<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-58711
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C>
FRESH FOODS, INC.......................... NC 2013
CLAREMONT RESTAURANT GROUP, LLC........... NC 5812
FRESH FOODS PROPERTIES, LLC............... NC 2013
MOM 'N' POP'S COUNTRY HAM, LLC............ NC 2013
SAGEBRUSH OF TENNESSEE, L.P............... DE 5812
CHARDENT, INC............................. DE 5812
SAGEBRUSH OF NORTH CAROLINA, LLC.......... NC 5812
SAGEBRUSH OF SOUTH CAROLINA, LLC.......... SC 5812
SPICEWOOD, INC............................ DE 5812
SUNSHINE WSMP, INC........................ FL 5812
FRESH FOODS SALES, LLC.................... NC 2013
PIERRE FOODS, LLC......................... NC 2013
PIERRE LEASING, LLC....................... NC 2013
(STATE OR OTHER JURISDICTION
(EXACT NAME OF EACH REGISTRANT OF (PRIMARY STANDARD INDUSTRIAL
AS SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
<S> <C>
FRESH FOODS, INC.......................... 56-0945643
CLAREMONT RESTAURANT GROUP, LLC........... 56-2081735
FRESH FOODS PROPERTIES, LLC............... 56-2081730
MOM 'N' POP'S COUNTRY HAM, LLC............
SAGEBRUSH OF TENNESSEE, L.P............... 56-1986943
CHARDENT, INC............................. 51-0376698
SAGEBRUSH OF NORTH CAROLINA, LLC.......... 56-1986942
SAGEBRUSH OF SOUTH CAROLINA, LLC.......... 62-1651416
SPICEWOOD, INC............................ 51-0376699
SUNSHINE WSMP, INC........................ 59-2415042
FRESH FOODS SALES, LLC....................
PIERRE FOODS, LLC......................... 56-2081732
PIERRE LEASING, LLC.......................
(EXACT NAME OF EACH REGISTRANT (I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER) IDENTIFICATION NUMBER)
</TABLE>
3437 E. MAIN STREET
CLAREMONT, NC 28610
(704) 459-7626
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF EACH
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. JAMES E. HARRIS
CHIEF FINANCIAL OFFICER
FRESH FOODS, INC.
3437 E. MAIN STREET
CLAREMONT, NC 28610
(704) 459-7626
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
PATRICK D. DAUGHERTY, ESQ.
MCGUIRE, WOODS, BATTLE & BOOTHE LLP
3700 NATIONSBANK PLAZA
101 S. TRYON STREET
CHARLOTTE, NC 28280
(704) 373-8975
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED OCTOBER 1, 1998
FRESH FOODS, INC.
OFFER TO EXCHANGE UP TO
$115,000,000 OF ITS
10 3/4% SENIOR NOTES DUE 2006
(FRESH FOODS, FOR ANY AND ALL OF ITS (PIERRE LOGO)
INC. LOGO) OUTSTANDING $115,000,000
10 3/4% SENIOR NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON NOVEMBER 2, 1998, UNLESS EXTENDED.
Fresh Foods, Inc. (the "Company") hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus and accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange an
aggregate of up to $115.0 million principal amount of its 10 3/4% Senior Notes
Due 2006 (the "Exchange Notes") for an identical face amount of the issued and
outstanding 10 3/4% Senior Notes Due 2006 (the "Initial Notes"). (The Exchange
Notes and the Initial Notes are referred to herein collectively as the "Notes.")
As of the date of this Prospectus, the aggregate principal amount of Initial
Notes outstanding is $115.0 million.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Initial Notes, except that the Exchange Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and therefore will not bear legends restricting their transfer and will not
contain certain provisions providing for an increase of interest rate on the
Initial Notes under certain circumstances relating to the Registration Rights
Agreement (as defined herein), which provisions will terminate as to all of the
Notes upon consummation of the Exchange Offer.
Interest on the Exchange Notes will be payable semi-annually on June 1 and
December 1 of each year, commencing December 1, 1998. The Notes will mature on
June 1, 2006, unless previously redeemed, and will not be subject to any sinking
fund requirement. The Exchange Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2002, at the
redemption prices set forth herein, plus accrued and unpaid interest thereon to
the date of redemption. Prior to June 1, 2001, the Company, at its option, may
redeem in the aggregate up to 35.0% of the original principal amount of the
Notes at 110.75% of the aggregate principal amount so redeemed, plus accrued and
unpaid interest thereon to the redemption date with the Net Cash Proceeds (as
defined herein) of one or more Public Equity Offerings (as defined herein),
provided that at least 65.0% of the original principal amount of the Notes
remains outstanding after each such redemption. See "Description of the Exchange
Notes -- Optional Redemption."
The Exchange Notes will represent senior unsecured obligations of the
Company, ranking senior in right and priority of payment to any indebtedness of
the Company that by its terms is expressly subordinated to the Exchange Notes.
The Exchange Notes will be unconditionally guaranteed, on a senior unsecured
basis, by all present and future direct and indirect Restricted Subsidiaries as
defined herein (each such guarantee being a "Guarantee" and each such guarantor
being a "Guarantor"). Currently, no indebtedness of the Company is subordinated
to the Exchange Notes. The Exchange Notes, however, will be effectively
subordinated to secured indebtedness of the Company and the Guarantors
(including indebtedness under the Bank Facility (as defined herein) with respect
to the assets securing such indebtedness).
As of June 9, 1998, after giving effect to the Transactions (as defined
herein), the Company and its Restricted Subsidiaries had $33.9 million of
secured indebtedness outstanding. In addition, the Company had $20.5 million of
additional borrowing availability under the Bank Facility. See "Capitalization
of the Company," "Description of Bank Facility" and "Description of the Exchange
Notes -- Ranking of the Exchange Notes."
In the event of a Change of Control (as defined herein), holders of the
Exchange Notes will have the right to require the Company to purchase their
Exchange Notes at 101.0% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon to the purchase date. See "Description of the
Exchange Notes -- Change of Control."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF THE INITIAL NOTES PRIOR TO TENDERING
INITIAL NOTES IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on following page)
<PAGE> 3
(cover continued from previous page)
In addition, the Company is obligated in certain instances to make offers
to purchase the Exchange Notes at a purchase price in cash equal to 100.0% of
the principal amount thereof plus accrued and unpaid interest thereon to the
purchase date with the Net Available Cash (as defined herein) from certain asset
sales. See "Description of the Exchange Notes -- Certain Covenants -- Limitation
on Sales of Assets and Subsidiary Stock."
The Initial Notes were issued and sold on June 9, 1998 in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof (the "Initial Notes Offering"). In general,
the Initial Notes may not be offered or sold unless registered under the
Securities Act or unless offered or sold pursuant to an exemption from, or in a
transaction not subject to, the Securities Act.
The Exchange Notes are being offered hereby to satisfy certain obligations
of the Company and the Guarantors contained in the Registration Rights
Agreement. Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to other
persons, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes may be offered for resale, resold
or otherwise transferred by any holder thereof (other than any holder that is a
broker-dealer or an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business,
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any such
other person is engaging in or intends to engage in a distribution of the
Exchange Notes. The Company has not sought, however, and does not intend to
seek, its own no-action letter, and there can be no assurance that the
Commission staff would make a similar determination with respect to the Exchange
Offer. Notwithstanding the foregoing, each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that, by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of Exchange Notes received in
exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company). The
Company has agreed that, for a period of 180 days after the Expiration Date (as
defined herein), it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The Initial Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market of the National
Association of Securities Dealers, Inc. (the "NASD"). There is no established
trading market for the Exchange Notes. The Company does not currently intend to
list the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. The certificates representing the Exchange Notes will be issued in fully
registered form.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange. Initial Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. The Company will not receive any proceeds from the Exchange
Offer. The Company and the Guarantors will pay certain expenses incident to the
Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City time,
on November 2, 1998 (the "Expiration Date"). The Company does not currently
intend to extend the Expiration Date.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder and, in accordance therewith, files reports, proxy
statements and other information with the Commission via EDGAR. Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Commission's following
Regional Offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Materials filed electronically with the Commission via EDGAR can also be
accessed through the Commission's home page at http://www.sec.gov. Reports,
proxy statements and other information concerning the Company can also be
inspected at the offices of the NASD, 1735 K Street, N.W., Washington, D.C.
2006.
The Company has agreed that, notwithstanding that it may not be required to
do so by the rules and regulations of the Commission, it will furnish to the
holders of Notes and the Trustee (as defined herein), and will file with the
Commission, all information, documents and reports specified in Sections 13 and
15(d) of the Exchange Act. In addition, the Company will make available, upon
request, to any holder and any prospective purchaser of Notes, the information
required pursuant to Rule 144A(d)(4) under the Securities Act during any period
in which the Company is not subject to Section 13 or 15(d) of the Exchange Act.
Any such request should be directed to Matthew V. Hollifield, Fresh Foods, Inc.,
3437 E. Main Street, Claremont, North Carolina 28610, telephone number: (800)
222-9771.
This Prospectus constitutes a part of a registration statement on Form S-4
filed by the Company and the Guarantors with the Commission under the Securities
Act (the "Registration Statement"). As permitted by the rules and regulations of
the Commission, this Prospectus does not contain all of the information
contained in the Registration Statement and the exhibits and schedules thereto.
Reference is hereby made to the Registration Statement and the exhibits and
schedules thereto for further information with respect to the Company, the
Guarantors and the Exchange Notes. Statements contained herein concerning the
provisions of any documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
i
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects, believes, intends or anticipates will or may occur in the future, are
forward-looking statements. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, could differ materially from those set forth in or
contemplated by the forward-looking statements herein. Important factors that
could contribute to such differences are set forth herein under "Risk Factors,"
including, but not limited to, the substantial leverage of the Company upon
completion of the Offering, the holding company structure of the Company and
limitations on access to cash flow, restrictions imposed on the Company by the
Bank Facility and the Indenture (each as defined herein), risks relating to the
Acquisition and the Company's ability to execute its business strategy,
competitive considerations, government regulation and general risks of the food
industry, the possibility of adverse changes in food costs and the availability
of supplies, personnel, potential labor disruptions, "Year 2000" issues, the
potential inability of the Company to repurchase Notes upon a change of control
and the potential impact of fraudulent conveyance laws.
CAUTIONARY STATEMENT REGARDING INDUSTRY FORECASTS
Market data and certain industry forecasts used throughout this Prospectus
were obtained from publicly available information and industry publications.
Industry publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. Similarly, industry
forecasts, while believed to be reliable, have not been independently verified
and the Company does not make any representation as to the accuracy of such
information.
ii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and the related notes thereto, included elsewhere in
this Prospectus. In this Prospectus, unless the context otherwise requires: the
term "Company" refers to Fresh Foods, Inc., formerly known as WSMP, Inc., and
its subsidiaries upon consummation of the purchase (the "Acquisition") by a
wholly-owned subsidiary of Fresh Foods of substantially all of the business in
Cincinnati, Ohio, and a portion of the business in Caryville, Tennessee
(collectively, "Pierre"), conducted by the Pierre Foods Division of Hudson
Foods, Inc. ("Hudson"), a subsidiary of Tyson Foods, Inc. ("Tyson"); and the
term "Fresh Foods" refers to Fresh Foods, Inc. prior to the Acquisition. The
Company, a North Carolina corporation organized on March 12, 1970, is located at
3437 E. Main Street, Claremont, North Carolina 28610; its telephone number at
that address is (800) 222-9771. The Company's fiscal year ended February 23,
1996 is referred to herein as "fiscal 1996"; its fiscal year ended February 28,
1997 is "fiscal 1997"; its fiscal year ended February 27, 1998 is "fiscal 1998";
and its current fiscal year is "fiscal 1999." Holders of the Initial Notes
should carefully consider the information set forth under the caption "Risk
Factors" prior to tendering Initial Notes in the Exchange Offer.
THE COMPANY
OVERVIEW
The Company is a leading vertically-integrated producer and marketer of
fully-cooked branded and private label meat products and microwaveable
sandwiches for the domestic foodservice and home meal replacement ("HMR")
markets. The Company sells its high-quality, value-added products through
various distribution channels under the Pierre, Fast Choice and Mom 'n' Pop's
brand names, which are widely recognized in the food industry. The Acquisition
is the culmination of a ten-year partnership, during which Pierre became Fresh
Foods' largest customer, representing approximately 58% of Fresh Foods' fiscal
1998 food processing revenues. In addition to its food processing business, the
Company owns and operates 65, and franchises an additional 39, restaurants
operating under the Sagebrush, Western Steer, Prime Sirloin and Bennett's
concepts. For fiscal 1998, the Company had revenues and Adjusted Pro Forma
EBITDA (as defined herein) of $269.3 million and $30.0 million, respectively.
The Company produces high-margin specialty beef, poultry and pork products
that provide superior quality and are typically custom-developed to meet
specific customer requirements. The Company adds value for its customers by
offering comprehensive food solutions, including proprietary product
development, special ingredients and recipes as well as custom packaging
programs. The Company purchases beef, poultry and pork, which it processes into
a broad range of fully-cooked food products such as: flame-broiled chicken;
beef, turkey and pork patties; country-fried steak; chicken nuggets; and beef
and pork fingers. These products are (i) sold to foodservice customers such as
restaurant chains, schools and healthcare providers, (ii) sold through various
distribution channels, including warehouse clubs and grocery stores, or (iii)
combined with specialty breads to produce microwaveable sandwiches that are sold
through HMR channels such as convenience stores, vending machines, warehouse
clubs and grocery stores. The Company currently supplies a variety of
fully-cooked meat products under the Pierre brand name to 91 of the 100 largest
public primary and secondary school districts, and approximately 50% of all
public primary and secondary schools, in the United States for use in cafeterias
and snack bars. The Company has recently entered into licensing agreements with
Hardee's Food Systems, Inc. ("Hardee's"), Checkers Drive-In Restaurants, Inc.
("Checkers"), Rally's Hamburgers, Inc. ("Rally's"), Nathan's Famous, Inc.
("Nathan's Famous") and GB Foods Corp. ("Green Burrito") to begin producing and
marketing microwaveable Hardee's, Checkers, Rally's and Nathan's Famous
sandwiches and to market Green Burrito products through the Company's existing
distribution channels. The Company believes that the introduction of these
widely-recognized, branded products will further enhance the Company's leading
position in the microwaveable sandwich market.
The Company's longstanding customer relationships, reputation for
high-quality products, proprietary recipes and national presence enable it to
compete effectively in the markets that it serves. The Company has developed
customized meat and bread recipes that are specifically designed to maintain
flavor and texture under specialized applications, such as microwave oven
conditions, resulting in higher quality meals and
1
<PAGE> 7
greater customer satisfaction. The Company's product development team works
closely with customers to develop new products for specific customer
applications. For fiscal 1998, 14.3% of the Company's food processing sales were
from stock keeping units ("SKUs") introduced during fiscal 1997 or fiscal 1998.
By working closely with its customers during the product development stage, the
Company has become an integral component of their operations, as evidenced by
the fact that the Company has sold to its twenty largest customers for an
average of more than nine years. In fiscal 1998, however, no one customer
accounted for more than 4.0% of the Company's revenues.
The Company's predecessor was founded in 1966 to own and operate
restaurants, initially under the Mom 'n' Pop's Ham House concept and later under
the Western Steer family steakhouse and other concepts. The Company's food
processing business was originally developed to support these restaurants, but
has grown independently to become the Company's principal business and the
primary focus of its growth strategy. In order to enhance the value of the
Company's restaurant business, the Company acquired Sagebrush, Inc. in January
1998 and is converting most of its existing restaurants to the successful
Sagebrush concept.
The Company's restaurant operations are located primarily in smaller cities
and suburban areas in the southeastern United States, a market niche where the
primary competitors are economy steakhouses. At September 5, 1998, the Company
owned and operated 45 Sagebrush steakhouse restaurants, which provide
family-oriented, full-service casual dining in an atmosphere suggestive of a
Texas roadhouse. The Company also owned and operated 14 Western Steer and five
Prime Sirloin restaurants, which are more mature family steakhouses using the
"buffet and bakery" format, and one Bennett's barbecue-style restaurant.
Sagebrush restaurants are the only casual dining steakhouses in a majority of
the local markets in which they operate. The Company intends to convert all but
10 of its family steakhouse restaurants to the Sagebrush concept within two
years based on the historically attractive unit economics of the Sagebrush
format. A typical Sagebrush restaurant generates 44% more revenue and 99% more
EBITDA than a typical Western Steer restaurant. The Company has extensive
experience in converting restaurants to the Sagebrush format as 32 of the
Company's 45 Sagebrush restaurants were originally converted from other
restaurant concepts.
FOOD PROCESSING INDUSTRY OVERVIEW
The Company is a value-added food processor focused on the foodservice and
HMR markets. The foodservice market is composed of establishments that serve
food away from the home, including commercial establishments such as restaurants
and non-commercial establishments such as schools, healthcare providers and
other institutions. According to the National Restaurant Association, the
domestic foodservice industry generated revenues of $321 billion in 1997 and has
grown by $51 billion over the last five years.
The Company also sells its meat products and sandwiches into the HMR
market, which includes fully-cooked foods purchased through establishments such
as convenience stores, vending machines, warehouse clubs and grocery stores. The
HMR market has experienced significant growth over the past several years due to
numerous demographic factors, including the increase in single-parent families
and dual income households and a general decline in leisure time. According to
Technomic, the $44 billion HMR market has grown at a compound annual rate of 8%
over the past five years and is expected to grow 15% annually over the next
three years.
The Company is well-positioned to take advantage of the following food
industry trends:
Increased Outsourcing by Foodservice Providers. Rising public concern over
the safety of foods prepared in public dining establishments has resulted in
dramatic growth of the market for fully-cooked foods produced under stringent
quality controls. Many foodservice companies are now outsourcing much of their
food preparation in order to: (i) avoid the cost and administrative requirements
associated with meeting federal quality standards; (ii) maximize food safety;
(iii) ensure product consistency; (iv) reduce labor costs; and (v) reduce the
amount of food waste. Due to the Company's ability to address these issues, it
is in an excellent position to respond to this rapid growth in food production
outsourcing.
Growth in Number of HMR Outlets. The growth of alternative food outlets
such as convenience stores, vending machines, warehouse clubs and food kiosks
has created additional demand for packaged and fully-cooked food products.
According to Convenience Store News, approximately 82% of all convenience store
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<PAGE> 8
operators are currently expanding in-house foodservice or adding branded fast
foods. Non-traditional outlets often lack extensive preparation, cooking and
storage facilities, resulting in a need for fully-cooked foods such as the
Company's products. The Company's branded and private label sandwich programs
provide a safe and high-quality solution for these operators.
Growth in Sales of Fully-Cooked Food Products in Grocery Stores. The
increased use of HMR outlets has contributed to a gradual decline in home-cooked
meals, which has in turn eroded grocery stores' share of food sales. According
to Forbes, the percentage of sales attributed to meal ingredients has declined
from 70% to 47% between 1989 and 1996. To combat this decline, grocery stores
are now turning to independent suppliers to provide branded and private label
packaged and fully-cooked food products. The Company believes that it can
continue to capitalize on this trend by providing high-quality, fully-cooked
food products to grocery stores.
Increased Consumer Demand for Convenience Foods. The market for branded
and private label packaged foods, particularly for easy-to-prepare,
microwaveable convenience foods, has experienced substantial growth over the
past several years. One of the fastest growing segments in this category is the
estimated $2.5 billion refrigerated and frozen hand-held foods segment, which
includes sandwiches, meat-filled biscuits, burritos, appetizers and other
similar products. This segment grew at an estimated compound annual rate of 5%
from 1992 to 1996 and is expected to grow by 7% annually from 1998 to 2000,
according to Packaged Facts. The Company currently offers a full line of
microwaveable sandwiches sold under the Pierre, Fast Choice and Mom 'n' Pop's
brand names and has plans to expand this product line through its licensing
agreements with Hardee's, Checkers, Rally's, Nathan's Famous and Green Burrito.
Increased Government Regulation in the Food Processing Industry. The food
processing industry is subject to increasing federal, state and local government
regulation. The Hazard Analysis and Critical Control Points ("HACCP") system of
the United States Department of Agriculture (the "USDA"), governing the
preparation and production of food, has made it more difficult for foodservice
companies to prepare their own food products. Many customers, such as school
systems, inspect their food suppliers to ensure product safety and quality
standards. The Company's facilities are in full compliance with HACCP standards,
and its Cincinnati facility has held the USDA's "Total Quality Control" seal
since 1986, a designation held by only 11% of meat processing facilities in the
United States.
ACQUISITION RATIONALE AND BUSINESS STRATEGY
The Acquisition positions the Company as a leading producer of value-added,
fully-cooked food products as well as the largest and highest-quality producer
of microwaveable sandwiches in the United States. Prior to the Acquisition,
Pierre shipped fully-cooked meat products from its facility in Cincinnati, Ohio,
to Fresh Foods' facility in Claremont, North Carolina, to be combined with
specialty breads to produce ready-to-eat sandwiches. These sandwiches were then
shipped back to Pierre for distribution. Following the Acquisition, the Company
is vertically integrated, controlling all aspects of the production and
distribution process, enabling it to realize numerous production, marketing,
logistical and product development efficiencies.
The Acquisition combines two strong management teams with diverse
experience in food processing and with complementary skills in product
development, production, quality control and marketing. Four of Pierre's senior
executives each have in excess of 20 years' experience in the food processing
industry, and three of the four have been working in partnership with Fresh
Foods for the entire ten-year life of the Pierre/Fresh Foods relationship.
The Company's management has developed the following business strategy:
Further Penetrate Existing Distribution Channels with Additional
Products. The Company expects to leverage its longstanding customer
relationships and strong product development capabilities by introducing new
products through its existing distribution channels. The Company's product
development specialists work closely with its customers to identify industry
trends and to develop value-added food products that meet customer taste,
consistency and safety standards. For example, fresh sandwiches, such as
ham-and-cheese and chicken salad, are one of the fastest growing segments of the
convenience store and vending machine
3
<PAGE> 9
distribution channels. The Company recently constructed a fresh sandwich
production "clean room" with the capacity to prepare and package 500,000 fresh
sandwiches per week. This facility utilizes modified atmosphere packaging
("MAP") technology, which enables the Company to sell fresh sandwiches with
extended shelf lives. In developing this fresh sandwich capability, the Company
has worked closely with existing customers to create products with the
particular taste, quality and shelf-life characteristics they desire.
Maximize Benefits of Vertical Integration. The Acquisition provides an
opportunity to increase operating efficiencies at the Company's Cincinnati and
Claremont food processing facilities. As an independent, vertically-integrated
producer, the Company will have greater control over production scheduling at
its facilities, which should result in longer production run times, increased
throughput and reduced production costs. The Acquisition also should result in
reduced administrative costs, greater purchasing power and better product
distribution.
Further Develop Strategic Alliances with Recognized Restaurant Chains. The
Company has recently entered into licensing agreements to produce and market
microwaveable Hardee's, Checkers, Rally's and Nathan's Famous sandwiches and to
market Green Burrito products through its existing distribution channels. These
licensing agreements allow the restaurant companies to generate royalty revenues
and build brand awareness with no capital investment. According to FoodService
Director, the number of outlets offering restaurant-branded products grew at a
compound annual growth rate of 34% from 1993 to 1996. Restaurant-branded
products have a distinct advantage in outlets such as convenience stores,
vending machines, warehouse clubs and grocery stores in that they are widely
recognized by consumers. The Company's quality reputation and experience in the
premium microwaveable sandwich segment position it as an attractive partner for
restaurant chains seeking additional distribution channels.
Capitalize on Existing Health, Safety and Quality Standards. The Company
maintains rigid health, safety and quality control standards, enabling it to
meet the requirements of virtually every potential prepared-food customer. Many
customers, such as school systems, inspect their food suppliers to ensure
product safety and quality standards. The Company's facilities are in full
compliance with HACCP standards, and its Cincinnati facility has held the USDA's
"Total Quality Control" seal since 1986, a designation held by only 11% of meat
processing facilities in the United States. The Company believes that its
reputation for safety and quality provides it with the ability to capitalize on
current outsourcing trends in the foodservice industry.
Convert Existing Restaurants into Sagebrush Format. Because of the
comparatively attractive unit economics of the Sagebrush concept, the Company
intends to convert all but seven of its family steakhouse restaurants to the
Sagebrush concept within two years at an average cost of $600,000 per
conversion. A typical Sagebrush generates 44% more revenue and 99% more EBITDA
than a typical Western Steer restaurant. The Company has extensive experience in
converting restaurants to the Sagebrush format as 32 of the Company's 45
Sagebrush restaurants were originally converted from other restaurant concepts.
Since acquiring Sagebrush, Inc. in January 1998, the Company has converted seven
Western Steer restaurants, including one acquired from a franchisee (and
converted immediately), and one Prime Sirloin restaurant to the Sagebrush
concept and has realized a significant increase in weekly sales volume at these
locations. The Company has no plans for new restaurant construction.
THE TRANSACTIONS
On June 9, 1998, Fresh Foods, through a wholly-owned subsidiary, acquired
Pierre from Hudson, a wholly-owned subsidiary of Tyson. Fresh Foods paid a cash
purchase price of $122.0 million and assumed certain of Hudson's liabilities,
consisting principally of trade payables and other similar liabilities
(estimated at $8.1 million in the aggregate as of February 27, 1998). See "The
Acquisition."
The Company funded the Acquisition in part by drawing upon a five-year,
$75.0 million revolving bank credit facility, established on June 9, 1998, with
availability subject to a borrowing base formula (the "Bank Facility"). As of
June 9, 1998, after giving effect to the Transactions, the Company had $20.5
million in borrowing availability under the Bank Facility. The Bank Facility is
secured by substantially all of the assets of the Company and the Guarantors and
is available for working capital, permitted acquisitions and general corporate
purposes. See "Description of Bank Facility."
4
<PAGE> 10
The Acquisition, the establishment of the Bank Facility and the offer,
issuance and sale of the Notes in the Offering were consummated concurrently
with one another and are sometimes referred to herein collectively as the
"Transactions."
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange pursuant to the
Exchange Offer up to $115.0 million aggregate
principal amount of its 10 3/4% Senior Notes Due
2006 for a like aggregate principal amount of its
outstanding 10 3/4% Senior Notes Due 2006. The
terms of the Exchange Notes are identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the
Initial Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Notes are freely transferable by holders
thereof (other than as provided herein) and are not
subject to any covenant regarding registration
under the Securities Act. See "The Exchange Offer."
Interest Payments.......... Interest on the Exchange Notes shall accrue from
the last Interest Payment Date (December 1 or June
1) on which interest was paid on the Notes so
surrendered or, if no interest has been paid on
such Notes, from June 9, 1998.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Initial Notes
being tendered for exchange.
Expiration Date; Withdrawal
of Tender................ The Exchange Offer will expire at 5:00 p.m., New
York City time, on November 2, 1998. The Company
does not currently intend to extend the Expiration
Date. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer -- Expiration Date;
Extension; Termination; Amendment" and "Withdrawal
of Rights."
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain
conditions, including that the Exchange Offer not
violate any applicable law, statute, rule,
regulation or interpretation of the Commission
staff, that all necessary governmental approvals
are obtained and that one or more of the following
events do not occur: (i) a general suspension of,
shortening of hours for, or limitation on prices
for, trading in securities on any national
securities exchange or in the over-the-counter
market, (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks
by federal or state authorities in the United
States, (iii) a commencement of a war, armed
hostilities or other international or national
crisis directly or indirectly involving the United
States or (iv) a limitation by any governmental
authority on, or other event having reasonable
likelihood of affecting, the extension of credit by
banks or other lending institutions in the United
States. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for Tendering
Initial Notes............ Each holder of Initial Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, together with the Initial
Notes and any other required documentation, to the
Exchange
5
<PAGE> 11
Agent (as defined herein) at the address set forth
herein. See "The Exchange Offer -- Procedures for
Tendering Initial Notes" and "Plan of
Distribution."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Initial Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
and who wishes to tender, should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such beneficial owner's behalf, such
beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering
the Initial Notes, either make appropriate
arrangements to register ownership of the Initial
Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time. See "The Exchange Offer --
Procedure for Tendering Initial Notes."
Guaranteed Delivery
Procedures............... Holders of Initial Notes who wish to tender their
Initial Notes and whose Initial Notes are not
entirely available or who cannot deliver their
Initial Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Initial Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of Initial Notes
and Delivery of the
Exchange Notes........... The Company will accept for exchange any and all
Initial Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Expiration Date;
Extension; Termination; Amendment" and "Acceptance
of Initial Notes for Exchange; Delivery of Exchange
Notes."
Effect on the Holders of
Initial Notes............ As a result of the making of, and upon acceptance
for exchange of all validly tendered Initial Notes
pursuant to the terms of, the Exchange Offer, the
Company and the Guarantors will have fulfilled the
covenant contained in the Registration Rights
Agreement dated June 9, 1998 (the "Registration
Rights Agreement") among the Company, the
Guarantors, First Union Capital Markets, a division
of Wheat First Securities, Inc., and BancAmerica
Robertson Stephens (the "Initial Purchasers") and,
accordingly, there will be no increase in the
interest rate on the Initial Notes pursuant to the
terms of the Registration Rights Agreement, and the
holders of the Initial Notes will have no further
registration or other rights under the Registration
Rights Agreement other than those which survive the
Exchange Offer. Holders of the Initial Notes who do
not tender their Initial Notes in the Exchange
Offer will continue to hold such Initial Notes and
will be entitled to all the rights and subject
6
<PAGE> 12
to all the limitations applicable thereto under the
Indenture dated June 9, 1998, as supplemented by
the First Supplemental Indenture dated as of
September 5, 1998, among the Company, the
Guarantors and State Street Bank and Trust Company,
trustee (the "Trustee"), relating to the Initial
Notes and the Exchange Notes (the "Indenture"),
except for any such rights under the Registration
Rights Agreement that by their terms terminate or
cease to have further effectiveness as a result of
the making of, and the acceptance for exchange of
all validly tendered Initial Notes pursuant to, the
Exchange Offer. All untendered Initial Notes will
continue to be subject to the restrictions on
transfer provided for in the Initial Notes and the
Indenture. To the extent that the Initial Notes are
tendered and accepted in the Exchange Offer, the
trading market for untendered Initial Notes could
be adversely affected.
Consequence of Failure to
Exchange................. Initial Notes that are not exchanged for Exchange
Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of
such Initial Notes as set forth in the legend
thereon and in the Indenture. The Company and the
Guarantors do not currently anticipate that they
will register any Initial Notes and related
Guarantees which are not exchanged pursuant to the
Exchange Offer under the Securities Act after the
Expiration Date.
Federal Income Tax
Consequences............. The exchange pursuant to the Exchange Offer should
not result in gain or loss to the holders or the
Company for federal income tax purposes. See
"Certain U.S. Federal Income Tax Considerations."
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent in connection with the Exchange
Offer (the "Exchange Agent"). State Street Bank and
Trust Company also serves as the Trustee under the
Indenture. See "The Exchange Offer -- Exchange
Agent."
TERMS OF THE EXCHANGE NOTES
Securities Offered......... $115.0 million aggregate principal amount of
10 3/4% Senior Notes Due 2006.
Issuer..................... Fresh Foods, Inc.
Maturity Date.............. June 1, 2006
Interest Payment Dates..... June 1 and December 1 of each year, commencing
December 1, 1998.
Optional Redemption........ The Exchange Notes will be redeemable in cash at
the option of the Company, in whole or in part, at
any time on or after June 1, 2002, at the
redemption prices set forth herein, plus accrued
and unpaid interest thereon to the date of
redemption. Prior to June 1, 2001, the Company, at
its option, may redeem in the aggregate up to 35.0%
of the original principal amount of the Exchange
Notes at 110.75% of the aggregate principal amount
so redeemed, plus accrued and unpaid interest
thereon to the redemption date, with the Net Cash
Proceeds of one or more Public Equity Offerings
following which there is a Public Market (as
defined herein), provided that at least 65.0% of
the original principal amount of the Exchange Notes
remains outstanding after the occurrence of each
such redemption and that each such redemption
occurs within
7
<PAGE> 13
60 days following the closing of the related Public
Equity Offering. See "Description of the Exchange
Notes -- Optional Redemption."
Ranking.................... The Exchange Notes will represent senior unsecured
obligations of the Company, ranking senior in right
and priority of payment to any indebtedness of the
Company that by its terms is expressly subordinated
to the Exchange Notes. The Exchange Notes, however,
will be effectively subordinated to secured
indebtedness of the Company (including indebtedness
under the Bank Facility) with respect to the assets
securing such indebtedness. The Exchange Notes will
be structurally subordinated to all existing and
future liabilities of the Subsidiaries (as defined
herein) that are not Guarantors. As of June 9,
1998, after giving effect to the Transactions, the
Company and its Restricted Subsidiaries had $33.9
million of secured indebtedness outstanding. See
"Description of the Exchange Notes -- Ranking of
the Exchange Notes."
Guarantees................. The Exchange Notes will be unconditionally
guaranteed, on a senior unsecured basis, by all
present and future direct and indirect Restricted
Subsidiaries. The Guarantees will rank senior in
right and priority of payment to all indebtedness
of each Guarantor that by its terms is expressly
subordinated to such Guarantor's Guarantee. The
Guarantees, however, will be effectively
subordinated to secured indebtedness of each
Guarantor (including indebtedness under the Bank
Facility) with respect to the assets securing such
indebtedness. See "Description of the Exchange
Notes -- Guarantees."
Change of Control.......... In the event of a Change of Control, holders of the
Exchange Notes will have the right to require the
Company to purchase their Exchange Notes at 101.0%
of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the purchase
date. See "Description of the Exchange
Notes -- Change of Control."
Certain Covenants.......... The Indenture includes covenants for the benefit of
the holders of Exchange Notes that, among other
things, restrict the ability of the Company and its
Restricted Subsidiaries to: (i) incur additional
Indebtedness (as defined herein), (ii) pay
dividends or make distributions, (iii) incur liens,
(iv) transfer or sell assets, (v) enter into
transactions with affiliates, (vi) issue or sell
stock of Restricted Subsidiaries or (vii) merge or
consolidate the Company or Restricted Subsidiaries.
See "Description of the Exchange Notes -- Certain
Covenants."
Absence of Public Market... The Initial Notes are designated for trading in the
PORTAL market. There is no established trading
market for the Exchange Notes. The Company does not
currently intend to list the Exchange Notes on any
securities exchange or to seek approval for
quotation through any automated quotation system.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Exchange Notes. The certificates representing the
Exchange Notes will be issued in fully registered
form.
RISK FACTORS
Holders of the Initial Notes should carefully consider the matters set
forth under "Risk Factors," as well as the other information and financial
statements and data included in this Prospectus, prior to tendering Initial
Notes in the Exchange Offer.
8
<PAGE> 14
SUMMARY FINANCIAL DATA
SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION OF THE COMPANY
The following unaudited pro forma combined financial information gives
effect to the Transactions as if they had occurred on March 1, 1997, in the case
of the Unaudited Pro Forma Combined Statement of Operations and Other Data of
the Company, and on May 22, 1998, in the case of the Unaudited Pro Forma
Combined Balance Sheet Data of the Company. The pro forma combined financial
data is presented for illustrative purposes only and is not necessarily
indicative of what the Company's financial position or results of operations
would have been had the Transactions occurred as of the above-referenced dates
or of the financial position or results that may be reported by the Company in
the future. The pro forma combined financial information should be read in
conjunction with the historical consolidated financial statements of Fresh Foods
and the historical financial statements of Pierre, the notes thereto and the
other financial information contained elsewhere in this Prospectus. Such pro
forma combined financial information has been derived from Fresh Foods'
consolidated financial statements for fiscal 1998 and the fiscal quarter ended
May 22, 1998 and from Pierre's financial statements for the twelve-month period
ended February 28, 1998 and the three-month period ended May 30, 1998. See
"Unaudited Pro Forma Combined Financial Information of the Company," "Selected
Historical Financial Information of Fresh Foods," "Selected Historical Financial
Information of Pierre," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Fresh Foods' and Pierre's financial
statements included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------
TWELVE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 27, 1998 MAY 22, 1998
------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $269,269 $ 62,311
Cost of goods sold....................................... 188,462 46,107
Selling, general and administrative...................... 54,049 12,646
Depreciation and amortization............................ 12,256 2,999
-------- --------
Operating income......................................... 14,502 559
Interest expense......................................... 15,664 3,673
Other income (expense)................................... 739 (310)
-------- --------
Net loss before income taxes............................. (423) (3,424)
Income tax benefit....................................... (431) (1,343)
-------- --------
Net earnings (loss)...................................... $ 8 $ (2,081)
======== ========
OTHER DATA:
Capital expenditures..................................... $ 13,833 $ 5,210
Pro Forma EBITDA(1)...................................... 27,497 3,248
Adjusted Pro Forma EBITDA(2)............................. 30,002 3,826
Cash interest expense.................................... 14,993 3,521
Ratio of total debt to Adjusted Pro Forma EBITDA......... 4.98x 39.20x
Ratio of Adjusted Pro Forma EBITDA to cash interest
expense................................................ 2.00x 1.09x
Ratio of earnings to fixed charges(3).................... 0.97x .07x
</TABLE>
<TABLE>
<CAPTION>
AT FEBRUARY 27, 1998 AT MAY 22, 1998
-------------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 31,528 $ 27,098
Total assets............................................... 207,194 210,236
Total debt................................................. 149,415 149,965
Shareholders' equity....................................... 38,484 38,724
</TABLE>
9
<PAGE> 15
- ---------------
(1) EBITDA consists of earnings before income taxes, interest expense,
depreciation and amortization. Corporate charge represents a charge to
Pierre by Hudson based primarily on 9.5% times the book value of accounts
receivable, inventory, property, plant and equipment and other assets, less
accounts payable, plus certain corporate sales. See Note 7 to Pierre's
financial statements. The amount of such charge was $4.8 million for the
twelve months ended February 27, 1998 and $1.2 million for the three months
ended May 30, 1998. EBITDA before corporate charge is presented because the
Company believes that it is an appropriate financial indicator of the
Company's ability to service and/or incur indebtedness; however, EBITDA
before corporate charge should not be considered as an alternative to net
earnings as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles. Pro
Forma EBITDA is calculated as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 27, 1998 MAY 22, 1998
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
EBITDA before corporate charge................... $25,689 $ 3,393
Pro forma adjustments:
Nonrecurring merger expenses(a)................ 1,956 --
Elimination of intercompany profit in
inventory(b)................................ (82) (130)
Executive officer salary increases(c).......... (66) (15)
------- -------
Total pro forma adjustments............ 1,808 (145)
------- -------
Pro Forma EBITDA................................. $27,497 $ 3,248
======= =======
</TABLE>
(a) Represents nonrecurring costs incurred by Fresh Foods related to its
acquisition of Sagebrush, Inc.
(b) Represents elimination of intercompany profit recorded from
transactions between Fresh Foods and Pierre.
(c) Reflects increases in salaries to be paid to two executive officers of
Pierre following the Acquisition.
(2) The Company believes the following additional adjustment is relevant to
evaluating its future operating performance. Such adjustment, which reflects
the estimated impact of personnel reductions (net of severance payments) at
Pierre realized as of April 30, 1998, is based on estimates and assumptions
made and believed to be reasonable by the Company. There can be no assurance
that the estimated impact of those personnel reductions will be realized or
sustainable in the future. The following calculation should not be viewed as
indicative of actual or future results.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 27, 1998 MAY 22, 1998
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Pro Forma EBITDA................................. $27,497 $ 3,248
Personnel reductions (net of severance
payments)...................................... 2,505 578
------- -------
Adjusted Pro Forma EBITDA...................... $30,002 $ 3,826
======= =======
</TABLE>
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
earnings before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or capitalized,
and that portion of rental expense estimated to be attributable to interest.
10
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL INFORMATION OF FRESH FOODS
The following summary historical financial information at the end of and
for each of the fiscal years ended February 25, 1994, February 24, 1995,
February 23, 1996, February 28, 1997 and February 27, 1998 has been derived from
audited consolidated financial statements of Fresh Foods. The summary historical
financial information for the fiscal quarters ended May 23, 1997 and May 22,
1998 has been derived from unaudited financial statements and, in the opinion of
the Company's management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation, in all material
respects, of the results of operations and financial position of Fresh Foods at
the end of and for each such period presented. Interim period results are not
necessarily indicative of results to be expected for a complete fiscal year. The
summary historical financial information set forth below should be read in
conjunction with the consolidated financial statements of Fresh Foods, the notes
thereto and the other financial information contained elsewhere herein. See
"Available Information," "Selected Historical Financial Information of Fresh
Foods," "Selected Historical Financial Information of Pierre," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Fresh Foods' consolidated financial statements.
<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ -----------------
FEBRUARY 25, FEBRUARY 24, FEBRUARY 23, FEBRUARY 28, FEBRUARY 27, MAY 23, MAY 22,
1994 1995 1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.......................... $92,392 $122,830 $113,536 $129,934 $158,412 $36,436 $35,194
Cost of goods sold................ 53,721 77,246 69,647 79,452 93,018 21,479 20,228
Restaurant operating expenses..... 23,362 26,144 26,560 29,821 39,796 9,020 9,800
Selling, general and
administrative.................. 9,832 10,410 10,588 11,651 15,593 2,916 2,766
Depreciation and amortization..... 3,346 3,405 3,476 3,600 5,004 1,016 1,126
------- -------- -------- -------- -------- ------- -------
Operating income.................. 2,131 5,625 3,265 5,410 5,001 2,005 1,274
Interest expense.................. 1,893 2,068 2,163 1,868 1,762 414 420
Other income/(expense)............ 808 1,064 154 600 736 13 (302)
Equity in earnings (loss) of
affiliates...................... (72) (12) (385) (107) 3 18 (8)
Provision for income taxes
(benefit)....................... (263) 575 (1,139) 2,010 1,728 620 205
------- -------- -------- -------- -------- ------- -------
Earnings before extraordinary item
and accounting change........... 1,237 4,034 2,010 2,025 2,250 1,002 339
Extraordinary item and accounting
change(1)....................... (245) -- -- 415 -- -- --
------- -------- -------- -------- -------- ------- -------
Net earnings...................... $ 992 $ 4,034 $ 2,010 $ 2,440 $ 2,250 $ 1,002 $ 339
======= ======== ======== ======== ======== ======= =======
OTHER DATA:
Capital expenditures.............. $ 6,755 $ 3,674 $ 3,970 $ 9,702 $ 12,592 1,820 5,015
EBITDA(2)......................... 6,213 10,082 6,510 9,503 10,744 3,052 2,090
Ratio of earnings to fixed
charges(3)...................... 1.39x 3.23x 1.40x 3.14x 3.15x 4.92x 2.30x
BALANCE SHEET DATA:
Working capital (deficiency)...... $ (329) $ 1,273 $ 1,724 $ 2,114 $ (497) $(1,136) $(3,880)
Total assets...................... 55,502 54,939 51,994 59,571 71,656 66,471 73,915
Total debt........................ 25,898 22,861 21,109 18,208 20,918 20,465 21,467
Shareholders' equity.............. 19,339 22,654 22,328 31,348 39,227 33,418 39,593
</TABLE>
- ---------------
(1) Reflects cumulative effect of change in accounting principle in the amount
of $(245,000) in the fiscal year ended February 25, 1994 and extraordinary
gain from early extinguishment of debt in the amount of $415,000 in the
fiscal year ended February 28, 1997.
(2) EBITDA is defined as earnings before income taxes, interest expense,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness; however, EBITDA should not be considered as an alternative to
net income as a measure of operating results or to cash flows as a measure
of liquidity in accordance with generally accepted accounting principles.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
earnings before income taxes and extraordinary item plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest expense
(which includes amortization of deferred financing costs), whether expensed
or capitalized, and that portion of rental expense estimated to be
attributable to interest.
11
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL INFORMATION OF PIERRE
The following summary historical financial information at the end of and
for each of the fiscal years ended September 30, 1995, September 28, 1996 and
September 27, 1997 has been derived from audited financial statements contained
elsewhere in this Prospectus. The summary historical financial information at
the end of and for the twelve-month and eight-month periods ended February 28,
1998 and May 30, 1998, respectively, and for the eight-month period ended May
31, 1997 has been derived from unaudited financial statements and, in the
opinion of the Company's management, includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation, in all
material respects, of the results of operations and financial position of Pierre
at the end of and for each such period presented. Interim period results are not
necessarily indicative of results to be expected for a complete fiscal year. The
summary historical financial information set forth below should be read in
conjunction with the financial statements, the notes thereto and the other
financial information contained elsewhere herein. See "Available Information,"
"Selected Historical Financial Information of Fresh Foods," "Selected Historical
Financial Information of Pierre," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Pierre's financial
statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWELVE MONTHS EIGHT MONTHS ENDED
--------------------------------------------- ENDED -------------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 27, FEBRUARY 28, MAY 31, MAY 30,
1995 1996 1997 1998 1997 1998
------------- ------------- ------------- -------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF REVENUES AND
EXPENSES DATA:
Revenues................. $148,572 $136,633 $149,350 $149,446 $102,201 $ 99,827
Cost of goods sold....... 85,384 86,673 96,474 94,155 67,740 64,133
Selling, general and
administrative......... 36,832 34,473 40,282 40,346 27,433 27,200
Depreciation............. 4,407 4,467 4,320 4,339 2,870 3,011
-------- -------- -------- -------- -------- --------
Excess of revenues over
expenses before
corporate charge....... 21,949 11,020 8,274 10,606 4,158 5,483
Corporate charge(1)...... 5,153 4,748 4,700 4,763 3,211 3,317
-------- -------- -------- -------- -------- --------
Excess of revenues over
expenses before income
taxes(2)............... $ 16,796 $ 6,272 $ 3,574 $ 5,843 $ 947 $ 2,166
======== ======== ======== ======== ======== ========
OTHER DATA:
Capital
expenditures(3)........ $ 913 $ 1,421 $ 1,405 $ 1,241 $ 410 $ 195
EBITDA before corporate
charge(4).............. 26,356 15,487 12,594 14,945 7,028 8,494
BALANCE SHEET DATA:
Working capital.......... $ 21,392 $ 24,681 $ 22,855 $ 25,576 $ 23,189
Total assets............. 62,702 59,688 57,905 58,413 54,952
Net assets............... 51,361 51,180 47,541 50,352 45,982
</TABLE>
- ---------------
(1) Represents a charge to Pierre by Hudson based primarily on 9.5% times the
book value of accounts receivable, inventory, property, plant and equipment
and other assets, less accounts payable, plus certain corporate sales. See
Note 7 to Pierre's financial statements.
(2) For the periods presented, Pierre was a division of Hudson, which was itself
acquired by Tyson in January 1998. Neither Hudson nor Tyson allocated
specific income tax liabilities or provisions to Pierre.
(3) Reflects capital expenditures incurred in the Cincinnati facility, which the
Company considers representative of capital expenditures for Pierre.
(4) EBITDA consists of excess of revenues over expenses before income taxes,
interest expense, depreciation and amortization. EBITDA before corporate
charge is presented because the Company believes that it is an appropriate
financial indicator of Pierre's ability to service and/or incur
indebtedness; however, EBITDA before corporate charge should not be
considered as an alternative to excess of revenues over expenses before
income taxes as a measure of operating results or to cash flows as a measure
of liquidity in accordance with generally accepted accounting principles.
12
<PAGE> 18
RISK FACTORS
In addition to the other information set forth and incorporated by
reference herein, holders of Initial Notes should carefully consider the
following information in evaluating the Company and its business prior to
tendering Initial Notes in the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE INITIAL NOTES
The Initial Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Initial Notes that
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Initial Notes that remain
outstanding will not be entitled to any rights under the Registration Rights
Agreement that by their terms terminate or cease to have further effectiveness
as a result of the making of the Exchange Offer, including an increase in the
interest rates on the Initial Notes. The Company does not currently anticipate
that it will register the Initial Notes under the Securities Act. The Initial
Notes were issued to, and the Company believes are currently owned by, a small
number of beneficial owners. Although the Initial Notes have been designated for
trading in the PORTAL market, to the extent that Initial Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Initial
Notes that remain outstanding after the Exchange Offer could be adversely
affected.
SUBSTANTIAL LEVERAGE
The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of June 9, 1998, after giving effect to the
Transactions, the Company had approximately $148.9 million of indebtedness,
which represented 79.3% of its total capitalization, and had approximately $20.5
million of additional borrowing availability under the Bank Facility. See "The
Acquisition -- Financing of the Acquisition," "Capitalization of the Company"
and "Description of Bank Facility." In addition, the Indenture and the Company's
other debt instruments allow the Company to incur additional indebtedness under
certain circumstances. The ability of the Company to make payments with respect
to the Exchange Notes and to satisfy its other debt obligations will depend on
the Company's future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of which
are beyond the Company's control.
As a result of the financing of the Acquisition, the Company's interest
expense will increase compared to prior years. The Company believes, based on
current circumstances, that the Company's cash flow, together with available
borrowings under the Bank Facility, will be sufficient to permit the Company to
meet its operating expenses and to service its debt requirements as they become
due for the foreseeable future. Significant assumptions underlie this belief,
including, among other things, that the Company will succeed in implementing its
business strategy and that there will be no material adverse developments in the
business, liquidity or capital requirements of the Company. If the Company is
unable to service its indebtedness, it will be required to adopt alternative
strategies, which may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including these: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flows from operations
must be dedicated to the payment of principal and interest on the Bank Facility
and the Notes, thereby reducing the funds available to the Company for its
operations; (iii) the Bank Facility and the Indenture contain financial and
other restrictive covenants, including those restricting the incurrence of
additional indebtedness, the creation of liens, the payment of dividends, sales
of assets and minimum net worth requirements; (iv) the Company's borrowings
under the
13
<PAGE> 19
Bank Facility are at variable rates of interest, which expose the Company to the
risk of higher interest rates; (v) the indebtedness outstanding under the Bank
Facility is secured by substantially all of the assets of the Company and will
mature before the Exchange Notes; (vi) the Company may be more leveraged than
certain of its competitors, which may place the Company at a relative
competitive disadvantage; and (vii) the Company's high degree of indebtedness
could make it more vulnerable in the event of a downturn in its business. As a
result of the Company's level of indebtedness, its financial capacity to respond
to market conditions, extraordinary capital needs and other factors may be
limited.
If the Company is unable to generate sufficient cash flows from operations
in the future to service its indebtedness, it may be required to refinance all
or a portion of its indebtedness, including the Notes, or to obtain additional
financing or to dispose of material assets or to discontinue certain of its
operations. The Bank Facility and the Indenture restrict the Company's ability
to sell assets and use proceeds therefrom. There can be no assurance that any
such refinancing or asset sales would be possible under the Company's debt
instruments existing at such time, that the proceeds the Company could realize
for such refinancing or asset sales would be sufficient to meet the Company's
obligations then due or that additional financing could be obtained.
RANKING OF THE EXCHANGE NOTES; HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS
TO CASH FLOW
The Exchange Notes will represent senior unsecured obligations of the
Company, ranking senior in right and priority of payment to any indebtedness of
the Company that by its terms is expressly subordinated to the Exchange Notes.
The Exchange Notes will rank pari passu in right and priority of payment with
the indebtedness under the Bank Facility. The Exchange Notes, however, will be
effectively subordinated to secured indebtedness of the Company (including the
Bank Facility) with respect to the assets pledged as collateral therefor. The
Bank Facility will be secured by a pledge of the stock of the subsidiaries of
the Company and the grant of a lien on substantially all of the assets of the
Company and the subsidiaries of the Company. As of June 9, 1998, after giving
effect to the Transactions, the Company and its subsidiaries had $33.9 million
of secured indebtedness outstanding. The Company had $20.5 million of additional
borrowing availability under the Bank Facility.
The obligations of the Company with respect to the Exchange Notes will be
guaranteed, jointly and severally, on a senior unsecured basis by the
Guarantors. Any obligations of subsidiaries of the Company will be effectively
senior to the claims of the Holders of the Exchange Notes with respect to the
assets of such subsidiaries, except to the extent that the Holders of the
Exchange Notes may be creditors of a subsidiary pursuant to a Guarantee. Any
such claim by the Holders of the Exchange Notes with respect to the assets of a
Guarantor will be effectively subordinated to secured indebtedness (including
indebtedness under the Bank Facility) of such Guarantor with respect to the
assets securing such indebtedness. The rights of the Company and its creditors,
including Holders of the Notes, to realize upon the assets of a subsidiary upon
such subsidiary's liquidation or reorganization (and the consequent rights of
Holders of the Exchange Notes to participate in those assets) will be subject to
the prior claims of such subsidiary's creditors, except to the extent that the
Company may itself be a creditor with recognized claims against such subsidiary
or to the extent that the Holders of the Exchange Notes may be creditors with
recognized claims against such subsidiary pursuant to the terms of a Guarantee
(subject, however, to the prior claims of creditors holding secured indebtedness
of a subsidiary with respect to the assets securing such indebtedness). The Bank
Facility is secured by a pledge of the stock of all subsidiaries of the Company
and a lien on substantially all of the assets of the Company and its
subsidiaries.
The Company conducts all of its operations through subsidiaries. The
Company's ability to service debt, including the Exchange Notes, depends upon
the earnings of its subsidiaries and the distribution of those earnings to, or
upon loans or other payments of funds by those subsidiaries to, the Company. All
of the Company's currently existing subsidiaries have guaranteed the Exchange
Notes, and all other future subsidiaries that are designated by the Company as
Restricted Subsidiaries (as defined herein) are required to guarantee the
Exchange Notes.
See "Description of Bank Facility" and "Description of the Exchange
Notes -- Ranking of the Exchange Notes."
14
<PAGE> 20
RESTRICTIONS IMPOSED BY THE BANK FACILITY AND THE INDENTURE
The Bank Facility and the Indenture include covenants that, among other
things, limit or restrict the ability of the Company to dispose of assets, incur
additional indebtedness, repay other indebtedness, pay dividends, enter into
certain investments or acquisitions, repurchase or redeem capital stock, engage
in mergers or consolidations or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. There can be no
assurance that such limitations and restrictions will not adversely affect the
Company's ability to finance its future operations or capital needs or engage in
other business activities that may be in the interest of the Company. The Bank
Facility also requires the Company to maintain compliance with certain financial
ratios. The ability of the Company to comply with such ratios may be affected by
events beyond the Company's control. A breach of any of these covenants or the
inability of the Company to comply with the required financial ratios could
result in a default under the Bank Facility. In the event of any such default,
the lenders under the Bank Facility could elect to declare all borrowings
outstanding under the Bank Facility, together with accrued interest and other
fees, to be due and payable. If the Company were unable to repay any such
borrowings when due, the lenders could proceed against their collateral. There
can be no assurance that, if the indebtedness under the Bank Facility or the
Exchange Notes were to be accelerated, the assets of the Company would be
sufficient to repay such indebtedness in full. See "Description of Bank
Facility" and "Description of the Exchange Notes."
RISKS RELATING TO THE ACQUISITION AND EXECUTION OF THE COMPANY'S BUSINESS
STRATEGY
The Acquisition significantly increases the scale of the Company's
operations, thereby substantially increasing the demands placed upon the
Company's management, including demands resulting from the need to integrate the
systems and operations of Pierre with those of Fresh Foods. Successful
integration of Pierre's operations is essential to the Company's business
strategy and will depend primarily on the Company's ability to manage
effectively Pierre's food processing operations and to eliminate excess costs.
The success of the Company's integration of Pierre may also depend on retention
of existing senior management personnel of Pierre. There can be no assurance
that such individuals will remain with the Company. The integration of Pierre
and execution of the Company's business strategy may result in unforeseen
difficulties requiring a disproportionate amount of attention and resources and
cannot be assured. The failure to integrate Pierre or to execute the Company's
business strategy could have material adverse effects on the Company. See
"Business -- Acquisition Rationale and Business Strategy."
COMPETITION
The food production business is highly competitive and is often affected by
changes in tastes and eating habits of the public, economic conditions affecting
spending habits and other demographic factors. In sales of meat products, the
Company faces strong price competition from a variety of large meat processing
concerns and from smaller local and regional operations. In sales of biscuit and
yeast roll products, the Company competes with a number of large bakeries in
various parts of the country. The sandwich segment of the HMR industry is
extremely fragmented, with few large direct competitors but low barriers to
entry and indirect competition in the form of numerous other HMR products. The
restaurant industry, generally, and the Company's restaurant business,
specifically, are intensely competitive with respect to concept, price, service,
location and food quality. There are many well-established competitors,
including a number of other steakhouse and family-oriented restaurants with
concepts similar to the Company's, with substantially greater financial and
other resources than the Company. Some competitors have been in existence for
much longer than the Company and may be better established in, or may decide to
enter, markets in which the Company's restaurants are or may be located. The
restaurant business is often affected by changes in consumer tastes, national,
regional or local economic conditions, demographic trends, traffic patterns and
the type, number and location of competing restaurants. While the Company
believes that it competes for customers with a broad variety of other
restaurants, there are particular restaurant chains that have restaurant
concepts very similar to the Company's and that operate in, and may expand
further into, the Company's market areas. See "Business -- Competition."
15
<PAGE> 21
GOVERNMENT REGULATION
The food production and restaurant industries are subject to extensive
federal, state and local government regulation.
The Company's food processing facilities and food products are subject to
frequent inspection by the USDA and other government authorities. In July 1996,
the USDA issued strict new policies against contamination by food-borne
pathogens such as E. coli and Salmonella and established the HACCP system. The
Company is in full compliance with all USDA regulations, including HACCP
standards. There can be no assurance, however, that the Company will be able to
remain in compliance. The Company's failure to comply with applicable laws and
regulations could subject it to civil remedies, including fines, injunctions,
recalls and seizures, or even criminal sanctions, any of which could have
material adverse effects on the Company.
The Company's operations also are governed by laws and regulations relating
to workplace safety and worker health that, among other things, establish noise
standards and regulate the use of hazardous chemicals in the workplace. The
Company also is subject to numerous federal, state and local environmental laws.
Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities relating to its facilities and the land on which its facilities are
or had been situated, regardless of whether the Company leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. There can
be no assurance that any failure to comply, or compliance in the future, with
environmental laws, or that liabilities arising thereunder, will have no
material adverse effect on the Company's business, financial condition or
results of operations.
The Company's operations are subject to licensing and regulation by a
number of state and local governmental authorities, which include alcoholic
beverage control, health, safety, sanitation, building and fire agencies.
Operating costs are affected by increases in costs of providing health care
benefits, the minimum hourly wage, unemployment tax rates, sales taxes and other
similar matters over which the Company has no control. The Company is subject to
laws governing relationships with employees, including minimum wage
requirements, overtime, working conditions and citizenship requirements.
See "Business -- Government Regulation."
GENERAL RISKS OF THE FOOD INDUSTRY
The food processing and restaurant industries generally are subject to
various risks, including adverse changes in general economic conditions,
evolving consumer preferences, nutritional and health-related concerns, federal,
state and local food inspection and processing controls and litigation-oriented
risks in the nature of consumer product liability claims, product tampering
problems and the availability and expense of liability insurance. There has
recently been increasing scrutiny due to the association of meat products with
recent outbreaks of illness, and even death, caused by pathogens such as E. coli
and Salmonella, which can be found in raw and improperly cooked meat. Incidents
of contamination experienced by other food processors and restaurant chains have
materially and adversely affected their businesses and could adversely affect
the Company's business. Product recalls are sometimes required in the meat
industry to withdraw contaminated or mislabeled products from the market.
ADVERSE CHANGES IN FOOD COSTS; AVAILABILITY OF SUPPLIES
The profitability of the Company is dependent on its ability to anticipate
and react to changes in food prices in general and to changes in meat prices in
particular. While the Company has historically been able to anticipate and react
to changing prices through purchasing practices and price adjustments so as to
avoid any material adverse effect on profitability, there can be no assurance
that the Company will be able to do so in the future. In particular, no
assurance can be given that the Company will be able to pass any cost increases
on to its customers. The Company does not engage in hedging transactions with
respect to raw material purchases. Failure to engage in such transactions may
result in increased price volatility, with resulting adverse effects on results
of operations. In addition, the Company's dependency upon regular deliveries of
supplies from
16
<PAGE> 22
particular suppliers means that interruptions or stoppages in such deliveries
could adversely affect the Company until arrangements with alternate suppliers
could be made. See "Business -- Food Processing Operations -- Supplies" and
"Business -- Restaurant Operations -- Ingredients and Purchasing."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will be largely dependent
upon the abilities and experience of its senior management team. The loss of
services of one or more of these senior executives could adversely affect the
Company's results of operations. The Company has employment agreements with
David R. Clark, Norbert E. Woodhams and L. Dent Miller and maintains "key man"
life insurance on certain managers. See "Management."
POTENTIAL LABOR DISRUPTIONS
None of the Company's employees is covered by a collective bargaining
agreement, although there have been four unsuccessful attempts to organize the
Cincinnati plant in the last four years. To the extent the Company experiences a
labor disruption in the future, there could be material adverse effects on the
Company's business, financial condition and results of operations. See
"Business -- Employees."
"YEAR 2000" ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. "Year 2000" issues affect virtually all companies and organizations,
including the Company. The Company has engaged consultants who have studied its
information systems and have made recommendations with a view to upgrading and
improving such systems. A definitive plan of action has been approved based on
such recommendations and is expected to be implemented this year. The Company
estimates the cost of the necessary software modifications at less than $500,000
in the aggregate, an amount the Company considers immaterial to its consolidated
financial position.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Initial Notes.
The Company does not intend to apply for the listing of the Exchange Notes on
any securities exchange. There is currently no established market for the
Exchange Notes and there can be no assurance as to the liquidity of markets that
may develop for the Exchange Notes, the ability of the holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders would be
able to sell their Exchange Notes. If such markets were to exist, the Exchange
Notes could trade at prices that may be lower than the initial market values
thereof depending on many factors, including prevailing interest rates and the
markets for similar securities. The liquidity of, and trading market for, the
Exchange Notes also may be adversely affected by general declines in the market
for similar securities.
POTENTIAL INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to purchase all or a portion of such holder's Notes at a
purchase price of 101.0% of the principal amount thereof, together with accrued
and unpaid interest, if any, to the purchase date. In such circumstances, the
Company may be required (i) to repay all or a portion of the outstanding
principal of, and to pay any accrued interest on, its senior indebtedness,
including indebtedness under the Bank Facility, or (ii) to obtain any requisite
consent from its lenders to permit the purchase of the Notes. If the Company is
unable to repay all of such indebtedness or is unable to obtain the necessary
consents, then the Company may be unable to offer to purchase the Notes, which
would constitute an Event of Default under the Indenture. There can be no
assurance that the Company will have sufficient funds available at the time of
any Change of Control to make any debt payment (including purchases of the
Notes) as described above or that the Company would be able
17
<PAGE> 23
to refinance its outstanding indebtedness in order to permit it to purchase the
Notes or, if such refinancing were to occur, that such financing would be on
terms favorable to the Company. See "Description of the Exchange Notes -- Change
of Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under the Bank Facility or under other senior indebtedness
of the Company. Such events may permit the holders under such debt instruments
to accelerate the debt and, if the debt is not paid, to enforce security
interests on, or to commence litigation that could ultimately result in a sale
of, substantially all of the assets of the Company, thereby limiting the
Company's ability to raise cash to purchase the Notes.
FRAUDULENT CONVEYANCE AND PREFERENCE ISSUES
The obligations of the Company under the Notes may be subject to review
under relevant federal and state fraudulent conveyance laws. If a court in a
lawsuit brought by an unpaid creditor of the Company or a representative of
creditors of the Company, such as a trustee in bankruptcy, or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that, at the time the Company issued the Exchange Notes, or
as a consequence of the Transactions, the Company (a) intended to hinder, delay
or defraud any existing or future creditor or contemplated insolvency or (b) did
not receive fair consideration or reasonably equivalent value for incurring
indebtedness, including the Exchange Notes, incurred in connection with the
Transactions and that, at the time of such incurrence, the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such incurrence, (iii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, such court, subject to applicable statutes of limitation, could void
the Notes, void the Company's obligations under the Notes, subordinate the Notes
to obligations of the Company that do not otherwise constitute senior
indebtedness or take other action detrimental to the holders of the Notes,
including action to recover payments that had been made under the Notes.
The Guarantees also may be subject to review under federal and state
fraudulent transfer laws. If a court were to determine that at the time a
Guarantor became liable under its Guarantee it satisfied either of clauses (a)
or (b) in the foregoing paragraph, the court could void the Guarantee and direct
the repayment of amounts paid thereunder.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the
Transactions or issuance of the Exchange Notes or whether a Guarantor would be
insolvent upon the incurrence of obligations under its Guarantee. The measure of
insolvency for these purposes varies depending upon the laws of the jurisdiction
being applied. Generally, however, a company is considered insolvent for these
purposes if the sum of the company's debts is greater than all of that company's
property at a fair valuation or if the present fair salable value of that
company's assets is less than the amount that will be required to pay its
probable liability on its existing debts as they become absolute and matured.
The obligations of each Guarantor under its Guarantee, however, will be limited
in a manner intended to avoid it being deemed a fraudulent conveyance under
applicable law. See "Description of the Exchange Notes."
Additionally, under federal bankruptcy or state insolvency law, if a
bankruptcy or insolvency proceeding were initiated by or against the Company
within 90 days after any payment by the Company with respect to the Notes, or if
the Company anticipated becoming insolvent at the time of such payment, all or a
portion of the payment could be avoided as a preferential transfer and the
recipient of such payment could be required to return such payment.
On the basis of historical financial information, recent operating history
and other factors, the Company believes that, after giving effect to the
incurrence of indebtedness in connection with the Transactions (including the
issuance of the Exchange Notes), it will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
incur debts beyond its ability to pay the interest on or principal of such debts
as they become due. There can be no assurance, however, that a court passing on
such issues would agree with such conclusions.
18
<PAGE> 24
THE ACQUISITION
THE ASSET PURCHASE AGREEMENT
The following is a summary of certain provisions of the Asset Purchase
Agreement dated April 10, 1998 between Hudson and a wholly-owned subsidiary of
Fresh Foods (the "Asset Purchase Agreement"), a copy of which is available as
set forth under "Available Information." Such summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the specific provisions of the Asset Purchase Agreement.
General. Subject to the terms and conditions of the Asset Purchase
Agreement, Fresh Foods purchased Pierre on June 9, 1998. Pierre consists of
substantially all of the business in Cincinnati, Ohio, and a portion of the
business in Caryville, Tennessee, conducted by the Pierre Foods Division of
Hudson, a subsidiary of Tyson, prior to the Acquisition. Following the
Acquisition, the business of Pierre conducted in Caryville is being moved to
Cincinnati.
