<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-60221
PROSPECTUS
FRESH FOODS, INC.
COMMON STOCK
---------------------
This Prospectus relates to the offer and sale from time to time of up to
1,125,341 shares (the "Shares") of common stock, par value $1.00 per share (the
"Common Stock"), of Fresh Foods, Inc. (the "Company") by certain shareholders of
the Company named herein, the estates of such persons, the beneficiaries of
their estates and their donees (collectively, the "Selling Shareholders"). The
Shares were acquired by the Selling Shareholders in connection with the merger,
effective January 30, 1998 (the "Merger"), of a wholly-owned subsidiary of the
Company with and into Sagebrush, Inc. See "Selling Shareholders." The Company
will not receive any proceeds from the sale of the Shares offered hereby.
The Shares may be sold from time to time by or for the account of the
Selling Shareholders on the Nasdaq Stock Market ("Nasdaq"), on any exchange on
which the Shares may then be listed, in private transactions or otherwise, at
prices and on other terms then prevailing or at prices related to their then
current market price, at fixed prices that may be changed or in negotiated
transactions at negotiated prices. See "Plan of Distribution." The Selling
Shareholders may offer Shares from time to time directly to other purchasers or
to or through underwriters, brokers, dealers or agents, who may receive
consideration in the form of discounts, commissions or concessions. Such
compensation, which may exceed ordinary brokerage commissions, may be paid by
the Selling Shareholders and/or the purchasers of the Shares for whom such
underwriters, brokers, dealers and agents may act. The Selling Shareholders and
any underwriters, brokers, dealers or agents that participate in the
distribution of the Shares may be considered "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). Any profit on
the sale of Shares offered by any of them and any discounts, commissions or
concessions received by any of them may be considered underwriting discounts and
commissions under the Securities Act.
The Common Stock is quoted on Nasdaq under the symbol "FOOD." On August 24,
1998, the last sale price per share of the Common Stock, as reported by Nasdaq,
was $12.06.
---------------------
THE SHARES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS," COMMENCING ON
PAGE 2.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August 25, 1998.
<PAGE> 2
ADDITIONAL INFORMATION
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
(the "SEC") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Reference is made to the Registration Statement and to
the exhibits thereto for further information with respect to the Company and the
Shares.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and copied
at the Public Reference Section of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies can also be obtained by mail
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such information can also be
accessed electronically by means of the SEC's home page on the Internet at
http://www.sec.gov. In addition, such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the SEC by the Company and are
hereby incorporated by reference into this Prospectus: (i) the Company's Annual
Report on Form 10-K for its fiscal year ended February 27, 1998; (ii) the
Company's Quarterly Report on Form 10-Q for its fiscal quarter ended May 22,
1998; (iii) the Company's Current Report on Form 8-K filed on June 24, 1998; and
(iv) the descriptions of the Common Stock and of the Preferred Stock Purchase
Rights (the "Rights") contained in the Company's Registration Statements on Form
8-A filed with the SEC pursuant to Section 12 of the Exchange Act and any
amendment or report filed by the Company for the purpose of updating either such
description. All documents filed pursuant to any of Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act from the date of this Prospectus until the
termination of the offering made hereby shall also be deemed to be incorporated
by reference herein and shall be deemed to be a part hereof from the date of
filing thereof. Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements made in this Prospectus as to the contents of any
contract, instrument or other document referred to herein do not purport to be
complete. Where reference is made to the provisions of such a contract,
instrument or other document, such reference is qualified in all respects by all
of the provisions of the contract, instrument or other document. The Company
hereby undertakes to provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any document incorporated herein by reference
(not including exhibits to documents that have been incorporated herein by
reference unless such exhibits are specifically incorporated by reference into
the documents that this Prospectus incorporates). Requests should be directed to
Mr. Matthew V. Hollifield, Fresh Foods, Inc., 3437 E. Main Street, Claremont, NC
28610, telephone number: (800) 222-9771.
i
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES AND THE IMPOSITION OF PENALTY BIDS, IN
CONNECTION WITH THE OFFERING MADE HEREBY. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "PLAN OF DISTRIBUTION."
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 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, as distinguished from statements of historical fact,
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 made herein.
Important factors that could contribute to such differences include, without
limitation, the factors described as "Risk Factors" elsewhere in this Prospectus
and other factors discussed in the Company's SEC filings. See "Incorporation of
Certain Information by Reference."
ii
<PAGE> 4
THE COMPANY
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. by merger on
January 30, 1998 and is converting most of its existing restaurants to the
Sagebrush concept.
