FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2O549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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)
Registrant's telephone number, including area code: (757) 393-6007
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00
(Title of Class)
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.
X Yes No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 20, 1998 (See Note, Item 5, for explanation of calculation):
$ 3,719,897
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Indicate the number of shares of Common Stock outstanding as of March 20, 1998:
1,495,023
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference information from the registrant's proxy
statement for its annual meeting of stockholders scheduled for May 21, 1998.
<PAGE>
PART I.
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ITEM 1. BUSINESS
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General
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Doughtie's Foods, Inc. (the "Company") was incorporated in Virginia in
November 1971 to engage in the sale and distribution of a wide variety of meat
and seafood products and other food items. Many of the meat and seafood products
sold by the Company were historically manufactured, processed or produced by it,
while other food items sold by the Company, such as fruits, vegetables,
condiments, and seasonings, have always been purchased by the Company from other
sources. The sale in February 1997 of certain assets related to the Company's
manufacture of barbecue and chili products and the sale of the deli-meats
business in April 1997(see below), completed the Company's divestment of its
non-profitable manufacturing operations so that it can concentrate on its
business of distributing food products to commercial and institutional
customers, including supermarkets, restaurants, cafeterias, independent food
distributors, schools, hospitals, and other public and private facilities. The
Company's marketing area covers the central, northern, and eastern portions of
Virginia, as well as Maryland, Washington, DC, portions of North Carolina, and
small areas of Delaware. Although the Company is no longer engaged in the
manufacture of food products, it continues to distribute its traditional
"Doughtie's" label products pursuant to product supply agreements with the
respective buyers of the manufacturing business.
In February 1997, the Company sold the assets of its manufacturing
division's barbecue and chili business for approximately $840,000 in cash.
Barbecue and chili sales accounted for less than 5% of consolidated 1996 sales
volume. The net pretax gain on the sale was approximately $50,000.
In April 1997, the Company sold the assets of its manufacturing
division's deli meats business for approximately $486,000. The terms of the sale
were a $286,000 cash down payment with the $200,000 balance in the form of
secured notes to be paid prior to April 15, 1998. Deli meat sales accounted for
less than 5% of consolidated 1996 sales volume. The net pretax gain on the sale
was approximately $140,000.
In September 1995, the Company sold substantially all of the assets of
its Home Food Service operation (the "Home Food Service") 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
$1,154,000 with a $115,000 cash down payment and the balance of $1,039,000 in
the form of a secured note. The note was paid in full in November 1996. The
assets were sold primarily at net book value, except for finance receivables
which were discounted by ten percent. The net pretax loss on the sale, including
abandoned assets and other write-offs, was approximately $96,000.
In August 1994, the Company entered into a joint venture with Loetitia
Adam-St. James and Chris L. St. James (collectively, the "St. James"), trading
as Thunder Bay Gourmet Foods, who manufactured and sold a line of specialty
gourmet food products (the "Thunder Bay Line"). Under the terms of the joint
venture agreement, (i) the Company and the St. James formed TWB Gourmet Foods,
Inc., a Virginia corporation("TWB"), (ii) TWB acquired substantially all of the
assets of Thunder Bay Gourmet Foods, and (iii) the St. James and TWB entered
into a license agreement granting TWB a perpetual, exclusive license and right
to manufacture, sell, market, advertise, promote and exploit the Thunder Bay
Line, and to use the related trademarks, including "Thunder Bay," worldwide.
Until September 1996, the Company owned seventy percent of the outstanding
capital stock of TWB, and the remaining thirty percent of TWB was owned by the
St. James, who managed the business. During the fourth quarter of 1995, the
Company determined to exit the gourmet foods business as TWB had incurred
substantial net operating losses since its inception. Accordingly, the Company
incurred a $763,000 pretax charge in the fourth quarter to reduce the carrying
value of TWB's fixed assets and inventories to estimated net realizable value
and to provide for other costs to exit this business. On September 6, 1996, the
Company sold certain assets of TWB and discontinued manufacturing of the
associated gourmet food products. The terms of the sale were a $30,000 cash down
payment, $20,000 assigned accounts receivable and $137,000 of free trade credit
from the buyer for a total sale price of $187,000. No gain or loss was
recognized as a result of this sales transaction. In conjunction with the
transaction, the St. James surrendered their stock in TWB and are no longer
affiliated with TWB, which is now wholly owned by the Company.
On August 28, 1996, the Company merged its Dutterer's of Manchester
Corporation subsidiary into TWB Gourmet Foods, Inc. The purpose of the merger
was to simplify corporate structure.
Products
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The Company's distribution facilities are located in Portsmouth,
Virginia. Prior to the sale of the manufacturing division, these facilities were
also involved in the manufacture of pork and beef barbecue, hot dog sauce, meat
loaf, chili and other cooked meat products. The Company's subsidiary, TWB, also
manufactured and sold a line of specialty gourmet food products until that
portion of the business was sold in September 1996. See ITEM I, PART 1,
BUSINESS:
General.
The Company markets many of its products under its own label. Most of
its products are packaged under the registered trade name and service mark
"Doughtie's." Registration covering this mark remains in force twenty years from
the date of registration and may be renewed for periods of twenty years.
The Company offers to its institutional and commercial customers a
broad range of food items including meat products, frozen, refrigerated, canned,
and dry items in the seafood, fruit, vegetable, and other lines. Most items
needed by such customers for the operation of their business are offered by the
Company, including eggs, produce, staples such as flour and sugar, restaurant
supplies, and a limited amount of cooking and processing equipment. Availability
of such items is generally good. The Company has no material long-term contract
with respect to the supply of any of such items.
Marketing and Distribution
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The Company maintains a central distribution center in Portsmouth,
Virginia, from which it handles the Company's commercial and institutional food
sales.
Sales of products are made through a system of advance salespersons who
take orders for subsequent delivery. A fleet of approximately 36 trucks and 10
trailers is employed in the delivery phase of the wholesale operations. The
Company experiences increased sales to customers in resort areas and parks
during the summer months as a result of increased patronage of these businesses.
The decline in sales to such customers during the winter months is partially
offset by sales to schools.
Customers
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With the exception of the United States Department of Defense, whose
total purchases were $13.5 million or 15.8% of revenue, none of the Company's
customers accounted for 10% or more of the Company's consolidated revenue in
fiscal year 1997.
Competition
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The Company's commercial and institutional food distribution operations
face substantial competition from other food distributors in the region. There
are many companies engaged in one or more of the same areas of the industry as
the Company, some of which are national companies having greater resources and
sales than the Company. There are also a large number of regional and local
companies that compete with the Company. Within these areas of the food
industry, competition is based primarily upon price, service, and product
quality. The Company believes it is reasonably competitive with respect to all
of these factors.
Research and Development
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Due to the sale of the manufacturing division in 1997, the Company has
discontinued its research and development activities.
Backlog
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Due to the nature of its business, the Company does not have a material
amount of backlog at any given time.
Regulation
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The Company is subject to various statutes, such as the Federal Food,
Drug and Cosmetic Act, the Consumer Product Safety Act, the Occupational Safety
and Health Act, and various consumer credit acts, regulating ingredients,
packaging, general working conditions for employees, vehicles, credit, and other
matters. The Company has not experienced any unusual difficulty in complying
with such regulations.
Although the Company has never experienced a fuel shortage, its
operations could be adversely affected if sufficient quantities of diesel or
other fuels could not be obtained due to shortages or for other reasons.
The Company has not experienced any unusual difficulty in complying
with environmental regulations at any of its facilities. The Portsmouth facility
is subject to open air burning restrictions which require refuse to be hauled
off the premises rather than burned.
Employees
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As of December 27, 1997, the Company had approximately 210 employees.
Approximately 33 of these employees working at the Company's Portsmouth
facilities are members of the Bakery, Confectionery and Tobacco Workers'
International Union, AFL-CIO, under a contract which expires in October, 1998.
Executive Officers
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STEVEN C. HOUFEK, 49, is the Company's President and Chief Executive
Officer. Mr. Houfek has been President of the Company since August 1992 and was
named Chief Executive Officer in May 1994. Prior to May 1992, Mr. Houfek held
various management positions with the Company, including Executive Vice
President from May 1987 to May 1992.
VERNON W. MULES, 68, is Chairman of the Board of Directors of the
Company. Prior to May 1994, Mr. Mules served as the Company's Chief Executive
Officer.
MARION S. WHITFIELD, JR., 52, has served as Senior Vice President of
the Company since May 1987. He served as Vice President of the Company from May
1983 until May 1987.
MICHAEL S. LAROCK, 34, joined the Company in November 1994 and has
served as the Company's Treasurer and Secretary since that time. Prior to
November 1994, Mr. LaRock was an accountant with Price Waterhouse LLP in
Norfolk, Virginia.
THOMAS G. BROWN, 54, has served as Vice President - Purchasing since
February 1994. Prior to that time, he was Director of Purchasing.
WILLIAM E. MOODY, JR., 48, has been Vice President - Sales since
February 1994. Prior to that time, he was Sales Manager.
JERRY D. NIXON, 41, was elected Vice President - Government Contract
Operations, in February 1996. Mr. Nixon served as Vice President - Operations
from February 1994 until February 1996. Prior to that time, Mr. Nixon was
Operations Manager.
WILLIAM G. RATLIFF, 42, was elected Vice President - Operations in
February 1996. Since joining the Company in October 1994, Mr. Ratliff has served
as Project Manager. Prior to October 1994, Mr. Ratliff was a United States Navy
Supply Corps Officer.
ROBERT F. HORTON, 30, was elected Vice President - Business Development
in February 1996. Mr. Horton has served as a district sales manager since
October 1995. Prior to that time, he was Program Accounts Manager.
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Forward-Looking Information
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The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward- looking statements. This Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. Forward-looking statements
are inherently subject to the uncertainties of future events, so that actual
results could differ materially from expectations which are stated or implied
in, or could be inferred from such forward-looking statements. Among the kinds
of uncertainties that can affect and should be considered in evaluating the
Company's forward-looking statements are uncertainties related to economic
conditions, government and regulatory policies, customer plans and commitments,
changes in the capital markets affecting the Company's capital structure and
cost of capital, and the Company's competitive environment. Readers are
therefore cautioned not to place undue reliance on any forward-looking
statement, which speaks only as of the date such statement is made.
ITEM 2. PROPERTIES
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The principal facilities of the Company and its subsidiary are listed
below. Except as noted, all are fully utilized by the Company and are adequate
for the Company's purposes and needs.
(a) The Company owns approximately 10.2 acres of land in Portsmouth,
Virginia, on which are located a building complex, including cooler, freezer,
and dry storage warehousing, complete truck docking facilities, a garage, and
the Company's principal executive offices. The Company's three loans are secured
by a lien on this property.
(b) The Company's wholly-owned subsidiary, TWB Gourmet Foods, Inc.,
owns approximately 4.5 acres of land in Manchester, Maryland, on which are
located a 20,000 square foot packing house with a stock yard and sewage plant.
An adjacent 45-acre farm is also owned by the Subsidiary. In December, 1991, the
Company transferred the operations of its Manchester facility to its Portsmouth,
Virginia plant. The Company's three loans are secured by a lien on this
property.
(c) The Company leases approximately 15,000 square feet of warehouse
space in Portsmouth, Virginia. This property is leased on a month to month basis
with monthly rental payments of $2,275.
(d) The Company leases approximately 36,800 square feet of freezer,
cooler, warehouse and office space in a warehouse building in Norfolk, Virginia,
under a lease which calls for monthly rental payments of $20,000. This lease
expires in February 1999, and includes two one-year renewal options.
ITEM 3. LEGAL PROCEEDINGS
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None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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Market and Price Information
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The Company's common stock, $1.00 par value (the "Common Stock"), is
traded in the over-the-counter market. The following table provides the high and
low bid quotations with respect to shares of the Common Stock for the periods
indicated, as reported by the Dow Jones Historical Stock Quote Reporter Service
and NASDAQ. These amounts have been adjusted retroactively to reflect the 50%
stock split payable on January 12, 1998, to stockholders of record on December
12, 1997.
First Quarter Second Quarter
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High Low High Low
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1996 2.917 2.167 2.833 2.167
1997 3.583 2.667 3.667 2.500
Third Quarter Fourth Quarter
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High Low High Low
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1996 3.167 2.000 3.500 2.667
1997 5.083 3.583 7.500 4.500
The foregoing quotations of high and low bid prices, as adjusted,
represent prices between dealers and do not include retail mark-up, mark-down,
or commissions. They do not necessarily represent actual transactions. The
highest bid on each day is reported.
Number of Stockholders
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As of March 20, 1998, there were 253 record holders of the Common
Stock.
Dividends
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The cash dividends declared per common share by quarter for the two
most recent fiscal years are summarized below. These amounts have been adjusted
retroactively to reflect the 50% stock split payable on January 12, 1998, to
stockholders of record on December 12, 1997.
1997 1996
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First Quarter $ .027 $ .027
Second Quarter .027 .027
Third Quarter .027 .027
Fourth Quarter .026 .026
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Total $ .107 $ .107
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Management presently expects to continue declaring quarterly cash
dividends if it proves possible to do so.
NOTE: The aggregate market value of voting stock held by 240 non-affiliates of
the registrant as of March 20, 1998, shown on the cover page was calculated as
follows. The number of shares beneficially owned by the officers and directors
of the Company as a group or by members of the Doughtie family was subtracted
from 1,495,023, the total number of shares outstanding on that date. The
resulting figure was then multiplied by $ 6.438, the average of the bid and
asked prices of the Company's stock in the over-the-counter market on that date.
The foregoing calculation should not be deemed an admission that any of the
officers and directors of the Company or any of the members of the Doughtie
family are "affiliates."
ITEM 6. SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales $ 85,233,420 $ 80,632,688 $ 76,585,835 $ 73,368,742 $ 70,771,064
Income (loss) before
cumulative effect of
change in accounting
for income taxes $ 947,498 $ 927,820 $ (1,212,284) $ 364,073 $ 141,109
Cumulative effect of
change in accounting
for income taxes $ - $ - $ - $ - $ 134,000
Net income (loss) $ 947,498 $ 927,820 $ (1,212,284) $ 364,073 $ 275,109
Weighted average number
of shares outstanding 1,496,085 1,500,468 1,511,652 1,516,845 1,522,223
Earnings (loss) per share
before cumulative effect
of change in accounting
for income taxes $ .63 $ .62 $ (.80) $ .24 $ .09
Cumulative effect per
share of change in
accounting for income
taxes $ - $ - $ - $ - $ .09
Net earnings (loss) per share:
Basic $ .63 $ .62 $ (.80) $ .24 $ .18
Diluted $ .63 $ .62 $ (.80) $ .24 $ .18
Cash dividends per share $ .11 $ .11 $ .11 $ .11 $ .11
Total assets $ 16,444,817 $ 15,932,286 $ 16,086,077 $ 16,797,863 $ 14,838,266
Long-term debt, less
current portion $ 2,737,910 $ 5,065,000 $ 6,688,334 $ 5,031,667 $ 4,390,000
Total stockholders'
equity $ 8,836,363 $ 8,054,907 $ 7,303,060 $ 8,700,431 $ 8,519,329
Stockholders' equity per
share $ 5.91 $ 5.38 $ 4.86 $ 5.75 $ 5.60
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
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Net sales of the Company increased 5.7% in 1997. For the 1997 fiscal year,
the Company reported net sales of $85.2 million compared to net sales of $80.6
million in 1996. Sales under a contract with the United States Department of
Defense increased from $9.3 million in 1996 to $13.5 million in 1997, which
represented 11.5% and 15.8% of the Company's consolidated revenue, respectively.
Additional volume increases resulted from new multi-unit accounts obtained
during the third quarter. These increases were offset by a reduction in sales
caused by the sales of the Company's manufacturing operations.
Net sales in 1996 were 5.3% ahead of the 1995 sales of $76.6 million.
Sales under a contract with the United States Department of Defense of $9.3
million more than offset a decrease in sales of $2.0 million resulting from the
sale of the consumer operation in the third quarter of 1995 and $0.8 million
from the sale of the Company's gourmet foods operation in the third quarter
1996.
The Company's gross profit margin (gross profit as a percentage of net
sales) increased slightly from 16.3% in 1996 to 16.5% in 1997. The Company's
gross profit margin decreased from 17.7% in 1995 to 16.3% in 1996. The
elimination of the consumer division with its higher mark-up was the primary
cause of the 1996 decline.
The Company's selling, general and administrative expenses, expressed as a
percentage of net sales decreased slightly to 14.5% in 1997 from 14.8% in 1996.
The 1997 decrease was the result of the increase in unit volume sales without a
corresponding increase in selling, general and administrative expenses. This
decrease was offset by a $468,000 increase in the Company's bad debt expense.
Selling, general and administrative expenses, expressed as a percentage of
net sales, decreased in 1996 to 14.8% from 18.6% in 1995. In 1996 the sale of
the consumer operation was the primary cause of the decline in selling, general
and administrative expenses, along with a $400,000 decrease in health and
commercial insurance. The remainder of the decline was due to a $763,000 pretax
charge the Company recorded during the fourth quarter of 1995 to reduce the
carrying value of fixed assets and inventories of the Company's gourmet foods
operation, TWB Gourmet Foods, Inc. ("TWB"), to estimated net realizable value
and to provide for other costs to exit the gourmet foods business. TWB incurred
substantial net operating losses since its inception in 1994.
Interest expense was $242,000 in 1997 compared to $469,000 in 1996 and
$462,000 in 1995. Decreased borrowing levels and lower interest rates were the
cause of the lower expense in 1997. As the interest on the Company's debt is
both London Interbank Offered Rate (LIBOR) and prime related, interest expense
will increase or decrease in subsequent periods based on fluctuations in these
rates and the borrowing levels of the Company.
Income tax expense was $566,000 for 1997 compared to income tax benefit of
$202,000 for 1996 and expense of $97,000 for 1995. During the fiscal year ended
December 28, 1996, the Company eliminated the valuation allowance related to the
net operating losses of a subsidiary as a result of utilization of the net
operating loss carryforward becoming more likely than not.
The Company reported net income of $947,000 or $0.63 per share for 1997
compared to a net income of $928,000 or $0.62 per share for 1996 and net loss of
$1,212,000 or $.80 per share in 1995. Losses incurred by TWB in 1995 were
$1,390,000, or $0.92 per share, which included an operating loss of $627,000 and
the previously described $763,000 pretax charge.
Effects of Inflation
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Over the past three years, the effects of inflation on the Company's
operations have been negligible, averaging less than 4% per year.
Liquidity
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The Company uses a number of liquidity indicators for internal evaluation
purposes. Certain of these indicators are set forth below as of the close of the
past three fiscal years:
1997 1996 1995
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Total debt to total debt plus
stockholders' equity .27 .41 .48
Current assets to current
liabilities 2.81 4.36 5.66
Inventory turnover
(cost of goods sold
to ending inventory) 15.23 15.00 12.99
The decrease in total debt to total debt plus stockholders' equity from
1996 to 1997 relates to the sales of the manufacturing operations, the proceeds
of which were used to reduce long-term debt. The decrease from .48 at December
30, 1995 to .41 at December 28, 1996 was due to improved financial results which
enabled the Company to reduce its long-term debt. The ratio of current assets to
current liabilities decreased to 4.36 at December 28, 1996 from 5.66 at December
30, 1995, primarily due to increases in the current portion of long-term debt
and income taxes payable.
The decrease in current assets to current liabilities in 1997 was a result
of an increase in accounts payable due to changes in terms with vendors.
The inventory turnover rate increased from 12.99 in 1995 to 15.00 in 1996
and 15.23 in 1997, as a result of increased sales and management focus on
inventory levels, due primarily to warehouse constraints.
The Company supplements its cash requirements by borrowing against existing
credit lines. As of December 27, 1997, the Company had $5,979,000 of additional
borrowing capacity under its credit line.
The Company's business is characterized by high unit volume sales and rapid
turnover of inventories and accounts receivable. Because of the rapid turnover
rate, the Company considers its inventories and accounts receivable highly
liquid and readily convertible into cash. The Company is aware of no demands,
commitments, events, or uncertainties that are reasonably likely to result in a
material increase or decrease in its liquidity in the foreseeable future.
In September 1995, the Company sold substantially all of the assets of the
Home Food Service 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 $1,154,000 with a $115,000 cash down payment and the
balance of $1,039,000 in the form of a secured note, which is included in the
Other Assets section of the Company's consolidated balance sheet at December 30,
1995. The note was paid in November 1996. The assets were sold primarily at net
book value, except for finance receivables which were discounted by ten percent.
The net pretax loss on the sale, including abandoned assets and other
write-offs, was $96,000.
Capital Resources
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The Company's debt financing at December 27, 1997, consisted of the
following:
1. A $7,500,000 revolving bank note at LIBOR plus 1.50%. The LIBOR rate at
December 27, 1997 was 5.97%. The note is due three years after the annual
renewal date, currently July, 2000, subject to annual renewal. As of December
27, 1997, the Company had borrowed $1,521,000 against this credit line and had
$5,979,000 of additional borrowing capacity.
2. 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 December 27, 1997, the Company had fully
utilized the Industrial Revenue Bond and the outstanding balance was $600,000.
3. A $1,750,000 bank term loan at LIBOR plus 1.50%. The loan is to be repaid in
quarterly installments of $100,000. As of December 27, 1997, the outstanding
balance was $1,150,000. The funds were used to finance the increased inventory
and accounts receivable required to service a one-year contract awarded to the
Company in January 1996 by the United States Department of Defense to furnish
food items to various military installations. The contract contains three yearly
renewal options and was renewed for 1998. The United States Department of
Defense had estimated annual sales volume to be approximately $19 million.
