<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-19887
WORTHINGTON FOODS, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-0733120
(State of Incorporation) (IRS Employer Identification No.)
900 PROPRIETORS ROAD
WORTHINGTON, OH 43085
(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 885-9511
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
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|
As of March 1, 1999, there were outstanding 12,373,745 of the Registrant's
common shares, no par value, which is the only class of common or voting stock
of the Registrant. As of that date, the aggregate market value of the common
shares held by non-affiliates of the Registrant (based on the closing price for
the common shares on the NASDAQ-National Market System on March 1, 1999) was
$149,744,163.
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 are incorporated by reference into Part I and Part
II. Portions of the definitive proxy statement furnished to shareholders of the
Registrant in connection with the annual meeting of shareholders to be held on
April 20, 1999 are incorporated by reference into Part III.
THE EXHIBIT INDEX BEGINS AT PAGE 19.
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ITEM 1 BUSINESS
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THE COMPANY
-----------
Worthington Foods, Inc. develops, produces and markets high-quality,
zero cholesterol, vegetarian and other healthful food products for consumers
seeking healthful food choices. Offering more than 150 products, the Company is
one of the leading independent producers of healthier alternatives to meat, egg
and dairy products. For 60 years, the Company has been dedicated to producing
meat alternative products which simulate the taste and texture of meat and which
are made primarily from soy and wheat proteins. Since the 1970's, the Company
has produced egg substitute products made primarily from liquid egg whites.
The Company produces and sells, under the MORNINGSTAR FARMS(R) brand
name, a line of products targeting health-conscious consumers. The Company sells
these products nationwide, primarily to supermarkets and grocery stores, and is
rapidly increasing its presence in foodservice operations. Worthington Foods was
the first to introduce a line of frozen egg substitutes and meatless breakfast
items into retail grocery stores during the 1970's. Today MORNINGSTAR FARMS is
the recognized market leader of meat alternatives, found in more than 96% of the
nation's supermarkets. The MORNINGSTAR FARMS brand offers approximately two
dozen frozen food items to replace whole eggs and processed meats for all meal
occasions. Most of these meat alternatives are made from soy protein;
consequently, they are either low-fat or fat-free. Virtually all are
cholesterol-free; and many provide a good source of fiber. The primary brand
positioning of MORNINGSTAR FARMS continues to be good-tasting, convenient,
healthier alternatives to meat, particularly red meat, and pork.
Products sold nationally under the WORTHINGTON(R) and LOMA LINDA(R)
(formerly LALOMA) brand names, consisting primarily of frozen and canned meat
alternatives, are targeted primarily to vegetarians and members of the
Seventh-day Adventist Church. The Company produces and sells nationally, under
the NATURAL TOUCH(R) brand name, all-natural, additive-free foods and beverages
targeted to health/natural food consumers.
The Company's business strategy is to continue to capitalize on the
dietary trend toward the consumption of healthful, vegetarian food products,
primarily those with zero cholesterol, and zero fat, or low fat claims. Through
its existing product line and the development of new products and production
processes, the Company will endeavor to maintain its leading share of the market
for meat alternatives and to capture the growing number of vegetarians and
semi-vegetarians who are increasingly consuming such products. The Company
believes its frozen egg substitute products, SCRAMBLERS(R) and BETTER'N EGGS(R),
will enable it to maintain its number two position in the frozen egg substitute
market.
The Company's origin dates to 1939 when its predecessor ("Old
Worthington") was organized to produce nutritional, vegetarian foods for members
of the Seventh-day Adventist Church. Miles Laboratories purchased Old
Worthington in 1970. The Company, in a management-led buyout, acquired the
business and assets of Old Worthington in 1982. Since regaining its
independence, the Company's net sales have grown from approximately $24,000,000
in 1983 to approximately $140,000,000 in 1998. In January, 1990, the Company
acquired LaLoma Foods, Inc., including the LOMA LINDA brand (formerly LALOMA
brand), from the General Conference of Seventh-day Adventists.