On June 9, 1998, the Company consummated the acquisition 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., a subsidiary of Tyson Foods, Inc. (the
"Acquisition"). Having acquired Pierre, 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. In addition to its food processing business, the Company owns and
operates 61, and franchises an additional 40, restaurants operating under the
Sagebrush, Western Steer, Prime Sirloin and Bennett's concepts. On a pro forma
basis, assuming the Acquisition had occurred on March 1, 1997, the Company's
revenues and net earnings would have been $269,269,000 and $8,000 ($0.00 per
share), respectively, for the year ended February 27, 1998. For the three months
ended May 22, 1998, such pro forma revenues and net loss would have been
$62,311,000 and ($2,081,000) (($0.40) per share), respectively.
The Company's principal executive offices are located at 3437 E. Main
Street, P.O. Box 399, Claremont, North Carolina 28610, and its telephone number
at that location is (704) 459-7626.
1
<PAGE> 5
RISK FACTORS
Prospective investors should consider carefully the following factors, in
addition to the other information presented in this Prospectus, before
purchasing the Shares.
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 Acquisition
and related financings (together with the Acquisition, 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 a new revolving credit facility (the
"Bank Facility"). The Company's debt instruments allow the Company to incur
additional indebtedness under certain circumstances. The ability of the Company
to satisfy its 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 the Company, 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 repayment of indebtedness, thereby reducing the funds available
to the Company for its operations; (iii) the Company's debt instruments 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 Bank Facility are at variable rates of interest,
which expose the Company to the risk of higher interest rates; (v) the
indebtedness outstanding the Bank Facility is secured by substantially all of
the assets of the Company; (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, then it may be required to refinance
all or a portion of its indebtedness or to obtain additional financing or to
dispose of material assets or to discontinue certain of its operations. The
Company's debt instruments 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.
RESTRICTIONS IMPOSED BY THE COMPANY'S DEBT INSTRUMENTS
The Company's debt instruments 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
2
<PAGE> 6
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, then the lenders could proceed
against their collateral, with material adverse effects on the Company's
business, financial condition and results of operations.
RISKS RELATING TO THE ACQUISITION AND EXECUTION OF THE COMPANY'S BUSINESS
STRATEGY
The Acquisition significantly increased 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 the Company. 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.
MANAGEMENT CONTROL
As of April 15, 1998, the Company's directors and executive officers
(twelve persons) beneficially owned, in the aggregate, 2,907,782 shares (or
approximately 42.2%) of the outstanding Common Stock (including as "outstanding"
Common Stock all shares underlying options that became exercisable not later
than June 14, 1998). If Mr. Miller (who is a director of the Company) were to
sell all of his Shares offered hereby, and if no other director or executive
officer were to gain or lose beneficial ownership of any Common Stock, then the
Company's directors and executive officers would beneficially own, in the
aggregate, 2,387,173 shares (or approximately 34.7%) of the outstanding Common
Stock. This degree of share ownership might be sufficient to enable the
Company's directors and executive officers, acting as a group, to influence
decisively the outcome of matters requiring shareholder approval, including the
election of directors and significant corporate transactions. The voting power
of the Company's directors and executive officers under certain circumstances
could have the effect of preventing or delaying a change in control of the
Company.
FACTORS INHIBITING TAKEOVER
The Company's Restated Articles of Incorporation, as amended (the
"Articles"), the Company's Bylaws, as amended (the "Bylaws"), and the Rights
contain various provisions that may hinder, delay or prevent the acquisition of
control of the Company without the approval of the Board of Directors of the
Company (the "Board"). Certain provisions of the Articles and the Bylaws, among
other things, (i) authorize the issuance of "blank check" preferred stock, (ii)
divide the members of the Board into three classes, the members of which serve
for three-year terms and can be removed only by supermajority shareholder vote,
and (iii) require a supermajority shareholder vote to approve any of certain
business combinations requiring shareholder approval. In addition, the Company
has entered into a Rights Agreement with American Stock Transfer & Trust
Company, as Rights Agent (the "Rights Agreement"), pursuant to which one Right
is attached to each share of Common Stock and initially trades with such share.
The Rights would cause substantial dilution to a person or group that attempted
to acquire the Company on terms not approved in advance by the Board. See
"Description of Capital Stock."
3
<PAGE> 7
SHARES AVAILABLE FOR SALE; LIMITED SECONDARY MARKET FOR THE COMMON STOCK
As of April 15, 1998, there were 5,902,619 shares of Common Stock
outstanding, including the 1,125,341 Shares offered hereby. Of such amount, at
least 4,428,571 shares of Common Stock (including the Shares registered for
resale hereunder) are freely tradable without restriction in the public market.
