutterer's annually over the
five fiscal years preceding closing, and
(ii) The average net sales of Dutterer's annually over the five fiscal
years next preceding closing, with such ratio being applied to the customer
contracts to arrive at a reserve. "Performing Contracts" shall mean all
customer contracts (i) not turned over for legal action or (ii) not more than
90 days delinquent. For purposes of clause (ii), a contract shall not be
considered delinquent if the customer has been making regular planned
payments acceptable to Dutterer's during the period immediately preceding
closing.
1.5 Payment. In connection with the Closing and the execution and
delivery of the Transaction Documents, Purchaser has paid to Seller an amount
equal to ten percent of the amount (the "Estimated Purchase Price")
determined on the basis hereinabove set forth, subject to mutually agreeable
adjustments to reflect known variances, with the remaining balance due being
evidenced by the Note.
1.6 Adjustments to the Estimated Purchase Price. After the Closing,
the chief financial officers of Seller and Purchaser will determine the value
of the liabilities assumed by Purchaser and the value of the inventory and
the accounts receivable as of Closing. When such determination is made, the
amount by which the Estimated Purchase Price paid at the Closing was less
than or exceeded the Purchase Price shall be paid, without interest, to the
party entitled thereto as follows: ten percent in cash and the balance as an
adjustment to the principal amount due under the Note. If the chief
financial officers of Seller and Buyer cannot agree as to the difference, if
any, between the Estimated Purchase Price and the Purchase Price, such amount
shall be determined by the accounting firm of Price Waterhouse, and the
decision of that firm shall be binding on both Seller and Purchaser.
ARTICLE 2
SELLER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS
Seller represents, warrants, and covenants to Purchaser the following:
2.1 Authority Relative to this Agreement. Seller has the power and
authority to execute and deliver this Agreement and the Transaction Documents
to which it is a party and to consummate the transactions contemplated hereby
and thereby. Seller's execution and delivery of this Agreement and the
Transaction Documents to which it is a party have been duly authorized by
Seller's Board of Directors and Seller's sole shareholder, and no other
corporate proceedings on the part of Seller are necessary with respect
thereto. Such documents constitute valid and binding obligations of Seller,
enforceable in accordance with their terms except as limited by (i) any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally or (ii) general principles of equity,
whether considered in a proceeding in equity or at law. Seller is unaware of
any matter which would limit the enforceability of the Transaction Documents
as written.
2.2 Consents and Approvals. There is no requirement applicable to
Seller to make any filing with, or to obtain any consent or approval of any
public body, business entity or individual as a condition to the consummation
of the transactions memorialized by thisAgreement.
2.3 Non-Contravention. The execution and delivery by Seller of
this Agreement and the Transaction Documents to which it is a party does not
(i) violate or result in a breach of any provision of the Articles of
Incorporation or Bylaws of Seller, (ii) result in a default, or give rise to
any right of termination, cancellation or acceleration (whether immediately
or after the giving of notice or the passage of time, or both), under the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement, lease or other instrument or obligation to which Seller
is a party or by which Seller may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Seller.
2.4 Environmental Regulations.
a. Definitions. For purposes of this Section:
"Contaminant" shall mean any substance or waste containing
hazardous substances, pollutants, contaminants as those terms are defined in
the federal Comprehensive Environmental Response Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. and any substance similarly defined or
identified in any other federal or state laws, rules or regulations governing
the manufacture, import, use, handling, storage, processing, release or
disposal of substances or wastes deemed hazardous, toxic, dangerous, or
injurious to public health or to the environment. This definition includes
friable asbestos and petroleum or petroleum-based products.
"Requirements of Law" shall mean any federal, state or local
law, rule, regulation, permit, agreement, order or other binding
determination of any governmental authority relating to the environment,
health or safety.
"Release" shall have the same meaning as in the federal
Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C. Section 9601, et seq.
b. To the best of Seller's knowledge,
(1) Seller has not caused or allowed any material
amount of Contaminants to be released on or off-site of the Premises;
(2) the Premises are in material compliance with all
applicable requirements of law and are not the subject of any notice or
subject to any order or agreement with any person or governmental authority,
as herein defined, regarding any remedial action or Release, threatened
Release or presence of a Contaminant;
(3) the Premises are subject to no contingent
liability in connection with the Release, threatened Release, or presence of
any contaminants on or off site;
(4) Seller has obtained all environmental, health and
safety permits necessary for the current operation of the Business, all such
permits are in good standing and timely application has been made for renewal
of such permits where necessary, and the Business is in compliance with all
terms and conditions of such permits; and
(5) the Business is subject to no contingent liability
in connection with the Release, threatened Release or presence of any
Contaminants on or off site.
c. To the best of Seller's knowledge, there is not now on or
in the Premises:
(1) any treatment, storage, recycling, disposal or
arrangement therefor, of any hazardous waste as that term is defined under 40
C.F.R. Part 261 or any equivalent under the laws of the State of Maryland;
(2) any underground storage tanks, in use or
abandoned; or
(3) any friable asbestos.
2.5 Compliance with Law. No notice of violation of any law, statute,
ordinance or regulation relating to the Assets has been received by Seller
except such as has been fully complied with, and the Seller is not aware of
any violations of applicable federal, state, or local laws, statutes, rules
and regulations relating to the Assets or the Business.
2.6 License and Rights. To the best of Seller's knowledge, the
Business possesses all licenses and permits necessary to operate the Business
as it is currently being operated.
2.7 Undisclosed Liabilities. To the best of Seller's knowledge,
except for those liabilities (i) set forth on Schedule 2.7 attached hereto
and/or (ii) assumed pursuant to the Assumption of Liabilities and
Obligations, there are no liabilities or obligations of the Business,
either accrued, due, absolute, unliquidated, contingent or otherwise, which
would have a material adverse affect on the value of the Assets or the
Business.
2.8 Taxes. Seller has timely filed, or caused to be filed, all
federal, state, local and foreign tax returns and reports of any nature
whatsoever which are required to be filed by it for tax years ending prior to
the date of this Agreement and has paid or caused to be paid, or accrued or
cause to be accrued, or otherwise provided for (in accordance with generally
accepted accounting principles) all taxes shown to be due thereon for tax
years ending prior to the date of this Agreement which would in any manner
create a lien against the Assets or affect the on-going operation of the
Business. To Seller's actual knowledge, for the tax years ending prior to
the date of this Agreement, (i) no assessments or deficiencies have been made
and no extensions of time are in effect for the assessment of deficiencies
for such tax years, and (ii) Seller has received no notice of any federal
income tax returns being presently examined by the Internal Revenue Service
for such tax years, which in any such case for (i) or (ii) would in any
manner create a lien against the Assets or affect the ongoing operation of
the Business.
2.9 Personal Property Leases. Attached hereto as Schedule 2.9 is
a true and correct copy of all operating leases for personal property
included in the Assets (the "Leases"). With respect to the Leases attached
pursuant to Schedule 2.9:
a. The rental set forth in each such Lease is the actual
rental being paid, the term set forth in each such Lease is the actual term
of the Lease, and there are no separate agreements or understandings with
respect to any such Leases;
b. Subject to the performance of the terms of each such Lease,
the Business has the full right to enjoy the use of the property demised
thereunder for the full term thereof;
c. Seller is not in default under the Leases; and to the best
of Seller's knowledge, no condition exists, nor has any event has occurred
which by notice, the passage of time or otherwise would constitute an event
of default under the Leases;
d. The Leases are unmodified, valid and binding and in full
force and effect in accordance with the provisions of each of the Leases for
the full term of each of the Leases.
e. Within one year prior to the execution of this Agreement,
Seller has not received notice of any kind from any Governmental Authority
alleging a failure to comply with any applicable law, statute, ordinance,
regulation, rule or restriction pertaining to or affecting the Assets or the
Business.
2.10 Certain Agreements. Except as set forth in Schedule 2.10,
Seller is not a party to any (a) contract with any employee of or consultant
to the Business that is not terminable without any penalty or
post-termination payments upon thirty days notice or less, (b) collective
bargaining agreement or other contract with any labor union or other
representative of employees in connection with the Business or the Assets, or
(c) contract for the purchase or sale of materials, services or supplies,
except for the customer contracts related to the Business.
2.11 Litigation. Except as set forth in Schedule 2.11, there are no
actions, suits, proceedings or investigations pending or, to the best of
Seller's knowledge, threatened, which could affect title to any Assets or the
Business. Except as set forth in the Schedule 2.11 and to the best of
Seller's knowledge, there has been no charge of violation or investigation
with respect to a possible violation, of any provision of any federal, state
or local, statute, ordinance, administrative ruling, rule or regulation
relating to any aspect of the Business, the Premises or the Assets.
2.12 Labor Relations. To the best of Seller's knowledge, there are
no labor troubles, and no strike is pending or threatened against the
Business by its employees or any labor union claiming to represent such
employees.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
Purchaser represents, warrants, and covenants to Seller the following:
3.1 Authority Relative to this Agreement. Purchaser has the power
and authority to execute and deliver this Agreement and the Transaction
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. Purchaser's execution and delivery of this
Agreement, the Note, and the other Transaction Documents to which it is a
party have been duly authorized by Purchaser's Board of Directors, and no
other corporate proceedings on the part of Purchaser are necessary with
respect thereto. Such documents constitute valid and binding obligations of
Purchaser, enforceable in accordance with their terms except as limited by
(i) any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally or (ii) general principles
of equity, whether considered in a proceeding in equity or at law. Purchaser
is unaware of any matter which would limit the enforceability of the
Transaction Documents as written.
3.2 Consents and Approvals. There is no requirement applicable to
Purchaser to make any filing with, or to obtain any consent or approval of
any public body, business entity or individual as a condition to the
consummation of the transactions memorialized by this Agreement.
3.3 Non-Contravention. The execution and delivery by Purchaser of
this Agreement and the Transaction Documents to which it is a party does not
(i) violate or result in a breach of any provision of the Articles of
Incorporation or Bylaws of Purchaser, (ii) result in a default, or give rise
to any right of termination, cancellation or acceleration (whether
immediately or after the giving of notice or the passage of time, or both),
under the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to
which Purchaser is a party or by which Purchaser may be bound, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Purchaser.
3.4 Conduct of Business. So long as there any unsatisfied
liabilities or obligations from the Purchaser to the Seller under the Note or
any of the other Transaction Documents, Purchaser covenants to Seller that it
will (i) carry on the Business in a manner consistent with the past practices
of Seller, and will notify Seller of any material change in the normal
conduct of the Business or of the initiation or threat of any litigation
against Seller which relates to the Assets or the Business, and (ii) at all
times maintain the value of the Businesses' inventory at a level
substantially equivalent to 75% of the value of the inventory transferred to
Purchaser at Closing.
3.5 Trade Names. In connection with Purchaser's use of the names
"Doughtie's Home Food Service" or "Dutterer's Home Food Service," Purchaser
has filed and will maintain as required, appropriate trade name certificates
in accordance with procedures established by applicable state and local law.
Purchaser agrees to indemnify and hold Seller harmless from any claims,
damages, and expenses, including legal fees, incurred by Seller in connection
with Purchaser's use of the names "Doughtie's" or "Dutterer's."
ARTICLE 4
OTHER AGREEMENTS
4.1 Proration of Rent, Taxes, Utility Charges, etc. Except as
otherwise provided herein, any overlapping installments of rent or payment of
taxes due and any utility or similar charges payable with respect to any of
the Assets during the period in which the Closing has taken place have been
prorated between the Seller and the Purchaser on the basis of the actual
number of days applicable to pre-Closing and post-Closing occupancy or use.