In November 1994, the Company sold substantially all of the
manufacturing equipment, inventory and intangible assets (including the BETTER'N
EGGS trademark) used by it in the manufacturing of refrigerated egg substitute
products. As a part of this transaction, the Company agreed that it will not
re-enter the refrigerated egg substitute business for five years. The Company
obtained from the purchaser of its refrigerated egg assets a royalty-free,
perpetual license to use the BETTER'N EGGS trademark in the manufacturing and
sale of frozen egg substitute products.
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On October 16, 1998, the Company purchased the HARVEST BURGERS(R) brand
of meat alternatives from the Archer Daniels Midland Company (ADM). The purchase
price was paid by issuing 488,750 common shares ($8.4 million). The Company
started the selling and distribution of HARVEST BURGERS January 1, 1999. HARVEST
BURGERS were previously sold under the Green Giant name. As part of the
agreement, ADM will continue to manufacture the product for the next five years.
The Company was incorporated in July, 1967 under the laws of the State
of Ohio and maintains its executive offices at 900 Proprietors Road,
Worthington, Ohio 43085, and its telephone number is (614) 885-9511. As used in
this Form 10-K, the term "Company" refers to Worthington Foods, Inc., its
subsidiary and its predecessors, unless the context otherwise requires.
BUSINESS
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The Company is one of the leading independent food companies dedicated
solely to developing, producing and marketing vegetarian, meat alternatives,
frozen egg substitutes and other healthful food products. The Company offers a
diverse line of food and beverage products designed to meet the needs of today's
health-conscious consumers.
Industry
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The market for healthful foods has grown significantly over the past
several years. Based on recommendations from various United States governmental
agencies and medical organizations aimed at reducing the risk of heart and other
diseases, consumers in the United States have increasingly sought healthier
diets through reduced consumption of meat and other foods containing significant
amounts of cholesterol and fat. Soy, one of the Company's principal raw
materials, has received the Food and Drug Administration's highest possible
rating in terms of protein quality. Studies have suggested that soy can reduce,
control or prevent the incidence of certain types of colon, breast, lung,
prostate and stomach cancers. Studies have also suggested that soy protein helps
the body retain calcium, thus reducing the risk of osteoporosis.
Independent market research studies indicate that consumers in the
United States have changed their diets in recent years by selecting healthful
foods. More than 100 million American adults are now watching their fat intake
and 90 million are monitoring their dietary cholesterol. More than half of
grocery shoppers rate health as their primary concern in making food selections.
75 million American adults are actively reducing their red meat consumption,
while 90% of shoppers practice some level of health-motivated behavior when they
are grocery shopping. In addition, there were an estimated 20 million
vegetarians in the United States in 1998, more than an eight-fold increase over
a decade ago. That number is growing at a rate of nearly 20,000 new vegetarians
a week. The market for vegetarian foods is projected to reach $600 million by
2000 as 42% of grocery shoppers are eating meatless meals at least once a week
and 15% of shoppers are including meat substitutes at least once a week.
Products
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The Company produces and markets more than 150 different food and
beverage products intended to promote good health and nutrition. The Company's
products are made primarily from vegetable proteins, soy and egg whites, have
zero cholesterol and typically are lower in fat, saturated fat and calories than
their meat and egg counterparts. These products are intended to satisfy the
needs of consumers who are seeking to reduce or eliminate their consumption of
meat, fresh shell eggs, poultry and fish.
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The Company's principal food product lines consist of meat alternative
products and frozen egg substitute products. The Company's meat alternatives are
made from vegetable proteins and simulate the taste and texture of meat, poultry
and fish. The egg substitute products, the major ingredient of which is liquid
egg whites, are designed to replace fresh shell eggs for consumers who seek to
control their consumption of cholesterol and fat. They can be used for most
breakfast applications and substituted for fresh shell eggs in most other
recipes. The Company's beverage products include powdered soy milk and an
alternative to coffee.