The remaining shares are eligible for sale in the time, manner and volumes
permitted by Rule 144 under the Securities Act. The holders of such remaining
shares have not agreed to further limitations on the sale of their shares. In
addition, as of April 15, 1998 there were options to purchase 1,861,186 shares
of Common Stock outstanding at an average exercise price of $14.09 per share. Of
such amount, options to purchase 1,177,442 shares are either exercisable
presently or will become exercisable by December 31, 1998; 1,141,500 of the
underlying shares have been registered with the SEC for public sale, and the
Company intends to register the shares underlying the other outstanding options
as soon as practicable. The Company also has registered for public sale an
additional 1,050,000 shares of unissued Common Stock; such shares are reserved
for future grants under the Company's stock option plans. Sales of substantial
amounts of Common Stock in the public market, or the perception that such sales
might occur, could have a material adverse effect on the market price of the
Common Stock, particularly in view of the limited secondary market for the
Common Stock that exists.
PRICE VOLATILITY
The market price of the Common Stock is volatile and may be affected by a
number of factors, including the announcement of new products or services by the
Company or its competitors, quarterly variations in the Company's or its
competitors' results of operations, changes in earnings estimates or
recommendations by securities analysts, the initiation or termination of
coverage by analysts, developments in the food processing and restaurant
industries, general market conditions and other factors, including factors
unrelated to the operating performance of the Company or its competitors. Such
factors, as well as general economic, political and market conditions, such as
recessions, may materially and adversely affect the market price of the Common
Stock.
NO DIVIDENDS
The Company does not anticipate paying dividends on the Common Stock in the
foreseeable future. The Company's senior credit facility prohibits the payment
of such dividends.
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.
4
<PAGE> 8
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 United States Department of Agriculture (the "USDA") issued strict new
policies against contamination by food-borne pathogens such as E. coli and
Salmonella and established the Hazard Analysis and Critical Control Points
("HACCP") system. The Company is in full compliance with all USDA regulations,
including HACCP standards, but there can be no assurance 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 are also 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.
GENERAL RISKS OF THE FOOD INDUSTRY
The food processing and restaurant industries are generally 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
5
<PAGE> 9
particular suppliers means that interruptions or stoppages in such deliveries
could adversely affect the Company until arrangements with alternate suppliers
could be made.
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.
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
Pierre's 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.
"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 or
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.
6
<PAGE> 10
SELLING SHAREHOLDERS
The Shares were received by the Selling Shareholders as merger
consideration in the Merger. Under the definitive merger agreement pursuant to
which the Merger was effected (the "Merger Agreement"), the Company agreed to
register the shares of Common Stock received by affiliates of Sagebrush, Inc.
who acquired in the Merger beneficial ownership of a number of shares of Common
Stock in excess of one percent of the total number of shares of Common Stock
outstanding after giving effect to the Merger to permit the public resale of
such shares by such persons and their permitted transferees. The Company agreed
to keep the registration statement filed with respect to such shares current and
effective until the earlier of (a) January 30, 2001 and (b) such time as all of
the shares registered thereunder may be publicly resold by the holders thereof
without registration under the Securities Act and without a volume limitation or
other condition (except a condition that has been met) and the holders shall
have received an opinion letter to such effect from counsel to the Company. The
Registration Statement of which this Prospectus is a part has been filed with
the SEC in response to these obligations.
The following table provides certain information with respect to Common
Stock beneficially owned by the Selling Shareholders.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES OF
OF COMMON STOCK NUMBER OF SHARES COMMON
BENEFICIALLY NUMBER OF OF COMMON STOCK STOCK BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY OWNED AFTER OWNED AFTER
NAME THE OFFERING(1) OFFERED THE OFFERING THE OFFERING(2)
- ---- ---------------- --------- ------------------------ ------------------
<S> <C> <C> <C> <C>
Charles F. Connor, Jr............. 659,732(3) 604,732(4) 55,000 *
L. Dent Miller.................... 570,833(5) 520,609 50,224 *
</TABLE>
- ---------------
* Less than one percent.
(1) Represents all shares of Common Stock beneficially owned by the Selling
Shareholder as of July 29, 1998.
(2) Represents all shares of Common Stock beneficially owned after the offering
made hereby (assuming the sale of all of the Shares) as a percentage of the
Common Stock outstanding as of July 29, 1998. There can be no assurance that
the Selling Shareholders will sell all or any portion of the Shares.
(3) Consists of (i) 599,644 shares owned of record, (ii) 38,220 shares owned
beneficially through County-Wide Insurance Agency, Inc. ("County-Wide") and
(iii) 21,868 shares held by Mr. Connor's wife, 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.