Actual sales volume for fiscal 1997 was $13.5 million.
While the Company does not anticipate any other 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.
Year 2000 Compliance
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Many computer systems, programs, and components currently record years in a
two-digit format. Such computer systems, if not modified, will be unable to
recognize properly dates beyond the year 1999--the so-called "Year 2000
Problem." The Company relies on its computer systems, applications and devices
in operating and monitoring various aspects of its business. The Company also
relies, directly and indirectly, on computer systems of customers, suppliers,
and financial organizations for accurate exchange of data. Management has
preliminarily assessed risks and costs related to addressing the Year 2000
Problem as it relates to the Company and its information systems. Based upon
this assessment, the Company does not believe that the modification of the
Company's systems to address such matters will have a material impact on the
Company's financial position or results of operations. There are, however,
numerous uncertainties relating to addressing Year 2000 issues, including the
actual cost and effort of implementing corrective measures, the degree to which
outside parties appropriately address their Year 2000 issues, and other factors,
some of which may be beyond the Company's control, and all of which may cause
results to be different from those currently anticipated by the Company.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
----
Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at December 27, 1997 and
December 28, 1996
Consolidated Statements of Income for the three years ended
December 27, 1997
Consolidated Statements of Stockholders' Equity for the three
years ended December 27, 1997
Consolidated Statements of Cash Flows for the three years ended
December 27, 1997
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Consolidated Valuation and Qualifying Accounts
All other schedules are omitted as the required information is either
immaterial, inapplicable or is presented in the consolidated financial
statements and related notes thereto.
Separate financial statements and supplemental schedules of the registrant are
omitted because there are no restricted net assets of subsidiaries as defined in
Rules 4-08 and 12-04 of Regulation S-X.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of Doughtie's Foods, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Doughtie's Foods, Inc. and its subsidiaries at December 27, 1997 and December
28, 1996, and the results of their operations and their cash flows for each of
the three fiscal years in the period ended December 27, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
(Signature)
Norfolk, Virginia
February 12, 1998
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 27, December 28,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 26,929 $ 372,687
Accounts receivable - trade, net 8,566,995 6,924,656
Inventories 4,669,291 4,497,699
Deferred income taxes 372,220 386,271
Prepaid expenses and other current assets 68,166 91,042
---------------- -----------------
Total current assets 13,703,601 12,272,355
---------------- -----------------
Property, plant and equipment - at cost:
Land 280,827 280,827
Buildings 3,608,055 4,112,608
Delivery equipment 169,195 347,242
Plant and refrigeration equipment 1,590,626 4,170,355
Office equipment 491,078 699,019
Leasehold improvements - 6,062
---------------- -----------------
6,139,781 9,616,113
Less - accumulated depreciation 3,513,216 6,047,739
---------------- -----------------
2,626,565 3,568,374
---------------- -----------------
Other assets 114,651 91,557
---------------- -----------------
$ 16,444,817 $ 15,932,286
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 533,333 $ 533,333
Accounts payable 3,198,641 1,631,114
Income taxes payable 891,657 446,775
Accrued salaries, commissions and bonuses 182,965 140,617
Other accrued liabilities 63,948 60,540
---------------- -----------------
Total current liabilities 4,870,544 2,812,379
Long-term debt - less current portion 2,737,910 5,065,000
---------------- -----------------
Total liabilities 7,608,454 7,877,379
---------------- -----------------
Stockholders' equity:
Common stock - $1 par value; authorized 2,000,000 shares,
issued and outstanding 1,495,023 shares at December 27,
1997 and 1,497,078 shares at December 28, 1996 1,495,023 1,497,078
Additional paid-in capital 2,807,037 2,811,441
Retained earnings 4,534,303 3,746,388
---------------- -----------------
Total stockholders' equity 8,836,363 8,054,907
---------------- -----------------
$ 16,444,817 $ 15,932,286
================ =================
Commitments (Note 7)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended Year ended Year ended
December 27, December 28, December 30,
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 85,233,420 $ 80,632,688 $ 76,585,835
Cost of sales 71,133,101 67,481,372 63,012,874
---------------- ---------------- -----------------
Gross profit 14,100,319 13,151,316 13,572,961
---------------- ---------------- -----------------
Selling, general and administrative
expenses 12,344,934 11,956,604 14,225,899
Interest expense 241,696 468,652 462,231
---------------- ---------------- -----------------
12,586,630 12,425,256 14,688,130
---------------- ---------------- -----------------
Income (loss) before income taxes 1,513,689 726,060 (1,115,169)
Income tax expense (benefit) 566,191 (201,760) 97,115
---------------- ---------------- -----------------
Net income (loss) $ 947,498 $ 927,820 $ (1,212,284)
================ ================ =================
Earnings (loss) per share:
Basic $ .63 $ .62 $ (.80)
================ ================ =================
Diluted $ .63 $ .62 $ (.80)
================ ================ =================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $ 1,512,777 $ 2,835,607 $ 4,352,047 $ 8,700,431
Cash dividends ($.11 per share) - - (161,123) (161,123)
Net loss for the year ended
December 30, 1995 - - (1,212,284) (1,212,284)
Acquisition of treasury stock,
at cost - 8,986 shares (8,986) (14,978) - (23,964)
--------------- --------------- --------------- ---------------
Balances at December 30, 1995 1,503,791 2,820,629 2,978,640 7,303,060
Cash dividends ($.11 per share) - - (160,072) (160,072)
Net income for the year ended
December 28, 1996 - - 927,820 927,820
Acquisition of treasury stock,
at cost - 6,713 shares (6,713) (9,188) - (15,901)
--------------- --------------- --------------- ---------------
Balances at December 28, 1996 1,497,078 2,811,441 3,746,388 8,054,907
Cash dividends ($.11 per share) - - (159,583) (159,583)
Net income for the year ended
December 27, 1997 - - 947,498 947,498
Acquisition of treasury stock,
at cost - 2,055 shares (2,055) (4,404) - (6,459)
--------------- --------------- --------------- ---------------
Balances at December 27, 1997 $ 1,495,023 $ 2,807,037 $ 4,534,303 $ 8,836,363
=============== =============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended Year ended Year ended
December 27, December 28, December 30,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 947,498 $ 927,820 $ (1,212,284)
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operations:
Depreciation 274,686 469,445 675,681
Loss (gain) on sale of property, plant
and equipment 5,932 (99,129) 300,644
(Increase) decrease in assets:
Accounts receivable, net (1,642,339) (1,162,797) 373,661
Inventories (171,592) 351,405 (327,351)
Deferred income taxes 14,051 (192,932) 54,957
Prepaid expenses and other current
assets 22,876 155,637 (106,793)
Other assets (23,094) 741,612 (697,634)
Increase (decrease) in liabilities:
Current portion of long-term debt - 400,000 -
Accounts payable 1,567,527 84,007 (547,992)
Income taxes payable 444,882 446,775 (399,504)
Accrued salaries, commissions
and bonuses 42,348 63,911 (51,211)
Accrued employee group insurance - (174,026) (41,383)
Other accrued liabilities 3,408 (53,040) 67,977
Deferred income taxes, long-term - (49,931) 1,031
---------------- ---------------- -----------------
1,486,183 1,908,757 (1,910,201)
---------------- ---------------- -----------------
Cash flows from investing activities:
Additions to property, plant and
equipment (266,544) (250,782) (599,763)
Proceeds from sale of property, plant
and equipment 927,735 700 190,496
---------------- ---------------- -----------------
661,191 (250,082) (409,267)
---------------- ---------------- -----------------
Cash flows from financing activities:
Long-term borrowings - 1,750,000 1,790,000
Reductions of long-term debt (2,327,090) (3,373,334) (133,333)
Cash dividends (159,583) (160,072) (161,123)
Acquisition of treasury stock (6,459) (15,901) (23,964)
---------------- ---------------- -----------------
(2,493,132) (1,799,307) 1,471,580
---------------- ---------------- -----------------
Net decrease in cash (345,758) (140,632) (847,888)
Cash at beginning of year 372,687 513,319 1,361,207
---------------- ---------------- -----------------
Cash at end of year $ 26,929 $ 372,687 $ 513,319
================ ================ =================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include the
accounts of Doughtie's Foods, Inc. (the Company) and its wholly-owned subsidiary
in 1997 (and its majority-owned and wholly-owned subsidiaries in 1996 and 1995).
All material intercompany accounts and transactions have been eliminated in
consolidation. The consolidated group is engaged in the processing,
manufacturing and wholesaling of a broad line of meat products and other food
items.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Allowance for doubtful accounts - The Company and its subsidiaries maintain
allowances for doubtful accounts based on an analysis of previous loss
experience and current conditions.
Inventories - Inventories, consisting principally of raw materials and finished
food products, are stated at the lower of last-in, first-out (LIFO) cost, or
market value.
Property, plant and equipment - Accelerated methods are used to provide for
depreciation on all assets other than buildings. The straight-line method is
used for buildings.
The estimated useful asset lives used in computing depreciation are as follows:
Buildings 8 to 40 years
Delivery equipment 3 to 7 years
Plant and refrigeration equipment 3 to 7 years
Office equipment 3 to 7 years
Leasehold improvements 1 to 7 years
Income taxes - The Company files a consolidated federal income tax return. Prior
to the acquisition of the minority interest during 1996, one subsidiary was
required to file a separate return.
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities and their respective tax bases. The provision for income
taxes is based on taxes currently payable and the changes in deferred tax assets
and liabilities.
Earnings per share - Earnings per share (EPS) are based on the weighted average
number of shares outstanding.
The Company adopted Statement of Financial Accounting Standards No. 128 (FAS
128), "Earnings per Share" during 1997. The statement replaces the presentation
of primary and fully diluted EPS with a presentation of basic and diluted EPS.
For the Company, there is no difference between the calculation of basic and
primary EPS. In addition, the Company had no potentially dilutive securities at
December 27, 1997 and accordingly basic and diluted EPS are the same.
<PAGE>
Doughtie's Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Stock split - On November 25, 1997, the Board of Directors declared a 50% stock
split payable on January 12, 1998 to stockholders of record on December 12,
1997. All references in the consolidated financial statements referring to
shares, share prices and per share amounts have been adjusted retroactively for
the 50% stock split.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable are net of allowances for doubtful accounts as follows:
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
<S> <C> <C>
Trade accounts receivable $ 9,195,367 $ 7,266,134
Allowances for doubtful accounts (628,372) (341,478)
---------------- -----------------
$ 8,566,995 $ 6,924,656
================ =================
NOTE 3 - INVENTORIES
Inventories used in determining cost of sales are as follows:
<CAPTION>
Raw Finished
Total materials products
December 31, 1994 $ 4,521,753 $ 1,497,222 $ 3,024,531
December 30, 1995 $ 4,849,104 $ 1,163,240 $ 3,685,864
December 28, 1996 $ 4,497,699 $ 549,161 $ 3,948,538
December 27, 1997 $ 4,669,291 $ - $ 4,669,291
The differences between FIFO and LIFO inventories are as follows:
<CAPTION>
December 27, December 28, December 30, December 31,
1997 1996 1995 1994
FIFO cost $ 5,419,163 $ 5,517,080 $ 5,680,063 $ 5,197,592
LIFO reserves (749,872) (1,019,381) (830,959) (675,839)
----------------- ---------------- ---------------- -----------------
LIFO cost $ 4,669,291 $ 4,497,699 $ 4,849,104 $ 4,521,753
================= ================ ================ =================
</TABLE>
The $269,509 change in LIFO reserves in 1997 increased net income and earnings
per share by approximately $166,000 and $.11, respectively. The $188,422 change
in LIFO reserves in 1996 decreased net income and earnings per share by
approximately $121,000 and $.08, respectively. The $155,120 change in LIFO
reserves in 1995 decreased net income and earnings per share by approximately
$100,000 and $.07, respectively.
<PAGE>
Doughtie's Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
<S> <C> <C>
Long-term revolving bank note $ 1,521,243 $ 3,315,000
Bank term loan 1,150,000 1,550,000
Industrial Revenue Bond 600,000 733,333
---------------- -----------------
3,271,243 5,598,333
Less - current portion 533,333 533,333
---------------- -----------------
Noncurrent portion $ 2,737,910 $ 5,065,000
================ =================
</TABLE>
Principal payments are due as follows: 1998 - $533,333; 1999 - $533,333; 2000 -
$2,004,576 and 2001 - $200,001.
The Company has a $7,500,000 revolving bank note at LIBOR plus 1.50%. The LIBOR
rate at December 27, 1997 was 5.97%. The note is due three years after the
annual renewal date, currently July 2000, subject to annual renewal. The amount
available under this line is limited to the sum of 85% of qualifying accounts
and notes receivable and 20% of qualifying inventory on hand. The Company had
$5,978,757 of additional borrowing capacity available on this credit line at
December 27, 1997.
The Company has a $1,750,000 bank term loan with an outstanding balance of
$1,150,000 at LIBOR plus 1.50%. The loan is payable in quarterly installments of
$100,000 plus interest through January 1, 2001.
The Company obtained an Industrial Revenue Bond from a bank for the purpose of
expanding its plant and office facilities in Portsmouth, Virginia, at an
interest rate of 91.5% of prime. The prime rate at December 27, 1997 was 8.50%.
The bond is payable in monthly installments of $11,111 plus interest through
July 1, 2001.
Cash paid for interest totaled $241,696, $468,652 and $462,231 in 1997, 1996 and
1995, respectively.
Each of the three loans is secured by all accounts and notes receivable,
inventories, contract rights and property, plant and equipment of the
consolidated group. These loan agreements contain restrictive covenants
including a minimum amount of tangible net worth, a minimum working capital
ratio, and a maximum debt to equity ratio. All requirements were met for 1997.
NOTE 5 - RETIREMENT PLANS
The Company has a retirement savings and 401(k) plan which covers substantially
all full-time employees except those covered by a collective bargaining
agreement. The Company makes contributions to the plan based on 50% of the
participants' contributions, which can range from 1% to 6% of their total
compensation; in addition to the matched contribution, participants may make
additional unmatched contributions of up to 9% of their compensation. The
Company may also make discretionary contributions to the plan. Contributions to
the retirement savings and 401(k) plan for 1997, 1996 and 1995 were $79,955,
$91,517 and $107,365, respectively.
<PAGE>
Doughtie's Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 6 - Income Tax Expense
The provision for income taxes is based on taxes currently payable and the
changes in deferred tax assets and liabilities.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current federal $ 459,623 $ 52,109 $ 27,169
Current state 92,517 (11,006) 13,958
Deferred federal 2,386 (201,635) 45,443
Deferred state 11,665 (41,228) 10,545
------------- ------------- -------------
$ 566,191 $ (201,760) $ 97,115
============= ============= =============
The effective income tax rates vary from the statutory U.S. federal income tax rate as follows:
<CAPTION>
1997 1996 1995
-------------------------- ---------------------- ---------------------
Percent Percent Percent
of of of
Dollar pretax Dollar pretax Dollar pretax
amount income amount income amount income
Income taxes computed
at statutory rates $ 514,654 34.0% $ 246,860 34.0% $ (379,157) (34.0)%
State income taxes, net
of federal income tax
benefit 64,937 4.3 31,148 4.3 16,172 1.5
Fuel tax credit (15,278) (1.0) (15,278) (2.1) (16,975) (1.5)
Nonrecognition (recognition)
of subsidiary net
operating loss - - (467,954) (64.5) 472,546 42.3
Other 1,878 0.1 3,464 0.5 4,529 0.4
------------- ---- ------------- ---- ------------- -----
$ 566,191 37.4% $ (201,760) (27.8)% $ 97,115 8.7%
============= ==== ============= ===== ============= ===
</TABLE>
<PAGE>
Doughtie's Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
<S> <C> <C>
Simplified LIFO differences $ 57,425 $ 78,065
Capitalized inventory cost 24,687 23,539
Allowances for doubtful accounts 240,604 130,752
Net operating loss of subsidiary 94,996 201,627
---------------- -----------------
Gross deferred tax asset 417,712 433,983
Involuntary conversion (45,492) (47,712)
---------------- -----------------
Net deferred tax asset $ 372,220 $ 386,271
================ =================
</TABLE>
Cash paid (refunded) for income taxes totaled $73,037, $(185,033) and $574,876
in 1997, 1996 and 1995, respectively.
NOTE 7 - OPERATING LEASES
In January 1996, the Company entered into a seven-year full service operating
lease covering thirty-six new trucks and ten new trailers. The lease provides
for increases in rentals based on increases in the Consumer Price Index.
Minimum annual rentals under the aforementioned lease are set forth in the table
below. These minimum rental commitments do not include contingent rentals which
are based on usage.
Trucks
and
Trailers
1998 $ 527,724
1999 527,724
2000 527,724
2001 527,724
2002 527,724
2003 263,862
----------------
$ 2,902,482
================
Total rental expense charged to consolidated operations in 1997, 1996 and 1995
was $1,182,909, $1,043,642 and $1,004,855, respectively. Rental expense in 1997,
1996 and 1995 included contingent rentals of approximately $380,681, $396,191
and $360,005, respectively.
NOTE 8 - SALE OF ASSETS
On July 20, 1995, the Company sold certain properties located in Carrol County,
Maryland. The gross sale price was $165,000, with net cash proceeds of $135,610.
The cash was used to reduce the Company's long-term debt. The net pretax gain on
the sale of $130,055 was included in selling, general and administrative
expenses.
<PAGE>
Doughtie's Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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
down payment and the balance of $1,038,756 in the form of a note secured by the
assets sold and personal guarantee of the Chairman. The note was paid in full in
1996, including all accrued interest at prime. The assets were sold primarily at
net book value, except for finance receivables which were discounted by 10%. The
net pretax loss on the sale, including abandoned assets and other writeoffs, was
$96,498.
During the fourth quarter of 1995, the Company incurred a $763,000 pretax
charge, which is included in selling, general and administrative expenses in the
consolidated statement of income, primarily to reduce the carrying value of
fixed assets and inventories of its TWB Gourmet Foods, Inc. (TWB) 70% joint
venture to estimated net realizable value and to provide for other costs to exit
the business. TWB incurred net operating losses since inception in the fourth
quarter of 1994; the 1995 net operating loss approximated $1,390,000 including
the $763,000 charge.
On August 28, 1996, the Company merged its Dutterer's of Manchester Corporation
subsidiary into TWB Gourmet Foods, Inc. in order to streamline operations.
Simultaneously, the Company acquired the remaining interest in TWB from the
minority stockholder.
On September 6, 1996, the Company sold certain assets of TWB and discontinued
manufacturing of the associated gourmet food products. The terms of the sale
were a $30,000 cash down payment, $20,000 assigned accounts receivable and
$136,829 of free trade credit from the buyer for a total sale price of $186,829.
No gain or loss was recognized as a result of this sales transaction.
On February 28, 1997, the Company sold the assets of its manufacturing
division's barbecue and chili business for approximately $840,000 in cash.
Barbecue and chili sales accounted for less than 5% of consolidated 1996 sales
volume. The net pretax gain on the sale was approximately $50,000.
On April 14, 1997, the Company sold the assets of its manufacturing division's
deli meats business for approximately $486,000. The terms of the sale were a
$286,000 cash down payment with the $200,000 balance in the form of secured
notes to be paid prior to April 15, 1998. Deli meat sales accounted for less
than 5% of consolidated 1996 sales volume. The net pretax gain on the sale was
approximately $140,000.
<PAGE>
Doughtie's Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the results of operations by quarters:
<TABLE>
<CAPTION>
Basic and
Diluted
Gross Net Earnings
Quarter Net Sales Profit Income Per Share
<S> <C> <C> <C> <C>
1997:
First $ 18,692,236 $ 3,182,477 $ 143,543 $ .09
Second 21,683,108 3,587,253 341,622 .23
Third 24,172,942 3,720,523 329,462 .22
Fourth 20,685,134 3,610,066 132,871 .09
----------------- ----------------- --------------- --------
$ 85,233,420 $ 14,100,319 $ 947,498 $ .63
================= ================= =============== ========
1996:
First $ 15,979,850 $ 2,664,741 $ 6,966 $ -
Second 22,457,784 3,920,723 413,453 .28
Third 22,017,932 3,428,855 61,906 .04
Fourth 20,177,122 3,136,997 445,495 .30
----------------- ----------------- --------------- --------
$ 80,632,688 $ 13,151,316 $ 927,820 $ .62
================= ================= =============== ========
</TABLE>
Unusual items affecting 1997 and 1996 net income in the above quarterly data are
discussed in Notes 6 and 8.
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------
None.
PART III.
- ---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information as to the Company's Board of Directors is incorporated by
reference to material contained under the heading "Nominees" in the Company's
proxy statement for its annual meeting of stockholders scheduled for May 21,
1998.
With respect to information concerning the Company's executive officers,
see PART I, ITEM 1, BUSINESS: Executive Officers.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information as to executive compensation is incorporated by reference to
material contained under the headings "Executive Compensation" and "Directors'
Compensation" in the Company's proxy statement for its annual meeting of
stockholders scheduled for May 21, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
Information as to security ownership of certain beneficial owners and
management is incorporated by reference to material contained under the heading
"Voting Securities and Principal Stockholders" in the Company's proxy statement
for its annual meeting of stockholders scheduled for May 21, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information as to certain relationships and related transactions is
incorporated by reference to material contained under the heading "Certain
Transactions" in the Company's proxy statement for its annual meeting of
stockholders scheduled for May 21, 1998.