The Company's products are marketed under four brand names: MORNINGSTAR
FARMS, WORTHINGTON, LOMA LINDA (formerly LALOMA) and NATURAL TOUCH. The
following table sets forth the Company's net sales ($000's) by brand name for
each of the years indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Morningstar Farms.............. $102,842 74% $ 82,281 70% $ 73,645 68%
Worthington.................... 22,444 16 21,439 18 21,617 20
Loma Linda..................... 9,473 7 9,299 8 8,828 8
Natural Touch.................. 4,733 3 4,925 4 4,985 4
----- - ----- -- ----- -
Total..................... $139,492 100% $117,944 100% $109,075 100%
======== ==== ======== ==== ======== ====
</TABLE>
MORNINGSTAR FARMS
Introduced in the early 1970's, MORNINGSTAR FARMS brand products offer
a full line of zero cholesterol alternatives to processed meats and fresh shell
eggs that appeal to the consumer who is seeking a healthier diet. These products
are distributed nationally through supermarkets, grocery stores and other retail
outlets. The Company markets four principal meat alternative products under the
MORNINGSTAR FARMS brand name -- BREAKFAST LINKS, BREAKFAST PATTIES, BREAKFAST
STRIPS and GRILLERS(R). These products simulate the taste and texture of sausage
links, sausage patties, bacon strips and hamburger, respectively. They are
completely free of meat, meat by-products and animal fat and have zero
cholesterol. They are comparable in protein to their meat counterparts but are
lower in calories and total fats and have the benefit of a higher ratio of
polyunsaturated to saturated fats. While these four baseline products were
introduced in the early 1970's, distribution for these items continues to grow.
Together, they accounted for approximately $33,674,000, $29,179,000 and
$27,294,000 or 24.1%, 24.7% and 25.0% of net sales in 1998, 1997 and 1996,
respectively.
In early 1993, the Company began test marketing four new MORNINGSTAR
FARMS meat alternatives: GARDEN VEGGIE-PATTIES, QUARTER PRIME(TM) (FORMERLY
PRIME PATTIES(R)), CHIK PATTIES(R) and DELI FRANKS. Due to favorable trade and
consumer acceptance, the Company decided in 1993 to expand the availability of
these products. In October, 1994, the Company introduced BETTER'N BURGERS(R), a
fat-free, zero cholesterol hamburger replacement, and continued with the
national roll-out of this product during 1995. SPICY BLACK BEAN BURGERS and
GARDEN GRILLE(R) were also introduced during 1995 with strong trade acceptance.
In late 1995, the Company introduced GROUND MEATLESS(R), a fat-free soy based
ingredient to be used in place of cooked ground beef in tacos, sauces and
casseroles. During 1996, the Company introduced under the MORNINGSTAR FARMS
brand, three new BREAKFAST SANDWICHES. These sandwiches are made from the
Company's fat-free SCRAMBLERS egg product, meatless BREAKFAST PATTIES and
fat-free cheese. During 1997, the Company continued to introduce new products.
BURGER STYLE RECIPE CRUMBLES and SAUSAGE STYLE RECIPE CRUMBLES, which are
low-fat, soy based ingredients to be used in place of cooked ground beef or
sausage in tacos, sauces, casseroles or pizza toppings, were introduced. These
initial quick frozen (IQF) items are more convenient than GROUND MEATLESS, but
are not meant to replace that item. CHIK NUGGETS, a delicious chicken-like
nugget with 75% less fat than nuggets made of
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<PAGE> 5
real chicken, was also introduced in 1997 and has already become one of the
Company's top selling products. In late 1997, the Company introduced AMERICA'S
ORIGINAL VEGGIE DOG(TM) which will replace DELI FRANKS. The taste and texture of
VEGGIE DOGS are very close to the full-fat meat hot dogs which have over $1.5
billion in retail sales annually. During the second quarter of 1998, the Company
introduced MEATFREE CORN DOGS. This product is an all-vegetable product with no
preservatives, but offers the same taste and texture of a meat corn dog. During
the fourth quarter of 1998, the Company introduced two new items, MEATFREE
BUFFALO WINGS and HARD ROCK CAFE VEGGIE BURGERS. The Buffalo Wings are a "fun
food" with all the spicy flavor of chicken meat hot wings with 50% less
saturated fat and no cholesterol. The HARD ROCK CAFE VEGGIE BURGER is an
all-natural blend of sauteed vegetables, grains and roasted nuts focused on the
younger generation of consumers. Also, the Hard Rock Cafe logo, one of the
best-recognized icons in the world, will be identified with a retail food
product for the first time. Together, the new MORNINGSTAR FARMS brand products
introduced since 1993 accounted for approximately $38,973,000, $29,864,000 and
$25,080,000 or 27.9%, 25.3% and 23.0% of net sales in 1998, 1997 and 1996,
respectively.