Purchase Price. The consideration paid by Fresh Foods for Pierre was a
cash purchase price of $122.0 million and the assumption of certain of Hudson's
liabilities, consisting principally of trade payables and other similar
liabilities (estimated at $8.1 million in the aggregate as of February 27,
1998). The cash purchase price is subject to a post-closing adjustment with
respect to the net book value of the assets. The amount of such adjustment will
be not less than $1.1 million, which has already been paid by Hudson.
Transition Services. Hudson has agreed to provide certain services to
Fresh Foods with respect to the operation of Pierre and to assist in
transferring the business of Pierre from Hudson to Fresh Foods. Such services
include administrative support services of a nature previously rendered by
headquarters employees of Hudson to Pierre in connection with the information
systems used by Pierre, including general ledger, accounts payable, payroll,
fixed assets and leased assets systems. Hudson has agreed to provide such
transition services to Fresh Foods for up to six months following the
consummation of the Acquisition. Hudson is to provide the services at no
additional cost to Fresh Foods as part of its consideration for the purchase
price paid by Fresh Foods. It is Fresh Foods' current intention to begin
providing such services for itself as soon as possible.
Non-Compete. Hudson has agreed, subject to certain exceptions and
limitations, not to compete with Fresh Foods for one year following the
Acquisition in the sale of sandwiches to or through warehouse clubs, vending
services, convenience stores or foodservice, but excluding sales of sandwiches
(including chicken sandwiches) to customers not associated with Pierre. Fresh
Foods has agreed, subject to certain exceptions and limitations, not to compete
with Hudson for one year following the Acquisition in the sale of chicken-based
products (other than sandwiches) to or in connection with Sam's Clubs, Burger
King Corporation (or Restaurant Services, Inc.) or Subway (or Independent
Purchasers Cooperative, Inc.) or in the sale of products marketed under the
Classic Seasons line, including those sold to Price/Costco.
19
<PAGE> 25
FINANCING OF THE ACQUISITION
The $122.0 million cash purchase price of Pierre was financed by the
proceeds of the Initial Notes Offering and an initial borrowing under the Bank
Facility. The sources and uses of funds in connection with the Transactions were
as follows (in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Initial Notes............................................... $115.0
Bank Facility(1)............................................ 31.2
------
Total sources of funds............................ $146.2
======
USES OF FUNDS:
Acquisition................................................. $122.0
Repayment of existing indebtedness.......................... 17.7
Estimated fees and expenses................................. 6.5
------
Total uses of funds............................... $146.2
======
</TABLE>
- ---------------
(1) Of this amount, $30.5 million was paid on June 9, 1998 with the proceeds of
an initial borrowing under the Bank Facility. Immediately after the
consummation of the Acquisition, and accounting for the payment of estimated
fees and expenses, approximately $20.5 million was available to the Company
for borrowing under the Bank Facility pursuant to the borrowing base formula
set forth therein.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer. The net proceeds to the Company from the sale of
the Initial Notes were approximately $111.3 million, after deducting the Initial
Purchasers' discount and Initial Note Offering expenses. Such proceeds, along
with the proceeds of borrowings under the Bank Facility, have been and will be
used (i) to fund the Acquisition, (ii) to pay related fees and expenses and
(iii) to repay existing indebtedness for borrowed money of the Company. At June
9, 1998, such indebtedness totaled $17.7 million, accrued interest at rates
between 8.50% and 9.75% per annum and was scheduled to mature between November
1998 and February 2012. Of such indebtedness, approximately $5.9 million was
incurred during fiscal 1998. The proceeds of such indebtedness were used for new
restaurant construction (approximately $4.6 million) and a stock repurchase from
an institutional investor (approximately $1.3 million).
20
<PAGE> 26
CAPITALIZATION OF THE COMPANY
The following sets forth the historical capitalization of Fresh Foods as of
May 22, 1998 and the pro forma capitalization of the Company adjusted to give
effect to the Transactions as if they had occurred on May 22, 1998.
The following table should be read in conjunction with the audited
historical financial statements of Fresh Foods and Pierre, the Unaudited Pro
Forma Combined Financial Information of the Company, the notes thereto and the
other financial information contained elsewhere in this Prospectus. The
financial information reflected in the table has been derived from Fresh Foods'
unaudited consolidated financial statements for its fiscal quarter ended May 22,
1998 and from Pierre's unaudited financial statements for its three-month period
ended May 30, 1998. See "Available Information," "Unaudited Pro Forma Combined
Financial Information of the Company," "Selected Historical Financial
Information of Fresh Foods," "Selected Historical Financial Information of
Pierre," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements of Fresh Foods and Pierre
contained elsewhere herein.
<TABLE>
<CAPTION>
AS OF MAY 22, 1998
-------------------------------------
FRESH FOODS ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt (including current portion):
Existing long-term debt (1)............................... $21,468 $(17,850) $ 3,618
Bank Facility............................................. -- 31,347 31,347
Initial Notes............................................. -- 115,000 115,000
------- -------- --------
Total long-term debt................................... 21,468 128,497 149,965
Shareholders' equity........................................ 39,593 (869) 38,724
------- -------- --------
Total capitalization................................. $61,061 $127,628 $188,689
======= ======== ========
</TABLE>
- ---------------
(1) Includes capital lease obligations and notes payable.
21
<PAGE> 27
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE COMPANY
The following unaudited pro forma combined financial information gives
effect to the Transactions as if they had occurred on March 1, 1997, in the case
of the Unaudited Pro Forma Combined Statement of Operations of the Company, and
on May 22, 1998, in the case of the Unaudited Pro Forma Combined Balance Sheet
of the Company.
The Acquisition will be accounted for using the purchase method of
accounting. The total cost of the Acquisition has been preliminarily allocated
to the acquired assets and assumed liabilities on the assumption that the
historical amounts of assets and liabilities recorded in the accompanying pro
forma financial information approximate their respective fair values. The actual
allocation of purchase cost, however, and the resulting effect on income may
differ from the pro forma amounts included herein.
The pro forma combined financial data is presented for illustrative
purposes only and is not necessarily indicative of what the Company's financial
position or results of operations would have been had the Transactions occurred
as of the above-referenced dates or of the financial position or results that
may be reported by the Company in the future. Not included in the accompanying
pro forma financial information are the effects of certain cost reductions and
operating efficiencies expected to result from the Acquisition.
The pro forma combined financial information should be read in conjunction
with the historical consolidated financial statements of Fresh Foods and the
historical financial statements of Pierre, the notes thereto and the other
financial information contained elsewhere in this Prospectus. Such pro forma
combined financial information has been derived from Fresh Foods' financial
statements for fiscal 1998 and the fiscal quarter ended May 22, 1998 and from
Pierre's financial statements for the twelve-month period ended February 28,
1998 and the three-month period ended May 30, 1998. See "Selected Historical
Financial Information of Fresh Foods," "Selected Historical Financial
Information of Pierre," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Fresh Foods' and Pierre's financial
statements included elsewhere herein.
22
<PAGE> 28
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED FEBRUARY 27, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
------------------- PRO FORMA ADJUSTMENTS FOR ADJUSTMENTS FOR
FRESH ADJUSTMENTS FOR THE SAGEBRUSH THE INITIAL
FOODS PIERRE THE ACQUISITION ACQUISITION NOTES OFFERING TOTAL
-------- -------- --------------- --------------- --------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $158,412 $149,446 $(38,589)(1) $269,269
Cost of goods sold........ 93,018 94,155 (38,507)(1) 148,666
Restaurant operating
expenses................ 39,796 39,796
Selling, general and
administrative
expenses................ 15,593 40,346 66(2) $ (1,956)(3) 54,049
Depreciation and
amortization............ 5,004 4,339 2,913(4) 12,256
Corporate charge.......... 4,763 (4,763)(5)
-------- -------- -------- -------- -------- --------
Operating income.......... 5,001 5,843 1,702 1,956 14,502
Interest expense.......... 1,762 $ 14,781(6) 15,664
671(7)
(1,550)(8)
Other income (expense).... 739 739
-------- -------- -------- -------- -------- --------
Net earnings (loss) before
income taxes............ 3,978 5,843 1,702 1,956 (13,902) (423)
Provision (benefit) for
income taxes............ 1,728 664(9) 321(9) (5,422)(9) (431)
2,278(10)
-------- -------- -------- -------- -------- --------
Net earnings (loss)....... $ 2,250 $ 5,843 $ (1,240) $ 1,635 $ (8,480) $ 8
======== ======== ======== ======== ======== ========
EARNINGS PER SHARE:(11)
Basic................... $ 0.40 $ 0.00
======== ========
Diluted................. $ 0.37 $ 0.00
======== ========
WEIGHTED AVERAGE
SHARES:(11)
Basic................... 5,654 5,654
======== ========
Diluted................. 6,117 6,117
======== ========
OTHER DATA:
Capital expenditures................................................................................. $ 13,833
Pro Forma EBITDA(12)................................................................................. 27,497
Adjusted Pro Forma EBITDA(13)........................................................................ 30,002
Cash interest expense................................................................................ 14,993
Ratio of total debt to Adjusted Pro Forma EBITDA(13)................................................. 4.98x
Ratio of Adjusted Pro Forma EBITDA to cash interest expense.......................................... 2.00x
</TABLE>
- ---------------
(1) Reflects the elimination of transactions between Fresh Foods and Pierre
during the twelve months ended February 27, 1998.
(2) Reflects increases in salaries to be paid to two executive officers of
Pierre following the Acquisition.
(3) Represents the nonrecurring transaction expenses incurred relative to Fresh
Foods' acquisition of Sagebrush, Inc. in January 1998.
(4) Reflects the amortization of estimated goodwill generated from the
Acquisition over 25 years. The amount of goodwill and the corresponding
amortization actually recorded may ultimately differ from these amounts,
depending upon the actual fair value of net assets acquired upon
consummation of the Acquisition.
(5) Reflects the elimination of corporate charge for the twelve months ended
February 27, 1998. Corporate charge represents a charge to Pierre by Hudson
based primarily on 9.5% times the book value of
23
<PAGE> 29
accounts receivable, inventory, property, plant and equipment and other
assets, less accounts payable, plus certain corporate sales. See Note 7 to
Pierre's financial statements.
(6) Reflects the increase in interest expense associated with the Transactions.
The effective interest rates used were 10.75% with respect to the Initial
Notes ($115.0 million) and 7.875% with respect to the Bank Facility ($31.3
million). The Bank Facility bears a variable interest rate; the effect on
net earnings (loss) before income taxes of a 1/8 percentage variance in the
interest rate would be $38,392.
(7) Reflects the amortization of debt issuance costs on the assumed borrowings
made pursuant to the Initial Notes and the Bank Facility.
(8) Reflects the elimination of interest expense on $17.2 million of Fresh
Foods debt repaid with proceeds from the Initial Notes Offering and
borrowings under the Bank Facility.
(9) Reflects the net change in the provision (benefit) for income taxes
resulting from the adjustments to earnings (loss) before income taxes.
(10) Represents a pro forma tax provision on Pierre's historical excess of
revenues over expenses before income taxes at an estimated effective rate
of 39%.
(11) See Note 2 to Fresh Foods' consolidated financial statements for an
explanation of the calculation of earnings per share and the weighted
average number of shares used in such calculation.
(12) EBITDA consists of earnings before income taxes, interest expense,
depreciation and amortization. Corporate charge represents a $4.8 million
charge to Pierre by Hudson based primarily on 9.5% times the book value of
accounts receivable, inventory, property, plant and equipment and other
assets, less accounts payable, plus certain corporate sales. See Note 7 to
Pierre's financial statements. EBITDA before corporate charge is presented
because the Company believes that it is an appropriate financial indicator
of the Company's ability to service and/or incur indebtedness; however,
EBITDA before corporate charge should not be considered as an alternative
to net earnings as a measure of operating results or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principles. Pro Forma EBITDA is calculated as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
FEBRUARY 27, 1998
-------------------
(IN THOUSANDS)
<S> <C>
EBITDA before corporate charge.............................. $25,689
Pro forma adjustments:
Nonrecurring merger expenses(a)........................... 1,956
Elimination of intercompany profit in inventory(b)........ (82)
Executive officer salary increases(c)..................... (66)
-------
Total pro forma adjustments....................... 1,808
-------
Pro Forma EBITDA............................................ $27,497
=======
</TABLE>
(a) Represents nonrecurring costs incurred by Fresh Foods related to its
acquisition of Sagebrush, Inc.
(b) Represents elimination of intercompany profit recorded from
transactions between Fresh Foods and Pierre.
(c) Reflects increases in salaries to be paid to two executive officers of
Pierre following the Acquisition.
(13) Adjusted Pro Forma EBITDA consists of Pro Forma EBITDA subject to an
additional adjustment believed by the Company to be relevant to evaluating
its future operating performance. Such adjustment, which reflects the
estimated impact of personnel reductions (net of severance payments) at
Pierre realized as of April 30, 1998, is based on estimates and assumptions
made and believed to be reasonable by the Company. There can be no
assurance that the estimated impact of these personnel reductions will be
realized or sustainable in the future. The following calculation should not
be viewed as indicative of actual or future results.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
FEBRUARY 27, 1998
-------------------
(IN THOUSANDS)
<S> <C>
Pro Forma EBITDA............................................ $27,497
Personnel reductions (net of severance payments)............ 2,505
-------
Adjusted Pro Forma EBITDA.............................. $30,002
=======
</TABLE>
24
<PAGE> 30
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 22, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- PRO FORMA ADJUSTMENTS FOR
FRESH ADJUSTMENTS FOR THE INITIAL
FOODS PIERRE THE ACQUISITION NOTES OFFERING TOTAL
--------- ------- --------------- --------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 35,194 $35,140 $(8,023)(1) $ 62,311
Cost of goods sold..................... 20,228 23,972 (7,893)(1) 36,307
Restaurant operating expenses.......... 9,800 -- 9,800
Selling, general and administrative
expenses............................. 2,766 9,865 15(2) 12,646
Depreciation and amortization.......... 1,126 1,160 713(3) 2,999
Corporate charge....................... -- 1,204 (1,204)(4) --
--------- ------- ------- ------- ---------
Operating income (loss)................ 1,274 (1,061) 346 559
Interest expense....................... 420 -- $ 3,420(5) 3,673
155(6)
(322)(7)
Other income (expense)................. (310) -- (310)
--------- ------- ------- ------- ---------
Earnings (loss) before income taxes.... 544 (1,061) 346 (3,253) (3,424)
Provision (benefit) for income taxes... 205 -- 135(8) (1,268)(8) (1,343)
(415)(9)
--------- ------- ------- ------- ---------
Earnings (loss)........................ $ 339 $(1,061) $ 626 $(1,985) $ (2,081)
========= ======= ======= ======= =========
EARNINGS PER SHARE:(10)
Basic................................ $ 0.06 $ (.40)
========= =========
Diluted.............................. $ 0.05 $ (.30)
========= =========
WEIGHTED AVERAGE SHARES:(10)
Basic................................ 5,901,581 5,901,581
========= =========
Diluted.............................. 6,445,857 6,445,857
========= =========
OTHER DATA:
Capital expenditures............................................................................ $ 5,210
Pro Forma EBITDA(11)............................................................................ 3,248
Adjusted Pro Forma EBITDA(12)................................................................... 3,826
Cash interest expense........................................................................... 3,521
Ratio of total debt to Adjusted Pro Forma EBITDA(12)............................................ 39.20x
Ratio of Adjusted Pro Forma EBITDA to cash interest expense..................................... 1.09x
</TABLE>
- ---------------
(1) Reflects the elimination of transactions between Fresh Foods and Pierre
during the three months ended May 22, 1998.
(2) Reflects increases in salaries to be paid to two executive officers of
Pierre following the Acquisition.
(3) Reflects the amortization of estimated goodwill generated from the
Acquisition over 25 years. The amount of goodwill and the corresponding
amortization actually recorded may ultimately differ from these amounts,
depending upon the actual fair value of net assets acquired upon
consummation of the Acquisition.
(4) Reflects the elimination of corporate charge for the three months ended May
30, 1998. Corporate charge represents a charge to Pierre by Hudson based
primarily on 9.5% times the book value of accounts receivable, inventory,
property, plant and equipment and other assets, less accounts payable, plus
certain corporate sales. See Note 7 to Pierre's financial statements.
(5) Reflects the increase in interest expense associated with the Transactions.
The effective interest rates used were 10.75% with respect to the Initial
Notes ($115.0 million) and 7.875% with respect to the Bank Facility ($31.3
million). The Bank Facility bears a variable interest rate; the effect on
net earnings (loss) before income taxes of a 1/8 percentage variance in the
interest rate would be $38,392.
25
<PAGE> 31
(6) Reflects the amortization of debt issuance costs on the assumed borrowings
made pursuant to the Initial Notes and the Bank Facility.
(7) Reflects the elimination of interest expense on $17.8 million of Fresh
Foods debt repaid with proceeds from the Initial Notes Offering and
borrowings under the Bank Facility.
(8) Reflects the net change in the provision (benefit) for income taxes
resulting from the adjustments to earnings (loss) before income taxes.
(9) Represents a pro forma tax provision on Pierre's historical excess of
revenues over expenses before income taxes at an estimated effective rate
of 39%.
(10) See Note 2 to Fresh Foods' consolidated financial statements for an
explanation of the calculation of earnings per share and the weighted
average number of shares used in such calculation.
(11) EBITDA consists of earnings before income taxes, interest expense,
depreciation and amortization. Corporate charge represents a $1.2 million
charge to Pierre by Hudson based primarily on 9.5% times the book value of
accounts receivable, inventory, property, plant and equipment and other
assets, less accounts payable, plus certain corporate sales. See Note 7 to
Pierre's financial statements. EBITDA before corporate charge is presented
because the Company believes that it is an appropriate financial indicator
of the Company's ability to service and/or incur indebtedness; however,
EBITDA before corporate charge should not be considered as an alternative
to net earnings as a measure of operating results or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principles. Pro Forma EBITDA is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 22, 1998
-------------------
(IN THOUSANDS)
<S> <C>
EBITDA before corporate charge.............................. $ 3,393
Pro forma adjustments:
Elimination of intercompany profit in inventory(a)........ (130)
Executive officer salary increases(b)..................... (15)
-------
Total pro forma adjustments....................... (145)
-------
Pro Forma EBITDA............................................ $ 3,248
=======
</TABLE>
(a) Represents elimination of intercompany profit recorded from
transactions between Fresh Foods and Pierre.
(b) Reflects increases in salaries to be paid to two executive officers of
Pierre following the Acquisition.
(12) Adjusted Pro Forma EBITDA consists of Pro Forma EBITDA subject to an
additional adjustment believed by the Company to be relevant to evaluating
its future operating performance. Such adjustment, which reflects the
estimated impact of personnel reductions (net of severance payments) at
Pierre realized as of April 30, 1998, is based on estimates and assumptions
made and believed to be reasonable by the Company. There can be no
assurance that the estimated impact of these personnel reductions will be
realized or sustainable in the future. The following calculation should not
be viewed as indicative of actual or future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 22, 1998
-------------------
(IN THOUSANDS)
<S> <C>
Pro Forma EBITDA............................................ $ 3,248
Personnel reductions (net of severance payments)............ 578
-------
Adjusted Pro Forma EBITDA.............................. $ 3,826
=======
</TABLE>
26
<PAGE> 32
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MAY 22, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
---------------------- ADJUSTMENTS FOR ADJUSTMENTS FOR THE
FRESH FOODS PIERRE THE ACQUISITION INITIAL NOTES OFFERING TOTAL
------------ ------- --------------- ---------------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 2,431 $ 1,597 $(122,994)(1) $146,347(2) $ 4,028
(17,850)(3)
(4,753)(4)
(750)(5)
Marketable equity securities.... 221 221
Accounts receivable, net........ 4,084 7,944 12,028
Notes receivable -- current,
net........................... 1,616 1,616
Inventories..................... 7,612 22,569 (577)(6) 29,604
Income taxes refundable......... 780 780
Deferred income taxes........... 413 413
Prepaid expenses and other
current assets................ 580 49 629
------- ------- --------- -------- --------
Total current assets............ 17,737 32,159 (123,571) 122,994 49,319
Property, plant and equipment,
net........................... 48,131 22,793 70,924
Other assets:
Properties held for sale........ 1,686 1,686
Intangible assets, net.......... 3,677 77,193(1) 4,753(4) 85,623
Notes receivable................ 1,066 1,066
Deferred income taxes........... 683 683
Other........................... 935 935
------- ------- --------- -------- --------
Total other assets.............. 8,047 77,193 4,753 89,993
------- ------- --------- -------- --------
Total assets.................... $73,915 $54,952 $ (46,378) $127,747 $210,236
======= ======= ========= ======== ========
Current liabilities:
Notes payable -- banks.......... $ 6,352 $ (6,352)(3) --
Current installments of
long-term debt................ 2,410 (1,736)(3) $ 674
Trade accounts payable.......... 8,099 $ 4,386 12,485
Other accrued liabilities....... 4,755 4,584 (277)(5) 9,062
------- ------- --------- -------- --------
Total current liabilities....... 21,616 8,970 (8,365) 22,221
Long-term debt.................. 12,706 146,347(2) 149,291
(9,762)(3)
Shareholders' equity:
Common stock.................... 5,903 5,903
Capital in excess of par
value......................... 23,665 23,665
Retained earnings............... 10,001 45,982 (577)(6) (473)(5) 9,132
(45,801)(1)
Unrealized gain on securities
available for sale............ 24 24
------- ------- --------- -------- --------
Total shareholders' equity...... 39,593 45,982 (46,378) (473) 38,724
------- ------- --------- -------- --------
Total liabilities and
shareholders' equity.......... $73,915 $54,952 $ (46,378) $127,747 $210,236
======= ======= ========= ======== ========
</TABLE>
- ---------------
(1) Reflects the preliminary allocation of the purchase price of Pierre based on
the estimated fair value of the net assets acquired. This assumes that the
historical amounts of assets and liabilities recorded by Pierre as of May
30, 1998 represent their fair values at that date. The amount of goodwill
and the corresponding amortization actually recorded may ultimately differ
from these amounts, depending upon the actual fair
27
<PAGE> 33
value of net assets acquired upon consummation of the Acquisition. The
estimated purchase price allocation consists of the following (in
thousands):
<TABLE>
<S> <C>
Purchase price of Pierre.................................... $122,000
Direct costs of the Acquisition............................. 994
--------
122,994
Less estimated fair value of net assets acquired............ 45,801
--------
Excess of purchase price over fair value of net assets
acquired.................................................. $ 77,193
========
</TABLE>
(2) Reflects the proceeds of the Initial Notes Offering and the initial
borrowing under the Bank Facility to finance the Acquisition and repay
existing indebtedness.
(3) Reflects the repayment of Fresh Foods indebtedness made with proceeds of the
Initial Notes Offering and the initial borrowing under the Bank Facility.
(4) Reflects debt issuance costs related to the Initial Notes Offering and the
Bank Facility.
(5) Reflects bonuses to be paid to Messrs. Richardson and Clark upon
consummation of the Acquisition.
(6) Reflects the elimination of profit in ending inventory resulting from sales
between Fresh Foods and Pierre through May 22, 1998.
28
<PAGE> 34
SELECTED HISTORICAL FINANCIAL INFORMATION OF FRESH FOODS
The following selected historical financial information at the end of and
for each of the fiscal years ended February 25, 1994, February 24, 1995,
February 23, 1996, February 28, 1997 and February 27, 1998 has been derived from
audited consolidated financial statements of Fresh Foods. The summary historical
financial information for the fiscal quarters ended May 23, 1997 and May 22,
1998 has been derived from unaudited financial statements and, in the opinion of
the Company's management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation, in all material
respects, of the results of operations and financial position of Fresh Foods at
the end of and for each such period presented. Interim period results are not
necessarily indicative of results to be expected for a complete fiscal year. The
summary historical financial information set forth below should be read in
conjunction with the consolidated financial statements of Fresh Foods, the notes
thereto and the other financial information contained elsewhere herein. See
"Available Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Fresh Foods' consolidated financial
statements.
<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ -----------------
FEBRUARY 25, FEBRUARY 24, FEBRUARY 23, FEBRUARY 28, FEBRUARY 27, MAY 23, MAY 22,
1994 1995 1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.......................... $92,392 $122,830 $113,536 $129,934 $158,412 $36,436 $35,194
Cost of goods sold................ 53,721 77,246 69,647 79,452 93,018 21,479 20,228
Restaurant operating expenses..... 23,362 26,144 26,560 29,821 39,796 9,020 9,800
Selling, general and
administrative.................. 9,832 10,410 10,588 11,651 15,593 2,916 2,766
Depreciation and amortization..... 3,346 3,405 3,476 3,600 5,004 1,016 1,126
------- -------- -------- -------- -------- ------- -------
Operating income.................. 2,131 5,625 3,265 5,410 5,001 2,005 1,274
Interest expense, net............. 1,893 2,068 2,163 1,868 1,762 414 420
Other income/(expense)............ 808 1,064 154 600 736 13 (302)
Equity in earnings (loss) of
affiliates...................... (72) (12) (385) (107) 3 18 (8)
Provision for income taxes
(benefit)....................... (263) 575 (1,139) 2,010 1,728 620 205
------- -------- -------- -------- -------- ------- -------
Earnings before extraordinary item
and accounting change........... 1,237 4,034 2,010 2,025 2,250 1,002 339
Extraordinary items and accounting
change(1)....................... (245) -- -- 415 -- -- --
------- -------- -------- -------- -------- ------- -------
Net earnings...................... $ 992 $ 4,034 $ 2,010 $ 2,440 $ 2,250 $ 1,002 $ 339
======= ======== ======== ======== ======== ======= =======
EARNINGS PER SHARE:(2)
Basic............................. $ 0.42 $ 0.48 $ 0.40 $ 0.18 $ 0.06
Diluted........................... $ 0.41 $ 0.45 $ 0.37 $ 0.17 $ 0.05
OTHER DATA:
Capital expenditures.............. $ 6,755 $ 3,674 $ 3,970 $ 9,702 $ 12,592 $ 1,820 $ 5,015
EBITDA(3)......................... 6,213 10,082 6,510 9,503 10,744 3,052 2,090
Ratio of earnings to fixed
charges(4)...................... 1.39x 3.23x 1.40x 3.14x 3.15x 4.92x 2.30x
BALANCE SHEET DATA:
Working capital (deficiency)...... $ (329) $ 1,273 $ 1,724 $ 2,114 $ (497) $(1,136) $(3,880)
Total assets...................... 55,502 54,939 51,994 59,571 71,656 66,471 73,915
Total debt........................ 25,898 22,861 21,109 18,208 20,918 20,465 21,467
Shareholders' equity.............. 19,339 22,654 22,328 31,348 39,227 33,418 39,593
</TABLE>
- ---------------
(1) Reflects cumulative effect of change in accounting principle in the amount
of $(245,000) in the fiscal year ended February 25, 1994 and extraordinary
gain from early extinguishment of debt in the amount of $415,000 in the
fiscal year ended February 28, 1997.
(2) See Note 2 to Fresh Foods' consolidated financial statements for an
explanation of the calculation of net income per share. Fresh Foods
historically has paid no dividends.
(3) EBITDA is defined as earnings before income taxes, interest expense,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness; however, EBITDA should not be considered as an alternative to
net earnings as a measure of operating results or to cash flows as a measure
of liquidity in accordance with generally accepted accounting principles.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
earnings before income taxes and extraordinary item plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest expense
(which includes amortization of deferred financing costs), whether expensed
or capitalized, and that portion of rental expense estimated to be
attributable to interest.
29
<PAGE> 35
SELECTED HISTORICAL FINANCIAL INFORMATION OF PIERRE
The following selected historical financial information at the end of and
for each of the fiscal years ended September 30, 1995, September 28, 1996 and
September 27, 1997 has been derived from audited financial statements contained
elsewhere in this Prospectus. The selected historical financial information at
the end of and for the twelve-month and eight-month periods ended February 28,
1998 and May 30, 1998, respectively, and for the eight-month period ended May
31, 1997 has been derived from unaudited financial statements and, in the
opinion of the Company's management, includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation, in all
material respects, of the results of operations and financial position of Pierre
at the end of and for each such period presented. Interim period results are not
necessarily indicative of results to be expected for a complete fiscal year. The
selected historical financial information set forth below should be read in
conjunction with the financial statements, the notes thereto and the other
financial information contained elsewhere herein. See "Available Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Pierre's financial statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWELVE MONTHS EIGHT MONTHS ENDED
--------------------------------------------- ENDED -------------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 27, FEBRUARY 28, MAY 31, MAY 30,
1995 1996 1997 1998 1997 1998
------------- ------------- ------------- -------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF REVENUES AND
EXPENSES DATA:
Revenues...................... $148,572 $136,633 $149,350 $149,446 $102,201 $ 99,827
Cost of goods sold............ 85,384 86,673 96,474 94,155 67,740 64,133
Selling, general and
administrative.............. 36,832 34,473 40,282 40,346 27,433 27,200
Depreciation.................. 4,407 4,467 4,320 4,339 2,870 3,011
-------- -------- -------- -------- -------- --------
Excess of revenues over
expenses before corporate
charge...................... 21,949 11,020 8,274 10,606 4,158 5,483
Corporate charge(1)........... 5,153 4,748 4,700 4,763 3,211 3,317
-------- -------- -------- -------- -------- --------
Excess of revenues over
expenses before income
taxes(2).................... $ 16,796 $ 6,272 $ 3,574 $ 5,843 $ 947 $ 2,166
======== ======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures(3)....... $ 913 $ 1,421 $ 1,405 $ 1,241 $ 410 $ 195
EBITDA before corporate
charge(4)................... 26,356 15,487 12,594 14,945 7,028 8,494
BALANCE SHEET DATA:
Working capital............... $ 21,392 $ 24,681 $ 22,855 $ 25,576 $ 23,189
Total assets.................. 62,702 59,688 57,905 58,413 54,952
Net assets.................... 51,361 51,180 47,541 50,352 45,982
</TABLE>
- ---------------
(1) Represents a charge to Pierre by Hudson based primarily on 9.5% times the
book value of working capital and property, plant and equipment, and other
assets, less accounts payable, plus certain corporate sales. See Note 7 to
Pierre's Financial Statements.
(2) For the periods presented, Pierre was a division of Hudson, which was itself
acquired by Tyson in January 1998. Neither Hudson nor Tyson allocated
specific income tax liabilities or provisions to Pierre.
(3) Reflects capital expenditures incurred in the Cincinnati facility, which the
Company considers representative of capital expenditures for Pierre.
(4) EBITDA consists of excess of revenues over expenses before income taxes,
interest expense, depreciation and amortization. EBITDA before corporate
charge is presented because the Company believes that it is an appropriate
financial indicator of the Company's ability to service and/or incur
indebtedness; however, EBITDA before corporate charge should not be
considered as an alternative to excess of revenues over expenses before
income taxes as a measure of operating results or to cash flows as a measure
of liquidity in accordance with generally accepted accounting principles.
30
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF FRESH FOODS
Fresh Foods' operations are classified into two business segments: food
processing operations, principally sandwich production; and restaurant
operations, comprised of the Sagebrush, Western Steer, Prime Sirloin and
Bennett's concepts. Results for each segment for fiscal 1996, fiscal 1997 and
fiscal 1998, and for the fiscal quarters ended May 23, 1997 and May 22, 1998,
are shown below:
<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED ENDED
------------------------------------------ -----------------
FEBRUARY 23, FEBRUARY 28, FEBRUARY 27, MAY 23, MAY 22,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues:
Food processing operations.......... $ 50.9 $ 58.6 $ 66.2 $ 15.3 $ 13.4
Restaurant operations............... 62.6 71.3 92.2 21.1 21.8
------ ------ ------ ------ ------
Total..................... 113.5 129.9 158.4 36.4 35.2
------ ------ ------ ------ ------
Cost of goods sold:
Food processing operations.......... 47.0 53.8 59.2 13.8 12.3
Restaurant operations............... 22.6 25.6 33.8 7.7 7.9
------ ------ ------ ------ ------
Total..................... 69.6 79.4 93.0 21.5 20.2
------ ------ ------ ------ ------
Restaurant operating expenses....... 26.5 29.8 39.8 9.0 9.8
Selling, general and
administrative.................... 10.6 11.7 15.6 2.9 2.8
Depreciation and amortization....... 3.5 3.6 5.0 1.0 1.1
------ ------ ------ ------ ------
Operating income.................... 3.3 5.4 5.0 2.0 1.3
------ ------ ------ ------ ------
Other income (expense).............. (2.4) (1.4) (1.0) (0.4) (0.8)
------ ------ ------ ------ ------
Earnings before income taxes and
extraordinary items............... 0.9 4.0 4.0 1.6 0.5
------ ------ ------ ------ ------
Provision for income taxes
(benefit)......................... (1.1) 2.0 1.7 0.6 0.2
------ ------ ------ ------ ------
Earnings before extraordinary
item.............................. 2.0 2.0 2.3 1.0 0.3
------ ------ ------ ------ ------
Extraordinary item.................. -- 0.4 -- -- --
------ ------ ------ ------ ------
Net earnings........................ $ 2.0 $ 2.4 $ 2.3 $ 1.0 $ 0.3
====== ====== ====== ====== ======
</TABLE>
Fiscal Quarter Ended May 22, 1998 Compared to Fiscal Quarter Ended May 23,
1997
Revenues. Revenues decreased by $1.2 million, or 3.4%, due to a $1.9
million (12.5%) decrease in the food processing segment that more than offset a
$664,000 (3.1%) increase in the restaurant segment. The increase in restaurant
revenues was due to the opening, following the fiscal quarter ended May 23,
1997, of eleven Sagebrush restaurants, consisting of five new restaurants and
six conversions. The revenue effect of the new Sagebrush restaurants was offset
somewhat by the closing of six non-Sagebrush restaurants. The decrease in food
processing revenues resulted primarily from inventory management efforts in the
fiscal quarter ended May 22, 1998 by Fresh Foods' largest customer, Pierre, in
anticipation of the consummation of the Acquisition, as well as declines in
sales of hams and ham products during such fiscal quarter.
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<PAGE> 37
Cost of goods sold. Cost of goods sold decreased by $1.3 million, or 5.8%,
due to a $1.5 million (10.7%) decrease in such cost in the food processing
segment. Cost of goods sold in the restaurant segment increased by $228,000, or
3.0%, due to the operation of additional restaurants in the fiscal quarter ended
May 22, 1998. The decrease in such cost in the food processing segment was
attributable to lower volume in the latter period. Cost of goods sold in the
food processing segment increased as a percentage of operating revenues of that
segment from 90.2% to 91.9% due to Fresh Foods' inability to decrease fixed
costs concurrently with the decrease in business volume.
Restaurant operating expenses. Such expenses increased by $780,000, or
8.6%, as a result of the opening and operation of additional restaurants in the
fiscal quarter ended May 22, 1998. As a percentage of restaurant revenues,
restaurant operating expenses increased from 42.8% to 44.9% due to the
incurrence, in the latter period, of pre-opening costs associated with a larger
number of new restaurants.
Selling, general and administrative. Such expenses were essentially
unchanged, both in absolute terms and as a percentage of revenues.
Depreciation and amortization. Depreciation and amortization increased
slightly in absolute terms (by $111,000) and as a percentage of revenues (from
2.8% to 3.2%). Both business segments contributed to such increases.
Operating income. Operating income decreased by $731,000, or 36.4%, and
decreased as a percentage of revenues from 5.5% to 3.6%, for the reasons stated
above.
Other income (expense). Net other expense increased by $347,000, or 90.7%,
due to (1) write-downs in the book values of certain fixtures and equipment
recorded in the latter period upon conversion of older restaurants to the
Sagebrush concept, (2) the cost of carrying restaurants closed during fiscal
1998 and (3) a write-down of the book value of computer software that management
had determined not to utilize in the future.
Earnings before income taxes and extraordinary items. Such earnings
decreased by $1.1 million, or 66.5%, and decreased as a percentage of revenues
from 4.5% to 1.5%, for the reasons stated above.
Provision for income taxes. The effective tax rate for the fiscal quarter
ended May 22, 1998 was 37.7%, as compared to 38.2% for the year-earlier quarter.
Net earnings. Net earnings decreased by $663,000, or 66.2%, for the
reasons stated above.
Fiscal 1998 Compared to Fiscal 1997
Revenues. Revenues increased by $28.5 million, or 21.9%, due to a $20.9
million (29.3%) increase in the restaurant segment and a $7.6 million (13.0%)
increase in the food processing segment. The increase in restaurant revenues was
due to the March 1997 acquisition of fourteen restaurants from a former
franchisee and the opening of seven Sagebrush restaurants during fiscal 1998,
offset by the closing of six non-Sagebrush restaurants. The increase in food
processing revenues was due to the introduction of a new line of HMR products
and to a general increase in the volume of other food products.
Cost of goods sold. Cost of goods sold increased by $13.6 million, or
17.1%, due to increases in such cost in both business segments. Cost of goods
sold in the food processing segment increased by $5.4 million, or 10.0%, but
decreased as a percentage of operating revenues of that segment from 91.8% to
89.4%. The decrease was due to three principal factors: (1) a shift within the
ham segment to the production of higher-margin products, (2) a slight increase
in the margins associated with the new line of HMR products and (3) an
improvement in the absorption of fixed costs. Cost of goods sold in the
restaurant segment increased by $8.2 million, or 32.0%, and increased as a
percentage of restaurant revenues from 35.9% to 36.7%, due primarily to higher
beef costs in fiscal 1998.
Restaurant operating expenses. Such expenses increased by $10.0 million,
or 33.6%, primarily as a result of the operation of additional restaurants in
fiscal 1998. As a percentage of restaurant revenues,
32
<PAGE> 38
restaurant operating expenses increased from 41.8% to 43.2% due primarily to the
incurrence in fiscal 1998 of rental expense associated with the fourteen
restaurants purchased from a former franchisee.
Selling, general and administrative. Such expenses increased by $3.9
million, or 33.3%, due to a $2.0 million nonrecurring cost associated with the
acquisition of Sagebrush, Inc., and costs related to the operation of additional
restaurants in fiscal 1998. But for the nonrecurring cost, selling, general and
administrative expenses as a percentage of revenues would have declined
slightly.
Depreciation and amortization. Depreciation and amortization increased by
$1.4 million, or 38.9%, and increased as a percentage of revenues from 2.8% to
3.2% due to the construction of additional restaurants and the acquisition of
fourteen restaurants from a former franchisee in fiscal 1998.
Operating income. Operating income decreased by $409,000, or 7.6%, and
decreased as a percentage of revenues from 4.2% to 3.2%, for the reasons stated
above.
Other income (expense). Net other expense decreased by $352,000, or 25.6%,
due primarily to gains on the sale of excess real property.
Earnings before income taxes and extraordinary items. Such earnings
remained unchanged at $4.0 million, but declined as a percentage of revenues
from 3.1% to 2.5%, for the reasons stated above.
Provision for income taxes. The effective tax rate for fiscal 1998 was
43.4%, as compared to 49.8% for fiscal 1997. Such rates were higher than the
combined federal and state rates primarily due to nondeductible permanent
differences. See Note 10 to Fresh Foods' financial statements.
Earnings before extraordinary item. Such earnings increased by $309,000,
or 15.0%, for the reasons stated above.
Extraordinary item. In fiscal 1997, Fresh Foods recorded an extraordinary
gain of $415,000, net of tax, due to extinguishment of debt.
Net earnings. Net earnings decreased by $100,000, or 4.2%, and decreased
as a percentage of revenues from 1.8% to 1.5%, for the reasons stated above.
Fiscal 1997 Compared to Fiscal 1996
Revenues. Revenues increased by $16.4 million, or 14.4%, due to an $8.7
million (13.9%) increase in the restaurant segment and a $7.7 million (15.1%)
increase in the food processing segment. The opening of six Sagebrush
restaurants and a slight increase in same-store sales accounted for the increase
in restaurant revenues. The increase in food processing revenues was driven by a
$9.6 million volume increase in the bakery, representing the introduction of
certain bread stick products and, of greater significance, new sandwich volume
marketed to replace old volume lost in fiscal 1996 upon the attrition of a
significant warehouse customer. The increase in bakery volume was offset by a
$1.8 million decline in ham product sales.
Cost of goods sold. Cost of goods sold increased by $9.8 million, or
14.1%. Cost of goods sold in the food processing segment increased by $6.8
million, or 14.5%, but decreased as a percentage of revenues of that segment
from 92.3% to 91.8%. The increase in bakery volume referred to above resulted in
a decrease in fixed cost per unit sold. Cost of goods sold in the restaurant
segment increased by $3.0 million, or 13.3%, but decreased as a percentage of
restaurant revenues from 36.1% to 35.9% due to slightly lower food costs in
fiscal 1997.
Restaurant operating expenses. Restaurant operating expense increased by
$3.3 million, or 12.5%, due to the increase in restaurant volume. As a
percentage of restaurant revenues, such expense decreased from 42.3% to 41.8%
due to the slight increase in same-store sales.
Selling, general and administrative. Such expenses increased by $1.1
million, or 10.4%, but decreased slightly as a percentage of revenues due to
utilization of available scale economies.
33
<PAGE> 39
Depreciation and amortization. Depreciation and amortization was
essentially unchanged. As a percentage of revenues, depreciation and
amortization decreased from 3.1% to 2.8% due to utilization of available scale
economies.
Operating income. Operating income increased by $2.1 million, or 63.6%,
and increased as a percentage of revenues from 2.9% to 4.2%, for the reasons
stated above.
Other income (expense). Net other expense decreased by $1.0 million, or
41.7%, due primarily to lower interest expense, management's decision to
terminate certain unprofitable restaurant joint ventures and an insurance
settlement.
Earnings before income taxes and extraordinary items. Such earnings
increased by $3.1 million, and increased as a percentage of revenues from 0.8%
to 3.1%, for the reasons stated above.
Provision for income taxes (benefit). Certain of the related corporations
that had conducted the business of Sagebrush, Inc. before its initial public
offering in January 1996 were subchapter "S" corporations. This materially
affected the fiscal 1996 benefit. See Note 10 to Fresh Foods' financial
statements.
Earnings before extraordinary item. Such earnings were essentially
unchanged, both in absolute terms and as a percentage of revenues.
Extraordinary item. In fiscal 1997, Fresh Foods recorded an extraordinary
gain of $415,000, net of tax, due to extinguishment of debt.
Net earnings. Net earnings increased by $400,000, or 20.0%, primarily due
to the extraordinary item in fiscal 1997. As a percentage of revenues, net
earnings increased slightly for the reasons stated above.
RESULTS OF OPERATIONS OF PIERRE
Pierre is a food processor focused on the foodservice and HMR markets.
Results for the fiscal years ended September 30, 1995, September 28, 1996 and
September 27, 1997, and for the eight-month periods ended May 31, 1997 and May
30, 1998, are shown below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED EIGHT MONTHS ENDED
--------------------------------------------- -----------------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 27, MAY 31, MAY 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues...................... $148.6 $136.6 $149.3 $102.2 $99.8
Cost of goods sold............ 85.4 86.7 96.5 67.7 64.1
Selling, general and
administrative.............. 36.8 34.5 40.3 27.4 27.2
Depreciation.................. 4.4 4.5 4.3 2.9 3.0
Excess of revenues over
expenses before corporate
charge...................... 22.0 10.9 8.2 4.2 5.5
</TABLE>
Eight Months Ended May 30, 1998 Compared to Eight Months Ended May 31, 1997
Revenues. Revenues decreased by $2.4 million, or 2.3%, primarily because
sales to Tyson decreased in anticipation of the Acquisition.
Cost of goods sold. Cost of goods sold decreased by $3.6 million, or 5.3%,
and decreased as a percentage of revenues from 66.3% to 64.2%, as Pierre
terminated the production of non-Pierre food products that had resulted in
operating inefficiencies in the fiscal year ended September 27, 1997.
Selling, general and administrative. Such expenses were essentially
unchanged in absolute terms and increased slightly as a percentage of revenues.
Depreciation. Depreciation was essentially unchanged in both absolute
terms and as a percentage of revenues.
34
<PAGE> 40
Excess of revenues over expenses before corporate charge. Such excess
increased by $1.3 million, or 31.0%, and increased as a percentage of revenues
from 4.1% to 5.5%, for the reasons stated above.
Fiscal Year Ended September 27, 1997 Compared to Fiscal Year Ended September
28, 1996
Revenues. Revenues increased by $12.7 million, or 9.3%, primarily due to
volume increases in sales to school systems and vending machine operators. Sales
to these segments increased significantly to replace volume lost following
customer attrition in the fiscal year ended September 28, 1996.
Cost of goods sold. Cost of goods sold increased by $9.8 million, or
11.3%, and as a percentage of revenues increased from 63.5% to 64.6%. The
increase as a percentage of revenues occurred because the increase in volume of
certain non-Pierre food products at the Cincinnati facility resulted in
operating inefficiencies.
Selling, general and administrative. Such expenses increased by $5.8
million, or 16.8%, and increased as a percentage of revenues from 25.3% to
27.0%, due primarily to the unusually high selling expenses associated with the
introduction of new products to new customers in response to the customer
attrition in the fiscal year ended September 28, 1996, as well as management's
initiative to diversify Pierre's customer base.
Depreciation. Depreciation declined slightly in absolute terms and
decreased from 3.3% to 2.9% as a percentage of revenues.
Excess of revenues over expenses before corporate charge. Such excess
decreased by $2.7 million, or 24.8%, and decreased as a percentage of revenues
from 8.0% to 5.5%, for the reasons stated above.
Fiscal Year Ended September 28, 1996 Compared to Fiscal Year Ended September
30, 1995
Revenues. Revenues decreased by $12.0 million, or 8.1%, due primarily to
the attrition of a key customer that discontinued its relationship with Pierre
upon acquiring a competitor of Pierre. The loss of such volume was partially
offset by sales to new warehouse club customers and by increased sales to other
foodservice segments.
Cost of goods sold. Cost of goods sold increased by $1.3 million, or 1.5%,
and increased as a percentage of revenues from 57.5% to 63.5%, due to the
partial replacement of the loss of other business with sales of lower margin
items.
Selling, general and administrative. Such expenses decreased by $2.3
million, or 6.3%, due primarily to a reduction in sales commissions paid,
resulting from lower sales volume. As a percentage of revenues, selling, general
and administrative expenses increased from 24.8% to 25.3%.
Depreciation. Depreciation increased slightly both in absolute terms and
as a percentage of revenues.
Excess of revenues over expenses before corporate charge. Such excess
decreased by $11.1 million, or 50.5%, and decreased as a percentage of revenues
from 14.8% to 8.0%, for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
Fresh Foods
Fresh Foods had a working capital deficit of $3.9 million at May 22, 1998,
as compared to a deficit of $497,000 at February 27, 1998. Most of the decrease
in working capital was attributable to restaurant conversions and, to a lesser
extent, new restaurant construction. The remainder resulted from legal and
accounting fees incurred in connection with the Acquisition and related
financing transactions and, to a lesser extent, from normal seasonal
fluctuations in working capital requirements.
Fresh Foods has traditionally financed its working capital needs through a
combination of cash flow from operations and bank borrowings and, from time to
time, sales of underutilized assets. During fiscal 1997, Fresh Foods entered
into an agreement with a bank to provide a $6.0 million revolving credit
facility, secured by a lien on inventory and receivables. At May 22, 1998,
approximately $4.1 million was outstanding under this
35
<PAGE> 41
facility subject to the applicable borrowing base formula. Fresh Foods also
obtained construction loans from a bank in amounts of up to $1.0 million per
restaurant to finance the construction of new restaurants. At May 22, 1998, an
aggregate of approximately $548,000 was outstanding under such facilities with
respect to three restaurants.
Funding for capital expenditures has been obtained primarily through
current earnings and term loans. Such funding also has been obtained in recent
years through the initial public offering of Sagebrush, Inc. and sales of
underutilized assets. Capital expenditures were $5.0 million for the fiscal
quarter ended May 22, 1998, as compared to $1.8 million for the first quarter of
fiscal 1998. The reason for the $3.2 million increase was the construction of
one new Sagebrush restaurant and the conversion of four restaurants to the
Sagebrush concept during the first quarter of fiscal 1999.
Pierre
Pierre had working capital of $23.2 million at May 30, 1998, as compared to
$22.9 million at September 27, 1997. The increase was due primarily to decreases
in accounts payable and accrued bonuses.
In recent years, Pierre has financed its working capital needs and funded
its capital expenditures with cash flow from operations. No long-term debt was
carried at September 26, 1996, September 27, 1997 or May 30, 1998.
Capital expenditures were approximately $1.4 million in each of the last
two fiscal years and approximately $200,000 in the eight months ended May 30,
1998. In recent years, Pierre's capital expenditures have been devoted to the
maintenance of existing properties, as distinguished from the acquisition and
construction of new properties. Pierre completed installation of a new
production line in 1998 at an approximate aggregate cost of $1.3 million.
The Company
The Company anticipates that its cash requirements, including working
capital, capital expenditures and required principal and interest payments due
under the Bank Facility and interest payments due under the Notes, which
represent significant liquidity requirements, will be met through a combination
of funds provided by operations, borrowings under the Bank Facility and,
depending upon stock market conditions and other factors, the net proceeds of a
possible offering of its common stock. In addition, from time to time the
Company expects to continue its practice of acquiring equipment with the
proceeds of secured bank loans or capital or operating leases.
The Company has budgeted approximately $13.5 million for capital
expenditures in fiscal 1999, including expenditures for Pierre subsequent to the
Acquisition. These expenditures are expected to be devoted to (i) restaurant
conversions and the construction of three new Sagebrush restaurants
(approximately $10.6 million) and (ii) routine equipment upgrading and
maintenance (approximately $2.9 million).
The Bank Facility provides for a five-year revolving line of credit under
which the Company may borrow up to an amount (including standby letters of
credit up to $2.5 million) equal to the lesser of $75.0 million or a borrowing
base (comprised of eligible accounts receivable, inventory, machinery and real
property). The portion of the Bank Facility not used in connection with
consummation of the Acquisition may be used for working capital requirements,
permitted acquisitions and general corporate purposes. Borrowings under the Bank
Facility will bear interest at floating rates based upon the interest rate
option selected from time to time by the Company. See "Description of Bank
Facility."
As of June 9, 1998, after giving effect to the Transactions, the Company
had approximately $31.2 million in outstanding borrowings under the revolving
line of credit and approximately $20.5 million of additional availability under
the Bank Facility. See "The Acquisition -- Financing of the Acquisition."
36
<PAGE> 42
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations from and including fiscal 1996 through the first quarter
of fiscal 1999.
SEASONALITY
The Company considers its restaurant operations to be somewhat seasonal in
nature, with stronger sales during the Christmas season and spring, weaker sales
during the mid-summer and late winter. Except for sales to school districts,
which decline significantly during the summer, there is no seasonal variation in
the Company's sales of food products. The Company's food production is steady
throughout the year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," was issued. SFAS No. 130 will require
disclosure of comprehensive income (which is defined as "the change in equity
during a period excluding changes resulting from investments by shareholders and
distributions to shareholders") and its components. The Company will be required
to adopt this new disclosure requirement for fiscal 1999.
Also in June 1997, SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," was issued. SFAS No. 131 redefines how
operating segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments. The Company
will be required to adopt this new standard for fiscal 1999.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (the "AICPA") issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on the types
of internal costs, including payroll and interest costs, which should be
capitalized relative to development of software applications. The Company will
be required to adopt this new statement for fiscal 1999.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The Company will
be required to adopt this new statement, too, for fiscal 1999.
37
<PAGE> 43
THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $115.0 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Initial Notes properly tendered on or prior to the Expiration Date and
not withdrawn as permitted pursuant to the procedures described below. The
Exchange Offer is being made with respect to all of the Initial Notes.
As of the date of this Prospectus, the aggregate principal amount of the
Initial Notes outstanding is $115.0 million. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about October 1, 1998 to all
holders of Initial Notes known to the Company. The Company's obligation to
accept Initial Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions set forth under "--Certain Conditions to the Exchange Offer"
below. The Company currently expects that each of the conditions will be
satisfied and that no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Initial Notes were issued on June 9, 1998 in a transaction exempt from
the registration requirements of the Securities Act. Accordingly, the Initial
Notes may not be reoffered, resold or otherwise transferred unless registered
under the Securities Act or any applicable securities law or unless an
applicable exemption from the registration and prospectus delivery requirements
of the Securities Act is available.
In connection with the issuance and sale of the Initial Notes, the Company
and the Guarantors entered into the Registration Rights Agreement, which
required the Company and the Guarantors to file with the Commission the
Registration Statement of which this Prospectus is a part not later than 30 days
after the date of original issuance of the Initial Notes and to use their best
efforts to cause the Registration Statement to become effective under the
Securities Act not later than 150 days after the date of original issuance of
the Initial Notes and the Exchange Offer to be consummated not later than 30
business days after the date of the effectiveness of the Registration Statement.
A copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
The term "holder" with respect to the Exchange Offer means any person in
whose name Initial Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose Initial Notes are held of record by The Depository
Trust Company ("DTC"). Other than pursuant to the Registration Rights Agreement,
the Company is not required to file any registration statement to register any
outstanding Initial Notes. Holders of Initial Notes who do not tender their
Initial Notes or whose Initial Notes are tendered but not accepted would have to
rely on exemptions from the registration requirements under the securities laws,
including the Securities Act, if they wish to sell their Initial Notes.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Initial Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Initial Notes for which they may be exchanged
pursuant to this Exchange Offer, except that the Exchange Notes will generally
be freely transferable by holders thereof and will not be subject to any
covenant regarding registration. The Exchange Notes will evidence the same
indebtedness as the Initial Notes and will be entitled to the benefits of the
Indenture. See "Description of the Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
The Company is making the Exchange Offer in reliance on the position of the
Commission staff as set forth in certain interpretive letters addressed to other
persons in connection with other transactions. Based on
38
<PAGE> 44
these interpretations by the Commission staff, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Initial
Notes may be offered for sale, resold and otherwise transferred by any holder of
such Exchange Notes (other than any such holder that is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any other such person is
engaging in or intends to engage in a distribution of such Exchange Notes. The
Company has not sought its own interpretive letter. There can be no assurance
that the Commission staff would make a similar determination with respect to the
Exchange Notes. See "-- Resale of Exchange Notes" and "Plan of Distribution."
Interest on the Exchange Notes shall accrue from the last Interest Payment
Date on which interest was paid on the Initial Notes so surrendered or, if no
interest has been paid on such Notes, from June 9, 1998.
Tendering holders of the Initial Notes shall not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Initial Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 2, 1998 (the "Expiration Date"), which is not less than 20 business
days after the commencement of the Exchange Offer in accordance with Rule
14e-1(a) under the Exchange Act. The Company expressly reserves the right, at
any time or from time to time, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange of any Initial
Notes, by giving oral or written notice to the Exchange Agent and by giving
written notice of such extension to the holders thereof or by timely public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date. During any such extension,
all Initial Notes previously tendered will remain subject to the Exchange Offer
unless properly withdrawn. The Company does not anticipate extending the
Expiration Date.
The Company expressly reserves the right (i) to terminate the Exchange
Offer and not to accept for exchange any Initial Notes not theretofore accepted
for exchange upon the occurrence of any of the events specified below under
"-- Certain Conditions to the Exchange Offer" which have not been waived by the
Company and (ii) to amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Initial Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the
Initial Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day
excluding Saturday, Sunday or any other day which is a legal holiday under the
laws of Charlotte, North Carolina or New York, New York or is a day on which
banking institutions therein located are authorized or required by law or other
governmental action to close.
PROCEDURES FOR TENDERING INITIAL NOTES
The tender to the Company of Initial Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Initial Notes for exchange pursuant to the Exchange Offer must transmit either
(i) a properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the Exchange Agent,
at the address set forth below under "-- Exchange Agent" on or prior to the
Expiration Date, or (ii) if such Initial Notes are tendered pursuant to the
procedures for book-entry transfer set forth below under "-- Book-Entry
Transfer," a holder tendering Initial Notes may transmit an Agent's Message (as
defined herein) to the Exchange Agent in lieu of the Letter of Transmittal, in
either case on or prior to the Expiration Date. In addition, either
39
<PAGE> 45
(i) certificates for such Initial Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Initial Notes, if such procedure
is available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
along with the Letter of Transmittal or an Agent's Message, as the case may be,
must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the holder must comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message, transmitted to the Book-Entry
Transfer Facility and received by the Exchange Agent and forming a part of the
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering holder that such holder
has received and agrees to be bound by the Letter of Transmittal and the Company
may enforce the Letter of Transmittal against such holder. THE METHOD OF
DELIVERY OF INITIAL NOTES, LETTERS OF TRANSMITTAL OR AGENT'S MESSAGE AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR INITIAL NOTES
SHOULD BE SENT TO THE COMPANY.
If tendered Initial Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Initial Notes are to be reissued) in the
name of the registered holder (which term, for the purposes described herein,
shall include any participant in the Book-Entry Transfer Facility's systems
whose name appears on a security listing as the owner of Initial Notes), the
signature of such signer need not be guaranteed. In any other case, the tendered
Initial Notes must be endorsed or accompanied by written instruments of transfer
in form satisfactory to the Company and duly executed by the registered holder,
and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution (each, an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Initial
Notes not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Initial Notes, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly executed Letter of Transmittal
accompanied by the Initial Notes is received by the Exchange Agent or (ii) a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided below) from an Eligible Institution is received by
the Exchange Agent. Issuances of Exchange Notes in exchange for Initial Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Initial Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal or Initial Notes tendered for
exchange will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Initial Notes not properly
tendered and not to accept any particular Initial Notes for exchange which
acceptance might, in the judgment of the Company or its counsel, be unlawful.
The Company also reserves the absolute right to waive any defects or
irregularities as to any particular Initial Notes or conditions of the Exchange
Offer either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Initial Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Initial Notes for exchange must be
cured within such reasonable period of time as the Company shall determine. None
of the Company, the Guarantors, the Exchange Agent nor any other
40
<PAGE> 46
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Initial Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Initial Notes, such Initial Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Initial Notes.
If the Letter of Transmittal or any Initial Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, (a) Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, (b) neither the holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and (c) neither the
holder nor any such other person is an "affiliate" of the Company as defined
under Rule 405 of the Securities Act (or, if it is an affiliate, it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable). Any holder of Initial Notes using the Exchange Offer
to participate in a distribution of the Exchange Notes (i) cannot rely on the
position of the Commission staff set forth in certain no-action and interpretive
letters and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Initial Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Initial Notes by causing the
Book-Entry Transfer Facility to transfer such Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. Although delivery of
Initial Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees, or an Agent's Message in lieu of a Letter of
Transmittal, and any other required documents, must in any case be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURE
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Initial Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below, on or prior to the Expiration Date, a letter by
hand or mail, or sent by facsimile transmission (receipt confirmed by telephone
and an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Initial Notes are registered and, if possible, the
certificate numbers of the Initial Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that, within three business days
after the Expiration Date, the Initial Notes in proper form for transfer or a
Book-Entry Confirmation will be delivered by such Eligible Institution together
with a properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Initial Notes being tendered by the above-described
method are
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<PAGE> 47
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery")
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
WITHDRAWAL RIGHTS
Tenders of Initial Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) or letter must be received by the
Exchange Agent at the address set forth herein prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Initial Notes to be withdrawn (the "Depositor"), (ii) identify the
Initial Notes to be withdrawn (including the certificate number or numbers of
such Initial Notes and the principal amount of each such Initial Note), (iii)
specify the principal amount of Initial Notes to be withdrawn, (iv) include a
statement that such holder is withdrawing his election to have such Initial
Notes exchanged, (v) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Initial Notes were tendered
or as otherwise described above (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee under the
Indenture register the transfer of such Initial Notes into the name of the
person withdrawing the tender and (vi) specify the name in which any such
Initial Notes are to be registered, if different from that of the Depositor. The
Exchange Agent will return the properly withdrawn Initial Notes promptly
following receipt of notice of withdrawal. If Initial Notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Initial Notes or otherwise comply with the
Book-Entry Transfer Facility procedure. All questions as to the validity, form
and eligibility of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determinations will be final and binding on
all parties.
Any Initial Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Initial Notes tendered by Book-Entry Transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the Book-Entry Transfer
procedures described above, such Initial Notes will be credited to an account
with such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Initial Notes may be retendered by following one of
the procedures described under "-- Procedures for Tendering Initial Notes" above
at any time on or prior to the Expiration Date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Initial Notes
properly tendered and will issue the Exchange Notes promptly after such
acceptance. See "-- Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Initial Notes for exchange when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
For each Initial Note accepted for exchange, the holder of such Initial
Note will receive an Exchange Note having a principal amount equal to the
principal amount (or portion thereof) of the Initial Note surrendered for
tender.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Initial Notes or a
timely Book-Entry Confirmation of such Initial Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other
42
<PAGE> 48
required documents, or, in the case of a Book-Entry Confirmation, an Agent's
Message in lieu thereof. If any tendered Initial Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Initial
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Initial Notes will be returned
without expense to the tendering holder thereof (or, in the case of Initial
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Initial Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Initial Notes and may terminate
or amend the Exchange Offer (by oral or written notice to the Exchange Agent or
by a timely press release) if, at any time before the acceptance of such Initial
Notes for exchange or the exchange of the Exchange Notes for such Initial Notes,
any of the following events occur:
(a) in the sole judgment of the Company, the Exchange Offer would
violate any applicable law, statute, rule, regulation or interpretation of
the Commission staff; or
(b) any governmental approval has not been obtained which approval the
Company, in its sole discretion, deems necessary for the consummation of
the Exchange Offer; or
(c) there shall have occurred (i) a general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market (whether or
not mandatory), (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks by federal or state authorities
in the United States (whether or not mandatory), (iii) a commencement of a
war, armed hostilities or other international or national crisis directly
or indirectly involving the United States, (iv) a limitation (whether or
not mandatory) by any governmental authority on, or other event having
reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States or, (v) in the case of any
of the foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration or worsening thereof.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Initial Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Initial Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the
Initial Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. If the Company waives or amends the
foregoing conditions, it will, if required by law, extend the Exchange Offer for
a minimum of five business days from the date that the Company first gives
notice, by public announcement or otherwise, of such waiver or amendment, if the
Exchange Offer would otherwise expire within such five business-day period. Any
determination by the Company concerning the events described above will be final
and binding upon all parties.
In addition, the Company will not accept for exchange any Initial Notes
tendered, and no Exchange Notes will be issued in exchange for any such Initial
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture
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<PAGE> 49
Act"). In any such event, the Company is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
By Hand/Overnight Courier: By Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place Corporate Trust Division
Corporate Trust Window, 4th Floor P.O. Box 778
Boston, MA 02110 Boston, MA 02102
Attn: Kellie Mullen Attn: Kellie Mullen
</TABLE>
By Facsimile:
State Street Bank and Trust Company
Corporate Trust Operations
Facsimile Number: (617) 664-5290
Telephone Number: (617) 664-5587
Attn: Kellie Mullen
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF
INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT
CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others for
soliciting acceptances of the Exchange Offer. The Company will, however, pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the
Initial Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and the Guarantors and are estimated in the
aggregate to be approximately $350,000, which includes fees and expenses of the
Exchange Agent, Trustee, registration fees, accounting, legal, printing and
related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Initial Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance
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<PAGE> 50
thereof would not be in compliance with the laws of such jurisdiction. The
Company may, however, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Initial Notes in such jurisdiction. In any
jurisdiction in which the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is
being made on behalf of the Company by one or more registered brokers or dealers
which are licensed under the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Initial Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Initial Notes tendered,
or if tendered Initial Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of Initial Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Initial
Notes as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the exchange of Exchange Notes for Initial Notes.
Expenses incurred in connection with the issuance of the Exchange Notes will be
amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Initial Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Initial Notes as set forth in the legend thereon and in the Indenture.
Initial Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Initial Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Initial Notes under the
Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Initial
Notes should carefully consider whether to participate. Holders of the Initial
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company and the Guarantors will have fulfilled a covenant contained in the
Registration Rights Agreement. Holders of Initial Notes who do not tender their
Initial Notes in the Exchange Offer will continue to hold such Initial Notes and
will be entitled to all the rights and subject to all the limitations applicable
thereto under the Indenture, except for any such rights under the Registration
Rights Agreement that by their terms terminate or cease to have further
effectiveness as a result of the making of this Exchange Offer. All untendered
Initial Notes will continue to be subject to the restrictions on transfer set
forth in the Indenture. To the extent that Initial Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered Initial Notes
could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Initial Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Initial Notes which are not tendered in the
Exchange Offer.
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<PAGE> 51
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
Commission staff as set forth in certain interpretive letters addressed to other
persons in connection with other transactions. The Company has not sought its
own interpretive letter, however, and there can be no assurance that the
Commission staff would make a determination with respect to the Exchange Offer
similar to the determinations that it has made in its interpretive letters to
other persons. Based on existing interpretations by the Commission staff, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Initial Notes may be offered for resale, resold and otherwise
transferred by a holder (other than any holder that is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business, such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any such other person is
engaging in or intends to engage in a distribution of the Exchange Notes. Any
holder who is an "affiliate" of the Company, however, or who has an arrangement
or understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, or any broker-dealer who purchased
Initial Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act (i) could not rely on the
applicable interpretations of the Commission staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Initial Notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Initial Notes, where
such Initial Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge in the
Letter of Transmittal that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company and
the Note Guarantors have agreed, pursuant to the Registration Rights Agreement
and subject to certain specified limitations therein, to register or qualify the
Exchange Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Exchange Notes reasonably requests in
writing. Such registration or qualification may require the imposition of
restrictions or conditions (including suitability requirements for offerees or
purchasers) in connection with the offer or sale of any Exchange Notes.
46
<PAGE> 52
BUSINESS
OVERVIEW
The Company is a leading vertically-integrated producer and marketer of
fully-cooked branded and private label meat products and microwaveable
sandwiches for the domestic foodservice and HMR markets. The Company sells its
high-quality, value-added products through various distribution channels under
the Pierre, Fast Choice and Mom 'n' Pop's brand names, which are widely
recognized in the food industry. The Acquisition is the culmination of a
ten-year partnership, during which Pierre became Fresh Foods' largest customer,
representing approximately 58% of Fresh Foods' fiscal 1998 food processing
revenues. In addition to its food processing business, the Company owns and
operates 65, and franchises an additional 39, restaurants operating under the
Sagebrush, Western Steer, Prime Sirloin and Bennett's concepts. For fiscal 1998,
the Company had revenues and Adjusted Pro Forma EBITDA of $269.3 million and
$30.0 million, respectively.