Prorations made at Closing are shown on Schedule 4.1 attached hereto. With
respect to any such charges which are undetermined at Closing, the parties
agree to make additional prorations when the required billing information
becomes available.
4.2 Expenses. Except as otherwise specifically provided in this
Agreement and the other Transaction Documents, all costs and expenses
incurred in connection with this Agreement and the transactions memorialized
hereby have been or will be paid by the party incurring such costs and
expenses.
4.3 Business Location Lease. As of September 1, 1995, Seller has
assigned to Purchaser, and Purchaser has assumed from Seller, the obligations
under Seller's lease agreement for the Premises, pursuant to the terms of the
Assignment and Assumption of Lease attached hereto as Exhibit A.
4.4 Liability; Indemnification.
a. Except as otherwise provided in the Assumption of
Liabilities and Obligations and the other Transaction Documents, Seller is
responsible for all claims, obligations, and liabilities in connection with
the Business or the Assets arising out of or relating to facts, circumstances
or events occurring prior to the date of this Agreement; Purchaser is
responsible for all claims, obligations, and liabilities in connection with
the Business or the Assets arising out of or relating to facts, circumstances
or events occurring after the date of this Agreement.
b. From and after the date of this agreement, Seller shall
indemnify and hold Purchaser harmless from and against any and all actions at
law or in equity, claims, damages, losses, costs (including attorney's fees),
liabilities or expenses whatsoever, incurred by Purchaser and resulting from
(i) any breach of warranties, representations covenants or agreements of
Seller in this Agreement or any of the Transaction Documents and in
connection with enforcing the provisions of this paragraph, and (ii) any
claim asserted or litigation, action, suit or proceeding filed against
Purchaser arising out of or relating to facts, circumstances or events
occurring prior to the date of this Agreement in connection with the Business
or the Assets, and (iii) all litigation as set forth in Schedule 2.11.
c. From and after the date of this agreement, Purchaser shall
indemnify and hold Seller harmless from and against any and all actions at
law or in equity, claims, damages, losses, costs (including attorney's fees),
liabilities or expenses whatsoever, incurred by Seller and resulting from (i)
any breach of warranties, representations covenants or agreements of
Purchaser in this Agreement or any of the Transaction Documents and in
connection with enforcing the provisions of this paragraph, and (ii) any
claim asserted or litigation, action, suit or proceeding filed against Seller
arising out of or relating to facts, circumstances or events occurring after
the date of this Agreement in connection with the Business or the Assets.
4.5 Bulk Sales Law. Seller hereby agrees and covenants to indemnify
and hold Purchaser harmless from, against and in respect of any and all
liabilities and obligations for which Purchaser or the Assets may become
liable by reason of Seller's noncompliance with any applicable bulk sales law
in connection with the sale of the Assets to Purchaser, and any action, suit,
judgment and costs and expenses, including attorney's fees, incident to the
foregoing.
4.6 Confidentiality. Seller agrees that for a term of three (3)
years from the date of this Agreement and so long as an Event of Default has
not occurred under the Transaction Documents resulting in Seller's
reacquisition of the Business or any Assets, Seller will hold in a fiduciary
capacity for the benefit of the Purchaser, and shall not directly or
indirectly use or disclose, except as authorized by the Purchaser, any
Information, as defined in the following sentence, that Seller may have or
acquire (whether or not developed or compiled by Seller). The term
"Information" as used in this Agreement means confidential or proprietary
information including technical and financial information and customer or
client lists, relating to the Business or its programs or procedures,
including without limitation, Information received by the Seller from third
parties under confidential conditions. The term "Information" also includes,
without limitation, the Business' computer data-base, forms and form letters,
form contracts, information regarding specific transactions, financial
information and estimates and long-term planning and goals. Notwithstanding
the foregoing, these confidentiality provisions shall not apply to
Information which has become generally available to the public or otherwise
disclosed by the Purchaser as non-confidential information.
4.7 Non-Competition. For a period of three (3) years after the date
of this Agreement, unless Seller has reacquired the Business or any of the
Assets pursuant to an Event of Default under the Transaction Documents,
Seller agrees that Seller will not, within a two hundred (200) mile radius of
the Premises (the "Territory"), without the prior written consent of the
Purchaser, either separately or in association with others, engage in or
contribute Seller's knowledge to management or marketing related to any
product, service, system or process that relates to the Business. Further,
Seller will not own, manage, or operate any business or entity or activity in
the Territory which is in competition with or of a similar nature to the
Business. For a period of two (2) years following the date of this
Agreement, Seller agrees that Seller will not, separately or in association
with others, solicit any employee of the Business for employment in any
capacity by any individual or entity. Vernon W. Mules' continued employment
and association with Doughtie's Foods, Inc. shall not be a violation of any
covenants in this Agreement.
ARTICLE 5
EMPLOYEES AND EMPLOYEE MATTERS
5.1 Transferred Employees. At Closing, Purchaser has offered
employment to Seller's employees who are listed on the attached Schedule 5.1,
and as of the Closing, such employees who have accepted such offer (the
"Transferred Employees") are deemed to have become employees of Purchaser.
5.2 Vacations and Other Benefits.
a. Purchaser has assumed responsibility for all of the
Transferred Employees' accrued vacation benefits and will honor the
Transferred Employees 1995 vacation entitlements under Seller's vacation
policy, provided, however, that Seller shall pay or reimburse Purchaser
for payments made to any Transferred Employees for the cash value of accrued
vacation which is unused at the time of the resignation of such Transferred
Employee within 90 days of Closing.
b. Purchaser has arranged to provide a basic benefit package
for the Transferred Employees.
c. Except as otherwise provided, no assets or liabilities
with respect to the employees of the Business have been transferred, as a
result of this Agreement and the Transaction Documents, from any of Seller's
employee benefit plans applicable to the employees of the Business, and
Seller shall retain all obligations to fund or otherwise provide benefits
accrued by such employees under its benefit plans prior to the Closing.
5.3 Worker's Compensation. Purchaser will assume the responsibility
for all worker's compensation claims made by Transferred Employees arising
from events occurring after the Closing. Seller will retain the
responsibility for all worker's compensation claims made by its employees or
former employees (whether or not Transferred Employees) that arise from
events that occur before the Closing.
ARTICLE 6
MISCELLANEOUS
6.1 Survival. Except as specifically provided with respect to the
noncompete provisions of this Agreement and otherwise, all representations,
warranties, covenants, indemnities and agreements included or provided in
this Agreement shall survive and remain in full force and effect for a period
of one year from the date of this Agreement.
6.2 Enforcement of Agreement. The parties agree that in the event it
becomes necessary for a party to litigate in order to enforce its rights
under the terms of this Agreement or any of the Transaction Documents, then
and in such event, the successful party shall be entitled to recover from the
other party or parties to the litigation its costs and reasonable attorneys'
fees up to and including all trial and appellate levels.
6.3 Notice. Whenever any notice is required or permitted hereunder,
such notice shall be in writing and shall be delivered in person or by
courier, or transmitted by facsimile communication (FAX), or sent by U.S.
Registered or Certified Mail, Return Receipt Requested, postage prepaid, to
the addresses set forth below or at such other addresses as specified by
written notice delivered in accordance herewith:
Seller:
Dutterer's of Manchester Corp. and
Doughtie's Foods, Inc.
2410 Wesley Street
Portsmouth, Virginia 23707
FAX: (804) 399-3558
Purchaser:
Value Added Food Services, Inc.
2700 Lord Baltimore Drive
Baltimore, Maryland 21244
Guarantors:
Vernon W. Mules and Kathryn M. Mules
8 Hart's Run Court
Towson, Maryland 21286
Notices mailed as hereinabove provided shall be deemed effectively
given when actually received or upon refusal of receipt of such delivery.
6.4 Miscellaneous.
a. This Agreement shall be construed and interpreted under
the laws of the State of Maryland.
b. Except as otherwise provided herein, all rights, powers
and privileges conferred hereunder upon the parties shall be cumulative but
not restrictive to those given by law.
c. The failure of either party to exercise any power given
either party hereunder or to insist upon strict compliance by either party of
its obligations hereunder shall not constitute a waiver of either party's
right to demand exact compliance with the terms hereof.
d. This Agreement contains the entire agreement of the
parties hereto relating to the subject matter hereof, and no representations.
inducements, promises or agreements, oral or otherwise between the parties
not embodied herein shall be of any force or effect.
e. No amendment to this Agreement shall be binding on any of
the parties to this Agreement unless such amendment is in writing, and such
amendment is executed by all of the parties to this Agreement.
f. No waiver or consent permitted or contemplated by this
Agreement shall be effective or binding on any of the parties hereto unless
the same is in writing, and delivered and received from one party to the
other.
g. The captions and headings of the paragraphs contained in
this Agreement are inserted only as a matter of convenience and in no way
define, limit, construe, or describe the scope or intent of such paragraphs,
or in any way affect this Agreement.
h. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
i. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned parties have hereunto set their
hands and affixed their seals as of the day and year first above written.
SELLER:
DUTTERER'S OF MANCHESTER CORP.,
a Maryland corporation
By: Steven C. Houfek (SEAL)
Authorized Agent
(Signature)
DOUGHTIE'S FOODS INC.,
a Virginia corporation
By: Steven C. Houfek (SEAL)
President
(Signature)
PURCHASER:
VALUE ADDED FOOD SERVICES, INC.,
a Maryland corporation
By: Vernon W. Mules (SEAL)
Vice President
(Signature)
GUARANTORS:
Vernon W. Mules (SEAL)
(Signature)
Kathryn M. Mules (SEAL)
(Signature)
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[Schedules omitted]
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BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS THAT:
FOR AND IN CONSIDERATION of the sum of Ten ($10.00) Dollars, in lawful
money of the United States of America, and other good and valuable
considerations, the receipt and sufficiency of which are herewith
acknowledged, DUTTERER'S OF MANCHESTER CORPORATION, a Maryland corporation
("Dutterer's), and DOUGHTIE'S FOODS, INC., a Virginia corporation
("Doughtie's"), respectively (Doughtie's and Dutterer's sometimes hereinafter
collectively referred to as the "Sellers"), have bargained, sold, conveyed,
assigned, transferred and delivered, and by these presents do bargain,
sell, convey, transfer and assign and deliver absolutely unto VALUE ADDED
FOOD SERVICES, INC., a Maryland corporation, (hereinafter the "Purchaser"),
certain of the assets (hereinafter the "Assets") of the home food sales
business operation of Dutterer's (the "Business"), which Business is located
at 2700 Lord Baltimore Drive, Baltimore, Maryland.
Except for the Excluded Assets (hereinafter defined), the Assets
transferred hereby include:
1. All goods, stock-in-trade, and inventory of whatever kind or
nature, wherever located, which are held or owned by the Business, and
materials used or consumed in the Business, including without limitation,
those assets described in Exhibit A attached hereto and made a part hereof;
2. All of the furniture, fixtures, equipment, supplies, telephone
numbers, transferable licenses, leasehold improvements, and other tangible
assets located in or upon the Premises and/or currently used in the operation
of the Business including, without limitation, those assets described in
Exhibit B attached hereto and made a part hereof;
3. All accounts receivable, contracts, contract rights, and general
intangibles of the Business including, without limitation, those assets
described in Exhibit C attached hereto and made a part hereof;
4. All right, title and interest, if any, in and to all proprietary
information, customer lists, formulas, trade secrets, inventions, patent and
patent applications, trademarks, trade names and service marks, copyrights,
copyright applications and registrations used by or associated with the
Business, including the exclusive use and rights to the trade name
Dutterer's Home Foods; provided, however, that with respect to the trade name
Doughtie's Home Foods, such conveyance shall be only a license, which license
(i) extends for a period of one year from date hereof, (ii) allows/ use only
in the form attached as Exhibit D, (iii) is exclusive (except that nothing
herein shall be deemed to affect use of "Doughtie's" by Doughtie's, (iv)
permits use only with respect to the Business and (v) excludes use in the
area of Virginia south and east of the City of Richmond;
5. To the extent assignable, Seller's leasehold interest in the
vehicles and equipment listed on the attached Exhibit E.
