UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 28, 1996 Commission File Number 33-75398
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FARM FRESH, INC.
(Exact name of registrant as specified in its charter)
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Virginia 54-0973309
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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7530 Tidewater Drive, Norfolk, Virginia 23505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (757) 480-6700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
No non-affiliates of the registrant hold voting stock .
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 10 shares of Common
Stock
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference
and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: N/A
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PART I
In addition to historical information, this report contains forward
looking statements that are subject to risks and uncertainties that could cause
the Company's actual results to differ materially from those anticipated in
these forward looking statements as a result of certain factors, including but
not limited to, those factors set forth elsewhere in this report. Readers are
cautioned not to place undo reliance on these forward looking statements, which
reflect management's analysis only as of the date hereof.
Item 1. Business
General
Farm Fresh, Inc. ("Farm Fresh" or the "Company") is a Virginia
supermarket chain operating in the Hampton Roads, metropolitan Richmond and
Shenandoah Valley areas of Virginia. Hampton Roads includes the cities of
Norfolk, Virginia Beach, Newport News, Williamsburg and certain surrounding
cities and counties. The Company operates 48 supermarkets with three formats: 35
combination stores operating primarily under the name "Farm Fresh", 9 super
warehouse stores operating under the name "Rack & Sack" and 4 stores marketed as
"3 Stores, 1 Roof" that combine an expanded perishables presentation, a super
warehouse store and an expanded discount drug store/pharmacy. The Company's
principal market is Hampton Roads, Virginia, where the Company operates 35 Farm
Fresh stores, 6 Rack & Sacks, and one store operated under the name 3 Stores, 1
Roof. Management believes that the Company`s share of traditional supermarket
sales in the Hampton Roads area is in excess of 35%.
The Company is a wholly owned subsidiary of FF Holdings Corporation
("FF Holdings"), which was incorporated in 1988 to acquire the Company. FF
Holdings is primarily owned by certain former members of the Company's
management (the "Management Investors"), 399 Venture Partners, Inc. ("Venture
Partners"), an affiliate of Citicorp, and certain shareholders who purchased FF
Holdings Common Stock (as defined below) in connection with the 1992
Recapitalization (as defined below). FF Holdings has no assets other than 100%
of the common stock of Farm Fresh. See "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
In October 1992, the Company effected a recapitalization plan (the
"Recapitalization") designed to increase operating flexibility by eliminating
the Company's then existing senior debt amortization requirements and deferring
annual cash debt service of FF Holdings. The Recapitalization included (i) the
issuance by Farm Fresh of $165.0 million aggregate principal amount of 12.25%
Senior Notes due 2000 (the "Senior Notes"); (ii) the issuance by FF Holdings of
14.25% Senior Notes due 2002 (the "Old Holdings Notes") and common stock
constituting 20% of the fully diluted beneficial ownership of FF Holdings for
aggregate gross proceeds of $50.0 million; (iii) the establishment by Farm Fresh
of a $25.2 million revolving credit facility (the "Old Revolving Credit
Facility"); and (iv) the conversion of FF Holdings' then existing 16.75% Junior
Subordinated Debentures due 2006 with a principal amount of $16.8 million and
then existing 16.75% Cumulative Preferred Stock with a face value of $1.7
million and cumulative dividends of $0.7 million, both issued primarily to the
Management Investors and Venture Partners, to approximately $19.2 million stated
value of new preferred stock of FF Holdings. The proceeds from the
Recapitalization transactions were used to repay then existing indebtedness and
to acquire five stores. In early 1993, FF Holdings completed an exchange offer
in which all of the purchasers of the Old Holdings Notes exchanged them for
14.25% Senior Notes due 2002 (the "Holding Company Notes"), the form and terms
of which are the same as the Old Holdings Notes except that the Holding Company
Notes have been registered under the Securities Act of 1933, as amended, and
therefore do not bear legends restricting their transfer.
On December 13, 1993, Farm Fresh, which then operated eight combination
stores in metropolitan Richmond, acquired 11 additional Richmond supermarkets
and one supermarket in Hampton Roads from Safeway, Inc. ("Safeway") for $31.9
million, including the value of inventory at the stores (the "Safeway
Acquisition"). At that time, management believed that an expanded presence in
Richmond, particularly in light of the economies of scale that could be achieved
with advertising and marketing efforts, would allow the Company to successfully
compete in the combination store segment of the market. Simultaneously with the
Safeway Acquisition, Farm Fresh sold $36.0 million aggregate principal amount of
12.25% Senior Notes due 2000, Series A (the "Old Notes") in a private placement
for aggregate proceeds of $37.8 million and established a new $40 million
revolving credit facility (the "Revolving Credit Facility"). At the same time,
FF Holdings initiated a rights offering to its existing holders of FF Holdings'
Common Stock. In this offering, which closed on January 14, 1994, FF Holdings
issued 2,375,000 shares of its Class B Common Stock for $5 million in cash
proceeds (the "Equity Issuance"). Venture Partners purchased 1,845,869 of these
shares and certain of the other holders purchased the remaining 529,131 shares.
As a result of the Equity Issuance, FF Holdings has a total of 2,500,000 shares
of common stock outstanding. See "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
During May 1994, the Company completed an exchange offer in which all
of the purchasers of the Old Notes exchanged them for 12.25% Senior Notes due
2000, Series A (the "Series A Notes"), the forms and terms of which are the same
as the Old Notes, except that the Series A Notes were registered under the
Securities Act of 1933, as amended, and therefore do not bear legends
restricting their transfer. Farm Fresh's Senior Notes and Series A Notes are
referred to collectively in this Form 10-K as the "Notes."
In a transaction that closed in September 1995, the Company sold ten
supermarket locations to Hannaford Bros. Co. of Scarborough, Maine (the
"Hannaford Transaction"), most of which had been acquired by the Company in the
Safeway Acquisition. Management decided to sell these stores after concluding
that because of the competitive nature of the Richmond market, as well as the
increasingly competitive nature of the Hampton Roads market, it should shift its
emphasis in Richmond from combination stores to Rack & Sack operations because
of the relative scarcity of stores using the warehouse format in that area. In
addition, the proceeds of the sale allowed the Company to perform needed
remodeling and refurbishing of its stores in Hampton Roads. The sale included
seven stores operating under the name The Grocery Store, six of which were in
the metropolitan Richmond, Virginia area, and one in Charlottesville, Virginia.
The sale also included a store under construction in Richmond and certain assets
from two additional closed Richmond area stores. The gross proceeds from the
Hannaford Transaction were $28.4 million, including the value of inventory and a
license and noncompetition agreement.
Store Operations
Farm Fresh Stores. Approximately 69.4% of the Company's fiscal 1996
sales were generated by its Farm Fresh stores. Farm Fresh stores average 33,300
square feet and carry approximately 40,000 individual items of inventory
("SKUs"). The Farm Fresh stores are designed to encourage one-stop shopping, and
typically offer a full line of traditional grocery items, carry selected higher
margin non-food items, and generally feature specialty departments such as salad
bars, delicatessens, floral shops, hot food shops, catering services, bakeries,
fresh seafood departments, video rentals, and, in most cases, prescription
pharmacies and full service branch banks. The stores' specialty departments are
designed to provide a high level of personal service. In 1996, specialty
departments generated 21.8% of sales and 29.1% of gross profit, respectively, at
Farm Fresh stores.
Farm Fresh is a leading advertiser among supermarkets in the Hampton
Roads region and uses weekly newspaper ads, special circulars, billboards, radio
and television. The Company's advertising stresses Farm Fresh's image as
"Virginia's Grocery Store," and emphasizes freshness, product variety and
certain specially priced products. Suppliers help to defray the cost of
advertising through cooperative advertising programs.
Rack & Sack Stores. In 1992, using its experience in operating previous
warehouse formats, the Company developed a new strategy for its super warehouse
stores. This strategy was designed to strengthen the Company's ability to
compete with warehouse clubs, military commissaries, deep discount drugstores
and mass merchandisers by featuring price sensitive grocery items at discount
prices. The Company operates its super warehouse stores under the name Rack &
Sack to highlight the discount nature of the super warehouse stores. To offer
the lowest prices to customers, Rack & Sack stores carry products purchased at
large discounts, causing store offerings to vary depending on product
availability. Rack & Sacks do not charge fees or restrict shopping to members as
do many warehouse clubs. Virtually all advertising reinforces Rack & Sack's
warehouse image.
The Company currently operates 9 super warehouse stores under the name
Rack & Sack, 6 in Hampton Roads, 1 in Richmond and 2 in the Shenandoah Valley.
Rack & Sacks average 55,000 square feet of selling space and carry approximately
20,000 SKUs. Rack & Sacks operate at higher volumes but with less customer
service and lower margins compared to the Company's Farm Fresh stores. In 1996,
the Company's Rack & Sack stores generated approximately 21.7% of the Company's
total sales.
3 Stores, 1 Roof. The Company markets 4 stores (one of which was opened
in 1997) as 3 Stores, 1 Roof, 1 in Hampton Roads, 2 in Richmond and 1 in the
Shenandoah Valley. The 3 Stores, 1 Roof average 69,000 square feet of selling
space and carry approximately 46,000 SKUs. 3 Stores, 1 Roof combine an expanded
perishables presentation, a super warehouse store and an expanded discount drug
store/pharmacy. In 1996, these stores generated approximately 8.9% of the
Company's total sales.
Purchasing and Distribution
Richfood Supply Agreement. Farm Fresh has a supply agreement (the
"Supply Agreement") with Richfood, Inc. ("Richfood'), its principal supplier,
which expires in 2001. The Supply Agreement requires that Richfood provide Farm
Fresh with products on its most favorable pricing terms and that Richfood
maintain inventories of products sufficient to satisfy the needs of the Company.
The Supply Agreement was amended in connection with the Safeway Acquisition. As
amended, the Company is required to purchase at least $350 million of products
per year adjusted for acquisitions and dispositions by the Company, changes in
the Consumer Price Index and certain other factors.
Distribution Center. The Company owns a 200,000 square foot
distribution center in Norfolk, Virginia. The Company's strategy is to directly
procure and distribute those items that turn quickly and can be bought at
reduced prices, and to purchase slower moving products through Richfood. The
Company implements this strategy through the use of its Distribution Center. In
April 1991, the Company expanded its Distribution Center activities by beginning
self-distribution of produce to help the Company control shrinkage, improve
freshness and provide competitive retail prices. This is accomplished by
establishing produce requirements at store level, and then scheduling shipments
from the distribution center to the stores the same day that the inventory is
received. This process enables the Company to deliver the freshest produce to
its stores at lower costs. Most other produce distribution facilities order
produce, receive it, store it in racks and await orders for the product before
shipping the produce out.
Demographics
The Company's principal market, Hampton Roads, constitutes the largest
metropolitan region in Virginia in land size, is its second most populous
region, is the home of the United States Navy's Atlantic Fleet, and has the
world's largest Naval base. Hampton Roads, with a population of approximately
1.5 million, is the twenty-seventh largest U.S. metropolitan area, and was
ranked as the twenty-third fastest growing metropolitan area in absolute terms
from 1980 to 1990 according to the 1990 U.S. Census Bureau Report. The economy
of this area is largely influenced by major United States military installations
and extensive port activity. Shipbuilding and ship repair, a diversified
industrial base and tourism also contribute significantly to the local economy.
Eighteen military bases and four military command headquarters,
including Naval Base Norfolk, the world's largest navy base, are located in the
area. In August 1991, 136,800 persons or 23.3% of the total labor force in
Hampton Roads were employed by the government through the military or
military-related employers. Military employees, retirees and dependents make up
28.9% of the total population. Although the region has diversified its economic
base, government jobs and government contractors still pay one-third of the
salaries for the region's workers. Although the military presence to date has
been generally favorable for the Hampton Roads economy, during the period of
massive troop deployments for the Persian Gulf War in late 1990 and early 1991,
the region suffered a temporary but dramatic population loss (totaling an
estimated 75,000 persons or 5.4% of the Hampton Roads population, including
military personnel and dependents) and an accompanying decline in consumer
spending.
In 1993, the Federal government approved the BRAC Commission's list of
proposed base closures. In this proposal, the BRAC Commission voted to close
three military facilities, which was projected to cost the Hampton Roads area
approximately 5,400 civilian and military jobs. However, the BRAC Commission
ultimately voted to expand a number of Hampton Roads bases in connection with
operations being relocated to Hampton Roads after the closure of other bases in
other parts of the country and the consolidation of affected personnel and their
dependents at larger installations like those in Norfolk. Any closure
recommendations in future years that result in a decrease in the number of
military personnel and related civilian jobs in the region could negatively
impact the Hampton Roads area in general and the Company's sales in particular.
In particular, the BRAC Commission is expected to consider additional base
closures in the future, and it is likely the Hampton Roads area will be affected
by those actions. Moreover, a substantial portion of the labor force in the
Hampton Roads area is employed in the civilian shipbuilding and repair industry,
and any significant decline in the number of ships to be retained in the United
States Navy could lead to further negative impacts on the area's economy.
Richmond, the capital of Virginia, is the Commonwealth's largest
financial, manufacturing, and distribution center. Richmond is headquarters for
more than 35 major corporations, including 8 Fortune 500 companies and 15
Fortune 1000 companies. With a population of approximately 758,000, Greater
Richmond was ranked as the fifty-third fastest growing metropolitan area from
1980 to 1990 according to the 1990 U.S. Census Bureau Report.
Competition
The retail food industry is a highly competitive, low-margin business
and includes national, regional and local supermarket chains, local independent
operators, wholesale clubs, convenience stores, and mass merchandisers that
carry food products. Discount retailers, led by membership warehouses, have
become increasingly competitive over the past five to six years. Significant
factors that affect competition among food retailers include convenient store
locations, price, service, cleanliness and product quality and variety. The
Company's Farm Fresh stores compete, to a lesser extent, with video rental
chains, drug store operators, local delis, bakeries and floral operators.
The Company's principal competitors have greater financial,
distribution and marketing resources than the Company, and could use those
resources to take steps which could adversely affect the Company's competitive
position and financial performance. The Company's ability to compete also is
adversely affected by its level of indebtedness, limitations imposed by its
existing debt agreements, including the Revolving Credit Facility, and
limitations imposed by the Indentures governing the Holding Company Notes and
the Notes ("Indentures").
In Hampton Roads, the Company's direct supermarket competitors and
their respective share of traditional supermarket sales as reported in the June
1996 issue of Food World, include Food Lion, Inc. ("Food Lion") (37%); The Great
Atlantic and Pacific Tea Company, Inc. ("A&P") (7%); Bonnie Be-Lo Markets, Inc.,
a regional grocery chain (4%); Winn Dixie Stores, Inc. ("Winn Dixie") (2%) and a
number of independent operators. In Hampton Roads, the Company also competes
with the U.S. military commissaries which are available to military personnel,
retirees and their dependents. During 1995, Hannaford Bros., a publicly held
supermarket chain, began opening stores in both the Richmond and Hampton Roads
markets. Harris Teeter, also a publicly held supermarket chain, entered the
Hampton Roads market in 1996. Additionally, both Wal-Mart and KMart have opened
"supercenters" in Hampton Roads and in Richmond. Supercenters contain full
supermarket operations in addition to a full line discount mass merchandise
store. In 1996, competitors opened a total of eight new stores in Hampton Roads,
and approximately eight additional new stores are expected to open in 1997. The
increased competitive environment in the Hampton Roads market resulting from the
infusion of these new competitors led to a decline in the Company's same store
sales in 1996 and constitutes a significant continuing challenge to the Company.
Seasonality
The Company's fiscal year ends on the Saturday closest to December 31,
and is divided into 13 four-week periods for accounting purposes. Therefore, the
first three quarters are comprised of three periods (twelve weeks) and the
fourth quarter is comprised of four periods (sixteen weeks). Every five years,
the Company's fiscal year is 53 weeks in length. In a 53-week year, the fourth
quarter consists of seventeen weeks. For the 52 weeks ended December 28, 1996,
the average percentage of sales occurring in each of the four quarters was 23%,
24%, 24% and 29%, respectively, compared to 24%, 24%, 24% and 28%, respectively,
for fiscal 1995. Profitability varies by quarter due to the timing of holidays
and the annual influx of summer tourists. For the 52 weeks ended December 28,
1996, and December 30, 1995, the average percentage of EBITDA occurring in each
of the four quarters was 22%, 26%, 23% and 29%, respectively.
Employees
Farm Fresh employs approximately 6,300 people, 71% of whom work part
time. The predominantly part-time work force is typical of the grocery industry,
and permits the Company to minimize its labor costs while maximizing its
scheduling flexibility. Farm Fresh maintains competitive employee benefit
programs which include health coverage, paid vacations, holidays, a 401(k)
retirement savings plan and tuition reimbursement.
Intermittently since 1986, Farm Fresh has been one of the targets of a
campaign by Local 400 of the United Food and Commercial Workers Union, AFL-CIO,
CLC, Local 400 (the "UFCW" or "the Union") to organize its nonsupervisory
employees. To date, the Union has filed only one petition for an election with
the National Labor Relations Board. That election, limited to a small group of
employees in one of the Company's bakery operations, was won by the Company in
August of 1990.
In connection with the Safeway Acquisition, Safeway obtained a
favorable vote from its employees, who were represented by the UFCW, to waive
certain provisions of their Union contract in exchange for a severance package.
Farm Fresh later hired many of these employees to work in its Richmond area
stores. Shortly after the Safeway Acquisition, the Union engaged in sporadic
informational picketing at a number of Richmond area stores, protesting the
Safeway Acquisition. In June 1994, the Union announced an attempt to organize
employees at some or all of Farm Fresh's Richmond area stores. Subsequently, the
Union engaged in intermittent picketing and solicitation at a number of these
stores, most of which were sold in the Hannaford Transaction in September 1995.
To date, no election petition has been filed, and the Union's activities have
had no material effect on sales or operations. Management cannot predict whether
any election petition will be filed in the future or the scope of such a
petition.
Management does not believe that the Union has the support of Farm
Fresh's employees, as evidenced by the Union's lack of past organizing success
and failure to petition for an election in any significant unit of Farm Fresh
employees. Management continues to oppose actively the Union's organizing
efforts. There can be no assurance, however, that the Union will not be
successful in obtaining a sufficient showing of interest to warrant an election.
If the Union were successful in an election in a significant unit of
Farm Fresh employees, the Company could be adversely affected as a result of
collective bargaining negotiations. However, management believes that its
current wages and benefits do not differ materially from prevailing rates in its
market areas.
Trademarks and Service Marks
The Company protects its intellectual property through the use of
trademarks and service marks. The Company has received a United States
registered trademark for "Farm Fresh," and a Virginia registered trademark for
"Rack & Sack." Certain governmental licenses and permits, including alcoholic
beverage licenses, health permits and various business licenses, are necessary
in the Company's operations. The Company believes it has all material licenses
and permits necessary to enable it to conduct its business.
Recent Developments Regarding Revolving Credit Facility
In 1996, the lenders under the Revolving Credit Facility and the
Company agreed to renew the facility. The renewal extended the expiration date
of the Revolving Credit Facility from December 1996 until January 13, 1998,
removed the requirement to maintain certain ratios, including a leverage ratio,
a ratio of earnings to fixed charges and an interest coverage ratio, and also
removed the minimum net worth requirement. Under the terms of the renewal, the
Revolving Credit Facility continues to bear interest at the same rate as the
initial facility, subject to adjustment under certain circumstances for changes
in operating performance. In addition, the Company is required to maintain a
minimum level of cash flow and to limit capital expenditures, as well as
maintain a monthly average undrawn availability of $2.0 million. The renewal
also waived the Company's noncompliance as of December 30, 1995 with the minimum
fixed charge coverage ratio covenant contained in the Revolving Credit Facility,
which would have allowed the lender to demand repayment of all borrowings under
the Revolving Credit Facility. In February 1997, the lender also waived the
Company's breach in fiscal 1996 of the covenant in the Revolving Credit Facility
limiting capital expenditures. The Company's capital expenditures in fiscal 1996
were $21 million, which exceeded the maximum of $18 million allowed under the
facility. In connection with this waiver, the Revolving Credit Facility was
amended to limit the Company's capital expenditures in fiscal 1997 to $8
million, however, this amount has been further reduced to $6 million as
described below. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
The Company recently entered into an additional amendment to the
Revolving Credit Facility that amends certain covenants. Specifically, the
amendment revises the definition of "EBITDA" to provide that such term as used
in the Revolving Credit Facility shall not take account of up to an additional
$2 million of non-cash charges applicable to the write down of assets in
connection with the closing of a Farm Fresh store. The amendment also modifies
the covenant related to the Company's required EBITDA. Specifically, the
amendment reduces the Company's required EBITDA for the four quarters ended June
14, 1997 and September 6, 1997 from $39 million and $40.5 million, respectively,
to $37.5 million each and reduces the required EBITDA for the four quarters
ended December 27, 1997 from $42 million to $40 million. Finally, the amendment
also modifies the covenant limiting the capital expenditures that the Company
can incur, reducing such amount for fiscal 1997 from the $8 million that was
provided for in the February 1997 amendment to $6 million.
Potential Inability of FF Holdings to Make Cash Interest Payment on Holding
Company Notes
FF Holdings is a holding company with no independent operations from
the Company. As a result, the ability of FF Holdings to pay interest or
dividends is dependent upon the Company's ability to pay dividends to FF
Holdings in an amount sufficient to satisfy such obligations. The ability of the
Company to pay these dividends will be dependent upon the Company's future
performance and its ability to refinance or restructure its existing debt,
including the Revolving Credit Facility, which terminates in January 1998.
Assuming FF Holdings elects to pay interest through the October 1, 1997 interest
payment date by distributing additional Holding Company Notes in a principal
amount equal to the interest then due, FF Holdings will be required to make
level, semi-annual cash interest payments of $7.1 million each or $14.1 million
annually, to noteholders beginning on April 1, 1998, through the maturity date
of the Holding Company Notes. Even in the unlikely event that the Company had
sufficient cash flow to pay the required dividends to FF Holdings, covenants in
the Indentures and other instruments evidencing the Company's debt obligations
will restrict the Company's ability to make cash dividend payments to FF
Holdings. Assuming the Company were unable to make cash dividends to FF
Holdings, FF Holdings would be unable to pay cash interest on the Holding
Company Notes and would go into default under the FF Holdings Indenture. In the
event of such a default, the trustee would be entitled to exercise all of its
rights under the Indenture for the Holding Company Notes, including the
acceleration of the principal of the notes. It is also possible that such an
event could lead the FF Holdings noteholders to acquire a controlling interest
in the Company, which could in turn trigger a "Change of Control" as defined in
the Company's Indentures. A change of control would require the the Company to
offer to repurchase the Notes resulting in the effective acceleration of the
maturity of the Notes. There can be no assurance that the Company would be able
to finance such a repurchase. If it were not able to finance such a repurchase,
then the Company would be in default under its Indentures.
In anticipation of the potential inability of FF Holdings to pay
interest on the FF Holdings obligations in April 1998 and the possible
foreclosure of the FF Holdings' noteholders on the common stock of the Company,
management of the Company is currently exploring strategic alternatives. The
Company has engaged an investment banking firm to assist in this process. There
can be no assurance that the Company will be able to secure sufficient capital
to enable it to meet its obligations in the event of an accleration of the
Notes. In that event, the Company may be required to enter into some form of
reorganization.
Dependence on Revolving Credit Facility; Potential Violations of Covenants
The Revolving Credit Facility requires the Company to comply with
certain financial and operating covenants including a limitation on indebtedness
and liens. The Company's ability to meet such tests and comply with certain
other covenants contained in the Revolving Credit Facility will be subject to,
among other things, its future performance, which in turn is subject to
financial, business and other factors affecting the business and operations of
the Company, including factors beyond its control, such as prevailing economic
conditions. There can be no assurance that the Company will be able to achieve
or maintain the financial ratios contained in the Revolving Credit Facility.
Failure to meet such financial tests or other covenants could result in a
default thereunder. If any such default were not remedied, or waived, within the
applicable grace period, if any, the lenders under the Revolving Credit Facility
would be entitled to declare the amounts outstanding thereunder due and payable,
accelerate the payment of all such amounts and foreclose upon the assets of the
Company (which include all of the Company's accounts receivable, inventory and
substantially all of its other assets) collateralizing such payment. While the
lenders have waived Company events of default in the past, there can be no
assurance that future events of default would be waived. For information
regarding previous defaults by the Company of various covenants in the Revolving
Credit Facility, see "Recent Developments Regarding Revolving Credit Facility"
above.
Limitations on Capital Expenditures
The Company's long term prospects depend in part on its ability to make
necessary capital expenditures, including expenditures incurred in connection
with remodeling or reformatting existing stores and building new stores. The
Company has opened one new store in 1997 for which construction was begun in
1996. The Company does not intend to commence any further new store construction
for the remainder of 1997, but will continue its maintenance capital program.
Capital expenditures for fiscal 1997 are limited to $6 million under the
Revolving Credit Facility, compared to $21 million that was spent on capital
expenditures in fiscal 1996. Due to the significant investment in capital
expenditures for the last several years, the Company believes that this
reduction of capital expenditures for 1997 will not substantially impact current
operations. However, in the long term, if capital expenditures are substantially
reduced, management believes that the Company's operations and ultimately its
cash flow would be adversely impacted. See "Item 1. Business - Recent
Developments Regarding Revolving Credit Facility" and "Item 7. Management's
Discussions and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Item 2. Properties
The Company's stores are located in the Hampton Roads, metropolitan
Richmond and Shenandoah Valley areas of Virginia, The majority of the Company's
facilities are leased. The Company owns nine stores (two of which are operated
under long-term ground leases, with the Company owning the improvements at such
locations) and its Distribution Center, which, along with fixtures and
equipment, secure the Revolving Credit Facility.
The leased stores are generally on long-term leases. All but one of the
leases which expire in the next five years have renewal options. The 40 leased
stores are operated under 14 operating leases and 26 capital leases. A typical
store lease has a term of 20 years with several five-year renewal options. The
majority of these leases are net of utilities, insurance and taxes and many
provide for fixed minimum rentals with additional percentage rental triggered at
various sales levels. All stores are either in strip centers or are free
standing and all have ample parking. Farm Fresh owns substantially all of the
fixtures and equipment used in both its leased and owned stores and owns
substantially all of its office equipment and furniture and fixtures.
The Company's executive office is located at 7530 Tidewater Drive,
Norfolk, Virginia 23505, and its telephone number is (757) 480-6700.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation relating to
claims arising out of its normal business operations. The Company is not now
engaged in any such legal proceedings that are expected individually or in the
aggregate to have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This item is not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
FF Holdings is the sole shareholder of the Company and the Company's
stock is not publicly traded.
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Item 6. Selected Consolidated Financial Data
The following table sets forth selected consolidated financial data derived from
the audited consolidated financial statements of the Company. The financial data
set forth below should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto, included
elsewhere in this document.