ACQUISITION RATIONALE AND BUSINESS STRATEGY
The Acquisition positions the Company as a leading producer of value-added,
fully-cooked food products as well as the largest and highest-quality producer
of microwaveable sandwiches in the United States. Prior to the Acquisition,
Pierre shipped fully-cooked meat products from its facility in Cincinnati, Ohio,
to Fresh Foods' facility in Claremont, North Carolina, to be combined with
specialty breads to produce ready-to-eat sandwiches. These sandwiches were then
shipped back to Pierre for distribution. Following the Acquisition, the Company
is vertically integrated, controlling all aspects of the production and
distribution process, enabling it to realize numerous production, marketing,
logistical and product development efficiencies.
The Acquisition combines two strong management teams with diverse
experience in food processing and with complementary skills in product
development, production, quality control and marketing. Four of Pierre's senior
executives each have in excess of 20 years' experience in the food processing
industry, and three of the four have been working in partnership with Fresh
Foods for the entire ten-year life of the Pierre/Fresh Foods relationship.
The Company's management has developed the following business strategy:
Further Penetrate Existing Distribution Channels with Additional
Products. The Company expects to leverage its longstanding customer
relationships and strong product development capabilities by introducing new
products through its existing distribution channels. The Company's product
development specialists work closely with its customers to identify industry
trends and to develop value-added food products that meet customer taste,
consistency and safety standards. For example, fresh sandwiches, such as
ham-and-cheese and chicken salad, are one of the fastest growing segments of the
convenience store and vending machine distribution channels. The Company
recently constructed a fresh sandwich production "clean room" in Claremont with
the capacity to prepare and package 500,000 fresh sandwiches per week. This
facility utilizes MAP technology, which enables the Company to sell fresh
sandwiches with extended shelf lives. In developing this fresh sandwich
capability, the Company has worked closely with existing customers to create
products with the particular taste, quality and shelf-life characteristics they
desire.
Maximize Benefits of Vertical Integration. The Acquisition provides an
opportunity to increase operating efficiencies at the Company's Cincinnati and
Claremont food processing facilities. As an independent, vertically-integrated
producer, the Company will have greater control over production scheduling at
its facilities, which should result in longer production run times, increased
throughput and reduced production costs. The Acquisition also should result in
reduced administrative costs, greater purchasing power and better product
distribution.
Further Develop Strategic Alliances with Recognized Restaurant Chains. The
Company has recently entered into licensing agreements to produce and market
microwaveable Hardee's, Checkers, Rally's and Nathan's Famous sandwiches and to
market Green Burrito products through its existing distribution channels. These
licensing agreements allow the restaurant companies to generate royalty revenues
and build brand awareness with no capital investment. According to FoodService
Director, the number of outlets offering
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<PAGE> 53
restaurant-branded products grew at a compound annual growth rate of 34% from
1993 to 1996. Restaurant-branded products have a distinct advantage in outlets
such as convenience stores, vending machines, warehouse clubs and grocery stores
in that they are widely recognized by consumers. The Company's quality
reputation and experience in the premium microwaveable sandwich segment position
it as an attractive partner for restaurant chains seeking additional
distribution channels.
Capitalize on Existing Health, Safety and Quality Standards. The Company
maintains rigid health, safety and quality control standards, enabling it to
meet the requirements of virtually every potential prepared-food customer. Many
customers, such as school systems, inspect their food suppliers to ensure
product safety and quality standards. The Company's facilities are in full
compliance with HACCP standards, and its Cincinnati facility has held the USDA's
"Total Quality Control" seal since 1986, a designation held by only 11% of meat
processing facilities in the United States. The Company believes that its
reputation for safety and quality provides it with the ability to capitalize on
current outsourcing trends in the foodservice industry.
Convert Existing Restaurants into Sagebrush Format. Because of the
comparatively attractive unit economics of the Sagebrush concept, the Company
intends to convert all but seven of its family steakhouse restaurants to the
Sagebrush concept within two years, at an average cost of $600,000 per
conversion. A typical Sagebrush generates 44% more revenue and 99% more EBITDA
than a typical Western Steer restaurant. The Company has extensive experience in
converting restaurants to the Sagebrush format as 32 of the Company's 45
Sagebrush restaurants were originally converted from other restaurant concepts.
Since acquiring Sagebrush, Inc. in January 1998, the Company has converted seven
Western Steer restaurants, including one acquired from a franchisee (and
converted immediately), and one Prime Sirloin restaurant to the Sagebrush
concept and has realized a significant increase in weekly sales volume at these
locations. The Company has no plans for new restaurant construction.
FOOD PROCESSING OPERATIONS
Industry Overview
The Company is a value-added food processor focused on the foodservice and
HMR markets. The foodservice market is composed of establishments that serve
food away from the home, including commercial establishments such as restaurants
and non-commercial establishments such as schools, healthcare providers and
other institutions. According to the National Restaurant Association, the
domestic foodservice industry generated revenues of $321 billion in 1997 and has
grown by $51 billion over the last five years.
The Company also sells its meat products and sandwiches into the HMR
market, which includes fully-cooked foods purchased through establishments such
as convenience stores, vending machines, warehouse clubs and grocery stores. The
HMR market has experienced significant growth over the past several years due to
numerous demographic factors, including the increase in single-parent families
and dual income households and the general decline in leisure time. According to
Technomic, the $44 billion HMR market has grown at a compound annual rate of 8%
over the past five years and is expected to grow 15% annually over the next
three years.
The Company is well-positioned to take advantage of the following food
industry trends:
Increased Outsourcing by Foodservice Providers. Rising public concern over
the safety of foods prepared in public dining establishments has resulted in
dramatic growth of the market for fully-cooked foods produced under stringent
quality controls. Many foodservice companies are now outsourcing much of their
food preparation in order to: (i) avoid the cost and administrative requirements
associated with meeting federal quality standards; (ii) maximize food safety;
(iii) ensure product consistency; (iv) reduce labor costs; and (v) reduce the
amount of food waste. Due to the Company's ability to address these issues, it
is in an excellent position to respond to this rapid growth in food production
outsourcing.
Growth in Number of HMR Outlets. The growth of alternative food outlets
such as convenience stores, vending machines, warehouse clubs and food kiosks
has created additional demand for packaged and fully-cooked food products.
According to Convenience Store News, approximately 82% of all convenience store
operators are currently expanding in-house foodservice or adding branded fast
foods. Non-traditional outlets
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<PAGE> 54
often lack extensive preparation, cooking and storage facilities, resulting in a
need for fully-cooked foods such as the Company's products. The Company's
branded and private label sandwich programs provide a safe and high-quality
solution for these operators.
Growth in Sales of Fully-Cooked Food Products in Grocery Stores. The
increased use of HMR outlets has contributed to a gradual decline in home-cooked
meals, which has in turn eroded grocery stores' share of food sales. According
to Forbes, the percentage of sales attributed to meal ingredients has declined
from 70% to 47% between 1989 and 1996. To combat this decline, grocery stores
are now turning to independent suppliers to provide branded and private label
packaged and fully-cooked food products. The Company believes that it can
continue to capitalize on this trend by providing high-quality, fully-cooked
food products to grocery stores.
Increased Consumer Demand for Convenience Foods. The market for branded
and private label packaged foods, particularly for easy-to-prepare,
microwaveable convenience foods, has experienced substantial growth over the
past several years. One of the fastest growing segments in this category is the
estimated $2.5 billion refrigerated and frozen hand-held foods segment, which
includes sandwiches, meat-filled biscuits, burritos, appetizers and other
similar products. This segment grew at an estimated compound annual rate of 5%
from 1992 to 1996 and is expected to grow by 7% annually from 1998 to 2000,
according to Packaged Facts. The Company currently offers a full line of
microwaveable sandwiches sold under the Pierre, Fast Choice and Mom 'n' Pop's
brand names and has plans to expand this product line through its licensing
agreements with Hardee's, Checkers, Rally's, Nathan's Famous and Green Burrito.
Increased Government Regulation in the Food Processing Industry. The food
processing industry is subject to increasing federal, state and local government
regulation. The USDA's HACCP system, governing the preparation and production of
food, has made it more difficult for foodservice companies to prepare their own
food products. Many customers, such as school systems, inspect their food
suppliers to ensure product safety and quality standards. The Company's
facilities are in full compliance with HACCP standards, and its Cincinnati
facility has held the USDA's "Total Quality Control" seal since 1986, a
designation held by only 11% of meat processing facilities in the United States.
Food Products
The Company produces high-margin specialty beef, poultry and pork products
that provide superior quality and are typically custom-developed to meet
specific customer requirements. The Company adds value for its customers by
offering comprehensive food solutions, including proprietary product
development, special ingredients and recipes as well as custom packaging
programs. The Company purchases beef, poultry and pork, which it processes into
a broad range of fully-cooked food products such as: flame-broiled chicken;
beef, turkey and pork patties; country-fried steak; chicken nuggets; and beef
and pork fingers. These products are either (i) sold to foodservice customers
such as restaurant chains, schools and healthcare providers, (ii) sold through
various distribution channels, including warehouse clubs and grocery stores, or
(iii) combined with specialty breads to produce microwaveable sandwiches that
are sold through HMR channels such as convenience stores, vending machines,
warehouse clubs and grocery stores. The Company currently supplies a variety of
fully-cooked meat products under the Pierre brand name to 91 of the 100 largest
public primary and secondary school districts, and approximately 50% of all
public primary and secondary schools, in the United States for use in cafeterias
and snack bars. The Company has recently entered into licensing agreements to
begin producing and marketing microwaveable Hardee's, Checkers, Rally's and
Nathan's Famous sandwiches and to market Green Burrito products through the
Company's existing distribution channels. The Company believes that the
introduction of these widely-recognized, branded products will further enhance
the Company's leading position in the microwaveable sandwich market.
The Company's longstanding customer relationships, reputation for
high-quality products, proprietary recipes and national presence enable it to
compete effectively in the markets that it serves. The Company has developed
customized meat and bread recipes that are specifically designed to maintain
flavor and texture under specialized applications, such as microwave oven
conditions, resulting in higher quality meals and greater customer satisfaction.
The Company's product development team works closely with customers to
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<PAGE> 55
develop new products for specific customer applications. For fiscal 1998, 22.0%
of the Company's food processing sales were from SKUs introduced during fiscal
1997 or fiscal 1998. By working closely with its customers during the product
development stage, the Company has become an integral component of their
operations, as evidenced by the fact that the Company has sold to its twenty
largest customers for an average of more than nine years. In fiscal 1998,
however, no one customer accounted for more than 4.0% of the Company's revenues.
The following table lists some of the Company's beef, poultry and pork products:
<TABLE>
<CAPTION>
BEEF PRODUCTS POULTRY PRODUCTS PORK PRODUCTS
- ------------- ---------------- -------------
<S> <C> <C>
Cheeseburgers Sauced Chicken Fillets Rib-B-Q Boneless Rib Patties
Charbroiled Burgers Flame-Broiled Chicken Fillets Rib-B-Q Boneless Rib Sandwiches
Hoagies Flame-Broiled Chicken Wonder Bites Rib-B-Q Boneless Rib Entrees
Portioned Meatloaf Breaded Chicken Patties Breaded Pork Patties
Salisbury Steak Breaded Chicken Fillets
Country Fried Steak Flame-Broiled Chicken Sandwiches
</TABLE>
Foodservice Products. The Company provides a comprehensive line of
fully-cooked beef, poultry and pork products to the estimated $321 billion
domestic foodservice industry, which accounted for 56.4% of the Company's fiscal
1998 food processing revenues. The foodservice industry consists of commercial
establishments, such as restaurants, and noncommercial establishments, such as
schools and healthcare providers. The Company augments its comprehensive line of
fully-cooked products with a package of value-added services, which include menu
planning and custom product development. The Company's products enable its
customers to decrease costs through portion control and labor reduction. The
Company's rigid quality standards allow it to position its products as safer,
healthier and more consistent than the products of many competitors.
The Company is a leading producer of value-added food products for school
systems and currently supplies a variety of fully-cooked meat products to 91 of
the 100 largest public primary and secondary school districts, and approximately
50% of all public primary and secondary schools, in the United States for use in
cafeterias and snack bars. According to Technomic, the total domestic market for
school foodservice purchases is $5.3 billion annually. The Company sells a full
line of food products that meet the customized needs of individual school
systems, including: flame-broiled chicken, beef, turkey and pork patties;
breaded chicken patties; country-fried steak; chicken nuggets; and beef and pork
fingers. The Company also is one of the larger food processors to school systems
that participate in the USDA Commodity Reprocessing Program (the "USDA
Program"). Under this federal program, the Company takes USDA-donated beef and
poultry and charges a fee for processing the meat into value-added products such
as cooked ground beef, charbroiled beef patties and fully-cooked breaded chicken
patties. The USDA Program has complex administrative and regulatory
requirements, which make it difficult for potential competitors to enter the
market. In addition, due to public health concerns, many school systems will
contract only with HACCP-compliant processors, such as the Company, to supply
fully-cooked meat products. Demand for products under the USDA Program peaks in
the spring and fall months; however, since these products are frozen, production
can be scheduled throughout the year to maximize plant utilization.
Branded Convenience Food Items. The Company offers a wide variety of
branded, primarily hand-held, convenience foods, which it sells into various
channels in the estimated $44 billion HMR market. The Company markets its
proprietary convenience food items nationally under its Pierre and Fast Choice
brands and in the Southeast under its Mom 'n' Pop's brand. These products
include microwaveable hamburgers, cheeseburgers, rib sandwiches, chicken
sandwiches and hot dogs. In addition, the Company has recently entered into
licensing agreements to produce and market microwaveable Hardee's, Checkers,
Rally's and Nathan's Famous sandwiches and to market Green Burrito products
through its existing distribution channels.
The Company's microwaveable sandwich products are differentiated from other
similar offerings by their high quality, innovative flavorings and consistency.
The Company believes it is unique within the hand-held convenience food market
in that it is vertically integrated, producing both the meat and the specialty
breads that are combined to create sandwiches. Most of the Company's competitors
are "assemblers" who purchase
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<PAGE> 56
meat and bread products, then assemble and distribute sandwiches. Vertical
integration enables the Company to control cost and quality and to respond
quickly to changing consumer preferences.
The Company is developing a line of fully-prepared fresh sandwiches to be
sold into the convenience store, vending machine and grocery store markets
beginning in the summer of 1998. The Company recently constructed a fresh
sandwich production "clean room" in Claremont, with the capacity to prepare and
package 500,000 fresh sandwiches per week. This facility utilizes MAP
technology, which enables the Company to sell to distributors fresh sandwiches
with extended shelf lives. The Company expects to produce a complete line of
fresh sandwiches at this facility, including traditional choices such as
ham-and-cheese, turkey-and-cheese and bologna-and-cheese sandwiches.
The Food Production Process
The Company purchases beef, poultry and pork, which it forms, seasons and
cooks by charbroiling or frying at its Cincinnati facility. The fully-cooked
portions are immediately frozen and either packaged for sale or shipped to the
Company's Claremont facility to be combined with the Company's specialty bread
products to form sandwiches. The Company purchases flour, yeast, sugar and
shortening, which are blended, using technologically-advanced equipment and the
Company's proprietary recipes, kneaded into dough, rolled, cut and baked into
yeast rolls and biscuits at its Claremont facility. The bakery products are then
either sold to foodservice customers or combined with meat and other fillings to
create sandwiches. The Company also purchases bread, meat, cheese and
condiments, which are combined in the Claremont facility's "clean room" to
assemble fresh sandwiches.
Quality Control
The Company employs 44 quality control personnel dedicated to the
maintenance of rigid quality standards and compliance with HACCP and other
government regulations in its food processing plants. These employees perform
both periodic and random inspections of production lines and machinery. The
Company has well-defined procedures to ensure that all food is processed
uniformly and within federal guidelines and product specifications. All of the
Company's meat products are cooked for times and at temperatures sufficient to
ensure food safety. Once cooked, these products are immediately frozen, and they
remain frozen throughout the assembly and shipping process.
The Company's facilities are in full compliance with HACCP standards, and
its Cincinnati facility has held the USDA's "Total Quality Control" seal since
1986, a designation held by only 11% of meat processing facilities in the United
States.
Food Processing Customers
The Company sells its food products to foodservice customers, such as
restaurants, schools and healthcare facilities, and to HMR customers, such as
convenience stores, vending machines, warehouse clubs and grocery stores. A
breakdown of food processing revenues for fiscal 1998 appears below:
<TABLE>
<CAPTION>
REVENUES PERCENTAGE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Foodservice Customers:
Restaurants............................................... $ 50,318 28.4%
School Systems............................................ 47,069 26.6
Other..................................................... 7,948 4.5
-------- -----
Total Foodservice................................. $105,336 59.5%
======== =====
</TABLE>
51
<PAGE> 57
<TABLE>
<CAPTION>
REVENUES PERCENTAGE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
HMR Customers:
Convenience Stores........................................ $ 10,232 5.8%
Vending................................................... 27,487 15.5
Warehouse Clubs........................................... 16,270 9.2
Grocery Stores............................................ 17,778 10.0
-------- -----
Total HMR......................................... $ 71,767 40.5%
-------- -----
Total........................................... $177,103 100.0%
======== =====
</TABLE>
Restaurants. The Company supplies foodservice products to restaurant
chains and other foodservice customers through a national network of more than
800 foodservice distributors. Virtually all restaurant chains purchase their
food from distributors. The largest domestic foodservice distributor purchases
the Company's products for distribution through 59 of its locations.
School Systems. The Company currently supplies a variety of fully-cooked
meat products to 91 of the 100 largest public primary and secondary school
districts, and approximately 50% of all public primary and secondary schools, in
the United States for use in cafeterias and snack bars. Sales to school systems
are made through over 800 foodservice distributors. When selecting a meat
supplier, school systems typically put the contracts, with exacting product
specifications, out for bid, then base their award decisions on the ability to
meet the product specifications, as well as price, taste, consistency and
quality control programs. The Company actively partners with school systems to
develop innovative and appealing menus and marketing programs. The Company's
management includes individuals who are active in and hold various leadership
positions in industry associations, such as the Industry Council of the American
School Foodservice Association.
Convenience Stores. The Company supplies a full array of sandwiches
through approximately 250 convenience store distributors to numerous chains,
including several market leaders. Convenience stores generally target consumers
looking for value-added, high-quality sandwiches that can be prepared quickly
and easily. According to Convenience Store News, 82% of all convenience store
operators are currently expanding in-house foodservice operations. The Company
recently began providing convenience stores with in-store sandwich kiosks, which
include a microwave oven and condiment center, to increase visibility of the
full line of the Company's sandwich products.
Vending. The Company sells microwaveable sandwich products to national and
regional vending machine operators, who typically purchase products through
distributors. The Company sells Pierre and Fast Choice branded sandwiches
through approximately 300 vending distributors. The Company is seeking to expand
its vending sales through its licensing agreements with Hardee's, Checkers,
Rally's, Nathan's Famous and Green Burrito. In addition, the Company recently
entered into an agreement with a major vending machine operator to supply more
than 15,000 vending machines nationwide with microwaveable sandwiches.
Approximately one-third of the sandwiches provided to this operator under the
agreement were previously produced by the operator's commissaries and are now
outsourced to the Company.
Warehouse Clubs. The Company packages its fully-cooked food products into
"club packs," which it sells directly to national warehouse clubs. These clubs
typically buy the Company's products in larger volumes of fewer SKUs, enabling
the Company to realize operating efficiencies. Sales to warehouse clubs are
usually arranged by independent food brokers.
Grocery Stores. The Company sells private label and branded food products
to grocery stores through a regional network of brokers. The Company has
established and maintains longstanding relationships with many of the major
grocery stores in the southeastern United States.
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Food Product Sales and Marketing
The Company's sales and marketing team consists of 32 professionals with
extensive experience in the value-added food processing industry. These
individuals develop and maintain the Company's relationships with major
purchasers, distributors and brokers. The Company's sales force has an average
of ten years of experience in the food processing industry and is compensated
based upon revenues and profitability.
In addition to its direct sales force, the Company maintains a nationwide
network of over 50 independent food brokers, all of whom are compensated by
payment of commissions. The Company believes that these brokerage relationships
are a valuable corporate asset, providing significant new product opportunities
with existing customers and the opportunity to develop new customer
relationships. The brokers perform several significant functions for the
Company, including identifying and developing new business opportunities and
providing customer service and support to the Company's distributors and
customers. The Company has had relationships with most of its brokers for at
least ten years.
Supplies
The primary raw materials used by the Company in its food processing
operations include uncooked meat, flour, sugar and shortening and other
ingredients and packaging supplies. The Company purchases substantially all of
its raw materials from outside sources and constantly seeks to maximize its
purchasing power through volume purchasing. The Company does not depend on a
single source for any significant item, believes that its sources of supply for
raw materials are adequate for its present needs and does not anticipate any
difficulty in acquiring such materials in the future.
Product Development
Ongoing food production research and development activities include
development of new products, improvement of existing products and refinement of
food production processes. In fiscal 1996, fiscal 1997 and fiscal 1998, the
Company spent $781,000, $755,000 and $832,000, respectively, on such activities.
These activities resulted in the launch of over 200 new SKUs in fiscal 1998. In
the current fiscal year, the Company expects to introduce approximately 150 new
SKUs, including various restaurant-branded sandwiches and fresh sandwiches.
RESTAURANT OPERATIONS
The Company's restaurant operations are located primarily in smaller cities
and suburban areas in the southeastern United States, a market niche where the
primary competitors are economy steakhouses. At September 5, 1998, the Company
owned and operated 45 Sagebrush steakhouse restaurants, which provide
family-oriented, full-service, casual dining in an atmosphere suggestive of a
Texas roadhouse. The Company also owned and operated 14 Western Steer and five
Prime Sirloin restaurants, which are more mature family steakhouses using the
"buffet and bakery" format, and one Bennett's barbecue-style restaurant.
Sagebrush restaurants are the only casual dining steakhouses in a majority of
the local markets in which they operate. The Company intends to convert all but
10 of its family steakhouse restaurants to the Sagebrush concept within two
years based on the historically attractive unit economics of the Sagebrush
format. A typical Sagebrush restaurant generates 44% more revenue and 99% more
EBITDA than a typical Western Steer restaurant. The Company has extensive
experience in converting restaurants to the Sagebrush format as 32 of the
Company's 45 Sagebrush restaurants were originally converted from other
restaurant concepts. Since Fresh Foods acquired Sagebrush, Inc. in January 1998,
the Company has converted seven Western Steer restaurants, including one
acquired from a franchisee (and converted immediately), and one Prime Sirloin
restaurant to the Sagebrush concept and has realized a significant increase in
weekly sales volume at these locations. Other than the restaurants currently
under conversion and scheduled for future conversion, the Company has no plans
to build other Sagebrush restaurants.
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<PAGE> 59
Restaurant Locations
The Company's restaurants have an average seating capacity of 260 and
occupy an average of 7,000 square feet. The following table sets forth the
location, opening date and concept of each of the Company's owned restaurants at
September 5, 1998:
<TABLE>
<CAPTION>
LOCATION DATE OPENED CONCEPT
- -------- ----------- -------
<S> <C> <C>
North Carolina:
Albermarle...................................... September 1998 Sagebrush
Arden........................................... August 1994 Sagebrush
Asheboro........................................ May 1998 Sagebrush
Boone........................................... June 1992 Sagebrush
Brevard......................................... March 1994 Sagebrush
Clemmons........................................ December 1993 Sagebrush
Denver.......................................... October 1997 Sagebrush
Dunn............................................ July 1998 Sagebrush
Elkin........................................... June 1998 Sagebrush
Graham.......................................... March 1998 Sagebrush
Hickory......................................... October 1990 Sagebrush
Hickory......................................... July 1992 Sagebrush
Kernersville.................................... June 1995 Sagebrush
Lenoir.......................................... August 1997 Sagebrush
Monroe.......................................... December 1994 Sagebrush
Morganton....................................... March 1993 Sagebrush
Mt. Airy........................................ January 1997 Sagebrush
Reidsville...................................... August 1998 Sagebrush
Salisbury....................................... April 1997 Sagebrush
Sanford......................................... January 1998 Sagebrush
Stanleyville.................................... April 1998 Sagebrush
Statesville..................................... October 1991 Sagebrush
Waynesville..................................... January 1994 Sagebrush
Wilkesboro...................................... September 1994 Sagebrush
Winston-Salem................................... September 1993 Sagebrush
Winston-Salem................................... August 1998 Sagebrush
Charlotte....................................... January 1992 Prime Sirloin
Cornelius....................................... March 1992 Prime Sirloin
Matthews........................................ June 1992 Prime Sirloin
Statesville..................................... May 1992 Prime Sirloin
Boone........................................... June 1976 Western Steer
Elizabeth City.................................. September 1979 Western Steer
Hickory......................................... January 1984 Western Steer
Hudson.......................................... May 1984 Western Steer
Jefferson....................................... June 1985 Western Steer
Lenoir.......................................... April 1987 Western Steer
Lexington....................................... March 1978 Western Steer
Lincolnton*..................................... March 1977 Western Steer
Mocksville...................................... October 1985 Western Steer
Morganton....................................... November 1984 Western Steer
Mt. Airy........................................ January 1984 Western Steer
Newton.......................................... January 1978 Western Steer
Yadkinville..................................... July 1985 Western Steer
Conover......................................... March 1990 Bennett's
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
LOCATION DATE OPENED CONCEPT
- -------- ----------- -------
<S> <C> <C>
South Carolina:
Aiken........................................... April 1998 Sagebrush
Gaffney......................................... December 1995 Sagebrush
Greenwood....................................... November 1996 Sagebrush
Lexington....................................... December 1997 Sagebrush
Rock Hill....................................... December 1992 Sagebrush
Spartanburg..................................... August 1994 Prime Sirloin
Tennessee:
Alcoa........................................... June 1996 Sagebrush
Gatlinburg...................................... April 1995 Sagebrush
Johnson City.................................... March 1996 Sagebrush
Kingsport....................................... February 1993 Sagebrush
Knoxville....................................... February 1992 Sagebrush
Morristown...................................... September 1996 Sagebrush
Newport......................................... February 1998 Sagebrush
Oak Ridge....................................... November 1991 Sagebrush
Pigeon Forge.................................... September 1991 Sagebrush
Sevierville..................................... May 1994 Sagebrush
Virginia:
Colonial Heights................................ October 1996 Sagebrush
Lynchburg....................................... July 1996 Sagebrush
Roanoke......................................... June 1997 Sagebrush
Wytheville...................................... May 1998 Sagebrush
Galax........................................... May 1980 Western Steer
</TABLE>
- ---------------
* Currently under conversion to the Sagebrush format.
Restaurant Concepts
The Sagebrush Concept
The Sagebrush concept is to serve high-quality, moderately-priced meals in
a casual, family-oriented atmosphere suggestive of a Texas roadhouse. Sagebrush
restaurants are located in smaller cities and suburban areas, a market niche
where the primary competitors are economy steakhouses, many of which are
cafeteria-style. Sagebrush differentiates itself from economy steakhouses by its
full table service and attentive wait staff, full bar service, entertaining
atmosphere, distinctive decor and consistently high-quality steaks. The Company
believes these factors make the Sagebrush concept attractive to a broad range of
consumers in the markets it serves.
Menu. The Sagebrush menu features high-quality aged steaks, prime rib,
chops, ribs, chicken and fish, along with hamburgers and chicken sandwiches. The
dinner menu includes steak entrees cut daily from specially-selected USDA choice
aged western beef and prepared using a special seasoning. In addition to the
regular menu items, each restaurant has a daily, specially-priced "Blue Plate
Special" at lunch, which is selected by its general manager and typically
features fish, chicken or pork chops. All steaks come with a choice of Texas
fries, baked potato or baked sweet potato, a fresh garden salad and bread. The
menu also includes specialty appetizers, desserts and full bar service where
legally permitted. New menu items are tested periodically in an effort to update
and adapt to changing customer preferences. Dinner entrees, which are also
available at lunch, range in price from $8.49 to $19.99, lunch entrees range in
price from $4.29 to $5.99, and appetizers are priced from $2.29 to $9.99. The
average check per customer, including beverages, is approximately $13.10 for
dinner and $7.55 for lunch. Menu prices are generally the same at each
restaurant, except for those located in resort areas, where seasonal factors
require slightly higher prices. Sales of alcoholic beverages, which are
available in all but one Sagebrush restaurant, account for approximately 8.4% of
Sagebrush revenues. Each restaurant typically serves lunch to 150 to 250
customers each week day and to 100
55
<PAGE> 61
to 300 customers on Saturdays and Sundays. Each restaurant typically serves
dinner to 250 to 300 customers from Sunday through Thursday and to 700 to 900
customers on Friday and Saturday. Sagebrush restaurants do not serve breakfast.
Atmosphere and Decor. Sagebrush restaurants are decorated with wooden
booths and walls and a mixture of western memorabilia and other collectibles,
including license plates and signs from around the United States, photographs of
sports figures and movie stars and replicas of antique jukeboxes featuring
country music. Complimentary peanuts are offered in all areas of the
restaurants, and customers are encouraged to drop their shells on the floor.
Special effort is made to make families with children feel welcome. A "Little
Pistols" children's menu featuring hamburgers and sandwiches is available,
birthdays are recognized in a special manner by the wait staff, and servers
offer balloons to children.
Facilities. All but one Sagebrush restaurant is located in a freestanding
building, generally near an interstate highway or other main thoroughfare.
Because the Company has established most of its restaurants in existing
buildings that it remodeled into the Sagebrush concept, restaurant sizes vary
from approximately 4,500 to 8,500 square feet, with the tables in the dining
area seating from approximately 150 to 280 people. The bar area of a typical
restaurant generally has seating capacity for approximately 20 people. Most
Sagebrush restaurants also have a private banquet room seating from 25 to 50
people. Although the banquet facilities are often used for private parties, they
can also be used for general customer seating during peak dining hours.
Conversion Plan. The Company intends to convert all but 10 of its family
steakhouse restaurants to the Sagebrush concept within two years based on the
historically-attractive unit economics of the Sagebrush concept, at an average
cost of $600,000 per conversion. A typical Sagebrush generates 44% more revenue
and 99% more EBITDA than a typical Western Steer restaurant. The Company has
extensive experience in converting restaurants to the Sagebrush format as 32 of
the Company's 45 Sagebrush restaurants were originally converted from other
restaurant concepts. Since acquiring Sagebrush, Inc. in January 1998, the
Company has converted seven Western Steer restaurants, including one acquired
from a franchisee (and converted immediately), and one Prime Sirloin restaurant
to the Sagebrush concept and has realized a significant increase in weekly sales
volume at these locations. The Company has no plans for additional new
restaurant construction.
The Western Steer Concept
The Western Steer concept originated in 1975 as a family-oriented
steakhouse restaurant, featuring a rustic, western-style design, steaks and
other entrees cooked to order. Beginning in 1992, the Company began an extensive
program of renovation of this concept, which included adding an
"all-you-can-eat" buffet food bar and in-house bakery and changing the store
appearance to highlight a new format. Restaurants updated to the new format have
been renamed "Western Steer -- Steaks, Buffet & Bakery." For fiscal 1998, the
average ticket price at Company-owned Western Steer restaurants was $6.00.
The Prime Sirloin Concept
In 1987, the Company acquired Prime Sirloin, Inc., a regional franchised
steakhouse chain then headquartered in Morristown, Tennessee and currently
composed of five units. As compared to the Western Steer concept, this concept
features greater seating capacity and a broader offering of buffet items,
resulting in a greater concentration of buffet sales. For fiscal 1998, the
average ticket price at Company-owned Prime Sirloin restaurants was $6.25.
The Bennett's Concept
In 1990, the Company became a sub-franchiser of Bennett's Bar-B-Que, Inc.,
based in Denver, Colorado. As a sub-franchiser, the Company pays royalty fees to
the franchiser equal to 1.0% of revenues for each Bennett's restaurant owned or
sub-franchised by the Company. In 1994, the Company redesigned the Bennett's
concept into "Bennett's Smokehouse & Saloon," a Texas roadhouse concept merging
steaks and barbecue in a 186-seat casual dinner house.
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Restaurant Franchising Program
At September 5, 1998, the Company franchised 32 Western Steer, five Prime
Sirloin and two Bennett's restaurants, all in accordance with standard franchise
agreements. The Company does not presently expect to franchise the Sagebrush
concept. The franchise agreements executed prior to 1990 cover a term of 20
years, renewable for an additional term of 20 years, while those executed after
1990 cover ten-year terms. Royalty fees of 3.0% of the franchised restaurant's
gross sales throughout the term of the agreement are payable to the Company. All
of the Company's franchise agreements provide for an exclusive territory and
include in-term and post-term non-compete covenants. For fiscal 1998, revenues
from the Company's restaurant franchise operations were $1.8 million. No single
franchisee or group of franchisees under common control provides revenues equal
to as much as 2% of the Company's revenues.
Ingredients and Purchasing
As part of its commitment to using fresh, high-quality ingredients, the
Company establishes rigid specifications for all of its meat and produce. Steaks
are hand-cut daily at each restaurant. In order to assure the uniform quality
and freshness of the food served in its restaurants, the Company monitors the
prices and specifications of the products that it purchases in order to assure
delivery of consistently high-quality food at competitive prices. The Company
currently purchases 90% of its food products from one supplier, Institutional
Food House, Inc. The Company believes that products of comparable quality are
available, or upon short notice can be made available, from alternative
suppliers.
Restaurant Marketing and Advertising
The Company utilizes billboard advertising for its restaurants located near
interstate highways. It also uses aggressive direct local marketing campaigns,
including school programs, hotel marketing and charitable and community events,
to promote restaurant traffic. The Company does not advertise its restaurants in
newspapers or by distributing coupons. Local advertising has been the
responsibility of individual restaurant general managers.
TRADEMARKS AND LICENSING
Food Processing. The Company's food products are marketed under a variety
of brand names, including Pierre, Fast Choice, Rib-B-Q and Mom 'n' Pop's. The
Company has recently entered into licensing agreements to produce and market
microwaveable Hardee's, Checkers, Rally's and Nathan's Famous sandwiches and to
market Green Burrito hand-held products through its existing distribution
channels. The term of each such license is subject to renewal and satisfaction
of sales volume requirements. The Company may distribute Hardee's sandwiches and
biscuits west of the Mississippi River. The Company's distribution rights for
Rally's, Checkers, Nathan's Famous and Green Burrito products are nationwide.
Restaurants. The Company has registered the service mark "Sagebrush
Steakhouse & Saloon" with the United States Patent and Trademark Office (the
"USPTO"). It regards this service mark as having significant value and as being
an important factor in the marketing of its Sagebrush restaurants. The Company
also has registered with the USPTO the "Western Steer" logotype and the names
"Western Steer," "Western Steer Family Restaurant," "Western Steer -- Steaks,
Buffet & Bakery," "Prime Sirloin -- Buffet, Bakery & Steaks," the "Prime
Sirloin" logotype and the "Mom 'n' Pop's" logotype, and variations thereof, as
well as several distinct Western Steer menu items, as trademarks and service
marks. Generally, trademarks remain valid as long as they are used properly for
identification purposes.
COMPETITION
Food Processing. The food production business is highly competitive and is
often affected by changes in tastes and eating habits of the public, economic
conditions affecting spending habits and other demographic factors. In sales of
meat products, the Company faces strong price competition from a variety of
large meat processing concerns and from smaller local and regional operations,
including Tyson, Zartic, Inc. and Gorges/ Quick-to-Fix Foods, Inc. In sales of
biscuit and yeast roll products, the Company competes with a number of
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<PAGE> 63
large bakeries in various parts of the country. The sandwich segment of the HMR
industry is extremely fragmented, with few large direct competitors but low
barriers to entry and indirect competition in the form of numerous other HMR
products. The Company's competitors in the sandwich industry include McLane
Company, Inc., Bridgford Foods Corp. and Jimmy Dean Foods.
Restaurants. The restaurant industry generally, and the Company's
restaurant business specifically, are intensely competitive with respect to
concept, price, service, location and food quality. There are many well-
established competitors, including a number of other steakhouse and
family-oriented restaurants with concepts similar to the Company's, with
substantially greater financial and other resources than the Company. Some
competitors have been in existence for much longer than the Company and may be
better established in, or may decide to enter, markets in which the Company's
restaurants are or may be located. The restaurant business is often affected by
changes in consumer tastes, national, regional or local economic conditions,
demographic trends, traffic patterns and the type, number and location of
competing restaurants. The Company endeavors to compete with other restaurants
primarily on the basis of service, value, location and providing high-quality
meals in a casual, family-oriented atmosphere. While the Company believes that
it competes for customers with a broad variety of other restaurants, there are
particular restaurant chains, including Longhorn Steakhouse, Lone Star
Steakhouse & Saloon, Outback Steakhouse and Logan's Road House, that have
restaurant concepts very similar to the Company's and that operate in, and may
expand further into, the Company's market areas.
GOVERNMENT REGULATION
The food production and restaurant industries are subject to extensive
federal, state and local government regulation.
The Company's food processing facilities and food products are subject to
frequent inspection by the USDA and other government authorities. In July 1996,
the USDA issued strict new policies against contamination by food-borne
pathogens such as E. coli and Salmonella and established the HACCP system. The
Company is in full compliance with all USDA regulations, including HACCP
standards. There can be no assurance, however, that the Company will be able to
remain in compliance. The Company's failure to comply with applicable laws and
regulations could subject it to civil remedies, including fines, injunctions,
recalls and seizures, or even criminal sanctions, any of which could have
material adverse effects on the Company.
The Company's operations also are governed by laws and regulations relating
to workplace safety and worker health that, among other things, establish noise
standards and regulate the use of hazardous chemicals in the workplace. The
Company also is subject to numerous federal, state and local environmental laws.
Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities relating to its facilities and the land on which its facilities are
or had been situated, regardless of whether the Company leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. The
Company does not believe that compliance with environmental laws will have a
material effect upon the capital expenditures, earnings or competitive position
of the Company and its subsidiaries. There can be no assurance, however, that
any failure to comply, or compliance in the future, with environmental laws, or
that liabilities arising thereunder, will have no material adverse effect on the
Company's business, financial condition or results of operations.
The Company's operations are subject to licensing and regulation by a
number of state and local governmental authorities, which include alcoholic
beverage control, health, safety, sanitation, building and fire agencies.
Operating costs are affected by increases in costs of providing health care
benefits, the minimum hourly wage, unemployment tax rates, sales taxes and other
similar matters over which the Company has no control. The Company is subject to
laws governing relationships with employees, including minimum wage
requirements, overtime, working conditions and citizenship requirements.
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PROPERTIES
The Company believes that its facilities are generally in good condition
and that they are suitable for their current uses. The Company nevertheless
engages periodically in construction and other capital improvement projects
designed to expand and improve the efficiency of its facilities.
Principal Offices. The Company currently owns and uses a building located
on a 62-acre tract in Claremont as its principal executive offices. The Company
is in the process of moving such offices to a building that it has leased in
nearby Hickory, North Carolina. See "Certain Relationships and Related Party
Transactions."
Food Processing Plants. The Company produces its fully-cooked meat
products, packaged sandwiches and specialty bread products at plants it owns in
Cincinnati and Claremont. The Cincinnati plant occupies buildings totaling
194,065 square feet. The Claremont facility occupies buildings totaling 192,460
square feet.
Restaurant Sites. The Company owns the property upon which 21 of its 65
restaurants are located, and it leases the remaining properties, generally under
long-term leases.
Other Property. The Company owns various other parcels of property,
consisting of raw land and closed restaurant sites that are either vacant or are
leased to others. It also holds leasehold interests in various properties that
are either vacant or are subleased to others. None of these properties is of
material importance to the Company's operations.
EMPLOYEES
As of September 5, 1998, the Company employed 4,993 persons (3,068
full-time and 1,925 part-time). None of the Company's employees is covered by a
collective bargaining agreement, although there have been four unsuccessful
attempts to organize the Cincinnati plant in the last four years.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
HERTH Management, Inc. ("HERTH") provides management services to the
Company, reviews and supervises financing, provides cost analysis services, real
estate services, strategic planning services and reviews franchisee
relationships. HERTH provides the full-time services of Richard F. Howard
("Howard"), James C. Richardson, Jr. ("Richardson") and James M. Templeton
("Templeton") for an annual fee of $1.5 million per year and reimburses the
Company for a portion of the compensation of David R. Clark ("Clark"). The
Company's contract with HERTH expires in 2002. The shareholders of HERTH are
Richardson, Templeton, Gregory A. Edgell and Columbia Hill, L.L.C. ("Columbia"),
whose equity owners are Clark, Richardson and Larry D. Hefner ("Hefner"). The
Company paid HERTH $1.5 million in fiscal 1998 and paid HERTH $1,125,000 through
September 5, 1998 in the current fiscal year.
The Company maintains comprehensive insurance coverages through County-Wide
Insurance Agency, Inc. ("County-Wide"), whose principal owner is Charles F.
Connor, Jr. ("Connor"). Connor, a consultant to the Company, owned 12.2% of the
Company's outstanding common stock at April 15, 1998. County-Wide received
payments of $2.2 million during fiscal 1998 and $1,061,000 through September 5,
1998 in the current fiscal year in connection with such insurance coverage, of
which amounts it retained approximately 7% as commissions.
Denver Equipment Company ("Denver") and Howard Furniture Company ("Howard
Furniture") sell restaurant equipment and supplies, and restaurant furnishings,
respectively, to the Company. During fiscal 1998, Denver was paid a total of
$1.8 million, and Howard Furniture a total of $57,000, for purchases made by the
Company. Denver received $1,849,000 and Howard Furniture received $13,000 for
purchases through
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<PAGE> 65
September 5, 1998 in the current fiscal year. These companies had as their
majority owner Richard S. Howard, the late father of director Howard; Connor has
a 10.0% equity interest in Denver.
The Company utilizes Bradford Communications, Inc. ("BCI") for public and
investor relations and graphic design services. During fiscal 1998, the Company
paid BCI a total of $449,000 for such services. As of September 5, 1998, BCI had
received $321,000 for services rendered in the current fiscal year. The owner of
BCI, Mr. E. Edwin Bradford, has been a director of the Company since 1992.
HS Traveltime, Inc. ("HS") provides travel agency services to the Company.
During fiscal 1998, HS was paid a total of $76,000 for such services. HS
received $23,000 for such services through September 5, 1998 in the current
fiscal year. Howard has a 50.0% equity interest in HS.
In January 1996, the Company received 111,983 shares of Sagebrush, Inc.
common stock as part of a transaction leading to the initial public offering of
Sagebrush, Inc. Columbia purchased these shares at $7.00 per share for $783,881,
payable 10.0% in cash with the balance represented by a two-year promissory note
bearing interest at the prime rate and secured by the unconditional guarantees
of Richardson, Clark and Hefner. The largest principal amount owed during fiscal
1998 was $705,493. At September 5, 1998, the balance on the note was $705,493.
At the time of the offer, Sagebrush, Inc. common stock was trading at $7.00 per
share. At closing, it was trading at $7.25.
During fiscal 1998, the Company sold two former restaurant properties in
Panama City, Florida, one former restaurant property in Black Mountain, North
Carolina and one former restaurant property in Eden, North Carolina, all to
Catawba Valley Real Estate, Inc. ("CVRE"), whose principal shareholder is
Templeton. The two Panama City properties were sold for $650,000 and $350,000,
with cash down payments to the Company of $130,000 and $10,000, respectively,
and with five-year promissory notes payable to the Company for the balances
bearing interest at 8.5%. The largest principal amounts outstanding during
fiscal 1998 were $517,115 and $338,114, respectively. As of September 5, 1998,
the principal balances of these notes were $506,692 and $331,298, respectively.
The Black Mountain property was sold for $500,000 in cash, and the Eden property
was sold for $400,000 in cash. The Company determined the purchase price for
these four properties based on comparable sales of similar tracts. Also during
fiscal 1998, the Company sold its 80.0% equity interest in a franchised
restaurant in St. Augustine, Florida to CVRE. The price for the Company's
interest in its St. Augustine franchise was $160,000 in cash, which was the
price at which the remaining 20.0% shareholder had the right to purchase the
Company's 80.0% interest and so was considered by the Company to be the highest
price attainable for the property.
Connor had an equity interest in five of the Company's franchised
restaurants at various times during fiscal 1998 and has had such an interest in
one of the Company's franchised restaurants in the current fiscal year.
Royalties, accounting and management fees to the Company from these restaurants
aggregated $74,000 during fiscal 1998 and $36,000 through September 5, 1998 in
the current fiscal year.
Howard had an equity interest in three of the Company's franchised
restaurants at various times during fiscal 1998. Royalties, accounting and
management fees to the Company from these restaurants aggregated $111,000 during
fiscal 1998.
Connor and L. Dent Miller ("Miller"), an executive officer and principal
shareholder of the Company, had direct or indirect equity interests in 17
restaurant properties leased to the Company during fiscal 1998 and in 16
restaurant properties leased to the Company during the current fiscal year.
Total rents paid under these leases were $1.3 million during fiscal 1998 and
$675,000 through September 5, 1998 in the current fiscal year. Connor also had a
direct or indirect interest in an additional three restaurants and two corporate
office buildings leased to the Company during fiscal 1998. Rents paid under
these leases were $217,000 in fiscal 1998 and $79,000 through September 5, 1998
in the current fiscal year.
The Company has entered into a ten-year lease, commencing September 1,
1998, for the use of an office building owned by Columbia Hill Land Company, LLC
("Columbia Land"). The premises, located in Hickory, North Carolina, are to be
used by the Company as its principal executive offices. The rent is fixed at
$103,200 per annum for each of the first two years of the lease and is subject
to adjustment thereafter.
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Richardson and Clark own Columbia Land in the following proportions: Richardson
(50.0%); and Clark (50.0%).
During fiscal 1998, the Company purchased two parcels of land located in
Lenoir, North Carolina and Denver, North Carolina, to be used for restaurant
locations, from corporations in which Miller, Connor and Richard S. Howard, the
late father of director Howard, had equity interests. The parcels were purchased
for $375,000 and $225,000, respectively, in cash. The Company determined the
purchase price for these properties based on comparable sales of similar tracts.
On January 30, 1998, the Company merged with Sagebrush, Inc., whose
principal shareholders were Connor and Miller. Connor, who was Chairman of the
Board and a director of Sagebrush, entered into a two-year consulting agreement
with the Company. Miller, who was President, Chief Executive Officer and a
director of Sagebrush, entered into a two-year employment agreement with the
Company. The merger obligated the Company, as the surviving corporation, to
indemnify the directors and officers of Sagebrush, Inc. and its predecessors
from and after the merger against certain liabilities arising prior to the
merger. Additionally, the Company agreed to register under the Securities Act
the shares of Company common stock issued in the merger to Connor and Miller.
See "Management -- Employment Contracts and Change in Control Agreements." The
Company has satisfied that registration obligation.
In 1991, The Wes-Mar Group ("Wes-Mar"), a supplier to and customer of the
Company, filed for bankruptcy. Congress Financial Corporation ("Congress"), a
secured creditor of Wes-Mar, sued the Company to collect accounts receivable
amounts owed to Wes-Mar by the Company. Richardson, a former principal of
Wes-Mar, entered into a guaranty and hold harmless agreement with the Company
under which he agreed to reimburse the Company for any amounts paid to Congress
by the Company. Under the guaranty and hold harmless agreement, Richardson
executed a promissory note to the Company on February 22, 1991 for $1,852,455,
which was the full balance owed by the Company to Wes-Mar, plus interest at an
annual rate of 9.0% (the "1991 Promissory Note"). Of this amount, $1,700,000 was
written off by the Company when the Company and Congress entered into a
settlement agreement in April 1993 (the "Settlement Agreement"). Under the
Settlement Agreement, the Company agreed to pay Congress $1.2 million plus
interest over a period of five years; such amount has been paid in full.
Accordingly, Richardson executed a second promissory note to the Company on May
14, 1993 for $1.2 million at an annual interest rate of 4.5% (the "1993
Promissory Note"). During fiscal 1998, the largest principal balances on the
1993 Promissory Note and the 1991 Promissory Note were $430,000 and $152,456,
respectively. The 1993 Promissory Note has been paid in full. The balance of the
1991 Promissory Note is $152,456 and is due in May 1999.
William P. Foley II, a director of the Company, owns, directly and
indirectly, approximately 11.7% of the outstanding common stock of CKE
Restaurants, Inc. ("CKE Restaurants"). The Company recently entered into a
licensing agreement with Hardee's, a subsidiary of CKE Restaurants, to begin
producing and marketing microwaveable Hardee's sandwiches.
All material transactions with affiliates of the Company are first reviewed
by the Sensitive Transactions Committee of the Board, which is composed of three
independent directors. Upon recommendation of this Committee, such transactions
are then presented to the Company's Board, where they must be approved by a
majority of the independent directors. Also, the Company periodically obtains
bids, quotations or appraisals from unaffiliated third parties to assure that
the products and services received from affiliates are on terms at least as fair
and equitable to the Company as could have been obtained from unaffiliated third
parties.
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MANAGEMENT
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Richard F. Howard......................... 49 Chairman of the Board
James C. Richardson, Jr................... 49 Vice Chairman of the Board and Chief
Executive Officer
David R. Clark............................ 42 President, Chief Operating Officer and
Director
James E. Harris........................... 36 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Norbert E. Woodhams....................... 52 President, Pierre Foods, LLC, and
Director
L. Dent Miller............................ 64 President, Claremont Restaurant Group,
LLC, and Director
James M. Templeton........................ 61 Senior Vice President, Claremont
Restaurant Group, LLC
Lewis C. Lanier........................... 49 Director
William R. McDonald....................... 64 Director
E. Edwin Bradford......................... 55 Director
Bobby G. Holman........................... 62 Director
William P. Foley II....................... 53 Director
Andrew F. Puzder.......................... 48 Director
</TABLE>
Mr. Howard became a director in 1987 and has served as Chairman of the
Board of Directors since 1993. Mr. Howard served as Executive Vice President of
the Company from 1989 to 1993 and as Chief Financial Officer and Treasurer from
1989 to 1994.
Mr. Richardson became a director in 1987. He is the Company's Chief
Executive Officer and Vice Chairman of the Board of Directors, positions he
assumed in 1993 and 1996, respectively. He has served the Company as an
executive officer since 1987, including Executive Vice President from 1989 to
1993 and President from 1993 to 1996.
Mr. Clark is the Company's President and Chief Operating Officer, positions
he assumed in 1996. From 1994 to 1996, he served as Executive Vice President and
Chief Operating Officer of Bank of Granite, located in Granite Falls, North
Carolina. Prior to joining Bank of Granite, Mr. Clark worked for 13 years with
BB&T, a commercial bank and trust company. Mr. Clark served BB&T in various
executive capacities, including President of BB&T of South Carolina during 1993
and 1994. He has been a director of the Company since 1996.
Mr. Harris is the Company's Executive Vice President, Chief Financial
Officer, Treasurer and Secretary, positions he assumed in March 1998. From 1987
to 1998, Mr. Harris served in various executive capacities with The Shelton
Companies, Inc., a diversified investment group headquartered in Charlotte,
North Carolina. He served as Executive Vice President of Finance for The Shelton
Companies, Inc. from 1993 to 1998. Prior to joining The Shelton Companies, Inc.,
Mr. Harris was a Senior Accountant with Ernst & Young.
Mr. Woodhams became President of the Company's food processing operations
upon consummation of the Acquisition and became a director of the Company on
June 27, 1998. Prior to the Acquisition, he served from 1994 to 1998 as
President of Hudson Specialty Foods, a food processing division of Hudson. Upon
the acquisition of Hudson by Tyson in January 1998, Mr. Woodhams became
President of the Pierre Foods division of Hudson. Prior to joining Hudson, Mr.
Woodhams held the position of Executive Group Vice
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President for the Pork and Beef Division of Tyson from 1990 through 1994. He
also served as President and Chief Executive Officer for Henry House/Holly
Farms, a value-added processor of pork products, from 1986 to 1990.
Mr. Miller, who became a director of the Company in May 1998, presently
serves the Company as President of the Company's restaurant operations, having
served as President and Chief Executive Officer of Sagebrush, Inc. from 1990 to
January 1998. Mr. Miller was a Fresh Foods executive officer concentrating in
restaurant operations from 1984 to 1988. He has been in the restaurant business
with the Company and its predecessors since 1978 and was named Restaurateur of
the Year by the North Carolina Restaurant Association in 1990.
Mr. Templeton, a director of the Company from 1988 until June 27, 1998,
serves as Senior Vice President of the Company's restaurant operations. He
served as Vice President of Real Estate for Fresh Foods from 1988 to 1994 and as
Senior Vice President of Real Estate from 1994 to 1998.
Mr. Lanier, a director since 1988, is a member of the law firm of Horger,
Horger, Lanier, Culclasure & Knight, LLP, of Orangeburg, South Carolina, having
joined its predecessor in 1985.
Mr. McDonald is Branch Manager of American Pharmaceutical Services, a
subsidiary of Living Centers of America that provides pharmaceutical and
prescription services to nursing homes. He has been employed with American
Pharmaceutical Services and its predecessors in that capacity since 1989. A
director of the Company since 1991, Mr. McDonald also serves as Mayor of the
City of Hickory, North Carolina, an elective office that he has held since 1981.
Mr. Bradford, a director since 1992, is President and Chief Executive
Officer of Bradford Communications, Inc., a Hickory, North Carolina marketing
and advertising firm, which he founded in 1977.
Mr. Holman, a director since 1994, served as the Company's Chief Financial
Officer and Treasurer from 1994 until his retirement in February 1997. Prior to
joining the Company, he had been an Assistant Vice President with Aetna Life &
Casualty Insurance Company ("Aetna") in Hartford, Connecticut and managing
director of the Food Industry segment of Aetna's Bond Investment Department
since 1985.
Mr. Foley, a director since May 1998, is Chairman of the Board and Chief
Executive Officer of Fidelity National Financial, Inc. ("Fidelity National"), an
Irvine, California-based title insurance underwriter, positions he has held
since 1986. He has also served since 1995 as Chairman of the Board and Chief
Executive Officer of CKE Restaurants, an Anaheim, California-based restaurant
holding company for the Carl's Jr. and Hardee's restaurant chains, among others.
Mr. Foley also serves on the Boards of Directors of Rally's, Checkers, GB Foods
Corporation, Micro General Corporation and DataWorks Corporation.
Mr. Puzder, a director since May 1998, is Executive Vice President of
Fidelity National, a position he has held since 1995. He has also served since
1997 as Executive Vice President and General Counsel of CKE Restaurants. Prior
to joining Fidelity National in 1995, Mr. Puzder had been an attorney in private
practice in California since 1991. Mr. Puzder also is a director of GB Foods
Corporation and of Javelin, Inc.
The Company has a classified Board of Directors. Messrs. Richardson, Holman
and Foley are serving terms expiring in June 1999. The terms of Messrs. Clark,
Lanier, McDonald and Puzder expire in June 2000, and the terms of the remaining
directors expire in June 2001. The Company's officers are elected annually by
the Board and serve indefinitely at the pleasure of the Board.
DIRECTORS' COMPENSATION
During fiscal 1998, independent directors were paid $2,000 per meeting
attended. Directors who are employees of the Company or are members of the HERTH
group, or who have material contracts with the Company, continue to receive no
payment for their service as directors. All directors at February 20, 1998 were
granted immediately-exercisable ten-year options to purchase 15,000 shares of
the Company's common stock at a price of $16.00 per share. On August 27, 1998,
all such options were "repriced" to reflect a new exercise price of $10.50 per
share -- the last sale price of the Company's common stock on that day.
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SUMMARY COMPENSATION TABLE
The following information relates to compensation paid by the Company to
its Chief Executive Officer and to three other individuals who served the
Company as executive officers (collectively, the "Named Executive Officers of
the Company"). No other executive officers of the Company received annual salary
and bonus in fiscal 1998 of at least $100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
FISCAL OTHER ANNUAL OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS
- --------------------------- ------ ------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Richard F. Howard................... 1998 (1) -0- $ 750(2) 40,000
Chairman of the Board 1997 (1) -0- -0- -0-
1996 (1) -0- -0- -0-
James C. Richardson, Jr............. 1998 (1) -0- $ 6,925(3) 215,000
Vice Chairman of the 1997 (1) -0- 9,664(4) -0-
Board and Chief 1996 (1) -0- -0- -0-
Executive Officer
David R. Clark...................... 1998 (5) $152,064 (6) 215,000
President and Chief 1997 (5) 73,500 $51,720(7) 100,000
Operating Officer 1996 -- -- -- --
James M. Templeton.................. 1998 (1) -0- $ 4,012(8) 40,000
Senior Vice President, 1997 (1) -0- 2,204(9) -0-
Real Estate 1996 (1) -0- 1,500(10) -0-
</TABLE>
- ---------------
(1) No salary was paid by the Company to this individual, who was instead
compensated by HERTH. The Company currently pays HERTH $1.5 million per
fiscal year. See "Certain Relationships and Related Party Transactions."
(2) Consists of country club dues.
(3) Includes $3,845 in life insurance premiums and $2,580 in country club dues.
(4) Consists of $7,084 in life insurance premiums and $2,580 in country club
dues.
(5) Excludes $200,000 and $126,800 paid by the Company for fiscal 1998 and
fiscal 1997, respectively, which amounts were reimbursed in full by HERTH.
See "Management -- Employment Contracts and Change in Control Agreements"
and "Certain Relationships and Related Party Transactions."
(6) Did not exceed 10% of the individual's annual salary and bonus.
(7) Includes a one-time bonus of $50,000 paid upon joining the Company.
(8) Includes $2,112 in country club dues and $1,500 as the Company's matching
payment under an employee stock purchase plan.
(9) Consists of $704 in country club dues and $1,500 as the Company's matching
payment under an employee stock purchase plan.
(10) Consists of the Company's matching payment under an employee stock purchase
plan.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information relating to option grants made
during fiscal 1998 to the Named Executive Officers of the Company and the
potential realizable value of each grant assuming annualized appreciation of
Company common stock at an annual rate of either 5% or 10% over the term of the
option.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL EXERCISE STOCK PRICE
SHARES OPTIONS OR BASE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM
OPTIONS EMPLOYEES IN PER EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
- ---- ---------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Howard............ 40,000(2) 3.9 $16.00 2/20/08 402,400 1,019,968
James C. Richardson, Jr...... 215,000(2) 21.1 16.00 2/20/08 2,162,900 5,482,328
David R. Clark............... 215,000(2) 21.1 16.00 2/20/08 2,162,900 5,482,328
James M. Templeton........... 15,000(2) 1.5 16.00 2/20/08 150,900 382,488
25,000(3) 2.5 16.00 2/20/08 251,500 637,480
</TABLE>
- ---------------
(1) On August 27, 1998, all such options were "repriced" to reflect a new
exercise price of $10.50 per share -- the last sale price of the Company's
common stock on that day.
(2) Such options are presently exercisable.
(3) Such options vest at a rate of 20% per year over five years. The first 20%
are exercisable beginning February 20, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents certain information about stock options
exercised by the Named Executive Officers of the Company during fiscal 1998 and
the value of unexercised options held by them at February 27, 1998.
<TABLE>
<CAPTION>
SHARES ACQUIRED NO. OF SHARES VALUE OF UNEXERCISED
ON EXERCISE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
------------------- OPTIONS AT FEBRUARY 27, 1998 AT FEBRUARY 27, 1998(1)
VALUE ---------------------------- ----------------------------
NAME NO. REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Howard........... 50,000 $905,000 115,000 -0- $1,193,750 -0-
James C. Richardson, Jr..... 125,000(2) -- 215,000 -0- 430,000 -0-
David R. Clark.............. -0- -0- 275,000 40,000 1,157,200 $484,800
James M. Templeton.......... 12,500 250,625 65,000 25,000 770,000 50,000
</TABLE>
- ---------------
(1) The closing price of the Company's common stock on February 27, 1998 was
$18.00 per share.
(2) Mr. Richardson transferred all of these options to Capital Factors, Inc.
("Capital Factors") on November 13, 1997. The unrealized gain on shares
received by Capital Factors was $2,415,625 on the date of receipt. The gain
realized by Capital Factors on exercise of the options was $2,571,875. Mr.
Richardson owns 50% of the outstanding stock of Capital Factors.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
On June 30, 1996, Mr. Clark and the Company executed an Employment
Agreement (the "Clark Employment Agreement") providing that Mr. Clark would
serve as President and Chief Operating Officer of the Company for a term of
three years at an annual base salary of $200,000 and an annual bonus based on
the Company's financial performance. During fiscal 1997 and fiscal 1998, Mr.
Clark's salary was paid by the Company and reimbursed in full by HERTH. See
"Certain Relationships and Related Party Transactions." In the event Mr. Clark's
employment is terminated by the Company without cause or Mr. Clark resigns from
employment for good reason during the initial three-year term, then the Company
is obligated to pay him a lump sum severance payment equal to the total sum of
his base salary as would be due in the aggregate for the remainder of the
three-year term. In the event of a termination without cause or a resignation
for good reason during any renewal term of the Clark Employment Agreement, such
lump sum severance payment shall equal
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<PAGE> 71
three months of Mr. Clark's then-existing base salary. Under the Clark
Employment Agreement, the Company granted to Mr. Clark options to purchase
100,000 shares of the Company's common stock and agreed to consider Mr. Clark
for participation in any subsequent options made available to senior management
of the Company in the discretion of the Company's Board. The Company also agreed
to appoint Mr. Clark to fill the first available vacancy on the Company's Board.
Mr. Clark subsequently filled this vacancy and currently serves as a member of
the Company's Board. In addition, the Company agreed to obtain coverage for Mr.
Clark under a directors' and officers' liability insurance policy and to
indemnify Mr. Clark to the fullest extent permitted by applicable law in the
event Mr. Clark is made a party to certain threatened or pending actions, suits
or proceedings by reason of his performing services as an officer or director of
the Company. The Clark Employment Agreement was subsequently amended (the
"Amended Clark Employment Agreement") to increase Mr. Clark's annual base salary
to $350,000, of which $200,000 is to be reimbursed to the Company by HERTH, and
to provide Mr. Clark an annual bonus based upon the Company's profitability. The
Amended Clark Employment Agreement also grants Mr. Clark options to purchase
215,000 shares of the Company's common stock and provided Mr. Clark with a
special one-time bonus of $375,000 upon the closing of the Acquisition. The
Amended Clark Employment Agreement has a term of five years, expiring February
28, 2003.
On January 29, 1998, Mr. Miller and the Company executed an Employment
Agreement (the "Miller Employment Agreement") providing that Mr. Miller would
serve as President of Claremont Restaurant Group, LLC for a term of two years at
an annual base salary of $200,000. Any increases in Mr. Miller's salary, as well
as the payment of any bonuses and the grant of any stock options to Miller, will
be in the discretion of the Company's Chief Operating Officer, subject to
ratification by the Compensation Committee of the Company's Board. The Miller
Employment Agreement includes a covenant by Miller not to disclose confidential
information of the Company, as well as a covenant not to engage in competition
with the Company within a 25-mile radius of any Company place of business or
solicit the employment of any Company employees for a period of two years
following the termination of the Miller Employment Agreement. In addition,
during the term of the Miller Employment Agreement, subject to his right to
continue to operate and manage certain other restaurants referred to therein,
Miller is prohibited from engaging in any outside activity which is detrimental
to the Company or which interferes with the performance of his duties under the
Miller Employment Agreement. The Company may terminate the Miller Employment
Agreement prior to the end of its two-year term for cause or upon the disability
of Miller. In connection with any termination for cause or disability (other
than a termination for cause triggered by the engagement by Miller in prohibited
outside activities or for violating the covenant not to disclose confidential
information or covenant not to compete), the Company shall continue to pay
Miller his annual base salary for the remainder of the two-year term.
On January 29, 1998, Charles F. Connor, Jr. and the Company executed a
Consulting and Non-competition Agreement (the "Connor Consulting Agreement")
providing that Mr. Connor would serve as a consultant to the Company for a
period of two years at an annual consulting fee of $175,000. As an independent
contractor and a consultant to the Company, Connor's principal duties are to (a)
consult with and advise the Company on the management and operation of its
restaurant franchising and restaurant operations business and (b) market and
promote the Company's restaurant franchising and restaurant operations business.
The Connor Consulting Agreement includes a covenant by Connor not to disclose
confidential information of the Company, as well as a covenant not to engage in
competition with the Company within a 25-mile radius of any Company place of
business or solicit the employment of any Company employees during the term of
the Connor Consulting Agreement. In addition, during the term of the Connor
Consulting Agreement, subject to his right to continue to operate and manage
certain other restaurants referred to therein, Connor is prohibited from
engaging in any outside activity which is detrimental to the Company or which
interferes with the performance of his duties under the Connor Consulting
Agreement. The Company may terminate the Connor Consulting Agreement prior to
the end of its two-year term for cause. In connection with any termination for
cause (other than a termination for cause triggered by the engagement by Connor
in prohibited outside activities or for violating the covenant not to disclose
confidential information or covenant not to compete), the Company shall continue
to pay Connor his annual consulting fee for the remainder of the two-year term
of the Connor Consulting Agreement.
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<PAGE> 72
In March 1998, Mr. Woodhams and the Company executed an Employment
Agreement (the "Woodhams Employment Agreement") providing that Mr. Woodhams
would serve as President of the Company's food processing operations upon
consummation of the Acquisition for a term of five years beginning in March 1998
at an annual base salary of $250,000 and an annual bonus based upon his
performance in meeting certain goals to be determined annually by the Company.
The Company may terminate Mr. Woodhams' employment upon his death or disability
or for cause (as defined in the Woodhams Employment Agreement). Under the
Woodhams Employment Agreement, the Company granted to Mr. Woodhams options to
purchase 200,000 shares of the Company's common stock. The Company also agreed
to appoint Mr. Woodhams to fill the first available vacancy on the Company's
Board. In addition, the Company agreed to use its best efforts to obtain
coverage for Mr. Woodhams under a directors' and officers' liability insurance
policy and to indemnify and hold harmless Mr. Woodhams for all acts or decisions
made by him in good faith while performing services for the Company.