PART IV.
- --------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
- -----------------------------------------------------------------
(a)(1)
Financial Statements (Included in Part II):
-------------------------------------------
See Item 8 in Part II.
(a)(2)
Financial Statement Schedules (Included in Part IV):
----------------------------------------------------
See Item 8 in Part II
(a)(3)
List of Exhibits:
-----------------
Exhibit
Number Description
- ------ -----------
2(a)(1). Articles of Merger (with attached Plan of Merger) Merging Dutterer's
of Manchester Corporation (a Maryland corporation) and TWB Gourmet
Foods, Inc. (a Virginia corporation), filed with the Virginia State
Corporation Commission on August 28, 1996 (incorporated by reference
to Exhibit 2(a)(1) to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996).
2(a)(2). Articles of Merger Merging Dutterer's of Manchester Corporation Into
TWB Gourmet Foods, Inc., filed with the Maryland State Department of
Assessments and Taxation on August 27, 1996 (incorporated by reference
to Exhibit 2(a)(2) to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996).
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
30, 1995).
4(a)(1). Amended and Restated Credit Agreement dated as of June 14, 1996,
between the Company and Crestar Bank relating to a $7,500,000
revolving credit commitment and a $1,750,000 term loan (incorporated
by reference to Exhibit 4(a)to the Company's Annual Report on Form
10-K for the year ended December 28, 1996).
4(a)(2). First Amendment to Amended and Restated Credit Agreement dated as of
September 30, 1996 between the Company and Crestar Bank.
4(a)(3). Second Amendment to Amended and Restated Credit Agreement dated as of
July 1, 1997 between the Company and Crestar Bank.
4(b)(1). Commercial Note dated June 14, 1996, made by the Company in favor of
Crestar Bank in the principal amount of $7,500,000 (incorporated by
reference to Exhibit 4(b)(1) to the Company's Annual Report on Form
10-K for the year ended December 28, 1996).
4(b)(2). Commercial Note dated June 14, 1996, made by the Company in favor of
Crestar Bank in the principal amount of $1,750,000 (incorporated by
reference to Exhibit 4(b)(2) to the Company's Annual Report on Form
10-K for the year ended December 28, 1996).
9. Voting Trust Agreement Dated June 17, 1986, among Mary H. Doughtie,
Mary D. Houfek, Barbara D. Horton and Elsie D. Waddell, as Amended
(incorporated by reference to Exhibit 9 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10(a)(1). Agreement dated October 11, 1996 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 28, 1996).
10(b)(1). Lease Agreement Dated January 26, 1996, Between Keen Leasing, Inc.,
Lessor, and the Company, Lessee, relating to the leasing of certain
trucks (incorporated by reference to Exhibit 10(b)(3) to the Company's
Annual Report on Form 10-K for the year ended December 30, 1995).
10(c)(1). Security Agreement dated as of June 14, 1996, made by the Company to
Crestar Bank granting a security interest in accounts, inventory,
equipment, and general intangibles (incorporated by reference to
Exhibit 10(c)(1) to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996).
10(c)(2). Security Agreement dated as of June 14, 1996, made by Dutterer's of
Manchester Corporation to Crestar Bank granting a security interest in
a promissory note dated September 3, 1995, made by Value Added Food
Services, Inc., payable to the order of the holder in the original
principal amount of $1,038,756 (incorporated by reference to Exhibit
10(c)(2) to the Company's Annual Report on Form 10-K for the year
ended December 28, 1996).
10(c)(3). Guaranty Agreement dated as of June 14, 1996, 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 28, 1996).
10(c)(4). Assignment dated as of June 14, 1996, made by the Company to Crestar
Bank assigning as a security interest the Company's rights to receive
all monies under Contract No.SP0300-967-D-2900 dated January 26, 1996
between the Company and the United States Department of Defense
(incorporated by reference to Exhibit 10(c)(4) to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996).
10(c)(5). Credit Line Deed of Trust dated as of June 14, 1996, made by the
Company for the benefit of Crestar Bank relating to certain property
located at 2410 and 2415 Wesley Street and 149 Chautauqua Avenue,
Portsmouth, Virginia, securing the maximum principal amount of
$3,025,000 (incorporated by reference to Exhibit 10(c)(5) to the
Company's Annual Report on Form 10-K for the year ended December 28,
1996).
10(c)(6). Indemnity Deed of Trust dated as of June 12, 1996, made by Dutterer's
of Manchester Corporation for the benefit of Crestar Bank relating to
certain property located in Carroll County, Maryland, securing the
maximum principal amount of $1,200,000 (incorporated by reference to
Exhibit 10(c)(6) to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996).
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). Asset Purchase Agreement dated as of January 30, 1997, among the
Company, The Smithfield Ham and Products Company, Incorporated (the
"Buyer"), The Smithfield Companies, Inc., Vernon W. Mules, and Steve
Houfek, pursuant to which the Company agreed to sell the assets
connected with the manufacture of the Company's barbecue and chili
products (incorporated by reference to Exhibit 10(e)(1) to the
Company's Annual Report on Form 10-K for the year ended December 28,
1996).
10(e)(2). Product Supply Agreement dated as of February 28, 1997, between the
Company and The Smithfield Ham and Products Company, Incorporated
("Smithfield"), pursuant to which the Company agreed to purchase its
requirements of barbecue and chili products for a period of five years
(incorporated by reference to Exhibit 10(e)(2) to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996).
10(e)(3). Trademark License Agreement dated as of February 28, 1997, between the
Company and The Smithfield Ham and Products Company, Incorporated
("Smithfield"), pursuant to which the Company granted a license to
Smithfield to use the Company's registered Doughtie's trademark in
connection with the manufacture and sale of certain barbecue, chili,
and related products (incorporated by reference to Exhibit 10(e)(3) to
the Company's Annual Report on Form 10-K for the year ended December
28, 1996).
10(f)(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 (incorporated by
reference to Exhibit 10(f)(1) to the Company's Annual Report on Form
10-K for the year ended December 30, 1995).
10(f)(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 (incorporated
by reference to Exhibit 10(f)(2) to the Company's Annual Report on
Form 10-K for the year ended December 30, 1995).
10(f)(3). Amendment to Term Note dated as of October 1, 1995, between Value
Added Food Services, Inc. and Dutterer's of Manchester Corporation
(incorporated by reference to Exhibit 10(f)(3) to the Company's Annual
Report on Form 10-K for the year ended December 30, 1995).
10(f)(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. (incorporated by reference to
Exhibit 10(f)(4)to the Company's Annual Report on Form 10-K for the
year ended December 30, 1995).
10(f)(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. (incorporated by reference to Exhibit 10(f)(5)to the Company's
Annual Report on Form 10-K for the year ended December 30, 1995).
10(f)(6). Guaranty dated as of September 3, 1995, by Kathryn M. Mules, in favor
of Dutterer's of Manchester Corporation (incorporated by reference to
Exhibit 10(f)(6) to the Company's Annual Report on Form 10-K for the
year ended December 30, 1995).
10(f)(7). Guaranty dated as of September 3, 1995, by Vernon W. Mules, in favor
of Dutterer's of Manchester Corporation (incorporated by reference to
Exhibit 10(f)(7) to the Company's Annual Report on Form 10-K for the
year ended December 30, 1995).
10(f)(8). Security Agreement dated as of September 3, 1995, between Value Added
Food Services, Inc. And Dutterer's of Manchester Corporation
(incorporated by reference to Exhibit 10(f)(8)to the Company's Annual
Report on Form 10-K for the year ended December 30, 1995).
10(g). Asset Purchase Agreement dated as of September 6, 1996 by and among
Loetitia Adam St. James and Chris L. St. James, TWB Gourmet Foods,
Inc. (TWB), CP Specialty Foods, Inc. (CP), and Doughtie's Foods, Inc.,
pursuant to which TWB sold certain assets to CP (incorporated by
reference to Exhibit 10(g)to the Company's Annual Report on Form 10-K
for the year ended December 28, 1996).
10(h)(1). Asset Purchase Agreement dated as of March 18, 1997, among the
Company, Bruce R. Biddle and Levis E. Cothran, or their assigns (the
"Buyer"), Vernon W. Mules, and Steve Houfek, pursuant to which the
Company agreed to sell to the Buyer the assets connected with the
manufacture of the Company's delicatessen-style meat products.
10(h)(2). Product Supply Agreement dated as of April 14, 1997, between the
Company and Coddle Roasted Meats, Inc. ("Coddle"), pursuant to which
the Company agreed to purchase from Coddle's its requirements of
delicatessen-style meat products for a period of five years.
10(h)(3). Trademark License Agreement dated as of April 14, 1997, between the
Company and Coddle, pursuant to which the Company granted a license to
Coddle to use the Company's registered Doughtie's trademark in
connection with the manufacture and sale of certain delicatessen-style
meat products.
21 List of Subsidiaries
27 Financial Data Schedule
b)
Reports on Form 8-K:
- --------------------
The Company filed one report on Form 8-K during the last quarter of the
Company's fiscal year ended December 27, 1997. In the Form 8-K filed on December
9, 1997, the Company reported under Item 5 that the Company's Board of Directors
had approved a three-for-two split of the Company's common stock effected in the
form of a stock dividend, with cash in lieu of fractional shares, and a cash
dividend of four cents per share (on a pre-split basis), payable on January 12,
1998, to shareholders of record at the close of business on December 12, 1997.
No financial statements were filed with the referenced report.
<PAGE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Deductions(A) period
<S> <C> <C> <C> <C>
Valuation account deducted from
asset to which it applies -
for doubtful trade receivables:
Year ended December 30, 1995 $ 261,946 $ 183,531 $ 112,169 $ 333,308
=========== ========== ========== ===========
Year ended December 28, 1996 $ 333,308 $ 206,413 $ 198,243 $ 341,478
=========== ========== ========== ===========
Year ended December 27, 1997 $ 341,478 $ 674,000 $ 387,106 $ 628,372
=========== ========== ========== ===========
Valuation account deducted from
asset to which it applies for
doubtful finance receivables:
Year ended December 30, 1995 $ 178,893 $ (25,885) $ 153,008 $ -
=========== ========== ========== ===========
Year ended December 28, 1996 $ - $ - $ - $ -
=========== ========== ========== ===========
Year ended December 27, 1997 $ - $ - $ - $ -
=========== ========== ========== ===========
Valuation account deducted from
asset to which it applies for
deferred tax asset:
Year ended December 30, 1995 $ 52,798 $ 472,546 $ - $ 525,344
=========== ========== ========== ===========
Year ended December 28, 1996 $ 525,344 $ (525,344) $ - $ -
=========== ========== ========== ===========
Year ended December 27, 1997 $ - $ - $ - $ -
=========== ========== ========== ===========
(A) Accounts written off during the year net of recoveries.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DOUGHTIE'S FOODS, INC.
Dated: March 26, 1998 /s/ STEVEN C. HOUFEK
------------------------
Steven C. Houfek
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 26, 1998 /s/ STEVEN C. HOUFEK
------------------------------
Steven C. Houfek
President, Chief Executive
Officer and Director
Dated: March 26, 1998 /s/ MARION S. WHITFIELD, JR.
------------------------------
Marion S. Whitfield, Jr.
Senior Vice President and
Director (Principal
Financial and Accounting
Officer)
Dated: March 26, 1998 /s/ VERNON W. MULES
------------------------------
Vernon W. Mules
Director
Dated: March 26, 1998 /s/ JAMES F. CERZA, JR.
------------------------------
James F. Cerza, Jr.
Director
Dated: March 26, 1998 /s/ WILLIAM R. WADDELL
------------------------------
William R. Waddell
Director
Dated: March __, 1998
------------------------------
Donald B. Ratcliffe
Director
Dated: March 26, 1998 /s/ ADOLPHUS W. HAWKINS, JR.
------------------------------
Adolphus W. Hawkins, Jr.
Director
EXHIBIT (a)(2)
FIRST AMENDMENT
To
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, made
as of the 30th day of September, 1996 (the "First Amendment"), by and between
DOUGHTIE'S FOODS, INC., a Virginia corporation (the "Borrower), and CRESTAR
BANK, a Virginia banking corporation (the "Bank"), provides as follows:
1. Recitals. The Borrower and the Bank are parties to that certain Amended
and Restated Credit Agreement dated as of June 14, 1996 (the "Agreement"). The
parties desire to amend and restate the Agreement as hereinafter set forth.
Capitalized terms used in this Amendment shall have the meanings specified in
the Agreement unless otherwise defined herein. On or about August 27, 1996,
Dutterer's merged with TWB Gourmet Foods, Inc., a Virginia corporation and a
subsidiary ("TWB"). TWB is the surviving corporation of such merger (the
"Merger").
2. Amendments.
(a) Annex I to the Agreement is hereby amended as follows:
(i) The definition of "Dutterer's" is hereby amended to
read, in its entirety, as follows:
"Dutterer's" shall mean Dutterer's of Manchester Corp., a
Maryland corporation and a Subsidiary, and its successors
and assigns (including, without limitation, TWB Gourmet
Foods, Inc., a Virginia corporation and a Subsidiary, as
successor by merger).
(ii) The definition of "Termination Date" is hereby amended
to read, in its entirety, as follows:
"Termination Date" shall mean July 31, 1998, or such
earlier date as the Commitment shall terminate as provided
herein or such later date as may hereafter be agreed to by
the Bank in writing.
(b) Section 7.11 of the Agreement is hereby amended to read, in its
entirety, as follows:
7. 11 Current Ratio. Permit the ratio of current assets to
the sum of (i) current liabilities, plus (ii) the unpaid
balance of the Revolving Credit Note, to be less than
1.25:1.0.
3. Representations and Warranties. The Borrower hereby represents and
warrants as follows:
(a) The representations and warranties of the Borrower and
Dutterer's set forth in the Loan Documents are true and correct on and as of the
date hereof as though made on and as of such date except insofar as such
representations and warranties relate expressly to an earlier date;
(b) After giving effect to the First Amendment, there exists no
Event of Default and no condition, act or event which, with the giving of notice
or lapse of time or both, would constitute an Event of Default.
(c) As a result of the Merger, title to the Maryland Real Property
and the VAFSI Note has been vested in TWB, and TWB has all liabilities of
Dutterer's under the Dutterer's Guaranty, the Maryland Deed of Trust and the
Dutterer's Security Agreement (collectively, the "Dutterer's Security
Documents").
4. Miscellaneous. Except as expressly amended hereby, the Agreement is
hereby ratified and confirmed as in full force and effect.
5. TWB. TWB joins in the First Amendment for the purpose of confirming to
the Bank the representations and warranties set forth in section 3(c) hereof.
TWB hereby covenants that it will perform all obligations of Dutterer's under
the Dutterer's Security Documents, on the terms and subject to the conditions
thereof.
IN WITNESS WHEREOF, the Borrower, TWB and the Bank have caused this First
Amendment to be duly executed and delivered by their respective duly authorized
officers as of the date first above written.
DOUGHTIE'S FOODS, INC.
By /s/ Marion S. Whitfield, Jr.
---------------------------------------
Title: Senior Vice President
TWB GOURMET FOODS, INC.
By /s/ Marion S. Whitfield, Jr.
---------------------------------------
Title: Director & Authorized Agent
CRESTAR BANK
By /s/ Bruce W. Nave
---------------------------------------
Title: Vice President
EXHIBIT (a)(3)
SECOND AMENDMENT
TO
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, made as of
the 1st day of July, 1997 (the "Second Amendment"), by and between DOUGHTIE'S'S
FOODS, INC., a Virginia corporation (the "Borrower), and CRESTAR BANK, a
Virginia Banking corporation (the "Bank"), provides as follows:
1. Recitals. The Borrower and the Bank are parties to that certain Amended
and Restated Credit Agreement dated as of June 14, 1996, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as of September 30,
1996 (as so amended, the "Agreement"). The Borrower and the Bank desire to
further amend the Agreement as hereinafter set forth. Capitalized terms used in
this Second Amendment shall have the meanings specified in the Agreement unless
otherwise defined herein.
2. Amendments.
(a) Annex I to the Agreement is hereby amended as follows:
(i) The following defined term is hereby added to Annex I:
"Contingent Facility" - Section 2.3.
(ii) The following defined terms are hereby deleted from Annex
I: "Debt Service" and "EBITD".
(iii) The definition of "Termination Date" in Annex I is
hereby amended to read, in its entirety, as follows:
"Termination Date" shall mean July 31, 2000,
or such earlier date as the Commitment shall
terminate as provided in the Agreement or such later
date as may hereafter be agreed to by the Bank in
writing.
(b) The first sentence of Section 2.1 of the Agreement is hereby
amended to read as follows:
The Bank has made and, subject to the terms
and conditions herein set forth, shall make revolving credit
loans (the "Revolving Credit Loans") to the Borrower from time
to time during the Commitment Period in amounts not to exceed,
in the aggregate outstanding at any one time, the lesser of
(i) the Borrowing Base, or (ii) 54,000,000, as such amount may
be increased from time to time pursuant to Section 2.3 of the
Agreement (the "Revolving Credit Commitment").
(c) The Agreement is hereby amended by the addition of the following
Section 2.3:
2.3 Contingent Facility. There is hereby
established a revolving credit facility pursuant to which the
Borrower may request and the Bank may make additional
revolving credit loam to the Borrower in amounts, not to
exceed, in the aggregate outstanding at any one time,
$3,300,000, on the terms and conditions set forth herein with
respect to Revolving Credit Loans (the "Contingent Facility").
No amount of the Contingent Facility shall be available for
borrowing except as specified herein. The Borrower may, from
time to time during the Commitment Period, by not less than
ten (10) Business Days' written notice to the Bank, request
that the Contingent Facility (or a portion thereof in minimum
increments of $1,000,000) be converted to and become a part of
the Revolving Credit Commitment. Upon such request and upon
(i) the payment by the Borrower to the Bank of an activation
fee of 1/8% (0.125%) of the amount to be so converted, and
(11) the delivery to the Bank, in form reasonably satisfactory
to the Bank, of (A) an amended Revolving Credit Note
evidencing the increase in the amount of the Revolving Credit
Commitment, (B)such other documentation related thereto as the
Bank shall reasonably require, the Contingent Facility or such
portion thereof specified by the Borrower shall be converted
into and become a part of the Revolving Credit Commitment and
the Revolving Credit Commitment shall be increased by the
amount of the Contingent Facility so converted.
(d) Section 6.1 of the Agreement is hereby amended by the deletion
of paragraph (d) thereof.
(e) Section 6 of the Agreement is hereby amended to add a new
Section 6.17, to read, in its entirety, as follows:
6.17 Pay to the Bank, within ten (10) days'
after receipt of an invoice by the Bank therefor, a quarterly
fee equal to 1/4% (0.25%) of the unused portion of the
Revolving Credit Commitment during the preceding calendar
quarter, computed on a dally basis.
(f) Section 7.9 of the Agreement is hereby amended to read, in its
entirety, as follows:
7.9 Tangible Net Worth. Permit Tangible Net
Worth to be at any time less than $7,500,000.
(g) The Agreement is hereby amended by the deletion of Sections
7.12, 7.13 and 7.15 thereof.
(h) Exhibit A to the Agreement is hereby amended to read, in its
entirety, as set forth on Exhibit A attached hereto.
(i) Exhibit B to the Agreement is hereby amended to read, in its
entirety, as set forth on Exhibit B attached hereto.
3. Representations and Warranties. The Borrower hereby represents and
warrants as follows:
(a) The representations and warranties of the Borrower and
Dutterer's set forth in the Loan Documents are true and correct on and as of the
date hereof as though made on and as of such date except insofar as such
representations and warranties relate expressly to an earlier date;
(b) After giving effect to the Second Amendment, there exists no
Event of Default and no condition, act or event which, with the giving of notice
or lapse of time or both, would constitute an Event of Default.
4. Conditions Precedent to the Second Amendment. The Second Amendment
shall not become effective unless and until the Bank shall have received the
Second Amendment and the Notes, in the form specified in Exhibits A and B
hereto, duly executed by the Borrower.
5. Miscellaneous. Except as expressly amended hereby, the Agreement is
hereby ratified and confirmed as in full force and effect.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Second
Amendment to be duly executed and delivered by their respective duly authorized
officers as of the date first above written.
DOUGHTIE'S FOODS, INC.
By: /s/ Marion S. Whitfield, Jr.
----------------------------
Marion S. Whitfield, Jr.
Senior Vice President
CRESTAR BANK
By: /s/ Bruce W. Nave
----------------------------
Bruce W. Nave
Vice President
<PAGE>
EXHIBIT A
Commercial Note CRESTAR
Borrower: Doughtie's Foods, Inc.
Loan Amount: Four Million Dollars and no cents ($4,000,000.00)
Borrower's Address: Attn: Mike Larock
P.O. Box 7229
Portsmouth, VA 23707-0229
Officer: Bruce W. Nave (initials) /s/ BWN Date: July 1,1997
----------
Account No: 04300033425154 Note No: 2001 Note Type: Renewal Loan
For Value Received, the undersigned (whether one or more) jointly and severally
promise to pay to the order of Crestar Bank (the "Bank") at any of its offices,
or at such place as the Bank may designate in writing, without offset and in
immediately available funds, the Loan Amount shown above, including or plus
interest, and any other amounts due, upon the terms specified below.
Loan Type And Repayment Terms
Loan Type: Revolving Master Borrowing Line
This is an open end revolving line of credit. You
may borrow an aggregate principal amount up to the Loan Amount shown above
outstanding at any one time.