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Year Ended(a) Year Ended(a) Year Ended(a) Year Ended(a) Year Ended(a)
January 2, January 1, December 31, December 30, December 28,
1993 1994 1994 1995 1996
---- ---- ---- ---- ----
(dollars in thousands except statistical data)
<S> <C>
Statement of Loss Data:
Sales $ 672,407 $ 741,182 $ 885,883 $ 885,087 $ 761,494
Cost of sales (508,602) (561,167) (677,542) (674,776) (583,521)
-------- --------- --------- ---------- ----------
Gross profit 163,805 180,015 208,341 210,311 177,973
Depreciation and amortization (19,346) (22,220) (24,955) (21,750) (20,678)
Other selling, general and administrative expenses (124,231) (140,330) (167,527) (164,340) (138,607)
Store closure and other charges (8,123) (7,186) - (2,635) (1,497)
Write down of long-lived assets to be disposed(b) - - - (7,231) (2,756)
Interest expense (21,409) (29,315) (35,150) (35,231) (34,547)
Gain on sale of Nick's stores 1,953 - - -
Loss on disposition of assets - (1,923) (396) (4,376) (538)
Other, net 285 226 99 (702) 322
-------- --------- --------- ---------- ---------
Loss before income taxes (7,066) (20,733) (19,588) (25,954) (20,328)
Income tax settlement (1,400)(c) - - - -
--------- --------- --------- --------- --------
Net loss $ (8,466) $ (20,733) $ (19,588) $ (25,954) (20,328)
========= ========== ========== ========== ==========
Deficiency of earnings to fixed charges(d) $ (7,066) $ (20,733) $ (19,588) $ (25,954) (20,328)
Balance Sheet Data (end of period):
Total assets $ 232,637 $ 261,106 $ 256,289 $ 207,903 198,709
Total long-term debt, less current portion 223,206 263,291 272,876 257,199 265,623
Stockholder's deficit (62,385)(e) (80,685) (97,993) (123,970) (144,127)
Other Operating Data:
EBITDA(f) $ 40,178 $ 40,256 $ 41,184 $ 46,097 $ 39,717
EBITDA margin 5.98% 5.43% 4.64% 5.21 5.22%
Interest coverage ratio 1.9 1.4 1.2 1.3 1.2
Capital expenditures(g) 16,703 29,753 8,063 17,346 18,329
Store Data:
Combination and super warehouse stores
open at end of period 54 65 66 52 49
Stores opened or acquired during the year 8 18 2 1 1
Stores closed or sold during the year 1 6 1 15 4
Stores remodeled during the year 4 8 - 5 3
</TABLE>
- ---------------------
(a) The Company's fiscal year is based on a 52-53 week fiscal year ended on
the Saturday nearest to December 31. The year ended January 2, 1993
included 53 weeks.
(b) The Company implemented Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (Statement 121) in 1995 and recorded
a charge related to assets held for disposal. Implementation of Statement
121 had no impact on assets to be held and used.
(c) The $1,400 income tax settlement reflected in the year ended January 2,
1993 represents the settlement of the IRS audits of the Company's 1986
through 1989 tax returns.
(d) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent loss before income taxes and fixed charges less
interest capitalized during the period. "Fixed charges" consist of
interest expense, amortization of deferred financing costs and one-third
of all rentals, representing the portion of rental expense attributable
to interest. Earnings were insufficient to cover fixed charges for all
periods presented.
(e) In conjunction with the Recapitalization, the Company paid a dividend of
$31,974 to FF Holdings.
(f) EBITDA is calculated as gross profit less selling, general and
administrative expenses plus depreciation and amortization, the LIFO
adjustment, other noncash expenses and interest income as presented in
the Company's financial statements. For 1992, other expenses include
noncash income ($395) and an insurance premium adjustment ($1,089)
related to actual casualty experience for the years 1989 through 1991.
There were no similar noncash expenses reflected in the EBITDA
calculation for any other period presented. EBITDA is not intended to
equate to cash flow from operations or to represent an alternative to net
income or any other measure of performance under generally accepted
accounting principles.
(g) Capital expenditures include purchases reflected on the Company's
consolidated statement of cash flows plus property and equipment
purchased in conjunction with store acquisitions. Assets obtained under
new capital leases are not reflected.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with "Item 6.
Selected Consolidated Financial Data" and the Consolidated Financial Statements
and related notes thereto included elsewhere in this Form 10-K. The Company's
fiscal year ends on the Saturday closest to December 31, and is divided into 13
four-week periods for accounting purposes. Therefore, the first three quarters
are comprised of three periods (twelve weeks) and the fourth quarter is
comprised of four periods (sixteen weeks).
Comparison of 52 Weeks Ended December 28, 1996 with 52 Weeks Ended December 30,
1995
Sales. Sales for the 52 week period ended December 28, 1996 were $761.5
million, a decrease of 14.0% over the $885.1 million in 1995. Same store sales
decreased 2.2% in fiscal 1996 consisting of increases of 3.4% and 0.2% in the
first and second quarters and decreases of 4.3% and 6.2% in the third and fourth
quarters. The decrease in sales was attributable in large part to the closure of
six combination stores, primarily in the fourth quarter of 1995, and the sale of
10 combination stores to Hannaford Bros. in September 1995. The Company also
sold two combination stores and closed two combination stores in 1996. The
decrease in same store sales was attributable to increased competition in the
Company's principal market resulting from the opening of eight new stores by
competitors.
Cost of Sales. Cost of sales for the 52 week period ended December 28,
1996 totaled $583.5 million, a decrease of $91.3 million or 13.5% from 1995.
Cost of sales was 76.6% of sales in 1996 as compared to 76.2% of sales in 1995.
This increase in cost of sales as a percentage of sales is due to increased
volume in the Company's super warehouse stores, which operate at lower margins
compared to the Company's combination stores and promotional markdowns taken in
response to the increased competition in the Company's principal market as
described above.
Depreciation and Amortization. Depreciation and amortization amounted
to $20.7 million for the 52 weeks ended December 28, 1996, a decrease of $1.1
million or 5.0% over the 52 weeks ended December 30, 1995. As a percent of
sales, depreciation and amortization represented 2.7% and 2.5%, respectively in
1996 and 1995. The decrease in depreciation and amortization is primarily
attributable to the Hannaford Transaction and the sale or closure of 6
additional stores in 1995 and 4 additional stores in 1996. The impact of the
closures was partially offset by the one new store opened and the five store
remodels in each of 1995 and 1996.
Other Selling, General and Administrative Expenses. Other selling,
general and administrative expenses for the 52 week period ended December 28,
1996 were $138.6 million, a decrease of $25.7 million or 15.6% from the
comparable period in 1995. These expenses as a percentage of sales decreased to
18.2% in 1996 from 18.6% in 1995. The decrease in other selling, general and
administrative expenses as a percent of sales is primarily due to a decrease in
advertising expense due to reduced advertising in the Richmond market and
increased vendor-supported advertising.
Store Closure and Other Charges. During 1996, the Company closed two
stores. In conjunction with the closures, the Company accrued $1.5 million of
future costs, recorded based on discounted cash flows directly attributable to
the closed stores. The costs accrued include rent, taxes, utilities, common area
maintenance and other costs associated with the store locations.
Interest Expense. Interest expense totalled $34.5 million, a decrease
of $0.7 million from the comparable period in 1995. The decrease is attributable
to a lower average outstanding balance on the Company's revolving credit
facility and the conversion of $19.3 million face value of convertible
subordinated debentures into $10.3 million in cash during the fourth quarter of
1995 and 1996.
Write Down of Long-Lived Assets to be Disposed. In March 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 121., Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. ("Statement 121"). Statement 121 requires
that long-lived assets and certain identifiable intangible assets to be held and
used by an entity be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market or discounted cash flow value is
required. Statement 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less costs to sell. In 1996, the Company recognized an
impairment in value of long-lived assets to be disposed of $2.8 million. The
write down related to two stores closed in 1996 and two stores closed in the
first quarter of 1997. Two of the four stores are under contract for sale in
1997. In 1995, the Company implemented SFAS No. 121 as described below.
Loss on Disposition of Assets. The loss on disposition of assets
decreased from $4.4 million in 1995 to $0.5 million in 1996. The decrease is
primarily attributable to the loss of $2.4 million recorded as a result of the
Hannaford Transaction.
Other, Net. The Company recorded a gain of $0.3 million and $0.4
million on the conversion of $8.7 million and $10.5 million at face value of
convertible subordinated debentures during 1996 and 1995, respectively. In
addition, during 1995, Virginia Supermarkets, Inc., an entity in which the
Company had a $1.1 million investment in preferred stock, was sold. As a result,
the Company wrote off its investment in the preferred stock.
Comparison of 52 Weeks Ended December 30, 1995 with 52 Weeks Ended December 31,
1994.
Sales. Sales for the 52 week period ended December 30, 1995 were
$885.1 million, a decrease of 0.1% over the $885.9 million in 1994. Same
store sales increased 3.2% in fiscal 1995 consisting of an increase of 3.2%,
2.1%, 3.2% and 4.2% in the first, second, third and fourth quarters,
respectively. The increase in same store sales was fully offset by the closure
of six combination stores, primarily in the fourth quarter, and the sale of
10 combination stores in the Hannaford Transaction. See "Item 1. Business."
Cost of Sales. Cost of sales for the 52 week period ended December 30,
1995 totaled $674.8 million, a decrease of $2.7 million or 0.4% from 1994. Cost
of sales was 76.2% of sales in 1995 as compared to 76.5% of sales in 1994,
primarily due to improvement in shrinkage.
Depreciation and Amortization. Depreciation and amortization amounted
to $21.8 million for the 52 weeks ended December 30, 1995, a decrease of $3.2
million or 12.8% over the 52 weeks ended December 31, 1994. As a percent of
sales, depreciation and amortization represented 2.5% and 2.8%, respectively, in
1995 and 1994. The decrease in depreciation and amortization is primarily
attributable to several assets, obtained in conjunction with the acquisition of
Farm Fresh in 1988, reaching the end of their assigned useful lives, the sale of
10 stores in the Hannaford Transaction in September 1995 and the closure of 6
additional stores in 1995.
Other Selling, General and Administrative Expenses. Other selling,
general and administrative expenses for the 52 week period ended December 30,
1995 were $164.3 million, a decrease of $3.2 million or 1.9% from the comparable
period in 1994. These expenses as a percentage of sales decreased to 18.6% in
1995 from 18.9% in 1994. The decrease in other selling, general and
administrative expenses as a percent of sales is primarily due to a decrease in
salaries and other payroll costs due to a change in mix from the combination to
the super warehouse store format. Super warehouse stores, which contributed 21%
of total sales in 1995 and 15% of total sales in 1994, are less labor intensive
than the service oriented combination store format.
Store Closure and Other Charges. During 1995, the Company closed six
stores. In conjunction with the closures, the Company accrued $2.6 million of
future costs, recorded based on discontinued cash flows, directly attributable
to the closed stores. The costs accrued included rent, taxes, utilities, common
area maintenance and other costs associated with the store locations.
Interest Expense. Interest expense remained consistent at $35.2
million for the 52 week periods ended December 30, 1995 and December 31, 1994.
Loss on Disposition of Assets. Loss on disposition of assets totalled
$4.4 million, an increase of $4.0 million over 1994. In September 1995, the
Company sold 10 stores, three of which had been previously closed, in the
Hannaford Transaction for gross proceeds of $28.4 million. A $2.5 million loss
was recorded pertaining to the sale. The remainder of the increase is primarily
due to the write off of leasehold improvements and leasehold rights in closed
stores.
Write Down of Long-Lived Assets to be Disposed. The Company adopted
Statement 121 in 1995. Upon evaluation of the carrying value of its assets held
for disposal, the Company wrote down certain assets by $7.2 million.
Implementation of Statement 121 had no impact on assets to be held and used.
Other, Net. During 1995, Virginia Supermarkets, Inc., an entity in
which the Company had a $1.1 million investment in preferred stock, was sold. As
a result, the Company wrote off its investment in the preferred stock. The
effect of the write down was partially offset by a gain of $0.4 million on the
conversion of $10.5 million at face value of convertible subordinated
debentures.
Inflation
The Company's cost of sales is affected by a number of factors that are
beyond the Company's control, including the cost of merchandise, the competitive
climate and general and regional economic conditions. As is typical in the
retail food industry, the Company has generally been able to maintain margins by
adjusting its selling prices, but competitive conditions may, from time to time,
render it unable to do so while maintaining or increasing its market share.
Liquidity and Capital Resources
Liquidity. The Company is highly leveraged. As of December 28,
1996, the Company had total long-term debt of $265.6 million and a
stockholders' deficit of $144.1 million.
Cash flow from operations as well as amounts available under the
Revolving Credit Facility represent the Company's primary sources of short-term
liquidity. At December 28, 1996, the Company had approximately $15.7 million
available under the Revolving Credit Facility subject to certain borrowing base
limitations, less $4.0 million reserved for the redemption of the convertible
subordinated debentures and $1.1 million reserved due to outstanding letters of
credit. The Indentures and the Revolving Credit Facility impose operating and
financial restrictions on the Company. Such restrictions limit or prohibit,
among other things, the ability of the Company to incur additional indebtedness,
repay indebtedness prior to its stated maturity, create liens, sell assets,
engage in mergers or acquisitions, make certain capital expenditures, enter into
capital leases and/or pay dividends. In particular, certain covenants in the
Indentures limit, with certain exceptions, the Company's ability to incur
additional indebtedness if, after giving effect to such additional indebtedness,
the Company's interest coverage ratio would be less than or equal to 2.25:1. The
Company's interest coverage ratio is currently less than 2.25:1 and is
anticipated to remain so in the foreseeable future; accordingly, the Company's
ability to incur additional debt will be limited by these covenants, and the
Company's ability to make strategic acquisitions or take other actions could be
restricted.
The Company is current in the payment of all of its existing principal
and interest payments on its indebtedness including the cash interest payment
made April 1, 1997 on its Senior Notes and Series A Notes. However, the Company
will require substantial cash flow to meet its future interest and principal
repayment obligations under the Senior Notes, the Series A Notes, and other
indebtedness. See the Company's Consolidated Financial Statements included
elsewhere herein for specific information regarding such repayment obligations.
Cash flows from the Company's operating, investing and financing
activities for the 52 weeks ended December 28, 1996 and December 30, 1995, are
disclosed in the accompanying consolidated statements of cash flows. In the 52
weeks ended December 28, 1996, the Company's operating activities generated $9.3
million in cash as compared to the $3.7 million generated in the corresponding
period in 1995. This increase is primarily attributable to the increase in cash
flow generated from changes in working capital.
The Company used $13.4 million in cash in its investing activities in
1996 as compared to the $7.7 million in cash provided in the corresponding
period in 1995. This fluctuation is primarily a result of the decrease in
proceeds generated from the sale of assets of $24.1 million. As described above,
the Company received proceeds of $28.4 million from the Hannaford Transaction in
1995. In 1996, the Company sold two operating stores and one store and one
parcel of land included in assets held for sale for proceeds of approximately
$4.0 million. The Company also completed a sale leaseback of equipment for
proceeds of $0.9 million. In addition, in 1996 the Company opened one new store,
remodeled or reformatted five stores and replaced existing equipment and
fixtures in existing stores at a cost of $18.3 million. In 1995, the Company
opened one new store, remodeled or reformatted five stores and replaced existing
equipment and fixtures at existing stores at a cost of $17.1 million as well as
acquired the assets of a Drug Emporium franchise at a cost of $4.3 million.
In the 52 weeks ended December 28, 1996, the Company provided $3.0
million in cash in its financing activities as compared to $16.1 million used in
the corresponding period in 1995. This fluctuation is primarily due to the net
borrowings against the revolving credit facility in 1996 as compared to net
repayments made in 1995 using the proceeds from the Hannaford Transaction.
On a consolidated basis, the Company's earnings were insufficient
to cover fixed charges incurred for the year ended December 28, 1996 by $20.3
million. See "Item 6. Selected Consolidated Financial Data." This
deficiency is due to the net loss incurred by the Company.
FF Holdings is a holding company with no independent operations from
the Company. As a result, the ability of FF Holdings to pay interest or
dividends is dependent upon the Company's ability to pay dividends to FF
Holdings in an amount sufficient to satisfy such obligations. The ability of the
Company to pay these dividends will be dependent upon the Company's future
performance and its ability to refinance or restructure its existing debt,
including the Revolving Credit Facility, which terminates in January 1998..
Assuming FF Holdings elects to pay interest through the October 1, 1997 interest
payment date by distributing additional Holding Company Notes in a principal
amount equal to the interest then due, FF Holdings will be required to make
level, semi-annual cash interest payments of $7.1 million each or $14.1 million
annually, to noteholders beginning on April 1, 1998, through the maturity date
of the Holding Company Notes. Even in the unlikely event that the Company had
sufficient cash flow to pay the required dividends to FF Holdings, covenants in
the Indentures and other instruments evidencing the Company's debt obligations
will restrict the Company's ability to make cash dividend payments to FF
Holdings. Assuming the Company were unable to make cash dividends to FF
Holdings, FF Holdings would be unable to pay cash interest on the Holding
Company Notes and would go into default under the FF Holdings Indenture. In the
event of such a default, the trustee would be entitled to exercise all of its
rights under the Indenture for the Holding Company Notes, including the
acceleration of the principal of the notes. It is also possible that such an
event could lead the FF Holdings noteholders to acquire a controlling interest
in the Company, which could in turn trigger a "Change of Control" as defined in
the the Company Indentures. A change of control would require the Company to
offer to repurchase the Notes, requiring an effective acceleration of the
maturity of the Notes. There can be no assurance that the Company would be able
to finance such a repurchase. If it were not able to finance such a repurchase,
then the Company would be in default under its Indentures.
In anticipation of the potential inability of FF Holdings to pay
interest on its obligations in April 1998 and the possible acquisition by the FF
Holdings' noteholders of a controlling interest in the Company, management of
the Company is currently exploring strategic alternatives. There can be no
assurance that the Company will generate sufficient capital to meet its
obligations. In that event, the Company may be required to enter into some form
of reorganization.
The following table summarizes the Company's estimated debt service and
net budgeted capital expenditures for fiscal 1997.
(in thousands)
Budgeted capital expenditures $5,000
Sale of assets (3,300)
Interest expense 34,000
Principal repayments of obligations under 3,000
capital leases
Principal repayments of notes payable 800
Payments under closed store and restructuring 1,900
accruals, net of imputed interest ------
$41,400
------
Beginning April 1, 1997 the Company implemented a new short-term
business strategy to improve its financial performance and liquidity. The focus
is to conserve capital, reduce administrative and operating expenses, and direct
management attention toward the operation of existing stores.
The Company plans to fund capital expenditures with cash generated from
operations and amounts available under the Revolving Credit Facility. During
1997, the Company has opened one super warehouse store at a cost of
approximately $7.5 million, most of which was incurred in 1996. In addition to
these expenditures, management estimates it will spend approximately $2.5
million in 1997 on maintenance capital in existing stores. The Company does not
intend to commence any further new store construction in 1997. In the near term,
the Company believes that a reduction or postponement of its new store program
will not substantially impact current operations. However, in the long-term, if
this program is substantially reduced, management believes that the Company's
operations and ultimately its cash flow would be adversely impacted.
At December 28, 1996, the Company reflected three closed stores and
several parcels of undeveloped land as assets held for sale on its balance sheet
at the estimated net realizable value of the assets less costs to sell of $10.0
million. One of the closed stores is currently under lease. In addition, the
Company sold one parcel of land for gross proceeds of $1.7 million during the
first quarter of fiscal 1997 and has an additional parcel under contract for a
sales price of $1.0 million. Management is pursuing the sale of the remaining
assets.
The Company's relationship with its suppliers is an important component
of its liquidity. During the period of time that strategic alternatives are
explored, as discussed above, management expects that credit terms with
suppliers will remain substantially consistent with past practices. However, if
credit with its major suppliers is curtailed, the Company's liquidity would
decrease.
Based on the Company's ability to generate working capital through its
operations and amounts available under the Revolving Credit Facility, the
Company believes that it has sufficient liquidity and financial resources to
meet its obligations for fiscal 1997.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements are included in Exhibit
99.1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
This item is not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors and Executive Officers of the Company
The following table sets forth the names, ages, and titles of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Title Director Since
---- --- ----- --------------
<S> <C>
Michael E. Julian, Jr. 46 Director, Chairman of the Board 1988
Ronald E. Johnson 47 Director, President and Chief Executive Officer 1994
Keith E. Alessi 42 Director 1993
Vincent J. Mastracco, Jr. 57 Director 1986
Barton J. Winokur 57 Director 1993
Stuart L. Agranoff 48 Director 1997
Richard D. Coleman 42 Executive Vice President - Administration; Chief --
Financial Officer
Jeffrey P. Thomas 37 Senior Vice President - Operations --
Stephen R. Harmon 43 Senior Vice President - Merchandising --
</TABLE>
All directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualified. Officers are appointed by
the Board of Directors and serve at the discretion of the Board.
Background and Experience
Effective March 4, 1997, Mr. Julian resigned as President and Chief
Executive Officer of the Company to become President and Chief Executive Officer
of Jitney-Jungle Stores of America, Inc. ("Jitney Jungle"), a supermarket chain
in Mississippi. Mr. Julian continues to serve as Chairman of the Board, a
position he has held since September 1988. He joined the Company as Executive
Vice President and Chief Operating Officer in 1987, and served as Chief
Executive Officer from 1988 until 1997, and as President from 1992 until 1997.
Mr. Julian served as Executive Vice President and Chief Operating Officer of
Richfood from 1986 to 1987. He previously was a principal in a food consulting
firm and held various management positions in a regional supermarket company.
Mr. Johnson was appointed President and Chief Executive Officer of the
Company effective March 4, 1997. He had joined the Company as Vice President in
1988 and was named Senior Vice President - Operations in 1990, Senior Vice
President - Operations and Merchandising in 1993 and Senior Executive
Vice-President, Chief Operating Officer in 1994. In January 1995, Mr. Johnson
left the Company to serve as Chairman, Chief Executive Officer and President of
Kash n' Karry Food Stores, Inc. ("Kash n' Karry"), a Florida supermarket chain,
a position he held until January 1997. Mr. Johnson also serves as a director of
Jitney-Jungle.
Mr. Alessi was Vice Chairman, Secretary, Treasurer and Chief Financial
Officer of the Company from 1994 until July 1996. He is now Chairman of the
Board, President and Chief Executive Officer of Jackson Hewitt Inc., a tax
return preparation company. From 1988 through 1992, Mr. Alessi was employed by
the Company. He served as President at the time he left the Company. He is also
director of Cort Business Services and Shoppers Food Warehouse Corp.
III-1
<PAGE>
Mr. Mastracco is a member of the law firm of Kaufman & Canoles,
Norfolk, Virginia, and has been a practicing attorney in Norfolk since 1966. In
addition, he is a member of the Crestar Bank Norfolk Metropolitan Board of
Directors, and several profit and non-profit corporations. He was a director
from 1973 to 1986 of one of the Company's predecessors, Giant Open Air Markets,
Inc., a company which merged with Farm Fresh in 1986.
Mr. Winokur is a partner of Dechert Price & Rhoads and serves as a
director of CDI Corporation, Metro Corp., FFFG Holdings/Davco Food, Inc., Alco
Health Services Corporation and Alco Health Distribution Corporation.
Mr. Agranoff has been employed by Citicorp Venture Capital Ltd.
("Citicorp Venture Capital"), an investment group, since 1988, and
currently serves as Chief Financial Officer and Vice President. Citicorp
Venture Capital is an affiliate of 399 Venture Partners, Inc., which owns common
stock of FF Holdings.
Mr. Coleman was appointed Executive Vice President - Administration and
Chief Financial Officer effective March 4, 1997. Prior to joining the Company,
Mr. Coleman was employed by Kash n' Karry, serving as Vice President and
Controller from 1988 through 1995 and Senior Vice President of Administration
and Chief Financial Officer from 1996 until January 1997. Kash n' Karry filed a
voluntary petition under federal bankruptcy laws in connection with a
"pre-packaged" bankruptcy in November 1994. The plan of reorganization was
confirmed by the Bankruptcy Court and became effective in December 1994.
Mr. Thomas joined the Company in 1981. In 1986, he became a store
manager for the Company's first super warehouse store. In 1990, he was appointed
district manager for the Company's super warehouse stores. In 1993, he became
Vice President - Discount Operations, and in 1995 he became Senior Vice
President - Operations.
Mr. Harmon joined the Company in 1982. In 1988, he became a
district manager. In 1990, he was appointed Director of Merchandising and
served in that position until 1994, when he was appointed Vice President
- - Marketing. In 1995, he became Senior Vice President - Merchandising.
III-2
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table. The following table sets forth the
compensation earned by the Company's former Chief Executive Officer and certain
other current and former executive officers of the Company whose total annual
salary and bonus exceeded $100,000 during the 52 weeks ended December 28, 1996.
<TABLE>
<CAPTION>
All Other
Salary Bonus Compensation(a)
------- ----- ---------------
<S> <C>
Michael E. Julian, Jr.(b) 1996 $442,122 $150,000 $8,400
Chairman, and Director, former Chief 1995 437,780 200,000 8,400
Executive Officer and President 1994 377,866 100,000 8,400
Keith E. Alessi(c) 1996 $219,400 $ 30,000 $7,800
Vice Chairman, former Chief 1995 318,354 162,500 7,800
Financial Officer 1994 150,000 50,000 56,127(d)
Jeffrey P. Thomas 1996 $128,751 $30,000 $7,200
Senior Vice President - 1995 109,732 57,500 6,588
Operations 1994 89,159 20,000 5,167
Stephen R. Harmon 1996 $128,751 $50,000 $6,328
Senior Vice President - 1995 112,531 57,500 5,537
Merchandising 1994 80,872 12,500 4,005
</TABLE>
- ---------------
(a) Includes the Company's matching contribution to the Farm Fresh 401(k)
Retirement Savings Plan and life insurance premiums.
(b) Mr. Julian resigned as Chief Executive Officer and President effective
March 4, 1997.
(c) Mr. Alessi joined the Company on July 1, 1994 and resigned as Chief
Financial Officer effective July 1, 1996.
(d) Includes a $50,000 consulting fee paid to Mr. Alessi for the period
from January 1 through June 30, 1994 for consulting services he
performed on behalf of the Company.
Director Compensation. Directors are paid a retainer of $3,750 per
quarter. In addition, directors receive $1,000 for attendance in person at
regular Board meetings, and $500 for attendance at Committee meetings. Board
members receive $500 for any meetings conducted by conference call.
Employment Agreements of Ronald E. Johnson and Richard D. Coleman
The Company has entered into Employment Agreements with each of Ronald
E. Johnson and Richard D. Coleman (the "Johnson Employment Agreement" and
"Coleman Employment Agreement" respectively), both of which became effective as
of March 4, 1997.
Pursuant to the Johnson Employment Agreement, Mr. Johnson is employed
as the President and Chief Executive Officer of the Company. The period of Mr.
Johnson's employment under the Johnson Employment Agreement is two years unless
the agreement is terminated sooner in accordance with its terms. After the
initial two year employment period, the Johnson Employment Agreement can be
extended on a year-to-year basis unless either the Company or Mr. Johnson gives
180 days written notice that the term of the Johnson Employment Agreement will
not be extended. Mr. Johnson's base annual salary under the Johnson Employment
Agreement is $400,000 per year. Mr. Johnson is also eligible to participate in
an annual cash bonus program which will contain financial performance formulas
III-3
<PAGE>
and criteria to be agreed upon by the Company and Mr. Johnson. Pursuant to this
bonus program, the Company intends that Mr. Johnson will be eligible to earn
$200,000 upon satisfaction of the specified financial performance formulas and
criteria. Mr. Johnson is also entitled to an additional bonus payment in the
event the Company enters into certain transactions during the term of the
Johnson Employment Agreement, including a reorganization under Chapter 11 of the
Bankruptcy Code, a consensual settlement or other restructuring between the
Company and its holders of indebtedness for borrowed money, or any acquisition
of the Company by a third party. Mr. Johnson is also entitled to a severance
payment equal to 100% of his base salary in the event his employment is
terminated for specified reasons, including an election by the Company to
terminate employment without cause or as a result of death or disability. The
Johnson Employment Agreement also prohibits Mr. Johnson from disclosing
confidential information of the Company to third parties and imposes a
noncompetition restriction on Mr. Johnson.