Each of Messrs. Clark, Hefner, Richardson, Howard, Templeton and Miller
(each, an "Executive") has entered into a Change in Control Agreement with the
Company (collectively, the "Change in Control Agreements"). The Change in
Control Agreements provide that, if a change in control of the Company occurs,
then the following benefits will be provided by the Company: three times the
amount of the annual base salary of the Executive; three times the amount of the
largest annual cash bonus paid or payable to such person; the aggregate spread
between the exercise prices of all outstanding unexercised options of the
Company and the higher of the closing price of the Company's common stock as of
the effective date of the Change in Control of the Company or the highest price
paid in connection with a change in control of the Company; and a "gross-up"
payment for all tax liabilities resulting from payments under the Change in
Control Agreements. A change in control of the Company is considered to have
occurred if: (1) the individuals who constituted the Company's Board as of the
date of the Change in Control Agreements cease to constitute a majority of the
Company's Board; (2) any "person" (as defined in the Change in Control
Agreements) acquires 15% of the Company's common stock; (3) any of certain
business combinations are consummated, unless the beneficial owners of the
Company's common stock before such combination own more than 50% of such stock
after the business combination; or (4) the Company is liquidated or dissolved.
Payments under the Change in Control Agreements are payable upon a change in
control of the Company, whether or not an Executive's employment is terminated.
The term of each Change in Control Agreement is ten years unless it expires
earlier upon the termination of an Executive's employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the Executive Compensation Committee of the Company's
Board consisted of Messrs. Lanier, McDonald and Richard F. Hendrickson, none of
whom was an officer or employee of the Company or any of its subsidiaries during
fiscal 1998 or was formerly an officer of the Company or any of its
subsidiaries. See "Certain Relationships and Related Party Transactions."
67
<PAGE> 73
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 15, 1998, information relative
to Company common stock ownership by (i) each person known by the Company's
management to own beneficially 5.0% or more of the total outstanding shares of
Company common stock, (ii) each director of the Company, (iii) each Named
Executive Officer of the Company and (iv) all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES(1)
- ---------------- -------------------- ---------------------
<S> <C> <C>
HERTH Management, Inc.(2)............................... 1,219,235 20.7
P.O. Box 399
Claremont, NC 28610
Columbia Hill, LLC(3)................................... 1,262,034 21.4
P.O. Box 399
Claremont, NC 28610
James C. Richardson, Jr.(4)............................. 1,609,623 26.3
P.O. Box 399
Claremont, NC 28610
David R. Clark(5)....................................... 1,538,929 24.9
P.O. Box 399
Claremont, NC 28610
Gregory A. Edgell(6).................................... 1,386,110 23.3
3200 Devine Street
Columbia, SC 29205
James M. Templeton(7)................................... 1,291,968 21.6
P.O. Box 399
Claremont, NC 28610
Larry D. Hefner(8)...................................... 1,277,034 21.6
P.O. Box 399
Claremont, NC 28610
L. Dent Miller(9)....................................... 570,801 9.6
P.O. Box 399
Claremont, NC 28610
Charles F. Connor, Jr.(10).............................. 722,998 12.2
P.O. Box 519
Claremont, NC 28610
Richard F. Howard(11)................................... 115,390 1.9
Lewis C. Lanier(12)..................................... 15,000 *
William R. McDonald, III(13)............................ 15,860 *
E. Edwin Bradford(14)................................... 16,966 *
Bobby G. Holman(15)..................................... 16,128 *
William P. Foley II(12)................................. 150,000 2.5
Andrew F. Puzder(12).................................... 50,000 *
Norbert E. Woodhams(16)................................. 3,300 *
All directors and executive officers as a group (11
persons).............................................. 2,907,750 42.3
</TABLE>
- ---------------
* Less than one percent.
(1) The actual number of shares outstanding at April 15, 1998 was 5,902,619.
Each percentage has been calculated on the basis of such number plus shares
subject to outstanding call options exercisable not later than June 14,
1998. Shares subject to such options have been considered outstanding for
the
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<PAGE> 74
purpose of computing the percentage of outstanding shares owned by the
person who holds such options but have not been considered outstanding for
the purpose of computing the percentage of outstanding shares owned by any
other person.
(2) All of the shares owned of record by HERTH are also deemed to be owned
beneficially by each of its shareholders. The shareholders of HERTH, and
their ownership percentages, are Columbia (45.0%) and Messrs. Richardson
(22.0%), Edgell (22.0%) and Templeton (11.0%). Beneficial ownership of
other than a pro rata interest in the shares owned of record by HERTH is
disclaimed by each shareholder of HERTH.
(3) Consists of (i) 42,799 shares owned of record and (ii) 1,219,235 shares
owned beneficially through HERTH. All of the shares owned of record by
Columbia are also deemed to be owned beneficially by each of its owners.
The owners of Columbia, and their ownership percentages, are Messrs. Clark
(45.0%), Richardson (40.0%) and Hefner (15.0%). Beneficial ownership of
other than a pro rata interest in the shares owned of record by Columbia is
disclaimed by each owner of Columbia.
(4) Consists of (i) 7,500 shares owned of record, (ii) 89 shares owned through
the Company's Employee Stock Purchase Plan, (iii) 1,219,235 shares owned
beneficially through HERTH, (iv) 42,799 shares owned beneficially through
Columbia, (v) 125,000 shares owned beneficially through Capital Factors and
(vi) 215,000 shares subject to currently exercisable call options. All
125,000 shares owned of record by Capital Factors are also deemed to be
owned beneficially by each of its shareholders, although beneficial
ownership of other than a pro rata interest in such shares is disclaimed by
each such shareholder. The shareholders of Capital Factors, and their
ownership percentages, are Messrs. Richardson (50.0%) and Edgell (50.0%).
(5) Consists of (i) 1,250 shares owned of record, (ii) 645 shares owned through
the Company's Employee Stock Purchase Plan, (iii) 1,219,235 shares owned
beneficially through HERTH, (iv) 42,799 shares owned beneficially through
Columbia and (v) 275,000 shares subject to currently exercisable call
options.
(6) Consists of (i) 1,250 shares owned of record, (ii) 625 shares held by
spouse as custodian for minor children, of which beneficial ownership is
disclaimed, (iii) 1,219,235 shares owned beneficially through HERTH, (iv)
125,000 shares owned beneficially through Capital Factors and (v) 40,000
shares subject to currently exercisable call options. See note (4).
(7) Consists of (i) 4,237 shares owned of record, (ii) 3,496 shares owned
through the Company's Employee Stock Purchase Plan, (iii) 1,219,235 shares
owned beneficially through HERTH and (iv) 65,000 shares subject to
currently exercisable call options.
(8) Consists of (i) 10,000 shares owned of record, (ii) 1,219,235 shares owned
beneficially through HERTH, (iii) 42,799 shares owned beneficially through
Columbia and (iv) 5,000 shares subject to currently exercisable call
options.
(9) Consists of (i) 520,801 shares owned of record and (ii) 50,000 shares
subject to currently exercisable call options.
(10) Consists of (i) 662,910 shares owned of record, (ii) 38,220 shares owned
beneficially through County-Wide and (iii) 21,868 shares held by spouse, of
which beneficial ownership is disclaimed. All of the 38,220 shares owned of
record by County-Wide are deemed to be beneficially owned by Mr. Connor,
although ownership of other than a pro rata interest in such shares is
disclaimed.
(11) Consists of (i) 390 shares owned of record and (ii) 115,000 shares subject
to currently exercisable call options.
(12) All such shares are subject to currently exercisable call options.
(13) Consists of (i) 860 shares owned by spouse, of which beneficial ownership
is disclaimed, and (ii) 15,000 shares subject to currently exercisable call
options.
(14) Consists of (i) 1,250 shares owned of record, (ii) 716 shares owned through
the Company's Employee Stock Purchase Plan and (iii) 15,000 shares subject
to currently exercisable call options.
(15) Consists of (i) 1,128 shares owned of record and (ii) 15,000 shares subject
to currently exercisable call options.
(16) All such shares are owned of record.
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<PAGE> 75
DESCRIPTION OF BANK FACILITY
Concurrently with the consummation of the Acquisition and the issuance and
sale of the Initial Notes in the Offering, the Company and its subsidiaries
entered into a five-year Bank Facility with a syndicate of financial
institutions for whom First Union Commercial Corporation is acting as
Administrative Agent. The Bank Facility provides for a revolving line of credit
under which the Company may borrow up to an amount (including standby letters of
credit up to $2.5 million) equal to the lesser of $75.0 million or a borrowing
base (comprised of eligible accounts receivable, inventory, machinery and
equipment and real property). The Company made an initial draw on the Bank
Facility in connection with consummation of the Acquisition. See "Use of
Proceeds." The remainder of the Bank Facility may be used by the Company for
working capital requirements, permitted acquisitions and general corporate
purposes.
Borrowings under the Bank Facility bear interest at an annual rate, at the
Company's option, equal to the "Base Rate" (as defined therein) or the
"Eurodollar Rate" (as defined therein), plus a margin that varies based upon a
leverage ratio set forth therein. Such margin ranges from 0.125% to 1.125%, in
the case of a Base Rate loan, and from 1.125% to 2.625%, in the case of a
Eurodollar Rate loan. Applicable interest rates will be increased 2.0% over the
highest Base Rate margin during the continuance of any Event of Default (as
defined therein) under the Bank Facility.
The Company's obligations under the Bank Facility are secured by a first
priority security interest in substantially all of the tangible and intangible
personal property of the Company and its subsidiaries, including, without
limitation, a pledge of the stock of each subsidiary of the Company, together
with all real property included in the borrowing base. The Bank Facility also
includes a negative pledge relative to all other assets of the Company,
including real estate and other property not included in the borrowing base.
The obligations of the lenders under the Bank Facility to advance funds are
subject to the satisfaction of certain conditions customary in agreements of
this type. In addition, the Company is subject to certain affirmative and
negative covenants customarily contained in agreements of this type. The Bank
Facility provides for customary events of default. See "Risk
Factors -- Restrictions Imposed by the Bank Facility and the Indenture."
70
<PAGE> 76
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Initial Notes have been, and the Exchange Notes are to be, issued under
the Indenture dated June 9, 1998, as supplemented by the First Supplemental
Indenture dated as of September 5, 1998, among the Company, the Guarantors and
State Street Bank and Trust Company, Trustee. The terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Exchange Notes are subject to all such
terms, and Holders of Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof.
The Exchange Notes will be senior unsecured obligations of the Company,
ranking senior in right and priority of payment to any indebtedness of the
Company that by its terms is expressly subordinated to the Exchange Notes. The
Exchange Notes will be unconditionally guaranteed on a senior unsecured basis by
all existing Restricted Subsidiaries of the Company and all other future direct
and indirect Restricted Subsidiaries of the Company and the Company will cause
each future Restricted Subsidiary to enter into a supplemental indenture
providing for a Guarantee. The Exchange Notes, however, will be effectively
subordinated to secured indebtedness of the Company and the Guarantors
(including indebtedness under the Bank Facility) with respect to the assets
securing such indebtedness. The Exchange Notes will also be effectively
subordinated to claims of creditors of any subsidiaries of the Company, except
to the extent that Holders of the Exchange Notes may be creditors of such
subsidiaries pursuant to a Guarantee.
The following is a summary of certain provisions of the Indenture and the
Exchange Notes, a copy of which Indenture is available as set forth under
"Available Information." The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially shall be the corporate trust office of the Trustee, at 61
Broadway, New York, New York 10006), except that, at the option of the Company,
payment of interest may be made by check mailed to the address of the Holders as
such address appears in the Note register.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge shall be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE EXCHANGE NOTES
The Exchange Notes will be limited to $125.0 million aggregate principal
amount and will mature on June 1, 2006. The Exchange Notes will bear interest at
the rate per annum shown on the cover page hereof from the Issue Date, or from
the most recent date to which interest has been paid or provided for, payable
semiannually to Holders of record at the close of business on the May 15 or
November 15 immediately preceding the interest payment date on June 1 and
December 1 of each year, commencing December 1, 1998. The Company will pay
interest on overdue principal at 2.0% per annum in excess of such rate, and it
will pay interest on overdue installments of interest at such higher rate to the
extent lawful. Interest on the Exchange Notes will be computed on the basis of a
360-day year of twelve 30-day months.
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<PAGE> 77
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Notes will not
be redeemable at the option of the Company prior to June 1, 2002. On or after
June 1, 2002 the Exchange Notes will be redeemable in cash, at the Company's
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest thereon to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on June 1 of the years set forth
below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ------ ----------------
<S> <C>
2002................................................. 105.375%
2003................................................. 102.688%
2004 and thereafter.................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to June 1, 2001 the
Company, at its option, may redeem in the aggregate up to 35.0% of the original
principal amount of the Notes with the Net Cash Proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 110.75% of the aggregate
principal amount so redeemed, plus accrued and unpaid interest thereon to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 65.0% of the original principal amount of the
Notes must remain outstanding after each such redemption; and provided, further,
that each such redemption shall occur within 60 days of the date of closing of
the related Public Equity Offering.
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Exchange Note of $1,000 in original principal amount or
less shall be redeemed in part. If any Exchange Note is to be redeemed in part
only, the notice of redemption relating to such Exchange Note shall state the
portion of the principal amount thereof to be redeemed. A new Exchange Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
RANKING OF THE EXCHANGE NOTES
The Exchange Notes will represent senior unsecured obligations of the
Company, ranking senior in right and priority of payment to any indebtedness of
the Company that by its terms is expressly subordinated to the Exchange Notes.
The Exchange Notes will rank pari passu in right and priority of payment with
respect to indebtedness under the Bank Facility. The Exchange Notes, however,
will be effectively subordinated to secured indebtedness of the Company
(including the Bank Facility) with respect to the assets securing such
indebtedness. The Bank Facility is secured by a pledge of the stock of all
subsidiaries of the Company and a grant of a lien on substantially all of the
assets of the Company and its subsidiaries. As of June 9, 1998, after giving
effect to the Transactions, the Company and its Restricted Subsidiaries had
$33.9 million of secured indebtedness outstanding. In addition, the Company had
$20.5 million of additional borrowing availability under the Bank Facility.
GUARANTEES
Each Guarantor will irrevocably and unconditionally guarantee on a senior
unsecured basis the performance and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all obligations of the Company under
the Indenture and the Exchange Notes, whether for principal of or interest on
the Exchange Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by a Guarantor being herein called the "Guaranteed Obligations").
Each Guarantor will agree to pay, on a senior unsecured basis and in addition to
the amount stated above, any and all expenses (including reasonable
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<PAGE> 78
counsel fees and expenses) incurred by the Trustee or the Holders in enforcing
any rights under a Guarantee with respect to a Guarantor.
The obligations of a Guarantor under its Guarantee are senior unsecured
obligations, ranking senior in right of priority and payment to any indebtedness
of such Guarantor that by its terms is expressly subordinated to such
Guarantor's Guarantee. Any claim by Holders of the Exchange Notes with respect
to the assets of any Guarantor will be effectively subordinated to secured
indebtedness of such Guarantor with respect to the assets securing such
indebtedness. Each Guarantee will be limited in amount to an amount not to
exceed the maximum amount that can be guaranteed by the relevant Guarantor
without rendering such Guarantee voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. See "Risk Factors -- Fraudulent Conveyance and
Preference Issues."
Each Guarantee is a continuing Guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Guarantor and (c) inure to the benefit of and be enforceable
by the Trustee, the Holders and their successors, transferees and assigns. Each
Guarantee is a guarantee of payment and not of collection.
In the event of a sale or other disposition of all of the assets of any
Guarantor by way of merger, consolidation, or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor, by way of merger,
consolidation or otherwise, such Guarantor (in the event of a sale or other
disposition of all of the Capital Stock of such Guarantor) will be released and
relieved of its obligations under its Guarantee or the Person acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Guarantor) will not be required to enter into a Guarantee; provided, in
each case, that such transaction is carried out pursuant to and in accordance
with "-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" and, if applicable, "-- Merger and Consolidation."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each, a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Exchange Notes at a purchase price in cash equal to
101.0% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon, if any, to the purchase date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that for purposes of this clause (i) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Company;
(ii) the Company merges with or into another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person merges with or into the Company, in any
such event pursuant to a transaction in which the outstanding Voting Stock of
the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where (x) the outstanding Voting Stock
of the Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and/or (2) cash,
securities or other property in an amount which could be paid by the Company as
a Restricted Payment under the Indenture and (y) immediately after such
transaction no "person" or "group" (within the meaning of Section 13(d) or 14(d)
of the Exchange Act) (other than the Permitted Holders) is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of (1)
50% or more of the voting power of the Voting Stock of the surviving or
transferee corporation on a fully diluted basis, after giving effect to the
conversion or exercise of all outstanding warrants, options and other securities
of such surviving or transferee corporation, convertible into or exercisable for
Voting Stock of such surviving or transferee corporation
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(whether or not such securities are then currently convertible or exercisable)
and (2) a greater percentage of the Voting Stock of such surviving or transferee
corporation, calculated on a fully diluted basis, than the percentage
beneficially owned by the Permitted Holders; or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of 66 2/3% of
the directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Exchange Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Exchange Notes purchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant to this
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to incur additional Indebtedness are
contained in the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness." Such restrictions can be waived only with the consent of the
holders of a majority in principal amount of the Exchange Notes then
outstanding. Except for the limitations contained in such covenants, however,
the Indenture will not contain any covenants or provisions that may afford
holders of the Exchange Notes protection in the event of a highly leveraged
transaction.
So long as any obligations of the Company remain outstanding under the Bank
Facility or the commitments under the Bank Facility have not been terminated,
the Bank Facility prohibits (unless permitted by the requisite percentage of
lenders thereunder) the Company from purchasing any Exchange Notes or making any
deposit with the Trustee pursuant to the provisions described under
"-- Defeasance." As of June 9, 1998, after giving effect to the Transactions,
borrowings of $31.2 million were outstanding under the Bank Facility. The Bank
Facility also provides that the occurrence of certain change of control events
with respect to the Company will constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Exchange Notes, the Company could seek the consent of the lenders
under the Bank Facility to the purchase of Exchange Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Exchange Notes. In such case, the Company's failure
to purchase tendered Exchange Notes would constitute an Event of Default under
the Indenture, which would in turn constitute a default under the Bank Facility.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the
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Exchange Notes could cause a default under such indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchase on
the Company. Finally, the Company's ability to pay cash to Holders of Exchange
Notes following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The Company does not, as of the date of this Prospectus, have any
indebtedness outstanding (other than the Initial Notes and other than under the
Bank Facility) that is pari passu with the Exchange Notes that contains
repurchase provisions in the event of a Change of Control. The provisions under
the Indenture relative to the Company's obligation to make an offer to
repurchase the Exchange Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Exchange Notes then outstanding.
CERTAIN COVENANTS
The Indenture contains covenants, including, among others, the following:
LIMITATION ON INDEBTEDNESS: The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
(including without limitation, any Acquired Indebtedness) other than Permitted
Indebtedness. Notwithstanding the foregoing, in addition to Permitted
Indebtedness, the Company or any Restricted Subsidiary may Incur Indebtedness
(including, without limitation, Acquired Indebtedness) if (i) no Default or
Event of Default shall have occurred and be continuing on the date of the
proposed Incurrence thereof or would result as a consequence of such proposed
Incurrence and (ii) immediately after giving effect to such proposed Incurrence,
the Consolidated Coverage Ratio of the Company is at least 2.0 to 1.0 for
Incurrences on or before June 1, 2000 and 2.25 to 1.0 for all Incurrences
thereafter.
LIMITATION ON RESTRICTED PAYMENTS: (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default or Event of Default shall have
occurred and be continuing (or would result therefrom); (2) the Company or such
Restricted Subsidiary is not able to Incur, after giving effect to such
Restricted Payment, an additional $1.00 of Indebtedness pursuant to the second
sentence under "-- Limitation on Indebtedness;" or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of: (A) 50% of the Consolidated Net Income accrued on a
cumulative basis during the period (treated as one accounting period) beginning
on the first day of the fiscal quarter beginning immediately following the Issue
Date to the end of the most recent fiscal quarter ending at least 45 days prior
to the date of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash
Proceeds received by the Company from the issuance or sale of, or as a capital
contribution in respect of, its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of
the Company and other than an issuance or sale to an employee stock ownership
plan or to a trust established by the Company or any of its Subsidiaries for the
benefit of their employees); (C) the amount by which Indebtedness of the Company
is reduced on the Company's balance sheet upon the conversion or exchange (other
than by a Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company upon such
conversion or exchange); and (D) an amount equal to the sum of (i) the net
reduction in Investments in any Person resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from such Person, and (ii) the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (1)
if no Default or Event of Default shall have occurred and be continuing, any
purchase or redemption of Capital Stock or Subordinated
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Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, or capital contribution in respect of, Capital
Stock of the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company); provided, however, that (A) such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale or capital
contribution shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above; (2) if no Default or Event of Default shall have
occurred and be continuing, any purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be incurred under the
"Limitation on Indebtedness" covenant; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted Payments; (3)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with this covenant;
provided, however, that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or result therefrom); provided
further, that such dividend shall be included in the calculation of the amount
of Restricted Payments; and (4) if no Default or Event of Default shall have
occurred and be continuing or would result therefrom, any purchase of any
fractional share of Capital Stock of the Company resulting from: (A) any
dividend or other distribution on outstanding shares of Capital Stock that is
payable in shares of such Capital Stock (including any stock split or
subdivision of the outstanding Capital Stock of the Company), (B) any
combination of all of the outstanding shares of Capital Stock of the Company,
(C) any reorganization or consolidation of the Company in any merger of the
Company with or into any other Person or (D) the conversion of any securities of
the Company into shares of Capital Stock of the Company; provided, however, that
such purchases shall be included in the calculation of the amount of Restricted
Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES: The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock or any other interest or participation in, or measured by the profits of
the Company or such Restricted Subsidiary or pay any Indebtedness owed to the
Company, (b) to make any loans or advances to the Company or to any Restricted
Subsidiary or (c) to transfer any of its property or assets to the Company or to
any Restricted Subsidiary, except any encumbrance or restriction existing under
or by reason of (i) the Bank Facility as in effect on the Issue Date; (ii) the
Notes, the Indenture or the Guarantees; (iii) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (iv) Refinancing Indebtedness
Incurred pursuant to an agreement referred to in clause (i), (ii) or (iii);
provided, however, that the encumbrances and restrictions contained in any such
refinancing agreement are no less favorable to the Noteholders than encumbrances
and restrictions contained in such agreements governing the Indebtedness being
refinanced; (v) customary nonassignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder; (vi) security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict
the transfer of the property subject to such security agreements or mortgages;
and (vii) applicable law.
LIMITATION ON LIENS: The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
permit to exist any Lien on or with respect to any property or asset (including
any document or instrument in respect of goods or accounts receivable) of the
Company or of any Restricted Subsidiary, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive any income or
profits therefrom, or file or permit the filing of, or permit to remain in
effect, any financing statement or other similar notice of any Lien with respect
to any such property, asset, income or profits under the Uniform Commercial Code
of any State or under any similar recording or notice statute, other than
Permitted Liens, unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured.
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LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK: (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value (including as to the value of all non-cash consideration) of the
shares and assets subject to such Asset Sale (which fair market value shall be
determined in good faith by the Board of Directors for any transaction (or
series of transactions) involving in excess of $1.0 million) and at least 75% of
the consideration received therefor by the Company or such Restricted Subsidiary
is in the form of cash or Cash Equivalents and is received at the time of such
sale and (ii) an amount equal to 100% of the Net Available Cash from such Asset
Sale is applied by the Company (or such Restricted Subsidiary, as the case may
be) within 270 days from the date of such Asset Sale either (A) to prepay,
repay, redeem or purchase any indebtedness that by its terms is not subordinate
to the Notes or any Guarantee and, in the case of any such indebtedness under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to (1) make an investment in
properties or assets that replace the properties or assets that were the subject
of such Asset Sale or in properties or assets that will be used in a Related
Business or (2) acquire the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock, provided that
such Person is, at the time it becomes a Restricted Subsidiary, engaged in a
Related Business, or (C) a combination of prepayment and investment permitted by
clauses (A) and (B).
(b) Any Net Available Cash not applied within 270 days after the
consummation of an Asset Sale as provided in clauses (A), (B) or (C) of
paragraph (a) above will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be
obligated to make offers to purchase the Notes in an amount equal to the amount
of Excess Proceeds (and not just the amount thereof that exceeds $5.0 million)
at a purchase price in cash equal to 100% of the principal amount thereof
(without premium) plus accrued and unpaid interest thereon to the purchase date
in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an offer to purchase made pursuant to this
paragraph is less than the amount of Excess Proceeds, the Company may use such
deficiency, or a portion thereof, for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders is greater than the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Upon the completion of such an offer to purchase, the amount
of Excess Proceeds will be reset at zero, subject to any subsequent Asset Sale.
(c) In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under the caption "Certain Covenants -- Merger
and Consolidation" below, the successor corporation shall be deemed to have sold
the properties and assets of the Company and its Subsidiaries not so transferred
for purposes of this covenant, and shall comply with the provisions of this
covenant with respect to such deemed sale as if it were an Asset Sale. In
addition, the fair market value of such properties and assets of the Company or
its Subsidiaries deemed to be sold shall be deemed to be Net Available Cash for
purposes of this covenant.
(d) If at any time any non-cash consideration received by the Company or
any Subsidiary in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Available Cash thereof
shall be applied in accordance with this covenant.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS: (a) Except for transactions entered
into or existing prior to the Issue Date, the Company shall not, and shall not
permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction")
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unless the terms thereof (1) are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) if such Affiliate Transaction involves an amount in excess of $500,000, (i)
are set forth in writing and (ii) have been approved by a majority of the
disinterested members of the Board of Directors and (3) if such Affiliate
Transaction involves an amount in excess of $3.0 million, have been determined
by a nationally recognized investment banking or accounting firm having
experience in such matters to be fair, from a financial point of view, to the
Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments;" (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans or similar employee benefit plans or arrangements approved by
the Board of Directors; (iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the Board
of Directors, (iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $1.0 million in the aggregate
outstanding at any one time; (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries; and (vi) any Affiliate Transaction (x) between
the Company and a Restricted Subsidiary or (y) between Restricted Subsidiaries;
provided that no Affiliate of the Company other than a Restricted Subsidiary
owns any Capital Stock in or otherwise has a material financial interest in any
such Restricted Subsidiary.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES: The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except to the Company or a Restricted Subsidiary;
provided, however, that this covenant will not prohibit the sale of 100% of the
shares of the Capital Stock of any Restricted Subsidiary owned by the Company or
any Restricted Subsidiary effected in accordance with the covenants described
under "Limitation on Sales of Assets and Subsidiary Stock" and "-- Merger and
Consolidation."
MERGER AND CONSOLIDATION: The Company shall not, and shall not permit any
Restricted Subsidiary to, consolidate with or merge with or into any Person
(other than the consolidation or merger of a Restricted Subsidiary with another
Restricted Subsidiary or into the Company), or sell, assign, convey, transfer,
lease or otherwise dispose of (or permit any Subsidiary to sell, assign, convey,
transfer, lease or otherwise dispose of), in one transaction or a series of
transactions, all or substantially all its assets (determined on a consolidated
basis for the Company and its Subsidiaries) to, any Person, unless: (i) the
Company, in the case of a transaction involving the Company, or such Restricted
Subsidiary in the case of a transaction involving a Restricted Subsidiary, shall
be the resulting, surviving or transferee Person or the resulting, surviving or
transferee Person (in either case, the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company or such Restricted Subsidiary) shall expressly assume, by an indenture
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture, or the obligation of such Restricted Subsidiary under its
Guarantee, as the case may be; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company as a result of such transaction as having been Incurred by
such Successor Company at the time of such transaction), no Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction, the Company, if the transaction involves a Restricted Subsidiary,
or the Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to the second sentence under "-- Limitation on
Indebtedness"; (iv) in the case of a transaction involving the Company,
immediately after giving effect to such transaction, the Successor Company shall
have Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of the Company prior to such transaction; (v) if, as a result of any
such transaction, property or assets of the Company or a Restricted Subsidiary
would become subject to a Lien securing Indebtedness not excepted from the
provisions of the Indenture described above under the caption
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"-- Limitation on Liens," the Company, any such Restricted Subsidiary or the
Successor Company, as the case may be, shall have secured the Notes and the
relevant Guarantees, as required by such provisions; and (vi) the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor to the Company or such
Restricted Subsidiary, as the case may be, and shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or such
Restricted Subsidiary under the Indenture, but the predecessor Company or
Restricted Subsidiary in the case of a conveyance, transfer or lease shall not
be released from the obligation to pay the principal of and interest on the
Notes.
ADDITIONAL SUBSIDIARY GUARANTEES: The Indenture provides that in the event
that any Person shall become a Restricted Subsidiary, the Company shall cause
such Restricted Subsidiary (an "Additional Guarantor") to concurrently guarantee
(an "Additional Guarantee") the Company's obligations under the Indenture and
the Notes to the same extent that the Guarantors have guaranteed the Company's
obligations under the Indenture and the Notes; provided, however, that each
Additional Guarantor will be automatically and unconditionally released and
discharged from its obligations under such Additional Guarantee only in
accordance with the last paragraph set forth under "-- Guarantees."
COMMISSION REPORTS: Notwithstanding that the Company may not be required
to remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission and provide the Trustee
and Noteholders with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
In addition, the Company will make available, upon request, to any holder and
any prospective purchaser of Notes the information required pursuant to Rule
144A(d)(4) under the Securities Act during any period in which the Company is
not subject to Section 13 or 15(d) of the Exchange Act.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "-- Change
of Control" above, or under "-- Merger and Consolidation," "-- Limitation on
Sales of Assets and Subsidiary Stock," "-- Limitation on Indebtedness" or
"-- Limitation on Restricted Payments" under "-- Certain Covenants" above, (iv)
the failure by the Company to comply for 30 days after notice with its other
agreements contained in the Indenture, (v) the failure of the Company or any
Subsidiary to pay Indebtedness within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million
(the "cross acceleration provision"), (vi) certain events of bankruptcy,
insolvency or reorganization of the Company or a Subsidiary (the "bankruptcy
provisions"), (vii) any judgment or decree for the payment of money in excess of
$5.0 million is rendered against the Company or a Subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days (the "judgment default provision")
or (viii) the Guarantee of any Guarantor ceases to be in full force and effect
(other than in accordance with the terms of such Guarantee) or any Guarantor
denies or disaffirms its obligations under its Guarantee. A default under clause
(iv) will not constitute an Event of Default, however, until the Trustee or the
holders of 25% in principal amount of the outstanding Notes notify the Company
of the default and the Company does not cure such default within the time
specified after receipt of such notice.
If an Event of Default occurs and is continuing (other than an Event of
Default described in clause (vi) of the preceding paragraph with respect to the
Company), the Trustee or the holders of at least 25% in principal amount of the
outstanding Notes may declare the principal of and accrued but unpaid interest
on all
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the Notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default described
in clause (vi) of the preceding paragraph occurs and is continuing with respect
to the Company, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. Without the consent of each Holder of an
outstanding Note affected thereby, however, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any Holder of the Notes to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change in the Guarantees that would adversely affect the
Noteholders.
Without the consent of any Holder of the Notes, the Company and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to add Guarantees with respect
to the
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Notes, to secure the Notes, to add to the covenants of the Company for the
benefit of the Holders of the Notes or to surrender any right or power conferred
upon the Company, to make any change that does not adversely affect the rights
of any Holder of the Notes or to comply with any requirement of the Commission
in connection with the qualification of the Indenture under the Trust Indenture
Act.
The consent of the Holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Notes a notice briefly describing such
amendment. The failure to give such notice to all Holders of the Notes, or any
defect therein, however, will not impair or affect the validity of the
amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "-- Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "-- Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Subsidiaries and the judgment default provision described under "-- Defaults"
above and the limitations contained in clauses (iii) and (iv) under "-- Certain
Covenants -- Merger and Consolidation" (and clause (iii) of the first paragraph
under "-- Defaults" as it relates to clauses (iii) and (iv) under "-- Certain
Covenants -- Merger and Consolidation") above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii), (iv) or (viii) under "-- Defaults"
above or because of the failure of the Company to comply with clause (iii) or
(iv) under "-- Certain Covenants -- Merger and Consolidation" above. If the
Company exercises its legal defeasance option or its covenant defeasance option,
each Guarantor will be released from all its obligations with respect to its
Guarantee.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its
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rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time such
Person is merged with or into or becomes a Restricted Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person, and in either case for purposes of the Indenture shall be deemed to be
incurred by such specified Person at the time such other Person is merged with
or into or becomes a Restricted Subsidiary of such specified Person or at the
time such asset is acquired by such specified Person, as the case may be.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person, including, without limitation, any director
or executive officer of such specified Person. For the purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlling," "controlled by" and "under common control with"), when used with
respect to any Person, means (i) the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise or (ii) the beneficial ownership of 10% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
such Person.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall be
merged with or into the Company or any Restricted Subsidiary or (b) the
acquisition by the Company or any Restricted Subsidiary of the assets of any
person (other than a Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or line
of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
lease, assignment, transfer or other disposition for value (including, without
limitation, pursuant to any amalgamation, merger or consolidation or pursuant to
any sale and leaseback transaction) by the Company or by any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries (any such transaction, a "disposition") of (i) any of the stock of
any of the Company's Subsidiaries, (ii) substantially all of the assets of any
division or line of business of the Company or of any of its Subsidiaries, or
(iii) any other assets (whether tangible or intangible) of the Company or of any
of its Subsidiaries, excluding (a) any disposition of Cash Equivalents or
inventory in the ordinary course of business or obsolete equipment in the
ordinary course of business consistent with past practices of the Company or any
of its Subsidiaries or the lease or sublease of any real or personal property in
the ordinary course of business, (b) dispositions of stock or assets the
aggregate value of which does not exceed $1.0 million less the aggregate value
of all other dispositions of stock or assets made subsequent to the Issue Date
pursuant to this clause (b), (c) exchanges of properties or assets for other
properties or assets, excluding cash or Cash Equivalents but including the
Capital Stock of a Person if, as a result of such exchange, such Person becomes
a Restricted Subsidiary; provided, that the property or assets so acquired, or
the property or assets of the Person the Capital Stock of which is so acquired
(1) are used in a Related Business and (2) have a fair market value at least
equal to the fair market value of the assets or properties being exchanged (as
evidenced by a resolution of the Company's Board of Directors), and (d) for
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purposes of "Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" only, a disposition made in accordance with "-- Certain
Covenants -- Limitation on Restricted Payments."
"Bank Facility" means the Loan Agreement dated as of June 9, 1998 among the
Company, certain of its subsidiaries, the lenders party thereto and First Union
Commercial Corporation as administrative agent thereunder, pursuant to which the
Company may borrow up to $75.0 million in the aggregate at any one time
outstanding, together with the documents related thereto (including, without
limitation, any guarantee agreements and security documents), as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Board of Directors" means, as the context requires, the Board of Directors
or comparable governing body of the Company or the applicable Restricted
Subsidiary, as the case may be, or any committee thereof duly authorized to act
on behalf of such Board. In the case of a limited liability company, the
comparable governing body shall be members of such limited liability company or
such other body as may be duly authorized by such members generally to manage
the business and affairs of the limited liability company.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of Charlotte, North Carolina or New York, New
York or is a day on which banking institutions therein located are authorized or
required by law or other governmental action to close.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be capitalized and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) the equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such equity.
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Rating Group ("S&P") or Moody's Investors Service,
Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having the highest
rating obtainable from either S&P or Moody's; (iv) certificates of deposit or
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia that (a) is
at least "adequately capitalized" (as defined in the regulations of its primary
Federal banking regulator) and (b) has Tier 1 capital (as defined in such
regulations) of not less than $100,000,000; (v) shares of any money market
mutual fund that (a) has its assets invested continuously in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from either
S&P or Moody's; and (vi) repurchase agreements with respect to, and which are
fully secured by a perfected security interest in, obligations of a type
described in clause (i) or clause (ii) above and are with any commercial bank
described in clause (iv) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of Consolidated EBITDA of the Company during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio (the
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"Transaction Date") to Consolidated Fixed Charges of the Company for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis, in
accordance with Article 11 of Regulation S-X under the Securities Act, for the
period of such calculation to (a) the incurrence or repayment of any
Indebtedness of the Company or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period and (b) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of the Company or one of its Restricted
Subsidiaries incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Four Quarter Period. If the Company or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
the preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if the Company or such Restricted Subsidiary, as the case may
be, had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated
Coverage Ratio," (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (ii) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (iii) notwithstanding clause
(i) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Rate
Protection Agreements shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements.
"Consolidated EBITDA" means, with respect to the Company, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
the Company and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense and (C) Consolidated Non-Cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Capital Stock that
is not Disqualified Stock) paid, accrued or scheduled to be paid or accrued
during such period times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then-current effective consolidated
federal, state and local income tax rate of the Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (i) the aggregate of all cash and
non-cash interest expense (minus amortization or write-off of deferred financing
costs included in cash or non-cash interest expense) of the Company and its
Restricted
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Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP, including, without limitation, (a) any amortization of debt discount,
(b) the net costs under Interest Rate Protection Agreements, (c) all capitalized
interest and (d) the interest portion of any deferred payment obligation; and
(ii) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate net income
(or loss) of the Company and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom (a) after-tax gains and losses from Asset Sales or
abandonment or reserves relating thereto, (b) items classified as extraordinary,
nonrecurring or unusual gains, losses or charges, and the related tax effects,
each determined in accordance with GAAP, (c) the net income of any Person
acquired in a "pooling of interests" transaction accrued prior to the date it
becomes a Restricted Subsidiary of the Company or is merged or consolidated with
the Company or any Restricted Subsidiary of the Company, (d) the net income (but
not loss) of any Restricted Subsidiary of the Company to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary of the Company,
except to the extent of cash dividends or distributions paid to the Company or
to a Restricted Subsidiary of the Company by such Person, (f) any restoration to
income of any contingency reserve, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time after
February 27, 1998, (g) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued), and (h) in the
case of a successor to the Company by consolidation or merger or as a transferee
of the Company's assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of the Company
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Consolidated Non-Cash Charges" means with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and its Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charges constituting an extraordinary item or loss
or any such charge which requires an accrual of or a reserve for cash charges
for any future period).
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an Asset Sale or Change of Control occurring prior to the first
anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "-- Change of Control" and
under "Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock."
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the published rules and regulations of the
Commission governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff of
the Commission.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination, (i) all indebtedness, obligations and liabilities of such Person
for borrowed money, (ii) all indebtedness, obligations and liabilities of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all indebtedness, obligations and liabilities of such Person for Capitalized
Lease Obligations, (iv) all indebtedness, obligations and liabilities of such
Person upon notes payable and drafts accepted representing extensions of credit,
whether or not representing obligations for borrowed money, of such Person, (v)
all indebtedness, obligations and liabilities of such Person for all or any part
of the deferred purchase price of property or services (excluding any such
obligations incurred under ERISA), which purchase price is (a) due more than six
months (or a longer period of up to one year, if such terms are available from
suppliers in the ordinary course of business) from the date of incurrence of the
obligation in respect thereof or (b) evidenced by a note or similar written
instrument, (vi) all indebtedness, obligations and liabilities secured by any
Lien on any property or asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person except that "Indebtedness" shall not
include trade payables and accrued liabilities Incurred in the ordinary course
of business for the purchase of goods or services which are not secured by a
Lien other than a Lien permitted pursuant to clause (ii) of the definition of
"Permitted Liens" and obligations under Interest Rate Protection Agreements,
(vii) all guarantees of such Person in respect of Indebtedness of other Persons
and (viii) all Disqualified Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Stock being equal to the greater
of its voluntary or involuntary liquidation preference and its maximum fixed
repurchase price, but excluding accrued dividends, if any. For purposes hereof,
the "maximum fixed repurchase price" of any Disqualified Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Disqualified Stock as if such Disqualified Stock were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value to be determined
reasonably and in good faith by the board of directors (or comparable governing
authority) of the issuer of such Disqualified Stock.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or its assets, or (ii) any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary or whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshaling of assets or liabilities of the Company.
"Interest Rate Protection Agreement" of any Person means any interest rate
protection agreement (including, without limitation, interest rate swaps, caps,
floors, collars, derivative instruments and similar agreements) and/or other
types of interest hedging agreements in support of the Company's business and
not of a speculative nature.
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"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are,
in conformity with GAAP, recorded as accounts receivable on the balance sheet of
such Person) or other extensions of credit (including by way of guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
indebtedness or other similar instruments issued by such Person. For purposes of
the definition of "Unrestricted Subsidiary", the definition of "Restricted
Payment" and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments," (i) "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Unrestricted Subsidiary at the time of such redesignation
as a Restricted Subsidiary less (y) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the fair market value of the
net assets of such Unrestricted Subsidiary at the time of such redesignation as
a Restricted Subsidiary; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the Initial Notes were originally
issued.
"Lien" means any mortgage, pledge, assignment, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
"Net Available Cash" means, with respect to any Asset Sale, payments in
cash or Cash Equivalents received therefrom net of bona fide direct costs of
sale, including, but not limited to, (i) income taxes reasonably estimated to be
actually payable as a result of such Asset Sale within two years of the date of
such Asset Sale, (ii) payment of the outstanding principal amount of, premium or
penalty, if any, and interest on, any Indebtedness that is secured by a Lien on
the stock or assets in question and that is required to be repaid under the
terms thereof as a result of such Asset Sale, (iii) out-of-pocket expenses and
fees relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions) and (iv) any
portion of cash proceeds which the Company determines in good faith should be
reserved for post-closing adjustments or liabilities relating to the Asset Sale
retained by the Company or any of its Restricted Subsidiaries, it being
understood and agreed that on the day that all such post-closing adjustments
have been determined, the amount (if any) by which the reserved amount in
respect of such Asset Sale exceeds the actual post-closing adjustments, payable
by the Company or any of its Restricted Subsidiaries, shall constitute Net
Available Cash on such date.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock
means the proceeds of such issuance or sale in the form of cash or Cash
Equivalents net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company or any Restricted
Subsidiary, as the case may be (or, in the case of any Restricted Subsidiary
that is not a corporation, the respective Persons having the duties and
authority correlative to the foregoing officers of a corporation).
"Officers' Certificate" means a certificate signed by two Officers.
"Permitted Holders" means any or all of James C. Richardson, Jr., David R.
Clark and James E. Harris or any Person as to which Messrs. Richardson, Clark
and Harris beneficially own, in the aggregate, more than 50% of the Capital
Stock of such Person and control more than 50% of the Voting Stock of such
Person.
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"Permitted Indebtedness" means each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) Indebtedness under the Bank Facility; provided that the aggregate
principal amount of Indebtedness outstanding under the Bank Facility at any
one time shall not exceed the greater of (a) $75.0 million or (b) the sum
of (i) 85% of the book value of accounts receivable of the Company and its
Restricted Subsidiaries, plus (ii) an amount equal to the sum of (A) 45% of
the book value of inventory of the Company and its Restricted Subsidiaries
consisting of ham house raw materials, plus (B) 55% of the book value of
inventory of the Company and its Restricted Subsidiaries consisting of
bakery raw materials located in Claremont, plus (C) 65% of the book value
of inventory of the Company and its Restricted Subsidiaries consisting of
raw materials located in Cincinnati, plus (D) 55% of the book value of
inventory of the Company and its Restricted Subsidiaries consisting of ham
house finished goods, plus (E) 50% of the book value of inventory of the
Company and its Restricted Subsidiaries consisting of bakery finished goods
located in Claremont, plus (F) 65% of the book value of inventory of the
Company and its Restricted Subsidiaries consisting of finished goods
located in Cincinnati, plus (iii) 70% of the liquidation value of all
equipment of the Company and its Restricted Subsidiaries and the fair
market value of all real property of the Company and its Restricted
Subsidiaries, provided that at the end of each calendar quarter, the amount
in clause (iii) shall be reduced by an amount equal to 1/28th of such
amount;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(iv) Interest Rate Protection Agreements of the Company covering
Indebtedness of the Company or any of its Restricted Subsidiaries and
Interest Rate Protection Agreements of any Restricted Subsidiary covering
Indebtedness of such Restricted Subsidiary; provided, however, that (a)
such Interest Rate Protection Agreements are entered into to protect the
Company and its Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Rate Protection Agreements does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Agreements relates and (b) such Interest Rate Protection
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than by reason of fees,
indemnities and compensation payable thereunder;
(v) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Restricted Subsidiary; provided that
if as of any date any Person other than the Company or a Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vi) Indebtedness of the Company to a Restricted Subsidiary for so
long as such Indebtedness is held by a Restricted Subsidiary, subject to no
Lien; provided that (a) any Indebtedness of the Company to any Restricted
Subsidiary is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and (b) if as of any date any
Person other than a Restricted Subsidiary owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of day-light overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
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provide security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(ix) Refinancing Indebtedness Incurred in respect of Indebtedness
originally incurred pursuant to the second sentence under "-- Limitation on
Indebtedness" or pursuant to this clause (ix) or clause (i) or (ii) of this
definition;
(x) Additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $5.0 million at
any one time outstanding for Capitalized Lease Obligations or for purposes
of financing the purchase price or construction cost of equipment, fixtures
or similar property; and
(xi) Additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10.0 million
at any one time outstanding.
"Permitted Investment" means any of the following:
(i) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a
Restricted Subsidiary or that will merge or consolidate into the Company or
a Restricted Subsidiary;
(ii) Investments in the Company by any Restricted Subsidiary; provided
that any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of the Company and
its Subsidiaries in the ordinary course of business for bona fide business
purposes not in excess of $1.0 million at any one time outstanding;
(v) Interest Rate Protection Agreements entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and
otherwise in compliance with the Indenture;
(vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(vii) consideration other than cash or Cash Equivalents received by
the Company or its Restricted Subsidiaries in connection with an Asset Sale
made in compliance with the "-- Limitation on Sales of Assets and
Subsidiary Stock" covenant; and
(vii) Investments not to exceed $5.0 million at any one time
outstanding.
"Permitted Liens" means any of the following:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
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(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of the Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or a Restricted Subsidiary acquired in the ordinary course of
business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or a Restricted Subsidiary, including rights of offset and set-off;
(xi) Liens securing Interest Rate Protection Agreements which Interest
Rate Protection Agreements relate to Indebtedness that is incurred under
the Indenture;
(xii) Liens securing Indebtedness under the Bank Facility or pursuant
to clause (xi) of the definition of "Permitted Indebtedness";
(xiii) Liens existing on the Issue Date and Liens to secure any
Refinancing Indebtedness which is incurred to refinance any Indebtedness
which has been secured by a Lien permitted under the "-- Limitation on
Liens" covenant and which Indebtedness has been incurred in accordance with
the "-- Limitation on Indebtedness" covenant; provided that such new Liens
(A) are no less favorable to the Holders of Notes and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being refinanced and (B) do not extend to any
property or assets other than the property or assets securing the
Indebtedness refinanced or replaced by such Refinancing Indebtedness; and
(xiv) Liens securing Acquired Indebtedness incurred in accordance with
the second sentence of the "-- Limitation on Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary and were not granted in connection with, or in
anticipation of the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary and (B) such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than
the property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary and are no more favorable to the lienholders than the
Liens securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary.
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"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
any class of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) an underwritten Public Equity
Offering of the Company has been consummated and (ii) at least 10% of the total
issued and outstanding common stock of the Company has been distributed by means
of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Refinancing Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount of such Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Refinancing Indebtedness has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Refinancing Indebtedness has a final maturity date later than
the final maturity date of, and is subordinated in right of payment to, the
Notes on terms at least as favorable to the Holders of Notes as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary of the Company that is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions in respect of its Capital
Stock (including any payment in connection with any merger or consolidation
involving such Person) or similar payment to the direct or indirect holders of
its Capital Stock (other than dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than pro
rata dividends or other distributions made by a Restricted Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company or any Restricted Subsidiary held by any Person (other than the
Company or a Restricted Subsidiary), or any warrants, fights or options to
acquire shares of any class of such Capital Stock, (iii) the
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purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or a
Restricted Subsidiary of the Company (whether outstanding on the Issue Date or
thereafter Incurred) which is subordinate or junior in right of payment to the
Notes or the Guarantees pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, limited
liability company, association, partnership or other business entity of which
more than 50% of the total voting power of outstanding shares of Capital Stock
or other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however that (A) either (1) the
Subsidiary to be so designated has total assets of $1,000 or less or (2) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Limitation on Restricted Payments" and
(B) such Subsidiary to be so designated and each of its Subsidiaries has not at
the time of such designation, and does not thereafter, Incur any Indebtedness
pursuant to which the lender has recourse to any of the assets or properties of
the Company or any of its Restricted Subsidiaries. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation, (x) the
Company could Incur $1.00 of additional Indebtedness pursuant to the second
sentence under "-- Certain Covenants -- Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced by the Company to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payments at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Indebtedness.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material United States
("U.S.") federal income tax consequences of the purchase, ownership and
disposition of Notes by corporate and individual investors that acquire Notes at
original issuance for cash at their face value. This discussion does not address
the tax consequences to subsequent purchasers of Notes and is limited to
investors who hold Notes as capital assets within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Furthermore, this
discussion does not address all aspects of U.S. federal income taxation that may
be applicable to investors in light of their particular circumstances or to
investors subject to special treatment under U.S. federal income tax law
(including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons that acquire
Notes as part of a straddle, hedge, conversion transaction or other integrated
investment or persons whose functional currency is not the U.S. dollar), nor
does it address the U.S. federal income tax consequences to any investors that
are trusts, estates or partnerships (or other pass through entities) or any
beneficiaries, partners or members thereof. This discussion is based on
provisions of the Code, United States Treasury Department ("Treasury")
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect. This discussion does
not describe any tax consequences arising under U.S. federal gift and estate
taxes (except to the limited extent set forth below under "U.S. Taxation of
Non-U.S. Holders") or out of the tax laws of any state, local or foreign
jurisdiction.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR
GIFT TAX LAWS, ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Initial Notes for Exchange Notes pursuant to the Exchange
Offer should not be considered a taxable exchange for U.S. federal income tax
purposes because the Exchange Notes should not differ materially in kind or
extent from the Initial Notes and because the exchange will occur by operation
of the terms of the Notes. Accordingly, such exchange should have no U.S.
federal income tax consequences to Holders of Initial Notes. A Holder's adjusted
tax basis and holding period in an Exchange Note will be the same as such
Holder's adjusted tax basis and holding period, respectively, in the Initial
Note exchanged therefor. All references to Notes under the heading "Certain U.S.
Federal Income Tax Considerations" in this Prospectus apply equally to Exchange
Notes as to Initial Notes.
Holders considering the exchange of Initial Notes for Exchange Notes should
consult their own tax advisors concerning the U.S. federal income tax
consequences in light of their particular situations, as well as any
consequences arising under state, local or foreign income tax or other tax law.
U.S. TAXATION OF U.S. HOLDERS
As used herein, the term "U.S. Holder" means a holder of a Note that is,
for U.S. federal income tax purposes, (i) a citizen or resident (as defined in
Section 7701(b)(1) of the Code) of the U.S. or (ii) a corporation created or
organized in or under the laws of the U.S. or of any political subdivision
thereof. The
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term "U.S." for these purposes means the United States of America (comprised of
the States and the District of Columbia). The term "Non-U.S. Holder" means a
corporate or individual holder of a Note that is not a U.S. Holder.
Payments of Interest
Stated interest payable on the Notes generally will be included in the
gross income of a U.S. Holder as ordinary interest income at the time accrued or
received, in accordance with such U.S. Holder's method of accounting for U.S.
federal income tax purposes.
Payments on Registration Default
Because the Notes provide for the payment of liquidated damages under
certain circumstances, the Notes may be subject to Treasury regulations
applicable to debt instruments that provide for one or more contingent payments.
See "Exchange Offer; Registration Rights." Under such Treasury regulations, if
the payment of such liquidated damages is, as of the Issue Date, either a
"remote" or "incidental" contingency, the payment of liquidated damages would
not be considered a contingent payment, and the U.S. federal income tax
treatment of such liquidated damages generally would be the same as that
described under "Payments of Interest" above. The Company intends to take the
position that, solely for these purposes, the payment of liquidated damages is a
remote or incidental contingency; such determination is binding on a U.S. Holder
unless such holder discloses to the Internal Revenue Service (the "IRS") that it
is taking a contrary position.
If the Company becomes obligated to pay liquidated damages, a U.S. Holder
generally would be required to include the initial payment of liquidated damages
in income as ordinary income when received or accrued, in accordance with such
U.S. Holder's method of accounting for U.S. federal income tax purposes. In
addition, the Notes would be treated as having been reissued at such time for
their "adjusted issue price" (i.e., generally, the stated principal amount of
the Notes). If, at the time of such deemed reissuance, the possibility that the
Company would be required to make additional payments of liquidated damages were
not a remote or incidental contingency, a U.S. Holder could be required to
accrue the projected payments of liquidated damages into income on a constant
yield basis, which could result in a holder recognizing income prior to the
receipt of the related cash payment. Prospective investors should consult their
tax advisors regarding the U.S. federal income tax consequences of the receipt
of liquidated damages on the Notes.
Disposition of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note (any of the foregoing being a "Disposition"), a U.S.
Holder generally will recognize capital gain or loss equal to the difference
between the amount realized by such U.S. Holder (except to the extent such
amount is attributable to accrued interest, which will be treated as ordinary
interest income) and such U.S. Holder's adjusted tax basis in the Note. Such
capital gain or loss generally will be long-term capital gain or loss if the
holding period for the Note exceeds one year at the time of the Disposition.
Individual taxpayers may be taxed at reduced rates of federal income tax in
respect of long-term capital gains realized on a Disposition of Notes in certain
instances (e.g., generally, long-term capital gain recognized by an individual
U.S. Holder would be subject to a maximum tax rate of 20.0% in respect of Notes
held for more than twelve months or to a maximum rate of 28.0% in respect of
Notes held in excess of one year). Prospective investors should consult their
tax advisors regarding the tax consequences of realizing long-term capital
gains.
U.S. TAXATION OF NON-U.S. HOLDERS
Payments of Interest
In general, payments of interest received by a Non-U.S. Holder will not be
subject to U.S. federal income tax (including the withholding tax imposed on
certain foreign investors, the "U.S. Withholding Tax"), provided that (i) the
Non-U.S. Holder (a) does not actually or constructively own 10.0% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership and
94
<PAGE> 100
(c) provides, under penalties of perjury (either directly or through a financial
institution that holds the Note on behalf of the Non-U.S. Holder and that holds
customers' securities in the ordinary course of its trade or business), the
Company or its agent with the Non-U.S. Holder's (or, if different, the
beneficial owner's) name and address and certifies, under penalties of perjury,
that it is not a United States person (as defined by Section 7701(a)(30) of the
Code, or (ii) the Non-U.S. Holder is entitled to the benefits of an income tax
treaty under which the interest is exempt from such tax and the Non-U.S. Holder
complies with certain certification and reporting requirements. In addition,
payments of interest received by a Non-U.S. Holder will not be subject to U.S.
Withholding Tax if the interest received on the Note is effectively connected
with the conduct by the Non-U.S. Holder of a trade or business within the U.S.
and the Non-U.S. Holder complies with certain certification and reporting
requirements. Payments of interest received by a Non-U.S. Holder that are not
exempt from U.S. Withholding Tax as described above will be subject to such
withholding tax at the rate of 30.0% of the gross amount of such payment
(subject to reduction under an applicable income tax treaty if applicable
certification on a reporting requirements are met).
Disposition of the Notes
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and generally no tax will be withheld) with respect to gain realized on the
Disposition of a Note, unless (i) the gain is effectively connected with a U.S.
trade or business conducted by the Non-U.S. Holder or (ii) the Non-U.S. Holder
is an individual who is present in the United States for 183 or more days during
the taxable year of the Disposition and certain other requirements are
satisfied. In addition, an exchange of a Certificated Note for an interest in a
Global Note or an exchange of the unredeemed portion of an original Note for a
new Note as part of a partial redemption of Notes with the proceeds of one or
more Public Equity Offerings will not constitute a taxable exchange of the note
for Non-U.S. Holders. See "U.S. Taxation of U.S. Holders -- Disposition of the
Notes."
Effectively Connected Income
If interest and other payments received by a Non-U.S. Holder with respect
to the Notes (including proceeds from the Disposition of the Notes) are
effectively connected with the conduct by the Non-U.S. holder of a trade or
business within the United States (or the Non-U.S. Holder is otherwise subject
to U.S. federal income taxation on a net basis with respect to such Holder's
ownership of the Notes), such Non-U.S. Holder will generally be subject to the
rules described above under "U.S. Taxation of U.S. Holders" (subject to possible
modification provided under an applicable income tax treaty). Such Non-U.S.
Holder also may be subject to the U.S. "branch profits tax" if such Holder is a
corporation.
U.S. Federal Estate Taxes
A Note beneficially owned by an individual who is a Non-U.S. Holder at the
time of his or her death generally will not be subject to U.S. federal estate
tax as a result of such death if (i) the Non-U.S. Holder does not actually or
constructively own 10.0% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and (ii) interest payments with
respect to the Note would not have been, if received at the time of such
individual's death, effectively connected with the conduct of a U.S. trade or
business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain individual U.S. Holders may be subject to backup withholding at a
rate of 31.0% on payments of principal, premium and interest on, and the
proceeds of the Disposition of, the Notes. In general, backup withholding only
will be imposed on an individual U.S. Holder if he or she (i) fails to furnish a
taxpayer identification number ("TIN"), which would be his or her Social
Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS
that he or she has failed to report payments of interest or dividends or (iv)
under certain circumstances, fails to certify, under penalty of perjury, that he
or she (a) has furnished a correct TIN and (b) has not been notified by the IRS
that he or she is subject to backup withholding tax for failure to report
interest or dividend payments. In addition, such payments of principal and
interest to U.S. Holders will generally be subject to information reporting.
U.S. Holders should consult their tax advisors
95
<PAGE> 101
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable.
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of a Note who provides the certification described under "U.S. Taxation
of Non-U.S. Holders -- Payments of Interest" or otherwise establishes an
exemption from backup withholding. Payments by a U.S. office of a broker or the
proceeds of a disposition of the Notes generally will be subject to backup
withholding at a rate of 31.0% unless the Non-U.S. Holder certifies that it is a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption.
The amount of any backup withholding imposed on a payment to a holder will
be allowed as a credit against such holder's U.S. federal income tax liability
and may entitle such holder to a refund, provided that the required information
is furnished to the IRS.
RECENTLY ISSUED TREASURY REGULATIONS
On October 6, 1997, the Treasury issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders
after December 31, 1998. The new Treasury regulations would alter the procedures
for claiming the benefits of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of a Note. Prospective investors should consult
their tax advisors concerning the applicability and effect, if any, of such new
Treasury regulations on an investment in the Notes and the subsequent holding
and disposition thereof.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE STATE
AND LOCAL INCOME AND FRANCHISE TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES.
96
<PAGE> 102
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Initial Notes where such Initial Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
accounts pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at prevailing market prices at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit from any
such resale of Exchange Notes and any commissions or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Initial Notes) other than dealers' and brokers' discounts,
commissions and counsel fees and will indemnify the holders of the Initial Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby has been passed upon for
the Company by McGuire, Woods, Battle & Boothe LLP, Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of Fresh Foods as of February 28,
1997 and February 27, 1998, and for each of the three years in the period ended
February 27, 1998, included in this Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
dated May 7, 1998, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of Pierre as of September 27, 1997 and September
28, 1996, and for each of the three years in the period ended September 27,
1997, included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein dated May 1,
1998, and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
97
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FRESH FOODS
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of February 28, 1997 and
February 27, 1998 and Unaudited as of May 22, 1998..... F-3
Consolidated Statements of Earnings for the Years Ended
February 23, 1996, February 28, 1997 and February 27,
1998 and Unaudited for the Quarters Ended May 23, 1997
and May 22, 1998....................................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended February 23, 1996, February 28, 1997 and
February 27, 1998 and Unaudited for the Quarter Ended
May 22, 1998........................................... F-5
Consolidated Statements of Cash Flow for the Years Ended
February 23, 1996, February 28, 1997 and February 27,
1998 and Unaudited for the Quarters Ended May 23, 1997
and May 22, 1998....................................... F-6
Notes to Financial Statements............................. F-7
PIERRE
INDEPENDENT AUDITORS' REPORT................................ F-29
FINANCIAL STATEMENTS:
Statements of Certain Assets and Liabilities as of
September 28, 1996 and September 27, 1997 and Unaudited
as of May 30, 1998..................................... F-30
Statements of Revenues and Expenses for the years ended
September 30, 1995, September 28, 1996 and September
27, 1997 and Unaudited for the eight months ended May
31, 1997 and May 30, 1998.............................. F-31
Notes to Statements of Certain Assets and Liabilities and
Statements of Revenues and Expenses.................... F-32
</TABLE>
F-1
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Fresh Foods, Inc.
Claremont, North Carolina
We have audited the accompanying consolidated balance sheets of Fresh
Foods, Inc. and its subsidiaries (formerly "WSMP, Inc. and subsidiaries") (the
"Company") as of February 27, 1998 and February 28, 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three fiscal years in the period ended February 27, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at February 27,
1998 and February 28, 1997, and the results of its operations and its cash flows
for each of the three fiscal years in the period ended February 27, 1998 in
conformity with generally accepted accounting principles.
As discussed in Note 22 to the consolidated financial statements,
subsequent to February 27, 1998 the Company acquired certain of the net assets
of the Pierre Foods Division of Hudson Foods, Inc. and financed such acquisition
through the issuance of debt.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 7, 1998
(September 5, 1998 as to Note 22)
F-2
<PAGE> 105
FRESH FOODS, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND FEBRUARY 27, 1998 AND UNAUDITED AS OF MAY 22, 1998
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 27, MAY 22,
1997 1998 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,995,497 $ 2,818,071 $ 2,430,517
Marketable equity securities (at fair value; cost of:
1998 -- $175,790 and 1997 -- $155,768).................. 171,910 206,706 220,766
Accounts receivable, net (Notes 3, 8 and 19 -- includes
related party receivables of $181,367 and $278,919 at
February 27, 1998 and February 28, 1997)................ 3,735,936 5,204,700 4,083,905
Notes receivable -- current, net (includes related party
notes receivable of $526,592 and $563,644 at February
27, 1998 and February 28, 1997)......................... 973,640 1,150,906 1,615,951
Inventories (Notes 4 and 8)............................... 6,706,838 7,361,347 7,611,973
Income taxes refundable (Note 10)......................... 343,557 872,157 780,586
Deferred income taxes (Note 10)........................... 454,259 424,786 413,131
Prepaid expenses and other current assets................. 108,323 269,222 579,893
----------- ----------- -----------
Total current assets............................... 16,489,960 18,307,895 17,736,722
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 5 and 8).......... 36,964,110 45,023,793 48,130,675
----------- ----------- -----------
OTHER ASSETS:
Properties held for sale (Notes 6 and 8).................. 3,277,670 1,680,993 1,685,511
Intangible assets, net (Note 7)........................... 628,186 3,735,866 3,676,992
Notes receivable (Notes 3 and 19 -- includes related party
notes receivable of $1,550,638 and $963,117 at February
27, 1998 and February 28, 1997)......................... 1,433,462 1,886,249 1,065,805
Investments in affiliates (Note 16)....................... 374,533 -- --
Deferred income taxes (Note 10)........................... -- 685,458 682,808
Other..................................................... 403,209 335,545 936,576
----------- ----------- -----------
Total other assets................................. 6,117,060 8,324,111 8,047,692
----------- ----------- -----------
Total Assets....................................... $59,571,130 $71,655,799 $73,915,089
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- banks (Note 8)........................... $ 4,487,776 $ 5,105,144 $ 6,351,875
Current installments of long-term debt (Note 8)........... 1,297,792 2,189,401 2,410,073
Trade accounts payable (Note 19 -- includes related party
payables of $218,180 and $115,094 at February 27, 1998
and February 28, 1997).................................. 4,568,176 6,605,893 8,099,431
Other accrued liabilities (Note 9)........................ 4,021,755 4,904,841 4,755,069
----------- ----------- -----------
Total current liabilities................................. 14,375,499 18,805,279 21,616,448
DEFERRED INCOME TAXES (Note 10)............................. 1,425,100 --
LONG-TERM DEBT (Note 8)..................................... 12,422,150 13,623,532 12,705,515
COMMITMENTS AND CONTINGENCIES (Notes 11 and 17)
SHAREHOLDERS' EQUITY (Notes 8, 13 and 20):
Preferred stock -- par value, $.10, authorized 2,500,000,
no shares issued
Common stock -- par value $1, authorized 100,000,000
shares; issued 1998 -- 5,898,449 and
1997 -- 5,326,948....................................... 5,326,948 5,898,449 5,902,824
Capital in excess of par value............................ 18,868,284 23,647,020 23,665,395
Retained earnings......................................... 7,143,090 9,662,258 10,001,266
Unrealized gain on securities available for sale.......... 10,059 19,261 23,641
----------- ----------- -----------
Total shareholders' equity......................... 31,348,381 39,226,988 39,593,126
----------- ----------- -----------
Total Liabilities and Shareholders' Equity......... $59,571,130 $71,655,799 $73,915,089
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 106
FRESH FOODS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 23, 1996, FEBRUARY 28, 1997 AND FEBRUARY 27, 1998
AND UNAUDITED FOR THE QUARTERS ENDED MAY 23, 1997 AND MAY 22, 1998
<TABLE>
<CAPTION>
FEBRUARY 23, FEBRUARY 28, FEBRUARY 27, MAY 23, MAY 22,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES (Notes 1, 3 and 15):
Food processing................................ $ 50,868,707 $ 58,615,493 $ 66,245,345 $ 15,300,168 $ 13,394,846
Restaurant operations and franchising (Note
19 -- includes related party transactions
totaling $315,000 in 1998, $1,004,000 in 1997
and $1,162,000 in 1996)...................... 62,667,763 71,318,432 92,166,216 21,135,430 21,799,595
------------ ------------ ------------ ------------ ------------
Total revenues........................... 113,536,470 129,933,925 158,411,561 36,435,598 35,194,441
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of goods sold (Note 19 -- includes related
party transactions totaling $429,000 in 1998,
$513,000 in 1997 and $474,000 in 1996)....... 69,647,206 79,451,764 93,017,228 21,478,981 20,227,927
Restaurant operating expenses (Note
19 -- includes related party transactions
totaling $3,682,000 in 1998, $2,744,000 in
1997 and $2,665,000 in 1996)................. 26,560,293 29,821,561 39,796,313 9,019,966 9,799,996
Selling, general and administrative expenses
(Note 19 -- includes related party
transactions totaling $2,206,000 in 1998,
$2,070,000 in 1997 and $2,551,000 in 1996)... 10,587,620 11,650,618 15,592,569 2,915,953 2,765,919
Depreciation and amortization (Note 2)......... 3,476,152 3,600,317 5,004,310 1,015,764 1,126,334
------------ ------------ ------------ ------------ ------------
Total costs and expenses................. 110,271,271 124,524,260 153,410,420 34,430,664 33,920,176
------------ ------------ ------------ ------------ ------------
OPERATING INCOME................................. 3,265,199 5,409,665 5,001,141 2,004,934 1,274,265
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Other income (including interest) (Note 19 --
includes related party transactions totaling
$146,000 in 1998, $114,000 in 1997 and
$102,000 in 1996)............................ 736,855 1,125,745 744,121 167,228 180,633
Net gain (loss) on dispositions of assets (net
of writedowns) (Notes 7 and 19 includes gains
(losses) on sales of assets to related
parties totaling $710,000 in 1998, $103,000
in 1997 and ($360,000) in 1996).............. 105,367 345,930 639,966 (46,047) (261,564)
Equity in earnings (loss) of affiliates........ (385,366) (107,000) 3,000 18,000 (7,964)
Interest expense (Note 19 -- includes related
party transactions totaling $110,000 in 1998
and $32,000 in 1997)......................... (2,162,547) (1,867,948) (1,762,363) (414,396) (419,668)
Other expense (Note 19 -- includes related
party transactions totaling $147,000 in 1998,
$99,000 in 1997 and $80,000 in 1996)......... (688,580) (871,388) (647,857) (107,660) (221,548)
------------ ------------ ------------ ------------ ------------
Net other expense........................ (2,394,271) (1,374,661) (1,023,133) (382,875) (730,111)
------------ ------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM........................................... 870,928 4,035,004 3,978,008 1,622,059 544,154
PROVISION FOR INCOME TAXES (BENEFIT) (Note 10)... (1,139,430) 2,009,999 1,728,008 620,047 205,146
------------ ------------ ------------ ------------ ------------
EARNINGS BEFORE EXTRAORDINARY ITEM............... 2,010,358 2,025,005 2,250,000 1,002,012 339,008
EXTRAORDINARY GAIN FROM EARLY EXTINGUISHMENT OF
DEBT (Net of income taxes of $251,000)(Note
8)............................................. -- 414,784 -- -- --
------------ ------------ ------------ ------------ ------------
NET EARNINGS..................................... $ 2,010,358 $ 2,439,789 $ 2,250,000 $ 1,002,012 $ 339,008
============ ============ ============ ============ ============
EARNINGS PER COMMON SHARE -- BASIC (Notes 1 and
2):
Earnings before extraordinary item............. $ 0.42 $ 0.40 $ 0.40 $ 0.18 $ 0.06
Extraordinary gain from early extinguishment of
debt......................................... -- 0.08 -- -- --
------------ ------------ ------------ ------------ ------------
Net earnings............................. $ 0.42 $ 0.48 $ 0.40 $ 0.18 $ 0.06
============ ============ ============ ============ ============
EARNINGS PER COMMON SHARE -- DILUTED (Notes 1 and
2):
Earnings before extraordinary item............. $ 0.41 $ 0.37 $ 0.37 $ 0.17 $ 0.05
Extraordinary gain from early extinguishment of
debt......................................... -- 0.08 -- -- --
------------ ------------ ------------ ------------ ------------
Net earnings............................. $ 0.41 $ 0.45 $ 0.37 $ 0.17 $ 0.05
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 107
FRESH FOODS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 23, 1996, FEBRUARY 28, 1997 AND FEBRUARY 27, 1998
AND UNAUDITED FOR THE QUARTER ENDED MAY 22, 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
CAPITAL IN ON SECURITIES
COMMON EXCESS OF AVAILABLE RETAINED
STOCK PAR VALUE FOR SALE EARNINGS
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
BALANCE AT FEBRUARY 24, 1995.................. $2,828,009 $12,368,730 $(5,214) $ 7,462,521
Net earnings................................ -- -- -- 2,010,358
Issuance of common stock -- Sagebrush, Inc.