Repayment Terms: Principal on demand, plus interest, but the undersigned shall
be liable for only so much of the Loan Amount as shall be equal to the total
advanced to or for the undersigned, or any of them, by the Bank from time to
time, less all payments made by or for the undersigned and applied by the Bank
to principal, plus interest on each such advance, and any other amounts due all
as shown on the Bank's books and records, which shall be prima facie evidence of
the amount owed.
Principal shall be payable on the Termination Date, as defined in
the "Agreement,' as hereinafter defined.
Additional Terms And Conditions:
This Note is governed by additional terms and conditions contained in a(n)
Amended and Restated Revolving Credit Agreement between the undersigned and the
Bank dated June 14,1995, and any modifications, renewals, extensions or
replacements thereof (the "Agreement"), which is incorporated in this Note by
reference. In the event of a conflict between any term or condition contained in
this Note and in the Agreement, such term or condition of the Agreement shall
control.
Interest
Accrued interest will be payable on the last day of each month beginning on July
31,1997.
Interest will accrue daily on an actual 360 basis (that is, on the actual number
of days elapsed over a year of 360 days).
Each scheduled payment made on this Note will be applied to accrued interest
before it is applied to principal. Interest will accrue from the date of this
Note on the unpaid balance and will continue to accrue after maturity, whether
by acceleration or otherwise, until this Note is paid in full.
Subject to the above, interest per annum payable on this Note (the "Rate") will
be 1.500% plus the 30-day British Bankers Association LIBOR Rate, as determined
by the Bank, for an amount equal to the Loan Amount. The Rate is a reference
rate only and does not necessarily represent the lowest rate of interest charged
for such borrowings. Adjustments to the Rate shall be effective as of the first
business day of each calendar month.
This Note represents a renewal and refinance of the balance owed on note number
3425154- 2001 dated June 14, 1995, in the original principal amount of
$7,500,000.00.
Collateral
Any collateral pledged to the Bank to secure any of the undersigned's existing
or future liabilities to the Bank shall secure this Note. To the extent
permitted by law, each of the undersigned grants to the Bank a security interest
in and a lien upon all deposits or investments maintained by the undersigned
with, and all indebtedness owed to the undersigned by the Bank or any of its
affiliates.
This Note is also secured by the following collateral and proceeds thereof:
Collateral as described on Schedule A attached hereto and incorporated herein.
All of this security is referred to collectively as the "Collateral." The
Collateral is security for the payment of this Note and any other liability
(including overdrafts and future advances) of the undersigned to the Bank,
however evidenced, now existing or hereafter incurred, matured or unmatured,
direct or indirect, absolute or contingent, several, joint, or joint and
several, including any extensions, modifications or renewals. The proceeds of
any Collateral may be applied against the liabilities of the undersigned to the
Bank in any order at the option of the Bank.
Loan Purpose And Updated Financial Information Required
The undersigned warrant and represent that the loan evidenced by this Note is
being made solely for the purpose of acquiring or carrying on a business,
professional or commercial activity or acquiring real or personal property as an
investment (other than a personal investment) or for carrying on an investment
activity (other than a personal investment activity). The undersigned agree to
provide to the Bank updated financial information, including, but not limited
to, tax returns, current financial statements in form satisfactory to the Bank,
as well as additional information, reports or schedules (financial or
otherwise), all as the Bank may from time to time request.
Default, Acceleration And Setoff
Upon the occurrence of an Event of Default, as defined in the Agreement, or in
the event of non-payment of this Note in full at maturity, the entire unpaid
balance of this Note will, at the option of the Bank, become immediately due and
payable, without notice or demand. Upon the occurrence of an event of default,
the Bank will be entitled to interest on the unpaid balance at the stated Rate
plus 2.00% (the "Default Rate"), unless otherwise required by law, until paid in
full. To the extent permitted by law, upon default, the Bank will have the right
in addition to all other remedies permitted by law, to set off the amount due
under this Note or due under any other obligation to the Bank against any and
all accounts, whether checking or savings or otherwise, credits, money, stocks,
bonds or other security or property of any nature on deposit with, held by, owed
by, or in the possession of, the Bank or any of its affiliates to the credit of
or for the account of any Party, without notice to or consent by any Party. The
remedies provided in this Note and any other agreement between the Bank and any
Party are cumulative and not exclusive of any remedies provided by law.
Capital Adequacy
Should the Bank, after the date of this Note, determine that the adoption of any
law or regulation regarding capital adequacy, or any change in its
interpretation or administration, has or would have the effect of reducing the
Bank's rate of return under this Note to a level below that which the Bank could
have achieved but for the adoption or change, by an amount which the Bank
considers to be material, then, from time to time, 30 days after written demand
by the Bank, the undersigned shall pay to the Bank such additional amounts as
will compensate the Bank for the reduction. Each demand by the Bank will be made
in good faith and accompanied by a certificate claiming compensation under this
paragraph and stating the amounts to be paid to it and the basis for the
payment.
Late Charges And Other Authorized Charges
If any portion of a payment is at least ten (10) days past due, the undersigned
agree to pay a late charge of 5.00% of the amount which is past due. Unless
prohibited by applicable law, the undersigned agree to pay the fee established
by the Bank from time to time for returned checks if a payment is made on this
Note with a check and the check is dishonored for any reason after the second
presentment. In addition, as permitted by applicable law, the undersigned agree
to pay the following: (1) all expenses, including, without limitation, all court
or collection costs, and reasonable attorneys' fees and expenses, whether suit
be brought or not, incurred in collecting this Note; (2) all costs incurred in
evaluating, preserving or disposing of any Collateral granted as security for
the payment of this Note, including the cost of any audits, appraisals,
appraisal updates, reappraisals or environmental inspections which the Bank from
time to time in its sole discretion may deem necessary: (3) any premiums for
property insurance purchased on behalf of the undersigned or on behalf of the
owner(s) of the Collateral pursuant to any security instrument relating to the
Collateral; (4) any expenses or costs incurred in defending any claim arising
out of the execution of this Note or the obligation which it evidences, or
otherwise involving the employment by the Bank of attorneys with respect to this
Note and the obligations it evidences; and (5) any other charges permitted by
applicable law. The undersigned agree to pay these authorized charges on demand
or, at the Banks option, the charges may be added to the unpaid balance of the
Note and will accrue interest at the stated Rate. Upon the occurrence of an
event of default, interest will accrue at the Default Rate.
Waivers
The undersigned and each other Party waive presentment, demand, protest, notice
of protest and notice of dishonor and waive all exemptions, whether homestead or
otherwise, as to the obligations evidenced by this Note. The undersigned and
each other Party waive any rights to require the Bank to proceed against any
other Party or person or any Collateral before proceeding against the
undersigned or any of them, or any other Party, and agree that without notice to
any Party and without affecting any Party's liability, the Bank, at any time or
times, may grant extensions of the time for payment or other indulgences to any
Party or permit the renewal or modification of this Note, or permit the
substitution, exchange or release of any Collateral for this Note and may add or
release any Party primarily or secondarily liable. The undersigned and each
other Party agree that the Bank may apply all monies made available to it from
any part of the proceeds of the disposition of any Collateral or by exercise of
the right of setoff either to the obligations under this Note or to any other
obligations of any Party to the Bank, as the Bank may elect from time to time.
The undersigned also waive any rights afforded to them by Sections 49-25 and
49-25 of the Code of Virginia of 1950 as amended.
TO THE EXTENT LEGALLY PERMISSIBLE, THE UNDERSIGNED WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LITIGATION RELATING TO TRANSACTIONS UNDER THIS NOTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE.
Severability, Amendments And No Waiver By Bank
Any provision of this Note which is prohibited or unenforceable will be
ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Note. No amendment, modification,
termination or waiver of any provision of this Note, nor consent to any
departure by the undersigned from any term of this Note, will in any event be
effective unless it is in writing and signed by an authorized employee of the
Bank, and then the waiver or consent will be effective only in the specific
instance and for the specific purpose for which given. If the interest Rate is
tied to an external index and the index becomes unavailable during the term of
this loan, the Bank may designate a substitute index with notice to the
Borrower. No failure or delay on the part of the Bank to exercise any right,
power or remedy under this Note may be construed as a waiver of the right to
exercise the same or any other right at any time.
Liability, Successors And Assigns And Choice of Law
Each of the undersigned shall be jointly and severally obligated and liable on
this Note. This Note shall apply to and bind each of the undersigned's heirs,
personal representatives, successors and assigns and shall inure to the benefit
of the Bank, its successors and assigns. The undersigned agree that certain
material events and occurrences relating to this Note bear a reasonable
relationship to the Commonwealth of Virginia. The validity, terms, performance
and enforcement of this Note shall be governed by applicable federal law and the
internal laws of the Commonwealth of Virginia which are applicable to agreements
which are negotiated, executed, delivered and performed solely in the
Commonwealth of Virginia.
By signing below, the undersigned agree to the terms of this Note and
acknowledge receipt of a loan in the Loan Amount shown above.
Doughtie's Foods, Inc.
By: ------------------------------------------(Seal)
Marion S. Whitfield, Senior Vice President
<PAGE>
SCHEDULE A
TO
COMMERCIAL NOTE DATED JULY 1, 1997 MADE
BY
DOUGHTIE'S FOODS, INC.
1. Credit line deed of trust dated June 14,1995, from Doughtie's Foods, Inc.
("Borrower') to David A. Durham and David Singleton, trustees ("Trustees"), on
real estate and improvements located in Portsmouth, Virginia.
2. Guaranty dated June 14,1996, from Dutterer's of Manchester Corp.
("Dutterer").
3. Credit line deed of trust dated June 14,1996, from Dutterer's to Trustees, on
real estate and improvements located in Manchester, Maryland.
4. Security Agreement from Borrower dated June 14, 1996, on Accounts, Inventory,
Equipment and General Intangibles.
5. Security Agreement from Dutterer's dated June 14,1996, on a promissory note
dated September 3,1995, made by Value Added Food Services, Inc., and payable to
Dutterer's in the original principal amount of $1,038,755.
5. Borrower's Assignment dated June 14,1996, pursuant to Assignment of Claims
Act, of its right to receive monies due and to become due to Borrower pursuant
to its contract with the United States of America (Defense Logistics Agency) for
the supply of foods to military facilities in southern Virginia.
DOUGHTIE'S FOODS, INC., a Virginia corporation
By:-------------------------------------------
Its:------------------------------------------
<PAGE>
EXHIBIT B
Commercial Note CRESTAR
Borrower: Doughtie's Foods, Inc.
Loan Amount: One Million Three Hundred Fifty Thousand Dollars and no
cents ($1,350,000.00)
Borrower's Address: Attn: Mike Larock
P.O. Box 7229
Portsmouth, VA 23707 022
Officer: Bruce W. Nave (initials) Date: July 1,1997
Account No: 04300033425154 Note No: 2001 Note Type: Renewal Loan
For Value Received, the undersigned (whether one or more) jointly and severally
promise to pay to the order of Crestar Bank (the "Bank") at any of its offices,
or at such place as the Bank may designate in writing, without offset and in
immediately available funds, the Loan Amount shown above, including or plus
interest, and any other amounts due, upon the terms specified below.
Loan Type And Repayment Terms
Loan Type: Term-Variable Payment
Repayment Terms: The Loan Amount shall be payable in 13 consecutive quarterly
installments of principal of $100,000.00 each, plus interest, payable on the
first day of each calendar quarter, beginning October 1, 1997, and a final
payment of $50,000.00 plus interest and other amounts owed, due on January 1,
2001.
Additional Terms And Conditions:
This Note is governed by additional terms and conditions contained in a(n)
Amended and Restated Revolving Credit Agreement between the undersigned and the
Bank dated June 14,1996, and any modifications, renewals, extensions or
replacements thereof (the "Agreement"), which is incorporated in this Note by
reference. In the event of a conflict between any term or condition contained in
this Note and in the Agreement, such term or condition of the Agreement shall
control.
Interest
Accrued interest will be payable on the first day of each quarter beginning on
October 1,1997.
Interest will accrue daily on an actual 36O basis (that is, on the actual number
of days elapsed over a year of 360 days).
Each scheduled payment made on this Note will be applied to accrued interest
before it is applied to principal. Interest will accrue from the date of this
Note on the unpaid balance and will continue to accrue after maturity, whether
by acceleration or otherwise, until this Note is paid in full.
Subject to the above, interest per annum payable on this Note (the "Rate") will
be 1.500% plus the 30-day British Bankers Association LIBOR Rate, as determined
by the Bank, for an amount equal to the Loan Amount. The Rate is a reference
rate only and does not necessarily represent the lowest rate of interest charged
for such borrowings. Adjustments to the Rate shall be effective as of the first
business day of each calendar month.
This Note represents a renewal and refinance of the balance owed on note number
3426154- 9012 dated June 14, 1996, in the original principal amount of
$1,750,000.00.
Collateral
Any collateral pledged to the Bank to secure any of the undersigned's existing
or future liabilities to the Bank shall secure this Note. To the extent
permitted by law, each of the undersigned grants to the Bank a security interest
in and a lien upon all deposits or investments maintained by the undersigned
with, and all indebtedness owed to the undersigned by, the Bank or any of its
affiliates.
This Note is also secured by the following collateral and proceeds thereof
Collateral as described on Schedule A attached hereto and incorporated herein.
All of this security is referred to collectively as the 'Collateral." The
Collateral is security for the payment of this Note and any other liability
(including overdrafts and future advances) of the undersigned to the Bank,
however evidenced, now existing or hereafter incurred, matured or unmatured,
direct or indirect, absolute or contingent, several, joint, or joint and
several, including any extensions, modifications or renewals. The proceeds of
any Collateral may be applied against the liabilities of the undersigned to the
Bank in any order at the option of the Bank.
Loan Purpose And Updated Financial Information Required
The undersigned warrant and represent that the loan evidenced by this Note is
being made solely for the purpose of acquiring or carrying on a business,
professional or commercial activity or acquiring real or personal property as an
investment (other than a personal investment) or for carrying on an investment
activity (other than a personal investment activity). The undersigned agree to
provide to the Bank updated financial information, including, but not limited
to, tax returns, current financial statements in form satisfactory to the Bank,
as well as additional information, reports or schedules (financial or
otherwise), all as the Bank may from time to time request.
Default, Acceleration And Setoff
Upon the occurrence of an Event of Default, as defined in the Agreement, or in
the event of non-payment of this Note in full at maturity, the entire unpaid
balance of this Note will, at the option of the Bank, become immediately due and
payable, without notice or demand. Upon the occurrence of an event of default,
the Bank will be entitled to interest on the unpaid balance at the stated Rate
plus 2.00% (the "Default Rate"), unless otherwise required by law, until paid in
full. To the extent permitted by law, upon default, the Bank will have the right
in addition to all other remedies permitted by law, to set off the amount due
under this Note or due under any other obligation to the Bank against any and
all accounts, whether checking or savings or otherwise, credits, money, stocks,
bonds or other security or property of any nature on deposit with, held by, owed
by, or in the possession of, the Bank or any of its affiliates to the credit of
or for the account of any Party, without notice to or consent by any Party. The
remedies provided in this Note and any other agreement between the Bank and any
Party are cumulative and not exclusive of any remedies provided by law.
Capital Adequacy
Should the Bank, after the date of this Note, determine that the adoption of any
law or regulation regarding capital adequacy, or any change in its
interpretation or administration, has or would have the effect of reducing the
Bank's rate of return under this Note to a level below that which the Bank could
have achieved but for the adoption or change, by an amount which the Bank
considers to be material, then, from time to time, 30 days after written demand
by the Bank, the undersigned shall pay to the Bank such additional amounts as
will compensate the Bank for the reduction. Each demand by the Bank will be made
in good faith and accompanied by a certificate claiming compensation under this
paragraph and stating the amounts to be paid to it and the basis for the
payment.
Late Charges And Other Authorized Charges
If any portion of a payment is at least ten (10) days past due, the undersigned
agree to pay a late charge of 5.00% of the amount which is past due. Unless
prohibited by applicable law, the undersigned agree to pay the fee established
by the Bank from time to time for returned checks if a payment is made on this
Note with a check and the check is dishonored for any reason after the second
presentment. In addition, as permitted by applicable law, the undersigned agree
to pay the following: (1) all expenses, including, without limitation, all court
or collection costs, and reasonable attorneys' fees and expenses, whether suit
be brought or not, incurred in collecting this Note; (2) all costs incurred in
evaluating, preserving or disposing of any Collateral granted as security for
the payment of this Note, including the cost of any audits, appraisals,
appraisal updates, reappraisals or environmental inspections which the Bank from
time to time in its sole discretion may deem necessary; (3) any premiums for
property insurance purchased on behalf of the undersigned or on behalf of the
owner(s) of the Collateral pursuant to any security instrument relating to the
Collateral; (4) any expenses or costs incurred in defending any
claim arising out of the execution of this Note or the obligation which it
evidences, or otherwise involving the employment by the Bank of attorneys with
respect to this Note and the obligations it evidences; and (5) any other charges
permitted by applicable law. The undersigned agree to pay these authorized
charges on demand or, at the Bank's option, the charges may be added to the
unpaid balance of the Note and will accrue interest at the stated Rate. Upon the
occurrence of an event of default, interest will accrue at the Default Rate.
Waivers
The undersigned and each other Party waive presentment, demand, protest, notice
of protest and notice of dishonor and waive all exemptions, whether homestead or
otherwise, as to the obligations evidenced by this Note. The undersigned and
each other Party waive any rights to require the Bank to proceed against any
other Party or person or any Collateral before proceeding against the
undersigned or any of them, or any other Party, and agree that without notice to
any Party and without affecting any Party's liability, the Bank, at any time or
times, may grant extensions of the time for payment or other indulgences to any
Party or permit the renewal or modification of this Note, or permit the
substitution, exchange or release of any Collateral for this Note and may add or
release any Party primarily or secondarily liable. The undersigned and each
other Party agree that the Bank may apply all monies made available to it from
any part of the proceeds of the disposition of any Collateral or by exercise of
the right of setoff either to the obligations under this Note or to any other
obligations of any Party to the Bank, as the Bank may elect from time to time.
The undersigned also waive any rights afforded to them by Sections 49-25 and
49-26 of the Code of Virginia of 1950 as amended.
TO THE EXTENT LEGALLY PERMISSIBLE, THE UNDERSIGNED WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LITIGATION RELATING TO TRANSACTIONS UNDER THIS NOTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE.
Severability, Amendments And No Waiver By Bank
Any provision of this Note which is prohibited or unenforceable will be
ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Note. No amendment, modification,
termination or waiver of any provision of this Note, nor consent to any
departure by the undersigned from any term of this Note, will in any event be
effective unless it is in writing and signed by an authorized employee of the
Bank, and then the waiver or consent will be effective only in the specific
instance and for the specific purpose for which given. If the interest Rate is
tied to an external index and the index becomes unavailable during the term of
this loan, the Bank may designate a substitute index with notice to the
Borrower. No failure or delay on the part of the Bank to exercise any right,
power or remedy under this Note may be construed as a waiver of the right to
exercise the same or any other right at any time.
Liability, Successors And Assigns And Choice of Law
Each of the undersigned shall be jointly and severally obligated and liable on
this Note. This Note shall apply to and bind each of the undersigned's heirs,
personal representatives, successors and assigns and shall inure to the benefit
of the Bank, its successors and assigns. The undersigned agree that certain
material events and occurrences relating to this Note bear a reasonable
relationship to the Commonwealth of Virginia. The validity, terms, performance
and enforcement of this Note shall be governed by applicable federal law and the
internal laws of the Commonwealth of Virginia which are applicable to agreements
which are negotiated, executed, delivered and performed solely in the
Commonwealth of Virginia.
By signing below, the undersigned agree to the terms of this Note and
acknowledge receipt of a loan in the Loan Amount shown above.
Doughtie's Foods, Inc.
By:
-----------------------------------------(Seal)
Marion S. Whitfield, Senior Vice President
<PAGE>
SCHEDULE A
TO
COMMERCIAL NOTE DATED JULY 1,1997 MADE
BY
DOUGHTIE'S FOODS, INC.
1. Credit line deed of trust dated June 14,1996, from Doughtie's Foods, Inc.
("Borrower') to David A. Durham and David Singleton, trustees ("Trustees'), on
real estate and improvements located in Portsmouth, Virginia.
2. Guaranty dated June 14,1996, from Dutterer's of Manchester Corp.
("Dutterer').
3. Credit line deed of trust dated June 14,1996, from Dutterer's to Trustees, on
real estate and improvements located in Manchester, Maryland.
4. Security Agreement from Borrower dated June 14, 1996, on Accounts, Inventory,
Equipment and General Intangibles.
5. Security Agreement from Dutterer's dated June 14,1996, on a promissory note
dated September 3,1995, made by Value Added Food Services, Inc., and payable to
Dutterer's in the original principal amount of $1,038,756.
6. Borrower's Assignment dated June 14,1996, pursuant to Assignment of Claims
Act, of its right to receive monies due and to become due to Borrower pursuant
to its contract with the United States of America (Defense Logistics Agency) for
the supply of foods to military facilities in southern Virginia.
DOUGHTIE'S FOODS, INC., a Virginia corporation
By:---------------------------------------
Its:--------------------------------------
Exhibit 10(h)(1)
ASSET PURCHASE AGREEMENT (this "Agreement") made as of March 18, 1997,
by and between DOUGHTIE'S FOODS, INC., a Virginia corporation ("Seller"), BRUCE
R. BIDDLE and LEVIS E. COTHRAN, or their assigns ( "Buyer"), VERNON MULES,
individually ("Mules"), and STEVE HOUFEK, individually ("Houfek").