6. All documents, books and records relating to any and all of the
foregoing; and
7. All products, and proceeds of the foregoing (including, without
limitation, insurance payable by reason of loss or damage to any of the
foregoing).
The Assets shall not include those items (the "Excluded Assets")
described on Exhibit F attached hereto and made a part hereof, and such items
shall remain the Property of Sellers and shall not be transferred to
Purchaser by this Bill of Sale.
TO HAVE AND TO HOLD the Assets unto the Purchaser, its successors and
assigns, to its own proper use, benefit and behoof forever.
All of the equipment included as part of the Assets is sold "as is"
and "where is," and "with all faults" without any warranty except as to title
and except that Seller warrants that such equipment is in satisfactory
working order as of the date hereof.
Seller hereby covenants with Buyer that Seller is the lawful owner of
the Assets, that Seller has good right to sell the Assets, and that the
Assets are free and clear of all encumbrances whatsoever except those liens
and encumbrances set forth on Exhibit G attached hereto. Seller does hereby
warrant and agree to defend the Assets unto the Purchaser, its successors and
assigns, against any and all claims and demands of all parties whomsoever,
except and subject to those proper claims of those entities named in
Exhibit G.
IN WITNESS WHEREOF, the Sellers, by and through their authorized
officers, have hereunto set their hands and affixed their seals as of the 3rd
day of September, 1995.
DUTTERER'S OF MANCHESTER CORP.,
a Maryland corporation
By: Steven C. Houfek (SEAL)
Authorized Agent
(Signature)
DOUGHTIE'S FOODS INC.,
a Virginia corporation
By: Steven C. Houfek (SEAL)
President
(Signature)
- --------------------------------------------------------------------
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[Exhibits omitted]
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TERM NOTE
$1,077,821.00
Baltimore, Maryland September 3, 1995
For value received, VALUE ADDED FOOD SERVICES, INC., a
Maryland corporation (the "Maker"), promises to pay to the order of
DUTTERER'S OF MANCHESTER CORPORATION., a Maryland corporation (the "Holder"),
the principal sum of $1,077,821.00 (the "Loan") in installments as
hereinafter provided. The Maker promises to pay interest on the unpaid
principal amount of the Loan for each day from the date hereof until paid at
a variable rate per annum equal to the Prime Rate of interest as reported by
the Wall Street Journal, but not to exceed a rate per annum of 10.00%;
provided, however, that any overdue principal of and, to the extent permitted
by law, overdue interest on the Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the sum of 3.00% plus
the otherwise applicable rate for such day. Interest on the Loan shall be
adjusted automatically on and as of the first day of the next month following
the effective date of any change in the Prime Rate and shall be computed on
the basis of the actual number of days elapsed over a year of 360 days. All
payments of principal and interest shall be made in lawful money of the
United States in immediately available funds at 2410 Wesley Street,
Portsmouth, Virginia 23707 or at such address as is designated from time to
time by the Holder.
The accrued interest on the Loan shall be payable monthly,
commencing on October 1, 1995 and continuing thereafter on the first day of
each month up to and including September, 1997; provided, however, that the
last of such installments shall in any event be in an amount sufficient to
repay in full the then unpaid and accrued interest amount on the Loan.
The principal amount of the Loan shall be due and payable in
twelve equal monthly payments, commencing on October 1, 1996 and continuing
thereafter on the first day of each month up to and including September 1,
1997; provided, however, that the last of such installments shall in any
event be in an amount sufficient to repay in full the then unpaid principal
amount of the Loan.
The Maker may prepay the Loan in whole or in part at any time
without penalty.
This Note is made by the Maker in connection with its purchase
of certain assets of the Holder (the "Assets"), as evidenced by a Bill of
Sale dated the date hereof between the Maker and the Holder, and is secured
by a Security Agreement between the Maker and the Holder dated the date
hereof. The Maker and the Holder are also parties to an Assumption of
Liabilities and Obligations and a Closing Agreement, each dated the date
hereof and each containing certain other representations, warranties,
covenants, terms, conditions, and agreements made by the parties in
connection with the sale of the Assets. This Note, the Bill of Sale, the
Security Agreement, the Assumption of Liabilities and Obligations, and the
Closing Agreement, as any of the same may be amended, supplemented, replaced,
or otherwise modified from time to time, are referred to hereinafter as,
collectively, the "Transaction Documents."
If one or more of the following events ("Events of Default")
shall have occurred and be continuing:
(1) the Maker shall fail to pay when due any principal of or
interest on the Loan or any other amount payable under the Note or any of the
other Transaction Documents and such failure continues for more than ten days
after written notice thereof;
(2) the Maker shall fail to observe or perform any covenant,
obligation, or agreement contained in the Security Agreement or any of
the other Transaction Documents for 15 days after written notice thereof has
been given to the Maker by the Holder;
(3) any representation, warranty, certification or statement
made by the Maker in any of the Transaction Documents or in any certificate,
financial statement or other document delivered pursuant hereto or thereto
shall prove to have been incorrect in any material respect when made;
(4) the Maker shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall take any corporate action to authorize any of
the foregoing;
(5) an involuntary case or other proceeding shall be commenced
against the Maker seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days, or
an order for relief shall be entered against the Maker under the federal
bankruptcy laws as now or hereafter in effect;
(6) one or more final judgments or orders for the payment of
money in excess of $5,000.00 shall be rendered against the Maker and such
judgment or order shall continue unsatisfied for a period of 21 days during
which execution thereof shall not be effectively stayed; or
(7) except as permitted in the Security Agreement, (A) the
Security Agreement shall cease for any reason to be in full force and effect
or shall cease to be effective to grant a perfected security interest in the
Collateral (as defined in the Security Agreement) with the priority stated to
be created thereby or such security interest shall cease to be in full force
and effect or shall be declared null and void, or the validity or
enforceability of such security interest or the Security Agreement shall be
contested by the Maker, or the Maker shall deny that it has any further
liability or obligation under the Security Agreement, or (B) any creditor of
the Maker (other than a creditor having a purchase money security interest in
the ordinary course of business and then solely with respect to the related
asset) shall obtain possession of any of the Collateral by any means,
including, without limitation, levy, distraint, replevin or self-help, or any
such creditor shall establish or obtain any right in the Collateral which is
equal to or senior to the security interest of the Holder in the Collateral;
provided, however, that, with respect to any third party action, it shall not
be an Event of Default hereunder if Maker succeeds in curing or satisfying,
to the satisfaction of Holder, the event, action, or condition that
threatened or contested the validity or enforceability of the security
interest or the Security Agreement, within 10 days of the date when the Maker
first knew or should have known of such event, action, or condition;
then, and in every such event, the Holder may, at its option, by notice to
the Maker, declare the Note (together with accrued interest thereon) to be
immediately due and payable (and the Note shall thereupon become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Maker).
No failure or delay by the Holder in exercising any right,
power or privilege hereunder or under the Note shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
This Note shall be deemed to be made under seal and shall be
governed by and construed in accordance with the laws of the State of
Maryland and shall be effective as of the date first above written.
VALUE ADDED FOOD SERVICES, INC.,
a Maryland corporation
By: Vernon W. Mules (SEAL)
Vice President
(Signature)
[Notary public's certification omitted]
AMENDMENT TO TERM NOTE
This Amendment to Term Note is made as of October 1, 1995, between
VALUE ADDED FOOD SERVICES, INC., a Maryland corporation (the "Maker") and
DUTTERER'S OF MANCHESTER CORPORATION., a Maryland corporation (the "Holder").
RECITALS
The Maker is the maker of a promissory note (the "Note") dated as of
September 3, 1995, payable to the order of the Holder in the original
principal amount of $1,077,821.00 (the "Loan"). The Note evidences
indebtedness incurred by the the Maker to the Holder pursuant to a sale of
certain of the Holder's assets to the Maker, as set forth in the Closing
Agreement dated as of September 3, 1995. The original principal amount of
the Note reflects an estimated purchase price for the assets. The final
purchase price has now been calculated to be $1,154,172.00. The corrected
principal amount of the Note is 90% of the final purchase price, and the
parties desire to amend the Note accordingly, pursuant to Section 1.6 of the
Closing Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. The original principal amount of the Note is hereby reduced to
$1,038,755.00.
2. Except as amended herein, the Note remains in full force and
effect.
3. This Amendment to Term Note shall be attached to the Note.
WITNESS the following signatures and seals.
VALUE ADDED FOOD SERVICES, INC.,
a Maryland corporation
By: Vernon W. Mules (SEAL)
Vice President
(Signature)
DUTTERER'S OF MANCHESTER CORP.,
a Maryland corporation
By: Steven C. Houfek (SEAL)
Authorized Agent
(Signature)
ASSUMPTION OF LIABILITIES AND OBLIGATIONS
THIS ASSUMPTION OF LIABILITIES AND OBLIGATIONS, effective as of
September 3, 1995 (the "Effective Date"), is made jointly and severally by
all of VALUE ADDED FOOD SERVICES, INC., a Maryland corporation ("VAFS"); and
VERNON W. MULES and KATHRYN M. MULES (collectively, the "Guarantors") for the
benefit of DUTTERER'S OF MANCHESTER CORPORATION, a Maryland corporation
("Dutterer's") and DOUGHTIE'S FOODS, INC., a Virginia corporation
("Doughtie's").
RECITALS:
VAFS and the Guarantors have entered into certain agreements,
including without limitation the Closing Agreement (the "Closing Agreement"),
dated the Effective Date, to purchase (or to tender guaranties in connection
with the purchase of) the business, property and certain of the assets of
Dutterer's. The property, assets and business being purchased are referred
to herein as the "Business." Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Closing Agreement.
NOW, THEREFORE, in consideration of the foregoing, VAFS and the
Guarantors agree as follows:
ARTICLE I
VAFS hereby assumes and agrees to pay, honor, and discharge, when due
and payable and otherwise in accordance with the relevant governing
agreements and instruments the following:
(i) All lease obligations of Dutterer's or Doughtie's, its
parent corporation, under that certain Truck Lease and Service Agreement
dated May 2, 1991, as amended, between Dutterer's and Lend Lease Trucks,
Inc., with respect to the trucks and equipment leased pursuant thereto,
including without limitation the trucks listed on Exhibit E to the Bill of
Sale.
(ii) Sales commitments of the Business, customer agreements
and/or offers to sell products of the Business, including without limitation
all obligations of Dutterer's or Doughtie's to customers arising out of
documents in the form of Exhibits A, B, and C attached hereto. Such
obligations shall include but shall not be limited to obligations arising out
of contract, law, rule, regulation or custom and practice, and in general
VAFS shall operate the Business with respect to existing customers in
substantially the same manner in which it has been operated heretofore.
(iii) Accrued vacations of Dutterer's employees as of the
Effective Date to the extent set forth in the Closing Agreement. Dutterer's
represents that there is no agreement to make monetary payments to any
employee for unused vacation except in the event of a separation from
employment.