(30,529 shares).......................... 30,529 949,473 -- --
Common stock options exercised (100,000
shares) (Note 13)........................ 100,000 190,000 -- --
Capital contributions....................... -- 264,310 -- --
S Corporation dividends and distributions --
Sagebrush, Inc........................... -- -- -- (3,881,390)
Unrealized gain on securities available for
sale..................................... -- -- 10,492 --
---------- ----------- ------- -----------
BALANCE AT FEBRUARY 23, 1996.................. 2,958,538 13,772,513 5,278 5,591,489
Net earnings................................ -- -- -- 2,439,789
Common stock options exercised (158,750
shares) (Note 13)........................ 158,750 561,750 -- --
Payments to and exchanges with shareholders
related to Sagebrush, Inc.
reorganization........................... 1,478,900 (6,475,119) -- --
Net proceeds of Sagebrush, Inc. public
offering (Note 1)........................ 687,960 10,337,242 -- --
Issuance of common stock -- Sagebrush, Inc.
(42,800 shares).......................... 42,800 671,898 -- --
S Corporation dividends and distributions --
Sagebrush, Inc........................... -- -- -- (888,188)
Unrealized gain on securities available for
sale..................................... -- -- 4,781 --
---------- ----------- ------- -----------
BALANCE AT FEBRUARY 28, 1997.................. 5,326,948 18,868,284 10,059 7,143,090
Net earnings................................ -- -- -- 2,250,000
Net earnings of Sagebrush, Inc. for period
from January 4, 1997 to February 28, 1997
(Note 2)................................. -- -- -- 269,168
Common stock options exercised (391,000
shares) (Note 13)........................ 391,000 919,700 -- --
Purchase of common stock (143,325 shares)... (143,325) (1,840,425) -- --
Issuance of common stock (323,826 shares)... 323,826 2,599,040 -- --
Tax benefit of stock options exercised
(Notes 10 and 13)........................ -- 3,100,421 -- --
Unrealized gain on securities available for
sale..................................... -- -- 9,202 --
---------- ----------- ------- -----------
BALANCE AT FEBRUARY 27, 1998.................. 5,898,449 23,647,020 19,261 9,662,258
Net earnings................................ -- -- -- 339,008
Common Stock options exercised (4,375
shares).................................. 4,375 18,375 -- --
Unrealized gain on securities available for
sale..................................... -- -- 4,380 --
---------- ----------- ------- -----------
BALANCE AT MAY 22, 1998 (Unaudited)........... $5,902,824 $23,665,395 $23,641 $10,001,266
========== =========== ======= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 108
FRESH FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED FEBRUARY 23, 1996, FEBRUARY 28, 1997 AND FEBRUARY 27, 1998
AND UNAUDITED FOR THE QUARTERS ENDED MAY 23, 1997 AND MAY 22, 1998
<TABLE>
<CAPTION>
FEBRUARY 23, FEBRUARY 28, FEBRUARY 27, MAY 23, MAY 22,
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................... $ 2,010,358 $ 2,439,789 $ 2,250,000 $ 1,002,011 $ 339,008
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Extraordinary gain on extinguishment of debt
(before effect of income taxes) (Note 8)... -- (665,646) -- -- --
Depreciation and amortization................ 3,476,152 3,600,317 5,004,311 1,015,763 1,126,334
Depreciation on properties leased to
others..................................... 282,104 293,894 225,733 42,225 91,057
Deferred income taxes, net................... (1,133,463) 582,224 (2,081,085) -- 11,655
Net (gain) loss on dispositions of assets
(net of writedowns)........................ (105,367) (345,930) (639,966) 46,047 261,565
Provision for losses on receivables.......... 216,039 223,358 300,979 12,810 3,157
Tax benefit of stock options................. -- -- 3,100,421 -- --
Equity in (earnings) loss of affiliates...... 385,366 107,000 (3,000) -- --
Other noncash adjustments to earnings........ 152,598 (183,475) (78,140) (35,676) (81,576)
Changes in operating assets and liabilities
(net of effects from purchase of restaurant
companies) providing (using) cash:
Receivables.................................. 102,755 246,740 (1,780,815) (2,323,109) 1,117,637
Inventories.................................. (463,691) (741,522) (544,001) (128,912) (250,626)
Income taxes refundable, prepaid expense and
other assets............................... (619,536) 35,703 (673,905) 19,123 (14,748)
Trade accounts payable and other accrued
liabilities................................ 6,119 902,488 2,654,178 1,972,626 1,139,412
------------ ------------ ------------ ------------ ------------
Total adjustments........................ 2,299,076 4,055,151 5,484,710 620,897 3,403,867
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................. 4,309,434 6,494,940 7,734,710 1,622,908 3,742,875
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures to related parties........ (612,578) (563,294) (1,752,565) (178,060) (452,364)
Capital expenditures -- other.................. (3,357,550) (9,138,245) (10,839,058) (1,642,604) (4,562,565)
Proceeds from sales of assets to related
parties...................................... 1,079,955 150,000 1,350,000 -- --
Proceeds from sales of assets to others........ 2,028,335 1,208,447 2,185,787 5,220 15,550
Deposits, net of refunds....................... (121,554) 47,942 34,931 (123,958) (51,555)
Decrease (increase) in marketable equity
securities................................... 13,575 (15,213) (20,022) (2,591) (7,030)
Decrease in related party notes receivables.... 203,874 289,913 179,452 179,452 257,284
Decrease in other notes receivable............. 287,897 220,164 355,852 25,120 98,115
Other investing activities, net................ (202,989) (92,322) -- -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities.... (681,035) (7,892,608) (8,505,623) (1,737,421) (4,702,565)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under short-term
borrowing agreements......................... 1,000,000 27,776 (935,382) 1,181,452 1,246,731
Proceeds from issuance of long-term debt....... 1,414,629 8,585,000 5,894,000 -- --
Principal payments on long-term debt........... (4,445,189) (11,948,322) (4,971,615) (1,097,007) (697,345)
Cash restricted for secured letter of credit
(Note 17).................................... 500,000 -- -- -- --
Proceeds from issuance of common stock......... -- 11,472,779 -- -- --
S Corporation distribution dividend............ (3,962,390) (888,188) -- -- --
Proceeds from exercise of stock options........ 290,000 720,500 1,310,700 65,000 22,750
Acquisition of treasury stock.................. -- -- (1,983,750) (1,983,750) --
Purchase of assets related to reorganization... -- (1,652,500) -- -- --
Cash paid to shareholders related to
reorganization............................... -- (3,412,902) -- -- --
Capital contributions.......................... 1,481,312 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................. (3,721,638) 2,904,143 (686,047) (1,834,305) 572,136
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (93,239) 1,506,475 (1,456,960) (1,948,818) (387,554)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..... 2,582,261 2,489,022 4,275,031 4,275,031 2,818,071
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR........... $ 2,489,022 $ 3,995,497 $ 2,818,071 $ 2,326,213 $ 2,430,517
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 109
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 23, 1996, FEBRUARY 28, 1997 AND FEBRUARY 27, 1998
AND UNAUDITED FOR THE QUARTERS ENDED MAY 23, 1997 AND MAY 22, 1998
1. BASIS OF PRESENTATION
Business Combination. Effective January 30, 1998, WSMP, Inc. ("WSMP"),
which subsequently changed its name to Fresh Foods, Inc. ("Fresh Foods"),
completed a merger with Sagebrush, Inc. ("Sagebrush") through issuance of
2,264,535 shares of Fresh Foods common stock for all of the outstanding common
stock of Sagebrush. Each share of Sagebrush common stock was converted into
.3822 shares of Fresh Foods common stock. The outstanding Sagebrush employee
stock options were converted at the .3822 exchange ratio into options to
purchase 120,317 shares of WSMP common stock. Fresh Foods and its subsidiaries,
together with Sagebrush and its subsidiaries after giving effect to such merger,
are referred to herein collectively as the "Company".
The merger qualifies as a tax-free reorganization and has been accounted
for as a pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined financial position, results of operations
and cash flows of Sagebrush.
Transactions between Fresh Foods and Sagebrush prior to the combination
have been eliminated. Adjustments recorded to conform Sagebrush's accounting
policies were immaterial, except for restaurant pre-opening costs. Prior to the
consummation of the merger, Sagebrush deferred restaurant pre-opening costs and
amortized these costs over 12 months. The accompanying financial statements have
been restated to conform to Fresh Foods' policy which is to expense these costs
as incurred. In addition, certain reclassifications were made to the Sagebrush
financial statements to conform to Fresh Foods' presentation.
The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
FEBRUARY 27, FEBRUARY 28, FEBRUARY 23,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Fresh Foods................................ $105,625,836 $ 87,753,073 $ 79,439,210
Sagebrush.................................. 52,785,725 42,180,852 34,097,260
Combined................................... 158,411,561 129,933,925 113,536,470
Extraordinary gain:
Fresh Foods................................ -- 414,784 --
Sagebrush.................................. -- -- --
Combined................................... -- 414,784 --
Net income:
Fresh Foods................................ (456,591) 1,120,696 (1,494,989)
Sagebrush.................................. 2,706,591 2,112,331 3,611,995
Eliminations............................... -- (793,238) (106,648)
Combined................................... 2,250,000 2,439,789 2,010,358
</TABLE>
Transaction costs of approximately $1,400,000 incurred in connection with
the merger with Sagebrush, primarily for investment banking, accounting and
legal fees, are included in the accompanying statement of operations for the
fiscal year ended February 27, 1998.
Organization and Business. The Company is a producer and remarketer of
fully-cooked branded and private label meat and poultry products and prepackaged
microwaveable sandwiches for the foodservice
F-7
<PAGE> 110
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
markets. The Company owns and operates 57, and franchises an additional 43,
restaurants operating under the Sagebrush, Western Steer, Prime Sirloin and
Bennett's concepts.
Sagebrush's 1998 fiscal year end was restated to conform with Fresh Food's
fiscal year which ends on the last Friday in February. Sagebrush's fiscal 1998
results of operations and cash flows include the period from March 1, 1997
through February 27, 1998. Fiscal 1997 and 1996 for Sagebrush were not restated
and end on the Friday nearest December 31. Sagebrush's fiscal 1998 and 1996
represent 52-week periods, while 1997 reflects a 53-week period.
A summary of fiscal year ends as restated is shown as follows:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fresh Foods................... February 27, 1998 February 28, 1997 February 23, 1996
(52-weeks) (53-weeks) (52-weeks)
Sagebrush..................... February 27, 1998 January 3, 1997 December 29, 1995
(52-weeks) (52-weeks) (53-weeks)
</TABLE>
A summary of the Sagebrush's results of operations for the two months ended
February 28, 1997 follows:
<TABLE>
<S> <C>
Restaurant operations and franchising revenue............... $7,043,659
Operating income............................................ 452,438
Net income.................................................. 269,168
</TABLE>
In January 1996, Sagebrush completed an initial public offering of stock in
which it sold 1,800,000 shares of common stock, raising $11,025,202 net
proceeds. Prior to the completion of this initial public offering, Sagebrush was
structured as 22 operating restaurant corporations using the name "Sagebrush
Steakhouse & Saloon" and certain operations relating to a restaurant management
company ("the combining companies"). In connection with this initial public
offering, a reorganization took place in which the combining companies either
became wholly owned subsidiaries of, or transferred all of their assets to,
Sagebrush. This reorganization was accounted for at historical costs in a manner
similar to a pooling of interests due to the entities being under common
management and control and the absence of significant monetary consideration to
the related shareholders.
In connection with the Sagebrush reorganization and its completion of the
public offering, certain of its operating corporations formerly operating as S
Corporations became subject to corporate income taxation as C Corporations and
salaries payable to certain executive officers were adjusted to more
representative levels as a result of the termination of the S Corporation
elections and elimination of related distributions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include Fresh Foods, Inc. and subsidiaries in which it has an
ownership percentage greater than 50%. All intercompany transactions have been
eliminated.
Fiscal Year. The Company's fiscal year ends on the last Friday in
February. Fiscal years 1998 and 1996 represent fifty-two week periods while
fiscal 1997 represents a fifty-three week period.
Cash and Cash Equivalents. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Investments. The Company classifies its investments in debt and equity
securities as available-for-sale. Securities classified as available-for-sale
are carried at fair market value with unrealized gains and losses excluded from
earnings but shown as a separate component of shareholders' equity. All
investments of the Company are comprised of marketable equity securities held in
broker managed accounts.
F-8
<PAGE> 111
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories. Inventories, representing food items, supplies and hams in
curing process are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Expenditures for maintenance and repairs which do not significantly extend
useful lives of assets are charged to earnings whereas additions and
betterments, including interest costs incurred during construction, are
capitalized. Gains and losses on dispositions are reflected in other income
except for gains and losses on traded properties which are reflected in the
basis of the new asset.
Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets on the straight-line basis.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or terms of the respective leases. Property under capital leases is
amortized in accordance with the Company's normal depreciation policy.
Depreciation on properties leased to others is combined with other expenses
related to rental income and reported as other expense.
Effective February 28, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The Company evaluated
the carrying values of its long-lived assets based on the criteria set forth in
this statement and recorded a charge to 1998 pretax earnings of $394,000 for the
writedown of buildings, machinery and equipment and furniture and fixtures. The
fair value of the items considered to be impaired was determined based on
information about sales and purchases of similar assets. The writedown is
included in fiscal 1998 in depreciation expense.
Intangible Assets. Intangible assets consist of the excess cost over the
fair value of net asset of businesses acquired and covenants not to compete
which are being amortized over forty and fifteen years, respectively. The
Company assesses the recoverability of the excess cost over the assigned value
of net assets acquired by determining whether the amortization of the balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operations.
Investments in Affiliates. Investments in common stock of unconsolidated
affiliates are accounted for using the equity method.
Costs and Expenses. Cost of goods sold includes the direct and indirect
costs of tangible products sold by the food processing segment and the direct
costs of tangible products sold through restaurant operations. Operating
expenses include additional indirect costs such as labor, insurance and
occupancy costs, other than depreciation, associated with restaurant product
sales and other revenues. Selling, general and administrative expenses reflect
costs of marketing, selling and general administration not included in cost of
goods sold or operating expenses.
Advertising Costs. The Company expenses advertising costs as incurred.
Advertising expense for fiscal 1998, fiscal 1997 and fiscal 1996 was $2,815,845,
$2,887,677 and $2,698,076, respectively.
Pre-opening Expenses. Preopening expenses associated with new restaurant
openings are expensed as incurred.
Income Taxes. Income taxes are provided for temporary differences between
the tax and financial accounting basis of assets and liabilities using the asset
and liability method. The tax effects of such differences are reflected in the
balance sheet at the enacted tax rate applicable to the years when such
differences are scheduled to reverse. The effect on deferred taxes of a change
in tax rates is recognized in the period that includes the enactment date.
F-9
<PAGE> 112
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Franchise, Royalty and Other Fees. Initial franchise fees are recognized
as revenue when substantially all of the services required of the Company by the
franchise agreement have been performed, which is generally the date the
franchised unit opens. At the time the Company has substantially performed all
obligations for initial service relating to the restaurant, the Company
recognizes the pro rata portion of the fee allocated to the option to develop
that particular restaurant. Royalty and other fees are accrued as earned based
on franchisees' sales.
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, Earnings per Share, which was required to be
adopted for both interim and year-end financial statement periods ending after
December 15, 1997. The Company adopted this new method of computing earnings per
share and restated earnings per share for all prior periods. The following is a
reconciliation between basic and diluted earnings per share (in thousands except
per share amounts):
<TABLE>
<CAPTION>
NET PER SHARE
INCOME SHARES AMOUNT
---------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED FEBRUARY 27, 1998
Earnings per common share -- basic.................... $2,250,000 5,653,988 $ 0.40
Stock-based compensation awards....................... -- 463,045 (0.03)
---------- --------- ------
Earnings per common share -- diluted.................. $2,250,000 6,117,033 $ 0.37
========== ========= ======
YEAR ENDED FEBRUARY 28, 1997
Earnings per common share -- basic.................... $2,439,789 5,135,352 $ 0.48
Stock-based compensation awards....................... -- 316,564 (0.03)
---------- --------- ------
Earnings per common share -- diluted.................. $2,439,789 5,451,916 $ 0.45
========== ========= ======
YEAR ENDED FEBRUARY 23, 1996
Earnings per common share -- basic.................... $2,010,358 4,774,580 $ 0.42
Stock-based compensation awards....................... -- 168,886 (0.01)
---------- --------- ------
Earnings per common share -- diluted.................. $2,010,358 4,943,466 $ 0.41
========== ========= ======
</TABLE>
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.
Interim Financial Information. The accompanying unaudited financial
information for the quarters ended May 23, 1997 and May 22, 1998 has been
prepared on substantially the same basis as the audited financial statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of interim periods are not necessarily indicative of the
results to be expected for the entire fiscal year.
Impact of New Accounting Standards. In June 1997, FASB issued SFAS No.
130, Reporting Comprehensive Income. This standard establishes standards of
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. This statement will be effective for
the Company's fiscal year ending February 26, 1999, and the Company does not
intend to adopt this statement prior to the effective date. Had the Company
early adopted this statement, comprehensive income for each of the three fiscal
years ended February 27, 1998 would not have differed materially from reported
net earnings.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The statement is
effective
F-10
<PAGE> 113
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for fiscal years beginning after December 15, 1997. The Company has not yet
completed its analysis of the effect of this new standard on its financial
statement disclosures.
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Accounts receivable:
Trade accounts receivable (less allowance for doubtful
receivables of $30,000 in 1998 and $35,000 in 1997).... $4,785,503 $3,082,228
Accounts receivable -- franchisees (less allowance for
doubtful receivables of $76,000 in 1998 and $20,000 in
1997).................................................. 145,086 247,993
Accounts receivable -- other.............................. 92,744 126,796
---------- ----------
5,023,333 3,457,017
Accounts receivable -- related parties (less allowance for
doubtful receivables of $6,000 in 1998) (see Note 19)..... 181,367 278,919
---------- ----------
Total accounts receivable......................... $5,204,700 $3,735,936
========== ==========
Notes receivables:
Notes receivable -- related parties; interest rates 4.5%
to 12% (see Note 19)................................... $2,077,230 $1,526,761
Less current portion...................................... 526,592 563,644
---------- ----------
Noncurrent notes receivable -- related parties.............. 1,550,638 963,117
---------- ----------
Notes receivable -- other; interest rates 6.0% to 12.0%
(less allowance for doubtful receivables of $201,723 in
1998 and $58,323 in 1997)................................. 959,925 880,341
Less current portion...................................... 624,314 409,996
---------- ----------
Noncurrent notes receivable -- other........................ 335,611 470,345
---------- ----------
Total noncurrent notes receivable................. $1,886,249 $1,433,462
========== ==========
</TABLE>
Noncurrent notes receivable have maturities ranging from 1998 to 2004.
Notes receivable maturities are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- ----------
<S> <C>
1999........................................................ $1,150,906
2000........................................................ 885,591
2001........................................................ 171,341
2002........................................................ 151,067
2003........................................................ 152,637
Later years................................................. 727,336
----------
$3,238,878
==========
</TABLE>
Trade accounts receivable are generated mainly by sales of the food
processing segment and have terms ranging between fourteen and thirty days.
Receivables from one customer (Pierre, see Note 21) totaled $1,572,000 and
$1,392,622 and represent 32.6% and 44.7% of the total trade receivables at
February 27, 1998 and at February 28, 1997, respectively.
F-11
<PAGE> 114
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the allowance for doubtful notes and accounts receivable is
as follows:
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND DEDUCTIONS AT END
FISCAL YEAR ENDED OF YEAR EXPENSES (1) OF YEAR
- ----------------- ---------- ------------ ------------- --------
<S> <C> <C> <C> <C>
1998...................................... $113,538 $300,979 $101,103 $313,414
1997...................................... $587,007 $223,358 $696,827 $113,538
1996...................................... $542,000 $216,039 $171,032 $587,007
</TABLE>
- ---------------
(1) Uncollectible receivables charged against the allowance.
4. INVENTORIES
A summary of inventories, by major classification, follows:
<TABLE>
<CAPTION>
MAY 22, FEBRUARY 27, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Hams in curing process........................ $1,289,765 $1,211,799 $1,326,420
Other food (includes cured hams).............. 4,794,092 4,649,591 3,971,615
Supplies...................................... 1,528,116 1,499,957 1,408,803
---------- ---------- ----------
Totals.............................. $7,611,973 $7,361,347 $6,706,838
========== ========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Land............................................ $ 8,067,964 $ 6,453,848
Land improvements............................... 10-15 years 1,947,574 1,497,537
Buildings....................................... 20-40 years 20,522,287 18,479,371
Leasehold improvements.......................... 5-20 years 7,596,517 6,242,534
Machinery and equipment......................... 5-15 years 23,283,557 20,025,126
Machinery and equipment under capital leases.... 5-15 years 1,521,117 972,939
Furniture and fixtures.......................... 5-10 years 7,029,614 5,630,502
Automotive equipment............................ 2-5 years 571,765 597,586
Construction in progress........................ 1,015,258 874,945
----------- -----------
Total................................. 71,555,653 60,774,388
Less accumulated depreciation................... 26,531,860 23,810,278
----------- -----------
Property, plant and equipment, net.............. $45,023,793 $36,964,110
=========== ===========
</TABLE>
Depreciation and amortization expense of property, plant and equipment was
$4,961,910, $3,850,077 and $3,721,206 for fiscal 1998, fiscal 1997 and fiscal
1996, respectively. Accumulated depreciation applicable to property under
capital leases was $260,347, $105,355 and $544,391 for fiscal 1998, fiscal 1997
and fiscal 1996, respectively. Interest costs capitalized in fiscal 1998 were
$58,903.
6. PROPERTIES HELD FOR SALE
The Company has closed various stores and transferred the related real
properties, in addition to certain undeveloped land holdings, from the
classification of property, plant and equipment to other assets as properties
held for sale. The Company is selling these properties as reasonable purchase
offers are received. At
F-12
<PAGE> 115
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
February 27, 1998 and February 28, 1997, the Company recorded $1,680,993 and
$3,277,670, respectively, in properties held for sale. These properties are
being carried at their estimated fair value less estimated selling costs.
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Excess of cost over fair value of net assets of business
acquired.................................................. $3,572,693 $1,095,214
Noncompete agreement........................................ 829,500 --
Less accumulated amortization............................... (666,327) (467,028)
---------- ----------
Total............................................. $3,735,866 $ 628,186
========== ==========
</TABLE>
On March 1, 1997, the Company acquired fourteen franchised restaurants from
various corporations predominantly owned by a former executive officer of the
Company for a total purchase price of $3,767,500 (accounted for as a purchase).
The purchase price was payable as follows: $500 in cash; $309,500 in assumed
current liabilities; $645,000 in assumed long-term liabilities; $2,012,500 in
the Company's common stock; and a two-year 5% promissory note in the amount of
$800,000. As part of this transaction, 223,611 shares of the Company's common
stock were issued. Existing lease agreements for eleven of the restaurant
properties were assigned to the Company, and the Company signed new lease
agreements on the remaining three properties.
Also, as part of this transaction, the former executive officer, who was
also the Company's single largest franchisee, entered into a fifteen-year
noncompete agreement with the Company in exchange for 98,750 shares of the
Company's common stock. These shares are restricted securities and their resale
is subject to certain conditions.
The purchase price of this acquisition (including transaction costs) was
allocated to the assets and liabilities acquired at their estimated fair market
value at the acquisition date as follows:
<TABLE>
<S> <C>
Inventory and supplies...................................... $ 151,313
Property and equipment...................................... 1,203,413
Excess of cost over fair value of net assets acquired....... 2,477,481
----------
Total............................................. $3,832,207
==========
</TABLE>
The following unaudited pro forma financial data is presented as if this
acquisition had been consummated at February 24, 1996. Pro forma results of
operations for 1998 are not presented because this acquisition occurred on March
1, 1997, and is therefore included for the entire year ended February 27, 1998.
This pro forma information is not necessarily indicative of the operating
results that would have occurred had this acquisition been consummated as of
February 24, 1996, nor is it necessarily indicative of the results of future
operations:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1997
------------
<S> <C>
Operating revenues......................................... $143,259,145
Net earnings............................................... 3,067,934
Earnings per common share -- basic......................... .60
Earnings per common share -- diluted....................... .56
</TABLE>
F-13
<PAGE> 116
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. FINANCING ARRANGEMENTS
Notes payable to banks consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Revolving credit facility, maximum borrowings of up to $3.0
million, advances are unsecured and limited to short-term
working capital, expires July 31, 1998, interest at bank's
prime rate (8.5% at February 27, 1998).................... $1,742,750 $ --
Revolving credit facility, maximum borrowings of $6.0
million, secured by Fresh Foods' manufacturing inventory
and receivables (approximately $10,883,000 in aggregate),
expires on November 23, 1998, interest at bank's prime
rate (8.5% at February 27, 1998).......................... 3,092,394 4,027,776
Construction line of credit, advances equal to 75% of the
construction cost, limited to $1,000,000, principal plus
interest payable upon completion of construction, secured
by property under construction interest at bank's prime
rate (8.5% at February 27, 1998).......................... 270,000 --
Revolving credit facility, expired in January 1997.......... -- 460,000
---------- ----------
$5,105,144 $4,487,776
========== ==========
</TABLE>
During 1998, the Company obtained commitments for two construction lines of
credit. Advances are limited to 75% of construction costs up to $1,000,000 for
each line of credit, interest at prime. As of February 27, 1998, no amounts were
outstanding on these lines of credit.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Variable rate Industrial Revenue Bonds maturing in 2005... $ 2,515,000 $ 2,845,000
Prime plus 1% bank note maturing 2002..................... 4,126,631 4,979,808
Prime plus 1% bank note maturing 2003..................... 909,315 1,900,000
Prime plus 1/2% to 1 1/2% notes payable to banks maturing
1998 to 2012............................................ 654,687 1,043,278
4.5% Settlement Notes maturing in 1998 (see Note 19)...... 250,000 430,000
6.0% to 11.0% other notes payable maturing 1998 to 2005... 1,981,481 1,666,301
9.25% to 11.5% capitalized lease obligations maturing in
1998 to 2004 (see Note 11).............................. 1,186,522 855,555
Notes payable to bank in monthly installments, plus
interest at the bank's prime rate, with final maturities
ranging from 2007 to 2008............................... 4,189,297 --
----------- -----------
Total long-term debt................................. 15,812,933 13,719,942
Less current installments............................ 2,189,401 1,297,792
----------- -----------
Long-term debt, excluding current installments............ $13,623,532 $12,422,150
=========== ===========
</TABLE>
The applicable prime interest rate at February 27, 1998 was 8.5%. The
variable rate payable on the Industrial Revenue Bonds at February 27, 1998 was
3.67%. At February 27, 1998, the net book value of the Company's property, plant
and equipment and properties held for sale pledged as collateral under the above
obligations was $17,945,954.
F-14
<PAGE> 117
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1997, the Company replaced its Senior Note obligations, which
were scheduled to mature on October 1, 1997, with long-term note agreements with
two banks. One of the agreements, with $4,126,631 outstanding, provides
financing in the amount of $5 million at a rate of "prime" plus 1% for a five
year term with principal payments to be made on a ten-year amortization basis
with a final balloon payment on January 15, 2002. The second agreement, with
$909,315 outstanding, provides financing of $1.9 million at a rate of "prime"
plus 1% and is payable on December 30, 1998. The notes are collateralized by
deeds of trusts on certain real property which previously collateralized the
Senior Note obligations. In addition, the Company is required to meet certain
financial requirements regarding tangible net worth, working capital, debt ratio
and interest coverage.
During fiscal 1997, the Company recognized an extraordinary gain of
$414,784, net of income taxes of $250,862, on the early extinguishment of debt
evidenced by Senior Notes. The two major life insurance companies which held the
Senior Notes agreed to a discount totaling $787,651 upon the early retirement of
this debt. In addition, as part of this refinancing, the Company wrote off
unamortized loan costs relating to the Senior Notes totaling $73,208. Also
during fiscal 1997, the Company incurred a prepayment penalty totaling $48,797
upon the early payment of a Small Business Association loan which was secured by
a restaurant property sold during the year.
At February 27, 1998, the Company was not in compliance with certain
covenants relating to the Industrial Revenue Bonds and the new term bank debt.
These violations relate to the working capital requirements. The Company has
received waivers of these violations from its lenders.
Long-term debt maturities, including capital leases (Note 11), subsequent
to February 27, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- -----------
<S> <C>
1999........................................................ $ 2,189,401
2000........................................................ 2,736,992
2001........................................................ 2,044,766
2002........................................................ 3,944,939
2003........................................................ 1,192,707
Later years................................................. 3,704,128
-----------
Total............................................. $15,812,933
===========
</TABLE>
9. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Accrued salaries and wages.................................. $1,709,927 $ 803,855
Accrued insurance claims.................................... 614,846 833,028
Taxes, other than income.................................... 607,004 739,347
Accrued interest............................................ 86,426 19,717
Gift certificates outstanding............................... 427,238 491,463
Other....................................................... 1,459,400 1,134,345
---------- ----------
Total............................................. $4,904,841 $4,021,755
========== ==========
</TABLE>
F-15
<PAGE> 118
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The provision for income taxes (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 27, FEBRUARY 28, FEBRUARY 23,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal........................................ $ 478,867 $1,040,744 $ (66,838)
Charge equivalent to tax benefit of stock
option exercises............................ 3,100,421 -- --
State.......................................... 229,805 244,716 60,871
----------- ---------- -----------
Total current.......................... 3,809,093 1,285,460 (5,967)
----------- ---------- -----------
Deferred:
Federal........................................ (1,718,853) 644,948 (935,436)
State.......................................... (362,232) 79,591 (198,027)
----------- ---------- -----------
Total deferred......................... (2,081,085) 724,539 (1,133,463)
----------- ---------- -----------
Total provision for income taxes....... $ 1,728,008 $2,009,999 $(1,139,430)
=========== ========== ===========
</TABLE>
Actual provisions for income tax expense (benefit) are different from
amounts computed by applying a statutory federal income tax rate to earnings
before income taxes. The computed amount is reconciled to total income tax
expense (benefit) as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- ------------------------
PERCENT OF PERCENT OF PERCENT OF
PRETAX PRETAX PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory
rate........................ $1,352,523 34.0% 1,371,902 34.0% 296,116 34.0%
Tax effect resulting from:
State income taxes net of
federal tax benefit...... 200,553 5.0 193,749 4.8 (123,736) (14.2)
Nondeductible merger
expenses................. 385,419 9.7 -- -- -- --
New general business credits
(net).................... (120,608) (3.0) (21,285) (0.5) (96,867) (11.1)
Permanent differences....... 87,386 2.2 418,707 10.4 16,340 1.9
S Corporation earnings
non-taxable.............. -- -- -- -- (1,157,620) (132.9)
Reduction in valuation
allowance................ (119,178) (3.0) (22,390) (2.6)
Other....................... (58,087) (1.5) 46,926 1.1 (51,273) (5.9)
---------- ---- ---------- ---- ----------- ------
Provision for income taxes
(benefits).................. $1,728,008 43.4% 2,009,999 49.8% (1,139,430) (130.8)%
========== ==== ========== ==== =========== ======
</TABLE>
F-16
<PAGE> 119
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The approximate tax effect of each type of temporary difference and
carryforward that gave rise to the Company's deferred income tax assets and
liabilities for fiscal 1998 and fiscal 1997 is as follows:
<TABLE>
<CAPTION>
FEBRUARY 27, 1998 FEBRUARY 28, 1997
-------------------------------------- --------------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current:
Allowance for doubtful
receivables................. $ 141,027 $ -- $ 141,027 $ 42,789 $ -- $ 42,789
Inventory..................... 86,582 -- 86,582 67,226 -- 67,226
Accrued promotional expense... 5,400 -- 5,400 67,836 -- 67,836
Accrued vacation pay.......... 102,022 -- 102,022 51,254 -- 51,254
Reserve for returns........... 49,047 -- 49,047 60,299 -- 60,299
Installment sales............. -- -- -- -- (93,748) (93,748)
Unrealized gain on securities
available for sale.......... -- (11,655) (11,655) -- (6,083) (6,083)
Prepaid expenses.............. -- (15,650) (15,650) -- -- --
Veba costs.................... 68,013 -- 68,013
State loss carryforward....... -- -- -- 139,686 -- 139,686
General business credit
carryforward................ -- -- -- 125,000 -- 125,000
---------- ----------- ----------- ---------- ----------- -----------
Total current.......... 452,091 (27,305) 424,786 554,090 (99,831) 454,259
---------- ----------- ----------- ---------- ----------- -----------
Noncurrent:
Property, plant and
equipment................... (2,347,809) (2,347,809) -- (2,069,326) (2,069,326)
Basis write-up
(reorganization)............ 132,614 132,614 116,679 -- 116,679
Installment sales............. (190,036) (190,036) -- -- --
Writedown of property held for
sale........................ 258,282 258,282 54,646 -- 54,646
Earnings in unconsolidated
subsidiaries................ (23,398) (23,398) -- (21,105) (21,105)
General business credit
carryforward................ 373,350 373,350 206,351 -- 206,351
Alternative minimum tax credit
carryforward................ 293,771 293,771 293,771 -- 293,771
Federal loss carryforward..... 1,682,716 1,682,716 107,668 -- 107,668
Pre-acquisition (SRLY) loss
carryforward................ 57,184 57,184 57,184 -- 57,184
State loss carryforward....... 830,257 830,257 335,800 -- 335,800
Other......................... -- (6,117) (6,117)
Less valuation allowance...... (381,473) (381,473) (500,651) -- (500,651)
---------- ----------- ----------- ---------- ----------- -----------
Total noncurrent....... 3,246,701 (2,561,243) 685,458 671,448 (2,096,548) (1,425,100)
---------- ----------- ----------- ---------- ----------- -----------
Total current and
noncurrent........... $3,698,792 $(2,588,548) $ 1,110,244 $1,225,538 $(2,196,379) $ (970,841)
========== =========== =========== ========== =========== ===========
</TABLE>
As of February 27, 1998, federal and state operating loss carryovers of
approximately $4,315,000 and $12,500,000 are available to offset future federal
and state taxable income. The carryover periods range from five to fifteen
years, which will result in expirations of varying amounts beginning in fiscal
1998 and continuing through fiscal 2013.
11. LEASED PROPERTIES
The Company operates certain machinery and equipment under leases
classified as capital leases. The machinery and equipment leases have original
terms ranging from one to eight years. The assets covered under
F-17
<PAGE> 120
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
these leases have carrying values of $1,260,770 and $867,585 at February 27,
1998 and February 28, 1997, respectively.
Certain land and restaurant locations occupied by the Company and machinery
and equipment are under operating leases with terms that are effective for
varying periods until 2012, except for one land lease which expires in 2022.
Certain of these leases have remaining renewal clauses, exercisable at the
option of the lessee. In addition, most of these leases contain terms that
provide for scheduled increases in base rents and certain leases contain
provisions providing for contingent rentals based on a percentage of gross
sales. Leases with related parties are discussed in Note 19.
As of February 27, 1998, minimum rental payments required under operating
and capital leases are summarized as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
--------------------------------------
MINIMUM
MINIMUM SUBLEASE CAPITAL
FISCAL YEAR PAYMENTS RECEIPTS TOTAL LEASES TOTAL
- ----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1999.............................. $ 3,708,526 $ 206,215 $ 3,502,311 $ 458,490 $ 3,960,801
2000.............................. 3,314,262 206,215 3,108,047 410,365 3,518,412
2001.............................. 2,851,729 169,000 2,682,729 376,873 3,059,602
2002.............................. 2,680,108 169,000 2,511,108 79,659 2,590,767
2003.............................. 2,207,442 169,000 2,038,442 56,640 2,095,082
Later years....................... 5,773,179 591,583 5,181,596 49,807 5,231,403
----------- ---------- ----------- ---------- -----------
Total minimum lease payments...... $20,535,246 $1,511,013 $19,024,233 $1,431,834 $20,456,067
=========== ========== =========== ===========
Less amount representing
interest........................ 245,312
----------
Present value of minimum lease
payments under capital leases
(see Note 8).................... $1,186,522
==========
</TABLE>
Rental expenses charged to earnings are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Real estate.................................... $3,672,552 $2,475,103 $2,342,615
Less sublease rentals.......................... (206,215) (199,760) (202,760)
Equipment...................................... 338,915 304,817 226,330
---------- ---------- ----------
Total.......................................... $3,805,252 $2,580,160 $2,366,185
========== ========== ==========
</TABLE>
Real estate rental expenses includes contingent rentals of $188,690,
$197,760 and $162,915 for fiscal 1998, 1997 and 1996, respectively.
12. EMPLOYEE BENEFITS
On March 1, 1994, Fresh Foods established an employee stock purchase plan
through which employees, after meeting minimum eligibility requirements, may
contribute up to 10% of their base earnings toward the purchase of Fresh Foods'
common stock. The plan provides that Fresh Foods will make matching
contributions of 25% of the employee's contribution. Participation in the plan
is voluntary and all contributions of Fresh Foods are funded monthly and vest
immediately. Fresh Foods' contributions to the plan totaled $19,260, $12,569,
and $17,046 in fiscal 1998, fiscal 1997 and fiscal 1996, respectively.
Fresh Foods also maintains a 401(k) Retirement Plan for its employees. The
Plan provides that Fresh Foods will make a matching contribution of up to 25% of
an employee's voluntary contribution, limited to the
F-18
<PAGE> 121
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
lesser of 8% of that employee's annual compensation or $9,500 for fiscal 1998.
Fresh Foods' contributions to this Plan were $86,360, $77,132 and $71,340 in
fiscal 1998, fiscal 1997 and fiscal 1996, respectively.
Fresh Foods also provides employee health insurance benefits under a
501-c(9) trust arrangement. These benefits are partially self-funded by Fresh
Foods. Fresh Foods has $45,000 per claim and $1,000,000 annual aggregate stop
loss coverage on group medical claims with an insurance carrier. A third-party
administrator handles all claims. Fresh Foods contributions to this plan were
$587,543, $434,648 and $466,116 in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively. Certain officers of Fresh Foods are trustees of the stock purchase
plan, the retirement plan and the employee health plan.
Sagebrush provides employee health insurance benefits under a 419(e) trust
arrangement. These benefits are partially funded by Sagebrush. Sagebrush has
$25,000 per participant and $1,000,000 annual aggregate stop loss coverage on
group medical claims with an insurance carrier. A third-party administrator
handles all claims. Sagebrush's contributions to this plan were approximately
$126,464, $121,000 and $121,000 in fiscal 1997, 1996 and 1995, respectively.
13. CAPITAL STOCK
STOCK OPTIONS
The Company's 1987 Incentive Stock Option Plan, as amended, provides for
the issuance of up to 625,000 shares of the Company's common stock to key
employees, including officers and directors of the Company. The Company may
grant incentive stock options ("ISOs") or nonqualified stock options to eligible
employees.
The Company's 1987 Special Stock Option Plan, as amended, provides for the
issuance of up to 625,000 shares of the Company's common stock to key management
employees, including officers of the Company. All options granted under this
Plan are nonqualified stock options. During fiscal 1994, options for 100,000
shares were repriced from $9.50 to the fair market value at the date of
repricing.
Fresh Foods assumed the Sagebrush 1995 Stock Option Plan, which provided
314,801 shares of Sagebrush's common stock to key management employees,
including former officers of Sagebrush. All options granted under this plan are
nonqualified stock options and are included in the Incentive Stock Option Plans
in the tables below. Prior to the merger with Fresh Foods, Sagebrush repriced
options of 342,300 shares from $8.875 to $5.50.
All options must be granted at not less than 100% of the fair market value
of the Company's common stock at the date of the grant and must be exercised no
later than ten years from the date of grant.
F-19
<PAGE> 122
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the changes in shares under option and the weighted-average
exercise prices for these Plans follows. The number of shares and exercise
prices give retroactive recognition of the five-for-four stock split, effected
in the form of a stock dividend, declared in 1995.
<TABLE>
<CAPTION>
INCENTIVE STOCK SPECIAL STOCK
OPTION PLANS OPTION PLAN
-------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance at February 24, 1995................... 309,375 $ 4.12 562,500 $ 3.41
Cancelled.................................... (12,500) 2.90 -- --
Exercised.................................... (100,000) 2.90 -- --
-------- ---------
Balance at February 23, 1996................... 196,875 4.82 562,500 3.41
Cancelled.................................... (20,893) 14.60 -- --
Issued....................................... 198,103 18.84 50,000 5.88
Exercised.................................... (33,750) 4.31 (125,000) 4.60
-------- ---------
Balance at February 28, 1997................... 340,335 12.43 487,500 3.36
Cancelled.................................... (51,662) 14.40 -- --
Issued....................................... 157,566 15.81 875,000 16.00
Exercised.................................... (78,500) 4.63 (312,500) 3.03
-------- ---------
Balance at February 27, 1998................... 367,739 11.92 1,050,000 13.99
======== =========
</TABLE>
A summary of the range of exercise prices and weighted average remaining
life for options outstanding under each Plan at February 27, 1998 is as follows:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE SHARES REMAINING
PRICE OUTSTANDING LIFE
-------- ----------- ----------
<S> <C> <C> <C>
Special Stock Option Plan......................... $ 2.90 12,500 34 months
3.20 112,500 44 months
5.88 50,000 100 months
16.00 875,000 120 months
Incentive Stock Option Plans...................... $ 5.20 74,625 84 months
5.88 50,000 100 months
14.39 118,114 100 months
16.00 125,000 120 months
</TABLE>
A summary of the number of shares exercisable and the weighted average
exercise price at February 27, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISABLE EXERCISE PRICE
------------------ ----------------
<S> <C> <C>
Special Stock Option Plan............................ 175,000 $ 3.94
875,000 16.00
---------
1,050,000 13.99
=========
Incentive Stock Option Plans......................... 25,875 $ 5.20
10,000 5.88
---------
35,875 5.39
=========
</TABLE>
Fresh Foods applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for stock-based
compensation relating to options granted in fiscal 1998 and 1997 since the
exercise
F-20
<PAGE> 123
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
price of the option approximated the fair market value on the date of grant. Had
compensation for stock options granted been determined consistent with SFAS No.
123, Accounting for Stock-Based Compensation, the Company's net earnings and
earnings per common share amounts for fiscal 1998 and 1997 would approximate the
following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
FEBRUARY 27, 1998 FEBRUARY 28, 1997
------------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net earnings......................... $2,250,000 $(2,857,510) $2,439,789 $2,203,033
Earnings per common share -- basic... 0.40 (0.51) 0.48 0.43
Earnings per common
share -- diluted.................. 0.37 (0.47) 0.45 0.40
Weighted average fair value of the
options........................... 9.08 3.90
</TABLE>
The fair value of options granted under Fresh Foods' and Sagebrush's stock
option plans during fiscal 1997 and 1998 were estimated on the date of grant
using the Black-Scholes option pricing model. In February 1998, the Company
issued options to certain executives; the fair value of those options was based
on Fresh Foods weighted-average assumptions.
The weighted-average assumptions used were as follows:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
------------------------ ------------------------
FRESH FOODS SAGEBRUSH FRESH FOODS SAGEBRUSH
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Dividend yield........................... -- -- -- --
Expected volatility...................... 44.20% 25.00% 44.20% 25.00%
Risk free interest rate.................. 6.65% 6.50% 6.65% 6.50%
Expected lives........................... 6.0 4.5 6.0 4.5
</TABLE>
Contributed capital was increased $3,100,421 in fiscal 1998 representing
the income tax benefits the Company realized from stock options exercised during
fiscal 1998.
SHAREHOLDER RIGHTS PLAN
In fiscal 1998, Fresh Foods adopted a shareholder rights plan pursuant to
which the holder of each share of Fresh Foods common stock also holds a Right
that may be exercised for Fresh Foods preferred stock or Fresh Foods common
stock upon the occurrence of certain "triggering events" specified in a Rights
Agreement dated as of September 2, 1997 between Fresh Foods and American Stock
Transfer and Trust Company.
On August 28, 1997, the Fresh Foods Board declared a dividend distribution
of one Right for each share of Fresh Foods common stock to Fresh Foods
shareholders of record at the close of business on September 10, 1997. Each
Right entitles the record holder to purchase from Fresh Foods one one-hundredth
of a share of Junior Participating Preferred Stock, Series A, of Fresh Foods at
a purchase price of $30. The Rights are attached to the Fresh Foods common stock
and are not exercisable except under the limited circumstances set forth in the
Rights Agreement relating to the acquisition of, or the commencement of a tender
offer for, 15% or more of the Fresh Foods common stock. The rights may be
redeemed at a price of $.001 per Right by Fresh Foods any time prior to any
person or group acquiring 15% or more of Fresh Foods' common stock and will
expire on September 10, 2007. Until the Rights separate from Fresh Foods' common
stock, each newly-issued share of such common stock will have a Right attached.
The Rights do not have voting or dividend rights.
F-21
<PAGE> 124
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the financial instruments listed below have
been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required, however,
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
FEBRUARY 27, 1998
-----------------------------
CARRYING AMOUNT FAIR VALUE
--------------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 2,818,071 $ 2,818,071
Marketable equity securities.............................. 206,706 206,706
Accounts receivable....................................... 5,204,700 5,204,700
Notes receivable.......................................... 3,037,155 2,953,434
Liabilities:
Accounts payable.......................................... 6,605,893 6,605,893
Short-term debt........................................... 5,105,144 5,105,144
Long-term debt (excluding capital leases)................. 14,626,413 14,621,667
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------------------
CARRYING AMOUNT FAIR VALUE
--------------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 3,995,497 $ 3,995,497
Marketable equity securities.............................. 171,910 171,910
Accounts receivable....................................... 3,735,936 3,735,936
Notes receivable.......................................... 2,407,102 2,524,859
Liabilities:
Accounts payable.......................................... 4,568,176 4,568,176
Short-term debt........................................... 4,487,776 4,487,776
Long-term debt (excluding capital leases)................. 12,864,387 12,854,189
</TABLE>
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and short-term debt are a reasonable estimate of their fair
value. Marketable equity securities are classified as available-for-sale and
carried at their fair value. The fair value of notes receivable is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair value
for long-term debt instruments using discounted cash flows.
F-22
<PAGE> 125
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. LINES OF BUSINESS
The Company operates in two principal lines of business. Segment
information is presented as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Restaurant operations............. $ 92,166,216 58.1% $ 71,318,432 54.8% $ 62,667,763 55.1%
Food processing................... 66,493,061 42.0 58,872,627 45.3 51,085,716 45.0
------------ ----- ------------ ----- ------------ -----
158,659,277 100.2 130,191,059 100.2 113,753,479 100.2
Elimination of inter-segment
sales(1)........................ (247,716) (0.2) (257,134) (0.2) (217,009) (0.2)
------------ ----- ------------ ----- ------------ -----
$158,411,561 100.0% $129,933,925 100.0% $113,536,470 100.0%
============ ===== ============ ===== ============ =====
Operating profit:
Restaurant operations............. $ 9,881,781 74.2% $ 9,936,554 84.3% $ 7,570,509 90.7%
Food processing................... 3,437,649 25.8 1,845,188 15.7 778,407 9.3
------------ ----- ------------ ----- ------------ -----
13,319,430 100.0% 11,781,742 100.0% 8,348,916 100.0%
----- ----- -----
Corporate expenses................ (8,318,289) (6,372,077) (5,083,717)
Other income...................... 739,230 493,287 (231,724)
Interest expense.................. 1,762,363 (1,867,948) (2,162,547)
------------ ------------ ------------
Earnings before income taxes and
extraordinary item.............. $ 3,978,008 $ 4,035,004 $ 870,928
============ ============ ============
Identifiable assets:
Restaurant operations............. $ 38,660,911 54.0% $ 27,746,944 46.6% $ 25,392,968 48.8%
Food processing................... 23,302,472 32.5 22,094,616 38.1 18,809,910 36.2
Corporate......................... 9,692,416 13.5 9,729,570 16.3 7,791,213 15.0
------------ ----- ------------ ----- ------------ -----
$ 71,655,799 100.0% $ 59,571,130 100.0% $ 51,994,091 100.0%
============ ===== ============ ===== ============ =====
Depreciation and amortization:
Restaurant operations............. $ 3,339,860 66.7% $ 2,109,837 58.6% $ 1,995,745 57.4%
Food processing................... 1,456,155 29.1 1,259,365 35.0 1,256,931 36.2
Corporate......................... 208,295 4.2 231,115 6.4 223,476 6.4
------------ ----- ------------ ----- ------------ -----
$ 5,004,310 100.0% $ 3,600,317 100.0% $ 3,476,152 100.0%
============ ===== ============ ===== ============ =====
Capital expenditures:
Restaurant operations............. $ 12,178,573 84.6% $ 9,207,775 82.3% $ 3,209,729 76.5%
Food processing................... 2,042,549 14.2 1,543,382 13.8 774,615 18.5
Corporate......................... 172,006 1.2 432,611 3.9 209,241 5.0
------------ ----- ------------ ----- ------------ -----
$ 14,393,128 100.0% $ 11,183,768 100.0% $ 4,193,585 100.0%
============ ===== ============ ===== ============ =====
</TABLE>
- ---------------
(1) Intersegment sales are recorded based on prevailing prices and relate solely
to the food processing segment.
During each of the three fiscal years ended February 27, 1998, a single
customer (Pierre, see Note 21) of the Company's bakery products accounted for
58%, 61% and 57%, respectively, of the food processing segment sales and 24%,
28% and 26%, respectively, of the Company's total operating revenues.
F-23
<PAGE> 126
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. INVESTMENT IN AFFILIATES
During fiscal years 1998 and 1997, the Company maintained investments in
several companies which operated Prime Sirloin restaurants, Mom 'n' Pop's Buffet
& Bakery restaurants, Western Steer Family Restaurants and Bennett's Smokehouse
& Saloons. The Company maintained ownership of these entities under 50%, and
therefore these were accounted for under the equity method. In fiscal year 1998,
the Company sold all but the investment in Georgia Buffet Restaurants, Inc.,
which formerly operated two Mom 'n' Pop's Buffet & Bakery restaurants. The
equity investees and related ownership percentages are as follows:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OWNED AT OWNED AT
FEBRUARY 27, FEBRUARY 28,
1998 1997
--------------- ---------------
<S> <C> <C>
Georgia Buffet Restaurants, Inc............................. 50% 50%
Primo Foods, Inc............................................ -- 50
Starke Foods, Inc........................................... -- 50
</TABLE>
Summarized financial information for the above companies is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current assets................................. $ 2,236 $ 300,576 $ 224,938
Noncurrent assets.............................. 138,651 1,419,930 1,215,960
Current liabilities............................ 106,180 597,738 1,096,908
Noncurrent liabilities......................... 188,105 415,371 25,018
Operating revenue.............................. 1,489,205 5,190,358 5,720,963
Gross profit................................... 902,033 3,076,669 3,417,113
Net earnings (loss)............................ (146,436) 53,469 114,584
</TABLE>
Dividends received from these companies totaled $10,000 in fiscal 1996. No
dividends were received in fiscal 1998 or fiscal 1997.
17. COMMITMENTS AND CONTINGENCIES
The Company guarantees a loan obligation of one of its franchisees in an
amount not to exceed $612,000. The loan is collateralized by certain restaurant
equipment purchased by the franchisee.
The Company provides two secured letters of credit in the amounts of
$500,000 and $400,000 and one unsecured letter of credit for $700,000 to its
insurance carrier for outstanding worker's compensation and general liability
claims.
The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.
18. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest................................................... $1,621,404 $1,933,528 $2,153,964
Income taxes............................................... 2,211,998 1,911,308 339,259
</TABLE>
The Company received accounts and notes receivable totaling $1,110,000,
$355,000 and $1,198,392 from the sale of property, plant and equipment in fiscal
1998, 1997 and 1996, respectively.
F-24
<PAGE> 127
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company acquired machinery and equipment totaling $660,662, $694,298
and $278,641 through capital leases or debt during 1998, 1997 and 1996,
respectively. In fiscal 1997, the Company purchased a restaurant property by
exchanging land with a book value of $260,236 and assuming a note payable in the
amount of $527,695.
As discussed in Note 7, on March 1, 1997 the Company acquired fourteen
franchise restaurants through the issuance of common stock and assumption of
liabilities. The purchase price was allocated to inventory and supplies in the
amount of $151,313, property and equipment in the amount of $1,203,413, and
excess of cost over fair value of net assets acquired in the amount of
$2,477,481.
Accounts receivable from certain franchisees totaling $23,074, $84,762 and
$46,173 in fiscal 1998, fiscal 1997 and fiscal 1996, respectively, were
converted into notes receivable.
In fiscal 1997 the Company issued common stock in exchange for cash and a
note receivable totaling $78,388 and $705,493, respectively. The Company issued
common stock in exchange for notes receivable of $27,000 in fiscal 1996.
19. TRANSACTIONS WITH RELATED PARTIES
Related party transactions during fiscal 1998, fiscal 1997 and fiscal 1996
arose in connection with the following relationships:
Certain current and past officers, directors and principal shareholders of
the Company have ownership interests in franchisee companies as well as an
insurance company, a marketing services company, a management service company, a
travel agency, and certain other companies that transact business with the
Company. In addition, immediate family members of a director and principal
shareholders have ownership interests in companies from which the Company
purchases restaurant equipment, furnishings and supplies.
Under a contract with a management services company owned by certain
officers and directors, the Company receives general management services, which
include, among other things, the review and supervision of financing, cost
analysis services and review of franchise relationships. Management fees paid
under this contract are in lieu of salary compensation for certain of the
Company's senior executives. This contract expires in 2002 at an annual maximum
management fee of $1,500,000, payable quarterly in advance.
The Company has mutual leasing agreements with certain related individuals
and with certain corporations in which the Company's principal shareholders have
a substantial ownership interest. During fiscal 1997, the Company sold a
restaurant property to an individual who is an executive officer and principal
shareholder of the Company at a price of $150,000, giving the Company a gain of
$103,000. During 1998, the Company sold four restaurant properties to an
individual who is an executive officer and principal shareholder of the Company
for a total price of $1,900,000, giving the Company a net gain of $600,000.
During 1998, the Company sold an 80% consolidated subsidiary to the same
individual for a price of $160,000, giving the Company a gain of $78,000. During
1998, the Company sold its 50% interests in two equity affiliates to the
majority owner for a price of $272,000 and $235,000, respectively, giving the
Company gains of $22,000 and $12,000, respectively.
During fiscal 1996, the Company advanced $43,938 to the employee stock
purchase plan to allow the plan to purchase 9,500 shares of the Company's common
stock from an outside investor. This advance was repaid in fiscal 1997 as the
plan received contributions and the shares were allocated to participant
accounts.
During fiscal 1997, the Company sold certain restricted equity securities
of Sagebrush common stock to a corporation which is owned by two principal
shareholders and executive officers of the Company for cash totaling $78,388 and
an 8.5% two-year promissory note in the amount of $705,493. The promissory note
is supported by personal guarantees received from the two principal shareholders
and executive officers.
F-25
<PAGE> 128
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1996, the Company sold certain secured promissory notes
without recourse to an individual who is an executive officer and principal
shareholder of the Company. Most of the notes were secured by purchase money
mortgages and were generated through various sales of real estate. The notes,
which had face values totaling $1,440,000, were sold without recourse and the
Company received cash proceeds from the sale totaling $1,080,000.
Litigation involving an unrelated party holding a security interest in the
trade receivables of a bankrupt company, which was one of the Company's
significant customers and vendors, was settled in May 1993. Under the terms of
this settlement, the Company agreed to pay $1,200,000, comprised of an initial
payment of $230,000 in 1993, four annual payments of $180,000 each on April 1
beginning in 1994 and a final payment of $250,000 on April 1, 1998. Interest on
the unpaid principal balance is payable quarterly at 4.5%. Under the terms of a
guaranty and hold harmless agreement with the Company's chief executive officer,
who was a former principal of the bankrupt company, the Company obtained
unsecured promissory notes from such officer in amounts sufficient to reimburse
the Company for all payments of principal and interest required by the
settlement agreement and to liquidate the net receivable and accrued interest
thereon arising from the initial set-off discussed above. The terms of the
promissory notes correspond to the payment terms stipulated by the settlement
agreement. The Company's financial statements as of February 27, 1998 reflect
both the remaining settlement liability of $250,000 and the related receivable.
The Company's related party transactions are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Franchise, royalty and other fees from related
party franchisee companies....................... $ 315,000 $1,004,000 $1,162,000
Management services expense........................ 1,500,000 1,500,000 1,500,000
Rents paid/lease expense........................... 1,805,000 1,287,000 1,136,000
Purchases of restaurant equipment, furnishings and
construction..................................... 1,753,000 1,348,000 613,000
Purchases of other services and supplies........... 937,000 817,000 1,114,000
Casualty insurance premiums........................ 2,221,000 1,822,000 2,020,000
Sales of restaurant properties..................... 1,900,000 150,000 --
Sale of notes receivable........................... -- -- 1,080,000
</TABLE>
Related party accounts receivable arise in the ordinary course of business
and relate to unpaid franchise, royalty and other fees as well as short-term
advances to 50%-owned affiliates. Other related party receivables primarily
consist of receivables from other restaurants managed by the Company's
management services company. Notes receivable from related parties relate
primarily to long-term advances to 50%-owned affiliates, notes generated from
the sales of assets to related parties and the settlement notes from the
Company's chief executive officer. Related party accounts payable relate to
transactions in the normal course of business with related individuals and
corporations as described above. Related party receivables and payables are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accounts receivable......................................... $ 181,367 $ 278,919
Notes receivable (interest rates ranging from 4.5% to 12%,
payable over 1 to 5 years)................................ 2,077,230 1,526,761
Accounts payable............................................ 218,180 115,094
</TABLE>
20. CAPITAL STOCK
The Company is authorized to issue 2,500,000 shares of preferred stock with
a par value of ten cents per share in one or more series. All rights and
preferences of each series are to be established by the Company prior to
issuance. There are no issues of this class of stock outstanding at February 27,
1998.
F-26
<PAGE> 129
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------
5/23/97 8/15/97 11/7/97 2/27/1998 (1)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenues.................... $36,432,340 $39,772,488 $35,963,331 $46,243,402
Gross profit.......................... $ 6,180,748 $ 6,502,510 $ 5,926,837 $ 1,987,925
Pretax earnings (loss)................ $ 1,622,058 $ 2,178,172 $ 1,874,232 $(1,696,454)
Provision for income tax.............. $ 620,047 $ 823,710 $ 705,022 $ 420,771
Net earnings (loss)................... $ 1,092,011 $ 1,354,462 $ 1,169,211 $(1,365,684)
Earnings (loss) per common
share -- basic...................... $ 0.18 $ 0.24 $ 0.20 $ (0.22)
Earnings (loss) per common share --
diluted............................. $ 0.17 $ 0.22 $ 0.19 $ (0.21)
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------
5/17/96 8/9/96 11/1/96 2/28/1997 (1)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenues.................... $28,229,485 $27,079,531 $30,656,677 $43,968,232
Gross profit.......................... $ 5,934,790 $ 5,335,615 $ 6,328,590 $ 3,061,605
Pretax earnings (loss)................ $ 1,137,215 $ 681,293 $ 840,048 $ 1,376,448
Provision for income tax.............. $ 449,489 $ 10,866 $ 479,815 $ 1,069,829
Extraordinary gain (net of tax)....... $ -- $ -- $ -- $ 414,784
Net earnings (loss)................... $ 687,726 $ 670,427 $ 360,233 $ 721,403
Earnings (loss) per common
share -- basic...................... $ 0.13 $ 0.13 $ 0.07 $ 0.15
Earnings (loss) per common share --
diluted............................. $ 0.13 $ 0.13 $ 0.07 $ 0.12
</TABLE>
- ---------------
(1) There were no material fourth quarter adjustments in fiscal 1997.
22. SUBSEQUENT EVENTS
On April 10, 1998, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Hudson Foods, Inc. ("Hudson"), a wholly owned subsidiary
of Tyson Foods, Inc., to purchase certain of the net operating assets of the
Pierre Foods Division ("Pierre") of Hudson for $122,000,000 and to assume
certain of Hudson's liabilities, consisting principally of trade payables and
other similar liabilities (estimated at $8.1 million in the aggregate as of
February 28, 1998).
This transaction (the "Acquisition") was consummated on June 9, 1998 and
will be accounted for as a purchase in the second quarter of fiscal 1999. The
purchase was financed by the proceeds of an institutional private placement of
$115.0 million aggregate principal amount of the Company's 10 3/4% Senior Notes
Due 2006 (the "Senior Notes") and an initial borrowing under a new five-year,
$75.0 million, revolving bank credit facility (the "Bank Facility"), with
availability subject to a borrowing base formula. In addition, borrowings under
the Bank Facility were used to extinguish all existing indebtedness of the
Company for borrowed money, with the exception of outstanding industrial revenue
bonds and certain capital lease obligations.
The Senior Notes are unsecured obligations of the Company, unconditionally
guaranteed on a senior unsecured basis by all existing subsidiaries of the
Company. Interest on the Senior Notes is payable on June 1 and December 1 of
each year, commencing December 1, 1998. The Senior Notes mature on June 1, 2006,
unless previously redeemed, and are not subject to any sinking fund requirement.
The Company has agreed to
F-27
<PAGE> 130
FRESH FOODS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
file and process a Registration Statement on Form S-4 covering substantially
identical notes to be offered in exchange for the Senior Notes.
The Bank Facility provides for a revolving line of credit under which the
Company may borrow up to an amount equal to the lesser of $75.0 million or a
borrowing base (comprised of eligible accounts receivable, inventory, machinery
and equipment and real property). Borrowings under the Bank Facility will bear
interest at floating rates based upon the interest rate option selected from
time to time by the Company. The borrowings are secured by a first priority
security interest in substantially all of the personal property of the Company
and its subsidiaries, together with all real property included in the borrowing
base.
On September 5, 1998, the Company completed a reorganization, consisting of
a series of stock and asset transfers, mergers and liquidations among and
involving the parent corporation and its subsidiaries, designed to simplify the
corporate structure. As a result of this reorganization, Fresh Foods, Inc. is a
holding company with no assets or operations other than investments in its
subsidiaries. All subsidiaries of Fresh Foods, Inc. are wholly owned, directly
or indirectly, by Fresh Foods, Inc., and serve as guarantors of the Bank
Facility and Senior Notes. In addition, all guarantors of the Bank Facility and
Senior Notes are subsidiaries of Fresh Foods, Inc.