R E C I T A L S
A. Seller desires to sell certain of its assets used in the
manufacturing division of Seller's business for the production and sale of the
Products set forth on the attached Exhibit A which is incorporated in and made a
part of this Agreement (the "Products").
B. Buyer desires to purchase said assets used in Seller's manufacturing
division for the production and sale of the Products (the "Business") as more
fully set forth in this Agreement.
C. Mules and Houfek are entering into this Agreement for the sole
purpose of contractually obligating themselves to the execution and delivery of
the Noncompete Agreements described herein, which said Noncompete Agreements are
an integral part of the transaction provided for in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms, and subject to the
conditions hereinafter set forth, the parties hereby agree as follows:
I. PURCHASE OF ASSETS
1. Purchase and Sale. Seller shall sell, convey, transfer,
assign and deliver to Buyer, and Buyer shall purchase and accept from Seller, at
the Closing (as that term is defined in Section 4.1), all of Seller's right,
title and interest in and to the assets listed on Schedule 1.1A (the assets
being purchased hereunder from Seller are hereinafter sometimes collectively
referred to as the "Purchased Assets"), free and clear of any and all options,
pledges, mortgages, security interests, liens, charges, burdens and other
encumbrances whatsoever. The Purchased Assets shall not include cash and cash
equivalents, prepaid expenses, notes receivable, accounts receivable, rent
receivable, and all other assets, properties, rights, claims and contracts set
forth on Schedule 1.1B (hereinafter and hereinabove referred to as the "Excluded
Assets"). Notwithstanding the foregoing, the transfer of title, delivery, and
payment for Seller's inventory of finished goods, raw materials, seasonings, and
packaging materials shall be as provided in Section 2.3 hereunder.
2. Non-Assumption and Assumption of Certain Obligations. Buyer
shall not be obligated to hire any of Seller's employees nor assume or be
obligated, except to the extent any applicable law imposes such obligation upon
Buyer, to observe or perform any collective bargaining agreement, or recognize
any bargaining representative of Seller's employees. Buyer shall not assume or
be liable for the payment, performance or discharge of any of Seller's debts,
contracts, agreements, liabilities, obligations, commitments, restrictions,
disabilities or duties, whether direct or indirect, fixed, contingent or
otherwise, except that Buyer shall assume the vendor and customer contracts and
purchase orders related to the Purchased Assets, entered into by Seller prior to
the date of the Closing in the ordinary course of Business, provided such vendor
and customer contracts and purchase orders are set forth on Schedule 1.2 or have
been entered into between the execution hereof and the Closing Date (hereinafter
defined) and have been approved by Buyer, in writing, prior to Closing. Schedule
1.2 shall be updated on the Closing Date to show each vendor and customer
contract and purchase order that Buyer will assume at Closing. Buyer's
assumption of obligations hereunder shall be limited to those obligations which
accrue on and after the Closing Date.
II. PURCHASE PRICE; INVENTORY
1. Purchase Price. The Purchase Price for the Purchased
Assets shall consist of the Base Price plus the Inventory Price, as defined
below.
2. Base Price. The Base Price shall be Three Hundred
Thousand Dollars ($300,000.00), payable as follows:
3. Fifty Thousand Dollars ($50,000.00) in cash (the
Non-Refundable Deposit paid by Buyer in connection with the execution and
delivery of the letter of intent for this transaction and governed by the
provisions of Section 11.3 hereunder).
4. One Hundred Fifty Thousand Dollars ($150,000.00) in cash at
Closing.
5. One Hundred Thousand Dollars ($100,000.00) payable one year
from the date of Closing and evidenced by a promissory note from Buyer
substantially in the form of Exhibit B attached hereto and made a part hereof
(the "Promissory Note").
6. Inventory.
7. Physical Inventory. At 5:00 P.M. on March ______, 1997
Seller shall cease/terminate the manufacture and processing of the Products. An
inventory shall be taken on ____________, 1997, of all raw materials (meat and
ingredients, the "Raw Materials") of the Business, all packaging materials
(excluding labels, the "Packaging Materials") of the Business, and all finished
goods and products (the "Finished Goods") of the Business (collectively, the
"Inventory").
8. Inventory Price. For purposes of determining the "Inventory
Price," all good and usable Raw Materials and Packaging Materials will be valued
at the lower of cost or current market value as of the Closing Date; the salable
Finished Goods will be valued at Seller's manufacturing division wholesale
prices, as listed on Schedule 2.3, less 25%. The phrase "good and usable Raw
Materials and Packaging Materials" means materials in quantities reasonably
required for the conduct of the Business and sufficiently fresh for use in the
production of the Products by Buyer following the Closing Date. The phrase
"salable Finished Goods" means goods that are of sufficient quality and
freshness for sale to Seller by Buyer following the Closing Date under the terms
of the Product Supply Agreement attached hereto as Exhibit D. Raw Materials and
Packaging Materials which are not good and usable, if any, and Finished Goods
which are not salable, if any, shall be identified during the pre-Closing
inventory and shall be retained by Seller.
9. Payment and Delivery.
a. The salable Finished Goods shall be paid for
in cash and delivered at Closing.
b. The good and usable Packaging Materials
shall be delivered at Closing and paid for by Buyer in cash in four consecutive
equal monthly installments. The first payment for the Packaging Materials shall
be due 30 days from the Closing Date, the second payment shall be due 30 days
thereafter, and the remaining payments shall be due accordingly.
c. The good and usable Raw Materials shall be
purchased by Buyer on an as-needed basis during a four-month period following
the Closing Date. Payment for any Raw Materials items will be due in cash upon
delivery of such items, and title to such items will transfer to Buyer upon
payment and delivery. The balance of the Raw Materials, if any, remaining in the
possession of Seller at the expiration of the four-month period shall be
delivered immediately to Buyer, and payment therefor shall be due in full at
that time.
10. Guaranty. Payment of any due and unpaid portion of the
Promissory Note and the deferred payment obligations set forth in Paragraph
2.3.c will be personally guaranteed by Bruce R. Biddle and Levis E. Cothran,
pursuant to a guaranty substantially in the form of Exhibit C, attached hereto
and made a part hereof (the "Guaranty").
11. Allocation of Base Price. The Base Price for the Purchase
Assets shall be allocated as follows:
12. Machinery, Equipment, and Furniture $
13. Contracts, Customer and Supplier Lists,
Recipes and Formulas, Prepaid Expenses $
14. Noncompete Seller $ 1.00
15. Noncompete Mules $ 1.00
16. Noncompete Houfek $ 1.00
III. CLOSING
1. Date and Place of Closing. Subject to satisfaction or
waiver of the conditions to the obligations of the parties, the purchase and
sale of the Purchased Assets pursuant to this Agreement shall be consummated at
a closing (the "Closing") to be held in the offices of McGuire, Woods, Battle &
Boothe, L.L.P. in Norfolk, Virginia, or such other place as mutually agreed on
by the parties, at 10:00 A.M. on March _____, 1997, or such other date as the
parties may mutually agree upon (the "Closing Date"). Except as otherwise
provided herein with respect to the Raw Materials, title to the Purchased Assets
shall pass from Seller to Buyer at the Closing.
2. Seller's Obligations at Closing. At the Closing,
concurrently with performance by Buyer of its obligations to be performed at the
Closing, Seller shall:
3. Documents of Conveyance. Execute and deliver to Buyer, in
form and substance acceptable to Buyer, (i) warranty bills of sale conveying to
Buyer all tangible personal property and other tangible assets owned by it and
included among the Purchased Assets, (ii) an assignment agreement, the form of
which is attached hereto as Exhibit I (the "Assignment Agreement") conveying to
Buyer all of Seller's claims, rights and benefits, to and under the vendor and
customer contracts and purchase orders to be assumed by Buyer pursuant to
Section 1.2, (iii) all transferable licenses, permits, certificates,
manufacturer equipment warranties, and authorizations pertaining to the
Purchased Assets, and (iv) all other conveyances, bills of sale, assignments,
endorsements and instruments of transfer as shall be necessary or appropriate to
carry out the intent of this Agreement, and as shall be sufficient to vest in
Buyer title to all of the Purchased Assets and all right, title and interest of
Sellers thereto. If requested by Buyer, such documents shall be in a form
suitable for recording.
4. Records. Deliver to Buyer all customer and supplier lists,
sales contracts, sales lists, licenses, and business files and records,
formulas, recipes, seasoning recipes, processing procedures, research and
development records, and advertising materials relating to the Products. Buyer
acknowledges that Bruce R. Biddle has previously obtained possession of the
contracts set forth on Schedule 1.2 hereof.
5. Certificates and Opinions. Execute and deliver to Buyer the
certificates referred to in Sections 8.3 and 8.4 and deliver to Buyer the
opinion of counsel referred to in Section 8.8.
6. Supply Agreement. Execute and deliver the Product Supply
Agreement between Seller and Buyer, the form of which is attached hereto as
Exhibit D (the "Supply Agreement").
7. License Agreement. Execute and deliver the License
Agreement between Seller and Buyer, the form of which is attached hereto as
Exhibit E (the "License Agreement").
8. Noncompete Agreement. Execute and deliver the Noncompete
Agreement between Seller and Buyer, the form of which is attached hereto as
Exhibit F (the "Noncompete Agreement").
9. Lease Agreement. Execute and deliver the Lease Agreement
between Seller and Buyer, the form of which is attached hereto as Exhibit G (the
"Lease Agreement").
10. Assignment Agreement. Execute and deliver the Assignment
Agreement between Buyer and Seller..
11. Other Action. Take all such other steps as may be
necessary or appropriate to put Buyer in actual and complete ownership and
possession of the Purchased Assets.
12. Buyer's Performance. At the Closing, concurrently with the
performance by Seller of its obligations to be performed at the Closing, Buyer
shall:
13. Purchase Price. Deliver to Seller the cash payments
specified in Sections 2.2.b and 2.3.c(1).
14. Promissory Note. Execute and deliver to Seller the
promissory note described in Section 2.2.c.
15. Supply Agreement. Execute and deliver to Seller the Supply
Agreement.
16. Assumption Agreement. Execute and deliver to Seller an
agreement to assume the vendor and customer contracts and purchase orders Buyer
has agreed to assume pursuant to Section 1.2 (the "Assumption Agreement"), the
form of which is attached hereto as Exhibit H.
17. Certificates and Opinions. Execute and deliver to Seller
the certificates referred to in Sections 9.3 and 9.4 and deliver the opinions of
counsel referred to in Section 9.7.
18. License Agreement. Execute and deliver to Seller the
License Agreement.
19. Noncompete Agreement. Execute and deliver to Seller the
Noncompete Agreement.
20. Lease Agreement. Execute and deliver to Seller the Lease
Agreement.
21. Guaranty. Deliver to Seller the duly executed Guaranty.
22. Assignment Agreement. Execute and deliver the Assignment
Agreement.
23. Further Action by Parties. In addition to the foregoing,
the parties agree as follows:
24. Further Action by Seller. At any time and from time to
time, at or after the Closing, upon request of Buyer, Seller shall do, execute,
acknowledge and deliver or shall cause to be done, executed, acknowledged and
delivered, all such further acts, assignments, transfers, conveyances, powers of
attorney and assurances as may reasonably be required in order to vest in and
confirm to Buyer full and complete title to and, possession of, and the right to
use and enjoy, the Purchased Assets.
25. Further Action by Buyer. At any time and from time to
time, at or after the Closing, upon request of Seller, Buyer shall do, execute,
acknowledge and deliver or shall cause to be done, executed, acknowledged and
delivered all such further acts and assurances as may reasonably be required to
complete the assumption by Buyer of its obligations assumed by Buyer pursuant to
this Agreement including without limitation the Assumption Agreement.
IV. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
1. Due Organization and Qualification. Seller is a corporation
duly organized, validly existing, qualified to do business, and in good standing
under the laws of the Commonwealth of Virginia.
2. Corporate Power and Authority. The Board of Directors of
Seller have duly approved this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement and the performance by
Seller of its obligations hereunder have been duly authorized by all requisite
corporate action, and no further action or approval is required in order to
permit Seller to consummate the transactions contemplated by this Agreement.
Seller has full power, authority and legal right to enter into this Agreement
and to consummate the transactions contemplated hereby. The making and
performance of this Agreement and the consummation of the transactions
contemplated hereby in accordance with the terms hereof will not (a) conflict
with the Certificate or Articles of Incorporation or the Bylaws of Seller, (b)
result in any breach or termination of, or constitute a default under, or
constitute an event that with notice or lapse of time, or both, would become a
default under, or result in the creation of any Encumbrance (hereinafter
defined) upon any of the Purchased Assets, or create any rights of termination,
cancellation, or acceleration in any person under any vendor or customer
purchase order assumed by Buyer hereunder, or violate any order, writ,
injunction or decree by which any of the Purchased Assets, or the Business may
be bound or affected or under which any of the Purchased Assets, or the Business
receive benefits, (c) result in the loss or adverse modification of any material
license, permit or other authorization granted to or otherwise held by Seller
and related to the Purchased Assets, or the Business, (d) violate any provision
of any law, ordinance, regulation, rule, requirement or order to which Seller,
the Purchased Assets, or the Business, are subject, except for violations that,
in the aggregate, would not have a material adverse affect upon the business,
operations, condition (financial or otherwise), results of operations, value or
prospects of the Purchased Assets, or the Business, (a "Material Adverse
Effect").
3. Title. Seller has and upon conveyance, transfer and
assignment of the Purchased Assets to Buyer by Seller at the Closing and as
provided in Section 2.3, Buyer will acquire and hold, good and marketable title
in fee simple to all of the Purchased Assets, in each case, free and clear of
any and all options, rights, pledges, mortgages, security interests, liens,
charges, burdens, servitudes and other encumbrances whatsoever (herein sometimes
collectively referred to as "Encumbrances"). Neither Seller, any affiliate or
subsidiary of Seller owns or holds under lease any assets of any kind, character
or description that are utilized in a material way to the Business or the
Purchased Assets and are not being conveyed hereunder, except as set forth on
Schedule 4.3.
4. Inventory. The Seller's Inventory to be conveyed hereunder
consists of current items of a quality and quantity that are usable or
marketable in the ordinary course of the Business, and items not so usable or
marketable in the Business have been written down in value to estimated net
realizable market values. Since March 1, 1997 the Inventory has been maintained
at a level consistent with the operation of the Business in its normal course,
and no change has occurred in such Inventory that materially adversely affects
or will materially adversely affect its usability or salability. Orders for
inventory items have not been given for amounts materially in excess of the
amounts necessary to maintain the Inventory of Seller for the Business at normal
levels based on past practice.
Notwithstanding the foregoing, Buyer acknowledges and agrees that, from
the date of the execution of this Agreement until Closing, Seller intends only
with Buyer's permission to be rendered on a weekly basis, to reduce Inventory
below historically normal levels based on past practice. Seller agrees to keep
Buyer informed of its running estimate as to the expected levels of the
Inventory at Closing. In addition, Seller will cooperate with and assist Buyer
during the pre-Closing period to prepare for Buyer's production of the Products
as soon as practicable after Closing, provided that such assistance shall not
require additional out-of-pocket expenses. In the event that Closing does not
occur, (i) Buyer agrees that it will promptly return to Seller and keep
confidential all formulas, recipes, and materials provided by Seller and (ii)
Seller agrees to purchase all Products that Buyer may have produced, provided
said Products are of reasonable quality and were produced according to the
formulas and recipes provided to Buyer by Seller, the price for same to be
calculated in accordance with the valuation method of Seller's compensable
product items under the provisions of Section 2.3.
5. Purchased Assets. Schedule 1.1A includes an accurate and
complete listing of all tangible personal property and other tangible and
intangible assets owned or leased by Seller and used primarily in the Business,
other than Excluded Assets, Inventory and other similar assets used or consumed
in the ordinary course of business between the date hereof and the Closing Date.
All equipment and machinery included among the Purchased Assets are sold "as
is." Seller enjoys peaceful possession of the Purchased Assets. In making the
foregoing representation and warranty, Seller is relying in part on the accuracy
of Schedule 1.1A(1), which was prepared by Bruce R. Biddle pursuant to his
physical inventory of the applicable machinery and equipment.
6. Contracts. Schedule 4.6 sets forth a brief description of
all material contracts, consulting agreements, contract packaging agreements,
private label agreements, employment agreements, other agreements, leases,
arrangements and commitments (whether oral or written) to which Seller is a
party and by which any of the Purchased Assets, or the Business are affected or
are bound, except vendor and customer contracts and purchase orders assumed by
Buyer under this Agreement and set forth on Schedule 1.2.
7. Contract Defaults. To the best of Seller's knowledge, no
other party thereto is in default in any material respect under any of the
contracts, agreements, leases, arrangements and commitments listed on Schedule
4.6 or the contracts described in Section 1.2 to be assigned to and assumed by
Buyer. To the best of Seller's knowledge, (a) there has not occurred any event
which, with the lapse of time or giving of notice or both, would constitute such
a material default; (b) such contracts, agreements, leases, arrangements, and
commitments are legal, valid, and binding obligations of the respective parties
thereto in accordance with their terms and, except to the extent reflected in
Schedules 4.6 and 1.2, have not been amended; and (c) no defenses, offsets, or
counterclaims thereto have been asserted, or to the best knowledge of Seller,
may validly be made, by any party thereto other than Seller.
8. Litigation. Schedule 4.8 sets forth all actions, suits,
proceedings, investigations, or grievances pending against Seller to the best
knowledge of Seller, threatened against Seller, and affecting the Purchased
Assets, or the Business, or involving products manufactured by Seller in its
manufacturing division, at law, in equity or in admiralty, before or by any
court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign
(hereinafter sometimes collectively referred to as "Agencies"). None of the
actions, suits, proceedings or investigations listed on Schedule 4.8, either (a)
has resulted in, or would, if adversely determined, result in, a Material
Adverse Effect, or (b) has affected, affects or would, if adversely determined,
affect the right or ability of Seller to carry on the Business substantially as
now conducted. To Seller's knowledge, Seller is neither subject to nor in
default of any continuing court or Agency order, writ, injunction or decree,
applicable to the Purchased Assets or the Business.
9. Compliance with Laws. Except as listed on Schedule 4.9A.,
to the best of Seller's knowledge, (a) each of Seller, the Purchased Assets, and
the premises to be leased by Buyer pursuant to the Lease Agreement has complied
with and is in compliance with, all federal, state, county, and municipal laws,
ordinances, regulations, rules, requirements and orders applicable to the
Purchased Assets, the Business, the premises to be leased by Buyer, or operation
of the Business, the breach or violation of which could have a Material Adverse
Effect, (b) Seller has filed with the proper authorities all statements and
reports required by all laws, ordinances, regulations, rules, licensing and
other requirements and orders to which the Purchased Assets or the Business is
subject the failure to file which could have a Material Adverse Effect, and none
of such statements and reports contains untrue statements of material fact or
omits any statement of material fact necessary to make such statements and
reports not misleading, and (c) Seller has obtained and maintained all licenses,
permits and governmental authorizations necessary for the present ownership and
use of the Purchased Assets and for the conduct of the Business in the manner in
which and in the jurisdictions and places where the Business is now conducted,
the failure to have which could have a Material Adverse Effect. Seller has not
received written notice of any violation of, or any pending investigation under,
any of such laws, ordinances, regulations, rules, licensing and other
requirements and orders during the last three (3) years related to the Business.
Schedule 4.9B correctly lists all material licenses, permits, certificates,
approvals, memberships and authorizations, and all registrations and
applications pending before any agency or authority for the issuance of any
licenses, permits, certificates, approvals, memberships or authorizations or the
renewal thereof related to the Business. Seller has no franchises relating to
its Business, and none are presently required for the conduct thereof.
10. Attachments and Other Proceedings. There are no
attachments, executions, assignments for the benefit of creditors,
receiverships, conservatorships or voluntary or involuntary proceedings in
bankruptcy or pursuant to any debtor relief laws contemplated or filed by Seller
or pending against Seller.
11. Taxes. Seller has duly filed, or has duly obtained
effective extensions for filing, all U.S. federal, foreign, state, county, local
and other excise, franchise, property, payroll, income, profits, capital stock,
sales and use, and other tax returns which are required to be filed, and all
such returns are true and correct in all material respects. Seller has paid,
collected or withheld and remitted to the appropriate governmental agency all
taxes which have become due or have been assessed against it and all taxes,
penalties and interest which any taxing authority has proposed or asserted to be
due and owing. All tax liabilities to which the Purchased Assets have been
subjected have been discharged and there are no liens for taxes on the Purchased
Assets except for property taxes assessed but not yet payable or as described in
Schedule 4.11. Except as described in Schedule 4.11, there are no tax
deficiencies or claims presently being asserted, or, to the best of Seller's
knowledge, threatened, against Seller and Seller has no knowledge of any basis
for such claims or deficiencies. Seller has not granted any extension to any
taxing authority of the limitation period during which any tax liability may be
asserted.
12. Consents. Except as set forth on Schedule 4.12, no
consent, approval, authorization or order of any court, Agency or any other
person is required under any law, ordinance, regulation, rule, requirement,
order, writ, judgment, decree, contract, agreement, lease, commitment, charter
or bylaw applicable to or binding upon Seller in order to permit Seller to
consummate the transactions contemplated by this Agreement and to perform its
obligations hereunder and under the Supply Agreement, and the License Agreement.