(iv) All obligations of Dutterer's, if any, accruing on and
after September 1, 1995, with respect to the property located at 2700 Lord
Baltimore Drive, Baltimore, Maryland 21244, pursuant to and in connection
with the Lease Agreement dated May 10, 1990, between Dutterer's and
Rouse-Teachers Properties, Inc. ("Landlord"), as amended by Amendment to
Lease Agreement dated February 8, 1991, and Second Amendment to Lease
Agreement dated July 14, 1995, and as further modified by Assignment and
Assumption of Lease Agreement dated August 23, 1995, between Dutterer's,
Landlord, Dutter's Food, Inc., and Dutterer's Home Food Service, Inc.
ARTICLE II
Except as set forth above, VAFS does not assume any obligations or
liabilities of Dutterer's or Doughtie's.
ARTICLE III
The Guarantors hereby jointly and severally agree to guaranty any
payment obligations of VAFS arising from or in connection with VAFS's
assumption of liabilities and obligations as set forth herein.
This Assumption of Liabilities and Obligations may be executed in any
number of counterparts and each of such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, VAFS and the Guarantors have caused this
Assumption of Liabilities and Obligations to be duly executed and their seals
to be affixed as of the date first above written.
VALUE ADDED FOOD SERVICES, INC.,
a Maryland corporation
By: Vernon W. Mules (SEAL)
Vice President
(Signature)
GUARANTORS:
Vernon W. Mules (SEAL)
(Signature)
Kathryn M. Mules (SEAL)
(Signature)
GUARANTY
This GUARANTY (as amended, supplemented or modified from time
to time, this "Guaranty") is made as of September 3, 1995 by KATHRYN M. MULES
(the "Guarantor"), for the benefit of DUTTERER'S OF MANCHESTER CORPORATION, a
Maryland corporation (the "Seller").
RECITALS
Value Added Food Services, Inc., a Maryland corporation (the
"Buyer"), and the Seller propose to enter into certain agreements including,
without limitation, a Bill of Sale, an Assumption of Liabilities and
Obligations, a Term Note payable to the order of the Seller in the original
principal amount of $1,077,821.00 (the "Note"), and a Closing Agreement, each
dated the date hereof (as the same may be amended, supplemented or modified
from time to time and including any agreement extending the maturity of,
financing or otherwise structuring all or any portion of the obligations
under such agreements or any successor agreement, collectively, the
"Transaction Documents"). To induce the Seller to enter into the Transaction
Documents and to secure the Buyer's obligations under the Note and the other
Transaction Documents, the Guarantor hereby agrees with the Seller as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Terms used herein and not defined
which are defined in the Transaction Documents have for the purposes hereof
the meanings set forth therein.
ARTICLE II
GUARANTY
Section 2.1. The Guaranty. The Guarantor hereby
unconditionally guarantees to the Seller, for its benefit and for the benefit
of its successors, indorsees, transferees and assigns, the full and punctual
payment when due (whether at stated maturity, by acceleration or otherwise)
of (i) all amounts now or hereafter payable by the Buyer to the Seller on the
Note and (ii) all other obligations, responsibilities or liabilities now or
hereafter payable by the Buyer under, arising out of, or in connection with
the Transaction Documents (all such indebtedness, obligations,
responsibilities and liabilities being herein called the "Obligations"), and
the Guarantor further agrees to pay any and all reasonable expenses which may
be paid or incurred by the Seller in collecting any or all of the Obligations
and/or enforcing any rights under this Guaranty or under the Obligations,
provided, however, that Guarantor's liability for such expenses shall not
exceed an amount equal to ten percent (10%) of the Obligations. If the Buyer
shall fail to pay or perform any Obligation when due in accordance with its
terms (whether at stated maturity, by acceleration or otherwise), the
Guarantor shall forthwith on demand of the Seller pay the Seller the amount
of or perform such Obligation.
Section 2.2. Guaranty Unconditional. This is a guaranty of
payment and not of collection, and the obligations of the Guarantor hereunder
are unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise,
waiver or release in respect of any obligation of the Buyer under the
Transaction Documents, the Note or any other document evidencing any
Obligation, by operation of law or otherwise;
(ii) any modification or amendment or supplement to the
Transaction Documents, the Note or any other document evidencing any
Obligation;
(iii) any release, non-perfection or invalidity of any
direct or indirect security for any Obligation or any release of any other
guarantor of any Obligation;
(iv) any change in the existence, structure or ownership
of the Buyer, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Buyer or its assets or any resulting disallowance,
release or discharge of all or any portion of any Obligation;
(v) the existence of any claim, set-off or other right
which the Guarantor may have at any time against the Buyer, the Seller or any
other corporation or person, whether in connection herewith or any unrelated
transaction; provided, however, that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability of any
Obligation, or any provision of applicable law or regulation purporting to
prohibit the payment by the Buyer of any Obligation;
(vii) any failure by the Seller (A) to file or enforce a
claim against the Buyer or its estate (in a bankruptcy or other proceeding),
(B) to give notice of the existence, creation or incurring by the Buyer of
any new or additional indebtedness or obligation under or with respect to any
Obligation, (C) to commence any action against the Buyer, (D) to disclose to
the Guarantor any facts which the Seller may now or hereafter know with
regard to the Buyer or (E) to proceed with due diligence in the collection,
protection or realization upon any collateral securing any Obligation; or
(viii) any other act or omission to act or delay of any
kind by the Buyer or the Seller or any other corporation or person or any
other circumstance whatsoever which might, but for the provisions of this
clause, constitute a legal or equitable discharge of the Guarantor's
obligations hereunder.
Section 2.3. Discharge; Reinstatement in Certain
Circumstances. The Guarantor's obligations hereunder shall remain in full
force and effect until payment in full of the Obligations. No payment or
payments made by the Buyer, the Guarantor, any other guarantor or any other
person or received or collected by the Seller from the Buyer, the
Guarantor, any other guarantor or any other person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed
to modify, reduce, release or otherwise affect the liability of the Guarantor
hereunder which shall, notwithstanding any such payment or payments, remain
liable for the Obligations until the Obligations are paid in full. If at any
time any payment by the Buyer of any Obligation is rescinded or must
otherwise be restored or returned upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Buyer or upon or as a
result of the appointment of a receiver, intervener or conservator of, or
trustee or similar officer for, the Buyer or any substantial part of its
property or otherwise, the Guarantor's obligations hereunder with respect to
such payment shall be reinstated as though such payment had been due but not
made at such time. The Guarantor agrees that payment or performance of any
of the Obligations or other acts which toll any statute of limitations
applicable to the Obligations shall also toll the statute of limitations
applicable to the Guarantor's liability hereunder.
Section 2.4. Waiver by the Guarantor. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of
the Obligations and notice of or proof of reliance by the Seller upon this
Guaranty or acceptance of this Guaranty, and the Obligations shall
conclusively be deemed to have been created, contracted or incurred in
reliance upon this Guaranty, and all dealings between the Buyer or the
Guarantor and the Seller shall likewise be conclusively presumed to have
taken place or been consummated in reliance upon this Guaranty. The
Guarantor irrevocably waives (i) acceptance hereof, diligence, presentment,
demand, protest and any notice not provided for herein, including,
without limitation, any notice when the Seller exercises rights against the
Buyer to accelerate the unpaid principal amount of any Obligation or to hold,
sell, lease or otherwise dispose of Collateral, (ii) the benefit of any act
or omission by the Seller which directly or indirectly results in or aids the
discharge of the Buyer or the Buyer's payment and performance of any
of the Obligations, (iii) any requirement that at any time any action be
taken by any corporation or person against the Buyer or any other corporation
or person or that resort be had to any security for, or other guaranty of,
any Obligation, (iv) any defense that may arise by reason of lack of
authority of the Guarantor or the lack of authority, death or disability of
any other person or entity, (v) any right that the Guarantor may now or
hereafter have under Section 3-606 of the UCC or otherwise to unimpaired
Collateral, (vi) the defense of commercial unreasonableness with respect to
the Seller's exercise of any rights or remedies against any Collateral or
other direct or indirect security for the Obligations or (vii) any
defense based upon any fact or condition set forth in clauses (i) through
(viii) of Section 2.2.
Section 2.5. Subrogation. Upon making any payment
hereunder, the Guarantor shall be subrogated to the rights of the payee
against the Buyer with respect to such payment; provided, however, that the
Guarantor shall not enforce any payment by way of subrogation until all
amounts of principal of, and interest on, the Note and all other amounts
payable with respect to the Obligations have been paid in full.
Section 2.6. Stay of Acceleration. If acceleration of the
time for payment of any amount payable by the Buyer under or with respect to
the Obligations is stayed upon the insolvency or bankruptcy of the Buyer, all
such amounts otherwise subject to acceleration under the terms of the Note
and the Transaction Documents or any other instrument governing such
Obligations shall nonetheless be payable by the Guarantor hereunder forthwith
on demand by the Seller.
Section 2.7. No Set-Off. No act or omission of any kind or
at any time on the part of the Seller in respect of any matter whatsoever
shall in any way affect or impair the rights of the Seller to enforce any
right, power or benefit under this Guaranty, and no set-off, claim, reduction
or diminution of any obligation or any defense of any kind or nature which
the Guarantor has or may have against the Seller shall be available against
the Seller in any suit or action brought by the Seller to enforce any right,
power or benefit provided for by this Guaranty; provided, however, that
nothing herein shall prevent the assertion by the Guarantor of any such claim
by separate suit or compulsory counterclaim. Nothing in this Guaranty shall
be construed as a waiver by the Guarantor of any rights or claims which
he/she may have against the Seller hereunder or otherwise, but any recovery
upon such rights and claims shall be had from the Seller separately, it being
the intent of this Guaranty that the Guarantor shall be unconditionally and
absolutely obligated to perform fully all his/her obligations, covenants and
agreements hereunder for the benefit of the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Guarantor represents and warrants that:
Section 3.1. Contravention. The execution, delivery and
performance by the Guarantor of this Guaranty require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute (with or without the giving of notice or lapse
of time or both) a default under, any provision of applicable law
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon or affecting the Guarantor.
Section 3.2. Binding Effect. This Guaranty constitutes a
valid and binding agreement of the Guarantor enforceable against the
Guarantor in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
Section 3.3. Litigation. There is no action, suit or
proceeding pending against, or to the knowledge of the Guarantor threatened
against or affecting, the Guarantor before any federal, state or local
government, authority, agency, court or other body, officer or entity, or
before any arbitrator with authority to bind a party at law, in which there
is a reasonable possibility of a decision which could materially adversely
affect the financial condition of the Guarantor or which in any manner draws
into question the validity of this Guaranty and there is no basis known to
the Guarantor for any such action, suit or proceeding.
Section 3.4. No Defaults. The Guarantor is not in default
in the payment of the principal of or interest on any indebtedness and is not
in default under any instrument under and subject to which any such
indebtedness has been incurred, and no event has occurred and is continuing
under the provisions of any such agreement which, with the lapse of time or
the giving of notice, or both, would constitute an event of default
thereunder or permit the acceleration of the indebtedness represented
thereby.
ARTICLE IV
COVENANTS
Section 4.1. Financial Statements. The Guarantor will, at
the request of the Seller, prepare and furnish in a timely fashion such
financial statements and other information as are in form satisfactory to the
Seller, and shall provide such other financial information at such other
times as may be reasonably requested by the Seller.
ARTICLE V
SET-OFF
Section 5.1. Right of Set-Off. Upon the occurrence and
during the continuance of an Event of Default, the Seller is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all indebtedness at any time owing by
the Seller to or for the credit or the account of the Guarantor against
any and all of the obligations now or hereafter existing under this Guaranty,
irrespective of whether or not the Seller shall have made any demand
hereunder and although such obligation may be unmatured. The rights of the
Seller under this Section 5.1 are in addition to any other rights and
remedies (including, without limitation, other rights of set-off) which
the Seller may have. The Seller agrees to notify the Guarantor promptly
after it exercises any such right of set-off.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Notices. All notices, requests and other
communications to a party hereunder shall be in writing and shall be given to
such party at its or his/her address set forth on the signature page hereof
or such other address as such party may hereafter specify for that purpose by
notice to the other. Each such notice, request or other communication shall
be effective when delivered by overnight courier at the address specified in
this Section 6.1.