(4) Of such amount, 544,644 shares are being offered by Mr. Connor, 38,220
shares are being offered by County-Wide, and 21,868 shares are being offered
by Mrs. Connor.
(5) Consists of (i) 520,833 shares owned of record and (ii) 50,000 shares
subject to currently exercisable call options.
In connection with the Merger, the Company entered into a Consulting and
Noncompetition Agreement with Mr. Connor, who was Chairman of the Board of
Sagebrush, Inc. The Company also entered into an Employment Agreement and Change
in Control Agreement with Mr. Miller, who was President and Chief Executive
Officer of Sagebrush, Inc., and who presently serves as a director of the
Company and as President of its restaurant operations. Such agreements have been
filed with the SEC as exhibits to the Registration Statement.
Except as disclosed in this Prospectus (including in the documents
incorporated herein by reference), within the past three years none of the
Selling Shareholders has had a material relationship with the Company or with
any of the Company's predecessors or affiliates other than as a result of
ownership of securities issued by the Company.
7
<PAGE> 11
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by or for the account of the
Selling Shareholders on Nasdaq, on any exchange on which the Shares may then be
listed, in private transactions or otherwise, at prices and on other terms then
prevailing or at prices related to the then current market price, at fixed
prices that may be changed or in negotiated transactions at negotiated prices.
The methods of distribution may include, without limitation: (i) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(ii) privately negotiated transactions, which may or may not involve a broker or
dealer; (iii) one or more block trades (which may involve crosses) in which the
broker or dealer so engaged will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (iv) purchases by brokers or dealers as principals and resales by
such brokers or dealers for their own accounts; and (v) exchange distributions
and/or secondary distributions in accordance with the rules of Nasdaq or the
applicable exchange. Sales may be made by the Selling Shareholders directly to
or through underwriters, brokers, dealers or agents.
In connection with distributions of the Common Stock or otherwise, the
Selling Shareholders may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions, the
broker-dealers or other financial institutions may engage in short sales of
Common Stock in the course of hedging the positions they assume with the Selling
Shareholders. The Selling Shareholders may also short Common Stock and redeliver
the Shares to close out their short positions. The Selling Shareholders also may
enter into option contracts or other similar transactions with broker-dealers or
other financial institutions, which transactions require the delivery to such
broker-dealers or financial institutions of Shares, which Shares such
broker-dealers or other financial institutions may resell pursuant to this
Prospectus (as amended or supplemented to reflect such transactions). The
Selling Shareholders also may pledge the Shares to a broker-dealer or other
financial institution, and, upon default, such broker-dealer or other financial
institution might effect sales of the pledged Shares pursuant to this Prospectus
(as amended or supplemented to reflect such transaction).
Persons participating in the offering made hereby may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. "Stabilizing transactions" consist of
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the Common Stock. "Syndicate short positions" involve the sale
by underwriters of a greater number of shares of Common Stock than they are
required to purchase from the Selling Shareholders in the offering. Underwriters
also may impose "penalty bids," whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
offering for their accounts may be reclaimed by the syndicate if such Common
Stock is repurchased by the syndicate in stabilizing or covering transactions.
These activities may stabilize, maintain or otherwise affect the market price of
the Common Stock, which may be higher than the price that might prevail in the
open market. These activities, if commenced, may be discontinued at any time.
These transactions may be effected in the over-the-counter market or otherwise.
Under applicable SEC rules and regulations, any person engaged in the
distribution of the Shares may not simultaneously engage in market making
activities with respect to the Common Stock for a period of two business days
prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of Common Stock by them.
Underwriters, brokers, dealers or agents may receive compensation in the
form of discounts, commissions or concessions from the Selling Shareholders in
amounts to be negotiated in connection with the sales pursuant thereto. Such
compensation, which may exceed ordinary brokerage commissions, may be paid by
the Selling Shareholders and/or the purchasers of the Shares for whom such
underwriters, brokers, dealers and agents may act. The Selling Shareholders and
any underwriters, brokers, dealers or agents that participate in the
distribution of the Shares may be considered "underwriters" within the meaning
of the Securities Act.
8
<PAGE> 12
Any profit on the sale of Shares offered by any of them and any discounts,
commissions or concessions received by any of them may be considered
underwriting discounts and commissions under the Securities Act.
To the extent required, the specific Shares to be sold, the names of the
Selling Shareholders, the respective purchase prices and public offering prices,
the names of any underwriters, brokers, dealers and agents and any applicable
discounts, commissions or concessions with respect to a particular offer will be
set forth in a supplement to this Prospectus.