As a result of the September 5, 1998 reorganization, separate financial
statements of the subsidiary guarantors are not presented because (a) the
subsidiary guarantors have jointly and severally guaranteed the Senior Notes on
a full and unconditional basis, (b) the aggregate assets, liabilities, earnings
and equity of the subsidiary guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the parent on a consolidated basis
and (c) management has determined that such information is not material to
investors.
F-28
<PAGE> 131
INDEPENDENT AUDITORS' REPORT
To the Management of
Pierre Foods Division of Hudson Foods, Inc.:
We have audited the accompanying statements of certain assets and
liabilities of Pierre Foods Division of Hudson Foods, Inc. ("Pierre") as of
September 27, 1997 and September 28, 1996, and the related statements of
revenues and expenses for each of the periods ended September 27, 1997,
September 28, 1996 and September 30, 1995 (collectively, the "statements").
These statements are the responsibility of Pierre's management. Our
responsibility is to express an opinion on the statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements. We
believe that our audits provide a reasonable basis for our opinion.
The assets, liabilities and operations covered by the statements referred
to above are a part of Hudson Foods, Inc. and have no separate legal status or
existence. As described in Note 1, these statements have been prepared from
Pierre's financial statement records and allocations of certain costs and
expenses have been made. These allocations are not necessarily indicative of the
costs and expenses that would have been incurred by Pierre on a stand-alone
basis.
In our opinion, the statements referred to above present fairly, in all
material respects, the certain assets and liabilities of Pierre as of September
27, 1997 and September 28, 1996, and its revenues and expenses for each of the
periods ended September 27, 1997, September 28, 1996 and September 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 2, the accompanying statements do not include
provisions for income tax expense or benefit or related payables, receivables or
deferrals.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
May 1, 1998
F-29
<PAGE> 132
PIERRE FOODS (A BUSINESS OF HUDSON FOODS)
STATEMENTS OF CERTAIN ASSETS AND LIABILITIES
AS OF SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 AND
UNAUDITED AS OF MAY 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 27, MAY 30,
1996 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 1,162,496 $ 1,237,000 $ 1,596,743
Accounts receivable, net of allowance for doubtful
accounts: $319,500 in 1996, $469,175 in 1997 and
$210,712 in 1998................................. 11,499,176 13,796,597 7,944,094
Inventories (Notes 2, 3)............................ 20,488,073 18,152,960 22,569,014
Prepaid expenses and other current assets........... 39,765 31,520 49,034
----------- ----------- -----------
Total current assets........................ 33,189,510 33,218,077 32,158,885
PROPERTY, PLANT AND EQUIPMENT, net (Notes 2, 4)....... 26,498,589 24,686,709 22,792,967
----------- ----------- -----------
TOTAL ASSETS.......................................... 59,688,099 57,904,786 54,951,852
----------- ----------- -----------
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Trade accounts payable.............................. 5,543,658 6,619,211 4,386,492
Accrued payroll, bonuses and other compensation..... 1,527,477 1,610,195 794,077
Accrued marketing and advertising................... 784,137 1,282,075 2,549,862
Accrued workers compensation........................ 542,000 765,000 845,000
Other accrued liabilities........................... 110,778 86,972 394,079
----------- ----------- -----------
Total current liabilities................... 8,508,050 10,363,453 8,969,510
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS............................................ $51,180,049 $47,541,333 $45,982,342
=========== =========== ===========
</TABLE>
See notes to statements of certain assets and liabilities and of revenues and
expenses.
F-30
<PAGE> 133
PIERRE FOODS (A BUSINESS OF HUDSON FOODS)
STATEMENTS OF REVENUES AND EXPENSES
FOR THE YEARS ENDED SEPTEMBER 30, 1995, SEPTEMBER 28, 1996 AND SEPTEMBER 27,
1997
AND UNAUDITED FOR THE EIGHT MONTHS ENDED MAY 31, 1997 AND MAY 30, 1998
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 27, MAY 31, MAY 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.................... $148,572,219 $136,632,797 $149,349,685 $102,200,583 $99,826,780
COST OF GOODS SOLD.......... 85,384,322 86,672,845 96,474,057 67,740,078 64,133,053
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... 36,832,427 34,472,587 40,282,206 27,432,645 27,199,103
DEPRECIATION................ 4,407,170 4,467,491 4,319,906 2,870,264 3,011,393
------------ ------------ ------------ ------------ -----------
EXCESS OF REVENUES OVER
EXPENSES BEFORE CORPORATE
CHARGE.................... 21,948,300 11,019,874 8,273,516 4,157,596 5,483,231
CORPORATE CHARGE (Note 7)... 5,152,721 4,747,727 4,699,222 3,210,699 3,317,639
------------ ------------ ------------ ------------ -----------
EXCESS OF REVENUES OVER
EXPENSES BEFORE INCOME
TAXES..................... $ 16,795,579 $ 6,272,147 $ 3,574,294 $ 946,897 $ 2,165,592
============ ============ ============ ============ ===========
PRO FORMA PROVISION FOR
INCOME TAXES (Note 2)..... $ 1,475,000 $ 906,000
============ ===========
PRO FORMA NET EXCESS OF
REVENUES OVER EXPENSES
(Note 2).................. $ 2,099,094 $ 1,259,592
============ ===========
</TABLE>
See notes to statements of certain assets and liabilities and of revenues and
expenses.
F-31
<PAGE> 134
PIERRE FOODS (A BUSINESS OF HUDSON FOODS)
NOTES TO STATEMENTS OF CERTAIN ASSETS AND
LIABILITIES AND STATEMENTS OF REVENUES AND EXPENSES
1. BASIS OF PRESENTATION
On April 10, 1998, Hudson Foods, Inc. ("Hudson") (a wholly-owned subsidiary
of Tyson Foods, Inc. ("Tyson")) announced its plans to sell certain assets and
the related business of the Pierre Foods Division of Hudson to Fresh Foods, Inc.
("Fresh Foods"). Such assets and related business are referred to herein as
"Pierre" or the "Pierre Business." Pierre is an unincorporated business of
Hudson, which merged with Tyson in January 1998. The historical basis in assets
and liabilities of Pierre have been carried over. Pierre primarily processes and
markets beef, pork and poultry products which are sold domestically in five
primary markets: schools, foodservice, vending, club stores and convenience
stores. Pierre's products are also sold internationally to wholesalers primarily
in Canada. The accompanying statements present the assets and liabilities of the
Pierre Business that Hudson intends to sell on June 6, 1998 to Fresh Foods and
related revenues and expenses for the periods presented.
Hudson does not account for the Pierre Business as a separate entity. The
statements have been prepared from Pierre's financial statement records and
allocations of certain costs and expenses have been made. These allocations are
not necessarily indicative of the costs and expenses that would have been
incurred by Pierre on a stand-alone basis.
The statements of certain assets and liabilities and statements of revenues
and expenses are presented in the accompanying statements in accordance with
generally accepted accounting principles. The unaudited statements of certain
assets and liabilities as of May 30, 1998 and statements of revenues and
expenses for the eight-month periods ended May 31, 1997 and May 30, 1998 have
been prepared on substantially the same basis as the audited financial
statements, and contain all adjustments, consisting only of normal recurring
adjustments, necessary for a consistent presentation of the financial
information for such periods. Revenues and expenses for interim periods are not
necessarily indicative of results to be expected for an entire year.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Revenue from the sale of products is recognized at
the time the products are shipped.
Use of Estimates. The preparation of the statements of certain assets and
liabilities and statements of operations 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.
Although these estimates are based on management's best knowledge of current
events and actions Pierre may undertake in the future, actual results could
differ from those estimates.
Concentrations of Credit Risk. Financial instruments which subject Pierre
to concentrations of credit risk consist primarily of trade receivables from
large domestic companies. Pierre generally does not require collateral from its
customers. Such credit risk is considered by management to be limited due to
Pierre's broad customer base.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out method) or market, net of applicable allowances. Inventory cost
includes the cost of raw materials and all applicable costs of processing.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. When assets are sold or retired, the costs of the assets and the related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are recognized as other income. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
F-32
<PAGE> 135
PIERRE FOODS (A BUSINESS OF HUDSON FOODS)
NOTES TO STATEMENTS OF CERTAIN ASSETS AND
LIABILITIES AND STATEMENTS OF REVENUES AND EXPENSES -- (CONTINUED)
In 1997, Pierre adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of." Under the pronouncement, the carrying
value of property, plant and equipment is reviewed for possible impairment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Assets determined to be impaired based on estimated future
net cash flows are reduced to estimated fair value.
New Accounting Standard. In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income." This standard
establishes standards of reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This statement
will be effective for Pierre's fiscal year ending October 2, 1999, and Pierre
does not intend to adopt this statement prior to the effective date. Had Pierre
early adopted this statement, comprehensive income for the years ended September
27, 1997, September 28, 1996 and September 30, 1995, respectively, would not
have differed materially from reported net earnings.
Income Taxes. The operations of Pierre are included in the consolidated
United States federal, state, local and non-United States income tax returns of
Hudson. Hudson did not allocate specific tax liabilities to Pierre. The
accompanying statements do not include provisions for such income taxes or
related payables, receivables or deferrals.
The pro forma provision for income taxes and the pro forma net excess of
revenues over expenses for the year ended September 27, 1997 and the eight
months ended May 30, 1998 reflect amounts that would have been recorded had
Pierre's income been taxed for federal and state purposes as if it were a stand
alone corporation.
Fiscal Year. Pierre utilizes a 52-53 week accounting period, which ends on
the Saturday closest to September 30.
Marketing, Advertising and Promotional Allowances. Pierre expenses such
costs in the period incurred. Expenses amounted to approximately $7,400,000,
$6,100,000 and $7,430,000 for fiscal years 1997, 1996 and 1995, respectively.
Interim Financial Information. The accompanying unaudited financial
information for the eight months ended May 30, 1998 and May 31, 1997 has been
prepared on substantially the same basis as the audited financial statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of interim periods are not necessarily indicative of
results to be expected for the entire fiscal year.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 27, MAY 30,
1996 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and work in process............... $ 2,601,539 $ 2,896,084 $ 2,439,694
Packaging and other............................. 1,507,660 1,419,253 1,361,767
Finished products............................... 16,378,874 13,837,623 18,767,553
----------- ----------- -----------
Total........................................... $20,488,073 $18,152,960 $22,569,014
=========== =========== ===========
</TABLE>
F-33
<PAGE> 136
PIERRE FOODS (A BUSINESS OF HUDSON FOODS)
NOTES TO STATEMENTS OF CERTAIN ASSETS AND
LIABILITIES AND STATEMENTS OF REVENUES AND EXPENSES -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 27,
1996 1997
------------- -------------
<S> <C> <C>
Land...................................................... $ 1,274,789 $ 1,274,789
Buildings and improvements................................ 17,484,369 17,619,327
Machinery and equipment................................... 28,185,256 29,656,305
Construction in progress.................................. 158,577 1,193,924
----------- -----------
Total..................................................... 47,102,991 49,744,345
Less accumulated depreciation............................. 20,604,402 25,057,636
----------- -----------
Property, plant and equipment, net........................ $26,498,589 $24,686,709
=========== ===========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Pierre leases transportation and delivery equipment, processing equipment
and distribution facilities under operating leases. Management expects that in
the normal course of business, the leases will be renewed or replaced by other
leases or property acquisitions.
Total rental expense was approximately $1,066,000 in 1997; $986,000 in
1996; and $866,000 in 1995.
At September 27, 1997, future minimum rental payments required under leases
that have initial or remaining noncancellable terms in excess of one year are
approximately $305,000 in 1998. Effective with the purchase of Hudson by Tyson
in January 1998, all items used for the manufacturing process which were under
operating leases were purchased by Tyson, thus removing any significant
operating lease liability from Pierre.
Pierre is involved in litigation incidental to its business. Such
litigation is not considered by management to be significant.
6. EMPLOYEE BENEFITS
Hudson's 1990 Employee Stock Purchase Plan (the "Purchase Plan") made
available to eligible employees a means of purchasing up to 1,500,000 shares of
Hudson's common stock at current market prices. Under the terms of the Purchase
Plan, Hudson contributed, annually, cash or Class A stock equal in value to 15%
of the undistributed total of participants' contributions for the past ten
years. All full-time employees of Hudson (except those owning 10% or more of
Hudson's Class A stock) were eligible to participate in the Purchase Plan. The
Purchase Plan was discontinued after the acquisition of Hudson by Tyson.
Hudson provides a 401(k) Plan which includes a matching of 50% of
contributions not exceeding 4% of each participant's salary. Pierre's
contribution was approximately $409,000, $372,000 and $323,000 in fiscal year
1997, 1996 and 1995, respectively.
Self-insurance costs for workers' compensation are accrued based upon the
aggregate of the liability for reported claims and an estimated liability for
claims incurred but not yet reported.
7. RELATED PARTY TRANSACTIONS
Pierre is part of Hudson's vertically integrated business of producing
chicken and turkey products, including the breeding, hatching, growing,
processing and packaging of those product lines. In addition, Hudson processes
beef and pork products. As part of the production process, Pierre received and
shipped product among the various Hudson plants. In conjunction therewith, the
Pierre Business' costs include
F-34
<PAGE> 137
PIERRE FOODS (A BUSINESS OF HUDSON FOODS)
NOTES TO STATEMENTS OF CERTAIN ASSETS AND
LIABILITIES AND STATEMENTS OF REVENUES AND EXPENSES -- (CONTINUED)
purchases from other Hudson plants; however, the amounts are not determinable.
Included in revenues in the accompanying statements of revenues and expenses are
revenues to other Hudson plants of approximately $9,300,000, $10,100,000 and
$9,200,000 in fiscal 1997, 1996 and 1995, respectively.
Hudson directly charges research and development, leases, depreciation,
insurance, employee benefits and other miscellaneous services to Pierre. In the
statements of revenues and expenses, these direct costs are included in costs of
goods sold, selling, general and administrative and depreciation, as
appropriate. In the opinion of management, such direct expenses are reasonable
to cover the services provided to Pierre.
In addition, Hudson charges Pierre an amount which is based primarily on
9.5% times the book value of accounts receivable, inventory, property, plant and
equipment and other assets, less accounts payable, plus certain corporate sales.
This amount is reflected as "Corporate Charge" in the statement of revenues and
expenses.
All services provided to or received from other Hudson divisions are
transferred at cost, with no intercompany profit or loss being recognized
between the divisions. Pierre has historically carried an intercompany payable
for the net services, property and products received from various other Hudson
facilities. Net payables for these intercompany transactions, which are not
included in the statements of certain assets and liabilities, were as follows
for the period ended:
<TABLE>
<CAPTION>
INTERCOMPANY
PAYABLE
BALANCE
------------
<S> <C>
September 30, 1995.......................................... $23,580,188
September 28, 1996.......................................... $16,733,084
September 27, 1997.......................................... $10,963,072
May 31, 1997 (unaudited).................................... $10,195,257
May 30, 1998 (unaudited).................................... $ 3,797,003
</TABLE>
8. SUBSEQUENT EVENT
On April 10, 1998, Hudson entered into an Asset Purchase Agreement (the
"Agreement") with a wholly-owned subsidiary of Fresh Foods, Inc. ("Fresh Foods")
whereby Fresh Foods will purchase substantially all of the assets of Pierre for
$122,000,000.
Pierre and Fresh Foods have an existing business relationship whereby
product is shipped from Pierre to Fresh Foods for further manufacturing process.
Such transactions are recorded by Pierre as a transfer of inventory and are not
reflected in gross sales. The product is then shipped back to Pierre for
ultimate sale to a third party. Related payments to Fresh Foods are reflected in
cost of goods sold. Total amounts paid to Fresh Foods which are included in cost
of goods sold were $17,510,338, $15,421,856 and $13,458,921 for fiscal 1997,
1996 and 1995, respectively. Net payables to Fresh Foods were $589,561, $148,096
and $82,418 for fiscal 1997, 1996 and 1995, respectively.
F-35
<PAGE> 138
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 13
The Acquisition....................... 19
Use of Proceeds....................... 20
Capitalization of the Company......... 21
Unaudited Pro Forma Combined Financial
Information of the Company.......... 22
Selected Historical Financial
Information of Fresh Foods.......... 29
Selected Historical Financial
Information of Pierre............... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
The Exchange Offer.................... 38
Business.............................. 47
Certain Relationships and Related
Party Transactions.................. 59
Management............................ 62
Principal Stockholders................ 68
Description of Bank Facility.......... 70
Description of the Exchange Notes..... 71
Certain U.S. Federal Income Tax
Considerations...................... 93
Plan of Distribution.................. 97
Legal Matters......................... 97
Experts............................... 97
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
--------------------
PROSPECTUS
--------------------
$115,000,000
(FRESH FOODS, INC. LOGO)
FRESH FOODS, INC.
OFFER TO EXCHANGE UP TO
$115,000,000 OF ITS
10 3/4% SENIOR NOTES DUE 2006
FOR ANY AND ALL OF ITS
OUTSTANDING $115,000,000
10 3/4% SENIOR NOTES DUE 2006
October 1, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Fresh Foods, Inc. is a North Carolina corporation.
In accordance with the provisions of Section 55-8-57 of the North Carolina
Business Corporation Act (the "NCBCA"), Fresh Foods, Inc. has by resolution of
its Board of Directors provided that, in addition to the indemnification of
directors and officers otherwise provided by the NCBCA, it shall, under certain
circumstances, indemnify its directors, executive officers and certain other
designated officers against any and all liability and litigation expense,
including reasonable attorneys' fees, arising out of their status or activities
as directors or officers, except for liability or litigation expense incurred on
account of activities that were at the time known or reasonably should have been
known by such director or officer to be clearly in conflict with the best
interests of the company. As authorized by such statute, Fresh Foods, Inc. also
maintains insurance on behalf of its directors and officers against liability
asserted against such persons in such capacity whether or not such directors or
officers have the right to indemnification pursuant to statute, resolution or
otherwise. The insurance policy covers the directors and officers of Fresh
Foods, Inc. and all of its subsidiaries.
In addition, Sections 55-8-50 through 55-8-58 of the NCBCA contain
provisions prescribing the extent to which directors and officers shall or may
be indemnified. Section 55-8-51 of the NCBCA permits a corporation, with certain
exceptions, to indemnify a present or former director against liability if (i)
he conducted himself in good faith, (ii) he reasonably believed (x) that his
conduct in his official capacity with the corporation was in its best interests
and (y) in all other cases his conduct was at least not opposed to the
corporation's best interests, and (iii) in the case of any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful. A corporation
may not indemnify a current or former director in connection with a proceeding
by or in the right of the corporation in which the director was adjudged liable
to the corporation or in connection with a proceeding charging improper personal
benefit to him. The above standard of conduct is determined by the Board of
Directors, by a committee thereof or by special legal counsel or the
shareholders as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which he was
a party because of his capacity as a director or officer against reasonable
expenses when he is wholly successful in his defense, unless the articles of
incorporation provide otherwise. Upon application, the court may order
indemnification of the director or officer if he is adjudged fairly and
reasonably so entitled under Section 55-8-54. Section 55-8-56 allows a
corporation to indemnify and advance expenses to an officer, employee or agent
who is not a director to the same extent as a director or as otherwise set forth
in the corporation's articles of incorporation or bylaws or by resolution of the
Board of Directors.
Spicewood, Inc. and Chardent, Inc. are Delaware corporations. Section 145
of the Delaware General Corporation Law (the "DGCL") empowers a Delaware
corporation to indemnify any person who was, is or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of such corporation) by reason of the fact that such person
is or was an officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against liability incurred in connection with such proceeding, if such officer
or director acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such officer's or director's conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any such
action, a Delaware corporation must indemnify such officer or director against
the expenses which such officer or director actually and reasonably incurred.
II-1
<PAGE> 140
The by-laws of Chardent, Inc. and Spicewood, Inc. provide that each person
who was or is made a party or is threatened to be made a party to or is
otherwise involved in any proceeding by reason of the fact that he is or was a
director or officer of the corporation shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the DGCL against all
expense, liability and loss reasonably incurred or suffered in connection
therewith.
Sunshine WSMP, Inc. is a Florida corporation. Section 607.0850 of the
Florida Business Corporation Act provides that a Florida corporation may
indemnify any person who was or is a party (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against liability
incurred in connection with such proceeding if the officer or director acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. A
Florida corporation may indemnify an officer or director in an action in the
right of the corporation if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable unless, and
only to the extent a court of competent jurisdiction shall determine that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper. To the extent that a director or
officer has been successful on the merits or otherwise in defense of any
proceeding referred to above, he must be indemnified against expenses actually
and reasonably incurred by him in connection therewith.
The by-laws of Sunshine WSMP, Inc. provide that directors and officers
shall have a right to be indemnified by the corporation to the fullest extent
permitted by law against reasonable expenses actually and necessarily incurred
in connection with any threatened, pending or completed action, suit or
proceeding, whether or not brought by or on behalf of the corporation, seeking
to hold the director or officer liable by reason of the fact the he is or was
acting in such capacity, and reasonable payments made by him in satisfaction of
any judgment, money decree, fine, penalty or settlement for which he may have
become liable in any such action, suit or proceeding.
Sagebrush of South Carolina, LLC is a South Carolina limited liability
company. Section 33-44-403 of the South Carolina Uniform Limited Liability
Company Act of 1996 provides that a South Carolina limited liability company
shall indemnify a member or manager for liabilities incurred by the member or
manager in the ordinary course of the business of the company or for the
preservation of its business or property.
The operating agreement of Sagebrush of South Carolina, LLC provides that
the company shall indemnify each member and officer to the extent permitted or
required by law.
Sagebrush of Tennessee, LP is a Delaware limited partnership. Section
17-108 of the Delaware Revised Uniform Limited Partnership Act provides that,
subject to such standards and restrictions, if any, as are set forth in its
partnership agreement, a Delaware limited partnership may, and shall have the
power to, indemnify and hold harmless any partner or other person from and
against any and all claims and demands whatsoever.
The partnership agreement of Sagebrush of Tennessee, LP provides that the
partners, including the general partner, shall, to the fullest extent permitted
under applicable law, be exculpated from and indemnified by the partnership
against any liability, loss, damage, penalty, action, claim, judgment,
settlement, cost, expense of any kind or nature whatsoever that in any way
relates to or arises out of any action or inaction on the part of the
partnership or the general partner acting on behalf of the partnership. However,
the satisfaction of the obligations of the partnership shall be from, and
limited to, the assets of the partnership.
Claremont Restaurant Group, LLC, Fresh Foods Properties, LLC, Mom 'n' Pop's
Country Ham, LLC, Sagebrush of North Carolina, LLC, Fresh Foods Sales, LLC,
Pierre Foods, LLC and Pierre Leasing, LLC (collectively, the "North Carolina
LLCs") are North Carolina limited liability companies. Sections 57C-3-31 and
57C-3-32 of the North Carolina Limited Liability Company Act provide that a
North Carolina limited liability company must indemnify a manager in respect of
payments made and personal liabilities reasonably
II-2
<PAGE> 141
incurred by the manager in the authorized conduct of its business or for the
preservation of its business or property. In addition, unless limited by its
articles of organization, a North Carolina limited liability company must
indemnify a member or manager who is wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a member or manager of the limited liability company against
reasonable expenses incurred in connection with the proceeding. The articles or
organization or written operating agreement may eliminate or limit the personal
liability of a manager for monetary damages for breach of duty (other than
liability for a wrongful distribution) and may provide for indemnification of a
manager or member for judgments, settlements, penalties, fines or expenses
incurred in a proceeding to which the member or manager is a party because of
his status as a manager or member. However, a North Carolina limited liability
company may not limit, eliminate or indemnify against the liability of a manager
for acts or omissions that the manager knew were clearly in conflict with the
interests of the limited liability company or any transaction from which the
manager derived an improper personal benefit.
The operating agreement of each of the North Carolina LLCs provides that
the company shall indemnify each member and officer to the extent permitted or
required by law.
The Clark Employment Agreement provides that in the event Mr. Clark is made
a party to any threatened or pending action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Mr. Clark, and excluding any action by Mr. Clark against the Company),
by reason of the fact that he is or was performing services under the Clark
Employment Agreement or as an officer or director of the Company or as an
officer, director or representative of any subsidiary of the Company or any
entity controlled by or affiliated with the Company, then, to the fullest extent
permitted by applicable law, the Company shall indemnify Mr. Clark against all
expenses, including reasonable attorneys' fees, judgments, fines and amounts
paid in settlement, as actually and reasonably incurred by Mr. Clark in
connection therewith. Such indemnification shall continue even if Mr. Clark has
ceased to be an employee, officer or director of the Company and shall inure to
the benefit of his heirs and estate. The Company shall advance to Mr. Clark all
reasonable costs and expenses directly related to the defense of any such
action, suit or proceeding within twenty days after written request by Mr. Clark
to the Company upon receipt of an undertaking by Mr. Clark to repay such amount
unless it shall ultimately be determined that Mr. Clark is entitled to be
indemnified by the Company against such expenses. The Clark Employment Agreement
also provides that the Company will obtain coverage for Mr. Clark under a
directors and officers liability insurance policy upon such reasonable limits as
agreed to by Mr. Clark and the Company.
The Woodhams Employment Agreement provides that the Company shall indemnify
Mr. Woodhams and hold him harmless for all acts or decisions made by him in good
faith while performing services for the Company. The Company shall pay all
expenses, including attorneys' fees, actually and necessarily incurred by Mr.
Woodhams in connection with the defense of such action, suit or proceeding and
in connection with any related appeal, including the cost of court settlements.
The Woodhams Employment Agreement also provides that the Company shall use its
best efforts to obtain coverage for Mr. Woodhams under any insurance policy now
in force or hereinafter obtained during the term of the Woodhams Employment
Agreement covering officers and directors of the Company against liability or
lawsuit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(1) to file, during any period in which offers or sales are made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof), which, individually
II-3
<PAGE> 142
or in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement; notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of such Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of a Registrant in connection with the
securities being registered, such Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fresh Foods,
Inc. has duly caused this Pre-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Claremont, State of North Carolina, on September 30,
1998.
FRESH FOODS, INC.
By: /s/ JAMES C. RICHARDSON, JR.*
------------------------------------
James C. Richardson, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD F. HOWARD* Chairman of the Board of September 30, 1998
- ----------------------------------------------------- Directors
Richard F. Howard
/s/ JAMES C. RICHARDSON, JR.* Chief Executive Officer September 30, 1998
- ----------------------------------------------------- (principal executive
James C. Richardson, Jr. officer) and Vice Chairman
of the
Board of Directors
/s/ DAVID R. CLARK* President, Chief Operating September 30, 1998
- ----------------------------------------------------- Officer and Director
David R. Clark
/s/ JAMES E. HARRIS Executive Vice President, September 30, 1998
- ----------------------------------------------------- Chief Financial Officer
James E. Harris (principal financial
officer),
Treasurer and Secretary
/s/ NOLAND M. MEWBORN* Vice President-Finance September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer), Assistant
Treasurer and Assistant
Secretary
/s/ NORBERT E. WOODHAMS* Director September 30, 1998
- -----------------------------------------------------
Norbert E. Woodhams
/s/ LEWIS C. LANIER* Director September 30, 1998
- -----------------------------------------------------
Lewis C. Lanier
/s/ WILLIAM R. MCDONALD* Director September 30, 1998
- -----------------------------------------------------
William R. McDonald
/s/ E. EDWIN BRADFORD* Director September 30, 1998
- -----------------------------------------------------
E. Edwin Bradford
</TABLE>
II-5
<PAGE> 144
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BOBBY G. HOLMAN* Director September 30, 1998
- -----------------------------------------------------
Bobby G. Holman
/s/ WILLIAM P. FOLEY II* Director September 30, 1998
- -----------------------------------------------------
William P. Foley II
/s/ ANDREW F. PUZDER* Director September 30, 1998
- -----------------------------------------------------
Andrew F. Puzder
/s/ L. DENT MILLER* Director September 30, 1998
- -----------------------------------------------------
L. Dent Miller
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of
Chardent, Inc., Spicewood, Inc. and Sunshine WSMP, Inc. has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Claremont,
State of North Carolina, on September 30, 1998.
CHARDENT, INC.
SPICEWOOD, INC.
SUNSHINE WSMP, INC.
By: /s/ DAVID R. CLARK*
------------------------------------
David R. Clark
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. CLARK* President (principal September 30, 1998
- ----------------------------------------------------- executive officer) and
David R. Clark Director of each of
CHARDENT, INC.,
SPICEWOOD, INC. and
SUNSHINE WSMP, INC.
/s/ JAMES E. HARRIS Vice President, September 30, 1998
- ----------------------------------------------------- Treasurer (principal
James E. Harris financial officer),
Secretary and Director
of each of CHARDENT,
INC., SPICEWOOD, INC.
and SUNSHINE WSMP,
INC.
/s/ NOLAND M. MEWBORN* Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary of each of
CHARDENT, INC.,
SPICEWOOD, INC. and
SUNSHINE WSMP, INC.
/s/ JAMES C. RICHARDSON, JR.* Director of each of September 30, 1998
- ----------------------------------------------------- CHARDENT, INC.,
James C. Richardson, Jr. SPICEWOOD, INC. and
SUNSHINE WSMP, INC.
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of Fresh
Foods Properties, LLC, Sagebrush of North Carolina, LLC and Sagebrush of South
Carolina, LLC has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Claremont, State of North Carolina, on September
30, 1998.
FRESH FOODS PROPERTIES, LLC
By: FRESH FOODS, INC.,
Sole Member-Manager
By: /s/ JAMES C. RICHARDSON, JR.*
--------------------------------
James C. Richardson, Jr.
Chief Executive Officer
SAGEBRUSH OF NORTH CAROLINA, LLC
SAGEBRUSH OF SOUTH CAROLINA, LLC
By: CLAREMONT RESTAURANT GROUP, LLC,
Sole Member-Manager
By: FRESH FOODS, INC.,
Sole Member-Manager
By: /s/ DAVID R. CLARK*
---------------------------------
David R. Clark
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. CLARK* President (principal September 30, 1998
- ----------------------------------------------------- executive officer) of
David R. Clark each of FRESH FOODS
PROPERTIES, LLC,
SAGEBRUSH OF NORTH
CAROLINA, LLC and
SAGEBRUSH OF SOUTH
CAROLINA, LLC
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer) and Secretary
of each of FRESH FOODS
PROPERTIES, LLC, SAGEBRUSH
OF NORTH CAROLINA, LLC
and SAGEBRUSH OF SOUTH
CAROLINA, LLC
</TABLE>
II-8
<PAGE> 147
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NOLAND M. MEWBORN* Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary of each
of FRESH FOODS
PROPERTIES, LLC,
SAGEBRUSH OF NORTH
CAROLINA, LLC and
SAGEBRUSH OF SOUTH
CAROLINA, LLC
/s/ DAVID R. CLARK* President, FRESH FOODS, September 30, 1998
- ----------------------------------------------------- INC., Sole Member-Manager
David R. Clark of FRESH FOODS
PROPERTIES, LLC; and
President, FRESH FOODS,
INC., Sole Member-Manager
of CLAREMONT RESTAURANT
GROUP, LLC, Sole
Member-Manager of
SAGEBRUSH OF NORTH
CAROLINA, LLC and of
SAGEBRUSH OF SOUTH
CAROLINA, LLC
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Claremont
Restaurant Group, LLC has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Claremont, State of North Carolina, on September
30, 1998.
CLAREMONT RESTAURANT GROUP, LLC
By: FRESH FOODS, INC.,
Sole Member-Manager
By:/s/ JAMES C. RICHARDSON, JR.*
----------------------------------
James C. Richardson, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L. DENT MILLER* President (principal September 30, 1998
- ----------------------------------------------------- executive officer)
L. Dent Miller
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer)
and Secretary
/s/ NOLAND M. MEWBORN* Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary
/s/ JAMES C. RICHARDSON, JR.* Chief Executive Officer, September 30, 1998
- ----------------------------------------------------- FRESH FOODS, INC.,
James C. Richardson, Jr. Sole Member-Manager of
CLAREMONT
RESTAURANT GROUP, LLC
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mom 'n' Pop's
Country Ham, LLC has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Claremont, State of North Carolina, on September
30, 1998.
MOM 'N' POP'S COUNTRY HAM, LLC
By: PIERRE FOODS, LLC,
Sole Member-Manager
By: FRESH FOODS, INC.,
Sole Member-Manager
By: /s/ JAMES C. RICHARDSON, JR.*
---------------------------------
James C. Richardson, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LARRY D. HEFNER* President (principal September 30, 1998
- ----------------------------------------------------- executive officer)
Larry D. Hefner
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer)
and Secretary
/s/ NOLAND M. MEWBORN* Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary
/s/ JAMES C. RICHARDSON, JR.* Chief Executive Officer, September 30, 1998
- ----------------------------------------------------- FRESH FOODS, INC.,
James C. Richardson, Jr. Sole Member-Manager of
PIERRE FOODS, LLC, Sole
Member-Manager of MOM 'N'
POP'S COUNTRY HAM, LLC
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pierre Foods,
LLC has duly caused this Pre-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Claremont, State of North Carolina, on September 30,
1998.
PIERRE FOODS, LLC
By: FRESH FOODS, INC.,
Sole Member-Manager
By: /s/ JAMES C. RICHARDSON, JR. *
-----------------------------------
James C. Richardson, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NORBERT E. WOODHAMS * President (principal September 30, 1998
- ----------------------------------------------------- executive officer)
Norbert E. Woodhams
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer) and Secretary
/s/ NOLAND M. MEWBORN * Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary
/s/ JAMES C. RICHARDSON, JR. * Chief Executive Officer, September 30, 1998
- ----------------------------------------------------- FRESH FOODS, INC., Sole
James C. Richardson, Jr. Member-Manager of PIERRE
FOODS, LLC
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fresh Foods
Sales, LLC has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Claremont, State of North Carolina, on September
30, 1998.
FRESH FOODS SALES, LLC
By: FRESH FOODS, INC.,
Sole Member-Manager
By:/s/ JAMES C. RICHARDSON, JR.
----------------------------------
James C. Richardson, Jr.
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, do hereby constitute and appoint each of Messrs. James
C. Richardson, Jr., David R. Clark, James E. Harris and Matthew V. Hollifield,
each with full power of substitution, our true and lawful attorney-in-fact and
agent to do any and all acts and things in our names and on our behalf in our
capacities stated below, which acts and things any of them may deem necessary or
advisable to enable Fresh Foods Sales, LLC to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for any
or all of us in our names, in the capacities stated below, any and all
amendments (including post-effective amendments) thereto; and we do hereby
ratify and confirm all that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L. DENT MILLER President (principal September 30, 1998
- ----------------------------------------------------- executive officer)
L. Dent Miller
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer)
and Secretary
/s/ NOLAND M. MEWBORN Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary
/s/ JAMES C. RICHARDSON, JR. Chief Executive Officer, September 30, 1998
- ----------------------------------------------------- FRESH FOODS, INC., Sole
James C. Richardson, Jr. Member-Manager of FRESH
FOODS SALES, LLC
</TABLE>
II-13
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pierre Leasing,
LLC has duly caused this Pre-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Claremont, State of North Carolina, on September 30,
1998.
PIERRE LEASING, LLC
By: FRESH FOODS, INC.,
Sole Member-Manager
By:/s/ JAMES C. RICHARDSON, JR.
----------------------------------
James C. Richardson, Jr.
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, do hereby constitute and appoint each of Messrs. James
C. Richardson, Jr., David R. Clark, James E. Harris and Matthew V. Hollifield,
each with full power of substitution, our true and lawful attorney-in-fact and
agent to do any and all acts and things in our names and on our behalf in our
capacities stated below, which acts and things any of them may deem necessary or
advisable to enable Pierre Leasing, LLC to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for any
or all of us in our names, in the capacities stated below, any and all
amendments (including post-effective amendments) thereto; and we do hereby
ratify and confirm all that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. CLARK President (principal September 30, 1998
- ----------------------------------------------------- executive officer)
David R. Clark
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer)
and Secretary
/s/ NOLAND M. MEWBORN Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary
/s/ JAMES C. RICHARDSON, JR. Chief Executive Officer, September 30, 1998
- ----------------------------------------------------- FRESH FOODS, INC., Sole
James C. Richardson, Jr. Member-Manager of PIERRE
LEASING, LLC
</TABLE>
II-14
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sagebrush of
Tennessee, L.P. has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Claremont, State of North Carolina, on September
30, 1998.
SAGEBRUSH OF TENNESSEE, L.P.
By: SAGEBRUSH OF SOUTH CAROLINA, LLC,
Sole General Partner
By: CLAREMONT RESTAURANT GROUP, LLC,
Sole Member-Manager
By: FRESH FOODS, INC.,
Sole Member-Manager
By: /s/ DAVID R. CLARK*
---------------------------------
David R. Clark
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. CLARK* President (principal September 30, 1998
- ----------------------------------------------------- executive officer) and
David R. Clark Director of FRESH FOODS,
INC. ("Fresh Foods"), Sole
Member-Manager of
CLAREMONT RESTAURANT
GROUP, LLC, Sole
Member-Manager of
SAGEBRUSH OF SOUTH
CAROLINA, LLC, Sole
General Partner of
SAGEBRUSH OF TENNESSEE,
L.P.
/s/ JAMES E. HARRIS Vice President, Treasurer September 30, 1998
- ----------------------------------------------------- (principal financial
James E. Harris officer) and Secretary of
Fresh Foods
/s/ NOLAND M. MEWBORN* Assistant Treasurer September 30, 1998
- ----------------------------------------------------- (principal accounting
Noland M. Mewborn officer) and Assistant
Secretary of Fresh Foods
/s/ RICHARD F. HOWARD* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
Richard F. Howard
/s/ JAMES C. RICHARDSON, JR.* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
James C. Richardson, Jr.
</TABLE>
II-15
<PAGE> 154
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NORBERT E. WOODHAMS* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
Norbert E. Woodhams
/s/ LEWIS C. LANIER* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
Lewis C. Lanier
/s/ WILLIAM R. MCDONALD* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
William R. McDonald
/s/ E. EDWIN BRADFORD* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
E. Edwin Bradford
/s/ BOBBY G. HOLMAN* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
Bobby G. Holman
/s/ WILLIAM P. FOLEY II* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
William P. Foley II
/s/ ANDREW F. PUZDER* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
Andrew F. Puzder
/s/ L. DENT MILLER* Director of Fresh Foods September 30, 1998
- -----------------------------------------------------
L. Dent Miller
*By: /s/ JAMES E. HARRIS
-------------------------------------------------
James E. Harris,
Attorney-in-Fact
</TABLE>
II-16
<PAGE> 155
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Asset Purchase Agreement dated as of April 10, 1998 between
Fresh Foods of North Carolina, LLC and Hudson (schedules and
exhibits omitted) (incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K filed with the
Commission on May 13, 1998)
3.1 -- Restated Articles of Incorporation of the Company (filed
previously)
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit
3.4 to the Company's Annual Report on Form 10-K for its
fiscal year ended February 27, 1998)
4.1 -- Note Purchase Agreement dated June 4, 1998 among the
Company, the Guarantors and the Initial Purchasers
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the Commission on June
24, 1998)
4.2 -- Indenture dated as of June 9, 1998 among the Company, the
Guarantors and State Street Bank and Trust Company, Trustee
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed with the Commission on June
24, 1998)
4.3 -- Registration Rights Agreement dated June 9, 1998 among the
Company, the Guarantors and the Initial Purchasers
(incorporated by reference to Exhibit 4.3 to the Company's
Current Report on Form 8-K filed with the Commission on June
24, 1998)
4.4 -- Form of Initial Global Note (included as Exhibit A to
Exhibit 4.2)
4.5 -- Form of Initial Certificated Note (included as Exhibit B to
Exhibit 4.2)
4.6 -- Form of Exchange Global Note (included as Exhibit C to
Exhibit 4.2)
4.7 -- Form of Exchange Certificated Note (included as Exhibit D to
Exhibit 4.2)
4.8 -- First Supplemental Indenture dated as of September 5, 1998
among the Company, State Street Bank and Trust Company,
Trustee, and Pierre Leasing, LLC
5 -- Opinion letter of McGuire, Woods, Battle & Boothe LLP
10.1 -- Management Services Agreement dated June 23, 1995 between
the Company and HERTH (incorporated by reference to Exhibit
10(a) to the Company's Annual Report on Form 10-K for its
fiscal year ended February 23, 1996)
10.2 -- Extension Agreement dated as of August 29, 1997 between the
Company and HERTH (incorporated by reference to Exhibit
99(a) to the Company's Quarterly Report on Form 10-Q for its
fiscal quarter ended November 7, 1997)
10.3 -- 1987 Incentive Stock Option Plan (incorporated by reference
to Exhibit 4 to the Company's Registration Statement on Form
S-8 (No. 33-15017))
10.4 -- First Amendment to 1987 Incentive Stock Option Plan
(incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 10 to the Company's Registration Statement on
Form S-8 (No. 33-15017))
10.5 -- 1987 Special Stock Option Plan (restated as of May 15, 1997)
(incorporated by reference to Exhibit 99 to the Company's
Registration Statement on Form S-8 (No. 333-29111))
10.6 -- 1997 Incentive Stock Option Plan (as amended and restated
February 23, 1998)(incorporated by reference to
Post-Effective Amendment No. 1 to Exhibit 99(a) to the
Company's Registration Statement on Form S-8 (No.
333-32455))
10.7 -- First Amendment to 1997 Incentive Stock Option Plan dated
February 23, 1998 (incorporated by reference to Exhibit
99(b) to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (No. 333-32455))
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.8 -- 1997 Special Stock Option Plan (as amended and restated
February 23, 1998)(incorporated by reference to Exhibit 99.1
to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (No. 333-33439))
10.9 -- First Amendment to 1997 Special Stock Option Plan dated
February 23, 1998 (incorporated by reference to Exhibit 99.2
to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (No. 333-33439))
10.10 -- 1994 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 4(c) to the Company's Registration Statement on
Form S-8 (No. 33-79014))
10.11 -- Amendment to 1994 Employee Stock Purchase Plan dated as of
May 10, 1995 (incorporated by reference to Exhibit 4(b) to
Post-Effective Amendment No. 3 to the Company's Registration
Statement on Form S-8 (No. 33-79014))
10.12 -- Second Amendment to 1994 Employee Stock Purchase Plan dated
as of August 30, 1995 (incorporated by reference to Exhibit
4(c) to Post-Effective Amendment No. 3 to the Company's
Registration Statement on Form S-8 (No. 33-79014))
10.13 -- Third Amendment to 1994 Employee Stock Purchase Plan dated
February 12, 1997 (incorporated by reference to Exhibit 4(d)
to Post-Effective Amendment No. 4 to the Company's
Registration Statement on Form S-8 (No. 33-79014))
10.14 -- Agreement of Purchase and Sale dated as of March 1, 1997
among the Company, F&H Companies, Inc., Western Steer of
North Carolina, Inc., Northwest Food Systems, Inc., Davidson
Food Systems, Inc., Mocksville Food Systems, Inc. and CFR
Foods, Inc. (incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-3 (No.
333-22891))
10.15 -- Guaranty Agreement dated as of March 1, 1997 between the
Company and Cecil R. Hash (incorporated by reference to
Exhibit 99.G to the Company's Registration Statement on Form
S-3 (No. 333-22891))
10.16 -- Non-Competition Agreement dated March 1, 1997 between the
Company and Cecil R. Hash (incorporated by reference to
Exhibit 99.F to the Company's Registration Statement on Form
S-3 (No. 333-22891))
10.17 -- Agreement and Plan of Merger dated as of November 14, 1997
among the Company, Sagebrush, Inc., WSMP Acquisition, Inc.,
L. Dent Miller and Charles F. Connor, Jr. (incorporated by
reference to Appendix A to the Joint Proxy
Statement-Prospectus included in the Company's Registration
Statement on Form S-4 (No. 333-43921))
10.18 -- Employment Contract dated as of June 30, 1996 between the
Company and David R. Clark, together with Amendment to
Employment Contract dated as of February 23, 1998 (filed
previously)
10.19 -- Employment Agreement dated as of January 29, 1998 between
the Company and L. Dent Miller (filed previously)
10.20 -- Consulting and Noncompetition Agreement dated as of January
29, 1998 between the Company and Charles F. Connor, Jr.
(filed previously)
10.21 -- Employment Contract dated as of March 4, 1998 between the
Company and Norbert E. Woodhams, together with form of
Amendment to Employment Contract dated as of July 1, 1998
(filed previously)
10.22 -- Change in Control Agreement dated as of August 29, 1997
between the Company and James C. Richardson, Jr.
(incorporated by reference to Exhibit 9(b) to the Company's
Quarterly Report on Form 10-Q for its fiscal quarter ended
November 7, 1997)
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.23 -- Rights Agreement dated as of September 2, 1997 between the
Company and American Stock Transfer & Trust Company, Rights
Agent (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K filed with the
Commission on September 5, 1997)
10.24 -- Change in Control Agreement dated as of August 29, 1997
between the Company and Richard F. Howard (incorporated by
reference to Exhibit 9(c) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.25 -- Change in Control Agreement dated as of August 29, 1997
between the Company and David R. Clark (incorporated by
reference to Exhibit 9(d) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.26 -- Change in Control Agreement dated as of August 29, 1997
between the Company and James M. Templeton (incorporated by
reference to Exhibit 9(e) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.27 -- Change in Control Agreement dated as of August 29, 1997
between the Company and Larry D. Hefner (incorporated by
reference to Exhibit 9(f) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.28 -- Change in Control Agreement dated as of January 29, 1998
between the Company and L. Dent Miller (filed previously)
10.29 -- Credit Agreement dated as of June 9, 1998 among the Company,
the Guarantors, First Union Commercial Corporation ("First
Union"), as Agent and a Lender, and NationsBank, N.A.,
American National Bank and Trust Company of Chicago and
National City Commercial Finance, Inc., as Lenders
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed with the Commission on June
24, 1998)
10.30 -- Security Agreement dated as of June 9, 1998 among the
Company, the Guarantors and First Union, as Agent
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the Commission on June
24, 1998)
10.31 -- Pledge Agreement dated as of June 9, 1998 among the Company,
the Guarantors and First Union, as Agent (incorporated by
reference to Exhibit 99.3 to the Company's Current Report on
Form 8-K filed with the Commission on June 24, 1998)
10.32 -- Amendment to Credit Agreement and Consent dated as of
September 5, 1998 among the Company, certain subsidiaries of
the Company, First Union, as Agent and a Lender, and the
other Lenders
11 -- Computation of Per Share Earnings (filed previously)
12 -- Calculation of Ratios of Earnings to Fixed Charges (filed
previously)
21 -- Subsidiaries of the Company
23.1 -- Consent of McGuire, Woods, Battle & Boothe LLP (included in
Exhibit 5)
23.2 -- Consent of Deloitte & Touche LLP
24 -- Powers of attorney (some filed previously; others included
on signature pages hereof)
</TABLE>
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of State Street Bank and Trust Company (filed
previously)
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Instructions to Registered Holder from Beneficial
Owner
99.3 -- Form of Notice of Guaranteed Delivery
99.4 -- Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 (filed
previously)
</TABLE>
The Company hereby agrees to provide to the Commission, upon request,
copies of long-term debt instruments omitted from this Registration Statement
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act.
<PAGE> 1
EXHIBIT 4.8
FIRST SUPPLEMENTAL INDENTURE dated as of September 5, 1998 among
FRESH FOODS, INC., a North Carolina corporation (the "Company"), STATE STREET
BANK AND TRUST COMPANY, a Massachusetts trust company (the "Trustee"), as
Trustee under the Indenture dated as of June 9, 1998 among the Company, each of
several subsidiaries of the Company and the Trustee (the "Indenture,"
capitalized terms defined therein and not otherwise defined herein being used
herein as defined therein), and PIERRE LEASING, LLC, a North Carolina limited
liability company (the "Additional Guarantor").
WHEREAS, Section 10.07 of the Indenture states that the Company will
cause any Person that becomes a Restricted Subsidiary to guarantee the Company's
obligations under the Indenture and the Notes to the same extent that the
Guarantors have guaranteed the Company's obligations under the Indenture and the
Notes; and
WHEREAS, the parties to this First Supplemental Indenture desire to
implement Section 10.07 of the Indenture as it relates to the Additional
Guarantor, which is a Person that has become a Restricted Subsidiary since the
date of execution and delivery of the Indenture;
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which is hereby acknowledged, the parties to this First
Supplemental Indenture covenant and agree among themselves as follows for the
equal and proportionate benefit of the Noteholders:
ARTICLE 1
ADDITIONAL GUARANTEE
The Additional Guarantor hereby guarantees the Company's obligations
under the Indenture and the Notes to the same extent that the Guarantors have
guaranteed the Company's obligations under the Indenture and the Notes. With
specific reference to Article 10 of the Indenture but without limiting the
generality of the foregoing, the Additional Guarantor hereby unconditionally and
irrevocably guarantees to each Holder and to the Trustee and its successors and
assigns (a) the full and punctual payment of principal of, premium, if any, and
interest and Liquidated Damages, if any, on the Notes when due, whether at
maturity, by acceleration, by redemption or otherwise, and all other monetary
obligations of the Company under the Indenture and the Notes and (b) the full
and punctual performance within applicable grace periods of all other
obligations of the Company under the Indenture and the Notes, in each case to
the extent, but only to the extent, that such obligations are guaranteed by the
Guarantors pursuant to the Indenture, all as if the Additional Guarantor were a
Guarantor party to the Indenture.
ARTICLE 2
MISCELLANEOUS
SECTION 2.01. Authorization and Effect of Supplemental Indenture.
This First Supplemental Indenture is executed by the Company, the Trustee and
the Additional
<PAGE> 2
Guarantor pursuant to Section 9.01(d) of the Indenture. The terms and
conditions of this First Supplemental Indenture shall be deemed to be part of
the Indenture for all purposes. The Indenture, as supplemented by this First
Supplemental Indenture, is in all respects hereby adopted, ratified and
confirmed.
SECTION 2.02. Multiple Originals. The parties may sign any number of
copies of this First Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement. One signed copy
is enough to prove this First Supplemental Indenture.
SECTION 2.03. Disclaimer by Trustee. The Trustee assumes no
responsibility for the correctness of the recitals herein contained, which shall
be taken as the statements of the Company and the additional Guarantor. The
Trustee makes no representations and shall have no responsibility as to the
validity or sufficiency of this First Supplemental Indenture or the due
authorization and execution hereof by the Company or the Additional Guarantor.
SECTION 2.04. Governing Law. This First Supplemental Indenture shall
be governed by, and construed in accordance with, the laws of the State of New
York applicable to agreements made and to be performed in the State of New York.
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
FRESH FOODS, INC.
By: /s/ James E. Harris
----------------------------------
Name: James E. Harris
Title: Executive Vice President
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Roland S. Gustafsen
----------------------------------
Name: Roland S. Gustafsen
Title: Assistant Vice President
PIERRE LEASING, LLC
By: FRESH FOODS, INC.,
Sole Member-Manager
By: /s/ James E. Harris
---------------------------
Name: James E. Harris
Title: Executive Vice President
<PAGE> 1
EXHIBIT 5
McGUIRE WOODS
BATTLE & BOOTHE LLP
3700 NationsBank Plaza
101 South Tryon Street
Charlotte, North Carolina 28280-0001
Telephone (704) 373-8999 - Fax (704) 373-8990
September 30, 1998
Board of Directors
Fresh Foods, Inc.
3437 E. Main Street
Claremont, NC 28610
Dear Sirs:
We are acting as counsel to Fresh Foods, Inc., a North Carolina corporation
(the "Company"), and to the subsidiaries of the Company (the "Guarantors"), in
connection with the preparation, execution and filing with the Securities and
Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "Act"), of a Registration Statement (No. 333-58711) on Form S-4 (as
amended, the "Registration Statement") and the offer, issuance and sale pursuant
to the Registration Statement of up to $115,000,000 aggregate principal amount
of 10 3/4% Senior Notes Due 2006 of the Company (the "Exchange Notes") as
described in the Registration Statement. Payment of the Exchange Notes is to be
guaranteed by the Guarantors pursuant to the Indenture as supplemented by a
First Supplemental Indenture dated as of September 5, 1998 (the "Indenture").
Capitalized terms defined in the Registration Statement and not otherwise
defined herein are used herein as defined therein.
In our representation of the Company, we have examined the Registration
Statement, the Indenture, the Restated Articles of Incorporation and By-laws of
the Company, both as amended to date, and such other documents as we have
considered necessary for the purpose of rendering the opinion expressed below.
We have assumed the authenticity of all documents submitted to us as originals
and the conformity to the originals of all documents submitted to us as copies
of originals.
Based upon the foregoing, it is our opinion that, if and when (i) the
Registration Statement has become effective under the Act and (ii) the Exchange
Notes and the Guarantees have been (a) duly completed, executed, attested and
authenticated in accordance with the Indenture and (b) issued, exchanged and
delivered in the manner and for the consideration stated in the Indenture, the
Prospectus and the Letter of Transmittal (forms of which have been filed as part
of, or as exhibits to, the Registration Statement), then the Exchange Notes and
the Guarantees will be legally issued, fully paid and non-assessable and will be
valid and binding obligations of the Company and the Guarantors, respectively,
enforceable against the Company and the Guarantors in accordance with their
terms, except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws, now or hereafter in effect, and equitable
considerations of any court before which enforcement may be sought.
The opinion expressed herein is limited to matters governed by the laws of
the State of North Carolina and the Act.
We hereby consent to the use of this opinion letter as Exhibit 5 to the
Registration Statement and to the use of our name under the heading "Legal
Matters" therein. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ McGUIRE, WOODS, BATTLE & BOOTHE LLP
<PAGE> 1
EXHIBIT 10.32
AMENDMENT TO CREDIT AGREEMENT
AND CONSENT
THIS AMENDMENT AND CONSENT, dated as of September 5, 1998 (the
"Amendment") relating to the Credit Agreement referenced below, by and among
FRESH FOODS, INC., a North Carolina corporation (the "Company"), the
subsidiaries of the Company listed on the signature pages hereto (collectively
referred to as the "Subsidiary Borrowers" or individually referred to as a
"Subsidiary Borrower") (hereinafter, the Company and the Subsidiary Borrowers
are collectively referred to as the "Borrowers" or individually referred to as a
"Borrower"), PIERRE LEASING, LLC., a North Carolina limited liability company
(referred to as the "Applicant Subsidiary Borrower"), each of those financial
institutions identified as Lenders on the signature pages hereto (together with
each of their successors and assigns, referred to individually as a "Lender"
and, collectively, as the "Lenders"), and FIRST UNION COMMERCIAL CORPORATION
("FUCC"), acting in the manner and to the extent described in Article XIII of
the Credit Agreement (in such capacity, the "Agent"). Terms used herein but not
otherwise defined herein shall have the meanings provided in the Credit
Agreement.
W I T N E S S E T H
WHEREAS, a $75,000,000 credit facility was extended to the Merged
Borrowers, the Company and the Subsidiary Borrowers (as such terms are defined
below) pursuant to the terms of that certain Credit Agreement dated as of June
9, 1998 (as amended, modified or otherwise supplemented, the "Credit Agreement")
among the Merged Borrowers, the Company and the Subsidiary Borrowers, the
Lenders and the Agent;
WHEREAS, the Borrowers have requested that the Credit Agreement be
amended as described herein;
WHEREAS, the Applicant Subsidiary Borrower desires to become a
Borrower under the Credit Agreement; and
WHEREAS, the Lenders are willing to furnish such consent and
acknowledgment and make such amendments;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
(A) Amendments and Consent.
1. The following definition contained in Section 1.1 of the
Credit Agreement is amended in its entirety to read as follows:
"Reorganization" shall mean the reorganization of
the Company and its Subsidiaries in accordance with the
Plan of Reorganization attached hereto as Exhibit A.
<PAGE> 2
2. The Lenders hereby consent to the Reorganization,
subject to the satisfaction of all conditions precedent contained in
Section D hereof.
3. In connection with the Reorganization, the Company's
subsidiaries listed on Exhibit B attached hereto (the "Merged
Borrowers"), have ceased to exist as separate legal entities as a
result of merger into the Subsidiary Borrowers. Accordingly, on the
effective date of this Amendment, following the Reorganization, the
Borrowers under the Credit Agreement shall be the Company, the
Subsidiary Borrowers and the Applicant Subsidiary Borrower (referred
to herein as the "Post-Reorganization Borrowers" or the "Borrowers").
The Lenders hereby acknowledge and agree that the Merged Borrowers
shall, as of the date hereof, cease to be Borrowers under the Credit
Agreement.
4. Notwithstanding anything to the contrary contained in
the Credit Agreement, the Lenders hereby waive compliance with the
time deadlines set forth in Sections 7.27, 7.28(a) and 7.28(b) of the
Credit Agreement, provided that the requirements thereof shall be
satisfied as of the date hereof. Failure of the Borrowers to comply
with the provisions of Sections 7.27, 7.28(a) and 7.28(b) of the
Credit Agreement in accordance with this Amendment shall constitute
an Event of Default.
5. Notwithstanding anything set forth in Section 7.14 to
the contrary, the parties hereby agree that the Company shall be
permitted to change its fiscal year end to the first Saturday in
March. Accordingly, each of the fiscal year and quarter end dates set
forth in the Credit Agreement and all dates and calculation periods
based thereon shall be deemed to be and shall be amended to reflect
such change in the fiscal year of the Company.
6. Notwithstanding anything set forth in Section 7.1(i) to
the contrary, the parties hereby agree that no later than the Monday
after the first Saturday in March during each fiscal year when the
Credit Agreement is in effect, the Company will furnish to the
Lenders its business plan for such fiscal year which shall include a
projected consolidated balance sheet and statement of income for such
fiscal year and a projected consolidated statement of cash flows for
such fiscal year and, no later than the first Business Day in April
during each fiscal year when the Credit Agreement is in effect, the
Company will furnish to the Lenders its business plan for such fiscal
year which shall include projected consolidated balance sheets and
statements of income on a quarterly basis for such fiscal year and
projected consolidated statements of cash flows on a quarterly basis
for such fiscal year.
7. The definition of Permitted Indebtedness is hereby
amended to include the obligations of the Company in connection with
the Letter of Credit issued by NationsBank, N.A. in favor of the bond
trustee for the Catawba County Industrial Facilities and Pollution
Control Financing Authority $4,000,000 1992 Industrial Revenue Bonds
(WSMP, Inc. Project) in the stated amount of $4,080,000. The
definition of Permitted Liens is hereby amended to include the
mortgage lien on the Claremont
2
<PAGE> 3
Property in favor of NationsBank, N.A. and others granted in
connection with the issuance of the aforesaid Letter of Credit.
(B) Joinder Provisions.
1. The Applicant Subsidiary Borrower hereby acknowledges,
agrees and confirms that, by its execution of this Amendment, the
Applicant Subsidiary Borrower will be deemed to be a party to the
Credit Agreement and a "Borrower" for all purposes of the Credit
Agreement and the other Credit Documents, and shall have all of the
obligations of a Borrower thereunder as if it has executed the Credit
Agreement and the other Credit Documents. The Applicant Subsidiary
Borrower hereby ratifies, as of the date hereof, and agrees to be
bound by, all of the terms, provisions and conditions contained in
the Credit Agreement and in the Credit Documents, including without
limitation (i) all of the representations and warranties of the
Borrowers and their Subsidiaries set forth in Article VI of the
Credit Agreement, as supplemented from time to time in accordance
with the terms thereof, and (ii) all of the affirmative and negative
covenants set forth in Articles VII, VIII, and IX of the Credit
Agreement.
2. The Applicant Subsidiary Borrower hereby acknowledges,
agrees and confirms that, by its execution of this Amendment, the
Applicant Subsidiary Borrower will be deemed to be a party to the
Security Agreement, and shall have all the obligations of an
"Obligor" (as such term is defined in the Security Agreement)
thereunder as if it had executed the Security Agreement. The
Applicant Subsidiary Borrower hereby ratifies, as of the date hereof,
and agrees to be bound by, all of the terms, provisions and
conditions contained in the Security Agreement. Without limiting the
generality of the foregoing terms of this paragraph, the Applicant
Subsidiary Borrower hereby grants to the Agent, for the benefit of
the Lenders, a continuing security interest in, and a right of set
off against any and all right, title and interest of the Applicant
Subsidiary Borrower in and to the Collateral (as such term is defined
in Section 2 of the Security Agreement) of the Applicant Subsidiary
Borrower.
3. The Applicant Subsidiary Borrower hereby acknowledges,
agrees and confirms that, by its execution of this Amendment, the
Applicant Subsidiary Borrower will be deemed to be a party to the
Pledge Agreement, and shall have all the obligations of a "Pledgor"
thereunder as if it had executed the Pledge Agreement. The Applicant
Subsidiary Borrower hereby ratifies, as of the date hereof, and
agrees to be bound by, all the terms, provisions and conditions
contained in the Pledge Agreement. Without limiting the generality of
the foregoing terms of this paragraph, the Applicant Subsidiary
Borrower hereby pledges and assigns to the Agent, for the benefit of
the Lenders, and grants to the Agent, for the benefit of the Lenders,
a continuing security interest in any and all right, title and
interest of the Applicant Subsidiary Borrower in and to the Pledged
Shares (as such term is defined in Section 2 of the Pledge Agreement)
owned by it and the other Pledged Collateral (as such term is defined
in Section 2 of the Pledge Agreement) owned by it.
3
<PAGE> 4
4. The Applicant Subsidiary Borrower acknowledges and
confirms that it has received a copy of the Credit Agreement and the
schedules and exhibits thereto, the Pledge Agreement and the
schedules and exhibits thereto and the Security Agreement and the
schedules and exhibits relating thereto. The Schedules to the Credit
Agreement, the Pledge Agreement and the Security Agreement are
amended and restated in their entirety and attached hereto.
5. The Company confirms that all of its and its
Subsidiaries' obligations under the Credit Agreement are, and upon
the Applicant Subsidiary Borrower becoming a Borrower shall continue
to be, in full force and effect. The Company further confirms that
immediately upon the Applicant Subsidiary Borrower becoming a
Borrower the term "Obligations", as used in the Credit Agreement,
shall include all Obligations of the Applicant Subsidiary Borrower
under the Credit Agreement and under each other Credit Document.
6. The Applicant Subsidiary Borrower hereby agrees that
upon becoming a Borrower it will assume all Obligations of a Borrower
as set forth in the Credit Agreement. By its execution of this
Amendment, the Applicant Subsidiary Borrower appoints each of David
R. Clark and James E. Harris, of Fresh Foods, Inc., to be its
attorneys ("its Attorneys") and in its name and on its behalf and as
its act and deed or otherwise to sign all documents and carry out all
such acts as are necessary or appropriate in connection with
executing any Notice of Borrowing, Notice of Extension/Conversion or
any Borrowing Base Certificate or any security documents (the
"Documents") in connection with the Credit Agreement, provided that
such Documents are in substantially the form provided therefor in the
applicable exhibits or schedules thereto. This Power of Attorney
shall be valid for the duration of the term of the Credit Agreement.
The Applicant Subsidiary Borrower hereby undertakes to ratify
everything which its Attorneys shall do in order to execute the
Documents mentioned herein.
(C) Representations and Warranties.
Each Borrower hereby represents and warrants that (i) the
representations and warranties contained in Article VI of the Credit Agreement
are correct on and as of the date hereof as though made on and as of such date
(except for those representations and warranties which by their terms relate
solely to an earlier date) and after giving effect to the amendments contained
herein and the amended and restated Schedules to the Credit Documents attached
hereto as Exhibit C, (ii) no Default or Event of Default exists under the Credit
Agreement on and as of the date hereof and after giving effect to the amendments
contained herein, (iii) it has the corporate power and authority to execute and
deliver this Amendment and to perform its obligations hereunder and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of this Amendment and (iv) it has duly executed and delivered
this Amendment, and this Amendment constitutes its legal, valid and binding
obligation enforceable in accordance with its terms except as the enforceability
thereof may be limited by bankruptcy, insolvency or other similar laws affecting
the rights of creditors generally or by general principles of equity.
4
<PAGE> 5
(D) Conditions to Effectiveness. This Amendment shall become
effective upon satisfaction of the following conditions precedent:
1. Replacement Notes. Receipt by the Agent of executed
replacement Revolving Notes by the Post-Reorganization Borrowers
substantially in the form attached to the Credit Agreement.
2. Corporate Documents. Receipt by the Agent of the
following:
(a) Copies of the articles or certificates of
incorporation or other charter documents of the Applicant
Subsidiary Borrower certified to be true and complete as
of a recent date by the appropriate Governmental Authority
of the state or other jurisdiction of its incorporation
and certified by a secretary or assistant secretary of
such Applicant Subsidiary Borrower to be true and correct
as of the date hereof.
(b) A copy of the bylaws of the Applicant
Subsidiary Borrower certified by a secretary or assistant
secretary of the Applicant Subsidiary Borrower to be true
and correct as of the date hereof.
(c) Copies of resolutions of the Board of
Directors of each relevant Borrower approving and
implementing the Reorganization and the transactions
contemplated thereby and of each Borrower approving and
authorizing execution and delivery of this Amendment,
certified by a secretary or assistant secretary of such
Borrower to be true and correct and in force and effect as
of the date hereof.
(d) Copies of (i) certificates of good
standing, existence or its equivalent with respect to the
Applicant Subsidiary Borrower certified as of a recent
date by the appropriate governmental authorities of the
state or other jurisdiction of incorporation and each
other jurisdiction in which the failure to so qualify and
be in good standing could reasonably be expected to have a
Material Adverse Effect and (ii) to the extent available,
a certificate indicating payment of all corporate
franchise taxes certified as of a recent date by the
appropriate governmental taxing authorities.
(e) An incumbency certificate of the Applicant
Subsidiary Borrower certified by a secretary or assistant
secretary to be true and correct as of the date hereof.
3. Personal Property Collateral. Receipt by the Agent of
the following:
(a) New and/or amended UCC-1 financing
statements for the Borrowers, as appropriate and necessary
to perfect or continue the perfection of the Agent's
security interest in the Collateral.