Section 6.2. No Waivers. No failure or delay by the Seller
in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law.
Section 6.3. Expenses. The Guarantor shall pay (i) all
out-of-pocket expenses of the Seller, including the reasonable fees and
disbursements of its counsel, in connection with the preparation and
administration of this Guaranty, any waiver or consent hereunder or any
amendment hereof and (ii) if an Event of Default occurs, all out-of-pocket
expenses incurred by the Seller, including the reasonable fees and
disbursements of its counsel, in connection with such Event of Default and
any collection and other enforcement proceedings resulting therefrom.
Section 6.4. Amendments and Waivers. Any provision of this
Guaranty may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Guarantor and the Seller.
Section 6.5. Successors and Assigns. The provisions of this
Guaranty shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Guarantor may
not assign or otherwise transfer any of her rights under this Guaranty
without the prior written consent of the Seller.
Section 6.6. Governing Law. This Guaranty shall be governed
by and construed in accordance with the laws of the State of Maryland, except
as otherwise provided herein.
Section 6.7. Counterparts; Effectiveness. This Guaranty may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Guaranty shall become effective when the Seller shall
have received counterparts hereof signed by both parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Guaranty or caused this Guaranty to be duly executed by an authorized officer
as of the day and year first written above.
KATHRYN M. MULES (SEAL)
(Signature)
8 Hart's Run Court
Towson, Maryland 21286
DUTTERER'S OF MANCHESTER CORP.,
a Maryland corporation
By: Steven C. Houfek (SEAL)
Authorized Agent
(Signature)
2410 Wesley Street
Portsmouth, Virginia 23707
GUARANTY
This GUARANTY (as amended, supplemented or modified from time
to time, this "Guaranty") is made as of September 3, 1995 by VERNON W. MULES
(the "Guarantor"), for the benefit of DUTTERER'S OF MANCHESTER CORPORATION, a
Maryland corporation (the "Seller").
RECITALS
Value Added Food Services, Inc., a Maryland corporation (the
"Buyer"), and the Seller propose to enter into certain agreements including,
without limitation, a Bill of Sale, an Assumption of Liabilities and
Obligations, a Term Note payable to the order of the Seller in the original
principal amount of $1,077,821.00 (the "Note"), and a Closing Agreement, each
dated the date hereof (as the same may be amended, supplemented or modified
from time to time and including any agreement extending the maturity of,
financing or otherwise structuring all or any portion of the obligations
under such agreements or any successor agreement, collectively, the
"Transaction Documents"). To induce the Seller to enter into the Transaction
Documents and to secure the Buyer's obligations under the Note
and the other Transaction Documents, the Guarantor hereby agrees with the
Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Terms used herein and not defined
which are defined in the Transaction Documents have for the purposes hereof
the meanings set forth therein.
ARTICLE II
GUARANTY
Section 2.1. The Guaranty. The Guarantor hereby
unconditionally guarantees to the Seller, for its benefit and for the benefit
of its successors, indorsees, transferees and assigns, the full and punctual
payment when due (whether at stated maturity, by acceleration or otherwise)
of (i) all amounts now or hereafter payable by the Buyer to the Seller on the
Note and (ii) all other obligations, responsibilities or liabilities now or
hereafter payable by the Buyer under, arising out of, or in connection with
the Transaction Documents (all such indebtedness, obligations,
responsibilities and liabilities being herein called the "Obligations"), and
the Guarantor further agrees to pay any and all reasonable expenses which may
be paid or incurred by the Seller in collecting any or all of the Obligations
and/or enforcing any rights under this Guaranty or under the Obligations,
provided, however, that Guarantor's liability for such expenses shall not
exceed an amount equal to ten percent (10%) of the Obligations. If the Buyer
shall fail to pay or perform any Obligation when due in accordance with its
terms (whether at stated maturity, by acceleration or otherwise), the
Guarantor shall forthwith on demand of the Seller pay the Seller the amount
of or perform such Obligation.
Section 2.2. Guaranty Unconditional. This is a guaranty of
payment and not of collection, and the obligations of the Guarantor hereunder
are unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise,
waiver or release in respect of any obligation of the Buyer under the
Transaction Documents, the Note or any other document evidencing any
Obligation, by operation of law or otherwise;
(ii) any modification or amendment or supplement to the
Transaction Documents, the Note or any other document evidencing any
Obligation;
(iii) any release, non-perfection or invalidity of any
direct or indirect security for any Obligation or any release of any other
guarantor of any Obligation;
(iv) any change in the existence, structure or ownership
of the Buyer, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Buyer or its assets or any resulting disallowance,
release or discharge of all or any portion of any Obligation;
(v) the existence of any claim, set-off or other right
which the Guarantor may have at any time against the Buyer, the Seller or any
other corporation or person, whether in connection herewith or any unrelated
transaction; provided, however, that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability of any
Obligation, or any provision of applicable law or regulation purporting to
prohibit the payment by the Buyer of any Obligation;
(vii) any failure by the Seller (A) to file or enforce a
claim against the Buyer or its estate (in a bankruptcy or other proceeding),
(B) to give notice of the existence, creation or incurring by the Buyer of
any new or additional indebtedness or obligation under or with respect to any
Obligation, (C) to commence any action against the Buyer, (D) to disclose to
the Guarantor any facts which the Seller may now or hereafter know with
regard to the Buyer or (E) to proceed with due diligence in the collection,
protection or realization upon any collateral securing any Obligation; or
(viii) any other act or omission to act or delay of any
kind by the Buyer or the Seller or any other corporation or person or any
other circumstance whatsoever which might, but for the provisions of this
clause, constitute a legal or equitable discharge of the Guarantor's
obligations hereunder.
Section 2.3. Discharge; Reinstatement in Certain
Circumstances. The Guarantor's obligations hereunder shall remain in full
force and effect until payment in full of the Obligations. No payment or
payments made by the Buyer, the Guarantor, any other guarantor or any other
person or received or collected by the Seller from the Buyer, the
Guarantor, any other guarantor or any other person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed
to modify, reduce, release or otherwise affect the liability of the Guarantor
hereunder which shall, notwithstanding any such payment or payments, remain
liable for the Obligations until the Obligations are paid in full. If at any
time any payment by the Buyer of any Obligation is rescinded or must
otherwise be restored or returned upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Buyer or upon or as a
result of the appointment of a receiver, intervener or conservator of, or
trustee or similar officer for, the Buyer or any substantial part of its
property or otherwise, the Guarantor's obligations hereunder with respect to
such payment shall be reinstated as though such payment had been due but not
made at such time. The Guarantor agrees that payment or performance of any
of the Obligations or other acts which toll any statute of limitations
applicable to the Obligations shall also toll the statute of limitations
applicable to the Guarantor's liability hereunder.
Section 2.4. Waiver by the Guarantor. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of
the Obligations and notice of or proof of reliance by the Seller upon this
Guaranty or acceptance of this Guaranty, and the Obligations shall
conclusively be deemed to have been created, contracted or incurred in
reliance upon this Guaranty, and all dealings between the Buyer or the
Guarantor and the Seller shall likewise be conclusively presumed to have
taken place or been consummated in reliance upon this Guaranty. The
Guarantor irrevocably waives (i) acceptance hereof, diligence, presentment,
demand, protest and any notice not provided for herein, including,
without limitation, any notice when the Seller exercises rights against the
Buyer to accelerate the unpaid principal amount of any Obligation or to hold,
sell, lease or otherwise dispose of Collateral, (ii) the benefit of any act
or omission by the Seller which directly or indirectly results in or aids the
discharge of the Buyer or the Buyer's payment and performance of any
of the Obligations, (iii) any requirement that at any time any action be
taken by any corporation or person against the Buyer or any other corporation
or person or that resort be had to any security for, or other guaranty of,
any Obligation, (iv) any defense that may arise by reason of lack of
authority of the Guarantor or the lack of authority, death or disability of
any other person or entity, (v) any right that the Guarantor may now or
hereafter have under Section 3-606 of the UCC or otherwise to unimpaired
Collateral, (vi) the defense of commercial unreasonableness with respect to
the Seller's exercise of any rights or remedies against any Collateral or
other direct or indirect security for the Obligations or (vii) any
defense based upon any fact or condition set forth in clauses (i) through
(viii) of Section 2.2.
Section 2.5. Subrogation. Upon making any payment
hereunder, the Guarantor shall be subrogated to the rights of the payee
against the Buyer with respect to such payment; provided, however, that the
Guarantor shall not enforce any payment by way of subrogation until all
amounts of principal of, and interest on, the Note and all other amounts
payable with respect to the Obligations have been paid in full.
Section 2.6. Stay of Acceleration. If acceleration of the
time for payment of any amount payable by the Buyer under or with respect to
the Obligations is stayed upon the insolvency or bankruptcy of the Buyer, all
such amounts otherwise subject to acceleration under the terms of the Note
and the Transaction Documents or any other instrument governing such
Obligations shall nonetheless be payable by the Guarantor hereunder forthwith
on demand by the Seller.
Section 2.7. No Set-Off. No act or omission of any kind or
at any time on the part of the Seller in respect of any matter whatsoever
shall in any way affect or impair the rights of the Seller to enforce any
right, power or benefit under this Guaranty, and no set-off, claim, reduction
or diminution of any obligation or any defense of any kind or nature which
the Guarantor has or may have against the Seller shall be available against
the Seller in any suit or action brought by the Seller to enforce any right,
power or benefit provided for by this Guaranty; provided, however, that
nothing herein shall prevent the assertion by the Guarantor of any such claim
by separate suit or compulsory counterclaim. Nothing in this Guaranty shall
be construed as a waiver by the Guarantor of any rights or claims which
he/she may have against the Seller hereunder or otherwise, but any recovery
upon such rights and claims shall be had from the Seller separately, it being
the intent of this Guaranty that the Guarantor shall be unconditionally and
absolutely obligated to perform fully all his/her obligations, covenants and
agreements hereunder for the benefit of the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Guarantor represents and warrants that:
Section 3.1. Contravention. The execution, delivery and
performance by the Guarantor of this Guaranty require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute (with or without the giving of notice or lapse
of time or both) a default under, any provision of applicable law
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon or affecting the Guarantor.
Section 3.2. Binding Effect. This Guaranty constitutes a
valid and binding agreement of the Guarantor enforceable against the
Guarantor in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
Section 3.3. Litigation. There is no action, suit or
proceeding pending against, or to the knowledge of the Guarantor threatened
against or affecting, the Guarantor before any federal, state or local
government, authority, agency, court or other body, officer or entity, or
before any arbitrator with authority to bind a party at law, in which there
is a reasonable possibility of a decision which could materially adversely
affect the financial condition of the Guarantor or which in any manner draws
into question the validity of this Guaranty and there is no basis known to
the Guarantor for any such action, suit or proceeding.
Section 3.4. No Defaults. The Guarantor is not in default
in the payment of the principal of or interest on any indebtedness and is not
in default under any instrument under and subject to which any such
indebtedness has been incurred, and no event has occurred and is continuing
under the provisions of any such agreement which, with the lapse of time or
the giving of notice, or both, would constitute an event of default
thereunder or permit the acceleration of the indebtedness represented
thereby.