The MORNINGSTAR FARMS brand product line also includes two frozen egg
substitute products, SCRAMBLERS and BETTER'N EGGS. SCRAMBLERS is a frozen
product that contains approximately 99% liquid egg whites, zero cholesterol,
zero fat and contains half the calories of fresh shell eggs. SCRAMBLERS, which
was developed to duplicate the taste and texture of scrambled eggs, has a
distinctive, buttery taste. SCRAMBLERS is the Company's largest selling single
product and accounted for approximately $7,770,000, $8,537,000 and $9,076,000 or
5.6%, 7.2% and 8.3% of net sales in 1998, 1997, and 1996, respectively. Although
the Company does not anticipate growth in the frozen egg substitute category or
growth in the sales of SCRAMBLERS, the Company believes that the taste profile
of SCRAMBLERS will allow it to maintain a loyal consumer following.
BETTER'N EGGS, which is offered by the Company only in frozen form,
contains approximately 98% liquid egg whites, zero cholesterol and zero fat.
BETTER'N EGGS, as its name suggests, is marketed as a product nutritionally
superior to fresh shell eggs (two-thirds fewer calories than fresh shell eggs)
with a taste very similar to fresh shell eggs. With the sale of its refrigerated
BETTER'N EGGS assets in late 1994, the Company has discontinued the manufacture
and sale of refrigerated egg substitute products. Refrigerated BETTER'N EGGS is
now being produced by the purchaser of these assets.
In 1997, a successful test market was completed on three refrigerated
items in "modified atmosphere packaging," or MAP. Due to the success of the test
market, the Company began the roll-out of five refrigerated products into other
selected areas of the country in early 1998. These products include GARDEN
VEGGIE PATTIES, SPICY BLACK BEAN BURGERS, PRIME PATTIES, CHIK NUGGETS and
BREAKFAST PATTIES, and accounted for $1,808,000 and $422,000 or 1.3% and 0.4% of
net sales in 1998 and 1997, respectively.
WORTHINGTON AND LOMA LINDA
WORTHINGTON brand products have been sold in the marketplace since 1939
and LOMA LINDA brand products, sold formerly under the LALOMA brand name, have
been available since 1906. Both brands were originally developed to meet the
dietary preferences of members of the Seventh-day Adventist Church, but now are
also being targeted to the growing market of vegetarians and others desiring to
reduce their consumption of cholesterol and fat.
These brands include approximately 120 frozen, canned and dry products
that are intended to provide healthier, vegetarian alternatives to meat
products, such as hamburger, hot dogs, sausage, bacon and luncheon slices, and
to chicken and fish. They contain no meat or animal fat and, because they are
made primarily from soy and wheat proteins, have zero cholesterol and are low in
saturated fats.
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<PAGE> 6
In 1996, the Company provided low-fat alternatives to three of the
WORTHINGTON brands most popular items: FRICHIK(R), VEJA-LINKS and CHILI. These
three low-fat items contributed 6% growth in unit volume among retailers serving
the Seventh-day Adventist market. In 1997, the Company continued to emphasize
the low-fat products within its specialty brands. Much of this was a
continuation of the development work with fat replacers pioneered the previous
year. In addition, hydrogenated fats were removed from more than two dozen
products. Low-fat versions of BIG FRANKS, REDIBURGER, SLICED CHIK and DICED CHIK
were introduced in 1997. This brings to nearly 40 the number of WORTHINGTON and
LOMA LINDA items that are labeled with a low-fat claim.