The terms of the Coleman Employment Agreement are substantially the
same as those of the Johnson Employment Agreement except that (i) Mr. Coleman is
employed as Chief Financial Officer, (ii) Mr. Coleman's annual base salary is
$200,000 per year, (iii) the annual cash bonus program is intended to make Mr.
Coleman eligible to earn $100,000 upon satisfaction of specified financial
performance formulas and criteria, and (iv) the bonus payable upon the
occurrence of certain extraordinary transactions as described above is less than
the amount that would be payable to Mr. Johnson.
Employment Agreements of Jeffrey P. Thomas and Stephen R. Harmon
The Company entered into Executive Employment and Severance Agreements
(each an "Employment Agreement") with Jeffrey P. Thomas and Stephen R. Harmon
(collectively the "Executives"), each effective as of December 1, 1995. Except
with respect to the titles of the Executives and as otherwise described below,
the principal terms of each Employment Agreement are the same.
The Employment Agreements provide that the Executives will receive base
and incentive compensation as established from time to time by the Board of
Directors at its sole discretion. The initial terms of the Employment Agreements
expired November 30, 1996. These Employment Agreements have continued on a year
to year term; provided, however, that either the Company or an Executive may
terminate the Employment Agreement for any reason effective as of any date after
November 30, 1996, upon 180 days written notice. In addition, the Company has
the right to terminate employment of an Executive at any time with or without
notice for cause (as defined in each Employment Agreement) or if an Executive
suffers a disability (as defined in each Employment Agreement).
Each Employment Agreement provides that upon termination of employment
for specified reasons, an Executive is entitled to a severance payment equal to
the Executive's average annual base salary during the twelve calendar month
period immediately preceding the date of notice of termination. This severance
payment is triggered if, and only if, either (i) an Executive's employment is
terminated by the Company without cause for reasons other than an Executive's
death or disability or (ii) an Executive voluntarily terminates employment for
"good reason," which is defined to include a material reduction in an
Executive's compensation or employment related benefits, a significant
diminishment of an Executive's title, working conditions or management
responsibilities, the relocation of the Executive's place of employment beyond a
certain mileage radius without the Executive's consent or the occurrence of a
"change of control", as also defined in the Employment Agreements.
The Employment Agreements impose duties on each Executive to maintain
the confidentiality of information relating to the organization, business or
finances of the Company and further provide that documents in the possession of
an Executive and relating to any manner within the scope of the business of the
Company are the property of the Company.
III-4
<PAGE>
Other Executive Employment Agreements
On February 6, 1997, the Company entered into employment agreements
with seventeen Vice Presidents and District Managers, all of which have
substantially the same terms. Under these agreements, an executive generally is
entitled to a severance payment equal to six months of base salary in the event
employment is terminated, or in some cases regardless of whether employment is
terminated, as a result of a change of control of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
All of the outstanding capital stock of the Company is owned by FF
Holdings. The authorized common stock of FF Holdings consists of Class A Common
Stock, par value $.01 per share ("Class A Common Stock"), Class B Common Stock,
par value $.01 per share ("Class B Common Stock"), and Class C Common Stock, par
value $.01 per share ("Class C Common Stock" and, together with Class A Common
Stock and Class B Common Stock, "FF Holdings Common Stock.") Except as otherwise
described herein, all shares of Class A Common Stock, Class B Common Stock and
Class C Common Stock are identical and entitle the holders thereof to the same
rights, privileges, benefits and notices. Holders of Class A Common Stock may
elect at any time to convert any or all of such shares into Class B Common Stock
on a share-for-share basis. Holders of Class B Common Stock may elect at any
time to convert any or all of such shares into Class A Common Stock, on a
share-for-share basis, to the extent the holder thereof is not prohibited from
owning additional voting securities by virtue of regulatory restrictions. Class
C Common Stock is not convertible. The holders of Class A Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders of FF Holdings and will vote together, as a single class, with the
holders of Class C Common Stock who are entitled to 20,000 votes per share.
Except as otherwise required by law, holders of Class B Common Stock generally
do not possess the right to vote on any matters to be voted upon by the
stockholders of FF Holdings.
The current authorized preferred stock of FF Holdings consists of
700,000 shares of 14.25% cumulative preferred stock with a liquidation value of
$100 per share. Holders of the preferred stock have priority with respect to
dividend rights and rights on liquidation, winding up, and dissolution over
holders of all classes of Common Stock. Except as otherwise required by law,
holders of the preferred stock generally do not possess the right to vote on any
matters to be voted upon by the stockholders of FF Holdings.
The following table sets forth as of December 28, 1996 certain
information regarding the ownership of shares of each class of equity securities
of FF Holdings by each of FF Holdings' directors, all directors and officers as
a group, and each person who is known to FF Holdings to beneficially own 5% or
more of a class of voting securities of FF Holdings. Except as otherwise
discussed below, each of the directors, officers and 5% stockholders has sole
voting and investment power with respect to all shares so owned.
<TABLE> Percent
<CAPTION> of All
Number of Percent Number of Percent Number Percent of Classes
Class A of Class Class B of Class of Class Class C of
Common A Common Common B Common C Common Common Common
Shares Shares Shares Shares Shares Shares Shares
Beneficially Beneficially Beneficially Beneficially Beneficially Beneficially Beneficially
Name Owned Owned Owned Owned Owned Owned Owned
---- ----- ----- ----- ----- ----- ----- ------
<S> <C>
Directors and Officers
Ronald E. Johnson 800 1.9% .010 4.2% 0.03%
Keith E. Alessi(a) 4,400 10.6% .055 22.9% 0.2%
Michael E. Julian, Jr.(b) 7,200 17.4% .090 37.5% 0.3%
Vincent J. Mastracco, Jr. - - 30,000 1.2% - 1.2%
All directors and officers 12,400 29.9% 30,000 1.2% 0.155 64.6% 1.7%
as a group (9 persons)(c)
Other 5% Stockholders
399 Venture Partners (d) 13,300 32.1% 1,904,389 77.5% 76.7%
Farm Fresh, Inc.(c) 1,000 2.4% .075 31.2% .04%
Trustee for the DBL
Liquidating Trust(e) 5,000 12.1% 95,000 3.9% 4.0%
<CAPTION>
Number Percent
of of
Preferred Preferred
Shares Shares
Voting Beneficially Beneficially
Name Power Owned Owned
---- ----- ----- -----
<S> <C>
Directors and Officers
Ronald E. Johnson 2.2% 1,107 .6%
Keith E. Alessi(a) 11.9% 6,199 3.2%
Michael E. Julian, Jr.(b) 19.5% 10,144 5.3%
Vincent J. Mastracco, Jr. 6,514 3.4%
All directors and officers 33.5% 23,964 12.5%
as a group (9 persons)(c)
Other 5% Stockholders
399 Venture Partners (d) 28.7% 145,709 76.1%
Farm Fresh, Inc.(c) 5.4% 2,838 1.5%
Trustee for the DBL
Liquidating Trust(e) 10.8%
</TABLE>
(a) The address of such beneficial owner is 4575 Bonney Road, Virginia Beach,
Virginia 23462.
III-5
<PAGE>
(b) The address of such beneficial owner is P.O. Box 3409, Jackson,
Mississippi 39207.
(c) The address of such beneficial owners is 7530 Tidewater Drive, Norfolk,
Virginia 23505.
(d) Venture Partners disclaims beneficial ownership as to 3,382 shares of
Class A Common Stock and 35,036 shares of Class B Common Stock held by
certain employees of Venture Partners and its affiliates. The address of
Venture Partners is 1209 Orange Street, Wilmington, Delaware 19801.
Venture Partners is a wholly-owned, indirect subsidiary of Citicorp.
(e) The address of such beneficial owner is 60 Broad Street, New York, New
York 10004.
Item 13. Certain Relationships and Related Transactions
Management and Shareholder Debt. The Company made loans to certain
Management Investors to facilitate the purchase of FF Holdings Junior Debentures
and shares of Class A Common Stock and Class C Common Stock. The loans are
nonrecourse and are secured by the securities purchased with the proceeds of
such loans. These loans bear interest at 7.0% per annum and are due October
2004. At December 28, 1996, Mr. Julian, Mr. Alessi, Mr. Johnson and Susan Mayo,
a shareholder and former Vice President of the Company, owed the Company
$633,236, $334,544, $70,811 and $70,349, respectively.
Real Estate Partnerships. In 1996, the Company leased two of its stores
from three different general partnerships in which it owned 20%, 33% and 33%
partnership interests, respectively. The Company currently leases one of its
stores from two different general partnerships in which it owns 33% partnership
interests. The Company also leases two of its combination stores from a Virginia
general partnership, of which one of the partners is Vincent J. Mastracco, Jr.,
a director of Farm Fresh and FF Holdings and a stockholder of FF Holdings.
Management believes the rent the Company pays each of these partnerships is at
prevailing market rates.
Fair Markets. Michael E. Julian, Jr., Chairman of the Board, former
President and Chief Executive Officer of Farm Fresh and FF Holdings and a
stockholder of FF Holdings, and Keith Alessi, the Vice Chairman and former Chief
Financial Officer of Farm Fresh and FF Holdings and a stockholder of FF
Holdings, each own 500 shares, or 25%, of the Class A Common Stock of Fair
Markets Incorporated ("Fair Markets"). An affiliate of Venture Partners owns 999
shares of Class A Common Stock (49.9%), 3,500 shares of Series A Cumulative
preferred stock (100%) and 8,001 shares of Class B Common Stock (100%) of Fair
Markets. Fair Markets and its wholly owned subsidiary, Marketplace Acquisition
Company, owed the Company $522,944 at December 30, 1995. Fair Markets sold its
stores in 1996, and the entire receivable was repaid to the Company.
III-6
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
1. The Consolidated Financial Statements are included in Exhibit
99.1.
2. The following Financial Statement Schedules are included in
Exhibit 99.2:
Schedule II - Valuation and Qualifying Accounts.
3. The exhibits on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form 10-K and the
Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
IV-1
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Registrant has not sent its security holder an annual report covering
the Registrant's last fiscal year or a proxy statement, form of proxy or other
proxy soliciting material with respect to the annual meeting of the Registrant's
security holder.
IV-2
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 12, 1997.
FARM FRESH, INC.
By /s/ Ronald E. Johnson
---------------------
Ronald E. Johnson
Director, President,
and Chief Executive Officer
In accordance with the Exchange Act, this Report has been signed by
the following persons in the capacities and on the dates stated. Each person, in
so signing, also makes, constitutes and appoints Ronald E. Johnson and
Vincent J. Mastracco, Jr. and each of them individually, his true and lawful
attorney-in-fact in his place and stead, with full power of substitution, to
execute and cause to be filed with the Securities and Exchange Commission, any
and all amendments to this Report, including any exhibits or other documents
filed in connection therewith.
<TABLE>
<CAPTION>
Signatures Title Date
<S><C>
/s/ Michael E. Julian, Jr. Chairman of the Board of April 14, 1997
- -------------------------- Directors,
Michael E. Julian, Jr.
/s/ Ronald E. Johnson Director, President, April 14, 1997
- -------------------------- Chief Executive Officer
Ronald E. Johnson (Principal Executive Officer)
/s/ Keith E. Alessi Director April 14, 1997
- --------------------------
Keith E. Alessi
Director April 14, 1997
- --------------------------
Stuart L. Agranoff
/s/ Vincent J. Mastracco, Jr. Director April 14, 1997
- -----------------------------
Vincent J. Mastracco
/s/ Barton S. Winokur Director April 14, 1997
- --------------------------
Barton J. Winokur
/s/ Ronald D. Coleman Executive Vice President- April 14, 1997
- -------------------------- Administration, Chief Financial
Ronald D. Coleman Officer (Principal Financial and
Accounting Officer)
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
No. Description Number
<S> <C>
1 Form of Underwriting Agreement. (incorporated herein by reference to the *
Registrant's Registration Statement on Form S-1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on August 4, 1992)
3.1 Articles of Incorporation of Farm Fresh, Inc., as amended. (incorporated herein *
by reference to the Registrant's Registration Statement on Form S-1,
Registration No. 33-50458, filed with the Securities and Exchange Commission on
August 4, 1992)
3.2 Bylaws of Farm Fresh, Inc. (incorporated herein by reference to the *
Registrant's Registration Statement on Form S-1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on August 4, 1992)
3.3 Amended and Restated Bylaws of Farm Fresh, Inc. (incorporated herein by *
reference to the Registrant's Registration Statement on Form S-1, Amendment No.
4, Registration No. 33-50458, filed with the Securities and Exchange Commission
on March 31, 1995)
4.1 Form of the Indenture dated as of October 1, 1992, by and between Farm Fresh, *
Inc. and First National Bank Association Trustee, relating to the 12.25% Senior
Notes due 2000. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-1, Amendment No. 1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on September 16, 1992)
4.2 Form of 12.25% Senior Notes of Farm Fresh, Inc. (attached as Exhibit A to *
Exhibit 4.1 above). (incorporated herein by reference to the Registrant's
Registration Statement on Form S-1, Amendment No. 1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on September 16, 1992)
4.3 Form of the Indenture dated as of December 13, 1993, by and between Farm Fresh, *
Inc. and First National Bank Association as Trustee, relating to the 12.25%
Senior Notes due 2000, Series A. (incorporated herein by reference to the
Registrant's Form 8-K filed with the Securities and Exchange Commission on
December 28, 1993)
4.4 Form of 12.25% Senior Notes due 2000, Series A of Farm Fresh, Inc. (Attached as *
Exhibit A to Exhibit 4.3 above). (incorporated herein by reference to the
Registrant's Form 8-K filed with the Securities and Exchange Commission on
December 28, 1993)
5 Opinion of Kaufman & Canoles (including Consent) regarding the validity of the *
12.25% Senior Notes being registered. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-4, Registration No. 33-75398,
originally filed with the Securities and Exchange Commission on February 15,
1994)
10.1(a) Amended and Restated Credit, Security, Pledge and Guaranty Agreement, dated as *
of March 30, 1990, among Farm Fresh, Inc., Debtors and Guarantors referenced to
therein, Lenders referred to therein and Chemical Bank, as Administrative Agent,
and Crestar Bank and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form S-1, Registration
No. 33-50458, filed with the Securities and Exchange Commission on August 4,
1992)
10.1(b) Amendment No. 1, dated as of September 28, 1990 to the Amended and Restated *
Credit, Security, Pledge and Guaranty Agreement dated as of March 30, 1990,
among Farm Fresh, Inc., Debtors and Guarantors referenced to therein, Lenders
referred to therein and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on August 4, 1992)
10.1(c) Amendment No. 2, dated as of December 31, 1990 to the Amended and Restated *
Credit, Security, Pledge and Guaranty Agreement dated as of March 30, 1990,
among Farm Fresh, Inc., Debtors and Guarantors referenced to therein and
Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB Trust Company
as Co-agents. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-1, Registration No. 33-50458, filed with the
Securities and Exchange Commission on August 4, 1992)
10.1(d) Amendment No. 3, dated December 31, 1991 to the Amended and Restated Credit, *
Security, Pledge and Guaranty Agreement dated as of March 30, 1990, among Farm
Fresh, Inc., Debtors and Guarantors referred to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB
Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on August 4, 1992)
10.1(e) Amendment No. 4, dated June 15, 1992 to the Amended and Restated Credit, *
Security, Pledge and Guaranty Agreement dated as of March 30, 1990, among Farm
Fresh, Inc., Debtors and Guarantors referred to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB
Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 1, Registration
No. 33-50458, filed with the Securities and Exchange Commission on September 16,
1992)
10.1(f) Amendment No. 5, dated July 15, 1992 to the Amended and Restated Credit, *
Security, Pledge and Guaranty Agreement dated as of March 30, 1990, among Farm
Fresh, Inc., Debtors and Guarantors referred to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB
Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 1, Registration
No. 33-50458, filed with the Securities and Exchange Commission on September 16,
1992)
10.1(g) Amendment No. 6, dated July 15, 1992 to the Amended and Restated Credit, *
Security, Pledge and Guaranty Agreement dated as of March 30, 1990, among Farm
Fresh, Inc., Debtors and Guarantors referred to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB
Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 1, Registration
No. 33-50458, filed with the Securities and Exchange Commission on September 16,
1992)
10.1(h) Amendment No. 7, dated October 2, 1992 to the Amended and Restated Credit, *
Security, Pledge and Guaranty Agreement dated as of March 30, 1990, among Farm
Fresh, Inc., Debtors and Guarantors referred to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB
Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 3, Registration
No. 33-50458, filed with the Securities and Exchange Commission on October
2, 1992)
10.1(i) Amendment No. 8, dated February 12, 1993 to the Amended and Restated Credit, *
Security, Pledge and Guaranty Agreement dated as of March 30, 1990, among Farm
Fresh, Inc., Debtors and Guarantors referred to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and Crestar Bank and LTCB
Trust Company, as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 4, Registration
No. 33-50458, filed with the Securities and Exchange Commission on March 31,
1995)
10.2 Deed of Trust and Security Agreement by Farm Fresh, Inc. to William J. Dorn and *
Mark S. Abraham, as Trustees, for the benefit of Metropolitan Life Insurance
Company, dated September 27, 1990, securing the aggregate principal amount of
$17,000,000. (incorporated herein by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-50458, filed with the Securities and
Exchange Commission on August 4, 1992)
10.3 Letter dated July 13, 1992 from Metropolitan Life Insurance Company waiving *
certain defaults under the Mortgage Facility. (incorporated herein by reference
to the Registrant's Registration Statement on Form S-1, Amendment No. 1,
Registration No. 33-50458, filed with the Securities and Exchange Commission on
September 16, 1992)
10.4(a) Indenture, dated as of March 1, 1985, between Farm Fresh, Inc. and United *
Virginia Bank as Trustee, relating to the 7% Convertible Subordinated Debentures
due 2010 - of Farm Fresh, Inc. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on August 4, 1992)
10.4(b) First Supplemental Indenture dated as of September 22, 1988. (incorporated *
herein by reference to the Registrant's Registration Statement on Form S-1,
Amendment No. 4, Registration No. 33-50458, filed with the Securities and
Exchange Commission on March 31, 1995)
10.5 Asset Purchase Agreement, dated April 19, 1989, between Farm Fresh, Inc., Open *
Air Markets, Inc. and Giant Enterprises, Inc. (incorporated herein by reference
to the Registrant's Registration Statement on Form S-1, Registration No.
33-50458, filed with the Securities and Exchange Commission on August 4, 1992)
10.6 Supply Agreement, dated as of April 12, 1991, among Richfood, Inc., FF Holdings *
Corporation, Farm Fresh, Inc., Nick's Markets, Inc. and Fair Markets,
Incorporated. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-1, Registration No. 33-50458, filed with the
Securities and Exchange Commission on August 4, 1992)
10.7 Asset Purchase Agreement, dated April 5, 1991, between Farm Fresh, Inc. and *
Richfood, Inc. regarding the purchase of certain stores located in Raleigh,
North Carolina. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-1, Registration No. 33-50458, filed with the
Securities and Exchange Commission on August 4, 1992)
10.8 License and Consulting Agreement, dated April 30, 1991, between Farm Fresh, Inc. *
and Fair Markets, Incorporated. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Registration No. 33-50458,
filed with the Securities and Exchange Commission on August 4, 1992)
10.9 Asset Purchase Agreement, dated February 28, 1992, between Nick's Markets, Inc. *
and Virginia Supermarkets, Inc. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 1, Registration
No. 33-50458, filed with the Securities and Exchange Commission on September 16,
1992)
10.10 Asset Purchase Agreement, dated February 28, 1992, between Fair Markets, *
Incorporated and Virginia Supermarkets, Inc. (incorporated herein by reference
to the Registrant's Registration Statement on Form S-1, Amendment No. 1,
Registration No. 33-50458, filed with the Securities and Exchange Commission on
September 16, 1992)
10.11 Stock Purchase Agreement, dated August 18, 1992, between Farm Fresh, Inc. and *
Virginia Supermarkets, Inc. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 3, Registration
No. 33-50458, filed with the Securities and Exchange Commission on October
2, 1992)
10.12 Farm Fresh, Inc. Interest Rate Swap Agreement between Farm Fresh, Inc. and *
Chemical Bank dated March 30, 1990. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1, Amendment No. 1, Registration
No. 33-50458, filed with the Securities and Exchange Commission on September 16,
1992)
10.13 Asset Purchase Agreement, dated March 6, 1992, between Fair Markets, *
Incorporated and Virginia Supermarkets, Inc. (incorporated herein by reference
to the Registrant's Registration Statement on Form S-1, Amendment No. 1,
Registration No. 33-50458, filed with the Securities and Exchange Commission on
September 16, 1992)
10.14 Asset Purchase Agreement, dated November 18, 1993, by and between Safeway Stores *
58, Inc., Safeway, Inc., and Farm Fresh, Inc. (incorporated herein by reference
to the Registrant's Form 8-K filed with the Securities and Exchange Commission
on December 28, 1993)
10.15 Revolving Credit Agreement, dated December 10, 1993, by and *
between Farm Fresh, Inc., certain guarantors and lenders and
NatWest USA Credit Corp. (incorporated herein by reference to
the Registrant's Form 8-K filed with the Securities and Exchange
Commission on December 28, 1993)
10.16 First Amendment to Supply Agreement, dated December 7, 1993, by and between *
Richfood, Inc., FF Holdings Corporation, Farm Fresh, Inc. and Fair Markets,
Incorporated. (Incorporated herein by reference to the Registrant's Form 8-K
filed with the Securities and Exchange Commission on December 28, 1993)
10.17 First Amendatory Agreement, dated March 25, 1994, by and between Farm Fresh, *
Inc., certain guarantors and lenders and NatWest USA Credit Corp. (incorporated
herein by reference to the Registrant's Registration Statement on Form S-1,
Amendment No. 4, Registration No. 33-50458, filed with the Securities and
Exchange Commission on March 31, 1995)
10.18 Second Amendatory Agreement, Consent and Waiver, dated September 23, 1994, by *
and between Farm Fresh, Inc., certain guarantors and lenders and NatWest USA
Credit Corp. (incorporated herein by reference to the Registrant's Registration
Statement on Form S-1, Amendment No. 4, Registration No. 33-50458, filed with
the Securities and Exchange Commission on March 31, 1995)
10.19 Third Amendatory Agreement, dated as of June 19, 1994, by and between Farm *
Fresh, Inc., certain guarantors and lenders and NatWest USA Credit Corp.
(incorporated herein by reference to the Registrant's Registration Statement on
Form S-1, Amendment No. 4, Registration No. 33-50458, filed with the Securities
and Exchange Commission on March 31, 1995)
10.20 Fourth Amendatory Agreement, dated December 31, 1994, by and between Farm Fresh, *
Inc., certain guarantors and lenders and NatWest USA Credit Corp. (incorporated
herein by reference to the Registrant's Registration Statement on Form S-1,
Amendment No. 4, Registration No. 33-50458, filed with the Securities and
Exchange Commission on March 31, 1995)
10.21 Asset Purchase Agreement, dated July 31, 1995, by and between Farm Fresh, Inc. *
and Hannaford Bros. Co. (Incorporated herein by referenced to Farm Fresh, Inc.'s
From 8-K filed with the Securities and Exchange Commission on October 9, 1995)
10.22 Fifth Amendatory Agreement, dated as of September 25, 1995, by and between FF *
Holdings Corporation, Farm Fresh, Inc. certain lenders and NatWest USA Credit
Corp. (Incorporated herein by referenced to Farm Fresh, Inc.'s From 8-K filed
with the Securities and Exchange Commission on October 9, 1995)
10.23 Executive Employment and Severance Agreement, dated as of December 1, 1995, by *
and between Farm Fresh, Inc. and Michael E. Julian. (Incorporated herein by
referenced to Farm Fresh, Inc.'s From 10-K for the year ended December 30, 1995,
Commission File Nos. 33-50458 and 33-75398, previously filed with the
Commission.)
10.24 Executive Employment and Severance Agreement, dated as of December 1, 1995, by *
and between Farm Fresh, Inc. and Keith E. Alessi. (Incorporated herein by
referenced to Farm Fresh, Inc.'s From 10-K for the year ended December 30, 1995,
Commission File Nos. 33-50458 and 33-75398, previously filed with the
Commission.)
10.25 Executive Employment and Severance Agreement, dated as of December 1, 1995, by *
and between Farm Fresh, Inc. and Jeffrey P. Thomas. (Incorporated herein by
referenced to Farm Fresh, Inc.'s From 10-K for the year ended December 30, 1995,
Commission File Nos. 33-50458 and 33-75398, previously filed with the
Commission.)
10.26 Executive Employment and Severance Agreement, dated as of December 1, 1995, by *
and between Farm Fresh, Inc. and Stephen R. Harmon. (Incorporated herein by
referenced to Farm Fresh, Inc.'s From 10-K for the year ended December 30, 1995,
Commission File Nos. 33-50458 and 33-75398, previously filed with the
Commission.)
10.27 Agreement by and between Giant Properties One and Farm Fresh, Inc., dated *
December 30, 1994. (Incorporated herein by referenced to Farm Fresh, Inc.'s
From 10-K for the year ended December 30, 1995, Commission File Nos. 33-50458
and 33-75398, previously filed with the Commission.)
10.28 Sixth Amendatory Agreement, dated September 9, 1995, by and *
between Farm Fresh, Inc., FF Holdings Corporation., certain
guarantors and lenders and NatWest USA Credit Corp.
(Incorporated herein by referenced to Farm Fresh, Inc.'s From
10-K for the year ended December 30, 1995, Commission File Nos.
33-50458 and 33-75398, previously filed with the Commission.)
10.29 Asset Purchase Agreement by and among American Health & Drug *
Distributors, Inc., American Health & Drug Distributors of
Charlottesville, Inc., and Farm Fresh, Inc., dated October 22,
1995. (Incorporated herein by referenced to Farm Fresh, Inc.'s
From 10-K for the year ended December 30, 1995, Commission File
Nos. 33-50458 and 33-75398, previously filed with the
Commission.)
10.30 Seventh Amendatory Agreement, dated May 15, 1996, by and between *
Farm Fresh, Inc., FF Holdings Corporation, certain guarantors
and lenders and NatWest USA Credit Corp. (Incorporated herein by
referenced to Farm Fresh, Inc.'s From 10-Q for the quarter ended
September 7, 1996, Commission File Nos. 33-50458 and 33-75398,
previously filed with the Commission.)
10.31 Eight Amendatory Agreement, dated March 31, 1996, by and between *
Farm Fresh, Inc., FF Holdings Corporation, certain guarantors
and lenders and NatWest USA Credit Corp. (Incorporated herein by
referenced to Farm Fresh, Inc.'s From 10-Q for the quarter ended
September 7, 1996, Commission File Nos. 33-50458 and 33-75398,
previously filed with the Commission.)
10.32 Ninth Amendatory Agreement, dated September 30, 1996, by and *
between Farm Fresh, Inc., FF Holdings Corporation, certain
guarantors and lenders and NatWest USA Credit Corp.
(Incorporated herein by referenced to Farm Fresh, Inc.'s From
10-Q for the quarter ended September 7, 1996, Commission File
Nos. 33-50458 and 33-75398, previously filed with the
Commission.)
**10.33 Tenth Amendatory Agreement, Consent and Waiver dated November 5,
1996, by and between Farm Fresh, Inc., certain guarantors and
lenders and Fleet Bank, N.A.
**10.34 Waiver and Eleventh Amendatory Agreement, dated February 21,
1997, by and between Farm Fresh, Inc., certain guarantors and
lenders and Fleet Bank, N.A.