ARTICLE IV
COVENANTS
Section 4.1. Financial Statements. The Guarantor will, at
the request of the Seller, prepare and furnish in a timely fashion such
financial statements and other information as are in form satisfactory to the
Seller, and shall provide such other financial information at such other
times as may be reasonably requested by the Seller.
ARTICLE V
SET-OFF
Section 5.1. Right of Set-Off. Upon the occurrence and
during the continuance of an Event of Default, the Seller is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all indebtedness at any time owing by
the Seller to or for the credit or the account of the Guarantor against
any and all of the obligations now or hereafter existing under this Guaranty,
irrespective of whether or not the Seller shall have made any demand
hereunder and although such obligation may be unmatured. The rights of the
Seller under this Section 5.1 are in addition to any other rights and
remedies (including, without limitation, other rights of set-off) which
the Seller may have. The Seller agrees to notify the Guarantor promptly
after it exercises any such right of set-off.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Notices. All notices, requests and other
communications to a party hereunder shall be in writing and shall be given to
such party at its or his/her address set forth on the signature page hereof
or such other address as such party may hereafter specify for that purpose by
notice to the other. Each such notice, request or other communication shall
be effective when delivered by overnight courier at the address specified in
this Section 6.1.
Section 6.2. No Waivers. No failure or delay by the Seller
in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law.
Section 6.3. Expenses. The Guarantor shall pay (i) all
out-of-pocket expenses of the Seller, including the reasonable fees and
disbursements of its counsel, in connection with the preparation and
administration of this Guaranty, any waiver or consent hereunder or any
amendment hereof and (ii) if an Event of Default occurs, all out-of-pocket
expenses incurred by the Seller, including the reasonable fees and
disbursements of its counsel, in connection with such Event of Default and
any collection and other enforcement proceedings resulting therefrom.
Section 6.4. Amendments and Waivers. Any provision of this
Guaranty may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Guarantor and the Seller.
Section 6.5. Successors and Assigns. The provisions of this
Guaranty shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Guarantor may
not assign or otherwise transfer any of his rights under this Guaranty
without the prior written consent of the Seller.
Section 6.6. Governing Law. This Guaranty shall be governed
by and construed in accordance with the laws of the State of Maryland, except
as otherwise provided herein.
Section 6.7. Counterparts; Effectiveness. This Guaranty may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Guaranty shall become effective when the Seller shall
have received counterparts hereof signed by both parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Guaranty or caused this Guaranty to be duly executed by an authorized officer
as of the day and year first written above.
VERNON W. MULES (SEAL)
(Signature)
8 Hart's Run Court
Towson, Maryland 21286
DUTTERER'S OF MANCHESTER CORP.,
a Maryland corporation
By: Steven C. Houfek (SEAL)
Authorized Agent
(Signature)
2410 Wesley Street
Portsmouth, Virginia 23707
SECURITY AGREEMENT
This SECURITY AGREEMENT (as amended, supplemented or modified
from time to time, this "Security Agreement") is made as of September 3, 1995
(the "Effective Date") and is between VALUE ADDED FOOD SERVICES, INC., a
Maryland corporation (the "Buyer"), and DUTTERER'S OF MANCHESTER CORPORATION,
a Maryland corporation (the "Seller").
RECITALS
The Buyer and the Seller propose to enter into certain
agreements including, without limitation, a Bill of Sale, a Note, an
Assumption of Liabilities and Obligations, and a Closing Agreement, each
dated the Effective Date (as the same may be amended, supplemented or
modified from time to time and including this Agreement and any agreement
extending the maturity of, financing or otherwise structuring all or any
portion of the obligations under such agreements or any successor agreement,
collectively, the "Transaction Documents"). To induce the Seller to enter
into the Transaction Documents and to secure the Buyer's obligations under
the Note and the other Transaction Documents, the Buyer hereby agrees with
the Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Terms used herein and not defined
which are defined in the Note and the other Transaction Documents have for
the purposes hereof the meanings set forth therein, and the following terms,
as used herein, have the following meanings:
"Account Debtor" means, with respect to any Receivable or
Other Intangible, any Person obligated to make payment thereunder, including
without limitation any account debtor thereon.
"Business" means the business and assets conveyed to the Buyer
pursuant to the Transaction Documents.
"Collateral" has the meaning set forth in Section 2.1.
"Equipment" means all equipment of the Business, including all
items of machinery, equipment, furnishings and fixtures of every kind,
whether affixed to real property or not, as well as all automobiles, trucks
and vehicles of every description, trailers, handling and delivery equipment,
all additions to, substitutions for, replacements of or accessions to any
of the foregoing, all attachments, components, parts (including spare parts)
and accessories, whether installed thereon or affixed thereto, and all fuel
for any thereof.
"Inventory" means all inventory of the Business, including (i)
all goods and other personal property which are held for sale or lease or are
furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to
be used or consumed in the Buyer's business, (ii) all inventory, wherever
located, evidenced by negotiable and non-negotiable documents of title,
warehouse receipts and bills of lading, (iii) all of the Buyer's rights in,
to and under all purchase orders now owned or hereafter received or acquired
by it for goods or services and (iv) all of the Buyer's rights as an unpaid
seller, including rescission, replevin, reclamation and stopping in
transit.
"Obligations" means (i) all amounts now or hereafter payable
by the Buyer to the Seller on the Note and (ii) all other obligations,
responsibilities or liabilities now or hereafter payable or performable by
the Buyer under, arising out of or in connection with the Transaction
Documents.
"Other Intangibles" means all accounts, accounts receivable,
contract rights, documents, instruments, chattel paper, money and general
intangibles of the Business, without limitation, all customer lists, permits,
federal and state tax refunds, reversionary interests in pension plan assets,
trademarks, patents, licenses, copyrights and other rights in intellectual
property, other than Receivables.
"Proceeds" means all proceeds, including (i) whatever is
received upon any collection, exchange, sale or other disposition of any of
the Collateral and any property into which any of the Collateral is
converted, whether cash or non-cash, (ii) any and all payments or other
property (in any form whatsoever) made or due and payable on account of any
insurance, indemnity, warranty or guaranty payable to the Buyer with respect
to any of the Collateral, (iii) any and all payments (in any form whatsoever)
made or due and payable in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of any of the
Collateral by any governmental body, authority, bureau or agency (or any
person, corporation, agency, authority or other entity acting under color of
any governmental authority), (iv) any claim of the Buyer against third
parties for past, present or future infringement of any patent or for past,
present or future infringement or dilution of any trademark or for injury to
the goodwill associated with any trademark or for the breach of any
license and (v) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Receivables" means, with respect to the Business, all
accounts now or hereafter owing to the Buyer, and all accounts receivable,
contract rights, documents, instruments or chattel paper representing amounts
payable or monies due or to become due to the Buyer, arising from the sale of
Inventory or the rendition of services in the ordinary course of business or
otherwise (whether or not earned by performance), together with all
Inventory returned by or reclaimed from customers wherever such Inventory is
located, and all guaranties, securities and liens held for the payment of any
such account, account receivable, contract right, document, instrument or
chattel paper.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of Maryland; provided, however, that if, by reason of
mandatory provisions of law, the validity or perfection of any security
interest granted to the Seller hereunder is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than Maryland, as
applicable, then, as to the validity or perfection of such security interest,
"UCC" means the Uniform Commercial Code as in effect in such other
jurisdiction.
Section 1.2. UCC Definitions. The uncapitalized terms
"account", "account debtor", "bill of lading", "chattel paper", "contract
right", "document", "document of title", "equipment", "general intangible",
"instrument", "inventory", "money", "proceeds", "purchase money security
interest" and "warehouse receipt" as used in Section 1.1 or elsewhere in this
Security Agreement have the respective meanings set forth in the UCC.
ARTICLE II
SECURITY INTERESTS
Section 2.1. Grant of Security Interests. To secure the due
and punctual payment of all Obligations, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing or due or to become due, in accordance with the terms
thereof and to secure the due and punctual performance of all of the
obligations of the Buyer contained in the Note and the other Transaction
Documents and to induce the Seller to enter into the Transaction Documents
and to finance the purchase in accordance with the terms thereof, the Buyer
hereby grants to the Seller a security interest in all of the Buyer's right,
title and interest in, to and under the following, whether now existing
or hereafter acquired (all of which are herein collectively called the
"Collateral"):
(i) all Receivables;
(ii) all Other Intangibles;
(iii) all Equipment;
(iv) all Inventory;
(v) to the extent not included in the foregoing, all books,
ledgers and records and all computer programs, tapes, discs, punch cards,
data processing software, transaction files, master files and related
property and rights (including computer and peripheral equipment) necessary
or helpful in enforcing, identifying or establishing any item of Collateral;
and
(vi) to the extent not included in the foregoing, all
Proceeds and products of any or all of the foregoing, whether existing on the
date hereof or arising hereafter.
Section 2.2. Continuing Liability of the Buyer. The Buyer
shall remain liable to observe and perform all the terms and conditions to be
observed and performed by it under any contract, agreement, warranty or other
obligation with respect to the Collateral. The Seller shall not have any
obligation or liability under any such contract, agreement, warranty or other
obligation by reason of or arising out of this Security Agreement and shall
not be required to perform or fulfill any of the obligations of the Buyer
with respect to the Collateral.
Section 2.3. Sales and Collections.
(a) The Buyer is authorized to sell the Inventory in the
ordinary course of its business for fair value and on an arm's-length basis
and to use and consume any raw materials, supplies and materials in the
ordinary course of its business. The Seller may, upon the occurrence of an
Event of Default, as defined in the Term Note of even date herewith,
without cause or notice, curtail or terminate such authority at any time.
(b) The Buyer is authorized to collect amounts owing to it
with respect to the Collateral; provided, however, that the Seller may at any
time (regardless of whether or not an Event of Default shall have occurred)
notify Account Debtors obligated to make payments under the Receivables or
Other Intangibles that the Seller has a security interest in such Collateral
and instruct such Account Debtors that payments are to be made directly to
the Seller. The Buyer will, upon the request of the Seller at any time, so
notify and instruct such Account Debtors and use all reasonable efforts to
cause each Account Debtor to comply with the foregoing instruction.
Section 2.4. Release of Collateral. The Seller will, upon
payment in full of the Obligations (and upon notice from the Buyer but at the
expense of the Buyer), send the Buyer, for each jurisdiction in which a UCC
financing statement is on file to perfect the security interests granted to
the Seller hereunder, a termination statement to the effect that the
Seller no longer claims a security interest under such financing statement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants that:
Section 3.1. Title to Collateral. Except for the security
interests granted to the Seller hereunder, the Buyer is the sole owner of
each item of the Collateral, having good and marketable title thereto, free
and clear of any and all Liens.
Section 3.2. Enforceability of Receivables and Other
Intangibles. To the best knowledge of the Buyer, each Receivable and Other
Intangible is a valid and binding obligation of the related Account Debtor,
enforceable in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and
by general provisions of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and complies with any
applicable legal requirements.
Section 3.3. Place of Business. Schedule 3.3 correctly sets
forth the Buyer's chief executive office and principal place of business and
the offices of the Buyer where records concerning the Receivables and the
Other Intangibles are kept.
Section 3.4. Location of Collateral. Schedule 3.4 correctly
sets forth the location of all Equipment and Inventory, other than rolling
stock, goods in transit and Inventory sold in the ordinary course of business
as permitted by this Agreement.
Section 3.5. Trade Names. Schedule 3.5 correctly sets forth
all trade names, division names, assumed names or other names under which the
Buyer transacts, will transact, or within the four-month period prior to the
date hereof has transacted, business.