NATURAL TOUCH
The NATURAL TOUCH brand was introduced in 1984 to meet the dietary
needs of health/natural food consumers looking for vegetarian products that do
not contain artificial ingredients or flavors. Since its introduction, NATURAL
TOUCH has been a leading brand in the natural food category. The NATURAL TOUCH
brand consists of 20 frozen entrees, mixes and beverages. Products include:
OKARA PATTIE, made from organic soybeans; GARDEN VEGGIE PATTIE, made from garden
vegetables and LENTIL RICE LOAF and NINE BEAN LOAF, which are unique products
that combine the nutritious benefits of legumes as a convenient, easy-to-prepare
entree. KAFFREE ROMA(TM)is the number one selling coffee alternative in the
natural food retail channel. It is made from malted barley and chicory and
contains no caffeine or tannic acids. During 1998, five new items were
introduced under the NATURAL TOUCH brand. These new products include TUNO(R),
our popular tuna alternative now available in a can instead of frozen; TOASTER
SQUARES, a healthful entry into the growing hand-held breakfast category; and
HARD ROCK CAFE BURGER.
In late 1994, the Company began to develop a natural food broker
network that was completed in 1996. These brokers have increased product
penetration and ensure the efficient execution of marketing programs developed
for natural food retailers and consumers. Additionally, the brokers have
provided a higher level of retail service that is benefiting the distributors,
retailers and ultimately, the consumer.
Customers, Markets and Distribution
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MORNINGSTAR FARMS brand products are sold primarily to supermarkets,
grocery stores and distributors located throughout the United States, including
virtually all of the major supermarkets and distributors. MORNINGSTAR FARMS
brand products are also sold to foodservice (institutional) markets, including
health care, educational facilities and restaurants.
Supermarket and grocery store sales of frozen MORNINGSTAR FARMS brand
products are made through a network of 56 independent frozen food brokers and 40
independent refrigerated food brokers. These brokers are managed by the
Company's six regional sales managers in the frozen food category and three
sales managers in the refrigerated category. The Company ships these products by
common carrier from its Zanesville distribution facility to the customer's
warehouse or to a public warehouse.
WORTHINGTON and LOMA LINDA brand products are primarily sold to
facilities operated by Seventh-day Adventists such as book stores, supermarkets,
hospitals and schools. These products are increasingly sold to retail
supermarkets that are not operated by Seventh-day Adventists but are located in
areas where the Seventh-day Adventist population is concentrated, and to
health/natural food stores. NATURAL TOUCH brand products are primarily sold to
health/natural food stores and distributors, although they are also sold to the
same market base as the WORTHINGTON and LOMA LINDA brand products.
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Sales of WORTHINGTON, LOMA LINDA, and NATURAL TOUCH brand products are
made by the Company's five-employee field sales force, independent field brokers
and customer service representatives. The Company ships these products by common
carrier, in some cases, directly to the customer, and in other cases, to the
Company's field warehouse facilities for delivery by the Company's local
delivery trucks to the trade customer or to the distributor's warehouse.
The Company exports its branded products throughout the world to such
countries and areas as Taiwan, Singapore, Malaysia, Hong Kong, the Caribbean,
Canada, Mexico, the United Kingdom, Australia, Panama, and Italy. The Company
uses export facilitators and distributors as required. Due to health concerns
worldwide regarding the consumption of meat, more consumers are looking for
vegetarian alternatives. The Company anticipates continued growth in
International sales.
The Foodservice Division of the Company has expanded over the past six
years and now includes five regional sales managers, 51 independent food brokers
and approximately 700 independent distributors. As a result of increased
consumer interest and product availability, restaurants represent more than half
of the Company's Foodservice sales, and the list of national and regional chains
featuring a MORNINGSTAR FARMS veggie burger continues to grow. The list includes
restaurants such as Subway, Chili's, Blimpie's, Hard Rock Cafe and Pizzeria Uno
who are featuring a MORNINGSTAR FARMS product on their menu. Until recently, the
majority of sales in this category were made to universities, hospitals, hotels
and other institutions. With the increased awareness and demand for vegetarian
food items, the Company is well positioned to benefit from increased sales to
foodservice operations with its full line of vegetarian food products for
breakfast, lunch and dinner.