13. Patents, Trademarks, Etc. Seller neither has contracted
for, nor has licenses or agreements to use any trade secrets, know-how,
processes, formulae, royalties, inventions, discoveries, improvements,
proprietary or technical information, proprietary rights, joint venture or joint
operating interests, copyrights, patents, trade names, trademarks, service marks
and applications for copyright, patent, trade name, trademark and service mark
registration (hereinafter sometimes collectively referred to as "Intangible
Rights") for use at, or in connection with, the operation of the Business except
for its rights to the "Doughtie's" trade name and mark, and the Intangible
Rights among the Purchased Assets. None of the Purchased Assets or activities or
operations of the Business infringe or involve or have resulted within three
years prior to the date hereof in (a) the infringement of, or (b) any claim of
infringement of, any Intangible Right of any other person, firm or corporation;
and no proceedings have been instituted, are pending, or are threatened, that
challenge the rights of Seller in respect thereof. To the best knowledge of
Seller, the "Doughtie's" tradename is not being infringed by the products,
activities, operations, patents, trade names, trademarks, service marks or
copyrights of any other person or persons and is not subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the use thereof.
14. Product Warranties. No shipment or other delivery of
Products made or to be made by Seller on or prior to the Closing Date was or as
of the Closing Date will be, and no food or food ingredients in the Inventory on
the Closing Date will be as of the Closing Date: (i) adulterated or misbranded
within the meaning of the Federal Food, Drug and Cosmetic Act, as amended; (ii)
an article which may not under the provisions of ss. 404 or ss. 505 of such Act
be introduced into interstate commerce; or (iii) adulterated or misbranded
within the meaning of any pure food laws or ordinances of any state or city to
which such articles are shipped or to be shipped. All such Inventory will meet
the Seller's reasonable standards of quality and sanitation and all requirements
of the laws and regulations enforced by the United States Department of
Agriculture. All products processed as of the Closing Date shall be labeled in
accordance with the requirements of the National Labeling and Education Act.
15. Brokerage Commissions. There are no claims for, or rights
to, brokerage commissions or agent's or finder's fees resulting from any action
taken by Seller in connection with the transactions contemplated by this
Agreement.
16. Hart-Scott-Rodino. Neither Seller nor any "ultimate
parent" of Seller have sales or assets of $100,000,000.00 or more.
17. No Affiliates. Seller has no affiliates or affiliated
business entities that have a material effect on the Business or the Purchased
Assets except those set forth on Schedule 4.17.
18. Full Disclosure. No representation or warranty of Seller
made in this Agreement, nor any written statement, schedule or certificate
heretofore furnished to Buyer by Seller pursuant hereto, or in connection with
the transactions contemplated hereby, contains, or will contain any untrue
statement of a material fact, or omits, or will omit to state a material fact
necessary to make the statement or facts contained herein or therein not
misleading. Seller has not withheld and will not withhold from Buyer knowledge
of any events, conditions or facts, of which Seller has knowledge, that could
have a Material Adverse Effect.
V. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
It is the intent of Bruce R. Biddle and Levis E. Cothran to assign
their rights under this Agreement to a yet-to-be-formed a corporation. To the
extent that the following representations, warranties, and covenants apply to
such corporate entity, they contemplate that such corporation will have been
formed and will be the Buyer at Closing. Buyer represents, warrants and
covenants to Seller that:
1. Due Organization and Qualification. At Closing, Buyer shall
be a corporation duly organized, validly existing, in good standing and
qualified to do business under the laws of the Commonwealth of Virginia.
2. Corporate Power and Authority. Before Closing, the Board of
Directors of Buyer shall have duly approved this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement and the
performance by Buyer of its obligations hereunder shall have been duly
authorized by all requisite corporate action, and no further action or approval
shall be required in order to permit Buyer to consummate the transactions
contemplated by this Agreement. Buyer shall have full power, authority and legal
right to assume the obligations of this Agreement and to consummate the
transactions contemplated hereby. The assumption and performance of this
Agreement and the consummation of the transactions contemplated hereby in
accordance with the terms hereof will not (a) conflict with the Articles of
Incorporation or the Bylaws of Buyer or (b) violate any provision of any law,
ordinance, regulation, rule, requirement, order, writ, judgment, decree,
contract, agreement, lease, arrangement or commitment to which Buyer is subject
or is a party that, individually or in the aggregate, would have a Material
Adverse Effect upon the ability of Buyer to perform its obligations hereunder
and under the Supply Agreement or the License Agreement.
3. Actions, Suits, Etc.. There are no actions, suits,
proceedings or investigations pending, or to the knowledge of Buyer, threatened
against or affecting Buyer at law or in equity or before any federal, state,
municipal or other instrumentality in which it is sought to restrain or prohibit
or obtain damages in respect of the consummation of the purchase and sale of the
Purchased Assets or the other transactions contemplated hereby. Moreover, Buyer
is, to the best knowledge of Buyer, not in default with respect to any order,
writ, injunction or decree of any court, or Agency with respect to the
consummation of the purchase and sale of the Purchased Assets or the other
transactions contemplated hereby.
4. Consents. No consent, approval, authorization or order of
any court, Agency or any other person is required under any law, ordinance,
regulation, rule, requirement, order, writ, judgment, decree, contract,
agreement, lease, commitment, charter or bylaw applicable to or binding upon
Buyer in order to permit Buyer to consummate the transactions contemplated by
this Agreement and to perform its obligations hereunder and under the Supply
Agreement or the License Agreement.
5. Brokerage Commissions. There are no claims for, or rights
to, brokerage commissions or agent's or finder's fees resulting from any action
taken by Buyer in connection with the transactions contemplated by this
Agreement.
6. Hart-Scott-Rodino. Neither Buyer nor any "ultimate parent"
of Buyer have sales or assets of $100,000,000.00 or more.
7. Sophisticated Purchaser. The transactions contemplated in
this Agreement are for the Buyer's own account for the purposes of operating the
Business as a going concern and not with a view towards resale or distribution.
The Buyer acknowledges that, in reliance on the foregoing, the transactions
contemplated hereby have not been registered under any federal or state
securities laws.
VI. COVENANTS OF SELLER
1. Negative Covenants Regarding Conduct of Business. Except as
may be otherwise expressly provided herein, from and after the date of this
Agreement and until the Closing Date, with respect to the Purchased Assets and
the Business, without the consent of Buyer, Seller covenants and agrees that it
will not in respect of the Business or the Purchased Assets:
2. Creation of Obligations. Incur any obligation or liability,
absolute or contingent, except current liabilities incurred, and obligations
under contracts entered into, in the ordinary course of business consistent with
past practice.
3. Encumbrances. Execute, grant, create or suffer any
Encumbrance upon the Purchased Assets.
4. Disposition of Assets. Effect any sale, transfer,
Encumbrance or other disposition of assets and properties that would otherwise
be included in the Purchased Assets, except for sales of Inventories in the
ordinary course of business, except for machinery, equipment, furniture and
fixtures replaced with items of equivalent or greater value, and except for
supplies and other similar assets used or consumed in the ordinary course of
business.
5. Contracts, Licenses, Etc. Amend, modify, assign, transfer,
grant or terminate any contract, agreement, lease, arrangement or commitment
listed in Schedule 4.6. and Schedule 1.2.
6. Rights. Waive, modify or release any rights of material
value to the Business or the Purchased Assets.
7. Affirmative Covenants Regarding Conduct of Business. From
and after the date of this Agreement and until the Closing Date, Seller
covenants and agrees that it will:
8. Ordinary Course of Business. Carry on the operations of
Business only in the usual, regular and ordinary course consistent with good
business practices and with prior practices.
9. Maintenance of Relationships. Use its best efforts to
maintain and preserve the Business and to maintain its present relationships
with customers, suppliers and others having business dealings with the Business.
10. Maintenance of the Purchased Assets. Maintain the
Purchased Assets in good operating repair and condition and maintain the level
of Inventories in accordance with past practices, except as otherwise provided
in this Agreement.
11. Payment of Obligations in Ordinary Course. Pay and
discharge all costs and expenses of carrying on the operations of the Business
and of maintaining and operating the Purchased Assets as they become due and pay
and discharge any such costs and expenses that at the date hereof are past due,
unless contested in good faith.
12. Representations and Warranties. Use its best efforts to
prevent the occurrence of any change or event that would prevent any of the
representations and warranties of Seller contained herein from being true in all
material respects at and as of the Closing Date with the same effect as though
such representations and warranties (in the exact language contained in this
Agreement with appropriate modification of tense in the case of representations
and warranties relating to statements of fact as of specific dates) had been
made at and as of the Closing Date.
13. Maintenance of Records. Maintain its books, accounts, and
records relating to the Business and the Purchased Assets in the usual, regular
and customary manner on a basis consistently applied.
14. Access to and Updating of Information. During reasonable
business hours, afford to the officers, attorneys, accountants, and other
authorized representatives of Buyer, free and full access to the Purchased
Assets and the Business, in order that Buyer may have full opportunity to make a
reasonable investigation with respect to the Purchased Assets, the Business, the
contracts, leases, arrangements and commitments listed in Schedule 4.6 hereto,
the books and records of the Business and their operations, including, without
limitation, fixed asset records, sales records relating to the customers of the
Business, purchase records, and inventory records. Seller will furnish to Buyer
all such further information concerning the Purchased Assets and the Business as
Buyer may reasonably request. Seller will update by amendment or supplement each
of the Schedules referred to herein and any other disclosures made in writing to
Buyer forthwith upon any material change in the information set forth in said
Schedules or other disclosure, and Seller represents and warrants that such
Schedules and such written disclosures, as so amended or supplemented, shall be
true, correct and complete in all material respects as of the date or dates of
such amendments or supplements; provided, however, that the inclusion of any
information in any such amendment or supplement, not included in the original
Schedule at or prior to the date of this Agreement, shall not limit or impair
any rights that Buyer might otherwise have respecting the representations or
warranties of Seller contained in this Agreement.
VII. AGREEMENTS OF SELLER AND BUYER
1. Public Disclosures. Seller and Buyer shall cooperate with
each other and give each other advance notice in respect of any public
announcements or disclosures pertaining to the transaction described herein.
Buyer shall draft the form of public announcement or disclosure pertaining to
this transaction which shall be approved by Seller prior to release.
Notwithstanding the foregoing, nothing in the Section will preclude either party
from making any disclosures required by law or regulation or necessary and
proper in conjunction with the compliance with all applicable federal and state
securities laws and the filing of any tax return or other document required to
be filed with any federal, state, or local governmental body, authority, or
agency.
2. Promotion/Damaged Goods Allowances. In the event that
customers of the Business bill Buyer or make deductions against Buyer's
otherwise valid invoices for promotional pricing allowances or damaged goods
applicable to sales of Products produced or sold by Seller, which said
bill-backs or deductions shall be the liability of Seller, Buyer will promptly
forward such bill to Seller and Seller will, in turn, promptly pay all such
bills or compensate Buyer for any bill-back or deduction made by such customer
and Seller shall resolve directly any dispute over such bill-back or deduction
directly with its customer.
3. Return of Inventories and Damaged Goods. From and after the
Closing Date, Buyer shall settle in good faith any claims for returns or damaged
goods relating to Products shipped prior to the Closing Date and made by
customers of the Business to Buyer on or after the Closing Date. Seller shall
reimburse Buyer for all costs incurred by Buyer as a result of such returned
Products. Buyer's costs shall include the invoice price for any Products shipped
to a customer in place and stead of the returned Product, plus any reasonable
and customary transportation and handling costs incurred by Buyer.
4. Consumer Claims and Complaints. The parties shall cooperate
and assist each other to assure the expeditious handling of customer claims and
complaints. All customer claims and complaints made with respect to Products
sold by Seller prior to the Closing Date or Products acquired by Buyer from
Seller at the Closing shall be the responsibility of the Seller.
5. Due Diligence Investigation. Buyer may, prior to the
Closing Date, make or cause to be made such investigation of the Business and
properties of the Business and of its financial and legal condition as Buyer
deems necessary or advisable. Seller will permit Buyer and its authorized agents
or representatives, including its independent accountants, to have full access
to the properties, books, and records of the Business at reasonable hours to
review information and documentation relative to the properties, books,
contracts, commitments, and other records of the Business and Assets. If for any
reason the transactions contemplated by this Agreement are not consummated,
Buyer and its representatives will promptly return to Seller all materials and
documents provided by Seller and all copies thereof, and will hold in confidence
all confidential information obtained from Seller, its officers, agents,
representatives, or employees.
6. Assignment to Incorporated Entity. It is the intent of
Bruce R. Biddle and Levis E. Cothran to form prior to Closing a Virginia
corporation to be known as Coddle Roasted Meats, Inc., or such other name as
designated by them (the "Corporation"), and to assign their rights and
obligations under this Agreement and the Transaction Documents (except for the
Guaranty) to the Corporation to buy and hold the Purchased Assets in the name of
the Corporation. Upon the due and proper formation of the Corporation in
accordance with law, Seller hereby consents to such assignment and upon due and
proper execution of resolutions of the Corporation in form reasonably approved
by Seller, Seller will release Bruce R. Biddle and Levis E. Cothran from any
individual liability to Seller under this Agreement and the other Transaction
Documents (except for the Guaranty), provided that nothing herein shall affect
Seller's rights to retain the Nonrefundable Deposit as provided in Section 11.3.
VIII. CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction, or the written waiver thereof by Buyer, of the following
conditions on or prior to the Closing Date:
1. Representations and Warranties of Seller. All of the
representations and warranties of Seller contained in this Agreement shall have
been true and correct when made, and shall be true and correct in all material
respects on and as of the Closing Date, except to the extent that changes shall
have been approved in writing by Buyer.
2. Covenants of Seller. All of the covenants and agreements
herein on the part of Seller to be complied with or performed on or before the
Closing Date, shall have been fully complied with and performed.
3. Seller's Certificates. There shall be delivered to Buyer a
certificate dated as of the Closing Date and signed by Seller to the effect set
forth in Sections 8.1 and 8.2 as they relate to Seller, which certificate shall
have the effect of a representation and warranty made by Seller on and as of the
Closing Date.
4. Certificates of Authorities; Corporate Authorization.
Seller shall have furnished to Buyer (a) a certificate of the State Corporation
Commission dated as of a date not more than twenty days prior to the Closing
Date, attesting to the organization and good standing of Seller, and (b) a copy,
certified by the Secretary or Assistant Secretary of Seller, of resolutions or
minutes duly adopted by the Board of Directors of Seller duly authorizing this
Agreement, the Supply Agreement, and the transactions contemplated hereby.
5. No Material Adverse Changes. There shall not have occurred
any change in the Business, or the Purchased Assets that could have a Material
Adverse Effect, and Seller shall not have suffered any loss (whether or not
insured) by reason of physical damage caused by fire, earthquake, flood, wind,
accident or other calamity, or by reason of any taking by eminent domain or
condemnation, which could have a Material Adverse Effect.
6. Litigation. At the Closing Date, there shall not be pending
or threatened any litigation in any court or any proceeding before any Agency
(a) in which it is sought to restrain or prohibit or obtain damages in respect
of the consummation of the purchase and sale of the Purchased Assets or the
other transactions contemplated hereby, (b) that could, if adversely determined,
result in a Material Adverse Effect, (c) that could, if adversely determined,
affect the right or ability to carry on the Business as now conducted, or (d) as
a result of which, in the reasonable judgment of Buyer, Buyer could be deprived
of the material benefits of its ownership of the Purchased Assets.
7. Satisfactory to Buyer's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement or incidental
thereto, and all other related matters shall have been satisfactory to Payne,
Gates, Farthing & Radd, P.C., counsel for Buyer.
8. Opinion of Seller's Counsel. Buyer shall have received an
opinion of McGuire, Woods, Battle, and Boothe, L.L.P., counsel for Seller, dated
the Closing Date, to the effect that: (a) Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, (b) each of Seller, Mules, and Houfek has full power,
authority and legal right to enter into this Agreement, the License Agreement,
the Lease Agreement, the Supply Agreement, the Guaranty, the Noncompete
Agreements, the Assignment Agreement, and the Assumption Agreement
(collectively, the "Transaction Documents") to which it or he is a party and to
consummate the transactions contemplated hereby and thereby; (c) all corporate
actions required to be taken by Seller to approve the "Transaction Documents" to
which it is a party, and the transactions contemplated hereby and thereby and to
authorize execution and delivery of the Transaction Documents to which it is a
party and the performance by Seller of its obligations hereunder and thereunder,
have been duly and properly taken, and no further action or approval is required
in order to permit Seller to consummate the transactions contemplated by the
Transaction Documents; (d) the Transaction Documents have been duly executed and
delivered by Seller, Mules, and Houfek, as applicable, and constitute legal,
valid and binding obligations of Seller, Mules, and Houfek, as applicable,
enforceable in accordance with their terms (subject to the availability of the
discretionary remedy of specific performance and, as to enforcement of remedies,
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect but excluding any presently pending proceedings
and the exercise by a court of its general powers of equity); (e) the
instruments of transfer of the Purchased Assets from Seller to Buyer have been
duly authorized, executed and delivered, and are legal, valid and binding
instruments enforceable in accordance with their terms (subject to the
availability of the discretionary remedy of specific performance and, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect but excluding any
presently pending proceedings and the exercise by a court of its general powers
of equity); (f) the execution and delivery of the Transaction Documents by
Seller, Mules, and Houfek and the performance by each of them of their
obligations thereunder do not constitute a violation of or a default under
Seller's certificate or articles of incorporation or bylaws, or any writs,
orders, judgments or decrees by which it is bound and of which counsel has
actual knowledge; and (g) such counsel has no knowledge of any action, suit,
proceeding or investigation that would be required by the terms of Section 4.8
to be listed in Schedule 4.8 that is not listed in Schedule 4.8. In the event of
any dispute between the parties arising from the Transaction Documents or the
transactions contemplated therein, counsel to Seller shall not be disqualified
from representing the Seller, Mules or Houfek in any dispute resolution
proceeding by virtue of having rendered the referenced opinion letter.
9. Transaction Documents. Seller shall have executed and
delivered to Buyer each of the Transaction Documents.
10. Individual Noncompete Agreements. Each of Vernon Mules and
Steve Houfek shall have executed and delivered to Buyer a Noncompete Agreement
in the form attached hereto as Exhibits F-1 and F-2.
11. Release of Encumbrances. All Encumbrances on the Purchased
Assets (other than any imposed or permitted by lenders to Buyer) shall have been
released.
12. Due Diligence Investigation. The results of any due
diligence investigations by Buyer of the Business and the Purchased Assets shall
be satisfactory to Buyer in its reasonable discretion.
13. Financing. Buyer's financiers shall have approved all
necessary documents and given their respective authorization to close and
advance the funding.
14. Union Matters. Buyer shall be satisfied that there are no
material unresolved disputes or issues between Seller and the union representing
Seller's employees in connection with effecting the transactions contemplated by
this Agreement.
IX. CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction, or the written waiver thereof by Seller, of the following
conditions on or prior to the Closing Date:
1. Representations and Warranties of Buyer. All of the
representations and warranties of Buyer contained in this Agreement shall have
been true and correct when made, and shall be true and correct in all material
respects on and as of the Closing Date, except to the extent that changes shall
have been approved in writing by Seller.
2. Covenants of Buyer. All of the covenants and agreements
herein on the part of the Buyer to be complied with or performed on or before
the Closing Date shall have been fully complied with and performed.
3. Buyer's Certificates. There shall be delivered to Seller a
certificate dated as of the Closing Date and signed by the President of Buyer to
the effect set forth in Sections 9.1 and 9.2 as they relate to Buyer, which
certificate shall have the effect of a representation and warranty made by Buyer
on and as of the Closing Date.
4. Certificates of Authorities. Buyer shall have furnished to
Seller (a) a certificate of the State Corporation Commission dated as of not
more than twenty days prior to the Closing Date, attesting to the organization
and good standing of Buyer, and (b) a copy, certified by the Secretary or an
Assistant Secretary of Buyer, of resolutions duly adopted by the Board of
Directors of Buyer duly authorizing this Agreement, the Supply Agreement and the
transactions contemplated hereby and thereby.
5. Injunctions. At the Closing Date, there shall not be in
effect any injunctions or restraining orders restraining or prohibiting the
consummation of the purchase and sale of the Purchased Assets or the other
transactions contemplated hereby.
6. Satisfactory to Seller's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement or incidental
thereto and all other related legal matters shall have been satisfactory to
McGuire, Woods, Battle & Boothe, L.L.P.
7. Opinion of Counsel to Buyer. Seller shall have received an
opinion from Payne, Gates, Farthing & Radd, P.C., counsel for Buyer, Bruce R.
Biddle ("Biddle"), and Levis E. Cothran ("Cothran"), dated the Closing Date, to
the effect that (a) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Virginia; (b) Buyer has
full power, authority and legal right to enter into the Transaction Documents
and to consummate the transactions contemplated hereby and thereby; (c) the
execution and delivery of the Transaction Documents, and the performance by
Buyer of its obligations hereunder and thereunder, have been duly authorized by
all requisite corporate action, and no further action or approval is required in
order to permit Buyer to consummate the transactions contemplated by the
Transaction Documents; (d) the Transaction Documents have been duly executed by
Buyer and constitute valid and binding obligations of Buyer, and the Guaranty
has been duly executed by Bruce R. Biddle and Levis E. Cothran, and the
Transaction Documents and the Guaranty are enforceable in accordance with their
terms (subject to the availability of the discretionary remedy of specific
performance and, as to the enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws from time to time in
effect but excluding any presently pending proceedings and the exercise by a
court of its general powers of equity); and (e) the execution and delivery of
the Transaction Documents by Buyer and the performance by Buyer of its
obligations thereunder do not constitute a violation of or a default under their
respective certificates or articles of incorporation or bylaws, or any writs,
orders, judgments or decrees by which it is bound and of which counsel has
actual knowledge. In the event of any dispute between the parties arising from
the Transaction Documents or the transactions contemplated therein, counsel to
Buyer shall not be disqualified from representing Buyer, Biddle or Cothran in
any dispute resolution proceeding by virtue of having rendered the referenced
opinion letter.