**10.35 Waiver and Twelfth Amendatory Agreement, dated April 10, 1997, by and between
Farm Fresh, Inc. certain guarantors and lenders and Fleet Bank, N.A.
**10.36 Employment Agreement, dated March 4, 1997, by and between Farm Fresh, Inc. and
Ronald E. Johnson.
**10.37 Employment Agreement, dated March 4, 1997, by and between Farm Fresh, Inc. and
Richard D. Coleman.
**10.38 Form Employment Agreement No. 1 for Vice Presidents and District Managers.
**10.39 Form Employment Agreement No. 2 for Vice Presidents and District Managers.
**27 Financial Data Schedule
**99.1 Consolidated Financial Statements
**99.2 Financial Statement Schedules
</TABLE>
================================================================================
* Not filed herewith. In accordance with Rule 12(b)-32 of the General Rules
and Regulations under the Securities Exchange Act of 1934, the exhibit is
incorporated by reference.
** Filed herewith.
EXHIBIT 10.33
TENTH AMENDATORY AGREEMENT,
CONSENT AND WAIVER
FLEET BANK, N.A. (formerly known as
NATWEST USA CREDIT CORP.), as Agent and as a Lender
175 Water Street
New York, New York 10038
HELLER FINANCIAL, INC., as a Lender
101 Park Avenue
New York, New York 10178
as of November 5, 1996
FARM FRESH, INC.
FF HOLDINGS CORPORATION
c/o Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, Virginia 23501
Re: Revolving Credit Agreement dated as of December 10, 1993 (as
amended to date, the "Credit Agreement") among Farm Fresh,
Inc., the Guarantors named therein, the Lenders named therein,
and Fleet Bank, N.A. (formerly known as NatWest USA Credit
Corp.), as Agent
Ladies and Gentlemen:
Reference is made to the above-captioned Credit Agreement. You
have advised the Agent and Lenders that the Borrower desires to (i) enter into
an agreement (the "Store # 732 Agreement") between the Borrower and Staples Inc.
("Staples"), pursuant to which the Borrower intends to sell and assign, and
Staples intends to purchase and assume, the lease dated December 2, 1981 (as
amended, the "Store # 732 Lease Agreement") between the Borrower and O.T.R., an
Ohio general partnership, with respect to Store # 732 of the Borrower located in
Williamsburg, Virginia for a purchase price (before deduction for reasonable and
customary transaction fees and expenses) of approximately $512,880 (the
foregoing sale and assignment, the "Store 732 Sale") and (ii) enter into an
agreement dated on or about October 1, 1994, as amended (the "Williams Court
Shopping Center Agreement", and together with the Store # 732 Agreement, each an
"Agreement" and collectively, the "Agreements") between the Borrower and each of
Beacon Realty Corp. and Victory Village Limited Partnership (collectively, the
"Williams Court Real Property Purchasers"), pursuant to which the Borrower
intends to sell, and the Williams Court Real Property Purchasers intend to
purchase, the approximately 26 acre unimproved tract of real property described
on Schedule A hereto and located in Portsmouth, Virginia (the "Williams Court
Real Property " and, together with the Store #732 Lease Agreement, the "Sold
Assets") for a purchase price (before deduction for reasonable and customary
fees and expenses) of approximately $375,000 (the foregoing sale, the "Williams
Court Real Property Sale" and, together with the Store 732 Sale, each a "Sale"
and collectively, the "Sales").
Section 7.05 of the Credit Agreement restricts the ability of
the Borrower to sell, assign or otherwise dispose of any of its assets. Section
2.07(c) of the Credit Agreement requires that the Commitment thereunder be
reduced in connection with certain asset sale transactions. Section 2.09(f) of
the Credit Agreement requires that the Borrower give the Agent certain prior
written notice with respect to certain events, including certain prepayments.
You have requested that the Agent and Lenders (a) consent to
each of the Sales as described in this Amendment, Consent and Waiver; (b) waive
with respect to the Sales their right to the prior written notice of prepayment
as required under Section 2.09(f) of the Credit Agreement; (c) waive with
respect to the Sales their right to a Commitment reduction as referenced in
Section 2.07(c) of the Credit Agreement; and (d) release any security interest
of the Agent with respect to the Williams Court Real Property and with respect
to the Store #732 Lease Agreement.
Subject to the terms and conditions hereof, upon the
effectiveness of this Tenth Amendatory Agreement, Consent and Waiver, the Agent
and Lenders hereby (a) consent to the Sales; (b) waive their right to the prior
written notice of prepayment in connection with the Sales as required under
Section 2.09(f) of the Credit Agreement; (c) waive their right to a Commitment
reduction in connection with the Sales as referenced in Section 2.07(c) and (d)
release any lien and/or security interest in their favor in the Sold Assets;
provided, however, that the foregoing consent and waiver shall be limited to the
Sales as described herein and shall not apply to any other transaction; and
provided, further, that this Amendment, Consent and Waiver shall not diminish
any of the rights, powers and remedies of the Agent or Lenders under the Credit
Agreement or otherwise with respect to any other existing or future transaction.
This Amendment, Consent and Waiver shall be effective only
upon satisfaction of the following conditions precedent:
1. The Agent shall have received a true and complete copy of
all material agreements, documents, and instruments entered into in connection
with the Sales (collectively, the "Transaction Documents"), each of the
foregoing to be in form and substance satisfactory to the Agent and the Lenders,
and the Borrower shall have certified to the Agent and the Lenders that the
Sales shall have been consummated in accordance with the terms of the
Transaction Documents applicable to it and applicable law.
2. The Agent and Lenders shall have received either (i) the
consent with respect to the Sales of all of the holders of the Borrower's senior
unsecured indebtedness and Subordinated Indebtedness or (ii) an opinion of
counsel stating that the Sales do not conflict with or violate in any manner the
terms of any of the Borrower's Senior Notes (or the related Senior Indenture) or
Subordinated Indebtedness or in any manner affect status of the Obligations
under the Credit Agreement regarding the subordination provisions of the
Borrower's Subordinated Indebtedness, the foregoing to be in form and substance
satisfactory to the Agent and the Lenders.
3. The Agent shall have received counterparts to this
Amendment, Consent and Waiver, duly executed and delivered by each of the Agent,
the Lenders, the Borrower and the Guarantors, and the Agent shall have
additionally received all of the following documents, each document being dated
the effective date of this Amendment, Consent and Waiver, in form and substance
satisfactory to the Agent:
(a) a certificate of the Secretary or an
Assistant Secretary of the Borrower and the Guarantor certifying the names and
true signatures of their respective officers authorized to sign this Amendment,
Consent and Waiver and the other documents to be delivered hereunder;
(b) certified copies of (i) the resolutions of
the Board of Directors of the Borrower and the Guarantor approving this
Amendment, Consent and Waiver and (ii) all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Amendment, Consent and Waiver and the matters contemplated hereby;
(c) a certificate signed by a duly authorized
officer of each of the Borrower and the Guarantor stating that: (i) the
representations and warranties of the Borrower as set forth in Article IV of the
Credit Agreement and in any documents delivered therewith, including the Loan
Documents, are true and correct on and as of the date of such certificate as
though made on and as of such date (except insofar as such representations and
warranties relate expressly to an earlier date or are based on the accuracy of
schedules prepared as of a prior date); (ii) the execution, delivery and
performance by the Borrower and the Guarantor of this Amendment, Consent and
Waiver, and the Transaction Documents are within the Borrower's and Guarantor's
corporate powers, have been duly authorized by all necessary corporate action
and do not contravene (x) the charter or by-laws, and (y) any law or any
contractual restriction binding on or affecting the Borrower or the Guarantor;
(iii) no authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Borrower or the Guarantor of this
Amendment, Consent and Waiver; (iv) this Amendment, Consent and Waiver and each
of the Transaction Documents constitute the legal, valid and binding obligations
of the Borrower and the Guarantor enforceable against the Borrower and the
Guarantor in accordance with their respective terms; (v) there is no pending or
threatened action or proceeding affecting the Borrower, the Guarantor or any of
their respective subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the financial condition or
operations of the Borrower, the Guarantor or any subsidiary or which purports to
affect the legality, validity or enforceability of this Amendment, Consent and
Waiver, and/or any of the Transaction Documents; and
(d) a favorable opinion of Kaufman & Canoles,
counsel for the Borrower and the Guarantor, in a form reasonably acceptable to
the Agent and Lenders.
4. The entire net proceeds of the Sold Assets (to a maximum
amount equal to the principal amount of Loans outstanding at such time) shall
have been applied by the Borrower to a repayment of the outstanding principal
balance of the Loans, but such repayment will not reduce the Commitment under
the Credit Agreement.
The parties hereto acknowledge that the Store #732 Sale and
the Williams Court Real Property Sale may each be consummated on the same or
different dates and that the foregoing conditions precedent with respect to such
Sale may be satisfied on the same or on different dates. In the event that the
conditions precedent have been satisfied with respect to the Sales on different
dates or with respect to one Sale and not the other, then the consent of the
Agent and the Lenders shall be limited to the Sale for which all conditions
precedent have been satisfied.
By your signature below, you jointly and severally (a) repeat
each of the representations and warranties set forth in Article IV of the Credit
Agreement and in any documents delivered therewith, including the Loan
Documents, (except insofar as such representations and warranties relate
expressly to an earlier date or are based on the accuracy of schedules prepared
as of a prior date); (b) certify that, both before and after giving effect to
the Sales, the terms of this Amendment, Consent and Waiver and the terms of the
Transaction Documents, no Default or Event of Default has occurred and is
continuing (other than as the Borrower has notified the Agent in writing on or
before the effective date of this Amendment, Consent and Waiver); and (c)
confirm and reaffirm all collateral security, guarantees and other agreements
executed or furnished by you in connection with the Credit Agreement.
Except as modified hereby, all terms and conditions of the
Credit Agreement and the Loan Documents remain in full force and effect.
Terms used but not defined herein shall have the meaning
assigned thereto in the Credit Agreement.
The Borrower agrees to pay on demand all costs and expenses of
the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Amendment, Consent and Waiver
and the other instruments and documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Agent with respect thereto and with respect to advising the Agent as to
its rights and responsibilities hereunder and thereunder. The Borrower further
agrees to pay on demand all costs and expenses, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Amendment, Consent and Waiver and the other instruments and documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this paragraph. In
addition, the Borrower shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of this
Amendment, Consent and Waiver and the other instruments and documents to be
delivered hereunder, and agrees to save the Agent and each Lender harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omitting to pay such taxes.
This Amendment, Consent and Waiver may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
This Amendment, Consent and Waiver shall be governed by, and
construed in accordance with, the laws of the State of New York.
Very truly yours,
FLEET BANK, N.A. (formerly known as
NATWEST USA CREDIT CORP.), as
Agent and as Lender
By: /s/ FLEET BANK
----------------------
Title:
HELLER FINANCIAL, INC., as
Lender
By: /s/ HELLER FINANCIAL, INC.
----------------------------------
Title:
FARM FRESH, INC.
By: /s/ FARM FRESH, INC.
---------------------------
Title:
FF HOLDINGS CORPORATION,
as Guarantor
By: /s/ FF HOLDINGS CORPORATION
-----------------------------------
Title:
Schedule A
Williams Court Real Property Description
All those three certain tracts or parcels of land situate, lying and being in
the City of Portsmouth, Virginia, containing ten (10) acres, more or less, and
0.51 Acres, more or less, and sixteen point two six (16.26) acres, more or less,
respectively, and designated as "PARCEL B-1A", "PUMP STATION SITE" and "PARCEL
B-3" on the plat entitled, "MINOR SUBDIVISION OF PARCELS B-1 AND B-2, PROPERTY
OF FARM FRESH, INC. (M.B.13, PG.9), PORTSMOUTH, VIRGINIA," dated August 6, 1996,
and made by Hoggard/Eure Associates, P.C., of record in the Clerk's Office of
the Circuit Court for the City of Portsmouth, Virginia (the "Clerk's Office"),
in Map Book 16, page 165, to which plat reference is here made for a more
accurate and particular description of the said property.
Together with and subject to:
1. Easements, covenants, restrictions, and rights contained in declaration dated
August 1, 1988, of record in the Clerk's Office in Deed Book 1012, page 1504;
amended by amendment of declaration dated October 20, 1988, of record in the
Clerk's Office in Deed Book 1018, page 164; and further amended by second
amendment of declaration dated December 28, 1989, of record in the Clerk's
Office in Deed Book 1034, page 1757.
2. Easements and rights contained in reciprocal easement agreement dated
December 28, 1989, of record in the Clerk's Office in Deed Book 1034, page 1762;
amended by first amendment to reciprocal easement agreement dated September 25,
1995, of record in the Clerk's Office in Deed Book 1156, page 1814.
It being a portion of the property that was conveyed to the Grantor by Deed of
the City of Chesapeake, a municipal corporation, dated December 14, 1983, and
recorded in the Clerk's Office in Deed Book 870, at page 660.
Exhibit 10.34
WAIVER AND ELEVENTH AMENDATORY AGREEMENT
Dated as of February 21, 1997
This WAIVER AND ELEVENTH AMENDATORY AGREEMENT is among FARM
FRESH, INC., a Virginia corporation (the "Borrower"), the guarantors parties to
the Credit Agreement referred to below (the "Guarantors"), the lenders parties
to the Credit Agreement referred to below (the "Lenders"), and FLEET BANK, N.A.
(as successor to NatWest USA Credit Corp.), as agent (the "Agent") for the
Lenders thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Guarantors, the Lenders and the Agent
have entered into a Revolving Credit Agreement dated as of December 10, 1993 (as
amended to date, the "Credit Agreement"); the terms defined therein being used
herein as therein defined unless otherwise defined herein.
(2) The Borrower and the Lenders have, on the terms and
conditions stated below, agreed to waive and amend certain of the terms of the
Credit Agreement as hereinafter set forth.
SECTION 1. Waiver. The Borrower has advised the Agent and the
Lenders of the Borrower's non-compliance (the "Non-Compliance") with Section
7.07 of the Credit Agreement (Capital Expenditures), as the result of the
Capital Expenditures of the Borrower and its subsidiaries for the Fiscal Year
ending December, 1996 being $21,000,000, instead of the $18,000,000 Maximum
Amount under the Credit Agreement. Effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 3 hereof,
the Agent and the Lenders each hereby waive any Event of Default arising out of
the Borrower's Non-Compliance with Section 7.07 of the Credit Agreement;
provided, however, that the foregoing waiver shall be limited to the
Non-Compliance with Section 7.07 of the Credit Agreement and shall not apply to
any other non-compliances with the terms of the Credit Agreement or any other
Loan Documents. With respect to the aforementioned Non-Compliance with the
Capital Expenditures covenant for the Fiscal Year ending December, 1996, the
foregoing waiver shall also be effective as of December 28, 1996.
SECTION 2. Amendments to Credit Agreement. Effective as of the
date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 3 hereof, the Credit Agreement is hereby amended as follows:
Section 7.07 of the Credit Agreement is hereby amended by
deleting the table set forth therein and by substituting therefor the following
table:
"Period Maximum Amount
Fiscal Year ending December 28, 1996 $21,000,000
Fiscal Year ending December 27, 1997 $ 8,000,000
and each Fiscal Year thereafter"
SECTION 3. Conditions of Effectiveness. This Waiver and Amendatory
Agreement shall be operative as of the date hereof but shall become effective
when, and only when, the Agent shall have received (x) counterparts of this
Waiver and Amendatory Agreement executed by the Borrower and the Lenders or, as
to any of said Lenders, advice satisfactory to the Agent that such Lender has
executed this Waiver and Amendatory Agreement and (y) all of the following
documents, each document (unless otherwise indicated) being dated the effective
date, in form and substance satisfactory to the Agent:
(a) a certificate of the Secretary or an
Assistant Secretary of the Borrower and the Guarantor certifying the names and
true signatures of their respective officers authorized to sign this Waiver and
Amendatory Agreement, and the other documents to be delivered hereunder;
(b) a certificate signed by a duly authorized
officer of the Borrower stating that:
(i) the representations and warranties
of the Borrower as set forth in Article IV of the Credit Agreement and in any
documents delivered therewith, including the Loan Documents, are true and
correct on and as of the date of such certificate as though made on and as of
such date (except insofar as such representations and warranties relate
expressly to an earlier date or are based on the accuracy of schedules prepared
as of a prior date),
(ii) the representations and warranties
contained in Section 4 hereof are correct on and as of the date of such
certificate as though made on and as of such date, and
(iii) after giving effect to this
Waiver and Amendatory Agreement, no Default or Event of Default has occurred
and is continuing.
(c) certified copies of (i) the resolutions
of the Board of Directors of the Borrower and of the Guarantor approving this
Waiver and Amendatory Agreement and (ii) all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
this Waiver and Amendatory Agreement and the matters contemplated hereby; and
(d) a favorable opinion of Kaufman & Canoles,
counsel for the Borrower and the Guarantor, in a form reasonably acceptable to
the Agent and Lenders.
SECTION 4. Representations and Warranties of the
Borrower. The Borrower represents and warrants as follows:
(a) The execution, delivery and performance
by the Borrower of this Waiver and Amendatory Agreement and the Credit Agreement
as amended hereby are within the Borrower's and the Guarantor's corporate
powers, have been duly authorized by all necessary corporate action and do not
contravene (i) the charter or by-laws, and (ii) any law or any contractual
restriction binding on or affecting the Borrower or the Guarantor.
(b) No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower or the Guarantor of this Waiver and Amendatory Agreement and the
Credit Agreement as amended hereby.
(c) This Waiver and Amendatory Agreement
and the Credit Agreement as amended hereby, constitute legal, valid and
binding obligations of the Borrower and the Guarantor enforceable against the
Borrower and the Guarantor in accordance with their respective terms.
(d) There is no pending or threatened action or
proceeding affecting the Borrower, the Guarantor or any of their respective
subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Borrower, the Guarantor or any subsidiary thereof or which purports to affect
the legality, validity or enforceability of this Waiver and Amendatory Agreement
and the Credit Agreement as amended hereby.
(e) The execution, delivery and performance
of this Waiver and Amendatory Agreement does not conflict with or violate in
any manner the terms of any of the Borrower's Senior Notes (or the related
Senior Indenture) or Subordinated Indebtedness or in any manner affect the
status of the Obligations under the Credit Agreement regarding the subordination
provisions of the Borrower's Subordinated Indebtedness.
SECTION 5. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of this Waiver and
Amendment, on and after the date hereof each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement," "thereunder," "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby.
(b) Except as specifically amended above, the
Credit Agreement and the Notes, and all other Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed.
(c) The execution, delivery and
effectiveness of this Waiver and Amendatory Agreement shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Agent under any of the Loan Documents, nor constitute a waiver
of any provision of any of the Loan Documents.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Waiver and Amendatory Agreement and the other instruments and documents to
be delivered hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities hereunder
and thereunder. The Borrower further agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Waiver and Amendatory Agreement and the
other instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 6. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Waiver and Amendatory
Agreement and the other instruments and documents to be delivered hereunder, and
agrees to save the Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omitting to
pay such taxes.
SECTION 7. Execution in Counterparts. This Waiver and
Amendatory Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Waiver and Amendatory
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
and Amendatory Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
FARM FRESH, INC.
By:/s/ Farm Fresh, Inc.
--------------------
Name:
Title:
FF HOLDINGS CORPORATION,
as Guarantor
By:/s/ FF Holdings Corporation
---------------------------
Name:
Title:
FLEET BANK, N.A., (as successor
to NatWest USA Credit Corp.), as Lender
By:/s/ Thomas Maiale
-----------------
Name: Thomas Maiale
Title: Vice President
FLEET BANK, N.A. (as successor to
NatWest USA Credit Corp.), as Agent
By:/s/ Thomas Maiale
-----------------
Name: Thomas Maiale
Title: Vice President
HELLER FINANCIAL, INC., as Lender
By:/s/Salvatore A. Salzillo
------------------------
Name: Salvatore A. Salzillo
Title: Assistant Vice President
EXHIBIT 10.35
TWELFTH AMENDATORY AGREEMENT
This TWELFTH AMENDATORY AGREEMENT, dated as of April 10, 1997,
is among FARM FRESH, INC., a Virginia corporation (the "Borrower"), the
guarantors parties to the Credit Agreement referred to below (the "Guarantors"),
the lenders parties to the Credit Agreement referred to below (the "Lenders"),
and FLEET BANK, N.A. (as successor to NatWest USA Credit Corp.), as agent (the
"Agent") for the Lenders thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Guarantors, the Lenders and the Agent
have entered into a Revolving Credit Agreement dated as of December 10, 1993 (as
amended to date, the "Credit Agreement"); the terms defined therein being used
herein as therein defined unless otherwise defined herein.
(2) The Borrower and the Lenders have, on the terms and
conditions stated below, agreed to amend certain of the terms of the Credit
Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. Effective as of the
date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 2 hereof, the Credit Agreement is hereby amended as follows:
(a) The definition of "EBITDA" in Article I of the Credit
Agreement is hereby amended by adding the phrase "(for the fiscal year ended
December 28, 1996, an amount not to exceed $4,000,000)" immediately after the
phrase "and for each fiscal year thereafter, an amount, not to exceed $2,000,000
in the aggregate for any such fiscal year" in clause (vi) of such definition.
(b) Section 7.07 of the Credit Agreement is hereby amended by
deleting the table set forth therein and by substituting therefor the following
table:
"Period Maximum Amount
Fiscal Year ending December 28, 1996 $21,000,000
Fiscal Year ending December 27, 1997 $6,000,000
and each Fiscal Year thereafter"
(c) Section 7.11 of the Credit Agreement is hereby amended by
deleting the table set forth therein and by substituting, in lieu thereof, the
following table:
"Date of Determination Amount
December 28, 1996 $37,000,000
March 22, 1997 $38,000,000
June 14, 1997 $37,500,000
September 6, 1997 $37,500,000
December 27, 1997 $40,000,000"
SECTION 2. Conditions of Effectiveness. This Amendatory Agreement shall
be operative as of the date hereof but shall become effective when, and only
when, the Agent shall have received (x) counterparts of this Amendatory
Agreement executed by the Borrower, the Guarantors and the Lenders or, as to any
of said Lenders, advice satisfactory to the Agent that such Lender has executed
this Amendatory Agreement and (y) all of the following documents, each document
(unless otherwise indicated) being dated the effective date, in form and
substance satisfactory to the Agent:
(a) a certificate of the Secretary or an
Assistant Secretary of the Borrower and the Guarantor certifying the names and
true signatures of their respective officers authorized to sign this Amendatory
Agreement and the other documents to be delivered hereunder;
(b) a certificate signed by a duly authorized
officer of the Borrower stating that:
(i) the representations and warranties of the
Borrower as set forth in Article IV of the Credit Agreement
and in any documents delivered therewith, including the Loan
Documents, are true and correct on and as of the date of such
certificate as though made on and as of such date (except
insofar as such representations and warranties relate
expressly to an earlier date or are based on the accuracy of
schedules prepared as of a prior date),
(ii) the representations and warranties contained in
Section 3 hereof are correct on and as of the date of such
certificate as though made on and as of such date, and
(iii) after giving effect to this Amendatory
Agreement, no Default or Event of Default has occurred and is
continuing.
(c) certified copies of (i) the resolutions of
the Board of Directors of the Borrower and of the Guarantor approving this
Amendatory Agreement and (ii) all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to this Amendatory
Agreement and the matters contemplated hereby; and
(d) a favorable opinion of Kaufman & Canoles,
counsel for the Borrower and the Guarantor, in a form reasonably acceptable to
the Agent and Lenders.
SECTION 3. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The execution, delivery and performance by
the Borrower and the Guarantor of this Amendatory Agreement and the Credit
Agreement as amended hereby are within the Borrower's and the Guarantor's
corporate powers, have been duly authorized by all necessary corporate action
and do not contravene (i) the charter or by-laws, and (ii) any law or any
contractual restriction binding on or affecting the Borrower or the Guarantor.
(b) No authorization, approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the Borrower
or the Guarantor of this Amendatory Agreement and the Credit Agreement as
amended hereby.
(c) This Amendatory Agreement and the Credit
Agreement as amended hereby, constitute legal, valid and binding obligations of
the Borrower and the Guarantor enforceable against the Borrower and the
Guarantor in accordance with their respective terms.
(d) There is no pending or threatened action or
proceeding affecting the Borrower, the Guarantor or any of their respective
subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Borrower, the Guarantor or any subsidiary thereof or which purports to affect
the legality, validity or enforceability of this Amendatory Agreement and the
Credit Agreement as amended hereby.
(e) The execution, delivery and performance of
this Amendatory Agreement does not conflict with or violate in any manner the
terms of any of the Borrower's Senior Notes (or the related Senior Indenture) or
Subordinated Indebtedness or in any manner affect the status of the Obligations
under the Credit Agreement regarding the subordination provisions of the
Borrower's Subordinated Indebtedness.
SECTION 4. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of this Amendatory
Agreement, on and after the date hereof each reference in the Credit Agreement
to "this Agreement," "hereunder," "hereof" or words of like import referring to
the Credit Agreement, and each reference in the other Loan Documents to "the
Credit Agreement," "thereunder," "thereof" or words of like import referring to
the Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) Except as specifically amended above, the
Credit Agreement, the Notes and all other Loan Documents are and shall continue
to be in full force and effect and are hereby in all respects ratified and
confirmed.
(c) The execution, delivery and effectiveness of
this Amendatory Agreement shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender or the Agent
under any of the Loan Documents, nor constitute a waiver of any provision of any
of the Loan Documents.
SECTION 5. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendatory Agreement and the other instruments and documents to be
delivered hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities hereunder
and thereunder. The Borrower further agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Amendatory Agreement and the other
instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 5. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendatory Agreement and the
other instruments and documents to be delivered hereunder, and agrees to save
the Agent and each Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omitting to pay such taxes.
SECTION 6. Execution in Counterparts. This Amendatory
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
SECTION 7. Governing Law. This Amendatory Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendatory Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
FARM FRESH, INC.
By /s/ FARM FRESH, INC.
----------------------
Name:
Title:
FF HOLDINGS CORPORATION,
as Guarantor
By /s/ FF HOLDINGS CORPORATION
---------------------------
Name:
Title:
FLEET BANK, N.A., (as successor
to NatWest USA Credit Corp.),
as Lender
By /s/ Thomas Maiale
---------------------
Name: Thomas Maiale
Title: Vice President
FLEET BANK, N.A. (as successor to
NatWest USA Credit Corp.),
as Agent
By /s/ Thomas Maiale
--------------------
Name: Thomas Maiale
Title: Vice President
HELLER FINANCIAL, INC., as Lender
By /s/ Salvatore A. Salzillo
--------------------------
Name: Salvatore A. Salzillo
Title: Assistant Vice President
Exhibit 10.36
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of this 4th day of March, 1997 (the "Effective Date") by and between Farm Fresh,
Inc., a Virginia corporation (the "Company"), and Ronald E. Johnson (the
"Executive").
Background
The Company desires to employ Executive, and Executive is
willing to be employed by the Company, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
Terms
SECTION 1. Employment. The Company hereby employs Executive,
and Executive hereby accepts such employment and agrees to serve as the
Company's President and Chief Executive Officer (the "President and CEO") during
the Employment Period set forth in Section 6, subject to the terms and
conditions hereinafter set forth.
SECTION 2. Management Duties. As President and CEO of the
Company during the Employment Period, Executive shall carry out such duties as
are commensurate and normally associated with the positions of President and
Chief Executive Officer, which duties shall however, in all cases, be subject to
policies set by, and at the direction and control of, the Company's Board of
Directors. The Company shall, subject to applicable fiduciary duties of the
Company's directors as advised by counsel, nominate the Executive and use its
best efforts to have Executive appointed or elected to serve on the Company's
Board of Directors at all times during the Employment Period.