Section 3.6. Patents and Trademarks. The Buyer does not
have any patents, patent licenses, trademarks or trademark licenses.
ARTICLE IV
COVENANTS
The Buyer agrees that so long as the Seller is committed to
make the Loan or any Obligation remains unpaid:
Section 4.1. Perfection of Security Interests. The Buyer
will, at it expense, cause UCC financing statements and continuation
statements to be filed and to be on file in all applicable jurisdictions as
required to perfect the security interests granted to the Seller
hereunder, to the extent that applicable law permits perfection of a security
interest by filing under the UCC and cause all such financing statements and
continuation statements to include a statement or a checked box indicating
that Proceeds of all items of Collateral described therein are covered
thereby. In the event that any amount payable under or in connection with
any of the Collateral shall be or shall become evidenced by any promissory
note or other instrument, the Buyer will immediately pledge and deliver such
note or other instrument to the Seller as part of the Collateral, duly
endorsed in a manner satisfactory to the Seller. The Buyer will, from time
to time and at its expense, execute, deliver, file and record such
financing statements pursuant to the UCC, applications for certificates of
title and other statements, assignments, instruments, documents, agreements
or other papers and take any other action that may be necessary or desirable,
or that the Seller may reasonably request, to create, preserve, perfect,
confirm or validate the security interests granted to the Seller hereunder,
to enable the Seller to obtain the full benefits of this Security Agreement
or to enable the Seller to exercise and enforce any of its rights, powers and
remedies hereunder, including, without limitation, its right to take
possession of the Collateral, and will use its best efforts to obtain such
waivers from landlords and mortgagees as the Seller may request. To
the fullest extent permitted by law, the Buyer authorizes the Seller to sign
and file financing statements and continuation statements and amendments
thereto with respect to the Collateral without the Buyer's signature thereon.
Section 4.2. Change of Name, Identity or Structure. The
Buyer will not change its name, identity or corporate structure in any manner
and, except as set forth on Schedule 3.5, will not conduct its business under
any trade, assumed or fictitious name unless it shall have given the Seller
at least thirty days' prior written notice thereof and shall have taken all
action (or made arrangements to take such action substantially simultaneously
with such change if it is impossible to take such action in advance)
necessary or reasonably requested by the Seller to amend any financing
statement or continuation statement relating to the security interests
granted to the Seller hereunder to preserve such security interests and to
effectuate or maintain the priority thereof against all Persons.
Section 4.3. Place of Business and Collateral. The Buyer
will not change the location of (i) its places of business, (ii) its chief
executive office or (iii) the office or other locations where it keeps or
holds any Collateral or any records relating thereto from the applicable
location listed on Schedule 3.3 or 3.4 unless, prior to such change, it
notifies the Seller of such change, makes all UCC filings required by Section
4.1 and takes all other action necessary or that the Seller may reasonably
request to preserve, perfect, confirm and protect the security interests
granted to the Seller hereunder. The Buyer will in no event change the
location of any Collateral if such change would cause the security interest
granted to the Seller hereunder in such Collateral to lapse or cease to be
perfected.
Section 4.4. Maintenance of Records. The Buyer will
keep and maintain at its own expense complete books and records relating to
the Collateral which are satisfactory to the Seller including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all of its other dealings with the Collateral.
Section 4.5. Limitation on Liens on Collateral. The Buyer
will not create, permit or suffer to exist, and will defend the Collateral
and the Buyer's rights with respect thereto against and take such other
action as is necessary to remove, any Lien with respect to the Collateral
other than the security interests created hereunder and except for Permitted
Liens.
Section 4.6. Limitations on Modifications of Receivables and
Other Intangibles; No Waivers or Extensions. The Buyer will not (i) amend,
modify, terminate or waive any provision of any Receivable or Other
Intangible in any manner that might have a materially adverse effect on the
value of such Receivable or Other Intangible, (ii) fail to exercise promptly
and diligently each and every material right which it may have under any
Receivable or Other Intangible or (iii) fail to deliver to the Seller a copy
of each material demand, notice or document received by it relating in any
way to any Receivable or Other Intangible. The Buyer will not, without the
Seller's prior written consent, grant any extension of the time for payment
of any Receivable or amounts due under any Other Intangible, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any Person liable for the payment thereof or allow any
credit or discount whatsoever thereon other than trade discounts granted in
the normal course of business, except such as in the reasonable judgment of
the Buyer are advisable to enhance the collectibility thereof.
Section 4.7. Maintenance of Insurance. The Buyer will
maintain with financially sound and reputable insurance companies licensed to
do business in the State of Maryland insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as are usually insured against by companies engaged in the same or
similar business for an amount satisfactory to the Seller and (ii) insuring
the Buyer and the Seller against liability for personal injury arising from,
and property damage relating to, such Inventory and Equipment, such policies
to be in such form and to cover such amounts as may be satisfactory to the
Seller, with losses payable to the Buyer and the Seller as their respective
interests may appear.
Section 4.8. Limitations on Dispositions of Collateral. The
Buyer will not directly or indirectly (through the sale of stock, merger or
otherwise), without the prior written consent of the Seller, sell, transfer,
lease or otherwise dispose of any of the Collateral, or attempt, offer or
contract to do so except for (i) sales of Inventory in the ordinary course of
its business for fair value in arm's-length transactions and (ii) so long as
no Default has occurred and is continuing, dispositions in a commercially
reasonable manner of Equipment which has become redundant, worn out or
obsolete or which should be replaced so as to improve productivity (so long
as the proceeds of any such disposition are (A) used to acquire replacement
equipment which has comparable or better utility and equivalent or better
value and which is subject to a first priority security interest in favor of
the Seller therein, except for Permitted Liens, or (B) applied to repay the
Obligations). The inclusion of Proceeds of the Collateral under the security
interests granted to the Seller hereunder shall not be deemed a consent by
the Seller to any sale or disposition of any Collateral other than as
permitted by this Section 4.8.
Section 4.9. Right of Inspection. The Seller shall at all
times have full and free access during normal business hours to all the
books, correspondence and records of the Buyer, and the Seller or its
representatives may examine the same, take extracts therefrom, make
photocopies thereof and have such discussions with officers, employees and
public accountants of the Buyer as the Seller may deem necessary, and the
Buyer agrees to render to the Seller, at the Buyer's cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto. The Seller and its representatives shall at all times have the
right to enter into and upon any premises where any of the Inventory or
Equipment is located for the purpose of inspecting the same, observing its
use or protecting the interests of the Seller therein.
Section 4.10. Maintenance of Equipment. The Buyer will, at
its expense, generally maintain the Equipment in good operating condition,
ordinary wear and tear excepted.
Section 4.11. Reimbursement Obligation. Should the Buyer
fail to comply with the provisions of the Transaction Documents, this
Security Agreement or any other agreement relating to the Collateral such
that the value of any Collateral or the validity, perfection, rank or value
of any security interest granted to the Seller hereunder or thereunder
is thereby diminished or potentially diminished or put at risk (as reasonably
determined by the Seller), the Seller on behalf of the Buyer may, but shall
not be required to, effect such compliance on behalf of the Buyer, and the
Buyer shall reimburse the Seller for the cost thereof on demand, and interest
shall accrue on such reimbursement obligation from the date the relevant
costs are incurred until reimbursement thereof in full at the rate of
interest on the Note.
ARTICLE V
REMEDIES; RIGHTS UPON DEFAULT
Section 5.1. UCC Rights. If any Event of Default (as defined
in the Note) shall have occurred, the Seller may in addition to all other
rights and remedies granted to it in this Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations,
exercise all rights and remedies of a secured party under the UCC and all
other rights available to the Seller at law or in equity.
Section 5.2. Payments on Collateral. Without limiting the
rights of the Seller under any other provision of the Security Agreement, if
an Event of Default shall occur and be continuing:
(i) all payments received by the Buyer under or in
connection with any of the Collateral shall be held by the Buyer in trust for
the Seller, shall be segregated from other funds of the Buyer and shall
forthwith upon receipt by the Buyer be turned over to the Seller, in the same
form as received by the Buyer (duly indorsed by the Buyer to the Seller, if
required to permit collection thereof by the Seller); and
(ii) all such payments received by the Seller (whether
from the Buyer or otherwise) may, in the sole discretion of the Seller, be
held by the Seller as collateral security for, and/or then or at any time
thereafter applied in whole or in part by the Seller to the payment of the
expenses and Obligations as set forth in Section 5.10.
Section 5.3. Possession of Collateral. In furtherance of the
foregoing, the Buyer expressly agrees that, if an Event of Default shall
occur and be continuing, the Seller may (i) by judicial powers, or without
judicial process if it can be done without breach of the peace, enter any
premises where any of such Collateral is or may be located, and without
charge or liability to the Seller seize and remove such Collateral from such
premises and (ii) have access to and use of the Buyer's books and records
relating to such Collateral.
Section 5.4. Sale of Collateral.
(a) The Buyer expressly agrees that if an Event of Default
shall occur and be continuing, the Seller, without demand of performance or
other demand or notice of any kind (except the notice specified below of the
time and place of any public or private sale) to the Buyer or any other
Person (all of which demands and/or notices are hereby waived by the Buyer),
may forthwith collect, receive, appropriate and realize upon the Collateral
and/or forthwith sell, lease, assign, give an option or options to purchase
or otherwise dispose of and deliver the Collateral (or contract to do so) or
any part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any office of the Seller or elsewhere in such
manner as is commercially reasonable and as the Seller may deem best, for
cash or on credit or for future delivery without assumption of any credit
risk. The Seller shall have the right upon any such public sale, and, to the
extent permitted by law, upon any such private sale, to purchase the whole or
any part of the Collateral so sold. The Buyer further agrees, at the
Seller's request, to assemble the Collateral, and to make it available to the
Seller at places which the Seller may reasonably select. To the extent
permitted by applicable law, the Buyer waives all claims, damages and demands
against the Seller arising out of the foreclosure, repossession, retention or
sale of the Collateral.
(b) Unless the Collateral threatens to decline speedily in
value or is of a type customarily sold in a recognized market, the Seller
shall give the Buyer ten days written notice of its intention to make any
such public or private sale or sale at a broker's board or on a securities
exchange. Such notice shall (i) in the case of a public sale, state the time
and place fixed for such sale, (ii) in the case of a sale at a broker's board
or on a securities exchange, state the board or exchange at which such sale
is to be made and the day on which the Collateral, or any portion thereof
being sold, will first be offered for sale and (iii) in the case of a private
sale, state the day after which such sale may be consummated. The Seller
shall not be required or obligated to make any such sale pursuant to any such
notice. The Seller may adjourn any public or private sale or cause the same
to be adjourned from time to time by announcement at the time and place fixed
for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In the case of any sale of all or any part of
the Collateral for credit or for future delivery, the Collateral so sold may
be retained by the Seller until the selling price is paid by the purchaser
thereof, but the Seller shall not incur any liability in case of failure of
such purchaser to pay for the Collateral so sold and, in the case of such
failure, such Collateral may again be sold upon like notice.
Section 5.5. Rights of Purchasers. Upon any sale of the
Collateral (whether public or private), the Seller shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser (including the Seller) at any such sale shall hold the
Collateral so sold free from any claim or right of whatever kind, including
any equity or right of redemption of the Buyer, and the Buyer, to the extent
permitted by law, hereby specifically waives all rights of redemption,
including, without limitation, the right to redeem the Collateral under
Section 9-506 of the UCC, and any right to a judicial or other stay or
approval which it has or may have under any law now existing or hereafter
adopted.
Section 5.6. Additional Rights of the Seller.