(b) all stock certificates evidencing the
Capital Stock pledged to the Agent pursuant to the Pledge
Agreement following the Reorganization, together with duly
executed in blank undated stock powers attached thereto;
and
5
<PAGE> 6
(c) such patent/trademark/copyright filings as
requested by the Agent in order to perfect the Agent's
security interest in the Collateral following the
Reorganization, including, without limitation, filings to
effect name changes and transfers of intellectual
property with the U.S. Patent and Trademark Office and
new notices of grants of security interests in favor of
the Agent to reflect such changes and transfers.
4. Real Property Collateral. Receipt by the Agent of the
following:
(a) In regard to all Eligible Real Properties
owned by the Borrowers which have been or are to be
affected by the Reorganization, the Company shall comply
with, and furnish to the Agent the items listed in,
Section 7 of Schedule 1.1(b) to the Credit Agreement
(other than new Mortgage Instruments), including but not
limited to
(i) copies of filed merger documents
for the Mortgaged Properties set forth on
Exhibit D-1 hereto;
(ii) copies of executed deeds
(including assumption of the existing Mortgage
Instruments) for the Mortgaged Properties set
forth on Exhibit D-2;
(iii) delivery of title commitments
without survey exceptions for all Mortgaged
Properties;
(iv) delivery of all title
exceptions relating thereto all Mortgaged
Properties;
(v) insurance certificates relating
to all Mortgaged Properties not previously
delivered on the Closing Date; and
(vi) acknowledgment agreements with
respect to all leased and mortgaged properties
of the Applicant Subsidiary Borrower.
Flood insurance on the Elizabeth City and Mount Airy,
North Carolina properties shall not be required, but unless and until
such flood insurance is obtained, such properties shall be excluded
from the Borrowing Base.
(b) In regard to the Claremont Property, the
Agent shall have received:
(i) a Mortgagee Lien Waiver,
substantially in the form of Exhibit N to the
Credit Agreement, duly executed by NationsBank,
N.A. ("NationsBank");
6
<PAGE> 7
(ii) UCC-3 partial releases of
NationsBank's security interest in personal
property;
(iii) an executed amendment to the
fixture filing; and
(iv) a copy of the Letter of Credit
issued in favor of NationsBank to secure
certain mortgage obligations of the Borrower
owed to NationsBank.
In the event the Mortgagee Lien Waiver and UCC-3 releases
referred to in paragraphs 4(b)(i) and 4(b)(ii) above have not been
received by the Agent on or prior to the date of the Reorganization,
personal property located at the Claremont property shall be excluded
from the Borrowing Base until such Mortgagee Lien Waiver and UCC-3
releases have been received by the Agent.
5. Opinions of Counsel. Receipt by the Agent of an
opinion, or opinions (which shall cover, among other things,
authority, legality, validity, binding effect, enforceability of this
Amendment and attachment and perfection of liens), satisfactory to
the Agent, addressed to the Agent and the Lenders and dated the
Closing Date, from legal counsel to the Borrowers.
(E) Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits and Schedules thereto) shall remain in full force
and effect.
(F) The Borrowers agree to pay all reasonable costs and expenses of
the Agent in connection with the preparation, execution and delivery of this
Amendment, including without limitation the reasonable fees and expenses of
Moore & Van Allen, PLLC.
(G) Execution and delivery of this Amendment by the Borrowers shall
constitute compliance with and satisfaction of the terms and conditions of
Section 7.16 of the Credit Agreement as such section applies to the Applicant
Subsidiary Borrower.
(H) This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
(I) This Amendment and the Credit Agreement as amended hereby shall
be governed by and construed and interpreted in accordance with the laws of the
State of North Carolina.
[Remainder of page intentionally left blank]
7
<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
COMPANY: FRESH FOODS, INC.
By: /s/ JAMES E. HARRIS
-------------------------
Name: James E. Harris
Title: Vice President
SUBSIDIARY BORROWERS: CLAREMONT RESTAURANT GROUP, LLC
BY: FRESH FOODS, INC.,
its Sole Member
CHARDENT, INC.
FRESH FOODS PROPERTIES, LLC
BY: FRESH FOODS, INC.,
its Sole Member
SPICEWOOD, INC.
SUNSHINE WSMP, INC.
FRESH FOODS SALES, LLC
BY: FRESH FOODS, INC.,
its Sole Member
PIERRE FOODS, LLC
BY: FRESH FOODS, INC.,
its Sole Member
<PAGE> 9
MOM `n' POP'S COUNTRY HAM, LLC
BY: PIERRE FOODS, LLC,
its Sole Member
BY: FRESH FOODS, INC.,
its Sole Member
SAGEBRUSH OF TENNESSEE, L.P.
BY: SAGEBRUSH OF SOUTH
CAROLINA, LLC
General Partner
BY: CLAREMONT RESTAURANT
GROUP, LLC,
its Sole Member
BY: FRESH FOODS, INC.,
its sole member
SAGEBRUSH OF NORTH CAROLINA, LLC
BY: CLAREMONT RESTAURANT GROUP, LLC
its Sole Member
BY: FRESH FOODS, INC.,
its sole member
SAGEBRUSH OF SOUTH CAROLINA, LLC
BY: CLAREMONT RESTAURANT
GROUP, LLC,
its Sole Member
BY: FRESH FOODS, INC.,
its sole member
<PAGE> 10
PIERRE LEASING, LLC
BY: FRESH FOODS, INC.,
its Sole Member
By: /s/ JAMES E. HARRIS
-----------------------
Name: James E. Harris
Title: Vice President
<PAGE> 11
AGENT AND LENDERS: FIRST UNION COMMERCIAL CORPORATION,
as Agent and a Lender
By: /s/ ERIC BUTLER
-------------------------------
Name: Eric Butler
-------------------------------
Title: SVP
-------------------------------
NATIONSBANK, N.A.,
as a Lender
By: /s/ ANGELA PETERSON LEAKE
-------------------------------
Name: Angela Peterson Leake
-------------------------------
Title: Vice President
-------------------------------
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as a Lender
By: /s/ Joseph L. White
-------------------------------
Name: Joseph L. White
-------------------------------
Title: Sr. VP
-------------------------------
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
as a Lender
By: /s/ LEE LABINE
-------------------------------
Name: Lee LaBine
-------------------------------
Title: AVP
-------------------------------
<PAGE> 12
EXHIBIT A
PLAN OF REORGANIZATION
<PAGE> 13
FRESH FOODS, INC.
PLAN OF REORGANIZATION
1. Business Combinations.
(i) Sagebrush Group. Merge Tennessee shell corporations together
in sideways merger, with Kingsport Foods, Inc. ("Kingsport
Foods") as survivor; immediately thereafter, merge Sagebrush,
Inc., a North Carolina corporation ("Sagebrush") downstream
into Kingsport Foods, resulting in the structure set forth on
Exhibit A.
(ii) Second Tier Subsidiaries. Merge (i) Elloree Foods, Inc., a
South Carolina corporation ("Elloree") upstream into South
Carolina WSMP, Inc., a South Carolina corporation ("SC WSMP"),
and (ii) St. Augustine, Inc., a Florida corporation ("St.
Augustine") and Naples, Inc., a Florida corporation ("Naples")
upstream into Sunshine WSMP, Inc., a Florida corporation
("Sunshine"), resulting in the structure set forth on Exhibit
B.
(iii) Segregated Jurisdiction Mergers. Merge Greenville Food
Systems, Incorporated, a North Carolina corporation
("Greenville"), Matthews Prime Sirloin, Inc., a North Carolina
corporation ("Matthews") and SC WSMP sideways and D&S Food
Systems, LLC, a Georgia limited liability company ("D&S") and
Georgia Buffet Restaurants, Inc., a Georgia corporation
("Georgia Buffet") upstream into Georgia WSMP, a Georgia
corporation ("Georgia WSMP"), resulting in the structure set
forth on Exhibit C.
(iv) Acquisition LLC Merger. Merge Georgia WSMP, Prime Sirloin,
Inc., a Tennessee corporation ("Prime Sirloin"), Kingsport
Foods, Tennessee WSMP, Inc., a Tennessee corporation
("Tennessee WSMP"), Brunswick Associates, Inc., a Georgia
corporation ("Brunswick"), Seven Stars, Inc., a Maryland
corporation ("Seven Stars") and Virginia WSMP, Inc., a
Virginia corporation ("Virginia WSMP") sideways into Fresh
Foods Acquisition, LLC, a newly created Georgia limited
liability company ("Acquisition LLC"), resulting in the
structure set forth on Exhibit D.
(v) Acquisition LLC-Claremont Merger. Merge Acquisition LLC
sideways into Claremont Restaurant Group, LLC, a North
Carolina limited liability company ("Claremont"), resulting in
the structure set forth on Exhibit E.
2. Capital Contributions.
(i) Fresh Foods contributes 11 owned North Carolina restaurant
properties and leasehold interests in 14 other North Carolina
restaurants (the "Restaurant Assets") and other tangible
personal property associated therewith to Fresh Foods Sales,
LLC, a North Carolina limited liability company ("Sales");
(ii) Fresh Foods contributes the leasehold interest in its Virginia
restaurant and other tangible personal property associated
therewith to Claremont;
<PAGE> 14
(iii) Fresh Foods contributes: (1) smokehouse assets, including the
real property associated therewith (the "Smokehouse Assets"),
and (2) its other manufacturing operations into Pierre Foods,
LLC, a North Carolina limited liability company ("Pierre
Foods");
(iv) Fresh Foods contributes manufacturing and other intellectual
property to Fresh Foods Properties, LLC, a North Carolina
limited liability company ("Properties") and contributes
restaurant intellectual property to Claremont; Properties
licenses certain manufacturing intellectual property to Pierre
Foods and Claremont licenses certain restaurant intellectual
property to Sales; and
(v) Pierre Foods contributes the Smokehouse Assets, less the real
property, to Mom `n' Pop's Country Ham, LLC, a North Carolina
limited liability company ("Country Ham").
3. Organization of Pierre Leasing.
(i) Fresh Foods organizes Pierre Leasing, LLC, a North Carolina
limited liability company and direct wholly-owned subsidiary
of Fresh Foods ("Pierre Leasing");
(ii) Pierre Foods transfers a 2 1/2% undivided interest in the real
property and improvements acquired by Pierre Foods from Hudson
Foods, Inc. on June 9, 1998 (the "Pierre Assets") to Pierre
Leasing; and
(iii) Pierre Leasing leases its interest in the Pierre Assets back
to Pierre Foods.
4. Contribution of LP Interest.
(i) Fresh Foods contributes its leasehold interest in, and
personal property associated with, its Newport, Tennessee
restaurant to Sagebrush of Tennessee, LP, a Delaware limited
partnership (the "LP") in exchange for a 10% limited
partnership interest in the LP;
(ii) Fresh Foods contributes the limited partnership interest to
Claremont; and
(iii) Claremont contributes the limited partnership interest to
Chardent, resulting in the final structure set forth on
Exhibit F.
5. Notes Payable.
(i) Pierre Foods issues two notes payable in the amounts of $115
million and $30 million (with interest rates of 11 1/4% and 8
1/4%, respectively) to Fresh Foods (the "Notes") in exchange
for (i) the purchase money contributed by Fresh Foods for the
purchase of the Pierre Assets and (ii) the Smokehouse Assets
and other manufacturing operations; and
(ii) Fresh Foods assigns the Notes to Sales as a capital
contribution.
<PAGE> 15
EXHIBIT A
[Organizational Chart--Omitted]
<PAGE> 16
EXHIBIT B
[Organizational Chart--Omitted]
<PAGE> 17
EXHIBIT C
[Organizational Chart--Omitted]
<PAGE> 18
EXHIBIT D
[Organizational Chart--Omitted]
<PAGE> 19
EXHIBIT E
[Organizational Chart--Omitted]
<PAGE> 20
EXHIBIT F
[Organizational Chart--Omitted]
<PAGE> 21
EXHIBIT B-1
POST-REORGANIZATION: FORMER SUBSIDIARY BORROWERS
Georgia WSMP
Greenville Food Systems Incorporated
Matthews Prime Sirloin, Inc.
SC WSMP
Elloree Foods
D&S Food Systems, LLC
Georgia Buffet Restaurants, Inc.
Prime Sirloin, Inc.
Kingsport Foods
Sagebrush DTN, Inc.
Sagebrush of Sevierville, Inc.
Knoxville Foods, Inc.
Oak Ridge Foods, Inc.
Tumbleweed of Pigeon Forge, Inc.
Sagebrush, Inc.
Tennessee WSMP, Inc.
Brunswick Associates, Inc.
Seven Stars
Virginia WSMP
St. Augustine, Inc.
Naples, Inc.
2
<PAGE> 22
EXHIBIT B-2
POST-REORGANIZATION BORROWERS
Fresh Foods, Inc.
Pierre Leasing, LLC
Pierre Foods, LLC
Fresh Foods Properties, LLC
Claremont Restaurant Group, LLC
Fresh Foods Sales, LLC
Sunshine WSMP, Inc.
Mom & Pop's Country Ham, LLC
Sagebrush of SC, LLC
Sagebrush of NC, LLC
Chardent, Inc.
Spicewood, Inc.
Sagebrush of TN, LP
<PAGE> 23
EXHIBIT C
AMENDED AND RESTATED SCHEDULES TO CREDIT AGREEMENT
<PAGE> 24
SCHEDULE 1.1A
LENDERS AND COMMITMENTS
REVOLVING
REVOLVING CREDIT LETTER OF
CREDIT COMMITMENT CREDIT
LENDER COMMITMENT PERCENTAGE COMMITMENT
- ------ ---------- ---------- ----------
First Union Commercial $22,500,000 30.00001% $3,000,000
Corporation
American National Bank & $17,500,000 23.33333%
Trust Company
National City Bank $17,500,000 23.33333%
NationsBank, N.A. $17,500,000 23.33333%
TOTAL $75,000,000 100.00000% $3,000,000
<PAGE> 25
SCHEDULE 1.1B
CLOSING CONDITIONS
The obligation of each Lender to make Revolving Loans and/or of the Issuing Bank
to issue Letters of Credit shall be subject to the satisfaction, on or prior to
the Closing Date, of the following conditions precedent:
1. Executed Credit Documents. Receipt by the Agent of duly executed
copies of:
(a) this Credit Agreement;
(b) the Revolving Notes;
(c) the Security Documents; and
(d) all other Credit Documents,
each in form and substance acceptable to the Lenders in their sole
discretion.
2. Corporate Documents. Receipt by the Agent of the following:
(a) Charter Documents. Copies of the articles or certificates of
incorporation or other charter documents of each Borrower certified to be true
and complete as of a recent date by the appropriate Governmental Authority of
the state or other jurisdiction of its incorporation and certified by a
secretary or assistant secretary of such Borrower to be true and correct as of
the Closing Date.
(b) Bylaws. A copy of the bylaws of each Borrower certified by a
secretary or assistant secretary of such Borrower to be true and correct as of
the Closing Date.
(c) Resolutions. Copies of resolutions of the Board of Directors of
each Borrower approving and adopting the Credit Documents to which it is a
party, the transactions contemplated therein and authorizing execution and
delivery thereof, certified by a secretary or assistant secretary of such
Borrower to be true and correct and in force and effect as of the Closing Date.
(d) Good Standing. Copies of (i) certificates of good standing,
existence or its equivalent with respect to each Borrower certified as of a
recent date by the appropriate governmental authorities of the state or other
jurisdiction of incorporation and each other jurisdiction in which the failure
to so qualify and be in good standing could reasonably be expected to have a
Material Adverse Effect and (ii) to the extent available, a certificate
indicating payment of all corporate franchise taxes certified as of a recent
date by the appropriate governmental taxing authorities.
(e) Incumbency. An incumbency certificate of each Borrower certified by
a secretary or assistant secretary to be true and correct as of the Closing
Date.
3. Financial Statements. Receipt by the Agent and the Lenders of the
financial statements and the accountants' unqualified opinion and management
letter prepared in connection therewith described in Section 6.6 of the Credit
Agreement and such other information relating to the Borrowers as the Agent may
reasonably require in connection with the structuring and syndication of credit
facilities of
<PAGE> 26
the type described herein. The Borrowers shall certify as of the Closing Date
that such financial statements have been prepared in accordance with the books
and records of the Borrowers and fairly present in all material respects the
financial condition of each of the Borrowers (including the Pierre Foods
Division) at the dates thereof and the results of operations for the periods
indicated (subject, in the case of unaudited financial statements, to normal
year-end adjustments and the absence of footnote disclosures ), and such
financial statements have been prepared in conformity with GAAP consistently
applied throughout the periods involved.
4. Opinions of Counsel. Receipt by the Agent of an opinion, or opinions
(which shall cover, among other things, authority, legality, validity, binding
effect, enforceability and attachment and perfection of liens), satisfactory to
the Agent, addressed to the Agent and the Lenders and dated the Closing Date,
from legal counsel to the Borrowers.
5. Environmental Reports. Receipt by the Agent in form and substance
satisfactory to it of the environmental assessment reports and related documents
prepared in connection with the Real Estate.
6. Personal Property Collateral. The Agent shall have received:
(a) searches of Uniform Commercial Code filings in the jurisdiction of
the chief executive office of each Borrower and each jurisdiction where any
Collateral is located or where a filing would need to be made in order to
perfect the Agent's security interest in the Collateral, copies of the financing
statements on file in such jurisdictions and evidence that no Liens exist other
than Permitted Liens;
(b) duly executed UCC financing statements for each appropriate
jurisdiction as is necessary, in the Agent's sole discretion, to perfect the
Agent's security interest in the Collateral;
(c) searches of ownership of intellectual property in the appropriate
governmental offices and such patent/trademark/copyright filings as requested by
the Agent in order to perfect the Agent's security interest in the Collateral;
(d) all stock certificates evidencing the Capital Stock pledged to the
Agent pursuant to the Pledge Agreement, together with duly executed in blank
undated stock powers attached thereto;
(e) such patent/trademark/copyright filings as requested by the Agent
in order to perfect the Agent's security interest in the Collateral;
(f) all instruments and chattel paper in the possession of any of the
Borrowers, together with allonges or assignments as may be necessary or
appropriate to perfect the Agent's security interest in the Collateral to the
extent required under the Security Agreement; and
(g) duly executed consents as are necessary, in the Agent's sole
discretion, to perfect the Lenders' security interest in the Collateral.
7. Real Property Collateral. Receipt by Lender of the following:
<PAGE> 27
a. Fully executed and notarized mortgages, deeds of trust or deeds to
secure debt (each, as the same may be amended, modified, restated or
supplemented from time to time, a and collectively the "Mortgage Instruments")
encumbering the fee interest of Borrowers in each real property asset designated
in Schedule 6.19 (each a "Mortgaged Property" and collectively the "Mortgaged
Properties".
b. A title report obtained by Borrower in respect of each of the
Mortgaged Properties.
c. Lender shall have received, and the title insurance company issuing
the title policies (the "Title Insurance Company") shall have received, maps or
plats of an as-built survey of the sites of the real property covered by the
Mortgage Instruments certified to Lender and the Title Insurance Company in a
manner reasonably satisfactory to each of Lender and the Title Insurance
Company, dated a date reasonably satisfactory to Lender and the Title Insurance
Company by an independent professional licensed land surveyor, which maps or
plats and the surveys on which they are based shall be made in accordance with
standards that enable the Title Insurance Company to issue the title policies
without exception for "Survey matters", except for matters as are reasonably
acceptable to Lender.
d. ALTA mortgagee title insurance policies issued by Chicago Title
Insurance Company (the "Mortgage Policies"), in amounts not less than the
respective amounts designated in Schedule 6.19 with respect to any particular
Mortgaged Property, assuring Lender that each of the Mortgage Instruments
creates a valid and enforceable first priority mortgage lien on the applicable
Mortgaged Property, free and clear of all defects and encumbrances except
Permitted Liens, which Mortgage Policies shall be in form and substance
reasonably satisfactory to Lender and shall provide for affirmative insurance
and such reinsurance as Lender may reasonably request, all of the foregoing in
form and substance reasonably satisfactory to Lender.
e. Evidence, which may be in the form of a letter from an insurance
broker or a municipal engineer, as to whether (i) any Mortgaged Property (a
"Flood Hazard Property") is in an area designated by the Federal Emergency
Management Agency as having special flood or mud slide hazards and (ii) the
community in which such Flood Hazard Property is located is participating in the
National Flood Insurance Program.
f. If there are any Flood Hazard Properties, Borrower's written
acknowledgment of receipt of written notification from Lender (i) as to the
existence of each such Flood Hazard Property and (ii) as to whether the
community in which each such Flood Hazard Property is located is participating
in the National Flood Insurance Program.
g. Evidence satisfactory to Lender that each of the Mortgaged
Properties, and the uses of the Mortgaged Properties, are in compliance in all
material respects with all applicable laws, regulations and ordinances including
without limitation health and environmental protection laws, erosion control
ordinances, storm drainage control laws, doing business and/or licensing laws,
zoning laws (the evidence submitted as to zoning should include the zoning
designation made for each of the Mortgaged Properties, the permitted uses of
each such Mortgaged Property under such zoning designation and zoning
requirements as to parking, lot size, ingress, egress and building setbacks) and
laws regarding access and facilities for disabled persons.
<PAGE> 28
h. Duly executed UCC fixture financing statements for each Mortgaged
Property to be filed in the appropriate jurisdiction as is necessary, in
Lender's sole discretion, to perfect Lender's lien on such Mortgaged Property.
i. Real estate appraisals for each Mortgaged Property satisfactory in
form and substance to the Agent.
8. Priority of Liens. The Agent shall have received satisfactory
evidence that (a) the Agent, on behalf of the Lenders, holds a perfected, first
priority Lien on all Collateral (subject to clause (b)) and (b) none of the
Collateral is subject to any other Liens other than Permitted Liens.
9. Equipment Appraisals. The Agent shall have received and approved
appraisals of the Equipment prepared by each of the appraisers listed on
Schedule 1.1(G) to the Credit Agreement.
10. Opening Borrowing Base Certificate. Receipt by the Agent of a
Borrowing Base Certificate as of the Closing Date, substantially in the form of
Exhibit L, certified by the chief financial officer of the Company to be true
and correct as of the Closing Date and demonstrating availability of Loans
permitted to be borrowed under the Credit Agreement, after giving effect to the
Acquisition of the Pierre Foods Division and the Loans made on the Closing Date,
of at least $17,000,000.
11. Evidence of Insurance. Receipt by the Agent of copies of insurance
policies or certificates of insurance of the Borrowers evidencing liability and
casualty insurance meeting the requirements set forth in the Credit Documents,
including, but not limited to, naming the Agent as loss payee on behalf of the
Lenders and as additional insured.
12. Corporate Structure. The corporate capital and ownership structure
of the Company and its Subsidiaries shall be as described in Schedule 6.9.
13. Subordinated Debt. (a) the Company shall have issued the
Subordinated Debt and such which shall contain subordination provisions
satisfactory to the Agent, (b) the Agent shall have received a copy, certified
by an officer of the Company as true and complete, of the indenture governing
the Subordinated Debt as originally executed and delivered, and no amendment or
modification thereof shall have been entered into on or prior to the Closing
Date which shall not have been approved by each of the Lenders and (c) the
Borrowers shall have received gross cash proceeds from the issuance of the
Subordinated Debt in an aggregate principal amount of $100,000,000.
14. Consents. Receipt by the Agent of evidence that all governmental,
shareholder and third party consents and approvals, if any, required in
connection with the financings and other transactions contemplated by the Credit
Agreement and expiration of all applicable waiting periods without any action
being taken by any authority that could restrain, prevent or impose any material
adverse conditions on such transactions or that could seek or threaten any of
the foregoing, and no law or regulation shall be applicable which in the
judgment of the Agent could have such effect.
15. Litigation. There shall not exist any pending or threatened action,
suit, investigation or proceeding against a Borrower that could reasonably be
expected to have a Material Adverse Effect.
16. Other Indebtedness. Receipt by the Agent of evidence that, after
giving effect to the making of the Revolving Loans made on the Closing Date, the
Borrowers shall have no Funded Indebtedness other than the Indebtedness under
(a) the Credit Documents, and (b) the Subordinated Debt.
<PAGE> 29
17. Solvency Certificate. Receipt by the Agent of an officer's
certificate for each Borrower prepared by the chief financial officer of each
such Borrower as to the financial condition, solvency and related matters of
each such Borrower, in each case after giving effect to the initial borrowings
under the Credit Documents, in substantially the form of Exhibit C hereto.
18. Officer's Certificates. The Agent shall have received a certificate
or certificates executed by an Executive Officer of the Company as of the
Closing Date stating that (a) each Borrower is in compliance with all existing
financial obligations, (b) all governmental, shareholder and third party
consents and approvals, if any, with respect to the Credit Documents and the
transactions contemplated thereby have been obtained, (c) no action, suit,
investigation or proceeding is pending or threatened in any court or before any
arbitrator or governmental instrumentality that purports to affect any Borrower
or any transaction contemplated by the Credit Documents, if such action, suit,
investigation or proceeding could reasonably be expected to have a Material
Adverse Effect, (d) the transactions contemplated by the Separation Agreement
have been consummated in accordance with the terms thereof and (e) immediately
after giving effect to this Credit Agreement, the other Credit Documents and all
the transactions contemplated therein to occur on such date, (i) each of the
Borrowers is solvent, (ii) no Default or Event of Default exists, (iii) all
representations and warranties contained herein and in the other Credit
Documents are true and correct in all material respects, and (iv) the Borrowers
are in compliance with each of the financial covenants set forth in Section 8.
19. Fees and Expenses. Payment by the Borrowers of all fees and
expenses owed by them to the Lenders and the Agent, including, without
limitation, payment to the Agent of the fees set forth in the Fee Letter.
20. Sources and Uses; Payment Instructions. Receipt by the Agent of (a)
a statement of sources and uses of funds covering all payments reasonably
expected to be made by the Company in connection with the transactions
contemplated by the Credit Documents to be consummated on the Closing Date,
including an itemized estimate of all fees, expenses and other closing costs and
(b) payment instructions with respect to each wire transfer to be made by the
Agent on behalf of the Lenders or the Company or the Subsidiary Borrower on the
Closing Date setting forth the amount of such transfer, the purpose of such
transfer, the name and number of the account to which such transfer is to be
made, the name and ABA number of the bank or other financial institution where
such account is located and the name and telephone number of an individual that
can be contacted to confirm receipt of such transfer.
21. Purchase Agreement. There shall not have been any material
modification, amendment, supplement or waiver to the Purchase Agreement without
the prior written consent of the Agent, including, but not limited to, any
modification, amendment, supplement or waiver relating to the amount or type of
consideration to be paid in connection with the Acquisition of the Pierre Foods
Division and the contents of all disclosure schedules and exhibits, and the
Acquisition of the Pierre Foods Division shall have been consummated in
accordance with the terms of the Purchase Agreement (without waiver of any
conditions precedent to the obligations of the buyer thereunder). The Agent
shall have received the final Purchase Agreement, together with all exhibits and
schedules thereto, certified by an officer of the Company.
22. Year 2000 Compliance. Receipt by the Agent of the Company's plan to
assure that its computer-based systems will be able to operate and effectively
process data including dates on and after January 1, 2000.
<PAGE> 30
23. Regulatory Compliance. Receipt by the Agent of copies of the
Company's licenses from applicable federal, state and local regulatory agencies.
24. Other. Receipt by the Lenders of such other documents, instruments,
agreements or information as reasonably requested by any Lender, including, but
not limited to, information regarding litigation, tax, accounting, labor,
insurance, pension liabilities (actual or contingent), real estate leases,
material contracts, debt agreements, property ownership and contingent
liabilities of the Borrowers.
The documents referred to in this Schedule shall be delivered to the
Agent and the Lenders no later than the Closing Date. The certificates and
opinions referred to in this Schedule shall be dated the Closing Date and shall
be satisfactory in all material respects to the Agent and the Lenders.
<PAGE> 31
SCHEDULE 1.1C
LIENS
Lienor Collateral
- ------ ----------
Waldorf Corporation One (1) Adco Cavity Load Cartoner
Two (2) Waldorf Hot Melt Midget Sealers
One (1) Adco Top Loading Cartoner
Refco Investments Inc. Two (2) Waldorf Hoerner Cartoners
NationsBank, N.A. Bakery property (approximately 10.629 acres)
located at 3437 E. Main Street, Claremont,
NC 28610
The following are liens of record which may apply to Pierre Foods, LLC assets
and which will be released post-closing by Tyson Foods, Inc. or Hudson Foods,
Inc., as applicable:
Lienor Equipment
- ------ ---------
Shawmut Bank N.A. Automatic finished frozen patty stacker
BOT Financial Corporation Rheon sandwich line
Formax patty forming and shaping plates
IBM Corp. IBM equipment
In addition, all of the lessors with whom the Borrowers have capital leases have
filed security interests in the leased machinery and equipment. See Schedule
1.1D, Indebtedness.
<PAGE> 32
SCHEDULE 1.1D
INDEBTEDNESS
Principal Balance
Creditor as of June 9, 1998
- -------- ------------------
Industrial Revenue Bonds 2,352,132
Capital Lease Lessor
- --------------------
CITIF 92,881
Siemens Credit 45,420
Amplicon Financial 227,992
Hudson Foods 29,702
Textron Financial #1 219,086
Textron Financial #2 28,509
Capital Associates 439,456
The Borrowers also have two unsecured letters of credit. See Schedule 1.1H,
Unsecured Letters of Credit.
<PAGE> 33
SCHEDULE 1.1E
INVESTMENTS
Money Fund Account with J.C. Bradford & Company. Balance as of
May 31, 1998 was $213,874.
<PAGE> 34
SCHEDULE 1.1F
CORPORATE STRUCTURE
<PAGE> 35
FRESH FOODS, INC.
PLAN OF REORGANIZATION
1. Business Combinations.
(i) Sagebrush Group. Merge Tennessee shell corporations together
in sideways merger, with Kingsport Foods, Inc. ("Kingsport
Foods") as survivor; immediately thereafter, merge Sagebrush,
Inc., a North Carolina corporation ("Sagebrush") downstream
into Kingsport Foods, resulting in the structure set forth on
Exhibit A.
(ii) Second Tier Subsidiaries. Merge (i) Elloree Foods, Inc., a
South Carolina corporation ("Elloree") upstream into South
Carolina WSMP, Inc., a South Carolina corporation ("SC WSMP"),
and (ii) St. Augustine, Inc., a Florida corporation ("St.
Augustine") and Naples, Inc., a Florida corporation ("Naples")
upstream into Sunshine WSMP, Inc., a Florida corporation
("Sunshine"), resulting in the structure set forth on Exhibit
B.
(iii) Segregated Jurisdiction Mergers. Merge Greenville Food
Systems, Incorporated, a North Carolina corporation
("Greenville"), Matthews Prime Sirloin, Inc., a North Carolina
corporation ("Matthews") and SC WSMP sideways and D&S Food
Systems, LLC, a Georgia limited liability company ("D&S") and
Georgia Buffet Restaurants, Inc., a Georgia corporation
("Georgia Buffet") upstream into Georgia WSMP, a Georgia
corporation ("Georgia WSMP"), resulting in the structure set
forth on Exhibit C.
(iv) Acquisition LLC Merger. Merge Georgia WSMP, Prime Sirloin,
Inc., a Tennessee corporation ("Prime Sirloin"), Kingsport
Foods, Tennessee WSMP, Inc., a Tennessee corporation
("Tennessee WSMP"), Brunswick Associates, Inc., a Georgia
corporation ("Brunswick"), Seven Stars, Inc., a Maryland
corporation ("Seven Stars") and Virginia WSMP, Inc., a
Virginia corporation ("Virginia WSMP") sideways into Fresh
Foods Acquisition, LLC, a newly created Georgia limited
liability company ("Acquisition LLC"), resulting in the
structure set forth on Exhibit D.
(v) Acquisition LLC-Claremont Merger. Merge Acquisition LLC
sideways into Claremont Restaurant Group, LLC, a North
Carolina limited liability company ("Claremont"), resulting in
the structure set forth on Exhibit E.
2. Capital Contributions.
(i) Fresh Foods contributes 11 owned North Carolina restaurant
properties and leasehold interests in 14 other North Carolina
restaurants (the "Restaurant Assets") and other tangible
personal property associated therewith to Fresh Foods Sales,
LLC, a North Carolina limited liability company ("Sales");
(ii) Fresh Foods contributes the leasehold interest in its Virginia
restaurant and other tangible personal property associated
therewith to Claremont;
<PAGE> 36
(iii) Fresh Foods contributes: (1) smokehouse assets, including the
real property associated therewith (the "Smokehouse Assets"),
and (2) its other manufacturing operations into Pierre Foods,
LLC, a North Carolina limited liability company ("Pierre
Foods");
(iv) Fresh Foods contributes manufacturing and other intellectual
property to Fresh Foods Properties, LLC, a North Carolina
limited liability company ("Properties") and contributes
restaurant intellectual property to Claremont; Properties
licenses certain manufacturing intellectual property to Pierre
Foods and Claremont licenses certain restaurant intellectual
property to Sales; and
(v) Pierre Foods contributes the Smokehouse Assets, less the real
property, to Mom `n' Pop's Country Ham, LLC, a North Carolina
limited liability company ("Country Ham").
3. Organization of Pierre Leasing.
(i) Fresh Foods organizes Pierre Leasing, LLC, a North Carolina
limited liability company and direct wholly-owned subsidiary
of Fresh Foods ("Pierre Leasing");
(ii) Pierre Foods transfers a 2 1/2% undivided interest in the real
property and improvements acquired by Pierre Foods from Hudson
Foods, Inc. on June 9, 1998 (the "Pierre Assets") to Pierre
Leasing; and
(iii) Pierre Leasing leases its interest in the Pierre Assets back
to Pierre Foods.
4. Contribution of LP Interest.
(i) Fresh Foods contributes its leasehold interest in, and
personal property associated with, its Newport, Tennessee
restaurant to Sagebrush of Tennessee, LP, a Delaware limited
partnership (the "LP") in exchange for a 10% limited
partnership interest in the LP;
(ii) Fresh Foods contributes the limited partnership interest to
Claremont; and
(iii) Claremont contributes the limited partnership interest to
Chardent, resulting in the final structure set forth on
Exhibit F.
5. Notes Payable.
(i) Pierre Foods issues two notes payable in the amounts of $115
million and $30 million (with interest rates of 11 1/4% and 8
1/4%, respectively) to Fresh Foods (the "Notes") in exchange
for (i) the purchase money contributed by Fresh Foods for the
purchase of the Pierre Assets and (ii) the Smokehouse Assets
and other manufacturing operations; and
(ii) Fresh Foods assigns the Notes to Sales as a capital
contribution.
<PAGE> 37
EXHIBIT A
[Organizational Chart--Omitted]
<PAGE> 38
EXHIBIT B
[Organizational Chart--Omitted]
<PAGE> 39
EXHIBIT C
[Organizational Chart--Omitted]
<PAGE> 40
EXHIBIT D
[Organizational Chart--Omitted]
<PAGE> 41
EXHIBIT E
[Organizational Chart--Omitted]
<PAGE> 42
EXHIBIT F
[Organizational Chart--Omitted]
<PAGE> 43
SCHEDULE 1.1G
EQUIPMENT APPRAISALS
Machinery and equipment located at Cincinnati facility $6,413,025
Machinery and equipment located at Claremont facility 3,407,615
<PAGE> 44
SCHEDULE 1.1H
UNSECURED LETTERS OF CREDIT
1. People's Bank for $450,000
2. People's Bank for $700,000
3. First Union National Bank for $500,000
<PAGE> 45
SCHEDULE 6.1
JURISDICTIONS OF ORGANIZATION
<TABLE>
<CAPTION>
States where Qualified to do
State of Business as a Foreign
Entity Organization Corporation or LLC
- ------ ------------ ------------------
<S> <C> <C>
Fresh Foods, Inc. North Carolina None
Claremont Restaurant Group, LLC North Carolina Virginia
Georgia
Tennessee
Fresh Foods Properties, LLC North Carolina None
Fresh Foods Sales, LLC North Carolina None
Pierre Foods, LLC North Carolina Ohio
Pierre Leasing, LLC North Carolina Ohio
Mom `n' Pop's Country Ham, LLC North Carolina None
Sunshine WSMP, Inc. Florida North Carolina
Sagebrush of Tennessee, LP Delaware North Carolina
Tennessee
Sagebrush of North Carolina, LLC North Carolina None
Sagebrush of South Carolina, LLC South Carolina North Carolina
Chardent, Inc. Delaware North Carolina
Spicewood, Inc. Delaware North Carolina
</TABLE>
<PAGE> 46
SCHEDULE 6.7
COLLATERAL LOCATIONS
(i) The name and address of each warehouseman, filler, processor and
packer at which Pierre Foods, LLC stores Inventory is as follows:
Name Address
---- -------
Cincinnati Freezer 2881 E. Sharon Road
Cincinnati, OH 45241
Buckles Warehouse Ohio 11880 Enterprise Avenue
Cincinnati, OH 45241
Cicom/Cincinnati Commercial CS Unknown
Cloverleaf Cold Storage 3110 Homeward Way
Fairfield, OH 45018-0550
CS Integrated LLC 2750 Orbitor Drive
Brea, CA 92621
CS Integrated LLC 325 Blake Road North
Hopkins, MN 55343-8209
US Cold Storage Campbell 4302 South 30th Street
Omaha, NE 68107
CS Integrated LLC 8 Lee Boulevard
Malvern, PA 19355
Wash. Whslrs 999 Montague Expressway
Milpitas, CA 95035
Costco Whlsle Consignment Center 7635 Cent. Industrial
Drive, #18
Riviera Beach, FL 33404
US Cold Storage/Dallas Sams 3300 East Park Row
Arlington, TX 76010
United Refrig. (Westgate)/Sams 1740 A. Westgate Parkway
Atlanta, GA 30336
Henderson C.S./Sams Las Vegas 830 Horizon Drive
Henderson, NV 80-14
<PAGE> 47
Trenton Cold Storage Limited P.O. Box 100
Trenton Ontario CN K8V 5R1
K & N Distribution/Price Costco 601 S. W. 7th
Renton, WA 98055
Polar Cold Storage 3776 Taylorsville Highway
Statesville, NC 28625
United Refrigerated/Sams Indy 3320 S. Arlington Avenue
Indianapolis, IN 46203
Wiscold, Inc./Sams Rochelle 600 Wiscold Drive
Rochelle, IL 61068
Columbia Farms/Price Costco 16 Sutton Road
Webster, MA 01570
Burris Maryland/Price Costco Rte 313 N. Federalsburg Road
Federalsburg, MD 21632
Jay D.C.S./Oregon Commodity 8830 Southeast Herbert Court
Clackamas, OR 97015
Nordic C.S./Price Costco 647 Occidental Avenue South
Seattle, WA 98104
Mirlo/Washington Wholesales 11600 Riverside Dr. `B'
Mira Loma, CA 91752
C & S Wholesale Grocers/BJ's Old Ferry Road
Brattleboro, VT 05301
Commodity/Surplus District 12 Hills Avenue
Concorde, NH 03301-4899
United Refrig./Sams Leesport RD #2 Orchard Lane
Leesport, PA 19533
PFS Miami/Cost-U-Less 501 NE 183rd Street
Miami, FL 33269
Interstate Distribution 110 Distribution Drive
Hamilton, OH 45014
<PAGE> 48
PFS West Sacramento P.O. Box 1325
West Sacramento, CA 95691
Security Capital Industrial Trust 4770 Interstate Drive
Cincinnati, OH 45246
Catherine's Distribution Inc. 4825 Hovis Road
Charlotte, NC 28205
(ii) The chief executive offices of all Borrowers and Subsidiaries are
located at 3437 East Main Street, Claremont, North Carolina 28610.
(iii) The books and accounts of the Borrowers and each of their Subsidiaries
are kept at 3437 East Main Street, Claremont, North Carolina 28610.
Pierre Foods, LLC also maintains books and accounts at 9990 Princeton
Road, Cincinnati, OH 45246.
Also see Schedule 6.19, Real Estate for a listing of additional
jurisdictions in which the Borrowers and its Subsidiaries have assets, equipment
and inventory.
<PAGE> 49
SCHEDULE 6.8
FICTITIOUS BUSINESS NAMES
Mom `n' Pop's
Mom `n' Pop's Smokehouse
Mom `n' Pop's Buffet & Bakery
Mom `n' Pop's Country Biscuits
Mom `n' Pop's Retail Outlets
Mom `n' Pop's Country Collections
Mom `n' Pop's Racing
Mom `n' Pop's Ham House
Mom `n' Pop's Bakery
Mom `n' Pop's Bakery - WSMP, Inc.
Mom `n' Pop's Bakery #18
Mom `n' Pop's Country Ham
Western Steer Family Steakhouse
Western Steer Steaks, Buffet & Bakery
WSMP, Inc.
WSMP, Inc. #9
WSMP, Inc. #18
WSMP, Inc. - Manufacturing
WSMP/Mom `n' Pop's
WSMP - Smokehouse Division
WSMP, Inc. DBA - Mom `n' Pop's Smokehouse
Bennett's Smokehouse & Saloon
Bennett's Barbeque
Bennett's Pit Bar-B-Que
Bennett's
Bennett's Catering
Prime Sirloin Steak & Buffet
Prime Sirloin Steaks, Buffet & Bakery
Prime Sirloin
Prime Sirloin of (location)
Western Steer Mom `n' Pop's
Mom's Kitchen
WSMP Real Estate
Sagebrush
Sagebrush Steakhouse & Saloon
<PAGE> 50
Pierre Foods, LLC used the following names prior to its acquisition by
Fresh Foods, Inc:
Hudson Foods
Pierre Frozen Foods, a division of Hudson Foods
Hudson Specialty Foods
Pierre
Hudson
Pierre Foods
<PAGE> 51
SCHEDULE 6.9
SUBSIDIARIES
Claremont Restaurant Group, LLC
Fresh Foods Properties, LLC
Fresh Foods Sales, LLC
Pierre Foods, LLC
Pierre Leasing, LLC
Mom `n' Pop's Country Ham, LLC
Sunshine WSMP, Inc.
Sagebrush of Tennessee, LP
Sagebrush of North Carolina, LLC
Sagebrush of South Carolina, LLC
Chardent, Inc.
Spicewood, Inc.
<PAGE> 52
SCHEDULE 6.10
LITIGATION
None
<PAGE> 53
SCHEDULE 6.14
ERISA
Fresh Foods Employee Health Plan
WSMP Flexible Benefits Plan
Fresh Foods Employee Stock Purchase Plan
WSMP 401(k) Profit Sharing Plan
Pierre Foods 401(k) Profit Sharing Plan
Pierre Foods Life Insurance AD&D Plan
Pierre Foods Short-Term Disability Plan
Pierre Foods Long-Term Disability Plan
Pierre Foods Business Travel Insurance Plan
Hudson Foods Employee Health, Medical and Dental Plan
<PAGE> 54
SCHEDULE 6.15
ENVIRONMENTAL DISCLOSURES
1. Prior to 1996, the Claremont facility was subject to surcharges for its
level of BODs in discharges to a municipal sewer. The facility
installed sewage pretreatment equipment to prevent such discharges.
2. The Pierre facility, in accordance with its county-issued industrial
pretreatment permit, is currently paying a surcharge of approximately
$67,000 per year for its level of BODs in discharge of waste water to a
municipal sewer.
<PAGE> 55
SCHEDULE 6.17
INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
Registration Issue
Trademark Type No. Date
- --------- ---- --- ----
<S> <C> <C> <C>
Breakfast on the Go! federal 2,005,805 10/08/96
Cafe Pierre federal 1,876,055 01/24/95
Cafeteria Adventures federal 1,797,362 10/05/93
Commodity Magic federal 1,331,238 04/16/85
Dine `n With federal 1,912,699 08/15/95
Fast Choice federal 2,052,455 04/15/97
French Toast Boat federal 1,554,935 09/05/89
French Toast Boat & Design federal 1,626,155 12/04/90
Global Grill federal 2,112,383 11/11/97
GoldDiggers federal 1,121,101 06/26/79
Hot Diggity Subs federal 1,388,435 04/01/86
Hot Diggity Subs & Design federal 1,387,648 03/25/86
Lean Magic federal 1,677,773 03/03/92
Like Mom's & Design federal 1,517,327 12/20/88
Link-N-Dog federal 1,917,400 09/05/95
Micro-Wiches federal 1,505,035 09/20/88
Pierre & Design state (Ohio) TM7315 05/22/86
Pierre Classics federal 2,052,456 04/15/97
Pierre Main Street Diner federal 2,016,292 11/12/96
Pizza Parlor Sandwich federal 1,270,140 03/13/84
Pizza Parlor Sandwich federal 1,642,199 04/23/91
Pizza Parlor Sub federal 1,926,623 10/10/95
Quick-Wiches federal 1,784,320 07/27/93
Rib-B-Q federal 1,257,730 11/15/83
Rib-B-Q federal 1,270,954 03/20/84
Rib-B-Q federal 1,598,832 05/29/90
Rib-B-Q & Design federal 1,276,424 05/01/84
Rib-B-Q & Design federal 1,275,419 04/24/84
Rib-B-Q & Design foreign (Canada) 305,056 07/19/85
Rib-B-Q foreign (Canada) 305,055 07/19/85
Saus-A-Rage federal 1,928,706 10/17/95
Tastes of the World Logo (copyright) VA613-418 12/16/93
Two-Fers federal 1,505,013 09/20/88
Two-Fers federal 1,599,764 06/05/90
Villa Cinti federal 1,772,497 05/18/93
Wonderbites federal 1,781,595 07/13/98
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
Registration Issue
Trademark Type No. Date
- --------- ---- --- ----
<S> <C> <C> <C>
Mom `n' Pop's Buffet & Bakery and Design federal 1,802,454 11/02/93
Western Steer Steaks Buffet Bakery
and Design federal 1,773,290 05/25/93
Western Steer Family Restaurant
and Design federal 1,674,648 02/04/92
Western Steer and Design federal 1,626,425 12/04/90
Mom `n' Pop's Country Store and
Restaurant federal 1,460,268 10/06/87
Mom `n' Pop's Country Store and
Restaurant federal 1,460,250 10/06/87
All-American Food Bar federal 1,436,858 04/14/87
For an All-American Family Meal federal 1,428,857 02/10/87
Western Steer Family Steakhouse federal 1,403,394 07/29/86
Western Steer federal 1,391,171 04/22/86
Mom `n' Pop's and Design federal 1,346,951 07/02/85
Mom `n' Pop's and Design federal 1,346,950 07/02/85
Steer and Design federal 1,384,755 02/25/86
Design Only federal 1,333,815 04/30/85
Steerburger federal 1,343,067 06/18/85
Super Stuffed federal 1,364,706 10/08/85
Western Steer Family Steakhouse and
Design federal 1,322,741 02/26/85
Mom `n' Pop's and Design federal 1,341,238 06/11/85
Mom `n' Pop's and Design federal 1,335,749 05/14/85
Mom `n' Pop's federal 1,341,236 06/11/85
`Fluffy' and Design federal 1,272,996 04/03/84
Little Richard the Western Steer
WS and Design federal 1,179,634 11/24/81
Design Only federal 1,214,411 10/26/82
Waltzing Matilda federal 1,165,051 08/11/81
Mom's Kitchen federal 1,146,516 01/27/81
Mom `n' Pop's and Design federal 1,095,528 07/04/78
Mom `n' Pop's and Design federal 1,095,364 07/04/78
Mom `n' Pop's federal 1,065,988 05/17/77
Mom `n' Pop's federal 1,071,065 08/09/77
Western Steer Family Steakhouse federal 1,068,735 06/28/77
Fast Choice federal 2,152,895 04/12/98
Rib-B-Q and Design federal 2,132,710 01/27/98
Sagebrush Steakhouse & Saloon federal 1,743,755 12/29/92
Golddigger Beef Nugget federal 1,521,147 01/17/89
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
Application Serial
Pending Trademark Applications Type Date No.
- ------------------------------ ---- ---- ---
<S> <C> <C> <C>
H.E.L.P.S. Healthcare Entree
Low Prep Selections federal 11/19/97 75/392520
Pierre & Design foreign (Mexico)
Pierre foreign (Mexico)
Rib-B-Q & Design foreign (Japan) 34095/89
Rib-B-Q & Design foreign (Mexico)
Rib-B-Q foreign (Japan) 34094/89
Rib-B-Q foreign (Mexico)
Quick Classics federal 02/26/90 74-032,512
Savory Selections and Design federal 07/08/98
Fastbites federal 07/06/98
</TABLE>
Patents:
Exclusive, royalty-free, worldwide and perpetual patent license granted by
Hudson Foods, Inc. on June 9, 1998 in the invention entitled "Process for
Preparing Pureed Meat Products" set forth in an application for United States
Letters Patent, Serial No. 08/959,485 recorded in the U.S. Patent and Trademark
Office on October 10, 1997, and which was assigned to Hudson Foods, Inc. by
Assignment dated October 16, 1997 recorded in the U.S. Patent and Trademark
Office on October 28, 1997 at Reel/Frame: 8806/0691.
Copyrights:
<TABLE>
<CAPTION>
Registration Registration
Title Type No. Date
- ----- ---- --- ----
<S> <C> <C> <C>
Western Steer Steaks, Buffet,
Bakery: Operations Manual federal Txu618984 08/11/94
Cafeteria Adventures Tastes of
the World Logo federal VA613418 12/16/93
Tastes of the World Promotion
Program: Manager's Kit federal TX3738877 12/27/93
Cafeteria Adventures Radical
Chicken federal VA528350 10/08/92
Cafeteria Adventures Stars &
Stripes General federal VA528349 10/08/92
Cafeteria Adventures Hamburger Man federal VA528348 10/08/92
Cafeteria Adventures Stars & Stripes
Promotion Program federal TX3421700 10/08/92
Cafeteria Adventures Rock `n Roll
Promotion Program federal TX3421699 10/08/92
</TABLE>
<PAGE> 58
<TABLE>
<S> <C> <C> <C>
Cafeteria Adventures Radical
Promotion Program federal TX3421698 10/08/92
Barnyard Basics of Good
Nutrition Questions and Answers federal TX3390603 08/07/92
Barnyard Basics of Good
Nutrition Hunch-Out Toys federal VA524973 08/07/92
Today's Nutritious Lunch:
It's Barnyard Bonus Day! federal VA519990 08/07/92
Barnyard Scene Bulletin Board
Display: Barnyard Basics of
Good Nutrition federal VA519989 08/07/92
Barnyard Basics of Good
Nutrition: For Grades 1 & 2:
Educator's Guide federal TX3380555 08/07/92
Barnyard Basics of Good
Nutrition: For Grades 1 & 2:
Educator's Guide federal TX3291538 04/02/92
</TABLE>
<PAGE> 59
SCHEDULE 6.19
REAL ESTATE
Owned Properties:
<TABLE>
<CAPTION>
Property Address City State Zip
- -------- ------- ---- ----- ---
<S> <C> <C> <C> <C>
Claremont Restaurant Group, LLC
Sagebrush #537 5030 Valley View Blvd., NW Roanoke VA 24012
Closed restaurant 2911 Cypress Mill Road Brunswick GA
(leased to another party)
Closed restaurant 997 Sunset Blvd. Jessup GA
(leased to another party)
Closed restaurant 1336 Andrew Johnson Highway Morristown TN
(leased to another party)
Fresh Foods Sales, LLC
Bennett's #345 1819 Fairgrove Church Road Conover NC 28613
Prime Sirloin #376 3302 S. I-85 Service Road Charlotte NC 28208
Prime Sirloin #382 10450 E. Independence Blvd. Matthews NC 28105
Western Steer #22 1190 Lenoir Rhyne Blvd., SE Hickory NC 28602
Western Steer #51 3062 Hickory Blvd. Hudson NC 28638
Western Steer #111 316 Ehring House St. Elizabeth City NC 27909
Western Steer #292 101 Bost Road Morganton NC 28655
Western Steer #329 314 Blowing Rock Blvd. Lenoir NC 28645
Closed restaurant 2225 12th Avenue NE Hickory NC
(leased to another party)
Unimproved property (1.6 acres) Statesville NC
Unimproved property (2.4 acres) Highway 127 South Hickory NC
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pierre Foods, LLC
Claremont manufacturing facility 3437 E. Main Street Claremont NC 28610
Cincinnati manufacturing facility 9990 Princeton Road Cincinnati OH 45246
(Note: Pierre Leasing, LLC has a 2 1/2%
undivided interest in this property)
Sagebrush of North
Carolina, LLC
Sagebrush #527 566 Arbor Hill Road Kernersville NC 27284
Sagebrush #535 2000 Woodland Drive Mt. Airy NC 27030
Sagebrush #536 428 Jake Alexander Blvd. S. Salisbury NC 28144
Sagebrush #538 954 Blowing Rock Blvd., NE Lenoir NC 28645
Sagebrush #539 6170 South NC 16 Highway Denver NC 28037
Sagebrush #541 2100 Dalrymple Street Sanford NC 27330
Sagebrush #546 623 NC 24-27 By-Pass East Albemarle NC 28001
Sagebrush #547 1529 Freeway Drive Reidsville NC 27320
Sagebrush of South
Carolina, LLC
Sagebrush #532 482 By-Pass 72 NW Greenwood SC 29649
Sagebrush #540 190 Aiken Mall Drive Aiken SC 29803
Sagebrush of Tennessee, LP
Sagebrush #511 110 Cedar Lane Knoxville TN 37912
Sagebrush #531 2468 Alcoa Highway Alcoa TN 37701
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Sunshine WSMP, Inc.
Closed restaurant 1603 US-1 Ft. Pierce FL
(under contract to be sold in approx.
70 days)
Closed restaurant 2005 US-1 S St. Augustine FL
(leased to another party)
Unimproved Property (1.5 acres) Pensacola FL
</TABLE>
<PAGE> 62
Leased Properties:
<TABLE>
<CAPTION>
Property Address City State Zip
- -------- ------- ---- ----- ---
<S> <C> <C> <C> <C>
Fresh Foods Sales, LLC
Prime Sirloin #377 19601 Statesville Road Cornelius NC 28031
Prime Sirloin #379 3103 Taylorsville Road Statesville NC 28677
Western Steer #52 334 SW Blvd. Newton NC 28658
Western Steer #420 26 Radio Road Lexington NC 27292
Western Steer #425 1018 Rockford Street Mt. Airy NC 27030
Western Steer #426 1580 Yadkinville Road Mocksville NC 27028
Western Steer #427 825 E. Main Street Jefferson NC 28640
Western Steer #428 Corner 601 & 421 Yadkinville NC 27055
Western Steer #434 1675 Blowing Rock Road Boone NC 28607
Closed restaurant 504 Leming Drive Morganton NC
(subleased to another party)
Closed restaurant 536 Highway 64-70 Hickory NC
Closed restaurant 1600 N. Queen St. Kinston NC
(subleased to another party)
Closed restaurant 835 S. Main St. Kernersville NC
Closed restaurant Route 3 Tobbaccoville NC
Claremont Restaurant Group, LLC
Sagebrush #530 7815 Timberlake Road Lynchburg VA 24502
Sagebrush #533 204 Southgate Square Colonial Heights VA 23834
Shopping Center
Sagebrush #548 190 Nye Road Wytheville VA 24382
Sagebrush #____ (new) Bristol VA
Western Steer #431 955 Stuart Drive Galax VA 24333
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C> <C> <C>
Sagebrush of North Carolina, LLC
Sagebrush #507 1520 Highway 70, SE Hickory NC 28601
Sagebrush #509 117 Turnersberg Road Statesville NC 28677
Sagebrush #513 1420 Second Street, NE Hickory NC 28601
Sagebrush #514 1111 Highway 105 Boone NC 28607
Sagebrush #517 101 Steakhouse Road Morganton NC 28655
Sagebrush #518 2905 Reynolda Road Winston-Salem NC 27106
Sagebrush #519 2560 Lewisville-Clemmons Road Clemmons NC 27012
Sagebrush #520 895 Russ Avenue Waynesville NC 28786
Sagebrush #521 985 West Asheville Highway Brevard NC 28712
Sagebrush #523 2250 Hendersonville Road Arden NC 28704
Sagebrush #524 1302 Collegiate Drive Wilkesboro NC 28697
Sagebrush #525 608 C West Roosevelt Blvd. Monroe NC 28110
Sagebrush #544 800 South Main Street Graham NC 27253
Sagebrush #545 5920 University Parkway Stanleyville NC 27105
Sagebrush #549 630 Randolph Mall Asheboro NC 27203
Sagebrush #550 1432 N. Bridge Street Elkin NC 28621
(leased by Fresh Foods, Inc. and
assigned to Sagebrush of NC, LLC)
Sagebrush #551 1006 East Cumberland Street Dunn NC 28335
Sagebrush #553 1750 S. Stratford Road Winston-Salem NC 27103
(Western Steer #435 under conversion;
leased by Fresh Foods, Inc. and
assigned to Sagebrush of NC, LLC)
Sagebrush #554 112 N. Generals Blvd. Lincolnton NC 28093
(Western Steer #433 under conversion;
leased by Fresh Foods, Inc. and
assigned to Sagebrush of NC, LLC)
</TABLE>
<PAGE> 64
<TABLE>
<S> <C> <C> <C> <C>
Sagebrush of South
Carolina, LLC
Sagebrush #515 2445 Cherry Road Rock Hill SC 29730
Sagebrush #528 1541 West Floyd Baker Blvd. Gaffney SC 29341
Sagebrush #542 801 N. Lake Drive Lexington SC 29072
Sagebrush of
Tennessee, LP
Sagebrush #508 3909 Parkway Pigeon Forge TN 37863
Sagebrush #510 390 South Illinois Avenue Oak Ridge TN 37830
Sagebrush #516 1600 East Stone Drive Kingsport TN 37660
Sagebrush #522 815 Parkway Sevierville TN 37862
Sagebrush #526 217 Airport Road Gatlinburg TN 37738
Sagebrush #529 2614 North Roan Johnson City TN 37601
Sagebrush #534 2323 East Morris Blvd. Morristown TN 37814
Sagebrush #543 201 Heritage Blvd. Newport TN 37821
Fresh Foods, Inc.
Corporate Office 361 Second Street, N.W. Hickory NC
</TABLE>
<PAGE> 65
SCHEDULE 6.24
TAXES
(a) The Borrowers and Subsidiaries routinely file permitted requests for
extensions for their federal and state tax returns.
(b) The state of North Carolina is currently auditing Fresh Foods, Inc. in
connection with its state income tax returns for the 1992, 1993, 1994
and 1995 tax years. No material liability is expected to result from
such audits.
(c) In August, 1998, the Internal Revenue Service notified Fresh Foods,
Inc. that it will be conducting an audit of its federal income tax
returns for the 1996 fiscal year. No material liability is expected to
result from such audit.
(d) Pierre Foods, LLC has not yet filed its Indiana state withholding tax
return because it has not received the necessary information from its
payroll service. The return was due on July 31, 1998. No material
liability is expected to result from the late filing of this return.
<PAGE> 66
SCHEDULE 6.28
MATERIAL CONTRACTS
1. License Agreement between WSMP, Inc. and Hardee's Food Systems, Inc.
dated January 30, 1998, to be assigned to Pierre Foods, LLC on
September 5, 1998.
2. License Agreement between WSMP, Inc. and Checkers Drive-In Restaurants,
Inc. dated January 30, 1998, to be assigned to Pierre Foods, LLC on
September 5, 1998.
3. License Agreement between WSMP, Inc. and Rally' Hamburgers, Inc. dated
January 30, 1998, to be assigned to Pierre Foods, LLC on September 5,
1998.
4. License Agreement between WSMP, Inc. and GB Foods Corp. dated January
30, 1998, to be assigned to Pierre Foods, LLC on September 5, 1998.
5. Biscuit License Agreement between WSMP, Inc. and Hardee's Food Systems,
Inc. dated September 25, 1997, to be assigned to Pierre Foods, LLC on
September 5, 1998.
6. Custom Manufacturing Agreement between WSMP, Inc. and Geo. A. Hormel &
Company dated August 8, 1991, to be assigned to Pierre Foods, LLC on
September 5, 1998.
7. Product Purchase Agreement between Fresh Foods, Inc. and Institution
Food House, Inc. dated May 25, 1998, to be assigned to Claremont
Restaurant Group, LLC and Fresh Foods Sales, LLC on September 5, 1998.
8. Management Contract between WSMP, Inc. and HERTH Management, Inc. dated
June 23, 1995, extended by an Extension Agreement dated August 29,
1997.
9. Employment Agreement between WSMP, Inc. and David R. Clark dated June
30, 1996 and subsequently amended on February 23, 1998.
10. Employment Agreement between WSMP, Inc. and L. Dent Miller dated
January 29, 1998.
11. Consulting and Noncompetition Agreement between WSMP, Inc. and Charles
F. Connor, Jr. dated January 29, 1998.
12. Employment Agreement between WSMP, Inc. and Norbert E. Woodhams dated
February 1998.
13. Trademark License Agreement between Hudson Foods, Inc. and Nathan's
Famous dated October 14, 1997 and assigned to Pierre Foods, LLC by
Hudson Foods, Inc. on June 9, 1998.
14. Trademark Agreement between Hudson Foods, Inc. and Sysco Corporation
and assigned to Pierre Foods, LLC by Hudson Foods, Inc. on June 9,
1998.
15. Custom Manufacturing Agreement between Hudson Foods, Inc. and E.A.
Sween Company dated July 7, 1997 and assigned to Pierre Foods, LLC by
Hudson Foods, Inc. on June 9, 1998.
16. Custom Manufacturing Agreement between Hudson Foods, Inc. and Fairmont
Foods of Minnesota dated March 25, 1997 and assigned to Pierre Foods,
LLC by Hudson Foods, Inc. on June 9, 1998.
17. Custom Manufacturing Agreement between Hudson Foods, Inc. and Suzanna's
Kitchen, Inc. dated August 6, 1997 and assigned to Pierre Foods, LLC by
Hudson Foods, Inc. on June 9, 1998.
18. Master Processing Agreements for the period from July 1, 1998 through
June 30, 1999 with the following state agencies:
Arkansas Department of Human Services
Arizona Department of Education
California Department of Education
Colorado State Department of Human Services
Connecticut DAS Food Distribution Program
Florida Department of Agriculture
Georgia State Board of Education
Idaho Department of Education
Illinois State Board of Education
Iowa Department of Education
Indiana Department of Education
Kentucky Division of Food Distribution
Louisiana Department of Agriculture and Forestry
Maryland Department of Education
<PAGE> 67
Massachusetts Department of Education
Michigan Department of Education
Minnesota Department of Children, Families and Learning
Mississippi Department of Education
Missouri Department of Education
Nebraska Health and Human Services
New Hampshire Surplus Distribution Section
New Jersey Department of Agriculture
New Mexico Human Services Department
New York Office of General Services
Ohio Department of Education
North Carolina Department of Agriculture
Oklahoma Department of Human Services
Oregon Department of Education
Pennsylvania Department of Agriculture
Rhode Island Food Distribution Program
South Carolina Department of Agriculture
Tennessee Department of Agriculture
Texas Department of Human Services
Washington Superintendent of Public Instruction
West Virginia Department of Health and Human Services
Wyoming Department of Education
Wisconsin Department of Public Information
Virginia Department of Agriculture
Utah State Office of Education
<PAGE> 68
SCHEDULE 6.30
AFFILIATE TRANSACTIONS
None.
<PAGE> 69
SCHEDULE 6.31
KEY MEMBERS OF MANAGEMENT
The key members of management of the Borrowers and Subsidiaries are as follows:
Name Position(s) with the Company
- ---- ----------------------------
Richard F. Howard Chairman of the Board, Fresh Foods, Inc.
James C. Richardson, Jr. Vice Chairman of the Board and Chief
Executive Officer, Fresh Foods, Inc.
David R. Clark President and Chief Operating Officer, Fresh
Foods, Inc.
James E. Harris Executive Vice President, Chief Financial
Officer, Treasurer and Secretary, Fresh
Foods, Inc.
Norbert E. Woodhams President, Pierre Foods, LLC
L. Dent Miller President, Claremont Restaurant Group, LLC
Larry D. Hefner President, Mom `n' Pop's Country Ham, LLC
Noland M. Mewborn Vice President, Finance
Matthew V. Hollifield Vice President of Strategic Planning
<PAGE> 70
SCHEDULE 6.34
RESTAURANT BUSINESS
The Company's restaurant operations are located primarily in smaller
cities and suburban areas in the southeastern United States, a market niche
where the primary competitors are economy steakhouses. At May 1, 1998, the
Company owned and operated 38 Sagebrush steakhouse restaurants, which provide
family-oriented, full-service, casual dining in an atmosphere suggestive of a
Texas roadhouse. The Company also owned and operated 17 Western Steer and five
Prime Sirloin restaurants, which are more mature family steakhouses using the
"buffet and bakery" format, and one Bennett's barbecue-style restaurant.
Sagebrush restaurants are the only causal dining steakhouses in a majority of
the local markets in which they operate. The Company intends to convert all but
seven of its family steakhouse restaurants to the Sagebrush concept within two
years based on the historically attractive unit economics of the Sagebrush
format. A typical Sagebrush restaurant generates 44% more revenue and 99% more
EBITDA than a typical Western Steer restaurant. The Company has extensive
experience in converting restaurants to the Sagebrush format as 27 of the
Company's 38 Sagebrush restaurants were originally converted from other
restaurant concepts. Since Fresh Foods acquired Sagebrush, Inc. in January 1998,
the Company has converted three Western Steer restaurants to the Sagebrush
concept and has realized a significant increase in weekly sales volume at these
locations. Other than the restaurants currently being converted and three new
Sagebrush restaurants in development, the company has no plans to build other
Sagebrush restaurants.
<PAGE> 71
SCHEDULE 9.3
SALES OF ASSETS
None.