SECTION 3. Extent of Services. During the Employment Period,
Executive shall devote substantially all his working time (during normal
business hours) and attention (other than during any illness and vacations) and
give his best efforts, skills and abilities to the management and operations of
the Company; it being understood and agreed that Executive shall be permitted to
manage his own personal affairs and serve as a director or officer of any trade
association, civic, corporate, educational or charitable organization or
governmental entity, provided that Executive's service does not materially
interfere with Executive's performance of his duties hereunder. Executive shall
report only and directly to the Company's Board of Directors. Notwithstanding
the above, the Executive shall not be required to perform any duties or
responsibilities which would be likely to result in a non-compliance with or
violation of any applicable law or regulation. Executive shall perform his
services hereunder only at the Company's Norfolk, Virginia offices and (with the
consent of the Executive) at such other places as are required for the effective
management of the Company (other than business travel).
SECTION 4. Compensation and Benefits.
(a) Executive shall receive, during the Employment Period,
from the Company as compensation for his services a salary at the annual rate of
Four Hundred Thousand Dollars ($400,000) per annum (the "Base Salary"). The Base
Salary shall be payable in equal installments at such intervals as the Company
pays its employees generally (but in no event less frequently than once per
month).
(b) Subject to Section 4(c), the Executive shall be eligible
to participate in an annual cash bonus program which shall contain financial
performance formulas and criteria to be agreed upon by the Company and the
Executive and pursuant to which the Company and the Executive intend for
Executive to be eligible to earn an amount equal to $200,000 upon satisfaction
of the specified financial performance formulas and criteria (the "Operations
Bonus Program"). The amount of each of the annual cash bonuses to which
Executive is entitled under the Operations Bonus Program shall be determined and
the bonus shall be paid to Executive as soon as the underlying financial data is
available (but in no event later than 90 days following the end of the year for
which the bonus is calculated).
(c) The Company, from time to time, may consider engaging in
one or more transactions involving the sale of the Company and/or all or a
portion of its assets, businesses and operations (including, without limitation,
as a merger, consolidation, sale of all or substantially all of the capital
stock of the Company or sale of all or a portion of the Company's assets)
pursuant to (x) a plan of reorganization which has been confirmed under chapter
11 of title 11 of the United State Code and for which an effective date
thereunder has occurred (an "Effective POR"), or (y) a full and complete
consensual settlement or other restructuring to which the Company and all of the
Company's holders of indebtedness for borrowed money are a party, or (z) an
acquisition agreement between the Company and any acquiror which, in the opinion
of the Company's Board of Directors, contains indemnification of third parties
which is substantially similar (from the perspective of third parties) to the
releases that are customarily available to third parties under an Effective POR
(any such transaction following any one of the conditions described in clause
(x) or (y) or (z), a "Transaction"). In the event that the aggregate Net Value
(as defined below) of the consideration received in connection with any
Transaction(s) during the Employment Period equals or exceeds $225,000,000 in
the aggregate, the Executive shall be entitled to receive from the Company a
cash bonus (a "Transaction Bonus") equal to $300,000 plus 1.8% of the positive
difference (if any) between the Net Value of the Transaction(s) and
$225,000,000. As used herein, "Net Value" shall mean the sum of: (i) in the case
of any asset sale, the sum of the cash and fair market value of all securities
and other non-cash property received by the Company in any Transaction,
increased dollar-for-dollar by any indebtedness for borrowed money assumed by
the purchaser, and reduced dollar-for-dollar by any liabilities (other than
indebtedness for borrowed money) which are properly allocated to the business
sold in the Transaction but which are retained or paid by the Company; and (ii)
in the case of any Transaction other than an asset sale, the sum of the cash and
fair market value of all securities and other non-cash property received by
securityholders of the Company, reduced dollar-for-dollar by (x) any proceeds
from any other Transactions held or to be received by the Company and/or its
securityholders and (y) any liabilities (other than indebtedness for borrowed
money) which are properly allocated to the business sold in the Transaction but
which are retained or paid by such securityholders, and increased
dollar-for-dollar by the aggregate amount of then-existing indebtedness for
borrowed money (after giving effect to any actual or contemplated debt
forgiveness or other similar compromise of such indebtedness in connection with
such Transaction)(all of the foregoing "Net Value" as reasonably determined by
the Company's Board of Directors or any nationally-recognized investment banking
firm designated by the Company). The amount of any Transaction Bonus to which
Executive is entitled under this Section 4(c) shall be determined and the bonus
shall be paid to Executive as soon as practicable (but in no event later than 90
days following the occurrence of the latest Transaction for which a payment is
owed under this Section 4(c)). Notwithstanding anything to the contrary
contained in this Agreement: (i) aggregate Transaction Bonus payments owed under
this Section 4(c) shall not exceed $1,650,000 in the aggregate; and (ii) in the
event that any Transaction Bonus is owed with respect to Transactions occurring
during any calendar year in which a payment is otherwise owed pursuant to
Section 4(b) under the Operations Bonus Program, the Executive only shall
receive the Transaction Bonus with respect to such calendar year and no bonus
shall be due or owing to the Executive under the Operations Bonus Program with
respect to such calendar year; and (iii) if any payments (including Transaction
Bonus payments) which the Executive has the right to receive from the Company or
any affiliated entities under this Agreement would otherwise constitute an
"excess parachute payment" (as defined in Internal Revenue Code Section 280G,
but determined without regard to Section 280G(b)(5)(A)(ii)), such payments shall
be reduced (the "Parachute Reduction") pro rata (but not below zero) to the
largest amount that will result in no portion of any such payment being subject
to the excise tax imposed by Internal Revenue Code Section 4999. The
determination of any reduction shall be determined by the Company in good faith
before any payments are due and payable to the Executive. If "Shareholder
Approval" (as defined in the next sentence) is obtained, the Parachute Reduction
shall not apply. Shareholder approval means approval of the elimination of the
Parachute Reduction by persons who own, immediately before a Transaction, more
than 75 percent of the voting power of the Company's outstanding stock by a vote
which satisfies the requirements of Internal Revenue Code section 280G(b)(5)(B)
and the applicable proposed, temporary or final Treasury Regulations thereunder.
(d) During the Employment Period, Executive and his eligible
dependents shall be entitled to participate in the employee benefit plans and
programs generally offered to any other senior executive officers of the Company
during the Employment Period.
(e) All payments to Executive or his estate made pursuant to
this Agreement shall be subject to such withholding as may be required by any
applicable laws.
SECTION 5. Expense Reimbursements; Automobile Allowance;
Special Long-Term Disability Coverage. During the Employment Period, the Company
shall reimburse Executive for all reasonable or necessary out-of-pocket expenses
incurred by Executive in the performance of his duties hereunder, provided such
expenses are submitted to the Company in accordance with its accounting
procedures. The Company shall provide Executive with an automobile allowance of
$750 per month to enable Executive to obtain an automobile for the Executive's
use. The Executive shall be entitled to participate in the long-term disability
plan described on Exhibit A.
SECTION 6. Term. The period of Executive's employment under
this Agreement (the "Employment Period") shall commence as of the date hereof
and, unless sooner terminated pursuant to Section 7 of this Agreement or
extended pursuant to the proviso to this sentence, shall continue until the
close of business on the second anniversary of the date of this Agreement, and
shall terminate at such time; provided however, that the Employment Period shall
be extended for an additional one-year period on the second anniversary of the
date of this Agreement and on each anniversary thereafter, unless either the
Company or the Executive shall have given written notice to the other, no later
than 180 days prior to the last day of the then-existing Employment Period, that
the term of this Agreement shall not be so extended.
SECTION 7. Termination and Severance.
(a) Notwithstanding anything to the contrary contained herein,
the Employment Period shall terminate upon the earliest to occur of the
following (which may occur at any time as provided below and none of which are
deemed to be breaches of any covenants or agreements under this Agreement):
(i) the close of business on the last day of the
then-existing Employment Period (as such Employment Period may be extended
from time to time pursuant to Section 6) where either the Company or the
Executive has elected not to extend the Employment Period in accordance with the
proviso contained in Section 6;
(ii) the Executive's death;
(iii) delivery by the Company to Executive of a
written notice of the Company's election to terminate Executive's employment
hereunder because of Executive's Disability (as defined below);
(iv) delivery by the Company to Executive of a
written notice of the Company's election to terminate Executive's employment
hereunder for Cause (as defined below);
(v) the close of business which is 90 days
after the date on which Executive delivered to the Company a written notice of
Executive's election to terminate Executive's employment hereunder and such
termination is not for Good Reason (as defined below);
(vi) delivery by the Company to Executive of a
written notice of the Company's election to terminate Executive's employment
hereunder and such termination is not for Cause or as a result of Executive's
death or Disability; or
(vii) delivery by Executive to the Company of a
written notice of Executive's election to terminate Executive's employment
hereunder following a Value Transaction (as defined below) and such
termination is for Good Reason; or
(viii) the earlier to occur, as applicable, of (x)
one day following any one or more Transactions resulting in either a sale of
all or substantially all of the assets or capital stock of the Company (whether
by merger or otherwise), and (y) any effective date of any plan of
reorganization of the Company under chapter 11 of title 11 of the United States
Code (the earlier of the foregoing, a "Value Transaction").
(b) For purposes of this Agreement, "Disability" shall mean
that Executive suffers from a permanent physical or mental impairment which, in
the judgment of an independent medical physician, even with reasonable
accommodations prevents Executive from substantially performing his duties
hereunder for a period of one-hundred eighty (180) consecutive days. For the
purposes of this Agreement, the term "Cause" shall mean (i) the willful and
continuing failure by Executive substantially to perform his duties with the
Company (other than any such failure resulting from illness) under this
Agreement, provided that, solely with respect to any act or omission by
Executive which remains curable without significant out-of-pocket cost to the
Company, "Cause" shall not be deemed to exist under this clause (i) unless
Executive has been provided by the Company with at least thirty (30) days prior
written notice of the Company's intention to terminate Executive's employment
hereunder for Cause and Executive has not cured or corrected such performance
defaults within such thirty-day period, or (ii) the willful and continuing
failure by Executive to perform Executive's obligations under Section 9
hereunder, or (iii) the indictment of Executive for theft, embezzlement or other
felony crimes against the Company. For purposes of the foregoing definition of
"Cause," no act, or failure to act, shall be considered "willful" unless done,
or omitted to be done, in bad faith and without reasonable belief that the
action or omission was in the best interest of the Company. Notwithstanding the
foregoing or any other provision hereof, Executive shall not be deemed to have
been terminated for Cause unless there shall have been delivered to Executive a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors of the Company at a
meeting of the Board of Directors of the Company called and held for such
purpose (after reasonable notice to Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board), finding
that, in the reasonable and good faith opinion of the Board of Directors of the
Company, Executive was guilty of conduct set forth above and specifying the
particulars thereof in reasonable detail. For purposes of this Agreement, "Good
Reason" shall mean (i) the willful and continuing failure by the Company
substantially to perform its obligations under this Agreement; provided that,
solely with respect to any act or omission by the Company which remains curable
without significant out-of-pocket cost to the Executive, "Good Reason" shall not
be deemed to exist under this clause (i) unless the Company has been provided by
the Executive with at least thirty (30) days prior written notice of the
Executive's intention to terminate Executive's employment hereunder for Good
Reason and the Company has not cured or corrected such performance defaults
within such thirty-day period, or (ii) any material alteration or diminution in
Executive's responsibilities to the Company as its chief executive officer under
this Agreement (other than changes required by applicable federal or state
laws), or (iii) the Executive's compensation or employment related benefits
(other than with respect to any bonus) are in the aggregate reduced in any
material respect, or (iv) the Executive's place of employment is moved to a
location more than 20 miles from the current Norfolk location without the
Executive's consent.
(c) Following any termination of Executive's employment
hereunder, all obligations of the Company under this Agreement (other than (x)
any obligations with respect to the payment of accrued and unpaid salary,
accrued and unpaid bonus, accrued and unpaid vacation, and expense reimbursement
under Section 5 hereof through the date of Executive's termination of employment
hereunder, and (y) as set forth in Section 7(d)) shall terminate.
(d) In the event of any termination of Executive's employment
hereunder pursuant to Section 7(a)(vi) or Section 7(a)(vii), the Company shall
pay to Executive severance compensation in an amount equal to 100% of
Executive's Base Salary. All cash severance compensation amounts owed pursuant
to this Section 7(d) shall be paid within thirty (30) days following the
effective date of Executive's termination.
(e) Any severance compensation granted in Section 7 of this
Agreement shall be the sole and exclusive compensation or benefit due to
Executive upon termination of Executive's employment.
SECTION 8. Representations, Warranties and Acknowledgments of
Executive.
(a) Executive represents and warrants that he is not a party
to or otherwise subject to or bound by the terms of any contract, agreement or
understanding (including without limitation any contract, agreement or
understanding containing terms and provisions similar in any manner to those
contained in Section 9 hereof) which in any manner would limit or otherwise
affect his ability to perform his obligations hereunder. Executive further
represents and warrants that his employment with the Company will not require
him to disclose or use any confidential information belonging to prior employers
or other persons or entities.
(b) Executive represents and warrants that he acknowledges the
Company's belief that it would cause the Company serious and irreparable injury
and cost if Executive were to breach the obligations contained in Section 9.
(c) Executive recognizes and acknowledges that: (i) in the
course of Executive's employment by the Company it will be necessary for
Executive to acquire information which could include, in whole or in part,
information concerning the Company's experimental and development plans, trade
secrets, secret procedures, information relating to ideas, improvements, and
inventions, disclosures, processes, systems, formulas, composition, patents,
patent applications, machinery, materials research activities and plans,
customers or vendors and prospective customers, the Company's product costs, the
Company's prices, profits and volume of sales, and future business plans, and
other confidential or proprietary information belonging to the Company or
relating to the Company's affairs, even if such information has been disclosed
in confidence to one or more third parties pursuant to distribution agreements,
joint research agreements or other agreements entered into by the Company or any
of its affiliates and which information is not generally available within the
public domain (collectively, such information is referred to herein as the
"Confidential Information"); (ii) the Confidential Information is the property
of the Company; (iii) the use, misappropriation or disclosure of the
Confidential Information would cause irreparable injury to the Company; and (iv)
it is essential to the protection of the Company's good will and to the
maintenance of the Company's competitive position that the Confidential
Information be kept secret and that Executive not disclose the Confidential
Information to others (except as may be necessary for the performance of
Executive's duties hereunder).
SECTION 9. Executive's Covenants and Agreements.
(a) Executive agrees that he shall not, without the prior
written consent of the Board of Directors of the Company, disclose or make
available to anyone for use outside the Company's organization at any time,
either during his employment with the Company or subsequent to the termination
of his employment with the Company for any reason, any Confidential Information,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company or as is otherwise required by law, applicable
regulation or any recognized subpoena power. Notwithstanding anything to the
contrary contained herein, the foregoing confidentiality obligations of the
Executive shall not apply to any information or data that is generally available
within the public domain or otherwise publicly accessible through legal means
(in no event, in any case, as a result of Executive's breach of his obligations
hereunder).
(b) Upon the termination of Executive's employment with the
Company for any reason, Executive promptly shall deliver to the Company all
correspondence, drawings, blueprints, manuals, letters, notes, notebooks,
reports, flow-charts, programs, proposals, price lists, customer lists, company
credit cards, company vehicles and any documents concerning the Company's
customers or concerning products or processes used by the Company containing or
constituting Confidential Information.
(c) Executive covenants and agrees that during the period of
Executive's employment hereunder and, if applicable, during the Non-Compete
Period, Executive shall not, directly or indirectly (whether as principal,
agent, officer, director, employee, consultant, shareholder, or otherwise,
whether alone or in association with any other person, corporation or other
entity): (i) engage in, own or otherwise operate any supermarket or retail
grocery business in the Commonwealth of Virginia; or (ii) solicit or induce, or
attempt to solicit or induce, any employee of the Company to leave; it being
understood that Executive shall be permitted to own up to 3% of the outstanding
capital stock of any publicly-traded company listed on a national securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotations System. For purposes of this Agreement, "Non-Compete Period" means
the one-year period following any termination of Executive's employment by
Executive pursuant to Sections 7(a)(iv) or 7(a)(v).
SECTION 10. Remedies. Executive acknowledges that his promised
services hereunder are of a special, unique, unusual, extraordinary and
intellectual character, which give them peculiar value the loss of which cannot
be reasonably or adequately compensated in an action of law, and that, in the
event there is a breach hereof by Executive, the Company will suffer irreparable
harm, the amount of which will be impossible to ascertain. Accordingly, the
Company shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either at law or in equity,
to obtain damages for any breach or to enforce specific performance of the
provisions or to enjoin Executive from committing any act in breach of this
Agreement. The remedies granted to the Company in this Agreement are cumulative
and are in addition to remedies otherwise available to the Company at law or in
equity.
SECTION 11. Waiver of Breach. The waiver by the Company or
Executive of a breach of any provision of this Agreement by the other party (the
"Breaching Party") shall not operate or be construed as a waiver of any other or
subsequent breach by the Breaching Party of such or any other provision. No
delay or omission by the Company or Executive in exercising any right, remedy or
power hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company or
Executive from time to time and as often as may be deemed expedient or necessary
by the Company or Executive in its or his sole discretion.
SECTION 12. Notices. All notices required or permitted
hereunder shall be made in writing by hand-delivery, certified or registered
first-class mail, or air courier guaranteeing overnight delivery to the other
party at the following addresses:
To the Company:
Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, Virginia 23505
Attention: Board of Directors
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: David E. Schulman, Esq.
To Executive:
Ronald E. Johnson
with a copy to:
Barnett, Bolt, Kirkwood & Long
601 Bayshore Boulevard
Suite 700
Tampa, FL 33606
Attention: Robert S. Bolt, Esq.
or to such other address as either of such parties may designate in a written
notice served upon the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received when
delivered by hand, if personally delivered; on the third day next succeeding the
date of mailing if sent by certified or registered first-class mail; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 13. Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable by a court of competent jurisdiction,
the remainder of this Agreement or the application of any such term or provision
to persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law. If any of the provisions contained in this Agreement shall for any reason
be held to be excessively broad as to duration, scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be valid and
enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
SECTION 14. Governing Law. The implementation and
interpretation of this Agreement shall be governed by and enforced in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
conflicts of law provisions thereof.
SECTION 15. Binding Effect and Assignability. The rights and
obligations of both parties under this Agreement shall inure to the benefit of
and shall be binding upon their heirs, successors and assigns. Neither party's
rights under this Agreement shall, in any voluntary or involuntary manner, be
assignable and may not be pledged or hypothecated without the prior written
consent of the other party; it being understood that no merger or consolidation
involving the Company shall be deemed an assignment.
SECTION 16. Attorneys' Fees; Costs. In any action or
proceeding for damages or injunctive relief, the prevailing party, in addition
to other relief, shall be entitled to reasonable attorneys' fees, costs and the
expenses of litigation incurred by such party in securing the relief granted by
the court.
SECTION 17. Counterparts; Section Headings. This Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument. The section headings of this Agreement are for convenience of
reference only.
SECTION 18. Survival. Notwithstanding the termination of this
Agreement or Executive's employment hereunder for any reason, Sections 7, 8, 9,
10, 14, 16 and 18 hereof (and any other provisions that explicitly contemplate
extending beyond the termination of this Agreement or the Employment Period)
shall survive any such termination.
SECTION 19. Entire Agreement. This instrument constitutes the
entire agreement with respect to the subject matter hereof between the parties
hereto and replaces and supersedes as of the date hereof any and all prior oral
or written agreements and understandings between the parties hereto. This
Agreement only may be modified by an agreement in writing executed by both
Executive and the Company.
SECTION 20. Representations. The Company represents that
it is authorized and empowered to enter into this contract, and no contracts
or indentures will be breached thereby.
SECTION 21. Arbitration. Subject to the terms and conditions
of this Agreement, any dispute, controversy or claim arising from or relating to
this Agreement (other than for injunctive relief) which the parties to this
Agreement are unable to resolve, shall be resolved only by arbitration, which
may be commenced at any time by notice given by any party to this Agreement.
Arbitration shall be conducted pursuant to the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") then in effect. There shall be
three arbitrators selected as follows: (i) one arbitrator shall be selected by
the Company, one arbitrator shall be selected by the Executive, and the third
arbitrator shall be selected jointly by the first two arbitrators, except that
if the parties to this Agreement fail to select an arbitrator within sixty (60)
days after initiation of arbitration or if the first two arbitrators fail to
select the third arbitrator within one hundred twenty (120) days after
initiation of arbitration, then the AAA shall make such selection. The venue of
the arbitration shall be New York City, New York. Expenses of the arbitration
proceeding shall be borne by the parties to this Agreement in such amounts or
proportions as the arbitrators may determine. The decision of the arbitrators
shall be by majority vote and shall be delivered in writing. Any arbitral award
shall be final and binding on the parties to this Agreement and judgment upon
any arbitral award may be entered and enforced by any court or judicial
authority of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement the date and year first written above.
Company:
FARM FRESH, INC.
By: /s/ Farm Fresh, Inc.
-------------------------
Executive:
/s/ Ronald E. Johnson
-------------------------
Ronald E. Johnson
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of this 4th day of March, 1997 (the "Effective Date") by and between Farm Fresh,
Inc., a Virginia corporation (the "Company"), and Richard D.
Coleman (the "Executive").
Background
The Company desires to employ Executive, and Executive is
willing to be employed by the Company, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
Terms
SECTION 1. Employment. The Company hereby employs Executive,
and Executive hereby accepts such employment and agrees to serve as the
Company's Chief Financial Officer and Executive Vice President, Administration
(the "CFO") during the Employment Period set forth in Section 6, subject to the
terms and conditions hereinafter set forth.
SECTION 2. Management Duties. As CFO of the Company during the
Employment Period, Executive shall carry out such duties as are commensurate and
normally associated with the position of Chief Financial Officer, which duties
shall however, in all cases, be subject to policies set by, and at the direction
and control of, the Company's Board of Directors.
SECTION 3. Extent of Services. During the Employment Period,
Executive shall devote substantially all his working time (during normal
business hours) and attention (other than during any illness and vacations) and
give his best efforts, skills and abilities to the management and operations of
the Company; it being understood and agreed that Executive shall be permitted to
manage his own personal affairs and serve as a director or officer of any trade
association, civic, corporate, educational or charitable organization or
governmental entity, provided that Executive's service does not materially
interfere with Executive's performance of his duties hereunder. Executive shall
perform his services hereunder only at the Company's Norfolk, Virginia offices
and (with the consent of the Executive) at such other places as are required for
the effective management of the Company (other than business travel).
SECTION 4. Compensation and Benefits.
(a) Executive shall receive, during the Employment Period,
from the Company as compensation for his services a salary at the annual rate of
Two Hundred Thousand Dollars ($200,000) per annum (the "Base Salary"). The Base
Salary shall be payable in equal installments at such intervals as the Company
pays its employees generally (but in no event less frequently than once per
month).
(b) Subject to Section 4(c), the Executive shall be eligible
to participate in an annual cash bonus program which shall contain financial
performance formulas and criteria to be agreed upon by the Company and the
Executive and pursuant to which the Company and the Executive intend for
Executive to be eligible to earn an amount equal to $100,000 upon satisfaction
of the specified financial performance formulas and criteria (the "Operations
Bonus Program"). The amount of each of the annual cash bonuses to which
Executive is entitled under the Operations Bonus Program shall be determined and
the bonus shall be paid to Executive as soon as the underlying financial data is
available (but in no event later than 90 days following the end of the year for
which the bonus is calculated).
(c) The Company, from time to time, may consider engaging in
one or more transactions involving the sale of the Company and/or all or a
portion of its assets, businesses and operations (including, without limitation,
as a merger, consolidation, sale of all or substantially all of the capital
stock of the Company or sale of all or a portion of the Company's assets)
pursuant to (x) a plan of reorganization which has been confirmed under chapter
11 of title 11 of the United State Code and for which an effective date
thereunder has occurred (an "Effective POR"), or (y) a full and complete
consensual settlement or other restructuring to which the Company and all of the
Company's holders of indebtedness for borrowed money are a party, or (z) an
acquisition agreement between the Company and any acquiror which, in the opinion
of the Company's Board of Directors, contains indemnification of third parties
which is substantially similar (from the perspective of third parties) to the
releases that are customarily available to third parties under an Effective POR
(any such transaction following any one of the conditions described in clause
(x) or (y) or (z), a "Transaction"). In the event that the aggregate Net Value
(as defined below) of the consideration received in connection with any
Transaction(s) during the Employment Period equals or exceeds $225,000,000 in
the aggregate, the Executive shall be entitled to receive from the Company a
cash bonus (a "Transaction Bonus") equal to $300,000 plus 0.4% of the positive
difference (if any) between the Net Value of the Transaction(s) and
$225,000,000. As used herein, "Net Value" shall mean the sum of: (i) in the case
of any asset sale, the sum of the cash and fair market value of all securities
and other non-cash property received by the Company in any Transaction,
increased dollar-for-dollar by any indebtedness for borrowed money assumed by
the purchaser, and reduced dollar-for-dollar by any liabilities (other than
indebtedness for borrowed money) which are properly allocated to the business
sold in the Transaction but which are retained or paid by the Company; and (ii)
in the case of any Transaction other than an asset sale, the sum of the cash and
fair market value of all securities and other non-cash property received by
securityholders of the Company, reduced dollar-for-dollar by (x) any proceeds
from any other Transactions held or to be received by the Company and/or its
securityholders and (y) any liabilities (other than indebtedness for borrowed
money) which are properly allocated to the business sold in the Transaction but
which are retained or paid by such securityholders, and increased
dollar-for-dollar by the aggregate amount of then-existing indebtedness for
borrowed money (after giving effect to any actual or contemplated debt
forgiveness or other similar compromise of such indebtedness in connection with
such Transaction)(all of the foregoing "Net Value" as reasonably determined by
the Company's Board of Directors or any nationally-recognized investment banking
firm designated by the Company). The amount of any Transaction Bonus to which
Executive is entitled under this Section 4(c) shall be determined and the bonus
shall be paid to Executive as soon as practicable (but in no event later than 90
days following the occurrence of the latest Transaction for which a payment is
owed under this Section 4(c)). Notwithstanding anything to the contrary
contained in this Agreement: (i) aggregate Transaction Bonus payments owed under
this Section 4(c) shall not exceed $400,000 in the aggregate; and (ii) in the
event that any Transaction Bonus is owed with respect to Transactions occurring
during any calendar year in which a payment is otherwise owed pursuant to
Section 4(b) under the Operations Bonus Program, the Executive only shall
receive the Transaction Bonus with respect to such calendar year and no bonus
shall be due or owing to the Executive under the Operations Bonus Program with
respect to such calendar year; and (iii) if any payments (including Transaction
Bonus payments) which the Executive has the right to receive from the Company or
any affiliated entities under this Agreement would otherwise constitute an
"excess parachute payment" (as defined in Internal Revenue Code Section 280G,
but determined without regard to Section 280G(b)(5)(A)(ii)), such payments shall
be reduced (the "Parachute Reduction") pro rata (but not below zero) to the
largest amount that will result in no portion of any such payment being subject
to the excise tax imposed by Internal Revenue Code Section 4999. The
determination of any reduction shall be determined by the Company in good faith
before any payments are due and payable to the Executive. If "Shareholder
Approval" (as defined in the next sentence) is obtained, the Parachute Reduction
shall not apply. Shareholder approval means approval of the elimination of the
Parachute Reduction by persons who own, immediately before a Transaction, more
than 75 percent of the voting power of the Company's outstanding stock by a vote
which satisfies the requirements of Internal Revenue Code section 280G(b)(5)(B)
and the applicable proposed, temporary or final Treasury Regulations thereunder.