The Company has agreed to pay all reasonable expenses of registration of
the Shares other than any underwriting or selling discounts or commissions
associated with the offer and sale of the Shares and the fees and expenses of
legal counsel to the Selling Shareholders.
The Company and each Selling Shareholder have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
DESCRIPTION OF CAPITAL STOCK
The Company's Articles authorize the issuance of 100,000,000 shares of
Common Stock and 2,500,000 shares of preferred stock ("Preferred Stock"). As of
April 15, 1998, there were 5,902,619 shares of Common Stock outstanding and 925
record holders thereof. All outstanding shares of Common Stock, including the
Shares offered by the Selling Shareholders by this Prospectus, are validly
issued, fully paid and nonassessable.
The Board has the authority to issue Preferred Stock in one or more series,
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued shares of Preferred Stock and to fix the number
of shares constituting any series and the designations of such series, all
without any further vote or action by the shareholders. Although it has no
current intention to do so, the Board, without shareholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of Common Stock.
DESCRIPTION OF THE COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders of the Company. Subject to the
preferences that may be applicable to any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all the assets
remaining after payment of liabilities, subject to the prior distribution rights
of the Preferred Stock, if any, then outstanding. The holders of Common Stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the Common Stock.
DESCRIPTION OF THE RIGHTS
On August 28, 1997, the Board declared a dividend distribution of one Right
for each share of Common Stock to shareholders of record at the close of
business on September 10, 1997. Each Right entitles the record holder to
purchase from the Company one one-hundredth of a share of Junior Participating
Preferred Stock, Series A, of the Company at a purchase price of $30. The Rights
are attached to the Common Stock and are not exercisable except under 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 Common Stock. In
the event that a person or group acquires 15% or more of the Common Stock
without the Company's consent (an "Acquiring Person"), each holder of a Right,
other than the Acquiring Person, will be entitled to acquire, upon payment of
the exercise price of $30, that number of shares of Common Stock having a market
value equal to twice the exercise price. The Rights may be redeemed at a price
of $.001 per Right by the Company at any time prior to any person or group
acquiring 15% or more of the Common Stock and will expire on September 10, 2007.
Until the Rights separate from the Common Stock, each new share of Common Stock,
including the Shares offered hereby, will have a Right attached. The Rights do
not have voting or dividend rights and, until they become exercisable, have no
dilutive effect on the earnings of the Company.
9
<PAGE> 13
CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS
The Board is divided into three classes with the directors serving
staggered three-year terms. Under the Articles and the Bylaws, directors may be
removed with or without cause only by a vote of 75% of the outstanding shares of
Common Stock entitled to vote in the election of directors.
The Bylaws require the affirmative vote of 75% of the outstanding shares of
each class of capital stock of the Company entitled to vote in order to
authorize or adopt (a) any agreement for the merger or consolidation of the
Company with or into any other corporation which is required by law to be
approved by shareholders; (b) any sale, lease, transfer or other disposition by
the Company of all or any substantial part of the assets of the Company to any
other corporation, person or entity; or (c) any issuance or delivery of
securities of the Company in exchange or payment for any securities, properties
or assets of any other person in any transaction in which the authorization or
approval of shareholders of the Company is required by law or by any agreement
to which the Company is a party. This supermajority voting requirement is not
applicable, however, to (i) any such transaction approved by resolution of the
Board or (ii) any merger or consolidation of the Company with, or any sale or
lease by or to the Company of any subsidiary thereof or any of the assets of,
any corporation of which a majority of the outstanding shares of stock is owned
of record or beneficially by the Company or its subsidiaries. In addition, the
affirmative vote of 75% of the outstanding shares of each class of capital stock
of the Company entitled to vote is required to amend or repeal this
supermajority voting requirement.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is First Citizens
Bank, Raleigh, North Carolina.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by McGuire,
Woods, Battle & Boothe LLP, Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of the Company incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended February 27, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of Pierre Foods (a Business of Hudson Foods)
incorporated in this Prospectus by reference from the Company's Current Report
on Form 8-K dated June 24, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
10
<PAGE> 14
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
SHAREHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................ i
Incorporation of Certain Information
by Reference........................ i
Forward-Looking Statements............ ii
The Company........................... 1
Risk Factors.......................... 2
Selling Shareholders.................. 7
Plan of Distribution.................. 8
Description of Capital Stock.......... 9
Registrar and Transfer Agent.......... 10
Legal Matters......................... 10
Experts............................... 10
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
FRESH FOODS, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
AUGUST 25, 1998
- ------------------------------------------------------
- ------------------------------------------------------