(a) The Seller shall have the right and power to institute
and maintain such suits and proceedings as it may deem appropriate to protect
and enforce the rights vested in it by this Security Agreement and may
proceed by suit or suits at law or in equity to enforce such rights and to
foreclose upon and sell the Collateral or any part thereof pursuant to the
judgment or decree of a court of competent jurisdiction.
(b) The Seller shall, to the extent permitted by law and
without regard to the solvency or insolvency at the time of any Person then
liable for the payment of any of the Obligations or the then value of the
Collateral, and without requiring any bond from any party to such
proceedings, be entitled to the appointment of a special receiver or
receivers (who may be the Seller) for the Collateral or any part thereof and
for the rents, issues, tolls, profits, royalties, revenues and other income
therefrom, which receiver shall have such powers as the court making such
appointment shall confer, and to the entry of an order directing that the
rents, issues, tolls, profits, royalties, revenues and other income of the
property constituting the whole or any part of the Collateral be segregated,
sequestered and impounded for the benefit of the Seller, and the Buyer
irrevocably consents to the appointment of such receiver or receivers and to
the entry of such order.
Section 5.7. Remedies Not Exclusive.
(a) No remedy conferred upon or reserved to the Seller in
this Security Agreement is intended to be exclusive of any other remedy or
remedies, but every such remedy shall be cumulative and shall be in addition
to every other remedy conferred herein or now or hereafter existing at law,
in equity or by statute.
(b) If the Seller shall have proceeded to enforce any right,
remedy or power under this Security Agreement and the proceeding for the
enforcement thereof shall have been discontinued or abandoned for any reason
or shall have been determined adversely to the Seller, the Buyer and the
Seller shall, subject to any determination in s uch proceeding, severally and
respectively be restored to their former positions and rights under this
Security Agreement, and thereafter all rights, remedies and powers of the
Seller shall continue as though no such proceedings had been taken.
(c) All rights of action under this Security Agreement may be
enforced by the Seller without the possession of any instrument evidencing
any Obligation or the production thereof at any trial or other proceeding
relative thereto, and any suit or proceeding instituted by the Seller shall
be brought in its name and any judgment shall be held as part of the
Collateral.
Section 5.8. Waiver and Estoppel.
(a) The Buyer, to the extent it may lawfully do so, agrees
that it will not at any time in any manner whatsoever claim or take the
benefit or advantage of any appraisement, valuation, stay, extension,
moratorium, turnover or redemption law, or any law now or hereafter in force
permitting it to direct the order in which the Collateral shall be sold which
may delay, prevent or otherwise affect the performance or enforcement of this
Security Agreement and the Buyer hereby waives the benefits or advantage of
all such laws, and covenants that it will not hinder, delay or impede the
execution of any power granted to the Seller in this Security Agreement but
will permit the execution of every such power as though no such law were in
force; provided that nothing contained in this Section 5.8 shall be
construed as a waiver of any rights of the Buyer under any applicable federal
bankruptcy law.
(b) The Buyer, to the extent it may lawfully do so, on behalf
of itself and all who may claim through or under it, including without
limitation any and all subsequent creditors, vendees, assignees and lienors,
waives and releases all rights to demand or to have any marshalling of the
Collateral upon any sale, whether made under any power of sale granted herein
or pursuant to judicial proceedings or upon any foreclosure or any
enforcement of this Security Agreement and consents and agrees that all the
Collateral may at any such sale be offered and sold as an entirety.
(c) The Buyer, to the extent it may lawfully do so, waives
presentment, demand, protest and any notice of any kind (except notices
explicitly required hereunder) in connection with this Security Agreement and
any action taken by the Seller with respect to the Collateral.
Section 5.9. Power of Attorney. The Buyer hereby irrevocably
constitutes and appoints the Seller, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Buyer and in the name of the Buyer or in its own
name, from time to time in the Seller's reasonable discretion for the
purpose of carrying out the terms of this Security Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Security Agreement and, without limiting the generality of the foregoing,
hereby gives the Seller the power and right, on behalf of the Buyer, without
notice to or assent by the Buyer to do the following:
(i) to pay or discharge taxes, liens, security
interests or other encumbrances levied or placed on or threatened against the
Collateral;
(ii) to effect any repairs or any insurance called for
by the terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) upon the occurrence and continuance of any Event of
Default and otherwise to the extent provided in this Security Agreement, (A)
to direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due and to come due thereunder directly to
the Seller or as the Seller shall direct; (B) to receive payment of and
receipt for any and all moneys, claims and other amounts due and to become
due at any time in respect of or arising out of any Collateral; (C) to sign
and indorse any invoices, freight or express bills, bills of lading, storage
or warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with accounts and other documents relating to the
Collateral; (D) to commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of any
Collateral; (E) to defend any suit, action or proceeding brought against the
Buyer with respect to any Collateral; (F) to settle, compromise and adjust
any suit, action or proceeding described above and, in connection therewith,
to give such discharges or releases as the Seller may deem appropriate;
(G) to assign any Patent or Trademark (along with the goodwill of the
business to which such Trademark pertains), for such term or terms, on such
conditions, and in such manner, as the Seller shall in its sole discretion
determine; and (H) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Seller were the absolute owner thereof for all
purposes, and to do, at the Seller's option and the Buyer's expense, at any
time, or from time to time, all acts and things which the Seller deems
necessary to protect, preserve or realize upon the Collateral and the
Seller's security interest therein, in order to effect the intent of this
Security Agreement, all as fully and effectively as the Buyer might do.
The Buyer hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. This power of attorney is
a power coupled with an interest and shall be irrevocable.
Section 5.10. Application of Proceeds. The Seller shall
retain the net proceeds of any collection, recovery, receipt, appropriation,
realization or sale of the Collateral and, after deducting all reasonable
costs and expenses of every kind incurred therein or incidental to the care
and safekeeping of any or all of the Collateral or in any way relating
to the rights of the Seller hereunder, including reasonable attorneys' fees
and legal expenses, apply such net proceeds to the payment in whole or in
part of the Obligations in such order as the Seller may elect, the Buyer
remaining liable for any amount remaining unpaid (and any attorneys fees paid
by the Seller in collecting such deficiency) after such application. Only
after applying such net proceeds and after the payment by the Seller of any
other amount required by any provision of law, including Section 9-504(1)(c)
of the UCC, need the Seller account for the surplus, if any, to the Buyer or
to whomsoever may be lawfully entitled to the same.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Notices. All notices, requests and other
communications to a party hereunder shall be in writing and shall be given to
such party at its address set forth on the signature page hereof or such
other address as such party may hereafter specify for that purpose by notice
to the other. Each such notice, request or other communication shall be
effective when delivered by overnight courier at the address specified in
this Section 6.1.
Section 6.2. No Waivers. No failure or delay by the Seller
in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law.
Section 6.3. Expenses. The Buyer shall pay all
out-of-pocket expenses of the Seller, including the reasonable fees and
disbursements of its counsel, in connection with the administration, sale or
other disposition of Collateral hereunder or the preservation, protection
or defense of the rights of the Seller in and to the Collateral.
Section 6.4. Amendments and Waivers. Any provision of this
Security Agreement may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Buyer and the Seller.
Section 6.5. Successors and Assigns. The provisions of this
Security Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer may not assign or otherwise transfer any of its rights under this
Security Agreement without the prior written consent of the Seller.
Section 6.6. Governing Law. This Security Agreement shall
be governed by and construed in accordance with the laws of the State of
Maryland, except as otherwise provided herein.
Section 6.7. Counterparts; Effectiveness. This Security
Agreement may be signed in any number of counte rparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Security Agreement shall become
effective when the Seller shall have received counterparts hereof signed by
both parties.
Section 6.8. Indemnification. The Buyer shall at all times
hereafter indemnify, hold harmless and, on demand, reimburse the Seller, its
subsidiaries, affiliates, successors, assigns, officers, directors, employees
and agents, and their respective heirs, executors, administrators, successors
and assigns (all of the foregoing parties, including, but not limited to, the
Seller, being hereinafter collectively referred to as the "Indemnities" and
individually as an "Indemnitee") from, against and for any and all
liabilities, obligations, claims, damages, actions, penalties, causes of
action, losses, judgments, suits, costs, expenses and disbursements,
including, without limitation, attorney's fees (any and all of the foregoing
being hereinafter collectively referred to as the "Liabilities" and
individually as a "Liability") which the Indemnitees, or any of them, might
be or become subjected, by reason of, or arising out of the preparation,
execution, delivery, modification, administration or enforcement of, or
performance of the Seller's rights under, this Security Agreement or any
other document, instrument or agreement contemplated hereby or executed in
connection herewith; provided, however, that the Buyer shall not be liable to
any Indemnitee for any Liability caused solely by the gross negligence or
willful misconduct of such Indemnitee. In no event shall any Indemnitee, as
a condition to enforcing its rights under this Section 6.8 or otherwise, be
obligated to make a claim against any other Person (including, without
limitation, the Seller) to enforce its rights under this Section 6.8.
Section 6.9. Amendments, Supplements and Waivers. The
parties hereto may, from time to time, enter into written agreements
supplemental hereto for the purpose of adding any provisions to this Security
Agreement, waiving any provisions hereof or changing in any manner the rights
of the parties.
Section 6.10. Limitation of Law; Severability.
(a) All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this Security
Agreement invalid, unenforceable in whole or in part, or not entitled to be
recorded, registered or filed under the provisions of any applicable law.
(b) If any provision hereof is invalid and unenforceable in
any jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in order to carry out the intentions of the
parties hereto as nearly as may be possible and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provisions in any other jurisdiction.
Section 6.11. Termination; Survival. This Security Agreement
shall terminate when the security interests granted hereunder have terminated
and the Collateral has been released as provided in Section 2.5, provided,
however, that the obligations of the Buyer under Sections 4.11, 6.3 and 6.8
shall survive any such termination.
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
VALUE ADDED FOOD SERVICES, INC.,
a Maryland corporation
By: Vernon W. Mules (SEAL)
Vice President
(Signature)
2700 Lord Baltimore Drive
Baltimore, Maryland 21244
DUTTERER'S OF MANCHESTER CORP.,
a Maryland corporation
By: Steven C. Houfek (SEAL)
Authorized Agent
(Signature)
2410 Wesley Street
Portsmouth, Virginia 23707
The parties acknowledge that Value Added Food Services, Inc. intends
to transfer some or all of the assets of the Business to Dutter's Foods,
Inc., a Maryland corporation and subsidiary of the Buyer. In the event of
such transfer(s), Dutter's Foods, Inc. hereby agrees to be bound the terms of
this Security Agreement to the same extent as Value Added Food Services, Inc.
DUTTER'S FOODS, INC.
a Maryland corporation
By: Vernon W. Mules (SEAL)
President
(Signature)
2700 Lord Baltimore Drive
Baltimore, Maryland 21244
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
[Schedules omitted]
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF
DOUGHTIE'S FOODS, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 989
<SECURITIES> 0
<RECEIVABLES> 6,159
<ALLOWANCES> 356
<INVENTORY> 5,221
<CURRENT-ASSETS> 12,661
<PP&E> 10,056
<DEPRECIATION> 5,862
<TOTAL-ASSETS> 18,014
<CURRENT-LIABILITIES> 2,617
<BONDS> 7,202
<COMMON> 1,006
0
0
<OTHER-SE> 7,140
<TOTAL-LIABILITY-AND-EQUITY> 18,014
<SALES> 58,698
<TOTAL-REVENUES> 58,698
<CGS> 48,594
<TOTAL-COSTS> 58,764
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342
<INCOME-PRETAX> (408)
<INCOME-TAX> 14
<INCOME-CONTINUING> (422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (422)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