8. Transaction Documents. Buyer shall have executed and
delivered to Seller each of the Transaction Documents.
9. Guaranty. Bruce R. Biddle and Levis E. Cothran shall have
executed and delivered to Seller the Guaranty.
10. Financing. Buyer's financiers shall have approved all
necessary documents and given their respective authorization to close and
advance the funding.
11. Union Matters. Seller shall be satisfied, in its sole
discretion, that there are no material unresolved disputes or issues between
Seller and the union representing Seller's employees in connection with
effecting the transactions contemplated by this Agreement.
X. INDEMNIFICATION
1. Buyer's Losses. Seller agrees to indemnify Buyer and save
and hold it harmless from, against and in respect of any and all damages
(including, without limitation, amounts paid in settlement with Seller's
consent), losses, obligations, liabilities, liens, deficiencies, costs and
expenses, including, without limitation, reasonable attorney's fees and costs
incurred to comply with injunctions and other court and Agency orders, and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding or to establish Buyer's right to indemnification hereunder (herein
referred to collectively as the "Buyer's Losses") suffered, sustained, incurred
or required to be paid by Buyer by reason of (a) the failure by Seller to comply
with applicable laws relating to bulk transfers, including, without limitation,
the provisions of the Uniform Commercial Code of the Commonwealth of Virginia;
(b) any representation or warranty made by Seller in or pursuant to this
Agreement or the other Transaction Documents being untrue or incorrect in any
respect; (c) any failure by Seller, Mules, or Houfek to observe or perform its
covenants and agreements set forth in this Agreement or the other Transaction
Documents; (d) any liability for product warranties or defective products
arising from sales of finished goods manufactured and sold by Seller prior to
the Closing Date; (e) any failure by Seller to perform its obligations in
connection with any of its Employee Benefit Plans as defined in Section 3(3) of
ERISA; or (f) any failure by Seller to satisfy and discharge any other debt,
contract, agreement, liability, obligation, commitment, restriction, disability
or duty, whether direct or indirect, fixed, contingent or otherwise, not
expressly assumed by Buyer pursuant to this Agreement and the Assumption
Agreement.
2. Sellers' Losses. Buyer agrees to indemnify Seller and save
and hold it harmless from, against, for and in respect of any and all damages
(including, without limitation, amounts paid in settlement with Buyer's
consent), losses, obligations, liabilities, claims, deficiencies, costs and
expenses, including, without limitation, reasonable attorneys' fees and costs
incurred to comply with injunctions and other court and Agency orders, and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding or to establish Seller's right to indemnification hereunder (herein
referred to collectively as "Seller's Losses") suffered, sustained, incurred or
required to be paid by Seller by reason of (a) any representation or warranty
made by Buyer in or pursuant to this Agreement or the other Transaction
Documents being untrue or incorrect in any respect, (b) any failure by Buyer to
observe or perform its covenants and agreements set forth in this Agreement or
the other Transaction Documents, or any failure by Biddle or Cothran to perform
his covenants and agreements in the Guaranty, (c) any liability for product
warranties or defective products arising from sales of finished goods
manufactured or sold by Buyer after the Closing Date, or (d) any failure by
Buyer to satisfy and discharge any liability or obligation expressly assumed by
Buyer pursuant to this Agreement and the Assumption Agreement.
3. Notice of Loss; Indemnified Party's Negligence.
Notwithstanding anything herein contained, the Indemnifying Party (as
hereinafter defined in Section 10.4) shall not have any liability under the
indemnity provisions of this Agreement with respect to a particular matter
unless a notice setting forth in reasonable detail the breach that is asserted
has been given to the Indemnifying Party and, in addition, if such matter arises
out of a suit, action, investigation or proceeding, such notice is given
promptly after the Indemnified Party (as hereinafter defined in Section 10.4)
shall have been given notice of the commencement of the suit, action,
investigation or proceeding. Notwithstanding the preceding sentence, failure of
the Indemnified Party to give notice hereunder shall not release the
Indemnifying Party from its obligations under this Article X, except to the
extent the Indemnified Party is actually prejudiced by such failure to give
notice. With respect to Buyer's Losses (as defined below), Seller shall be the
Indemnifying Party and Buyer shall be the Indemnified Party. With respect to
Seller's Losses, Buyer shall be the Indemnifying Party and Seller shall be the
Indemnified Party. An Indemnified Party's failure to investigate or lack of due
diligence occurring for any reason whatsoever, shall not (a) constitute a
defense to any action or proceeding brought by the Indemnified Party to enforce
his or its rights under this Article X, (b) excuse performance by the
Indemnifying Party of its obligations under this Article X, or (c) entitle the
Indemnifying Party to any right of setoff or counterclaim against amounts owed
under this Article X.
4. Right to Defend. Upon receipt of notice of any suit,
action, investigation, claim or proceeding for which indemnification might be
claimed by an Indemnified Party, the Indemnifying Party shall be entitled
promptly to defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding at its own cost and expense. The Indemnified
Party shall have the right, but not the obligation, to participate at its own
expense in a defense thereof by counsel of its own choosing, but the
Indemnifying Party shall be entitled to control the defense unless the
Indemnified Party has relieved the Indemnifying Party from liability with
respect to the particular matter or the Indemnifying Party fails to assume the
defense of the matter. If the Indemnifying Party fails to defend, contest or
otherwise protect in a timely manner against any such suit, action,
investigation, claim or proceeding, the Indemnified Party shall have the right,
but not the obligation, to defend, contest or otherwise protect against the
same, and make any compromise or settlement thereof and recover the entire cost
thereof from the Indemnifying Party including reasonable attorneys' fees,
disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or the compromise or settlement thereof.
However, if the Indemnifying Party undertakes the defense of such matters, the
Indemnified Party shall not, so long as the Indemnifying Party does not abandon
the defense thereof, be entitled to recover from the Indemnifying Party any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written consent
of the Indemnifying Party.
5. Cooperation. Seller and Buyer, and each of their
affiliates, successors and assigns shall cooperate with each other in the
defense of any suit, action, investigation, proceeding or claim by a third party
and, during normal business hours, shall afford each other access to their books
and records and employees relating to such suit, action, investigation,
proceeding or claim and shall furnish each other all such further information
that they have the right and power to furnish as may reasonably be necessary to
defend such suit, action, investigation, proceeding or claim.
XI. TERMINATION
1. Termination. This Agreement may be terminated and abandoned
at any time prior to or on the Closing Date:
2. Mutual Consent. By the mutual consent in writing of Buyer
and Seller.
3. By Buyer. By Buyer in writing if any of the conditions to
the obligations of Buyer contained herein shall not have been satisfied or, if
unsatisfied, waived as of the Closing Date.
4. By Seller. By Seller in writing if any of the conditions to
the obligations of Seller herein contained shall not have been satisfied or, if
unsatisfied, waived as of the Closing Date.
5. Closing Delayed. By Buyer or Seller in writing if the
Closing shall not have occurred by April 15, 1997.
6. No Further Force or Effect. In the event of termination and
abandonment of this Agreement pursuant to the provisions of Section 11.1, this
Agreement shall be of no further force or effect, except for Sections 10.1,
10.2, 11.3, and the post-termination provisions of Section 7.5, which shall not
be affected by termination of this Agreement.
7. Non-Refundable Deposit. In consideration of Seller's
execution of the Letter of Intent dated March 3, 1997, and its Agreement to the
"No Shop" Provision as provided in paragraph 13 therein, Buyer has provided
Seller with a Non-Refundable Deposit of Fifty Thousand Dollars ($50,000.00). The
Non-Refundable Deposit shall be applied against payment of the Base Price as
provided in Section 2.2 of this Agreement. Buyer acknowledges and agrees that in
consideration of and in reliance upon the Non-Refundable Deposit, Seller
declined the opportunity to enter into a letter of intent with another
prospective purchaser, and that whether or not the transaction contemplated by
this Agreement closes, the Non-Refundable Deposit is, except in the event of
Seller's material breach, Act of God, or Material Adverse Change in the Business
or the Purchased Assets not reasonably foreseeable by Buyer, fully
non-refundable and shall be deemed to be liquidated damages in full payment for
Seller's costs, efforts, and lost business opportunities in connection with the
Letter of Intent, this Agreement, and the transactions contemplated thereby.
XII. MISCELLANEOUS
1. Expenses. Each party will bear its own legal, accounting
and other costs incurred in connection with the transaction contemplated hereby.
2. Notices. All notices, requests or other communications
hereunder shall be in writing, addressed to Seller or Buyer, at the following
addresses:
<TABLE>
<S> <C>
(i) If to Seller: with copy to:
Mr. Vernon Mules, Chairman William R. Waddell, Esquire
Doughtie's Foods, Inc. McGuire, Woods, Battle and Boothe, L.L.P.
P.O. Box 7229 World Trade Center - Suite 9000
115 Chautauqua Avenue 101 West Main Street
Portsmouth, VA 23707 Norfolk, VA 23510-1655
Telephone (757) 399-6007 Telephone: (757) 640-3700
Telecopier: (757) 640-3701
(ii) If to Buyer: with copy to:
Mr. Bruce R. Biddle Charles E. Payne, Esquire
824 Oldham Road Payne, Gates, Farthing & Radd, P.C.
Virginia Beach, VA 23464 Attorneys and Counsellors at Law
Fifteenth Floor, Dominion Tower
Telephone: (757) 487-5215 999 Waterside Drive
Norfolk, VA 23510
Telephone: (757) 640-1500
Telecopier: (757) 627-6583
</TABLE>
The address of either party may be changed by giving notice in writing at any
time to the other party. Any notice to be given under this Agreement shall be
deemed duly given if (i) delivered personally, (ii) sent by telecopy and
acknowledged by recipient, (iii) delivered by overnight express, or (iv) sent by
United States registered or certified mail, postage prepaid. Any notice that is
delivered personally, or sent by telecopy or overnight express in the manner
provided herein shall be deemed to have been duly given to the party to whom it
is directed upon actual receipt (and, in the case of telecopy acknowledgment) by
such party. Any notice that is addressed and mailed in the manner provided
herein shall be conclusively presumed to have been given to the party to which
it is addressed at the close of business, local time of the recipient, on the
third day after it is so placed in the mail.
3. Entire Agreement; Modification and Waiver. This Agreement
sets forth all of the promises, covenants, agreements, conditions and
understandings between the parties hereto and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
expressed or implied, oral or written. This Agreement may be amended, modified,
superseded or canceled and any of the terms, covenants, representations,
warranties or conditions hereof or any breach thereof may be waived only in
writing signed by Sellers and Buyer, or in the case of a waiver, by the party
waiving compliance. No waiver by any party of any condition, or the breach of
any term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, covenant,
representation or warranty set forth in this Agreement.
4. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia.
5. Captions. The captions of the various Articles and Sections
are for convenience of reference only and shall not affect the interpretation of
the provisions hereof.
6. Successors and Assigns. This Agreement may not be assigned
by any party except with the prior written consent of the other parties. This
Agreement, and all of the terms, covenants and representations, or warranties
and conditions hereof, shall be binding upon, and inure to the benefit and be
enforceable by, the parties hereto and their successors and assigns. Nothing in
this Agreement, express or implied, is intended to confer or shall confer upon
any person other than the parties hereto, their successors and permitted assigns
any rights or remedies under or by reason of this Agreement.
7. Survival. All covenants and agreements set forth in this
Agreement, or any agreement furnished pursuant hereto, shall survive the Closing
and any investigation made by or in behalf of any party hereto. All
representations and warranties set forth in this Agreement, or any schedule or
document furnished pursuant hereto, shall survive the Closing and any
investigation made by or in behalf of any party hereto for a period of one year
from the Closing Date; provided, however, that the representations and
warranties in the first sentence of Section 4.3 shall survive indefinitely,
Section 4.12 shall survive until the statutes of limitations applicable to the
matters covered by such Section have expired, running from the Closing Date.
8. Schedules and Certificates. All statements contained in any
disclosure schedule, certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated
hereby, are an integral part of this Agreement, and shall be deemed
representations and warranties hereunder.
9. Facts "Known" to a Corporation. Whenever a representation
or warranty is made herein as being "to the best of knowledge," "to the
knowledge of," or "known" to a party, it is understood and agreed that an
individual will be deemed to have "knowledge" of a particular fact or other
matter if: (a) such individual is actually aware of such fact or other matter;
or (b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter. A party, person, or entity (other than an individual) will be deemed to
have "knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such party, person, or entity (or in any similar
capacity) has, or at any time had, knowledge of such fact or other matter.
10. Severability. If any provision or provisions of this
Agreement or any portion of any provision hereof, shall be deemed invalid or
unenforceable pursuant to a final determination of any court of competent
jurisdiction or as a result of future legislative action, such determination or
action shall be construed so as not to affect the validity or enforceability
hereof and shall not affect the validity or effect of any other portion hereof.
11. Bulk Transfer Laws. Buyer acknowledges that Seller will
not comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties have duly executed or caused this
Agreement to be duly executed by their authorized officials as of the day and
year first above written.
DOUGHTIE'S FOODS, INC.
By: /S/ Marion S. Whitfield
---------------------------
Its: Senior Vice President
/s/ Bruce R. Biddle
---------------------------
/s/ Levis E. Cothran
---------------------------
/s/ Vernon W. Mules
---------------------------
/s/ Steve Houfek
---------------------------
<PAGE>
SCHEDULES
1.1A Purchased Assets
1.1B Excluded Assets
1.2 Assumed Purchase Orders
2.3 Wholesale Prices for Finished Goods
4.3 Material Assets Not Conveyed
4.6 Contracts
4.8 Litigation
4.9A Non-Compliance with Laws
4.9B Material Permits
4.11 Taxes
4.12 Consents
4.17 Affiliates
EXHIBITS
A Products
B Promissory Note
C Guaranty of Bruce Biddle
D Product Supply Agreement
E License Agreement
F Doughtie's Noncompete Agreement
F1 Mules Noncompete Agreement
F2 Houfek Noncompete Agreement
G Lease Agreement
H Assumption Agreement
I Assignment Agreement
<PAGE>
EXHIBIT A TO ASSET PURCHASE AGREEMENT
"Products" means cooked roast beef, cooked and raw corn beef, cooked pastrami,
cooked pot roast, cooked Philly shave steak, cooked meat loaf, cooked pork and
beef marinated products, and sweet pickle corned beef, including without
limitation, the products listed on the attached Manufacturing Inventory Value
Report Count.
Exhibit 10(h)(2)
THIS PRODUCT SUPPLY AGREEMENT (the "Agreement") is made as of April 14,
1997, by and between CODDLE ROASTED MEATS, INC., a Virginia corporation
(hereinafter referred to as "Coddle"); and DOUGHTIE'S FOODS, INC., a Virginia
corporation (hereinafter referred to as "Doughtie's").
RECITALS
A. Pursuant to the Asset Purchase Agreement dated as of March 18, 1997
(the "Purchase Agreement"), by and between Doughtie's and Coddle, Coddle has
agreed to buy certain of the assets of Doughtie's Manufacturing Processing
Division (the "Transaction").
B. Following the Closing of the Purchase Agreement, Coddle will
manufacture and sell to Doughtie's the Coddle Products (hereinafter defined)
under the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
A. Purchase and Sale of Products. Subject to the terms and conditions
of this Agreement, Coddle agrees to sell to Doughtie's, and Doughtie's agrees to
purchase from Coddle at the Purchase Price (as hereinafter defined) all of
Doughtie's requirements for the products identified on Exhibit A attached hereto
and made a part hereof (the "Coddle Products").
With respect to the products listed on Exhibit A, it is agreed and
understood that the term "Coddle Products" as used herein is to be construed to
mean the identical products listed on Exhibit A, produced and manufactured under
the same formulas used by Doughtie's during its manufacture of such products,
which formulas are being sold to Coddle pursuant to the terms of the Purchase
Agreement. Doughtie's shall be under no obligation hereunder to purchase Coddle
Products which are produced with different formulas or recipes.
B. Multi-Unit and Large End User Accounts. Doughtie's shall not be
obligated to purchase Coddle Products hereunder for sale to (i) any account with
over five (5) affiliated locations (a "Multi-Unit Account"), or (ii) any
end-user account with aggregate annual purchases exceeding $500,000 (a "Large
End-User Account") to the extent that such account requires Doughtie's, after
the closing of the Transaction, to sell to such accounts products other than
those produced or sold by Coddle ("Competing Products"), and such requirement is
not solicited or recommended by Doughtie's. Multi-Unit Accounts and Large
End-User Accounts are sometimes referred to hereinafter as collectively,
"Excluded Accounts."
C. Except as otherwise provided in paragraph 2b below, as a
precondition to Doughtie's ability to sell Competing Products to an Excluded
Account under this Agreement, Doughtie's must provide Coddle with a written
notice from the Excluded Account requiring Doughtie's to offer such Competing
Products.
D. Ten (10) business days prior to a sale by Doughtie's to any Excluded
Account hereunder, Doughtie's shall give Coddle notice of its intent to sell
Competing Products to such Excluded Account and shall specify the Competing
Product. Upon receipt of such notice, Coddle shall have the right to call on
such Excluded Account with Doughtie's assistance to try to sell the
corresponding Coddle Products to such Excluded Account instead of the requested
Competing Products as specified in the notice.
E. Except as provided in subparagraph 2.d hereunder, under no
condition, during the term of this Agreement shall Doughtie's "general list"
Competing Products, i.e., with respect to the products which are the subject of
this Agreement, Doughtie's shall not offer its customers a general product line
other than the Coddle Products.
F. Attached hereto and made a part hereof as Exhibit B is (i) a list of
products which Doughtie's purchases from other vendors and "general lists" and
(ii) a list of the customers to which Doughtie's currently sells such products.
There shall be no restriction hereunder against Doughtie's ability to continue
to "general list" the listed products and to sell the listed products to the
customers set forth on Exhibit B. In the event that Coddle is able to produce
products which are of equivalent kind, quality and value to the products listed
on Exhibit B, Doughtie's shall cooperate with Coddle in marketing Coddle's
products to the listed customers.
G. Coddle's Audit of Excluded Accounts. Coddle shall have the right to
audit Doughtie's records to confirm the existence of any Excluded Account
claimed by Doughtie's. In the event such audit reveals that a customer does not
qualify as an Excluded Account under the terms of this Agreement, Doughtie's
shall bear the cost of such audit and shall immediately cease sales of Competing
Products to such account. If the audit reveals that the customer is a properly
designated Excluded Account, Coddle shall bear the cost of such audit, including
all costs incurred by Doughtie's in accommodating such audit.
H. Purchase Price.
I. Coddle shall sell the Coddle Products to Doughtie's at prices
reasonably equivalent to prices Coddle charges to other purchasers and
distributors of the Coddle Products buying in comparable volumes and shall offer
to Doughtie's the same rebate, growth, or marketing programs offered for the
same Coddle Products, except that Coddle may price Coddle Products at special
rates lower than those sold to Doughtie's in the case of bids or proposals made
directly by Coddle to school or governmental entities and for unique pricing
promotions for major end users (excluding other distributors).
J. Upon three days notice to Coddle, Doughtie's shall have the right to
audit Coddle's records to confirm the "Purchase Price" compliance with the
provisions of this paragraph 4. In the event such audit reveals that the
Doughtie's invoice price for a Coddle Product, over a rolling six-month period,
exceeds the price for the same Coddle Product to other distribution customers of
Coddle, buying in comparable volumes, then Coddle shall promptly pay to
Doughtie's any "over-charge" so determined. If the audit reveals that Coddle has
complied with the "Purchase Price" provisions of this Agreement, Doughtie's
shall bear the cost of such audit, including all costs incurred by Coddle in
accommodating such audit.
K. Coddle covenants that it will maintain pricing for the Coddle
Products which is reasonably comparable to corresponding Competing Products of
similar quality sold in similar quantities in Doughtie's markets, such that the
Coddle Products remain marketable by Doughtie's when sold at customary industry
margins. Doughtie's shall provide written notice to Coddle of any alleged breach
of this covenant, and Coddle shall have 15 days thereafter to adjust its pricing
so that it complies with the provisions of this paragraph.
L. Term. The term of this Agreement shall be Five (5) years commencing
on the date hereof.
M. Orders. Coddle Products must be ordered from Coddle not less than
seven (7) days prior to delivery date. Coddle may accept, in its discretion,
orders for delivery in less than seven (7) days.
N. Quality. Coddle warrants that the quality of the Coddle Products
sold will be reasonably equal to the standards of quality existing at the time
of the Closing of the Transaction.
O. Customer Satisfaction. If, on a case-by-case basis, any Doughtie's
customer requests that Doughtie's offer one or more Competing Products because
such customer is dissatisfied with the quality of the corresponding Coddle
Products, Doughtie's shall give Coddle prompt notice of the nature of the
complaint and shall cooperate with Coddle in attempting to address such
customer's concerns. If Coddle is unable to cure the problem to such customer's
satisfaction within 30 days after Coddle receives notice of the complaint, then
Doughtie's shall thereafter have the option of selling corresponding Competing
Products to such customer. Nothing herein shall affect Doughtie's obligations
under this Agreement with respect to other customers or with respect to any
Coddle Product which is not specifically subject to such complaint.