The following table sets forth the Company's net sales to its principal
markets for each of the years indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Supermarkets and grocery stores......... $ 83,187 59% $ 68,021 58% $ 62,280 57%
Seventh-day Adventist retail facilities. 21,267 15 19,374 16 19,427 18
Health/natural food stores.............. 10,719 8 10,724 9 9,792 9
Foodservice (institutional)*............ 17,662 13 13,486 12 11,875 11
Export Sales........................... 6,657 5 6,339 5 5,701 5
----- - ------ - ----- -
Total.............................. $139,492 100% $117,944 100% $109,075 100%
======== ==== ======== ==== ======== ====
* Includes sales to Seventh-day Adventist institutions
</TABLE>
The Company supports its MORNINGSTAR FARMS brand products with price
discounts, advertising allowances, national print ads, television ads, direct
mail, display incentives, coupon promotions and trade show and convention
promotions. The Company supports its WORTHINGTON, LOMA LINDA and NATURAL TOUCH
brand products with trade promotions to retailers and distributors and with
print advertising in Seventh-day Adventist periodicals and health
food/vegetarian oriented magazines.
Competition
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The markets in which the Company sells its products are highly
competitive. The Company competes in the sale of its products on the basis of
their healthful attributes, taste, price, quality and convenience.
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<PAGE> 8
The Company's meat alternative products are sold in competition with
comparable meat items and, to this extent, compete with meat packing houses. The
Company's meat alternative products also compete with similar vegetable protein
products marketed by other companies. Until recently, most of the Company's
competitors which market meat alternative products have been relatively small
firms which have not established national distribution systems for their
products as extensive as the Company's distribution system. In recent years,
however, Gardenburger, Inc. (Gardenburger), Boca Burger, and through December,
1998, ADM and Pillsbury (Green Giant Harvest Burger) have become major
competitors that market meat alternative products. Due to the entry of some of
the companies mentioned above into the meat alternative category, total retail
sales in the category have grown from approximately $39,000,000 in 1993 to
approximately $224,000,000 in 1998. Due to the high growth in the meat
alternative category over the past few years, the Company expects the category
to remain competitive, as existing competition increases advertising support and
new competition enters the category. Based on industry data, the Company's
retail market share for its meat alternative products was approximately 46%, 55%
and 56% for 1998, 1997, and 1996, respectively (not including Harvest Burger).
The Company's frozen egg substitute products are sold in competition
with refrigerated egg substitute products and fresh shell eggs. In addition,
several major egg packagers are developing processes to reduce the cholesterol
content of whole eggs. If any of such products are successfully developed and
introduced, they would compete with the Company's frozen egg substitute
products. The Company's SCRAMBLERS(R) and BETTER'N EGGS frozen products also
compete against frozen and refrigerated products manufactured and sold by a
number of other firms, including Egg Beaters sold by Fleishmann's and Healthy
Choice sold by ConAgra. Based on industry data, Scramblers and frozen BETTER'N
EGGS accounted for approximately 29%, 27% and 27% of the market for frozen egg
substitute products during 1998, 1997 and 1996, respectively. The Company's egg
substitute competitors mentioned above are considerably larger, have greater
financial resources and enjoy wider recognition for their branded products.
In recent years, a number of large companies in the package food
industry have introduced new food products for persons who are concerned about
their consumption of fat and cholesterol. Their products are targeted to some
extent toward the same consumer base which purchases products of the Company,
insofar as they both rely on health-oriented claims. These companies have
significantly greater resources available for advertising and product
development than the Company. The Company believes that competition will
increase the awareness of the category, and in turn help increase the sales of
the Company's products.
Research and Development
- ------------------------
The Company has been a leader in developing and commercializing
vegetable protein products for the past 60 years and has pioneered various
textured protein processes, including the process of spinning soy protein into
edible fibers providing the texture of various meat products. This leadership
has been important in the development of the Company's meat alternative
products, as well as its egg substitute and other products.
The Company's research and development department consisted of 23
full-time employees at March 1, 1999. Research and development expenses for the
fiscal years ended December 31, 1998, 1997 and 1996 were approximately
$1,665,000, $1,413,000 and $1,280,000, respectively. In 1999, the Company
expects to increase its commitment to developing new technology and products.