<PAGE> 72
SCHEDULE 9.10
BANK ACCOUNTS
Bank Accounts: Pierre Foods, LLC
Type of Account Bank Name Account Number
--------------- --------- --------------
Pierre Foods Depository Account Star Bank 48079-7117
Checking Business
Pierre Foods Payroll Account Star Bank 48079-7125
Checking Business
<PAGE> 73
SAGEBRUSH BANK ACCOUNTS
<TABLE>
<CAPTION>
Account Number
--------------
<S> <C> <C> <C> <C> <C>
Fresh Foods Inc First Union 2000001385887
Fresh Foods of NC LLC First Union 20000007554231
Claremont Restaurant Group First Union 2000000754228
Fresh Foods Inc First Union 2079920018729 A/P Clearing
Fresh Foods Inc First Union 2079920018716 Payroll Clearing
Home Office Peoples 53 4826889 Checking
Home Office Peoples 53 4819710 A/P Clearing
Home Office Peoples 53 4819066 Payroll Clearing
507 Hickory NC First Union 2076018577285
508 Pigeon Forge TN Bank First 04657330
509 Statesville NC B B & T 5119019860
510 Oak Ridge TN NationsBank 3000034509
511 Knoxville TN First Tennessee 0993662
513 Hickory(Viewmont) NC Bank of Granite 080 306 5
514 Boone NC Centura 665503112
515 Rock Hill SC Wachovia 3700 41659
516 Kingsport TN Citizens 200 1110 2
517 Morganton NC Bank of Granite 030 365 8
518 Winston-Salem (Reynolda) NC Wachovia 3965 001375
519 Clemmons NC First Citizens 8211005030
520 Waynesville NC First Union 2000000241443
521 Brevard NC First Union 2000000241511
522 Sevierville TN Bank First 04668103
523 Arden NC First Union 2000000241566
524 Wilkesboro NC First Union 2000000241579
525 Monroe NC B B & T 1161001182
526 Gatlinburg TN Bank First 4666585
527 Kernersville NC Centura 0402041227
528 Gaffney SC Wachovia 510000433
529 Johnson City TN First Tennessee 8850720
530 Lynchburg VA Central Fidelity 7911867553
531 Alcoa TN Bank First 10017655
532 Greenwood SC The County Bank 050 112 7985 01
533 Colonial Heights VA First Virginia Bank 3473 1717
534 Morristown TN First Tennessee 689289
535 Mt.Airy NC The Community Bank 200 768 0
536 Salisbury NC Wachovia 6896 003086
537 Roanoke VA First Virginia Bank 0357 0088
538 Lenoir NC Bank of Granite 065 169 9
539 Denver NC Peoples Bank 53 4836565
540 Aiken SC Carolina First 1040094698
541 Sanford NC Centura 5002514788
542 Lexington SC B B & T 5121808252
543 Newport TN First Union 2020000134404
544 Graham NC Wachovia 3967 001831
545 Stanleyville NC First Citizens 004851443671
548 Wytheville VA First Union
549 Asheboro NC Wachovia 0393 002615
</TABLE>
<PAGE> 74
WSMP, Inc.
Bank Confirmation Control
For the Year Ended Feb. 27, 1998
<TABLE>
<CAPTION>
===================================================================================================================================
Bank
Corporation Store Name Account
Name # & Address #
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WSMP, Inc. 1 HOME OFFICE NationsBank 511242489
P.O. Box 30120
104-11
Charlotte, NC 28255
WSMP, Inc. Sinking Fund 1 HOME OFFICE NationsBank 510086325
P.O. Box 30120
104-11
Charlotte, NC 28255
WSMP, Inc. 1 HOME OFFICE Rosie Erb 5800003289
NationsBank
ARP Dept C015-2
P O Box 31590
Tampa,FL 33631
WSMP, Inc. 1 HOME OFFICE Rosie Erb 5800003297
NationsBank
ARP Dept C015-2
P O Box 31590
Tampa,FL 33631
WSMP, Inc. Certificate Deposit 1 HOME OFFICE Bank of Granite 142580
Jo Wagoner
P.O. Box 189
Newton, NC 28658
WSMP, Inc. Payroll Acct. 1 HOME OFFICE Peoples Bank 534828745
P O Box 467
Newon, NC 28658
</TABLE>
<PAGE> 75
<TABLE>
<S> <C> <C> <C> <C>
WSMP, INC. 1 HOME OFFICE Rosie Erb 5800003262
NationsBank
ARP Dept C015-2
P O Box 31590
Tampa,FL 33631
WSMP, INC. 1 HOME OFFICE Rosie Erb 5800003270
NationsBank
ARP Dept C015-2
P O Box 31590
Tampa,FL 33631
WSMP, Inc. 1 HOME OFFICE Peoples Bank 558053356
P O Box 467
Newon, NC 28658
WSMP, Inc. 1 HOME OFFICE Peoples Bank 350180751
P O Box 467
Newon, NC 28658
WSMP, Inc. 1 HOME OFFICE Peoples Bank 534822052
P O Box 467
Newon, NC 28658
WSMP, Inc. Deposit Acct. 1 HOME OFFICE South Trust 60929918
P O Box 563975
Charlotte, NC 28256
WSMP, Inc. Investment Acct. 1 HOME OFFICE South Trust 60929929
P O Box 563975
Charlotte, NC 28256
WSMP, Inc. Disbursement Acct 1 HOME OFFICE South Trust 64007168
P O Box 2425
Ft. Myers, FL 33902
</TABLE>
<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C>
WSMP, Inc. CD 1 HOME OFFICE Lincoln Bank 8957
P O Box 657
Lincolnton, NC 28093
WSMP, Inc. CD 1 HOME OFFICE First Century 6001520
P O Box 879
Wytheville, VA 23482
WSMP, Inc. 1 HOME OFFICE J.C. Bradford & Co. 139-84421-1-9-792
(Western Steer Gift Cert. Acct.) P.O. Box 3857
Hickory, NC 28603
WSMP,Inc. Money Market 1 HOME OFFICE Peoples Bank 534800645
P O Box 467
Newon, NC 28658
WSMP, Inc. 1 FRANCHISE PAYROLL Carolina First 1010058546
P O Box 1029
Greenville, SC 29602
WSMP, Inc. 6 ACCOUNTING SERVICE Carolina First 1010055740
P O Box 1029
Greenville, SC 29602
WSMP, Inc. 6 ACCOUNTING SERVICE Carolina First 1010058554
P O Box 1029
Greenville, SC 29602
WSMP, Inc. 17-292- MOM'S KITCH-MORG First Union National Bank 2000000437079
329 W/S MORGANTON P.O. Box 279
W/S LENOIR Hickory, NC 28603
22 L R BLVD- HICKORY Peoples Bank 53-480076-9
P.O. Box 467
Newton, NC 28658
WSMP, Inc. 51 W/S HUDSON Bank of Granite 1606549
Jo Wagoner
P O Box 189
Newton, NC 28658
</TABLE>
<PAGE> 77
<TABLE>
<S> <C> <C> <C> <C>
WSMP, Inc. 51 W/S HUDSON Centura Bank 0430006525
P O Box 1220
Rocky Mount, NC 27802
WSMP, Inc. 52 W/S NEWTON Peoples Bank 53-480089-2
P.O. Box 467
Newton, NC 28658
WSMP, Inc. 111 W/S ELIZABETH CITY First Citizens Bank 595-18-02-953
P.O. Box 1588
Elizabeth City, NC 27906
WSMP, Inc. 111 W/S ELIZABETH CITY B B & T 5115548893
P O Box 819
Wilson, NC 27894-0819
WSMP, Inc. 291 W/S SPRINGS ROAD Peoples Bank 534800777
P.O. Box 467
Newton, NC 28658
WSMP, Inc. 329 W/S LENOIR Bank of Granite 160-653-0
Jo Wagoner
P.O. Box 189
Newton, NC 28658
WSMP, Inc. 331 WSMP SPORTS Peoples Bank 53-482159-1
AFFILIATION P.O. Box 467
Newton, NC 28658
WSMP, Inc. 345 BENNETT'S CONOVER Peoples Bank 53-481939-7
P.O. Box 467
Newton, NC 28658
</TABLE>
<PAGE> 78
<TABLE>
<S> <C> <C> <C> <C>
WSMP, Inc. 345 BENNETT'S CONOVER Peoples Bank 534826699
BEVERAGE ACCT. P.O. Box 467
Newton, NC 28658
WSMP, Inc. 376 PRIME- BILLY GRAHAM Lincoln Bank 0034185
P O Box 657
Lincolnton, NC 28093
WSMP, Inc. 377 PRIME-CORNELIUS Lincoln Bank 0034193
P O Box 657
Lincolnton, NC 28093
WSMP, Inc. 378 PRIME-ASHEBORO First National Bank & Trust 0180998
P O Box 1328
Asheboro , NC 27204
WSMP, Inc. 379 PRIME - STATESVILLE Peoples Bank 534822094
P.O. Box 467
Newton, NC 28658
WSMP, Inc 379 PRIME - STATESVLLE Centura Bank 097000-317-3
P O Box 6057
Rocky Mount, NC 27802-6057
WSMP, Inc. 420 W/S-LEXINGTON First Union National Bank 2000000581624
P.O. Box 279
Hickory, NC 28603
WSMP, Inc. 421 W/S-STANLEYVILLE First Citizen's Bank 4851435102
P O Box 27131
Raleigh, NC 27611-7131
WSMP, Inc. 422 W/S-KERNERSVILLE Centura Bank 0402064250
P O Box 1220
Rocky Mount, NC 27802
</TABLE>
<PAGE> 79
<TABLE>
<S> <C> <C> <C> <C>
WSMP, Inc. 423 W/S-GRAHAM Wachovia 1447035020
212 S. Main St.
Graham. NC 27253
WSMP, Inc. 424 W/S-ELKIN First Union National Bank 2000000261436
P.O. Box 279
Hickory, NC 28603
WSMP, Inc. 425 W/S-MT. AIRY First Union National Bank 2000000824763
P.O. Box 279
Hickory, NC 28603
WSMP, Inc. 426 W/S-MOCKSVILLE B B & T 5113863406
P O Box 1626
Wilson, NC 27893
WSMP, Inc. 427 W/S-JEFFERSON First Union National Bank 2000000796325
P.O. Box 279
Hickory, NC 28603
WSMP, Inc. 428 W/S-YADKINVILLE Central Carolina Bank 58-1038715
P O Box 427
Yadkinville, NC 27055
WSMP, Inc. 429 W/S-TOBACCOVILLE First Union National Bank 2000000382085
P.O. Box 279
Hickory, NC 28603
WSMP, Inc. 430 W/S-ELIZABETHTON Carter County Bank 62278
P O Box 1990
Elizabethton, TN 37644-1990
WSMP, Inc. 431 W/S-GALAX Mountain National Bank 090221130000
P O Box 165
Galax, VA 24333
</TABLE>
<PAGE> 80
<TABLE>
<S> <C> <C> <C> <C>
WSMP, Inc. 431 W/S-GALAX Bank of Carroll 160154701
P O Box 407
Galax, VA 24333
WSMP, Inc. 432 W/S-WYTHEVILLE First Century Bank 83000283
P O Box 879
Wytheville, VA 24382
WSMP, Inc. 433 W/S-LINCOLNTON Lincoln Bank 34363
P O Box 657
Lincolnton, NC 28093
WSMP, Inc. 434 W/S-BOONE First Union National Bank 2000000988159
P.O. Box 279
Hickory, NC 28603
WSMP, Inc. 435 W/S-WINSTON SALEM First Citizen's Bank 4851435209
P O Box 27131
Raleigh, NC 27611-7131
OPERATING ACCOUNTS - CONSOLIDATED SUBS.
South Carolina WSMP, Inc. 58 S. C. WSMP, INC.-HO Peoples Bank 534830444
P.O. Box 467
Newton, NC 28658
Sunshine WSMP, Inc. 95 SUNSHINE WSMP-H.O. Peoples Bank 534827085
P.O. Box 467
Newton, NC 28658
Georgia WSMP, Inc. 141 GEORGIA WSMP, INC Peoples Bank 534827028
HOME OFFICE P.O. Box 467
Newton, NC 28658
Elloree Foods, Inc. 208 LEXINGTON, SC Carolina First Bank 1040057770
P.O. Box 1029
Greenville, SC 29602
</TABLE>
<PAGE> 81
<TABLE>
<S> <C> <C> <C> <C>
Tennessee WSMP, Inc. 233 TENN. WSMP - H. O. Peoples Bank 534828869
P.O. Box 467
Newton, NC 28658
Tennessee WSMP, Inc. 244 NEWPORT, TN Union Planters Bank 0590001173
P O Box 1217
Morristown, TN 37816-1217
Naples Food, Inc. 267 NAPLES FOODS, INC. Peoples Bank 534826954
HOME OFFICE P.O. Box 467
Newton, NC 28658
Seven Stars, Inc. 272 WALDORF, MD NationsBank 2593006042
P O Box 27025
Richmond, VA 23261-7025
Prime Sirloin, Inc. 360 PRIME SIRLOIN, INC. Peoples Bank 558537908
P.O. Box 467
Newton, NC 28658
Matthews Prime Sirloin, Inc. 382 PRIME-MATTHEWS BB & T 5110423901
P.O. Box 1626
Wilson, NC 27893
St. Augustine Foods, Inc. 416 ST. AUGUSTINE, FL First Union National Bank 2090000394135
P O Box 279
Hickory, NC 28603
D & S Food Systems, L L C 417 JESUP, GA SunTrust Bank 9800273360
P O Box 129
Jesup, GA 31545-3509
Brunswick Associates, Inc. 465 BRUNSWICK ASSOC. First Union National Bank 2074380537421
P O Box 279
Hickory, NC 28603
</TABLE>
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C>
OPERATING ACCOUNTS - UNCONSOLIDATED SUBS.
Georgia Buffet Restaurants, Inc. 412 BUFORD, GA SouthTrust Bank 68-960-083
4325 Hwy 20
Buford, Ga. 30518
Georgia Buffet Restaurants, Inc. 413 CANTON, GA Security State Bank 105502
P.O. Box 351
Canton, GA 30114
</TABLE>
<PAGE> 83
SCHEDULE 1(b)
INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
Registration Issue
Trademark Type No. Date
- --------- ---- --- ----
<S> <C> <C> <C>
Breakfast on the Go! federal 2,005,805 10/08/96
Cafe Pierre federal 1,876,055 01/24/95
Cafeteria Adventures federal 1,797,362 10/05/93
Commodity Magic federal 1,331,238 04/16/85
Dine `n With federal 1,912,699 08/15/95
Fast Choice federal 2,052,455 04/15/97
French Toast Boat federal 1,554,935 09/05/89
French Toast Boat & Design federal 1,626,155 12/04/90
Global Grill federal 2,112,383 11/11/97
GoldDiggers federal 1,121,101 06/26/79
Hot Diggity Subs federal 1,388,435 04/01/86
Hot Diggity Subs & Design federal 1,387,648 03/25/86
Lean Magic federal 1,677,773 03/03/92
Like Mom's & Design federal 1,517,327 12/20/88
Link-N-Dog federal 1,917,400 09/05/95
Micro-Wiches federal 1,505,035 09/20/88
Pierre & Design state (Ohio) TM7315 05/22/86
Pierre Classics federal 2,052,456 04/15/97
Pierre Main Street Diner federal 2,016,292 11/12/96
Pizza Parlor Sandwich federal 1,270,140 03/13/84
Pizza Parlor Sandwich federal 1,642,199 04/23/91
Pizza Parlor Sub federal 1,926,623 10/10/95
Quick-Wiches federal 1,784,320 07/27/93
Rib-B-Q federal 1,257,730 11/15/83
Rib-B-Q federal 1,270,954 03/20/84
Rib-B-Q federal 1,598,832 05/29/90
Rib-B-Q & Design federal 1,276,424 05/01/84
Rib-B-Q & Design federal 1,275,419 04/24/84
Rib-B-Q & Design foreign (Canada) 305,056 07/19/85
Rib-B-Q foreign (Canada) 305,055 07/19/85
Saus-A-Rage federal 1,928,706 10/17/95
Tastes of the World Logo (copyright) VA613-418 12/16/93
Two-Fers federal 1,505,013 09/20/88
Two-Fers federal 1,599,764 06/05/90
Villa Cinti federal 1,772,497 05/18/93
Wonderbites federal 1,781,595 07/13/98
</TABLE>
1
<PAGE> 84
<TABLE>
<CAPTION>
Registration Issue
Trademark Type No. Date
- --------- ---- --- ----
<S> <C> <C> <C>
Mom `n' Pop's Buffet & Bakery and Design federal 1,802,454 11/02/93
Western Steer Steaks Buffet Bakery
and Design federal 1,773,290 05/25/93
Western Steer Family Restaurant
and Design federal 1,674,648 02/04/92
Western Steer and Design federal 1,626,425 12/04/90
Mom `n' Pop's Country Store and
Restaurant federal 1,460,268 10/06/87
Mom `n' Pop's Country Store and
Restaurant federal 1,460,250 10/06/87
All-American Food Bar federal 1,436,858 04/14/87
For an All-American Family Meal federal 1,428,857 02/10/87
Western Steer Family Steakhouse federal 1,403,394 07/29/86
Western Steer federal 1,391,171 04/22/86
Mom `n' Pop's and Design federal 1,346,951 07/02/85
Mom `n' Pop's and Design federal 1,346,950 07/02/85
Steer and Design federal 1,384,755 02/25/86
Design Only federal 1,333,815 04/30/85
Steerburger federal 1,343,067 06/18/85
Super Stuffed federal 1,364,706 10/08/85
Western Steer Family Steakhouse and
Design federal 1,322,741 02/26/85
Mom `n' Pop's and Design federal 1,341,238 06/11/85
Mom `n' Pop's and Design federal 1,335,749 05/14/85
Mom `n' Pop's federal 1,341,236 06/11/85
`Fluffy' and Design federal 1,272,996 04/03/84
Little Richard the Western Steer
WS and Design federal 1,179,634 11/24/81
Design Only federal 1,214,411 10/26/82
Waltzing Matilda federal 1,165,051 08/11/81
Mom's Kitchen federal 1,146,516 01/27/81
Mom `n' Pop's and Design federal 1,095,528 07/04/78
Mom `n' Pop's and Design federal 1,095,364 07/04/78
Mom `n' Pop's federal 1,065,988 05/17/77
Mom `n' Pop's federal 1,071,065 08/09/77
Western Steer Family Steakhouse federal 1,068,735 06/28/77
Fast Choice federal 2,152,895 04/12/98
Rib-B-Q and Design federal 2,132,710 01/27/98
Sagebrush Steakhouse & Saloon federal 1,743,755 12/29/92
Golddigger Beef Nugget federal 1,521,147 01/17/89
</TABLE>
2
<PAGE> 85
<TABLE>
<CAPTION>
Application Serial
Pending Trademark Applications Type Date No.
- ------------------------------ ---- ---- ---
<S> <C> <C> <C>
H.E.L.P.S. Healthcare Entree
Low Prep Selections federal 11/19/97 75/392520
Pierre & Design foreign (Mexico)
Pierre foreign (Mexico)
Rib-B-Q & Design foreign (Japan) 34095/89
Rib-B-Q & Design foreign (Mexico)
Rib-B-Q foreign (Japan) 34094/89
Rib-B-Q foreign (Mexico)
Quick Classics federal 02/26/90 74-032,512
Savory Selections and Design federal 07/08/98
Fastbites federal 07/06/98
</TABLE>
Patents:
Exclusive, royalty-free, worldwide and perpetual patent license granted by
Hudson Foods, Inc. on June 9, 1998 in the invention entitled "Process for
Preparing Pureed Meat Products" set forth in an application for United States
Letters Patent, Serial No. 08/959,485 recorded in the U.S. Patent and Trademark
Office on October 10, 1997, and which was assigned to Hudson Foods, Inc. by
Assignment dated October 16, 1997 recorded in the U.S. Patent and Trademark
Office on October 28, 1997 at Reel/Frame: 8806/0691.
Copyrights:
<TABLE>
<CAPTION>
Registration Registration
Title Type No. Date
- ----- ---- --- ----
<S> <C> <C> <C>
Western Steer Steaks, Buffet,
Bakery: Operations Manual federal Txu618984 08/11/94
Cafeteria Adventures Tastes of
the World Logo federal VA613418 12/16/93
Tastes of the World Promotion
Program: Manager's Kit federal TX3738877 12/27/93
Cafeteria Adventures Radical
Chicken federal VA528350 10/08/92
Cafeteria Adventures Stars &
Stripes General federal VA528349 10/08/92
Cafeteria Adventures Hamburger Man federal VA528348 10/08/92
Cafeteria Adventures Stars & Stripes
Promotion Program federal TX3421700 10/08/92
Cafeteria Adventures Rock `n Roll
Promotion Program federal TX3421699 10/08/92
</TABLE>
3
<PAGE> 86
<TABLE>
<S> <C> <C> <C>
Cafeteria Adventures Radical
Promotion Program federal TX3421698 10/08/92
Barnyard Basics of Good
Nutrition Questions and Answers federal TX3390603 08/07/92
Barnyard Basics of Good
Nutrition Hunch-Out Toys federal VA524973 08/07/92
Today's Nutritious Lunch:
It's Barnyard Bonus Day! federal VA519990 08/07/92
Barnyard Scene Bulletin Board
Display: Barnyard Basics of
Good Nutrition federal VA519989 08/07/92
Barnyard Basics of Good
Nutrition: For Grades 1 & 2:
Educator's Guide federal TX3380555 08/07/92
Barnyard Basics of Good
Nutrition: For Grades 1 & 2:
Educator's Guide federal TX3291538 04/02/92
</TABLE>
4
<PAGE> 87
SCHEDULE 3(a)
CHIEF EXECUTIVE OFFICES
The chief executive office and chief place of business of all Obligors is
located 3437 East Main Street, Claremont, North Carolina 28610. Pierre Foods,
LLC also maintains books and records at 9990 Princeton Road, Cincinnati, OH
45246.
5
<PAGE> 88
SCHEDULE 3(b)
LOCATIONS OF COLLATERAL
The name and address of each warehouseman, filler, processor and packer at which
Pierre Foods, LLC stores Inventory is as follows:
Name Address
---- -------
Cincinnati Freezer 2881 E. Sharon Road
Cincinnati, OH 45241
Buckles Warehouse Ohio 11880 Enterprise Avenue
Cincinnati, OH 45241
Cicom/Cincinnati Commercial CS Unknown
Cloverleaf Cold Storage 3110 Homeward Way
Fairfield, OH 45018-0550
CS Integrated LLC 2750 Orbitor Drive
Brea, CA 92621
CS Integrated LLC 325 Blake Road North
Hopkins, MN 55343-8209
US Cold Storage Campbell 4302 South 30th Street
Omaha, NE 68107
CS Integrated LLC 8 Lee Boulevard
Malvern, PA 19355
Wash. Whslrs 999 Montague Expressway
Milpitas, CA 95035
Costco Whlsle Consignment Center 7635 Cent. Industrial Drive, #18
Riviera Beach, FL 33404
US Cold Storage/Dallas Sams 3300 East Park Row
Arlington, TX 76010
United Refrig. (Westgate)/Sams 1740 A. Westgate Parkway
Atlanta, GA 30336
Henderson C.S./Sams Las Vegas 830 Horizon Drive
Henderson, NV 80-14
6
<PAGE> 89
Trenton Cold Storage Limited P.O. Box 100
Trenton Ontario CN K8V 5R1
K & N Distribution/Price Costco 601 S. W. 7th
Renton, WA 98055
Polar Cold Storage 3776 Taylorsville Highway
Statesville, NC 28625
United Refrigerated/Sams Indy 3320 S. Arlington Avenue
Indianapolis, IN 46203
Wiscold, Inc./Sams Rochelle 600 Wiscold Drive
Rochelle, IL 61068
Columbia Farms/Price Costco 16 Sutton Road
Webster, MA 01570
Burris Maryland/Price Costco Rte 313 N. Federalsburg Road
Federalsburg, MD 21632
Jay D.C.S./Oregon Commodity 8830 Southeast Herbert Court
Clackamas, OR 97015
Nordic C.S./Price Costco 647 Occidental Avenue South
Seattle, WA 98104
Mirlo/Washington Wholesales 11600 Riverside Dr. `B'
Mira Loma, CA 91752
C & S Wholesale Grocers/BJ's Old Ferry Road
Brattleboro, VT 05301
Commodity/Surplus District 12 Hills Avenue
Concorde, NH 03301-4899
United Refrig./Sams Leesport RD #2 Orchard Lane
Leesport, PA 19533
PFS Miami/Cost-U-Less 501 NE 183rd Street
Miami, FL 33269
Interstate Distribution 110 Distribution Drive
Hamilton, OH 45014
7
<PAGE> 90
PFS West Sacramento P.O. Box 1325
West Sacramento, CA 95691
Security Capital Industrial Trust 4770 Interstate Drive
Cincinnati, OH 45246
Catherine's Distribution Inc. 4825 Hovis Road
Charlotte, NC 28205
8
<PAGE> 91
Owned Properties:
<TABLE>
<CAPTION>
Property Address City State Zip
- -------- ------- ---- ----- ---
<S> <C> <C> <C> <C>
Claremont Restaurant Group, LLC
Sagebrush #537 5030 Valley View Blvd., NW Roanoke VA 24012
Closed restaurant 2911 Cypress Mill Road Brunswick GA
(leased to another party)
Closed restaurant 997 Sunset Blvd. Jessup GA
(leased to another party)
Closed restaurant 1336 Andrew Johnson Highway Morristown TN
(leased to another party)
Fresh Foods Sales, LLC
Bennett's #345 1819 Fairgrove Church Road Conover NC 28613
Prime Sirloin #376 3302 S. I-85 Service Road Charlotte NC 28208
Prime Sirloin #382 10450 E. Independence Blvd. Matthews NC 28105
Western Steer #22 1190 Lenoir Rhyne Blvd., SE Hickory NC 28602
Western Steer #51 3062 Hickory Blvd. Hudson NC 28638
Western Steer #111 316 Ehring House St. Elizabeth City NC 27909
Western Steer #292 101 Bost Road Morganton NC 28655
Western Steer #329 314 Blowing Rock Blvd. Lenoir NC 28645
Closed restaurant 2225 12th Avenue NE Hickory NC
(leased to another party)
Unimproved property (1.6 acres) Statesville NC
Unimproved property (2.4 acres) Highway 127 South Hickory NC
</TABLE>
9
<PAGE> 92
<TABLE>
<S> <C> <C> <C> <C>
Pierre Foods, LLC
Claremont manufacturing facility 3437 E. Main Street Claremont NC 28610
Cincinnati manufacturing facility 9990 Princeton Road Cincinnati OH 45246
(Note: Pierre Leasing, LLC has a 2 1/2%
undivided interest in this property)
Sagebrush of North
Carolina, LLC
Sagebrush #527 566 Arbor Hill Road Kernersville NC 27284
Sagebrush #535 2000 Woodland Drive Mt. Airy NC 27030
Sagebrush #536 428 Jake Alexander Blvd. S. Salisbury NC 28144
Sagebrush #538 954 Blowing Rock Blvd., NE Lenoir NC 28645
Sagebrush #539 6170 South NC 16 Highway Denver NC 28037
Sagebrush #541 2100 Dalrymple Street Sanford NC 27330
Sagebrush #546 623 NC 24-27 By-Pass East Albemarle NC 28001
Sagebrush #547 1529 Freeway Drive Reidsville NC 27320
Sagebrush of South
Carolina, LLC
Sagebrush #532 482 By-Pass 72 NW Greenwood SC 29649
Sagebrush #540 190 Aiken Mall Drive Aiken SC 29803
Sagebrush of Tennessee, LP
Sagebrush #511 110 Cedar Lane Knoxville TN 37912
Sagebrush #531 2468 Alcoa Highway Alcoa TN 37701
</TABLE>
10
<PAGE> 93
<TABLE>
<S> <C> <C> <C> <C>
Sunshine WSMP, Inc.
Closed restaurant 1603 US-1 Ft. Pierce FL
(under contract to be sold in approx.
70 days)
Closed restaurant 2005 US-1 S St. Augustine FL
(leased to another party)
Unimproved Property (1.5 acres) Pensacola FL
</TABLE>
11
<PAGE> 94
Leased Properties:
<TABLE>
<CAPTION>
Property Address City State Zip
- -------- ------- ---- ----- ---
<S> <C> <C> <C> <C>
Fresh Foods Sales, LLC
Prime Sirloin #377 19601 Statesville Road Cornelius NC 28031
Prime Sirloin #379 3103 Taylorsville Road Statesville NC 28677
Western Steer #52 334 SW Blvd. Newton NC 28658
Western Steer #420 26 Radio Road Lexington NC 27292
Western Steer #425 1018 Rockford Street Mt. Airy NC 27030
Western Steer #426 1580 Yadkinville Road Mocksville NC 27028
Western Steer #427 825 E. Main Street Jefferson NC 28640
Western Steer #428 Corner 601 & 421 Yadkinville NC 27055
Western Steer #434 1675 Blowing Rock Road Boone NC 28607
Closed restaurant 504 Leming Drive Morganton NC
(subleased to another party)
Closed restaurant 536 Highway 64-70 Hickory NC
Closed restaurant 1600 N. Queen St. Kinston NC
(subleased to another party)
Closed restaurant 835 S. Main St. Kernersville NC
Closed restaurant Route 3 Tobbaccoville NC
Claremont Restaurant
Group, LLC
Sagebrush #530 7815 Timberlake Road Lynchburg VA 24502
Sagebrush #533 204 Southgate Square Colonial Heights VA 23834
Shopping Center
Sagebrush #548 190 Nye Road Wytheville VA 24382
Sagebrush #____ (new) Bristol VA
Western Steer #431 955 Stuart Drive Galax VA 24333
</TABLE>
12
<PAGE> 95
<TABLE>
<S> <C> <C> <C> <C>
Sagebrush of North
Carolina, LLC
Sagebrush #507 1520 Highway 70, SE Hickory NC 28601
Sagebrush #509 117 Turnersberg Road Statesville NC 28677
Sagebrush #513 1420 Second Street, NE Hickory NC 28601
Sagebrush #514 1111 Highway 105 Boone NC 28607
Sagebrush #517 101 Steakhouse Road Morganton NC 28655
Sagebrush #518 2905 Reynolda Road Winston-Salem NC 27106
Sagebrush #519 2560 Lewisville-Clemmons Road Clemmons NC 27012
Sagebrush #520 895 Russ Avenue Waynesville NC 28786
Sagebrush #521 985 West Asheville Highway Brevard NC 28712
Sagebrush #523 2250 Hendersonville Road Arden NC 28704
Sagebrush #524 1302 Collegiate Drive Wilkesboro NC 28697
Sagebrush #525 608 C West Roosevelt Blvd. Monroe NC 28110
Sagebrush #544 800 South Main Street Graham NC 27253
Sagebrush #545 5920 University Parkway Stanleyville NC 27105
Sagebrush #549 630 Randolph Mall Asheboro NC 27203
Sagebrush #550 1432 N. Bridge Street Elkin NC 28621
(leased by Fresh Foods, Inc. and
assigned to Sagebrush of NC, LLC)
Sagebrush #551 1006 East Cumberland Street Dunn NC 28335
Sagebrush #553 1750 S. Stratford Road Winston-Salem NC 27103
(Western Steer #435 under conversion;
leased by Fresh Foods, Inc. and
assigned to Sagebrush of NC, LLC)
Sagebrush #554 112 N. Generals Blvd. Lincolnton NC 28093
(Western Steer #433 under conversion;
leased by Fresh Foods, Inc. and
assigned to Sagebrush of NC, LLC)
</TABLE>
13
<PAGE> 96
<TABLE>
<S> <C> <C> <C> <C>
Sagebrush of South
Carolina, LLC
Sagebrush #515 2445 Cherry Road Rock Hill SC 29730
Sagebrush #528 1541 West Floyd Baker Blvd. Gaffney SC 29341
Sagebrush #542 801 N. Lake Drive Lexington SC 29072
Sagebrush of
Tennessee, LP
Sagebrush #508 3909 Parkway Pigeon Forge TN 37863
Sagebrush #510 390 South Illinois Avenue Oak Ridge TN 37830
Sagebrush #516 1600 East Stone Drive Kingsport TN 37660
Sagebrush #522 815 Parkway Sevierville TN 37862
Sagebrush #526 217 Airport Road Gatlinburg TN 37738
Sagebrush #529 2614 North Roan Johnson City TN 37601
Sagebrush #534 2323 East Morris Blvd. Morristown TN 37814
Sagebrush #543 201 Heritage Blvd. Newport TN 37821
Fresh Foods, Inc.
Corporate Office 361 Second Street, N.W. Hickory NC
</TABLE>
14
<PAGE> 97
SCHEDULE 3(c)
OWNERSHIP
During the last four months, the following Obligors changed their names:
WSMP, Inc. changed its name to Fresh Foods, Inc.
Fresh Foods of North Carolina, LLC changed its name to Pierre Foods,
LLC
On September 5, 1998, Fresh Foods, Inc. and its subsidiaries consummated a
corporate reorganization. In connection with the reorganization, the Obligors
undertook the following mergers:
Knoxville Foods, Inc., Oak Ridge Foods, Inc., Sagebrush DTN, Inc.,
Sagebrush of Sevierville, Inc., and Tumbleweed of Pigeon Forge, Inc.
merged into Kingsport Foods, Inc.;
Sagebrush, Inc. merged into Kingsport Foods, Inc.;
Elloree Foods, Inc. merged into South Carolina WSMP, Inc.;
Naples Foods, Inc. and St. Augustine Foods, Inc. merged into Sunshine
WSMP, Inc.;
Greenville Food Systems, Incorporated, Matthews Prime Sirloin, Inc. and
South Carolina WSMP, Inc. merged into Georgia WSMP, Inc.;
D&S Food Systems, LLC merged into Georgia WSMP, Inc.;
Georgia Buffet Restaurants, Inc. merged into Georgia WSMP, Inc.;
Prime Sirloin, Inc., Kingsport Foods, Inc. and Tennessee WSMP, Inc.
merged into Fresh Foods Acquisition, LLC;
Seven Stars, Inc. merged into Fresh Foods Acquisition, LLC;
Virginia WSMP, Inc. merged into Fresh Foods Acquisition, LLC;
Georgia WSMP, Inc. and Brunswick Associates, Inc. merged into Fresh
Foods Acquisition, LLC; and
Fresh Foods Acquisition, LLC merged into Claremont Restaurant Group,
LLC.
15
<PAGE> 98
The Obligors have used the following trade names:
Mom `n' Pop's
Mom `n' Pop's Smokehouse
Mom `n' Pop's Buffet & Bakery
Mom `n' Pop's Country Biscuits
Mom `n' Pop's Retail Outlets
Mom `n' Pop's Country Collections
Mom `n' Pop's Racing
Mom `n' Pop's Ham House
Mom `n' Pop's Bakery
Mom `n' Pop's Bakery - WSMP, Inc.
Mom `n' Pop's Bakery #18
Mom `n' Pop's Country Ham
Western Steer Family Steakhouse
Western Steer Steaks, Buffet & Bakery
WSMP, Inc.
WSMP, Inc. #9
WSMP, Inc. #18
WSMP, Inc. - Manufacturing
WSMP/Mom `n' Pop's
WSMP - Smokehouse Division
WSMP, Inc. DBA - Mom `n' Pop's Smokehouse
Bennett's Smokehouse & Saloon
Bennett's Barbeque
Bennett's Pit Bar-B-Que
Bennett's
Bennett's Catering
Prime Sirloin Steak & Buffet
Prime Sirloin Steaks, Buffet & Bakery
Prime Sirloin
Prime Sirloin of (location)
Western Steer Mom `n' Pop's
Mom's Kitchen
WSMP Real Estate
Sagebrush
Sagebrush Steakhouse & Saloon
Pierre Foods, LLC used the following names prior to its acquisition by Fresh
Foods, Inc:
Hudson Foods
Pierre Frozen Foods, a division of Hudson Foods
Hudson Specialty Foods
Pierre
Hudson
Pierre Foods
16
<PAGE> 99
SCHEDULE 4(f)(i)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS
United States Copyright Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
June 9, 1998 (as the same may be amended, modified, extended or restated from
time to time, the "Security Agreement") by and among the Obligors party thereto
(each an "Obligor" and collectively, the "Obligors") and First Union Commercial
Corporation, as Agent (the "Agent") for the financial institutions referenced
therein (the "Lenders"), the undersigned Obligor has granted a continuing
security interest in and continuing lien upon, the copyrights and copyright
applications shown below to the Agent for the ratable benefit of the Lenders:
<TABLE>
COPYRIGHTS
-----------------------------
<S> <C> <C>
Date of
Copyright No. Description of Copyright Copyright
------------- ------------------------ ---------
Copyright Applications
-----------------------------
Copyright Description of Copyright Date of Copyright
Applications No. Applied For Applications
---------------- ----------- ------------
</TABLE>
1
<PAGE> 100
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing copyrights and
copyright applications (i) may only be terminated in accordance with the terms
of the Security Agreement and (ii) is not to be construed as an assignment of
any copyright or copyright application.
Very truly yours,
----------------------------------------
[Obligor]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Acknowledged and Accepted:
FIRST UNION COMMERCIAL CORPORATION,
as Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
2
<PAGE> 101
SCHEDULE 4(f)(ii)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
June 9, 1998 (the "Security Agreement") by and among the Obligors party thereto
(each an "Obligor" and collectively, the "Obligors") and First Union Commercial
Corporation, as Agent (the "Agent") for the financial institutions referenced
therein (the "Lenders"), the undersigned Obligor has granted a continuing
security interest in and continuing lien upon, the patents and patent
applications shown below to the Agent for the ratable benefit of the Lenders:
<TABLE>
<CAPTION>
PATENTS
----------------------------
<S> <C> <C>
Description of Patent Date of
Patent No. Item Patent
---------- ---- ------
Patent Applications
----------------------------
Patent Description of Patent Date of Patent
Applications No. Applied For Applications
- ---------------- ----------- ------------
</TABLE>
<PAGE> 102
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing patents and
patent applications (i) may only be terminated in accordance with the terms of
the Security Agreement and (ii) is not to be construed as an assignment of any
patent or patent application.
Very truly yours,
----------------------------------
[Obligor]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Acknowledged and Accepted:
FIRST UNION COMMERCIAL CORPORATION,
as Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
2
<PAGE> 103
SCHEDULE 4(f)(iii)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
June 9, 1998 (the "Security Agreement") by and among the Obligors party thereto
(each an "Obligor" and collectively, the "Obligors") and First Union Commercial
Corporation, as Agent (the "Agent") for the financial institutions referenced
therein (the "Lenders"), the undersigned Obligor has granted a continuing
security interest in and continuing lien upon, the trademarks and trademark
applications shown below to the Agent for the ratable benefit of the Lenders:
<TABLE>
<CAPTION>
TRADEMARKS
--------------------------
<S> <C> <C>
Description of Trademark Date of
Trademark No. Item Trademark
------------- ---- ---------
Trademark Applications
---------------------------
Trademark Description of Trademark Date of Trademark
Applications No. Applied For Applications
---------------- ----------- ------------
</TABLE>
1
<PAGE> 104
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing trademarks and
trademark applications (i) may only be terminated in accordance with the terms
of the Security Agreement and (ii) is not to be construed as an assignment of
any trademark or trademark application.
Very truly yours,
-------------------------------------
[Obligor]
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Acknowledged and Accepted:
FIRST UNION COMMERCIAL CORPORATION,
as Agent
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
2
<PAGE> 105
SCHEDULE 1
To Pledge Agreement
Dated as of June 9, 1998
in favor of First Union Commercial Corporation
as Agent
PLEDGED STOCK
Pledgor: FRESH FOODS, INC.
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ ------ ------ ---------
Sunshine WSMP, Inc. 1,000 2 100%
Pledgor: CLAREMONT RESTAURANT GROUP, LLC
Number of Certificate Percentage
Name of Subsidiary Shares Number Ownership
- ------------------ ------ ------ ---------
Chardent, Inc. 100 5 100%
Spicewood, Inc. 198.99 11 100%
<PAGE> 106
EXHIBIT D-1
MERGED PROPERTIES
5030 Valley View Blvd., NW Roanoke, VA 24012
954 Blowing Rock Blvd., NE Lenoir, NC 28645
10450 E. Independence Blvd. Matthews, NC 28105
2911 Cypress Mill Road Brunswick, GA
1336 Andrew Johnson Highway Morristown, TN
5
<PAGE> 107
EXHIBIT D-2
TRANSFERRED PROPERTIES
1819 Fairgrove Church Road Conover NC 28613
3302 S. I-85 Service Road Charlotte NC 28208
1190 Lenoir Rhyne Blvd., SE Hickory NC 28602
3062 Hickory Blvd. Hudson NC 28638
316 Ehring House St. Elizabeth City NC 27909
101 Bost Road Morganton NC 28655
314 Blowing Rock Blvd. Lenoir NC 28645
3437 E. Main Street Claremont NC 28610
9990 Princeton Road Cincinnati OH 45246
6
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FRESH FOODS, INC.
Chardent, Inc. (DE)
Claremont Restaurant Group, LLC (NC)
Fresh Foods Properties, LLC ( NC)
Fresh Foods Sales, LLC (NC)
Mom `n' Pop's Country Ham, LLC (NC)
Pierre Foods, LLC (NC)
Pierre Leasing, LLC (NC)
Sagebrush of North Carolina, LLC (NC)
Sagebrush of South Carolina, LLC (SC)
Sagebrush of Tennessee, LP (DE)
Spicewood, Inc. (DE)
Sunshine WSMP, Inc. (FL)
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Form S-4
Registration Statement No. 333-58711 of Fresh Foods, Inc. of our report dated
May 7, 1998 (September 5, 1998 as to Note 22) related to the financial
statements of Fresh Foods, Inc. and our report dated May 1, 1998 related to the
financial statements of Pierre Foods Division of Hudson Foods, Inc., appearing
in the Prospectus, which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/S/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
September 30, 1998
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2006
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2006
OF
FRESH FOODS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 2, 1998,
UNLESS EXTENDED BY FRESH FOODS, INC.
THE EXCHANGE AGENT
FOR THE EXCHANGE OFFER IS:
STATE STREET BANK AND TRUST COMPANY
By Hand or Overnight Courier:
State Street Bank and Trust Company
Two International Place
Corporate Trust Window, 4th Floor
Boston, MA 02110
Attn: Kellie Mullen
By Mail:
State Street Bank and Trust Company
Corporate Trust Division
P.O. Box 778
Boston, MA 02102
Attn: Kellie Mullen
or
By Facsimile:
State Street Bank and Trust Company
Corporate Trust Operations
Facsimile Number: (617) 664-5290
Telephone Number: (617) 664-5587
Attn: Kellie Mullen
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates of Initial
Notes are to be forwarded herewith to the Exchange Agent or if delivery of
Initial Notes is to be made by book-entry transfer to an account maintained by
the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Book-Entry Transfer." Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The term "Holder," as used herein with respect to the Exchange Offer, means
any person in whose name Initial Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered Holder or any person whose Initial Notes are held of record
by DTC.
<PAGE> 2
Holders of Initial Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through the DTC Automated
Tender Offer Program (the "ATOP"), for which this transaction is eligible. A DTC
participant should transmit its acceptance of the Exchange Offer to DTC, which
will verify the acceptance and execute a book-entry delivery to the Exchange
Agent's account at DTC. DTC will then send an "Agent's Message" to the Exchange
Agent confirming the participant's acceptance. If the delivery of Initial Notes
is to be made by book-entry transfer to the account maintained by the Exchange
Agent at DTC, then this Letter of Transmittal need not be manually executed;
provided, however, that tenders of the Initial Notes must be effected in
accordance with the procedures mandated for the ATOP and the procedures set
forth in the Prospectus (as defined below).
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date may tender their Initial Notes
according to the guaranteed delivery procedure set forth in the Prospectus under
the caption "The Exchange Offer -- Guaranteed Delivery Procedure."
The undersigned must check the appropriate boxes at page 6 below and sign
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus dated October 1,
1998 (the "Prospectus") of Fresh Foods, Inc. (the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together describe the Company's
offer (the "Exchange Offer") to exchange $1,000 in principal amount of 10 3/4%
Senior Notes Due 2006 (the "Exchange Notes"), for each $1,000 in principal
amount of outstanding 10 3/4% Senior Notes Due 2006 (the "Initial Notes"). The
terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Initial Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes are freely transferable by Holders thereof
(except as provided herein or in the Prospectus) and are issued without any
right to registration under the Securities Act of 1933, as amended (the
"Securities Act"). Capitalized terms used herein but not defined herein have the
meanings ascribed to them in the Prospectus.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Initial
Notes indicated in Box 1, below. The undersigned is the registered owner of all
the Initial Notes, and the undersigned represents that it has received from each
beneficial owner of tendered Initial Notes ("beneficial owner(s)") a duly
completed and executed form of "Instructions to Registered Holder from
Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Initial
Notes tendered herewith, the undersigned hereby irrevocably exchanges, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the Company in connection with the Exchange Offer) to
cause the Initial Notes to be assigned, transferred and exchanged. The
undersigned agrees that acceptance of any and all validly tendered Initial Notes
by the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company and the Guarantors shall have
no further obligations or liabilities thereunder.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Exchange Offer and has full power and authority
to tender, exchange, assign and transfer the Initial Notes tendered hereby and
to acquire Exchange Notes issuable upon the exchange of such tendered Initial
Notes, and that, when such tendered Initial Notes are accepted for exchange, the
Company will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned and each beneficial owner will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete and give effect to the transactions
contemplated hereof.
2
<PAGE> 3
The undersigned represents that it and each beneficial owner acknowledge
that the Exchange Offer is being made in reliance on an interpretation by the
staff of the Securities and Exchange Commission (the "SEC"), not issued in
connection with the Company or the Exchange Offer, to the effect that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Initial
Notes may be offered for resale, resold and otherwise transferred by Holders
thereof (other than any such Holder that is a broker-dealer or an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holders' business, such Holders have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and neither such Holder nor any such other person is engaging in
or intends to engage in a distribution of the Exchange Notes, and, as to
broker-dealer prospectus delivery requirements, subject to the provisions of the
paragraph below. See "Shearman & Sterling," SEC No-Action Letter (available July
2, 1993). Any Holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes cannot rely on such
interpretation by the staff of the SEC and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. See "Morgan Stanley & Co., Inc." SEC No-Action
Letter (available June 5, 1991), and "Exxon Capital Holdings Corporation," SEC
No-Action Letter (available May 13, 1988).
The undersigned hereby represents and warrants that (i) the Exchange Notes
or interests therein received by the undersigned and any beneficial owner(s)
pursuant to the Exchange Offer are being acquired by the undersigned and any
beneficial owner(s) in the ordinary course of business of the undersigned and
any beneficial owner(s) receiving such Exchange Notes, (ii) neither the
undersigned nor any beneficial owner(s) is participating, intends to participate
or has an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, (iii) the undersigned and any beneficial
owner(s) acknowledge that any person who is a broker-dealer under the Exchange
Act or is participating in the Exchange Offer for the purpose of distributing
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale of the
Exchange Notes and any interest therein acquired by such person and cannot rely
on the position of the staff of the SEC set forth in the no-action letters that
are discussed above, (iv) the undersigned and each beneficial owner understand
that a secondary resale transaction described in the preceding clause (iii) and
any resale of the Exchange Notes and any interest therein obtained by the
undersigned and in exchange for the Initial Notes originally acquired by the
undersigned directly from the Company should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 and 508, as applicable, of Regulation S-K of the SEC and
(v) neither the undersigned nor any beneficial owner(s) is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company, or if either the
undersigned or any beneficial owner(s) is an affiliate, that the undersigned and
any such beneficial owner(s) will comply with the prospectus delivery
requirements of the Securities Act in connection with the disposition of any
Exchange Notes to the extent applicable. If the undersigned or any beneficial
owner(s) is a broker-dealer, the undersigned further represents that (x) it and
any such beneficial owner(s) acquired Initial Notes for the undersigned's and
any such beneficial owner's own account as a result of market-making activities
or other trading activities, (y) neither the undersigned nor any beneficial
owner(s) has entered into any arrangement or understanding with the Company or
any "affiliate" of the Company (within the meaning of Rule 405 under the
Securities Act) to distribute the Exchange Notes to be received in the Exchange
Offer and (z) the undersigned and any beneficial owner(s) acknowledge that the
undersigned and any beneficial owner(s) will deliver a copy of a prospectus
meeting the requirements of the Securities Act in connection with any resale of
Exchange Notes. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of Exchange Notes received in exchange for Initial Notes where
Initial Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company intends to make the
Prospectus (as it may be amended or supplemented) available to any broker-dealer
for use in connection with any such resale for a period of 180 days after the
expiration date of the Exchange Offer.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, Holders of the Initial Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable securities law. In this connection, the
undersigned hereby represents and warrants that the information set forth in Box
2 is true and correct.
3
<PAGE> 4
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more particularly
set forth in the Prospectus, the Company may not be required to exchange any of
the Initial Notes tendered hereby, and in such event, the Initial Notes not
exchanged will be returned to the undersigned at the address indicated below.
The undersigned acknowledges that prior to the Exchange Offer, there has been no
public market for the Initial Notes or the Exchange Notes. The Company does not
intend to list the Exchange Notes on a national securities exchange. There can
be no assurance that an active market for the Exchange Notes will develop. The
undersigned understands and acknowledges that the Company reserves the right in
its sole discretion to purchase or make offers for any Initial Notes that remain
outstanding subsequent to the Expiration Date and, to the extent permitted by
applicable law, purchase Initial Notes in the open market, in privately
negotiated transactions or otherwise.
The undersigned understands that tenders of the Initial Notes pursuant to
any one of the procedures described in the Prospectus under the caption "The
Exchange Offer" and in the instructions hereto will constitute a binding
agreement between the undersigned and the Company in accordance with the terms
and subject to the conditions of the Exchange Offer.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal or Initial Notes tendered for
exchange, and of withdrawal of the tendered Initial Notes, will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Initial Notes not properly tendered or if, in the sole
judgment of the Company, (i) the Exchange Offer would violate any law, statute,
rule or regulation or an interpretation thereof of the SEC staff or (ii) any
governmental approval has not been obtained, which approval the Company deems
necessary for the consummation of the Exchange Offer. The Company also reserves
the absolute right to waive any defects or irregularities as to any particular
Initial Notes or conditions of the Exchange Offer either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Initial Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. None of the Company,
the Guarantors, the Exchange Agent nor any other person shall be under any duty
to give notification of any defect or irregularity with respect to any tender of
Initial Notes for exchange, nor shall any of them incur any liability for
failure to give such notification. Tenders of Initial Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any
Initial Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned without cost to such Holder by the Exchange Agent to the tendering
Holders of Initial Notes, as soon as practicable following the Expiration Date.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive, the death or incapacity of the undersigned and
any beneficial owner(s), and every obligation of the undersigned or any
beneficial owner(s) shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned and any beneficial owner(s). The
undersigned also agrees that except as provided in the Prospectus and set forth
in Instruction 3 below, the Initial Notes tendered hereby cannot be withdrawn.
Certificates for all Exchange Notes delivered in exchange for tendered
Initial Notes and any Initial Notes delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned, unless otherwise
indicated on page 6.
4
<PAGE> 5
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL
NOTES TENDERED HEREWITH" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE INITIAL NOTES AND MADE THE REPRESENTATIONS DESCRIBED HEREIN AND IN
THE PROSPECTUS.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S)
Date: , 1998
---------------------------
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) of Initial Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 4.
Name(s):
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
--------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.: ( )
------------------------------------------------
Taxpayer Identification No.:
--------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 4)
Authorized Signature:
--------------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title:
---------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Area Code and Telephone No.: ( )
------------------------------------------------
Date: , 1998
---------------------------
5
<PAGE> 6
[ ] CHECK HERE IF YOU ARE TENDERING INITIAL NOTES IN CERTIFICATED FORM AND WISH
TO RECEIVE AN INTEREST IN THE GLOBAL EXCHANGE NOTE AND COMPLETE THE
FOLLOWING:
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE TENDERING INITIAL NOTES IN CERTIFICATED FORM AND WISH
TO RECEIVE EXCHANGE NOTES IN CERTIFICATED FORM.
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: __________ [ ] The Depository Trust Company
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
- --------------------------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
- --------------------------------------------------------------------------------
If Delivered by Book-Entry Transfer:
- --------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE ONLY IF EXCHANGE NOTES OR UNEXCHANGED INITIAL NOTES DELIVERED
HEREWITH ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Notes to:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
-----------------------------------------------------------------------------
Tax Identification Number:
- -------------------------------------------------------------------------------
Social Security No.:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
6
<PAGE> 7
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
A Holder that is a participant in The Depository Trust Company's system may
utilize The Depository Trust Company's Automated Tender Offer Program to tender
Initial Notes.
List in Box 1 the Initial Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, information should be listed
on a separate signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF INITIAL NOTES TENDERED HEREWITH
- ------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN) NUMBER(S)* INITIAL NOTES* TENDERED**
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered
the full aggregate principal amount represented by such Initial Notes.
See Instruction 3.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNERS(S)
- -------------------------------------------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OR PRINCIPAL PLACE OF
BUSINESS PRINCIPAL AMOUNT OF TENDERED INITIAL NOTES
OF EACH BENEFICIAL OWNER OF TENDERED INITIAL NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES.
Certificates for all physically delivered Initial Notes or confirmation of
any book-entry transfer to the Exchange Agent's account at the Book-Entry
Transfer Facility of Initial Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth on the front page of this Letter of Transmittal prior to 5:00 p.m., New
York City time, on the Expiration Date (as defined in the Prospectus).
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE INITIAL NOTES AND
ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED BE USED, PROPER
INSURANCE BE OBTAINED AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
Holders who wish to tender their Initial Notes but whose Initial Notes are
not immediately available or who cannot deliver their Initial Notes and all
other required documents to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date or comply with book-entry transfer procedures on a
timely basis may tender their Initial Notes pursuant to the guaranteed delivery
procedure set forth in the Prospectus under "The Exchange Offer -- Guaranteed
Delivery Procedure." Such Holders' tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has
received from such Eligible Institution (a) either a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) or a properly
transmitted Agent's Message and (b) a Notice of Guaranteed Delivery,
substantially in the form provided by the Company, by hand or mail, or
facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) setting forth the name and
address of such Holder of Initial Notes and the amount of Initial Notes
tendered, stating that the tender is being made thereby and guaranteeing
that within three business days (as defined in the Prospectus) after the
Expiration Date, that the Initial Notes in proper form for transfer or a
Book-Entry Confirmation and all other documents required by this Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) a Book-Entry Confirmation or the certificates relating to the
Initial Notes in registered form and all other documents required by this
Letter of Transmittal, are received by the Exchange Agent within three
business days (as defined in the Prospectus) after the Expiration Date.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Initial Notes for exchange.
2. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS.
Only a Holder in whose name tendered Initial Notes are registered on the
books of the registrar (or the legal representative or attorney-in-fact of such
registered holder) may execute and deliver this Letter of Transmittal. Any
beneficial owner of tendered Initial Notes who is not the registered holder must
arrange promptly with the registered holder to execute and deliver this Letter
of Transmittal on his or her behalf
8
<PAGE> 9
through the execution and delivery to the registered Holder of the "Instructions
to Registered Holder from Beneficial Owner" form accompanying this Letter of
Transmittal.
3. PARTIAL TENDER; WITHDRAWALS.
If less than the entire principal amount of Initial Notes evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Initial Notes submitted but
not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Initial Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
Initial Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal sent by telegram, facsimile transmission (receipt
confirmed by telephone and an original delivered by guaranteed overnight
courier) or letter must be received by the Exchange Agent at the address set
forth herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Initial Notes to be
withdrawn (the "Depositor"), (ii) identify the Initial Notes to be withdrawn
(including the certificate number or numbers of such Initial Notes and the
principal amount of each such Initial Note), (iii) specify the principal amount
of Initial Notes to be withdrawn, (iv) include a statement that such Holder is
withdrawing his election to have such Initial Notes exchanged, (v) be signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Initial Notes were tendered or as otherwise described
in the Prospectus (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee under the
Indenture register the transfer of such Initial Notes into the name of the
person withdrawing the tender and (vi) specify the name in which any such
Initial Notes are to be registered, if different from that of the Depositor. The
Exchange Agent will return the properly withdrawn Initial Notes promptly
following receipt of notice of withdrawal. If Initial Notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Initial Notes or otherwise comply with the
Book-Entry Transfer Facility procedure. All questions as to the validity, form
and eligibility of such notices of withdrawals, including time of receipt, will
be determined by the Company and such determination will be final and binding on
all parties.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Initial Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration or any change
whatsoever.
If any of the Initial Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Initial Notes tendered hereby are registered in several
names, it will be necessary to complete, sign and submit as many separate copies
of this Letter of Transmittal as there are different registrations of Initial
Notes.
When this Letter of Transmittal is signed by the registered Holder or
Holders (which term, for the purposes described herein, shall include the
Book-Entry Transfer Facility whose name appears on a security listing as the
owner of the Initial Notes) of Initial Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Initial Notes listed, such Initial Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the registered
Holder, in either case signed exactly as the name or names of the registered
Holder or Holders appear(s) on the Initial Notes.
9
<PAGE> 10
If this Letter of Transmittal or any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 4 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal or notice of withdrawal need not
be guaranteed by an Eligible Institution, provided the Initial Notes are
tendered: (i) by a registered Holder of such Initial Notes or (ii) for the
account of an Eligible Institution.
For purposes of this Letter of Transmittal, an "Eligible Institution" shall
mean any bank, broker, dealer, credit union, savings association, clearing
agency or other institution that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
5. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Initial Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Initial Notes tendered,
or if tendered Initial Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of Initial Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes listed in this Letter of
Transmittal.
6. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES.
Any Holder whose Initial Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
7. ACCEPTANCE OF TENDERED INITIAL NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN
OF INITIAL NOTES.
Subject to the terms and conditions of the Exchange Offer, the Company will
accept for exchange all validly tendered Initial Notes promptly after the
Expiration Date and will issue Exchange Notes therefor promptly after acceptance
of the Initial Notes. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered Initial Notes when, as and if the Company has
given written or oral notice thereof to the Exchange Agent. If any tendered
Initial Notes are not exchanged pursuant to the Exchange Offer for any reason,
such unexchanged Initial Notes will be returned, without expense, to the
undersigned at the address indicated above.
8. SUBSTITUTE FORM W-9.
Each Holder of Initial Notes whose Initial Notes are accepted for exchange
(or any other such payee) is required to provide the Exchange Agent with a
correct taxpayer identification number ("TIN"), generally the Holder's Social
Security or federal employer identification number, and certain other
information, on a Substitute Form W-9, a form of which accompanies this Letter
of Transmittal, and to certify that the Holder (or other payee) is not subject
to backup withholding. Failure to provide the information on the Substitute Form
W-9 may subject the Holder (or other payee) to a penalty imposed by the Internal
Revenue Service and
10
<PAGE> 11
31% federal income tax backup withholding on payments made in connection with
the Exchange Notes. The box in Part 3 of the Substitute Form W-9 may be checked
if the surrendering Holder of Initial Notes (or other payee) has not been issued
a TIN and has applied for a TIN or intends to apply for a TIN in the near
future. If the box in Part 3 is checked, the Holder of Initial Notes (or other
payee) must also complete the Certificate of Awaiting Taxpayer Identification
Number accompanying this Letter of Transmittal in order to avoid backup
withholding. Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The Holder of Initial Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Initial Notes. If the Initial Notes are in more than one name or
are not in the name of the beneficial owner, consult the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
Certain Holders of Initial Notes (or other payees) (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. However, exempt Holders of
Initial Notes (or other payees) should indicate their exempt status on
Substitute Form W-9. For example, a corporation must complete the Substitute
Form W-9, providing its TIN and indicating that it is exempt from backup
withholding. In order for a foreign individual to qualify as an exempt
recipient, the Holder (or other payee) must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for more
instructions.
11
<PAGE> 1
EXHIBIT 99.2
INSTRUCTIONS TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
FRESH FOODS, INC.
10 3/4% SENIOR NOTES DUE 2006
The undersigned hereby acknowledges receipt of the Prospectus dated October
1, 1998 (the "Prospectus") of Fresh Foods, Inc. (the "Company"), and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), that together
constitute the Company's offer (the "Exchange Offer") to exchange $1,000 in
principal amount of its 10 3/4% Senior Notes Due 2006 (the "Exchange Notes") for
each $1,000 in principal amount of its outstanding 10 3/4% Senior Notes Due 2006
(the "Initial Notes"). Capitalized terms used herein but not defined herein have
the meaning ascribed to them in the Prospectus.
This will instruct you, the registered Holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the Initial Notes held by
you for the account of the undersigned.
The aggregate face amount of the Initial Notes held by you for the account
of the undersigned is (FILL IN AMOUNT):
$ of the 10 3/4% Senior Notes Due 2006.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] To TENDER the following Initial Notes held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF INITIAL NOTES TO BE
TENDERED,* IF ANY):
$ of the 10 3/4% Senior Notes Due 2006.
* The minimum permitted tender is $1,000 in principal amount of Initial
Notes. All other tenders must be in integral multiples of $1,000 of principal
amount.
[ ] NOT to TENDER any Initial Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Initial Notes held by you
for the account of the undersigned, it is understood that you are authorized:
(a) to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner (as defined in the Letter of Transmittal), including, but not
limited to, representations to the effect that (i) the undersigned is acquiring
the Exchange Notes or interests therein in the ordinary course of business of
the undersigned, (ii) the undersigned is not participating, does not intend to
participate and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iii) the undersigned
acknowledges that any person who is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, or is participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the Exchange Notes or any interest therein
acquired by such person and cannot rely on the position of the staff of the
Securities and Exchange Commission ("SEC") set forth in the no-action letters
that are discussed in the section of the Prospectus entitled "The Exchange
Offer" and the Letter of Transmittal, (iv) the undersigned understands that a
secondary resale transaction described in clause (iii) above and any resale of
the Exchange Notes and any interest therein obtained by the undersigned in
exchange for the Initial Notes originally acquired by the undersigned directly
from the Company should be covered by an effective registration statement
containing the selling security holder information required by Items 507 and
508, as applicable, of Regulation S-K of the SEC, and, (v) except as otherwise
disclosed in writing herewith,
<PAGE> 2
the undersigned is not an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company; (b)
to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and (c) to take such other action as may be necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Initial Notes. If the undersigned is a broker-dealer, the undersigned further
(x) represents that it acquired such Initial Notes for the undersigned's own
account as a result of market-making activities or other trading activities, (y)
represents that it has not entered into any arrangement or understanding with
the Company or any "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) to distribute the Exchange Notes to be received in the
Exchange Offer and (z) acknowledges that it will deliver a copy of a Prospectus
meeting the requirements of the Securities Act in connection with any resale of
Exchange Notes.
SIGN HERE
Name of Beneficial Owner(s):
- --------------------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Name(s) (PLEASE PRINT):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone Number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
2
<PAGE> 3
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, AS EXCHANGE AGENT
- -----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1-PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number(s)
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW OR
DEPARTMENT OF THE TREASURY -------------------------------
INTERNAL REVENUE SERVICE Employer Identification Number
------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR Part 2-CERTIFICATION-Under penalties of perjury, I certify that:
TAXPAYER IDENTIFICATION (1) The number shown on this form is my correct taxpayer identification number
NUMBER ("TIN") (or I am waiting for a number to be issued for me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
------------------------------------------------------------------------------------
Signature ---------------------- Date ------------ Part 3-Awaiting TIN [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF THE SUBSTITUTE FORM W-9.
3
<PAGE> 4
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (ii)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable cash payments made to me thereafter will be withheld until I
provide a taxpayer identification number.
<TABLE>
<S> <C>
- ----------------------------------------------- -----------------------------------------------
Signature Date
</TABLE>
<PAGE> 1
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT
TO
FRESH FOODS, INC.
10 3/4% SENIOR NOTES DUE 2006
This form must be used by a Holder of the 10 3/4% Senior Notes Due 2006
(the "Initial Notes") of Fresh Foods, Inc. (the "Company"), who wishes to tender
Initial Notes to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer -- Guaranteed Delivery Procedure" of
the Prospectus dated October 1, 1998 (the "Prospectus") and in Instruction 1 to
the Letter of Transmittal. Any Holder who wishes to tender Initial Notes
pursuant to such guaranteed delivery procedures must ensure that the Exchange
Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date
of the Exchange Offer. Capitalized terms not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
To: State Street Bank and Trust Company -- Exchange Agent
<TABLE>
<S> <C> <C>
By Hand or Overnight Courier: By Mail: By Facsimile:
State Street Bank State Street Bank State Street Bank
and Trust Company and Trust Company and Trust Company
Two International Place Corporate Trust Division Corporate Trust Operations
Corporate Trust Window, P.O. Box 778 Facsimile Number:
4th Floor Boston, MA 02102 (617) 664-5290
Boston, MA 02110 Attn: Kellie Mullen Telephone Numbers
Attn: Kellie Mullen (617) 664-5587
Attn: Kellie Mullen
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Initial Notes specified below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 1 of the Letter of Transmittal. The
undersigned hereby tenders the Initial Notes listed below:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF KNOWN) AGGREGATE PRINCIPAL
OF INITIAL NOTES AMOUNT TENDERED
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Name of Tendering Holder:
- --------------------------------------------------------------------------------
Signature(s):
-----------------------------------------------------------------------------
Name(s) (PLEASE PRINT):
-----------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Telephone Number:
-----------------------------------------------------------------------------
Date:
--------------------------- , 1998
<PAGE> 2
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association,
clearing agency or other institution that is a member of a recognized signature
guarantee medallion program or is otherwise an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of
Transmittal, together with the Initial Notes tendered hereby, in proper form for
transfer and any other required documents, all by 5:00 p.m., New York City time,
before the third business day (as defined in the Prospectus) following the
Expiration Date.
SIGN HERE
<TABLE>
<S> <C>
Name of Firm:
-------------------------------------- ---------------------------------------------
(PLEASE PRINT) AUTHORIZED SIGNATURE
Name: Address:
---------------------------------------------- -------------------------------------
(PLEASE PRINT)
---------------------------------------------
Title:
--------------------------------------------- ---------------------------------------------
Telephone Number: Date:
---------------------------------- ---------------------------------------------
</TABLE>
DO NOT SEND TENDERED INITIAL NOTES WITH THIS FORM. ACTUAL DELIVERY OF TENDERED
INITIAL NOTES MUST BE MADE IN ACCORDANCE WITH, AND BE ACCOMPANIED BY, AN
EXECUTED LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS.
2
<PAGE> 3
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and risk of the Holder, and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is recommended
that the Holder use an overnight or hand delivery service. Facsimile
transmission is permissible, provided, however, that receipt is confirmed by
telephone and an original is delivered by guaranteed overnight courier. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedure, see the section set forth in
the Prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedure"
and Instruction 1 of the Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the tendered
Initial Notes referred to herein, the signature must correspond with the name(s)
written on the face of the tendered Initial Notes without alteration or any
change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any tendered Initial Notes listed, this Notice of
Guaranteed Delivery must be accompanied by appropriate bond powers, signed as
the name of the registered Holder(s) appears on the tendered Initial Notes.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders also may contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
3