P. Payments. Coddle shall render its invoices covering shipments as
soon as practicable after each shipment. Terms of payment are net seven (7) days
after date of invoice and other terms set forth on Coddle's standard invoice, a
copy of which is attached hereto as Exhibit C and made a part hereof, provided
that if Doughtie's fails to make timely payment of such invoices or if Coddle
shall have any reasonable doubt at any time as to Doughtie's financial
responsibility, Coddle may decline to make further shipments hereunder, except
upon payment in cash at the time of delivery. All payments shall be made at
Coddle's principal place of business or the place specified for payment on the
applicable Coddle invoice.
Q. Maintenance and Cooperation. Doughtie's agrees that its distribution
division will maintain the same selling practices and procedures, and customer
service relating to the Coddle Products to the extent practical during the term
of this Agreement. The parties hereto agree to cooperate with each other to
market and sell the Coddle Products through Seller's distribution business.
R. Force Majeure.
S. In the event of an Act of God, explosion, accident, fire, drought,
flood, earthquake, tornado, hurricane, strike, labor disturbance, insurrection,
riot, war, act of a public enemy, the acts or orders of a governmental unit,
freight embargo, transportation, power, utility, labor or material shortage,
delay in transportation or default of supplier or any other cause beyond
Coddle's reasonable control, interfering with the production, supply,
transportation, or consumption of the Coddle Products or with the supply of raw
materials or utilities used in connection therewith (a "Force Majeure Event"),
the obligation of Coddle to supply Coddle Products hereunder shall be held in
abeyance for the duration of the Force Majeure Event and the term of this
Agreement shall be extended for a period equal thereto. If a Force Majeure Event
results in or may reasonably be expected to result in an inability of Coddle to
ship Coddle Products for more than seven (7) days past their scheduled shipping
dates, then Doughtie's may purchase the Coddle Products covered by any orders so
affected by the Force Majeure Event from other suppliers. CODDLE SHALL NOT BE
LIABLE FOR ANY DAMAGES, DIRECT OR CONSEQUENTIAL, ARISING OUT OF ANY DELAY IN
DELIVERY OR FAILURE TO DELIVER ANY OF THE CODDLE PRODUCTS SOLD HEREUNDER IF SUCH
DELAY OR FAILURE TO DELIVER IS DUE TO A FORCE MAJEURE EVENT.
T. Any suspension or reduction of deliveries of Coddle Products under
this Agreement due to the occurrence of any Force Majeure Event shall not
invalidate or be a basis for termination of this Agreement, and, upon the
removal or termination of the Force Majeure Event during the term of this
Agreement, delivery shall be made and taken, as the case may be, on the
specified terms in effect immediately prior to such suspension or reduction.
U. If in consequence of any Force Majeure Event, Coddle's production is
partially curtailed, Coddle may allocate its available supply of Coddle Products
among its then present customers on such basis as Coddle may deem fair and
practical, and in making such allocation, Coddle shall, as near as practicable,
limit its reduction of shipments to such customers to the same percentage in
each case.
V. The provisions of this Paragraph 11 shall not be available to any
party hereto which shall fail to use reasonable diligence to remedy the
situation and to remove the Force Majeure Event affecting its performance
hereunder with all reasonable dispatch. The requirement that any Force Majeure
Event be remedied with all reasonable dispatch shall not require the settlement
of strikes or labor controversies by acceding to the demands of the opposing
party or parties.
I. Assignment. This Agreement shall be binding upon and inure to the benefit of
the successors of the parties hereto but shall not be assignable by either party
without the written consent of the other party, except in connection with a
merger of such party or the sale of substantially all of the assets of such
party.
II. Notices. All notices, requests or other communications hereunder shall be in
writing, addressed to Doughtie's or Coddle, at the following addresses:
(i) If to Doughtie's:
Mr. Vernon Mules, Chairman
Doughtie's Foods, Inc.
P.O. Box 7229
115 Chautauqua Avenue
Portsmouth, VA 23707
Telephone (757) 399-6007
with copy to:
William R. Waddell, Esquire
McGuire, Woods, Battle and Boothe, L.L.P.
World Trade Center - Suite 9000
101 West Main Street
Norfolk, VA 23510-1655
Telephone: (757) 640-3700
Telecopier: (757) 640-3701
(ii) If to Coddle:
Mr. Bruce R. Biddle
824 Oldham Road
Virginia Beach, VA 23464
Telephone: (757) 487-5215
with copy to:
Charles E. Payne, Esquire
Payne, Gates, Farthing & Radd, P.C.
Attorneys and Counsellors at Law
Fifteenth Floor, Dominion Tower
999 Waterside Drive
Norfolk, VA 23510
Telephone: (757) 640-1500
Telecopier: (757) 627-6583
The address of either party may be changed by giving notice in writing at any
time to the other party. Any notice to be given under this Agreement shall be
deemed duly given if (i) delivered personally, (ii) sent by telecopy and
acknowledged by recipient, (iii) delivered by overnight express, or (iv) sent by
United Stated registered or certified mail, postage prepaid. Any notice that is
delivered personally, or sent by telecopy or overnight express in the manner
provided herein shall be deemed to have been duly given to the party to whom it
is directed upon actual receipt (and, in the case of telecopy acknowledgment) by
such party. Any notice that is addressed and mailed in the manner provided
herein shall be conclusively presumed to have been given to the party to which
it is addressed at the closed of business, local time of the recipient, on the
third day after it is so placed in the mail.
A. Termination.
B. Except as otherwise provided in the paragraph dealing with Force
Majeure, in the event either of the parties hereto fails to perform in any
material respect any of the terms or conditions of this Agreement, and such
failure continues for a period of 30 days after written notice and demand by the
other party, then the non-breaching party shall thereupon have the option to
terminate this Agreement.
C. In the event of any voluntary or involuntary bankruptcy,
receivership, insolvency or reorganization proceedings involving either party or
its property, or the assignment of all, or substantially all, of the assets of
either party for the benefit of creditors, or a receiver is appointed for it or
any substantial part of its property, the other party may, to the extent
permissible under applicable law, terminate its obligations hereunder by giving
written notice of such termination, which shall become effective upon the giving
of such notice.
D. The parties' right of termination shall be in addition to, and not
in lieu of, any other rights or remedies available to the non-breaching party.
E. The parties hereto acknowledge that damages may not be an adequate
remedy in the event of the breach of this Agreement and, in such case, agree
that an injured party may be entitled to the specific performance of the
provisions of this Agreement.
F. Non-Waiver. The failure of either party to insist in any one or more
instances upon strict performance of any of the provisions of this Agreement or
to take advantage of any of its rights hereunder shall not be construed as a
waiver of any such provisions or the relinquishment of any such rights, but the
same shall continue and remain in full force and effect.
G. Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, and the parties
shall not be bound by any representations or agreements which are not expressly
set forth in this Agreement.
H. Amendments. No modification, amendment or waiver of any provision of
this Agreement shall be effective unless in writing signed by an authorized
officer of each of the parties hereto.
I. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which together shall constitute one and the same instrument.
J. Captions. The captions of the various paragraphs of this Agreement
are for convenience of reference only and shall not affect the interpretation of
the provisions hereof.
K. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Virginia (other than its choice of law
principles).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by the respective officers as of the date first written above.
CODDLE ROASTED MEATS, INC.
By:/s/ Levis E. Cothran
Its: President
DOUGHTIE'S FOODS, INC.
By: /s/ Marion S. Whitfield, Jr.
Its: Senior Vice President
Exhibits
A = Coddle Products
B = Customers Buying Competing Products
C = Form of Coddle Invoice
<PAGE>
EXHIBIT A TO PRODUCT SUPPLY AGREEMENT
"Coddle Products" means cooked roast beef, cooked and raw corn beef, cooked
pastrami, cooked pot roast, cooked Philly shave steak, cooked meat loaf, cooked
pork and beef marinated products, and sweet pickle corned beef, including
without limitation, the products listed on the attached Manufacturing Inventory
Value Report Count.
Exhibit 10(h)(3)
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is made as
of April 14, 1997, by and between DOUGHTIE'S FOODS, INC., a Virginia corporation
("Licensor") and CODDLE ROASTED MEATS, INC., a Virginia corporation
("Licensee").
Licensor and Licensee have entered into an Asset Purchase Agreement
dated as of March 18, 1997 (the "Purchase Agreement"), pursuant to which
Licensor has agreed to sell certain assets of its manufacturing division to
Licensee. Licensee wishes to produce, market and sell the items listed on
Exhibit A (the "Goods"), attached hereto and made a part hereof, under the
Licensor's federally registered (Registration No. 1053389) trademark
"DOUGHTIE'S" (the "Trademark"), and Licensor is willing to grant to Licensee a
license to use the Trademark pursuant to the terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration and the
exchange of obligations and promises contained herein, the parties hereby agree
as follows:
1. Grant of License. Licensor hereby grants to Licensee an
exclusive (except as to Licensor), paid-up license (the "License") for the use
of the trademark DOUGHTIE'S to produce, market, and sell the Goods in the United
States of America, including its territories and protectorates, provided that
such sales are limited to Licensor and to the institutional food service
distributors listed on Exhibit B attached hereto and made a part hereof.
Licensee agrees that it shall not use the Trademark or any form of the
Doughtie's name except as expressly permitted by this Agreement and shall not
use the Trademark in connection with (i) any products except the Goods and (ii)
any sales to customers other than Licensor and those listed on Exhibit B.
Nothing herein shall prohibit Licensor's use of the Trademark in connection with
the Goods or otherwise.
2. Term. The term of the License shall be for two (2) years
from the date hereof, unless sooner terminated under the provisions of this
Agreement.
3. Ownership of the Trademark. It is expressly agreed that
Licensor retains ownership of the Trademark and that any and all use of the
Trademark by Licensee will inure to the benefit of Licensor and that the
Licensor shall continue during the term hereof and thereafter to use the
Trademark without restriction under the terms of this Agreement. Licensee shall
not contest the validity, ownership or title of Licensor to any of the Trademark
and Licensee shall not apply for nor assist or aid others in applying for
registrations of the Trademark or any other tradename or trademark which could
be confusingly similar to the Trademark in any state, country or other political
jurisdiction anywhere in the world. In the event the Licensee desires to make
use of the Trademark in a country other than the United States, the Licensee
shall so notify Licensor and advise Licensor of the country or other political
jurisdiction in which Licensee desires to use the Trademark and, at the expense
of and for the account of Licensee, Licensor shall forthwith apply for a
registration in the name of Licensor for the name of the Trademarks. Any
applications for or registrations of the Trademark shall issue and be maintained
in the name of the Licensor and the new applications and/or registrations shall
be included under the terms of this Agreement.
4. Registration of Trademark. Licensor shall, at its expense,
maintain the federal registration for the Trademark "DOUGHTIE'S" with the United
States Patent and Trademark Office for the Goods in the Territory, and shall not
permit the registration to become abandoned. The failure to maintain the
registration of the Trademark shall not diminish Licensee's rights to the use of
same as provided herein.
5. Use of the Trademark.
a. Licensee shall affix the Trademark to the Goods in
a manner consistent with the labels that are used by the Licensor on its
products bearing the same Trademark or as otherwise specified in writing by
Licensor and shall display the Trademark on all written materials utilizing the
Trademark with prominence achieved at a minimum, by capitalizing the initial
letter of the Trademark. The Licensee shall display the circle registration
symbol ((R)) after the Trademark on the Goods and at least once in the written
materials and the Goods, and written materials shall bear the following
ownership notice:
DOUGHTIE'S is a trademark of Doughtie's Foods, Inc.
b. Licensee shall provide reasonable assistance to
Licensor in executing documents for the Licensor to obtain whatever additional
protection Licensor deems reasonably necessary to protect Licensor's interest in
the Trademarks.
6. Quality Control.
a. All Goods marketed and sold by Licensee under the
Trademark shall not be of a quality less than the quality of such Goods now
being sold under the Trademark by Licensor, and Licensee shall consistently
apply good manufacturing practices in all phases of production, packaging,
storage, and shipment of the Goods. For the purpose of ensuring such quality,
Licensor may at any reasonable time during regular business hours inspect the
processing facilities of Licensee, inspect the Goods at the places where they
are processed or stored and take reasonable samples thereof.
b. At least once per calendar year upon receipt of
Licensor's written request, Licensee shall furnish to Licensor two (2) cases of
Goods and representative samples of labels, packaging and advertising materials
bearing the Trademarks.
c. Licensee shall comply with all applicable federal
and state laws and regulations regarding the processing and packaging of the
Goods, and its failure to do so will be deemed a material breach of this
Agreement.
d. Licensee acknowledges that Licensor has an
overriding interest in protecting the reputation of Licensor and of DOUGHTIE'S
branded products. Accordingly, Licensee shall, immediately upon notice thereof,
fully inform Licensor as to any actual or proposed action, by any governmental
agency, consumer or environmental group, media or other organization directed
toward removing any quantity of any of the Goods from the market in all or any
portion of the Territory, based on alleged injury or death, alleged
unwholesomeness or potential for harm, alleged contamination, tampering or
similar act and/or alleged violation of law in connection with production,
labeling, packaging, storage, shipment, advertising and/or sale. Except for the
removal of the Goods from the inventories of third parties in the ordinary
course of normal quality maintenance as established by industry norms based on
the shelf life of the Goods, Licensee shall likewise immediately and full inform
Licensor as to any proposal on Licensee's part to remove any quantity of any of
the Goods from the market in all or in any portion of the Territory on account
of suspected nonconformity with the specifications, improper labeling,
unwholesomeness, possibility of consumer harm and/or violation of any law(s).
Licensee shall closely coordinate with Licensor in respect to any proposed
actions and public statements in respect to the foregoing, and shall carefully
consider, and if reasonable to do so, follow all requests of Licensor in respect
thereto. Licensee shall not issue any public statement implying that Licensor
has any responsibility for the manufacture, packaging, labeling, shipping,
advertising or any other activity related to the sale of the Goods. All
information pertaining to the matters dealt with in this Section 7.d shall be
held in absolute confidence, except only as between Licensee and Licensor and
their respective attorney(s) or as ordered by any court or agency of competent
jurisdiction. Any violation of Licensee's obligations described in this Section
7.d shall be grounds for immediate termination of this Agreement.
7. Infringement. Licensee shall immediately notify Licensor of
any use of the Trademark by third parties which infringes the License during the
term of this Agreement. Licensor shall have the option to pursue any
infringement of the Trademark at Licensor's expense. Licensee agrees to
reasonably cooperate with Licensor in pursuing infringements of the Trademark,
and Licensor agrees to pay Licensee any expenses incurred by Licensee in
connection with the action. In the event Licensor files suit and is successful
in obtaining a decision of infringement, any monetary award of the court in
Licensor's favor shall be for Licensor's sole account. In the event that
Licensor takes no action against an infringer of the Trademark, Licensee may do
so at Licensee's expense and may join Licensor as a party. Licensor agrees to
reasonably cooperate with Licensee for the prosecution of the case, and Licensee
agrees to pay Licensor for any expenses incurred by Licensor in connection with
the action. In the event the Licensee is awarded a monetary judgment for the
successful prosecution of the infringement, the award shall be for the sole
account of the Licensee. Licensee shall not enter into any settlement agreement
with any infringers that permits the continuing use of the infringing mark
unless Licensor has been advised of all the terms of the settlement and has
agreed in writing to Licensor's acceptance of such terms.
8. Assignability.
a. This Agreement shall be assignable by Licensee
upon written approval of Licensor, which approval shall not be unreasonably
withheld. It is, however, understood and agreed that it shall not be
unreasonable for Licensor to withhold its approval of such an assignment to a
direct competitor of Licensor.
b. Licensor shall have the unrestricted right to
assign this Agreement.
9. Termination. In addition to any other termination
provisions in this Agreement, Licensor may immediately terminate this Agreement:
a. after providing written notice to Licensee for any
material breach by Licensee of any of its obligations hereunder, and such breach
has not been cured within sixty (60) days from receipt of such notice; or
b. if Licensee becomes insolvent, ceases sale of the
Goods bearing the Trademark for a period of one year, and/or files for
bankruptcy under the provisions of Chapter 7 of the Bankruptcy Code.
10. Notices. All notices, requests or other communications
hereunder shall be in writing, addressed to Licensor or Licensee, at the
following addresses:
(i) If to Licensor:
Mr. Vernon Mules, Chairman
Doughtie's Foods, Inc.
P.O. Box 7229
115 Chautauqua Avenue
Portsmouth, VA 23707
Telephone (757) 399-6007
with copy to:
William R. Waddell, Esquire
McGuire, Woods, Battle and Boothe, L.L.P.
World Trade Center - Suite 9000
101 West Main Street
Norfolk, VA 23510-1655
Telephone: (757) 640-3700
Telecopier: (757) 640-3701
(ii) If to Licensee:
Mr. Bruce R. Biddle
824 Oldham Road
Virginia Beach, VA 23464
Telephone: (757) 487-5215
with copy to:
Charles E. Payne, Esquire
Payne, Gates, Farthing & Radd, P.C.
Attorneys and Counsellors at Law
Fifteenth Floor, Dominion Tower
999 Waterside Drive
Norfolk, VA 23510
Telephone: (757) 640-1500
Telecopier: (757) 627-6583
The address of either party may be changed by giving notice in writing at any
time to the other party. Any notice to be given under this Agreement shall be
deemed duly given if (i) delivered personally, (ii) sent by telecopy and
acknowledged by recipient, (iii) delivered by overnight express, or (iv) sent by
United Stated registered or certified mail, postage prepaid. Any notice that is
delivered personally, or sent by telecopy or overnight express in the manner
provided herein shall be deemed to have been duly given to the party to whom it
is directed upon actual receipt (and, in the case of telecopy acknowledgment) by
such party. Any notice that is addressed and mailed in the manner provided
herein shall be conclusively presumed to have been given to the party to which
it is addressed at the closed of business, local time of the recipient, on the
third day after it is so placed in the mail.
11. Captions. The captions used in connection with the
paragraphs and subparagraphs of this Agreement are inserted only for the purpose
of reference. Such captioning shall not be deemed to govern, limit, modify, or
in any manner affect the scope, meaning or intent of the provisions of this
Agreement or any part thereof; nor shall such captions otherwise be given any
legal effect.
12. Governing Law. This Agreement shall be construed in
accordance with the law of the State of Virginia and the United States of
America.
13. Entire Understanding. This Agreement constitutes the
entire understanding of the parties with respect to the subject matter hereof.
No alterations, changes or amendments hereto shall be effective unless made in
writing signed by both parties.
14. Indemnification.
a. By Licensee. Licensee shall be liable for and
hereby agrees promptly, competently, completely and at no cost to Licensor, to
defend, release, discharge, fully indemnify and hold Licensor and each of its
directors, officers, employees and agents harmless from and against any and all
claims, demands, damage, liability, actions, causes of action, loss, cost and
expenses of any nature whatsoever (including with limitation, investigation
costs and expenses and accountant's fees and expenses and attorneys' fees and
expenses incident thereto) by reason of any actual or alleged injury, including
death of any person whomsoever, or any actual or alleged financial loss to any
person or other entity, whomsoever or whatsoever, or any actual or alleged loss,
damage or destruction of property of every class and description owned by or in
the possession of any person or other entity, whomsoever or whatsoever, in any
manner and however arising out of or attributed to Licensee's production,
manufacture, marketing, or sale of the Goods pursuant to this Agreement, except
for any cause of action for infringement by reason of use of the Trademark
licensed hereunder.
b. By Licensor. Licensor shall be liable for and
hereby agrees promptly, competently, completely and at no cost to Licensee, to
defend, release, discharge, fully indemnify and hold Licensee and each of its
directors, officers, employees and agents harmless from and against any and all
claims, demands, damage, liability, actions, causes of action, loss, cost and
expenses of any nature whatsoever (including with limitation, investigation
costs and expenses and accountant's fees and expenses and attorneys' fees and
expenses incident thereto) arising by reason of Licensor's breach of any of its
representations, warranties, or covenants contained in this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this
Agreement to be executed by their duly authorized officers the day and year
first above written.
DOUGHTIE'S FOODS, INC.
By: /s/ Marion S. Whitfield
Its: Senior Vice President
CODDLE ROASTED MEATS, INC.
By: /s/ Bruce R. Biddle
Its: Secretary
EXHIBIT A: GOODS
EXHIBIT B: INSTITUTIONAL FOOD SERVICE DISTRIBUTORS
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------
Name of Corporation State of Incorporation
------------------- ----------------------
TWB Gourmet Foods, Inc. Virginia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DOUGHTIE'S FOODS, INC. AND ITS
SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 27, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 9,195
<ALLOWANCES> 628
<INVENTORY> 4,669
<CURRENT-ASSETS> 13,704
<PP&E> 6,139
<DEPRECIATION> 3,513
<TOTAL-ASSETS> 16,445
<CURRENT-LIABILITIES> 4,871
<BONDS> 2,738
<COMMON> 1,495
0
0
<OTHER-SE> 7,341
<TOTAL-LIABILITY-AND-EQUITY> 16,445
<SALES> 85,233
<TOTAL-REVENUES> 85,233
<CGS> 71,133
<TOTAL-COSTS> 83,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 1,513
<INCOME-TAX> 566
<INCOME-CONTINUING> 947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 947
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