Five new positions will be added to research and development during 1999 to
increase the Company's effort to stay ahead of the competition. As a result of
the Company's ongoing development of new technologies and products, its
continued effort to ensure product quality and other regulatory requirements,
the Company expects its research and development expenses in 1999 to be
consistent with prior years.
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<PAGE> 9
During 1998, the Company introduced 18 new products. All of these
products met the Company's criteria for new products: good taste, low or reduced
fat, and convenience. In addition, the Company has continued to reformulate
existing products to lower their fat and sodium content.
Government Regulations
- ----------------------
The Company is subject to various laws and regulations relating to the
operations of its production facilities, the production, packaging, labeling and
marketing of its products, and pollution control which are administered by
federal, state and other governmental agencies. The Company's production
facilities are regularly inspected by the United States Food and Drug
Administration and the Ohio Department of Agriculture. The Company believes that
it complies in all material respects with the health, environmental and other
laws and regulations applicable to it and believes that its continued compliance
with existing standards will not have a material effect on its results of
operations or financial condition.
Trademarks and Patents
- ----------------------
The Company has numerous federally registered and/or common law
trademarks covering its products which the Company considers important as an
indication of the source of origin of its products. The most important
trademarks, all of which are federally registered, are MORNINGSTAR FARMS with
design, MORNINGSTAR FARMS Scramblers, WORTHINGTON with "Flower W", LOMA LINDA
and NATURAL TOUCH. The federally registered trademarks, when renewed at ten year
intervals and continuously used, have an indefinite term.
The Company has numerous patents relating to its vegetable protein and
egg substitute products that expire at various dates from 1999 through 2007.
During the next five years, no patents that are material to the Company's
business are scheduled to expire. Currently, however, the Company more commonly
emphasizes and relies on trade secrets and proprietary methods, rather than on
statutory protections, in formulating and producing its products.
The Company's trademarks and patents are owned and licensed to the
Company by Specialty Foods Investment Company, a wholly-owned subsidiary of the
Company.
Employees
- ---------
As of March 1, 1999, the Company had 635 employees, including 319
corporate salaried employees and 316 manufacturing employees. The Company's
Worthington manufacturing employees are represented by the United Industrial
Workers, AFL-CIO, and are covered by a collective bargaining agreement which
expires on September 30, 2003. The Company has never had a work stoppage and
considers its employee relations to be good.
Potential Product Liability
- ---------------------------
The sale of food products for human consumption involves the risk of
injury to consumers as a result of product contamination or spoilage, including
the presence of foreign objects, substances, chemicals, aflatoxin and other
agents, or residues introduced during the growing, storage, handling or
transportation phases. While the Company maintains rigid quality control
standards and inspection procedures, no assurance can be given that some food
products sold by the Company may not contain or develop harmful substances. The
Company maintains product liability insurance in an amount which the Company
believes to be adequate.
- 9 -
<PAGE> 10
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Statements in this Form 10-K which are not historical fact are "forward
looking statements" within the meaning of the Private Securities Litigation Act
of 1995. These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results to differ materially. These risks,
uncertainties and other factors include, but are not limited to, changes in
general economic conditions, fluctuation in interest rates, increases in raw
material costs, level of competition, market acceptance of new and existing
products, price competition, the ability to deliver products with acceptable
profit margins, risks inherent in International development, success of the
Company's new user marketing strategy, capital expenditure amounts, uninsured
product liability, the effective detection and remediation of Year 2000 issues
by the Company and its key third party vendors, suppliers and customers, and
other factors described in detail in this Form 10-K for the year ended December
31, 1998, other filings with the Securities and Exchange Commission, and
communication to shareholders.