(d) During the Employment Period, Executive and his eligible
dependents shall be entitled to participate in the employee benefit plans and
programs generally offered to any other senior executive officers of the Company
during the Employment Period.
(e) All payments to Executive or his estate made pursuant to
this Agreement shall be subject to such withholding as may be required by any
applicable laws.
SECTION 5. Expense Reimbursements; Automobile Allowance.
During the Employment Period, the Company shall reimburse Executive for all
reasonable or necessary out-of-pocket expenses incurred by Executive in the
performance of his duties hereunder, provided such expenses are submitted to the
Company in accordance with its accounting procedures.
SECTION 6. Term. The period of Executive's employment under
this Agreement (the "Employment Period") shall commence as of the date hereof
and, unless sooner terminated pursuant to Section 7 of this Agreement or
extended pursuant to the proviso to this sentence, shall continue until the
close of business on the second anniversary of the date of this Agreement, and
shall terminate at such time; provided however, that the Employment Period shall
be extended for an additional one-year period on the second anniversary of the
date of this Agreement and on each anniversary thereafter, unless either the
Company or the Executive shall have given written notice to the other, no later
than 180 days prior to the last day of the then-existing Employment Period, that
the term of this Agreement shall not be so extended.
SECTION 7. Termination and Severance.
(a) Notwithstanding anything to the contrary contained herein,
the Employment Period shall terminate upon the earliest to occur of the
following (which may occur at any time as provided below and none of which are
deemed to be breaches of any covenants or agreements under this Agreement):
(i) the close of business on the last day of the
then-existing Employment Period (as such Employment Period may be extended from
time to time pursuant to Section 6) where either the Company or the Executive
has elected not to extend the Employment Period in accordance with the proviso
contained in Section 6;
(ii) the Executive's death;
(iii) delivery by the Company to Executive of a
written notice of the Company's election to terminate Executive's employment
hereunder because of Executive's Disability (as defined below);
(iv) delivery by the Company to Executive of a
written notice of the Company's election to terminate Executive's employment
hereunder for Cause (as defined below);
(v) the close of business which is 90 days after
the date on which Executive delivered to the Company a written notice of
Executive's election to terminate Executive's employment hereunder and such
termination is not for Good Reason (as defined below);
(vi) delivery by the Company to Executive of a
written notice of the Company's election to terminate Executive's employment
hereunder and such termination is not for Cause or as a result of Executive's
death or Disability; or
(vii) delivery by Executive to the Company of a
written notice of Executive's election to terminate Executive's employment
hereunder following a Value Transaction (as defined below) and such termination
is for Good Reason; or
(viii) the earlier to occur, as applicable, of (x)
one day following any one or more Transactions resulting in either a sale of all
or substantially all of the assets or capital stock of the Company (whether by
merger or otherwise), and (y) any effective date of any plan of reorganization
of the Company under chapter 11 of title 11 of the United States Code (the
earlier of the foregoing, a "Value Transaction").
(b) For purposes of this Agreement, "Disability" shall mean
that Executive suffers from a permanent physical or mental impairment which, in
the judgment of an independent medical physician, even with reasonable
accommodations prevents Executive from substantially performing his duties
hereunder for a period of one-hundred eighty (180) consecutive days. For the
purposes of this Agreement, the term "Cause" shall mean (i) the willful and
continuing failure by Executive substantially to perform his duties with the
Company (other than any such failure resulting from illness) under this
Agreement, provided that, solely with respect to any act or omission by
Executive which remains curable without significant out-of-pocket cost to the
Company, "Cause" shall not be deemed to exist under this clause (i) unless
Executive has been provided by the Company with at least thirty (30) days prior
written notice of the Company's intention to terminate Executive's employment
hereunder for Cause and Executive has not cured or corrected such performance
defaults within such thirty-day period, or (ii) the willful and continuing
failure by Executive to perform Executive's obligations under Section 9
hereunder, or (iii) the indictment of Executive for theft, embezzlement or other
felony crimes against the Company. For purposes of the foregoing definition of
"Cause," no act, or failure to act, shall be considered "willful" unless done,
or omitted to be done, in bad faith and without reasonable belief that the
action or omission was in the best interest of the Company. Notwithstanding the
foregoing or any other provision hereof, Executive shall not be deemed to have
been terminated for Cause unless there shall have been delivered to Executive a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors of the Company at a
meeting of the Board of Directors of the Company called and held for such
purpose (after reasonable notice to Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board), finding
that, in the reasonable and good faith opinion of the Board of Directors of the
Company, Executive was guilty of conduct set forth above and specifying the
particulars thereof in reasonable detail. For purposes of this Agreement, "Good
Reason" shall mean (i) the willful and continuing failure by the Company
substantially to perform its obligations under this Agreement; provided that,
solely with respect to any act or omission by the Company which remains curable
without significant out-of-pocket cost to the Executive, "Good Reason" shall not
be deemed to exist under this clause (i) unless the Company has been provided by
the Executive with at least thirty (30) days prior written notice of the
Executive's intention to terminate Executive's employment hereunder for Good
Reason and the Company has not cured or corrected such performance defaults
within such thirty-day period, or (ii) any material alteration or diminution in
Executive's responsibilities to the Company as its chief financial officer under
this Agreement (other than changes required by applicable federal or state
laws), or (iii) the Executive's compensation or employment related benefits
(other than with respect to any bonus) are in the aggregate reduced in any
material respect, or (iv) the Executive's place of employment is moved to a
location more than 20 miles from the current Norfolk location without the
Executive's consent.
(c) Following any termination of Executive's employment
hereunder, all obligations of the Company under this Agreement (other than (x)
any obligations with respect to the payment of accrued and unpaid salary,
accrued and unpaid bonus, accrued and unpaid vacation, and expense reimbursement
under Section 5 hereof through the date of Executive's termination of employment
hereunder, and (y) as set forth in Section 7(d)) shall terminate.
(d) In the event of any termination of Executive's employment
hereunder pursuant to Section 7(a)(vi) or Section 7(a)(vii), the Company shall
pay to Executive severance compensation in an amount equal to 100% of
Executive's Base Salary. All cash severance compensation amounts owed pursuant
to this Section 7(d) shall be paid within thirty (30) days following the
effective date of Executive's termination.
(e) Except for benefits under the Company's qualified benefit
plans, any severance compensation granted in Section 7 of this Agreement shall
be the sole and exclusive compensation or benefit due to Executive upon
termination of Executive's employment.
SECTION 8. Representations, Warranties and Acknowledgments of
Executive.
(a) Executive represents and warrants that he is not a party
to or otherwise subject to or bound by the terms of any contract, agreement or
understanding (including without limitation any contract, agreement or
understanding containing terms and provisions similar in any manner to those
contained in Section 9 hereof) which in any manner would limit or otherwise
affect his ability to perform his obligations hereunder. Executive further
represents and warrants that his employment with the Company will not require
him to disclose or use any confidential information belonging to prior employers
or other persons or entities.
(b) Executive represents and warrants that he acknowledges the
Company's belief that it would cause the Company serious and irreparable injury
and cost if Executive were to breach the obligations contained in Section 9.
(c) Executive recognizes and acknowledges that: (i) in the
course of Executive's employment by the Company it will be necessary for
Executive to acquire information which could include, in whole or in part,
information concerning the Company's experimental and development plans, trade
secrets, secret procedures, information relating to ideas, improvements, and
inventions, disclosures, processes, systems, formulas, composition, patents,
patent applications, machinery, materials research activities and plans,
customers or vendors and prospective customers, the Company's product costs, the
Company's prices, profits and volume of sales, and future business plans, and
other confidential or proprietary information belonging to the Company or
relating to the Company's affairs, even if such information has been disclosed
in confidence to one or more third parties pursuant to distribution agreements,
joint research agreements or other agreements entered into by the Company or any
of its affiliates and which information is not generally available within the
public domain (collectively, such information is referred to herein as the
"Confidential Information"); (ii) the Confidential Information is the property
of the Company; (iii) the use, misappropriation or disclosure of the
Confidential Information would cause irreparable injury to the Company; and (iv)
it is essential to the protection of the Company's good will and to the
maintenance of the Company's competitive position that the Confidential
Information be kept secret and that Executive not disclose the Confidential
Information to others (except as may be necessary for the performance of
Executive's duties hereunder).
SECTION 9. Executive's Covenants and Agreements.
(a) Executive agrees that he shall not, without the prior
written consent of the Board of Directors of the Company, disclose or make
available to anyone for use outside the Company's organization at any time,
either during his employment with the Company or subsequent to the termination
of his employment with the Company for any reason, any Confidential Information,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company or as is otherwise required by law, applicable
regulation or any recognized subpoena power. Notwithstanding anything to the
contrary contained herein, the foregoing confidentiality obligations of the
Executive shall not apply to any information or data that is generally available
within the public domain or otherwise publicly accessible through legal means
(in no event, in any case, as a result of Executive's breach of his obligations
hereunder).
(b) Upon the termination of Executive's employment with the
Company for any reason, Executive promptly shall deliver to the Company all
correspondence, drawings, blueprints, manuals, letters, notes, notebooks,
reports, flow-charts, programs, proposals, price lists, customer lists, company
credit cards, company vehicles and any documents concerning the Company's
customers or concerning products or processes used by the Company containing or
constituting Confidential Information.
(c) Executive covenants and agrees that during the period of
Executive's employment hereunder and, if applicable, during the Non-Compete
Period, Executive shall not, directly or indirectly (whether as principal,
agent, officer, director, employee, consultant, shareholder, or otherwise,
whether alone or in association with any other person, corporation or other
entity): (i) engage in, own or otherwise operate any supermarket or retail
grocery business in the Commonwealth of Virginia; or (ii) solicit or induce, or
attempt to solicit or induce, any employee of the Company to leave; it being
understood that Executive shall be permitted to own up to 3% of the outstanding
capital stock of any publicly-traded company listed on a national securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotations System. For purposes of this Agreement, "Non-Compete Period" means
the one-year period following any termination of Executive's employment by
Executive pursuant to Sections 7(a)(iv) or 7(a)(v).
SECTION 10. Remedies. Executive acknowledges that his promised
services hereunder are of a special, unique, unusual, extraordinary and
intellectual character, which give them peculiar value the loss of which cannot
be reasonably or adequately compensated in an action of law, and that, in the
event there is a breach hereof by Executive, the Company will suffer irreparable
harm, the amount of which will be impossible to ascertain. Accordingly, the
Company shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either at law or in equity,
to obtain damages for any breach or to enforce specific performance of the
provisions or to enjoin Executive from committing any act in breach of this
Agreement. The remedies granted to the Company in this Agreement are cumulative
and are in addition to remedies otherwise available to the Company at law or in
equity.
SECTION 11. Waiver of Breach. The waiver by the Company or
Executive of a breach of any provision of this Agreement by the other party (the
"Breaching Party") shall not operate or be construed as a waiver of any other or
subsequent breach by the Breaching Party of such or any other provision. No
delay or omission by the Company or Executive in exercising any right, remedy or
power hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company or
Executive from time to time and as often as may be deemed expedient or necessary
by the Company or Executive in its or his sole discretion.
SECTION 12. Notices. All notices required or permitted
hereunder shall be made in writing by hand-delivery, certified or registered
first-class mail, or air courier guaranteeing overnight delivery to the other
party at the following addresses:
To the Company:
Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, Virginia 23505
Attention: Board of Directors
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: David E. Schulman, Esq.
To Executive:
Richard D. Coleman
or to such other address as either of such parties may designate in a written
notice served upon the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received when
delivered by hand, if personally delivered; on the third day next succeeding the
date of mailing if sent by certified or registered first-class mail; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 13. Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable by a court of competent jurisdiction,
the remainder of this Agreement or the application of any such term or provision
to persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law. If any of the provisions contained in this Agreement shall for any reason
be held to be excessively broad as to duration, scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be valid and
enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
SECTION 14. Governing Law. The implementation and
interpretation of this Agreement shall be governed by and enforced in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
conflicts of law provisions thereof.
SECTION 15. Binding Effect and Assignability. The rights and
obligations of both parties under this Agreement shall inure to the benefit of
and shall be binding upon their heirs, successors and assigns. Neither party's
rights under this Agreement shall, in any voluntary or involuntary manner, be
assignable and may not be pledged or hypothecated without the prior written
consent of the other party; it being understood that no merger or consolidation
involving the Company shall be deemed an assignment.
SECTION 16. Attorneys' Fees; Costs. In any action or
proceeding for damages or injunctive relief, the prevailing party, in addition
to other relief, shall be entitled to reasonable attorneys' fees, costs and the
expenses of litigation incurred by such party in securing the relief granted by
the court.
SECTION 17. Counterparts; Section Headings. This Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument. The section headings of this Agreement are for convenience of
reference only.
SECTION 18. Survival. Notwithstanding the termination of this
Agreement or Executive's employment hereunder for any reason, Sections 7, 8, 9,
10, 14, 16 and 18 hereof (and any other provisions that explicitly contemplate
extending beyond the termination of this Agreement or the Employment Period)
shall survive any such termination.
SECTION 19. Entire Agreement. This instrument constitutes the
entire agreement with respect to the subject matter hereof between the parties
hereto and replaces and supersedes as of the date hereof any and all prior oral
or written agreements and understandings between the parties hereto. This
Agreement only may be modified by an agreement in writing executed by both
Executive and the Company.
SECTION 20. Representations. The Company represents that it
is authorized and empowered to enter into this contract, and no contracts or
indentures will be breached thereby.
SECTION 21. Arbitration. Subject to the terms and conditions
of this Agreement, any dispute, controversy or claim arising from or relating to
this Agreement (other than for injunctive relief) which the parties to this
Agreement are unable to resolve, shall be resolved only by arbitration, which
may be commenced at any time by notice given by any party to this Agreement.
Arbitration shall be conducted pursuant to the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") then in effect. There shall be
three arbitrators selected as follows: (i) one arbitrator shall be selected by
the Company, one arbitrator shall be selected by the Executive, and the third
arbitrator shall be selected jointly by the first two arbitrators, except that
if the parties to this Agreement fail to select an arbitrator within sixty (60)
days after initiation of arbitration or if the first two arbitrators fail to
select the third arbitrator within one hundred twenty (120) days after
initiation of arbitration, then the AAA shall make such selection. The venue of
the arbitration shall be New York City, New York. Expenses of the arbitration
proceeding shall be borne by the parties to this Agreement in such amounts or
proportions as the arbitrators may determine. The decision of the arbitrators
shall be by majority vote and shall be delivered in writing. Any arbitral award
shall be final and binding on the parties to this Agreement and judgment upon
any arbitral award may be entered and enforced by any court or judicial
authority of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement the date and year first written above.
Company:
FARM FRESH, INC.
By /s/ FARM FRESH, INC.
------------------------------
Executive:
/s/ Richard D. Coleman
--------------------------------
Richard D. Coleman
EXHIBIT 10.38
FARM FRESH, INC.
EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT is made in the City of Norfolk, Virginia, effective
______________, 1997, by and between FARM FRESH, INC., a corporation organized
under the laws of the Commonwealth of Virginia, having its principal office in
Norfolk, Virginia (the "Corporation"), and ___________________, a resident of
Virginia (the "Executive").
WHEREAS, the Executive has experience and knowledge in the affairs of
the Corporation, and his services are key to the continued successful
management of the Corporation; and
WHEREAS, the Corporation desires to retain the services and business
counsel of the Executive and to induce the Executive to remain in his executive
capacity with the Corporation.
NOW, THEREFORE, to accomplish the foregoing objective, the Corporation
and the Executive hereby agree as follows:
1. Employment. Upon the terms and subject to the conditions contained
herein, during the Employment Term (as hereinafter defined), the Corporation
hereby employs Executive as [INSERT JOB TITLE] of the Corporation. Executive
shall be responsible for such duties as are commensurate with his office and as
may from time to time be assigned to Executive by the Board of Directors and the
President of the Corporation. Executive hereby accepts such employment and,
during the Employment Term, shall devote his full business time, skill, energy
and attention to the business of the Corporation, and shall perform his duties
in a diligent, trustworthy, loyal, businesslike and efficient manner, all for
the purpose of advancing the business of the Corporation.
2. Compensation. During the Employment Term, the Corporation
shall pay, and Executive shall be entitled to receive from the Corporation,
such compensation as may be established from time to time by the Board of
Directors of the Corporation in the exercise of its sole discretion.
3. Term and Termination. The Employment Term shall commence on the
date hereof and shall continue thereafter until terminated as herein provided.
Either party may terminate the Employment Term for any reason provided that it
has given the other party at least thirty (30) days advance written notice of
its intent to terminate. In addition, the Corporation shall have the right to
terminate the Employment Term at any time with or without notice for Cause (as
hereinafter defined) or in the event Executive suffers an illness or incapacity
of such character that it has or will likely substantially disable him from
performing his duties hereunder for a period of more than ninety (90)
consecutive days (herein, a "Disability"). Furthermore, the Employment Term
shall terminate immediately upon the death of Executive. Notwithstanding
anything to the contrary set forth in this Agreement, Executive's obligations
and covenants set forth in Sections 5 and 6 hereof shall survive the termination
of this Agreement.
4. Severance.
(a) General. The Executive shall be entitled to receive
Severance (as hereinafter defined) according to the remaining provisions of this
section if a Change of Control occurs during the Employment Term or within three
months following the expiration of the Employment Term. Except as expressly
provided above, no Severance shall be payable to the Executive. If Executive is
entitled to such Severance, Severance shall be the exclusive remedy of Executive
in the event of early termination of the Employment Term as herein provided and
shall be in lieu of any other claim for damages related to early termination.
(b) Severance.
(i) "Severance" shall equal the Executive's Base Period Income (as
hereinafter defined) and shall be paid in six (6) equal consecutive monthly
installments. Severance payable to the Executive hereunder shall commence on the
later of the fifteenth business day after the Executive's employment termination
date or the first day of the month following the Executive's employment
termination date. At the Corporation's sole discretion, however, Severance
payments may be commenced on an earlier date. Severance is subject to reduction
according to Section 4(g). If Executive dies after the commencement of
Severance, Executive's estate shall be entitled to the balance of any and all
payments thereafter.
(c) Change of Control. "Change of Control" shall mean the
occurrence of any of the following:
(i)any person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, other than Citicorp
Venture Capital, Ltd. or entities under its common control, shall acquire more
than fifty (50) percent of the voting control of the Corporation or its parent
corporation, FF Holdings Corporation ("Holdings"); or
(ii)the sale of substantially all of the assets of the
Corporation.
For purposes of this Agreement, a Control of Change is deemed to occur
on the date on which an event described in (i) or (ii) above occurs. If a Change
in Control occurs on account of a series of transactions, the date on which a
Change of Control is deemed to occur is the date of the last such transaction.
(d)Base Period Income. The Executive's "Base Period Income" shall
equal the Executive's base salary during the six (6) calendar month period
immediately preceding the date of notice of termination.
(e)Severance Reductions. If any payments which the Executive has
the right to receive from the Corporation (including Severance payments) or any
affiliated entity or any payments or benefits under any plan maintained by the
Corporation or an affiliated entity would otherwise constitute an "excess
parachute payment" (as defined in Internal Revenue Code Section 280G), Severance
payments must be reduced pro-rata (but not below zero) to the largest amount
that will result in no portion of any such payment being subject to the excise
tax imposed by Internal Revenue Code Section 4999. The determination of any
reduction pursuant to this subsection must be made by the Corporation in good
faith, before any such payments are due and payable to the Executive.
5.Confidentiality. Executive shall not (except as authorized by the
Board of Directors of the Corporation or as required in the scope of his
employment) during the term of his employment or at any time thereafter disclose
to any person, firm or company any information relating to the organization,
business or finances of the Corporation or any of its customers, agents or
suppliers, or any of its trade secrets or details of any dealings, transactions
or affairs of which he is or may become aware during his employment hereunder.
Executive shall keep absolutely confidential all such matters entrusted to him,
and he shall not use, nor attempt to use, nor permit others to use, any such
information in any manner which may injure or cause loss whether directly or
indirectly to the Corporation.
6.Proprietary Information. Any notes or memoranda or copies thereof
made by Executive during the term of his employment with the Corporation or at
any time thereafter relating to any matter within the scope of the business of
the Corporation or concerning any of its dealings, transactions or affairs shall
be the property of the Corporation. Executive shall not, either during the term
of his employment or at any time thereafter, use or permit others to use any
such notes or memoranda or copies thereof other than for the benefit of the
Corporation. Upon request by the Board of Directors of the Corporation,
Executive shall immediately return any and all such notes and memoranda and
copies thereof to the Corporation.
7.Assignability. The right of the Executive or any other person to the
payment of compensation or other benefits under this Agreement shall not be
assigned, transferred, pledged or encumbered except by will or by the laws of
descent and distribution.
8.Notices. All notices which may be required or given hereunder shall
be in writing addressed to the respective addresses of the parties hereto as
shown below, posted in the U.S. mail by certified or registered mail, or hand
delivered.
As to Corporation: Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, VA 23505
Attention: President
As to Executive: ----------------------
----------------------
----------------------
9.Binding Effect. All the terms of this Agreement shall be binding upon
and inure to the benefit of, and be enforceable by, the respective heirs and
legal representatives and the successors and permitted assigns of the
Corporation and the Executive.
10.Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
11.Jurisdiction. Executive and the Corporation irrevocably submit to
the jurisdiction of the Circuit Court of Norfolk, Virginia in any action or
proceeding arising out of, or relating to, this Agreement, and hereby
irrevocably agree that all claims in respect of any such action or proceeding
may be heard and determined in such courts. Executive and the Corporation agree
that a final judgment in any action or proceeding shall, to the extent permitted
by applicable law, be conclusive and may be enforced in other jurisdictions by
suit on the judgment, or in any other manner provided for by applicable law
related to the enforcement of judgments except that nothing shall restrict a
party's right to appeal the decision in any action or proceeding.
12.Prior Agreements. This Agreement supersedes all prior arrangements,
understandings, letters of intent, conversations and negotiations between the
parties with respect to the subject matter of this Agreement and shall, together
with any other contemporaneously executed agreement between the parties,
constitute the entire agreement between the parties with respect to the matters
mentioned in this Agreement.
13.Amendment. Neither this Agreement nor any term or provision thereof
may be changed, waived, discharged or terminated orally, or in any manner other
than by an instrument in writing signed by the party against which the
enforcement of this change, waiver, discharge or termination is sought.
14.Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
be deemed one and the same instrument.
15.Severability. If for any reason any provision of this Agreement is
declared invalid, void, or unenforceable by a court of competent subject matter
and personal jurisdiction, the validity and binding effect of any remaining
provision of this Agreement shall remain in full force and effect as if this
Agreement had been executed with the invalid, void or unenforceable provision
eliminated.
16.Construction of Headings. The captions or headings are for
convenience only and are not intended to limit or define the scope or effect of
any provision of this Agreement.
WITNESS the following signatures as of the date first above written.
FARM FRESH, INC.
By:
------------------------
Title:
---------------------
EXECUTIVE:
--------------------------
EXHIBIT 10.39
FARM FRESH, INC.
EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT is made in the City of Norfolk, Virginia, effective
______________, 1997, by and between FARM FRESH, INC., a corporation organized
under the laws of the Commonwealth of Virginia, having its principal office in
Norfolk, Virginia (the "Corporation"), and ___________________, a resident of
Virginia (the "Executive").
WHEREAS, the Executive has experience and knowledge in the affairs of
the Corporation, and his services are key to the continued successful
management of the Corporation; and
WHEREAS, the Corporation desires to retain the services and business
counsel of the Executive and to induce the Executive to remain in his executive
capacity with the Corporation.
NOW, THEREFORE, to accomplish the foregoing objective, the Corporation
and the Executive hereby agree as follows:
1. Employment. Upon the terms and subject to the conditions contained
herein, during the Employment Term (as hereinafter defined), the Corporation
hereby employs Executive as [INSERT JOB TITLE] of the Corporation. Executive
shall be responsible for such duties as are commensurate with his office and as
may from time to time be assigned to Executive by the Board of Directors and the
President of the Corporation. Executive hereby accepts such employment and,
during the Employment Term, shall devote his full business time, skill, energy
and attention to the business of the Corporation, and shall perform his duties
in a diligent, trustworthy, loyal, businesslike and efficient manner, all for
the purpose of advancing the business of the Corporation.
2. Compensation. During the Employment Term, the Corporation
shall pay, and Executive shall be entitled to receive from the Corporation,
such compensation as may be established from time to time by the Board of
Directors of the Corporation in the exercise of its sole discretion.
3. Term and Termination. The Employment Term shall commence on the
date hereof and shall continue thereafter until terminated as herein provided.
Either party may terminate the Employment Term for any reason provided that it
has given the other party at least thirty (30) days advance written notice of
its intent to terminate. In addition, the Corporation shall have the right to
terminate the Employment Term at any time with or without notice for Cause (as
hereinafter defined) or in the event Executive suffers an illness or incapacity
of such character that it has or will likely substantially disable him from
performing his duties hereunder for a period of more than ninety (90)
consecutive days (herein, a "Disability"). Furthermore, the Employment Term
shall terminate immediately upon the death of Executive. Notwithstanding
anything to the contrary set forth in this Agreement, Executive's obligations
and covenants set forth in Sections 5 and 6 hereof shall survive the termination
of this Agreement.
4. Severance.
(a) General. The Executive shall be entitled to receive
Severance (as hereinafter defined) according to the remaining provisions of this
section if the Executive's employment with the Corporation terminates because of
an event described in Sections 4(b) or 4(c). If the Executive's employment
terminates for reasons other than those described in Sections 4(b) or 4(c), no
Severance shall be payable to the Executive. If Executive is entitled to such
Severance, Severance shall be the exclusive remedy of Executive in the event of
early termination of the Employment Term as herein provided and shall be in lieu
of any other claim for damages related to early termination.
(b) Termination by the Corporation. The Executive shall be
entitled to receive Severance if the Executive's employment is terminated by the
Corporation without Cause for reasons other than Executive's death or Disability
within three months prior to, or within twelve months following, the occurrence
of a Change of Control (as hereinafter defined). The term "Cause" shall mean (i)
misappropriation or embezzlement of any funds or property of the Corporation by
the Executive, (ii) Executive's conviction of a felony or a crime involving
moral turpitude, (iii) a material breach of this Agreement by Executive or (iv)
Executive's gross misconduct, neglect or dereliction in the performance of his
duties for the Corporation.
(c) Termination by Executive for Good Reason. The Executive
shall be entitled to receive Severance if the Executive voluntarily terminates
employment for "Good Reason," within three months prior to, or within twelve
months following, the occurrence of a Change of Control. As used herein, "Good
Reason" shall mean (i) the Executive's compensation or employment related
benefits are in the aggregate reduced in any material respect (other than a
reduction of any bonus based on the Executive's performance); (ii) the
Executive's status, title(s), office(s), working conditions, or management
responsibilities are diminished significantly (other than changes in reporting
or management responsibilities required by applicable federal or state law); or
(iii) the Executive's place of employment is moved more than twenty miles or to
a location other than the Corporation's principal executive offices without the
Executive's consent. A voluntary termination of employment by the Executive for
any reason not set forth in this section does not entitle the Executive to
Severance.
(d) Severance.
(i) "Severance" shall equal the Executive's Base Period Income (as
hereinafter defined) and shall be paid in six (6) equal consecutive monthly
installments. Severance payable to the Executive hereunder shall commence on the
later of the fifteenth business day after the Executive's employment termination
date or the first day of the month following the Executive's employment
termination date. At the Corporation's sole discretion, however, Severance
payments may be commenced on an earlier date. Severance is subject to reduction
according to Section 4(g). If Executive dies after the commencement of
Severance, Executive's estate shall be entitled to the balance of any and all
payments thereafter.
(e) Change of Control. "Change of Control" shall mean the
occurrence of any of the following:
(i)any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, other than Citicorp Venture
Capital, Ltd. or entities under its common control, shall acquire more than
fifty (50) percent of the voting control of the Corporation or its parent
corporation, FF Holdings Corporation ("Holdings"); or
(ii)the sale of substantially all of the assets of the
Corporation.
For purposes of this Agreement, a Control of Change is deemed to occur
on the date on which an event described in (i) or (ii) above occurs. If a Change
in Control occurs on account of a series of transactions, the date on which a
Change of Control is deemed to occur is the date of the last such transaction.
(f)Base Period Income. The Executive's "Base Period Income" shall
equal the Executive's base salary during the six (6) calendar month period
immediately preceding the date of notice of termination.
(g)Severance Reductions. If any payments which the Executive has
the right to receive from the Corporation (including Severance payments) or any
affiliated entity or any payments or benefits under any plan maintained by the
Corporation or an affiliated entity would otherwise constitute an "excess
parachute payment" (as defined in Internal Revenue Code Section 280G), Severance
payments must be reduced pro-rata (but not below zero) to the largest amount
that will result in no portion of any such payment being subject to the excise
tax imposed by Internal Revenue Code Section 4999. The determination of any
reduction pursuant to this subsection must be made by the Corporation in good
faith, before any such payments are due and payable to the Executive.
5.Confidentiality. Executive shall not (except as authorized by the
Board of Directors of the Corporation or as required in the scope of his
employment) during the term of his employment or at any time thereafter disclose
to any person, firm or company any information relating to the organization,
business or finances of the Corporation or any of its customers, agents or
suppliers, or any of its trade secrets or details of any dealings, transactions
or affairs of which he is or may become aware during his employment hereunder.
Executive shall keep absolutely confidential all such matters entrusted to him,
and he shall not use, nor attempt to use, nor permit others to use, any such
information in any manner which may injure or cause loss whether directly or
indirectly to the Corporation.
6.Proprietary Information. Any notes or memoranda or copies thereof
made by Executive during the term of his employment with the Corporation or at
any time thereafter relating to any matter within the scope of the business of
the Corporation or concerning any of its dealings, transactions or affairs shall
be the property of the Corporation. Executive shall not, either during the term
of his employment or at any time thereafter, use or permit others to use any
such notes or memoranda or copies thereof other than for the benefit of the
Corporation. Upon request by the Board of Directors of the Corporation,
Executive shall immediately return any and all such notes and memoranda and
copies thereof to the Corporation.
7.Assignability. The right of the Executive or any other person to the
payment of compensation or other benefits under this Agreement shall not be
assigned, transferred, pledged or encumbered except by will or by the laws of
descent and distribution.
8.Notices. All notices which may be required or given hereunder shall
be in writing addressed to the respective addresses of the parties hereto as
shown below, posted in the U.S. mail by certified or registered mail, or hand
delivered.
As to Corporation: Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, VA 23505
Attention: President
As to Executive: --------------------------
--------------------------
--------------------------
9.Binding Effect. All the terms of this Agreement shall be binding
upon and inure to the benefit of, and be enforceable by, the respective heirs
and legal representatives and the successors and permitted assigns of the
Corporation and the Executive.
10.Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
11.Jurisdiction. Executive and the Corporation irrevocably submit to
the jurisdiction of the Circuit Court of Norfolk, Virginia in any action or
proceeding arising out of, or relating to, this Agreement, and hereby
irrevocably agree that all claims in respect of any such action or proceeding
may be heard and determined in such courts. Executive and the Corporation agree
that a final judgment in any action or proceeding shall, to the extent permitted
by applicable law, be conclusive and may be enforced in other jurisdictions by
suit on the judgment, or in any other manner provided for by applicable law
related to the enforcement of judgments except that nothing shall restrict a
party's right to appeal the decision in any action or proceeding.
12.Prior Agreements. This Agreement supersedes all prior arrangements,
understandings, letters of intent, conversations and negotiations between the
parties with respect to the subject matter of this Agreement and shall, together
with any other contemporaneously executed agreement between the parties,
constitute the entire agreement between the parties with respect to the matters
mentioned in this Agreement.
13.Amendment. Neither this Agreement nor any term or provision thereof
may be changed, waived, discharged or terminated orally, or in any manner other
than by an instrument in writing signed by the party against which the
enforcement of this change, waiver, discharge or termination is sought.
14.Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
be deemed one and the same instrument.
15.Severability. If for any reason any provision of this Agreement is
declared invalid, void, or unenforceable by a court of competent subject matter
and personal jurisdiction, the validity and binding effect of any remaining
provision of this Agreement shall remain in full force and effect as if this
Agreement had been executed with the invalid, void or unenforceable provision
eliminated.
16.Construction of Headings. The captions or headings are for
convenience only and are not intended to limit or define the scope or effect of
any provision of this Agreement.
WITNESS the following signatures as of the date first above written.
FARM FRESH, INC.
By:
----------------------
Title:
-------------------
EXECUTIVE:
-------------------------
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF FARM FRESH, INC.
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 30, 1995
and December 28, 1996 F-3
Consolidated Statements of Loss for each of the years in the three
year period ended December 28, 1996 F-5
Consolidated Statements of Stockholder's Deficit for each
of the years in the three year period ended December 28, 1996 F-6
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 28, 1996 F-7
Notes to Consolidated Financial Statements F-10
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Farm Fresh, Inc.:
We have audited the consolidated balance sheets of Farm Fresh, Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996 and the related
consolidated statements of loss, stockholder's deficit and cash flows for each
of the years in the three year period ended December 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farm Fresh, Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996 and the results of
their operations and their cash flows for each of the years in the three year
period ended December 28, 1996 in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, in 1995 the
Company adopted Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 11, 1997, except as to note 10,
which is as of February 21, 1997
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
ASSETS
<S> <C>
Current assets (note 10):
Cash (note 3) $ 2,079,874 847,665
Accounts receivable, net of allowance for doubtful
accounts of $491,330 at December 30, 1995 and
$1,003,038 at December 28, 1996 (note 16) 17,026,234 14,792,965
Merchandise inventories, net
Assuming the first-in, first-out method 56,700,404 54,164,510
Less adjustment to the last-in, first-out method 3,036,896 3,355,394
------------- -------------
53,663,508 50,809,116
------------- -------------
Prepaid expenses and other current assets 2,083,743 1,355,115
------------- -------------
Total current assets 74,853,359 67,804,861
------------- -------------
Assets held for sale (note 10) 6,220,362 9,998,102
Property, plant and equipment (notes 8, 9, 10 and 16):
Land 10,627,356 8,727,365
Buildings 64,835,421 62,675,865
Leasehold improvements 32,016,115 35,955,672
Fixtures and equipment 82,743,500 87,093,915
Transportation equipment 628,072 608,037
Construction in progress 348,932 894,515
------------- -------------
191,199,396 195,955,369
Less accumulated depreciation and amortization 85,264,691 91,778,403
------------- -------------
Net property, plant and equipment 105,934,705 104,176,966
------------- -------------
Favorable lease rights, net of accumulated amortization
of $6,398,657 at December 30, 1995 and $7,283,859 at
December 28, 1996 4,519,402 3,540,441
Goodwill, net of accumulated amortization of $994,136
at December 30, 1995 and $2,348,851 at December 28, 1996 8,567,662 7,227,683
Deferred financing costs, net of accumulated amortization
of $4,390,824 at December 30, 1995 and $6,301,559 at
December 28, 1996 6,663,734 5,785,031
Other, net (note 16) 1,144,005 175,677
------------- -------------
$207,903,229 198,708,761
============= =============
</TABLE>
(continued)
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION> December 30, December 28,
1995 1996
LIABILITIES AND STOCKHOLDER'S DEFICIT
<S> <C>
Current liabilities:
Current installments of notes payable (note 9) $ 1,183,073 801,467
Current installments of obligations under capital
leases (notes 8 and 16) 1,858,914 3,040,132
Trade accounts payable 32,900,110 36,149,820
Accrued expenses (note 7) 24,440,831 24,424,898
Accrued costs relating to closed stores,
current portion (notes 3 and 5) 1,965,073 1,901,305
------------- -------------
Total current liabilities 62,348,001 66,317,622
------------- -------------
Long-term debt, excluding current installments:
Revolving credit facility (note 10) 12,169,258 24,289,957
Notes payable (note 9) 1,751,721 919,698
Obligations under capital leases (notes 8 and 16) 31,617,554 33,958,653
12.25% senior notes (note 11) 165,000,000 165,000,000
12.25% senior notes, Series A (note 11) 37,337,873 37,074,410
Convertible subordinated debentures (notes 10 and 12) 9,322,398 4,380,243
------------- -------------
Total long-term debt, excluding current installments 257,198,804 265,622,961
------------- -------------
Accrued costs relating to closed stores (notes 3 and 5) 7,969,459 7,470,884
Deferred credits and other liabilities (note 3) 4,356,659 3,424,988
------------- -------------
Total liabilities 331,872,923 342,836,455
------------- -------------
Stockholder's deficit (note 13):
Common stock of $.01 par value; authorized 200 shares,
issued 10 shares - -
Additional paid-in capital 29,457,988 29,423,528
Accumulated deficit (152,113,645) (172,442,282)
FF Holdings stockholder loans (note 16) (1,314,037) (1,108,940)
-------------- --------------
Total stockholder's deficit (123,969,694) (144,127,694)
Commitments, contingencies and subsequent events
(notes 2, 8, 10, 13, 15 and 16) - -
------------- ------------
$ 207,903,229 198,708,761
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
<S> <C>
Sales $ 885,883,350 $ 885,087,448 $ 761,493,845
Cost of sales 677,542,329 674,776,002 583,521,074
------------ ------------ ------------
Gross profit 208,341,021 210,311,446 177,972,771
Depreciation and amortization (24,955,107) (21,749,616) (20,677,935)
Other selling, general and administrative expenses (167,527,043) (164,340,248) (138,607,053)
Store closure and other charges (note 5) - (2,635,666) (1,497,284)
Interest expense (35,150,039) (35,231,411) (34,547,000)
Loss on disposition of assets (note 3) (396,434) (4,376,073) (537,956)
Write down of long-lived assets to be disposed (note 1) - (7,230,982) (2,756,207)
Other, net (notes 6 and 12) 99,448 (701,308) 322,027
------------ ------------- ------------
Net loss $ (19,588,154) $ (25,953,858) $ (20,328,637)
============ ================ =============
</TABLE>
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
Years Ended December 31, 1994, December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
Common Stock Additional Due from
------------ Paid-in FF Holdings
Shares Amount Capital Corporation
------- -----------
<S> <C>
Balance at January 1, 1994 10 $ - 29,534,872 (2,266,052)
Contribution from FF Holdings
(note 13) - - - 2,266,052
Dividend to FF Holdings - - (19,673) -
Loans to stockholders - - - -
Repayment of stockholder loans - - - -
Net loss - - - -
------ ------- ------------ -------------
Balance at December 31, 1994 10 - 29,515,199 -
Repayment of stockholder loans - - - -
Dividend to FF Holdings - - (57,211) -
Net loss - - - -
------ ------- ------------ -------------
Balance at December 30, 1995 10 $ - 29,457,988 -
Writedown of stockholder
loans (note 16) - - - -
Dividend to FF Holdings - - (34,460) -
Net loss - - - -
------ ------- ------------ -------------
Balance at December 28, 1996 10 $ - 29,423,528 -
====== ====== ============= =============
</TABLE>
<TABLE>
<CAPTION>
FF Holdings Total
Accumulated Stockholder Stockholder's
Deficit Loans Deficit
------- ----- -------
<S> <C>
Balance at January 1, 1994 (106,571,633) (1,382,609) (80,685,422)
Contribution from FF Holdings
(note 13) - - 2,266,052
Dividend to FF Holdings - - (19,673)
Loans to stockholders - (76,007) (76,007)
Repayment of stockholder loans - 110,000 110,000
Net loss (19,588,154) - (19,588,154)
------------------ --------------- ----------------
Balance at December 31, 1994 (126,159,787) (1,348,616) (97,993,204)
Repayment of stockholder loans - 34,579 34,579
Dividend to FF Holdings - - (57,211)
Net loss (25,953,858) - (25,953,858)
------------------ --------------- ----------------
Balance at December 30, 1995 (152,113,645) (1,314,037) (123,969,694)
Writedown of stockholder
loans (note 16) - 205,097 205,097
Dividend to FF Holdings - - (34,460)
Net loss (20,328,637) - (20,328,637)
------------------ --------------- ----------------
Balance at December 28, 1996 (172,442,282) (1,108,940) (144,127,694)
================== ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
<S><C>
Cash flows from operating activities:
Net loss $ (19,588,154) $ (25,953,858) $ (20,328,637)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 24,955,107 21,749,616 20,677,935
Store closure and other charges - 2,635,666 1,497,284
Loss on disposition of property and equipment 396,434 1,915,615 537,956
Loss on sale of 10 stores to Hannaford Bros. Inc. - 2,460,458 -
Write down of long-lived assets to be disposed - 7,230,982 2,756,207
Loss on disposition of preferred stock - 1,084,604 -
Write down of FF Holding's stockholder loans - - 205,097
Gain on conversion of convertible subordinated
debentures, net - (293,546) (298,536)
LIFO charge to earnings 271,000 35,553 318,498
Noncash recognition of deferred revenue (417,147) (701,763) (1,124,194)
Amortization of premium on debt issuance (211,042) (235,800) (263,463)
Changes in assets and liabilities that increase
(decrease) net cash provided by operating activities:
Accounts receivable (1,861,757) 2,130,031 2,233,269
Merchandise inventories (3,418,568) (283,722) 781,332
Prepaid expenses and other current assets (184,182) 120,241 728,628
Trade accounts payable 5,069,662 (8,540,684) 3,249,710
Accrued expenses 2,251,105 1,573,802 (15,933)
Accrued costs relating to closed stores (3,783,251) (2,266,813) (2,059,627)
Deferred credits and other liabilities (8,322) 936,388 192,523
Other, net (349,970) 93,405 175,098
-------------- -------------- -------------
Total adjustments 22,709,069 29,644,033 29,591,784
------------- -------------- -------------
Net cash provided by operating
activities 3,120,915 3,690,175 9,263,147
------------- -------------- -------------
Cash flows from investing activities:
Acquisitions of property and equipment (7,668,431) (17,081,346) (18,329,078)
Proceeds from sale of property and equipment 1,939,894 654,394 4,880,711
Proceeds from sale of 10 stores to Hannaford Bros. Inc. - 28,368,789 -
Acquisition of Bold Horizons common stock, net of
cash acquired (394,539) - -
Acquisition of assets from Drug Emporium franchisee - (4,246,988) -
------------- -------------- ------------
Net cash provided by (used in)
investing activities (6,123,076) 7,694,849 (13,448,367)
-------------- -------------- --------------
</TABLE>
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
<S> <C>
Cash flows from financing activities:
Borrowings under revolving credit facility $ 144,604,126 $ 150,438,533 $ 151,656,252
Repayments under revolving credit facility (135,533,535) (156,950,483) (139,535,553)
Repayments of long-term debt (2,115,466) (2,014,286) (1,104,515)
Repayments of obligations under capital leases (1,744,016) (1,922,040) (2,188,222)
Payments upon conversion of convertible
subordinated debentures - (5,627,762) (4,667,521)
Stockholder loan repayments 110,000 34,579 -
Payment of refinancing costs (225,080) - (1,172,970)
Dividend to FF Holdings (19,673) (57,211) (34,460)
Contribution from FF Holdings 2,266,052 - -
------------- -------------- -------------
Net cash provided by (used in)
financing activities 7,342,408 (16,089,670) 2,953,011
------------- --------------- -------------
Net increase (decrease) in cash 4,340,247 (4,713,646) (1,232,209)
Cash at beginning of period 2,453,273 6,793,520 2,079,874
------------- -------------- -------------
Cash at end of period $ 6,793,520 $ 2,079,874 $ 847,665
============= ============== =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 33,588,257 $ 36,080,529 $ 34,352,498
============= ============== =============
Income taxes $ - $ - $ -
============= ============== =============
</TABLE>
Supplemental information on noncash investing and financing activities:
During the year ended December 30, 1995, the Company sold selected assets
to Hannaford Bros. Inc. (note 3) for net proceeds of $28,368,789,
including $820,000 received for noncompete and license agreements.
The net assets sold are as follows:
Assets sold $ 33,848,965
Liabilities assumed by Hannaford Bros. Inc. 3,839,718
------------
Net assets sold 30,009,247
Net proceeds, excluding proceeds related to
noncompete and license agreements 27,548,789
------------
Loss on sale of assets $ 2,460,458
============
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Supplemental information on noncash investing and financing activities
(continued):
During the year ended December 31, 1994, the Company purchased the common stock
of Bold Horizons, Inc. for $416,534 (note 4). In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets purchased $ 2,887,278
Cash paid to seller, net of cash acquired 394,539
------------
Liabilities assumed, principally long-term debt $ 2,492,739
============
During the year ended December 31, 1994, the Company finalized the purchase
price allocation for the 1993 acquisition of 12 stores from Safeway Inc.
as follows:
Overvaluation of assets $ 1,060,712
Overaccrual of closed store liability (1,549,112)
Payment of additional direct costs of acquisition 82,605
------------
Net change in goodwill $ (405,795)
=============
During the year ended December 31, 1994, FF Holdings stockholder loans
increased by $76,007 for the accrual of interest.
During the years ended December 31, 1994, December 30, 1995, and December
28, 1996, the Company entered into capital lease obligations of
$3,258,104, $3,688,500 and $5,765,295 respectively.
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, December 30, 1995, and December 28, 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Business and Basis of Presentation
Farm Fresh Inc. (Farm Fresh or the Company), a wholly owned subsidiary
of FF Holdings Corporation (FF Holdings), is engaged in the retail
grocery business under the names "Farm Fresh," "Rack & Sack" and
"Gene Walters' Marketplace." These operations include combination
stores and super warehouse stores located in the Hampton Roads,
Richmond and Shenandoah Valley areas of Virginia.
The consolidated financial statements include the accounts of Farm
Fresh, Inc. and subsidiaries. All significant intercompany balances
and transactions of consolidated subsidiaries have been eliminated.
The consolidated financial statements do not include the accounts of
certain joint venture partnerships in which the Company has acquired
interests ranging from 20% to 33%. These joint ventures were formed
to acquire, renovate, construct and operate various rental
properties. The joint venture partnerships are carried on the equity
method.
(b) Definition of Fiscal Year
The fiscal year of the Company ends on the Saturday nearest to December
31. Fiscal year 1994 ended December 31, 1994, fiscal year 1995 ended
December 30, 1995 and fiscal year 1996 ended December 28, 1996.
(c) Merchandise Inventories
Inventories are stated at the lower of cost or market. For
substantially all of the inventories, cost has been determined on a
last-in, first-out (LIFO) basis. With respect to the remaining
inventories, cost has been determined on a first-in, first-out (FIFO)
basis. Approximately 93% of total merchandise inventories in 1994,
1995, and 1996 were costed using the LIFO method. Movies held for
rent are included in merchandise inventories and amortized to their
net realizable value over 90 days.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Buildings and
equipment under capital leases are stated at the lower of the present
value of minimum lease payments at the beginning of the lease term or
fair value of the property at the inception of the lease. Owned
buildings, fixtures and equipment are depreciated over the estimated
useful lives of the respective assets using the straight-line method.
Buildings under capital leases, fixtures and equipment under capital
leases and leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or the
estimated useful life of the related asset. The Company uses the
following estimated useful lives for depreciating and amortizing
property, plant and equipment:
Buildings 10-40 years
Leasehold improvements 10 years
Fixtures and equipment 3-8 years
Transportation equipment 3-5 years
(e) Favorable Lease Rights
Favorable lease rights are amortized over the term of the lease using
the straight-line method.
(f) Goodwill
Goodwill represents the excess purchase price over the estimated fair
value at the date of acquisition of the tangible and identifiable
intangible net assets acquired and is amortized over its estimated
recovery period using the straight-line method. The maximum recovery
period is 25 years.
(g) Deferred Financing Costs
Deferred financing costs are amortized over the term of the related
financing primarily using the effective interest method.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company and its wholly owned subsidiaries are included in the
Federal income tax return of the consolidated group comprised of FF
Holdings and the Company. The income tax information reflected in the
accompanying financial statements has been calculated as if Farm
Fresh were filing a separate tax return.
(i) Assets Held for Sale
Assets held for sale are carried at estimated net realizable value less
estimated costs to sell. Included in assets held for sale at December
28, 1996 are three buildings, one of which is currently leased to a
third party through 2000, and three parcels of land. Management
expects to sell these properties over the next three years.
(j) Preopening Costs
The Company capitalizes costs associated with the opening of new or
remodeled stores and amortizes these costs over the first six
accounting periods during which the store is open.
(k) Advertising Costs
Advertising costs, which are included in selling, general and
administrative expenses in the accompanying consolidated statements
of loss, are expensed as incurred. Advertising expenses, net of
cooperative advertising allowances, amounted to $5,379,335,
$5,283,195 and $3,296,464, respectively, for the years ended December
31, 1994, December 30, 1995 and December 28, 1996.
(l) Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (Statement 121). Statement 121 requires that long-lived
assets and certain identifiable intangible assets to be held and used
by an entity be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared
to the asset's carrying amount to determine if a write-down to market
or discounted cash flow value is required. Statement 121 also
requires that long-lived assets and certain identifiable intangibles
to be disposed of be reported at the lower of carrying amount or fair
value less costs to sell. The Company adopted Statement 121 in 1995.
The application of Statement 121 to assets held for disposal resulted
in a charge of $7.2 million and $2.8 million in 1995 and 1996,
respectively. Statement 121 has not had an impact on assets to be
held and used.
(m) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(n) Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for the years ended December 31, 1994 and December 30,
1995 in order to conform with the financial statement presentation
for the year ended December 28, 1996.
(2) Liquidity
Although the Company has historically generated cash flow from
operations, the interest incurred on its substantial debt obligations
has resulted in recurring losses. In addition, FF Holdings will be
required to make cash interest payments on its 14.25% senior notes
commencing April 1, 1998. As a holding company with no operations
independent from the Company, FF Holdings is dependent on dividends
from the Company to make its cash interest payments. The Company's
limited cash flow as well as the covenants in its debt agreements
will likely preclude the Company from paying dividends to FF Holdings
to enable FF Holdings to make its April 1, 1998 cash interest
payment. As note 13 more fully describes, FF Holdings' failure to
make its cash interest payment could result in holders of FF Holdings
14.25% senior notes acquiring a controlled interest in Farm Fresh,
which would in turn, trigger a "Change in Control" as defined in the
Indentures, requiring Farm Fresh to offer to repurchase the Senior
Notes, requiring an effective acceleration of the maturity of the
notes.
Although management believes the Company's cash flow from operations and
amounts available under its revolving credit facility will provide
sufficient financial resources to meet its obligations through fiscal
1997, substantial additional capital would be required to finance a
redemption of the Senior Notes under the Change in Control provision.
Management of the Company has engaged an investment banking firm and
is in the process of exploring strategic alternatives, which may
include the sale of some or all of the Company's assets or the
Company remaining independent and either raising additional capital
or negotiating modifications in terms to its or FF Holdings
indebtedness. There can be no assurance that the Company will be able
to secure sufficient capital to enable it to satisfy all outstanding
obligations in the event of an acceleration of the senior notes. In
that event, the Company may be required to enter into some form of
reorganization.
In addition, the Company's existing revolving credit facility expires on
January 13, 1998. Therefore, the Company will be required to renew
its existing facility or secure an alternative source of short-term
financing prior to the expiration. Although there can be no
assurances that the Company will succeed in renewing its existing
facility or securing a new facility which will provide sufficient
financial resources to conduct its operations, the Company believes
that it will be able to obtain some form of short-term interim
facility.
(3) Sale of 10 Stores to Hannaford Bros. Inc.
On September 25, 1995, the Company sold the assets of 10 combination
stores, three of which had been previously closed by the Company,
to Hannaford Bros. Inc. (Hannaford). The stores were primarily
located in Richmond, Virginia.
The net proceeds were as follows:
Gross proceeds:
Inventory and other assets sold $ 28,318,993
Noncompete and license agreements 820,000
-------------
29,138,993
Divestiture expenses:
Sales tax on sale of assets 261,000
Other divestiture expenses 509,204
-------------
Net proceeds $ 28,368,789
=============
The gross proceeds reflected above include $750,000 received pursuant to
a three year noncompetition agreement. This agreement restricts the
Company's activities in Richmond and the surrounding areas except
with respect to its remaining stores in the Richmond market. The
gross proceeds also include $70,000 received pursuant to a one year
license agreement under which Hannaford was permitted to trade under
the name "The Grocery Store" in the Richmond market for a period of
one year. The Company deferred the proceeds received under these
agreements and is recognizing revenue over the term of the respective
contract.
The net assets sold and related loss can be summarized as follows:
Assets sold:
Merchandise inventories $ 4,339,497
Property and equipment 13,404,723
Favorable lease rights 5,257,126
Goodwill 10,847,619
-------------
Total assets sold 33,848,965
-------------
Liabilities assumed by Hannaford:
Obligations under capital leases 3,334,235
Closed store liability 505,483
-------------
Total liabilities assumed 3,839,718
-------------
Net assets sold 30,009,247
Net proceeds, excluding proceeds related to
noncompete and license agreements 27,548,789
-------------
Loss on sale of assets $ 2,460,458
=============
Under the terms of the agreement, $1,261,000 of the net proceeds were
placed in escrow after closing for any potential claims against the
Company with respect to the stores sold and sales tax attributable to
the sale. As of December 30, 1995, $250,000 of the escrowed amount
had been released to the Company. The remaining amounts held in
escrow, including interest accrued thereon, were released to the
Company in 1996. The amounts held in escrow are included in cash on
the accompanying consolidated balance sheet as of December 30, 1995.
The Company used $200,534 of the net proceeds to repay an industrial
revenue development bond which was collateralized by one of the
stores sold.
In order to comply with the terms of the indentures of the Company's
12.25% senior notes and 12.25% senior note series A (note 11), the
Company reinvested the proceeds from the sale of the assets in
remodeling existing stores.
(4) Acquisitions
(a)Drug Emporium
In November 1995, the Company purchased selected assets from a Drug
Emporium franchisee in Richmond for $4.2 million. In conjunction
with the acquisition, the Company acquired $1.8 million in
inventory and $0.2 million in fixtures, which were placed in
existing Company stores. The acquisition was accounted for as a
purchase, with the excess of the purchase price over the fair
value of the assets acquired allocated to goodwill. The Company
is amortizing the goodwill over 2 years. Farm Fresh also entered
into a two-year license agreement with Drug Emporium which
allows the Company to use Drug Emporium's trademarks in certain
Company stores located in Richmond. A stockholder and member of
the Company's Board of Directors currently serves on Drug
Emporium's Board of Directors.
(b)Bold Horizons, Inc.
In August 1994, the Company acquired the outstanding common stock
of Bold Horizons, Inc., for $416,534 in cash, including the
direct costs of the acquisition, and notes payable totaling
$700,000 (note 9). The acquisition was accounted for as a
purchase. As a result, the cost of the acquisition was allocated
on the basis of the fair market value of the assets acquired and
the liabilities assumed, with the excess purchase price of $1.7
million allocated to goodwill. Bold Horizons, Inc. operates one
super warehouse store.
(5) Accrued Costs Relating to Closed Stores
During 1995 and 1996, the Company closed six and two stores,
respectively. In conjunction with the closures, the Company accrued
future costs of $2.6 million in 1995 and $1.5 million in 1996. The
costs, recorded based on discounted cash flows, are directly
attributable to the closed stores. The costs accrued include rent,
taxes, utilities, common area maintenance and other costs associated
with the store locations.
During the years ended December 31, 1994, December 30, 1995 and
December 28, 1996, $2.5 million, $2.3 million and $2.1 million,
respectively, net of related interest expense, related to closed
facilities were charged against the liability noted as accrued costs
relating to closed stores in the accompanying consolidated balance
sheets. These costs represent rent, taxes, utilities, common area
maintenance and other costs associated with the specific closed store
locations.
(6) Write-off of Virginia Supermarkets, Inc. Preferred Stock
During 1992, Farm Fresh sold 11 of its Nick's stores to Virginia
Supermarkets, Inc., (Supermarkets), an entity related to Farm Fresh
by common ownership. Farm Fresh received cash of $4,955,675 and 10%
cumulative preferred stock with $3,000,000 face value. Because the
preferred stock represented an investment in a thinly capitalized
entity, the gain on the sale of $1,915,396 was deferred until
realization could be reasonably assured. Supermarkets was dissolved
in 1995 and Farm Fresh wrote off its $1,084,604 investment in the
preferred stock. This write-off has been included in other, net in
the accompanying consolidated statement of loss for the year ended
December 30, 1995.
(7) Accrued Expenses
Accrued expenses consisted of the following:
December 30, December 28,
1995 1996
Accrued licenses and other taxes $ 6,110,228 $ 5,407,620
Accrued interest 6,986,589 7,181,091
Accrued insurance claims 3,669,027 4,125,522
Accrued other 7,674,987 7,710,665
----------- -----------
$ 24,440,831 $ 24,424,898
=========== ===========
(8) Leases
Included in property, plant and equipment are the following amounts
applicable to capital leases:
December 30, December 28,
1995 1996
Buildings $ 34,884,277 $ 36,396,380
Fixtures and equipment 1,395,560 4,897,322
----------- ------------
36,279,837 41,293,702
Less accumulated amortization 12,526,405 14,308,039
----------- ------------
$ 23,753,432 $ 26,985,663
=========== ============
Amortization expense of assets under capital leases was $2,580,176,
$2,627,032 and $2,709,123 for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996, respectively.
Future minimum lease payments under noncancelable operating leases and
the present value of future minimum capital lease payments as of
December 28, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Leases Operating Leases
------------ -------------- ----------------
<S> <C>
1997 $ 7,547,981 $ 7,531,515
1998 7,483,889 7,193,193
1999 6,878,229 6,581,622
2000 6,318,343 6,187,426
2001 5,499,795 6,084,442
Later years 48,997,548 43,129,778
------------- ------------
Total minimum lease payments 82,725,785 $ 76,707,976
============
Less amount representing interest 45,727,000
-------------
Present value of net minimum
capital lease payments 36,998,785
Less current installments of obligations
under capital leases 3,040,132
-------------
Long-term obligations
under capital leases $ 33,958,653
=============
</TABLE>
Minimum payments under capital leases have not been reduced by minimum
sublease rentals of $830,590 due in the future under noncancelable
subleases.
Rental expense for operating leases and contingent rentals for both
operating and capital leases are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
<S><C>
Minimum rentals - operating
leases $ 10,271,529$ 10,191,480$ 7,276,377
Contingent rentals - operating
leases 464,779 287,643 200,638
Contingent rentals - capital
leases 248,155 224,450 180,803
---------- ---------- -----------
$ 10,984,463 $ 10,703,573 $ 7,657,818
========== ========== ===========
</TABLE>
Contingent rentals are determined as a percentage of sales in excess of
stipulated amounts for certain stores. Most of the Company's leases
provide for payment of taxes, maintenance, insurance and certain
other operating expenses applicable to leased property.
Minimum payments under capital leases and operating leases do not
include minimum rentals for certain leases assumed by Nash Finch and
the operators of the Tinee Giant stores. The Company is secondarily
liable for these leases in the event of default by the present
lessee. Future minimum lease payments on these leases as of December
28, 1996 are approximately $2,024,000.
The Company sold its North Carolina stores in early 1991 and its Nick's
conventional stores in 1992 to independent operators financed by
Richfood. Under the agreements, Richfood agreed to guarantee the
lease payments for these stores. Therefore, the Company would be
liable under these leases only to the extent that the current lessee
and Richfood default. Future minimum lease payments under these
leases amount to approximately $9,363,000 as of December 28, 1996.
(9) Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION> December 30, December 28,
1995 1996
---- ----
<S> <C>
Industrial Development Revenue Bonds; 65% of
prime, which averaged 5.7% for 1995 and
5.4% for 1996, quarterly installments
of $90,000 plus interest, due January 2000 $ 1,498,463 1,138,463
Obligations under noncompete agreements;
10% to 12% interest; monthly payments
ranging from $2,950 to $3,462; due
May 1997 to November 2003 474,403 228,379
Notes payable:
Prime + 2% notes, which averaged 11% for 1995
and 10% for 1996; weekly installments of $7,752,
including interest; collateralized by
substantially all assets of Bold Horizons,Inc.;
due September 1998 566,095 198,767
December 30, December 28,
1995 1996
Prime + 2% notes, which averaged 11% for 1995
and 10% for 1996; monthly installments of
$19,444 plus interest; collateralized by
the common stock of Bold Horizons, Inc.;
due September 1998 395,833 155,556
----------- -----------
Total notes payable 2,934,794 1,721,165
Less current installments of notes payable 1,183,073 801,467
----------- -----------
Notes payable, excluding current
installments $ 1,751,721 919,698
=========== ===========
</TABLE>
At December 28, 1996, collateral for the industrial development revenue
bond consisted of certain property, plant and equipment against which
the note was issued. The net book value of the related collateral is
approximately $2,790,000 at December 28, 1996.
Aggregate annual maturities of notes payable for fiscal years after
December 28, 1996 are as follows: 1997--$801,467; 1998--$378,459;
1999--$380,800, 2000--$81,901; 2001 and thereafter--$78,538.
(10) Revolving Credit Facility
In 1996, the Company renewed its existing revolving credit facility. The
revolving credit facility allows the Company to borrow up to $40.0
million, less $4.0 million reserved for the redemption of convertible
debentures, subject to certain borrowing base limitations through
January 13, 1998. The availability of the revolving credit facility
is also reduced by outstanding letters of credit amounting to
$1,072,501 at December 28, 1996.
The revolving credit facility bears interest at prime plus 1 3/4%,
payable quarterly. The actual interest rate on the revolving credit
facility averaged 10 3/4% for 1995 and 10% for 1996. The facility is
collateralized by accounts receivable, inventory and substantially
all other assets of the Company. In addition, FF Holdings has pledged
all of the outstanding capital stock of Farm Fresh for the repayment
of the facility.
The agreement governing the revolving credit facility contains covenants
which, among other things, limit the incurrence of additional
indebtedness, capital expenditures, payment of dividends,
transactions with affiliates, mergers and consolidations, prepayment
of other indebtedness and liens and encumbrances. The Company is also
required to maintain a minimum level of cashflow.
For the year ended December 28, 1996, the Company exceeded the maximum
capital expenditures covenant and as a result the lender had the
right to demand repayment of the borrowings under the facility.
On February 21, 1997, the lender agreed to waive the noncompliance.
(11) Senior Notes
On October 9, 1992 the Company issued $165,000,000 of senior notes
through a public offering. The notes, which bear interest at 12.25%
payable semiannually each April 1 and October 1, represent general
unsecured obligations of the Company and mature October 1, 2000.
On December 13, 1993, Farm Fresh issued an additional $36,000,000 face
value of 12.25% senior notes, for gross proceeds of $37,800,000, to
finance the acquisition of 12 stores from Safeway Inc. The related
premium is being amortized over the life of the notes using the
effective interest method. The effective rate on the notes is 11.1%.
These notes, labeled Series A in the accompanying balance sheets,
have terms that mirror the previously issued senior notes.
The senior notes are redeemable, at the option of the Company, in whole
or in part, at any time on or after October 1, 1997 at specified
redemption prices, together with interest to the date fixed for
redemption. A sinking fund payment of $100,500,000 is due on October
1, 1999. This sinking fund payment is calculated to retire 50% of the
senior notes originally issued prior to maturity. In the event of a
change of control of the Company, the Company is obligated to make an
offer to purchase all outstanding senior notes at a redemption price
of 101% of the principal amount plus accrued interest to the date of
repurchase. As described in note 13, a foreclosure by the FF Holdings
noteholders on the common stock of Farm Fresh would constitute a
change of control.
The indentures governing the senior notes (the Indentures) contain
certain covenants that, among other things, limit the ability of the
Company to incur additional indebtedness, transfer or sell assets,
pay dividends or make certain other restricted payments, create
liens, enter into certain transactions with affiliates or merge or
consolidate.
(12) Convertible Subordinated Debentures
In March 1985, $40,000,000 of 7.5% convertible subordinated debentures
(convertible debentures) due in 2010 were issued. Interest is payable
March 1 and September 1. On October 2, 1988, as a result of the
acquisition of Farm Fresh by FF Holdings, the convertible debentures
were written down from their original face value by $18,613,867 to
$21,386,133 to reflect their fair value at the date of acquisition.
Therefore, convertible debentures that would formerly have converted,
at the option of the holder, at $25.25 per share into common stock
converted into $10.50 cash and $3.00 in merger debentures of FF
Holdings per equivalent common share. Subsequent to the
recapitalization in 1992 and the corresponding repayment of the FF
Holdings merger debentures, the convertible debentures now convert
into $13.50 in cash per equivalent common share. For the years ended
December 31, 1994, December 30, 1995 and December 28, 1996,
convertible debentures with face value of $12,000, $10,526,000, and
$8,730,000, respectively, were converted, resulting in cash payments
by the Company of $6,415, $5,627,762 and $4,667,521, respectively.
Due to the significant amount converted in 1995 and 1996, the Company
also wrote off a proportionate amount of deferred financing costs
associated with issuance of the convertible debentures. These
amounts, $109,042 and $85,212 for the years ended December 30, 1995
and December 28, 1996, respectively, have been netted against gains
of $402,588 and $383,748 on conversion and included in other
expenses, net in the accompanying consolidated statements of loss for
the years ended December 30, 1995 and December 28, 1996,
respectively.
The face value of debentures outstanding was $26,764,000 at December 31,
1994, $16,238,000 at December 30, 1995 and $7,508,000 at December 28,
1996. The difference between the face value of the convertible
debentures and the carrying value is being amortized over the term of
the bonds using the effective interest method. The effective interest
rate is 14.7%.
Commencing March 1, 1996, the Company is required to make annual sinking
fund payments of $2,000,000. Under the terms of the indenture, this
requirement can be met through either cash payments or contribution
of retired convertible debentures. As a result, the Company will not
be required to make a sinking fund payment in cash until March 1,
2009, at the earliest.
Although the convertible debentures are convertible on demand, a portion
of the revolving credit facility described in note 10 has been
reserved to finance the conversion of all outstanding debentures as
they occur. As a result, the convertible debentures are classified as
a long-term liability in the accompanying balance sheets.
(13) Common Stock and Additional Paid-In Capital
In October 1988, FF Holdings purchased all of the outstanding common
stock of Farm Fresh. At the time of the acquisition, FF Holdings made
a capital contribution of $55,600,000 to Farm Fresh. Although the
Company is not legally liable for the obligations of FF Holdings, the
ability of FF Holdings to meet its obligations is dependent on the
Company's ability to pay dividends to FF Holdings in an amount
sufficient to service these obligations and to make dividend payments
on the preferred stock. The following paragraphs summarize the terms
of FF Holdings outstanding securities.
In conjunction with the issuance of the Company's senior notes (note
11), FF Holdings issued senior notes (FF Holdings notes) with a face
value of $50,000,000 and common stock representing 20% of the
fully-diluted ownership of FF Holdings for gross proceeds of
$49,000,000. The notes bear interest at 14.25% payable semi-annually
in arrears on each April 1 and October 1. FF Holdings has the option
to pay interest with additional securities through the October 1,
1997 interest payment date. No principal repayments are required
until maturity on October 1, 2002. The proceeds from the issuance of
these securities along with the dividend from Farm Fresh were used to
redeem in full the FF Holdings 16.5% merger debentures, which were
issued in conjunction with the acquisition of the Company by FF
Holdings.
FF Holdings is a holding company with no operations independent from the
Company. As a result, the ability of FF Holdings to pay interest on
the FF Holdings notes is dependent upon the Company's ability to pay
dividends to FF Holdings in an amount sufficient to satisfy such
obligations. Assuming FF Holdings elects to pay interest through the
October 1, 1997 interest payment date by distributing additional FF
Holdings notes in a principal amount equal to the interest then due,
FF Holdings will be required to make level, semi-annual cash interest
payments of $7.1 million each or $14.1 million annually, to
noteholders beginning on April 1, 1998, through the maturity date of
the FF Holdings notes. Even if the Company were able to increase its
cash flow sufficient to pay the required dividends to FF Holdings,
covenants in the Indentures and other instruments evidencing the
Company's debt obligations restrict the Company's ability to make
cash dividend payments to FF Holdings. The Company has not generated
sufficient cash to satisfy the restrictive covenant governing
dividends to Holding in the past and is unlikely to satisfy the
covenant by April 1, 1998, the date upon which the first cash
interest payment on the FF Holding Notes is due. If Farm Fresh were
unable to make cash dividends to FF Holdings, FF Holdings would be
unable to pay cash interest on the FF Holdings notes. At this time,
management is not able to predict the impact on the Company if FF
Holdings were unable to pay cash interest on the FF Holdings notes,
although it is likely that such an event could lead to the FF
Holdings noteholders acquiring a controlling interest in the Company,
which could in turn trigger a "Change of Control" as defined in the
Indentures. A change of control would require the Company to offer to
repurchase the senior notes, resulting in an effective acceleration
of the maturity of notes.
Also in conjunction with the recapitalization, FF Holdings exchanged
14.25% cumulative preferred stock for all of its existing 16.75%
junior debentures and 16.75% cumulative preferred stock. The
preferred stock is required by its terms to be redeemed in its
entirety on or before October 1, 2004. At December 28, 1996, there
was $34,427,346 of cumulative preferred stock outstanding at the
liquidation value of $100 per share plus accrued and unpaid
dividends.
Concurrent with the closing of the Safeway acquisition in 1993, FF
Holdings began a private placement of 2,375,000 shares of Class B
common stock to its existing shareholders. At the time of closing, FF
Holdings had an unconditional guarantee of $5,000,000 in proceeds for
the stock; therefore, the entire amount of the offering was reflected
as a capital contribution to the Company in 1993. The private
placement was completed on January 14, 1994, and the remaining
proceeds were received by Farm Fresh.
(14) Income Taxes
The Company's operating results are included in the consolidated Federal
income tax return of its parent, FF Holdings Corporation. At December
28, 1996, the consolidated group had net operating loss carryforwards
of $111.7 million expiring at various dates through 2011. The
Company, on a separate tax return basis, had net operating loss
carryforwards for regular Federal income tax purposes which expire as
follows:
Farm Fresh
Year and subsidiaries
---- ----------------
2003 $ -
2004 -
2005 9,100,000
2006 500,000
2007 6,500,000
2008 12,400,000
2009 21,500,000
2010 7,700,000
2011 11,700,000
-------------
$ 69,400,000
=============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities of the Company on
a separate tax return basis at December 30, 1995 and December 28,
1996 are presented below:
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
------------ ------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 22,382,000 26,334,000
Accrued closed store reserves, deductible
as paid for tax purposes 3,775,000 3,558,000
Capital leases, deductible as paid for tax purposes 3,694,000 3,897,000
General business credit carryforwards 1,798,000 1,798,000
Vacation and bonus accruals, deductible as paid
for tax purposes 962,000 731,000
Allowance for doubtful accounts, deductible as
receivables are written off for tax purposes 187,000 560,000
Non-compete agreements, due to differences
between book and tax amortization periods 373,000 411,000
Other 32,000 91,000
------------- -------------
Total deferred tax assets 33,203,000 37,380,000
Less valuation allowance (20,805,000) (26,779,000)
------------- --------------
Net deferred tax assets 12,398,000 10,601,000
---------- -------------
</TABLE>
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
------------ ------------
<S> <C>
Deferred tax liabilities:
Property, plant and equipment, due to differences between book
and tax depreciation methods and adjustments made in
purchase accounting
not recognized for tax purposes (5,048,000) (4,979,000)
Convertible debentures, due to write downs
in purchase accounting not recognized
for tax purposes (2,628,000) (1,187,000)
Goodwill, due to differences between book and tax
amortization periods (744,000) (432,000)
LIFO, due to adjustments made in purchase
accounting not recognized for tax purposes (2,578,000) (2,569,000)
Leasehold rights, due to differences between book
and tax depreciation periods and adjustments
made in purchase accounting (1,009,000) (1,146,000)
Other (391,000) (288,000)
----------- --------------
Total deferred tax liabilities (12,398,000) (10,601,000)
------------- --------------
Net deferred tax assets and liabilities $ - -
========== ===============
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Due to
losses incurred historically and the uncertainty of future income,
the Company has recorded a valuation allowance to defer recognition
of its deferred tax assets until it is more likely than not the
benefit will be realized. The valuation allowance for deferred tax
assets as of December 31, 1994 was $12,794,000, therefore, an
increase of $8,011,000 was reflected in the year ended December 30,
1995. An increase of $5,974,000 in the valuation allowance was
reflected in the year ended December 28, 1996.
During 1994 and 1995 the Company paid $1,460,394 and $403,168, in
interest related to the settlement of an Internal Revenue Service
audit of the Company's 1986 through 1989 tax returns.
(15) Supply Agreement
Farm Fresh entered into an agreement with Richfood to purchase store
merchandise and products of at least $350 million annually, subject
to adjustment based on the number of stores in operation. Under the
agreement, which expires in December 2001, Richfood's prices for
products sold to Farm Fresh will not exceed Richfood's prevailing
lowest offering price to its customers, and Richfood will continue to
offer to Farm Fresh billing and payment terms at least as favorable
as those offered to Richfood's ten largest customers.
(16) Related Party Transactions
Two stores are leased from real estate partnerships in which Farm Fresh
is a general partner. One store was treated as a capital lease with
net assets of $1,125,397 and $1,060,972 and long-term obligations of
$1,688,205 and $1,691,341 in 1995 and 1996, respectively. Both leases
expire within the next 19 years. Aggregate annual payments under
these related party leases were $653,613 in 1994, 1995 and 1996.
Included in other assets are investments in real estate partnerships in
which Farm Fresh is a general partner. Under the terms of the
partnership agreements, Farm Fresh guarantees a portion of the
partnership debt. In January 1997, Farm Fresh assigned its ownership
interest in one real estate partnership to the other partners. Farm
Fresh guaranteed $4,364,570 of notes payable at December 28, 1996
relating to the two remaining partnerships, representing the two
partnerships' total outstanding debt.
Included in stockholder's deficit are loans to certain members of
management and stockholders of $1,314,037 and $1,108,940 at December
30, 1995 and December 28, 1996, respectively, which were made to
enable them to purchase securities of FF Holdings. Accrued and unpaid
interest and cash loans have been charged against net loss in the
accompanying 1996 consolidated statement of loss.
The Company has employment contracts with certain members of management.
Two of the contracts provide a base salary plus an incentive bonus of
up to one half of the individual's salary. The contracts also provide
for a bonus to be paid upon the occurrence of certain transactions,
which include among other things, the sale of all or a portion of the
Company's assets. The contracts have an initial term of two years and
automatically renew on an annual basis thereafter. The contracts may
be terminated upon death or disability of the employee or by cause,
as defined in the contract. Upon termination for reasons other than
cause, the employee is eligible to receive severance equal to one
year's base salary.
The remaining employment contracts provide for severance payments
ranging from six months to one year's salary upon termination without
cause or the occurrence of a change in control of the Company, as
defined in the agreements. If these employees had been terminated as
of December 28, 1996, the Company would be obligated to pay $950,000
relating to these agreements.
During the years presented, the Company sold merchandise to Fair
Markets, Inc., a company related by common ownership. Included in
accounts receivable at December 30, 1995 was $522,944. Fair
Markets, Inc. sold its stores during 1996 and the entire receivable
was repaid.
(17) Retirement Savings Plan
Farm Fresh, Inc. Retirement Savings Plan (Plan) is a defined
contribution plan sponsored by the Company. The Plan is designed to
provide employees an opportunity to accumulate capital for their
future economic security. The Plan provides for employee salary
deferral and matching employer contributions.
Employees of Farm Fresh become eligible to participate in the Plan when
they attain age twenty-one and have completed a twelve-month period
of not less than 1,000 hours of service. Participation by employees
commences at the beginning of the quarter subsequent to the quarter
in which the above conditions have been met. Participants become
fully vested in the Plan upon normal retirement (age 60 or older),
permanent disability, death or completion of one year of credited
service.
Contributions to the Plan accrued by the Company were $1,397,904,
$1,424,426 and $1,399,938 for 1994, 1995 and 1996, respectively.
(18) Disclosures About Fair Value of Financial Instruments
The following summarizes disclosure regarding the estimated fair value
of the Company's financial instruments at December 30, 1995 and
December 28, 1996:
(a) Cash, accounts receivable, accounts payable and accrued expenses
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Revolving credit facility
The carrying amount approximates fair value since the rate was
recently renegotiated in conjunction with the renewal described
in note 10.
(c) Notes payable
The fair value of the Company's notes payable is estimated based on
the present value of future cash flows discounted using the
Company's revolving credit facility interest rate of prime plus
1 3/4%.
(d) Accrued costs relating to closed stores
The carrying amount of these obligations is determined based upon
discounted future cash flows and therefore approximates fair
value.
(e) Senior notes
The fair value of the Company's senior notes is based upon recent
trading of these securities in public markets.
(f) Convertible debentures
The fair value of the convertible debentures has been based upon
their conversion value.
(g) Letters of credit
The Company has letters of credit outstanding which guarantee various
trade activities. The contract amounts of the letters of credit
approximate their fair value.
(h) Financial guarantees
A reasonable estimate of the fair value of the Company's
guarantees of long-term debt and lease obligations of others,
more fully described in notes 8 and 16, could not be made
without incurring excessive costs.
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
At December 30, 1995
--------------------------------
Carrying Estimated
Amount Fair Value
---------- -----------
<S> <C>
Cash $ 2,079,874 $ 2,079,874
Accounts receivable 17,026,234 17,026,234
Revolving credit facility 12,169,258 12,169,258
Notes payable 2,934,794 2,836,462
Accounts payable 32,900,110 32,900,110
Accrued expenses 24,440,831 24,440,831
Accrued costs relating to closed stores 9,934,532 9,934,532
Senior notes 165,000,000 135,300,000
Senior notes, Series A 37,337,873 29,520,000
Convertible subordinated debentures 9,322,398 8,681,703
Letters of credit, for which it is not
practicable to estimate fair value - 1,135,055
Financial guarantees, for which
it is not practicable to estimate
fair value - -
</TABLE>
<TABLE>
<CAPTION>
At December 28, 1996
---------------------------------
Carrying Estimated
Amount Fair Value
------ ----------
<S> <C>
Cash $ 847,665 $ 847,665
Accounts receivable 14,792,965 14,792,965
Revolving credit facility 24,289,957 24,289,957
Notes payable 1,721,165 1,761,714
Accounts payable 36,149,820 36,149,820
Accrued expenses 24,424,898 24,424,898
Accrued costs relating to closed stores 9,372,189 9,372,189
Senior notes 165,000,000 125,400,00
Senior notes, Series A 37,074,410 27,360,000
Convertible subordinated debentures 4,380,243 4,014,178
Letters of credit - 1,072,501
Financial guarantees, for which
it is not practicable to estimate
fair value - -
</TABLE>
(19) Selected Quarterly Financial Data (Unaudited)
The following table and related footnotes present selected quarterly
financial data for the Company:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C>
(dollars in thousands)
Year Ended December 30, 1995:
Sales $208,235 $214,680 $215,895 $246,278 $885,087
Gross profit 49,270 51,156 50,477 59,408 210,311
Net loss (3,712) (1,313) (3,398) (17,531)(a) (25,954)
Year Ended December 28, 1996:
Sales $178,954 $180,032 $180,581 $221,926 $761,494
Gross profit 41,664 42,357 41,175 52,777 177,973
Net loss (3,247) (1,799) (3,739) (11,544) (b) (20,329)
</TABLE>
----------------
(a) Includes charges to earnings for reserves established for closed
stores of $2.6 million (note 5), write down of long-lived assets
to be disposed of $7.2 million and the loss on the sale of 10
stores to Hannaford of $2.5 million (note 3).
(b) Includes charges to earnings for reserves established for closed
stores of $1.5 million (note 5), and write down of long-lived
assets to be disposed of $2.8 million.
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Farm Fresh, Inc.:
Under date of February 11, 1997, except as to note 10 which is as of
February 21, 1997, we reported on the consolidated balance sheets of
Farm Fresh, Inc. and subsidiaries as of December 30, 1995 and December
28, 1996 and the related consolidated statements of loss, stockholder's
deficit and cash flows for each of the years in the three-year period
ended December 28, 1996 which are included herein. In connection with
our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedule,
Schedule II - Valuation and Qualifying Accounts. This financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 11, 1997
<TABLE>
<CAPTION>
SCHEDULE II
FARM FRESH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Balance, Amounts
Beginning Charged to Balance,
of Year Expense Deductions End of Year
------- --------- ---------- -----------
<S> <C>
Year Ended December 31, 1994
LIFO Reserve $ 2,730,343 $ 271,000 $ - $ 3,001,343
Allowance for doubtful accounts 402,617 185,000 (338,239) 249,378
Deferred tax asset valuation allowance 9,286,000 3,508,000 - 12,794,000
Year Ended December 30, 1995
LIFO Reserve $ 3,001,343 $ 35,553 $ - $ 3,036,896
Allowance for doubtful accounts 249,378 333,000 (91,048) 491,330
Deferred tax asset valuation allowance 12,794,000 8,011,000 - 20,805,000
Year Ended December 28, 1996
LIFO Reserve $ 3,036,896 $ 318,498 $ - $ 3,355,394
Allowance for doubtful accounts 491,330 649,381 (137,673) 1,003,038
Deferred tax asset valuation allowance 20,805,000 5,974,000 - 26,779,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-28-1996 DEC-30-1995
<PERIOD-END> DEC-28-1996 DEC-30-1995
<CASH> 848 2,316
<SECURITIES> 0 0
<RECEIVABLES> 15,796 17,281
<ALLOWANCES> 1,003 491
<INVENTORY> 50,809 53,664
<CURRENT-ASSETS> 67,805 74,853
<PP&E> 195,955 191,199
<DEPRECIATION> 91,778 85,265
<TOTAL-ASSETS> 198,709 207,903
<CURRENT-LIABILITIES> 66,318 62,348
<BONDS> 206,454 211,660
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 198,709 207,903
<SALES> 761,494 885,087
<TOTAL-REVENUES> 761,494 885,087
<CGS> 583,521 674,776
<TOTAL-COSTS> 583,521 674,776
<OTHER-EXPENSES> 163,755 201,034
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34,547 35,231
<INCOME-PRETAX> (20,329) (25,954)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (20,329) (25,954)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