MANAGEMENT
----------
ITEM 1a EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- ------------------------------------
The executive officers of Worthington Foods, Inc. are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Allan R. Buller 81 Chairman of the Board, Treasurer and Director
Dale E. Twomley 59 President, Chief Executive Officer and Director
David W. Ferguson 37 Vice President of International Operations
B. Eugene Fluck 51 Vice President of Manufacturing
William T. Kirkwood 50 Executive Vice President and Chief Financial Officer
Ronald L. McDermott 48 Vice President of Research and Technology, Secretary
Jay L. Robertson 60 Senior Vice President of Sales
David L. Schwantes 48 Vice President of Marketing
</TABLE>
ALLAN R. BULLER has been Chairman of the Board since November 1, 1990,
a director since August, 1982, and Treasurer since April, 1986, and served as
President and Chief Executive Officer from October, 1982 through December, 1985.
Mr. Buller is retiring from the Board of Directors as of April 20, 1999.
DALE E. TWOMLEY has been President and Chief Executive Officer since
January, 1986, a director since April, 1985, and held various other management
positions with the Company from July, 1983 through December, 1985.
DAVID W. FERGUSON has been Vice President of International Operations
since April, 1998. Mr. Ferguson was previously employed as Managing Director of
Ralston Purina International from 1996 to March, 1998 and Director of Sales and
Marketing of Ralston Purina International from 1992 to 1996.
B. EUGENE FLUCK has been Vice President of Manufacturing since
February, 1999. Prior to that he was Corporate Director of Manufacturing &
Engineering from August, 1998 to February, 1999; Corporate Director of
Engineering and Maintenance from July, 1997 to August, 1998; Director of
Engineering from August, 1995 to July, 1997; and Manager of Process Engineering
from February, 1994 to August, 1995.
- 10 -
<PAGE> 11
WILLIAM T. KIRKWOOD has been Executive Vice President and Chief
Financial Officer since February 1996. Prior to that, Mr. Kirkwood was Vice
President of Finance and Chief Financial Officer from May, 1989 to February,
1996, and served as Controller and Assistant Treasurer from October, 1982
through May, 1989.
RONALD L. MCDERMOTT has been Vice President of Research and Technology
since June, 1989 and Secretary since November, 1994.
JAY L. ROBERTSON has been Senior Vice President of Sales since
February, 1999. Prior to that, Mr. Robertson served as Vice President of Sales
from July, 1990 to February, 1999, and served as National Sales Manager for the
Company's MORNINGSTAR FARMS brand from September, 1985 through July, 1990.
DAVID L. SCHWANTES has been Vice President of Marketing since November,
1998. Prior to that, Mr. Schwantes was Director of Marketing and Specialty Sales
from December, 1993 to November, 1998, and held various other management
positions from May, 1984 through December, 1993.
ITEM 2 PROPERTIES
- ------ ----------
WORTHINGTON FACILITY
The Company's executive offices and production facility in Worthington,
Ohio are owned by the Company and are located on approximately ten acres of land
in Worthington, Ohio, a suburb of Columbus. The following table provides certain
information regarding the buildings at the Worthington facility:
Type of Building Square Footage
---------------- --------------
Production Facility and Annex.......................... 109,000
Warehouse.............................................. 38,300
Research and Development Facility...................... 17,400
Office Building........................................ 6,100
Retail Store........................................... 4,800
ZANESVILLE FACILITY
The Company's owns a second production facility in Zanesville, Ohio,
which is located on twenty-eight acres approximately 60 miles east of the
Company's Worthington offices. During the fourth quarter of 1998, the Company
began a $7,800,000 expansion project on the frozen distribution center at
Zanesville. The project will increase the frozen warehouse capacity by 44,000
square feet and is projected to be completed during the second quarter of 1999.
The following table provides certain information regarding the building at the
Zanesville facility:
Square Footage
--------------
Production Process and Mechanicals................... 92,000
Distribution Center.................................. 74,000
Administrative Offices............................... 9,000
Unfinished Production Process........................ 19,000
- 11 -
<PAGE> 12
WAREHOUSE AND DISTRIBUTION FACILITIES
The following table provides certain information regarding the
Company's principal warehouse and distribution facilities:
<TABLE>
<CAPTION>
Date Acquired
or First Termination
Square Nature of Occupied by Date of
Location Footage Interest the Company with Renewals
-------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Columbus, Ohio .......................... 81,000 Leased 1992 2003
Riverside, California .................. 19,000 Leased 1994 2008
Zanesville, Ohio ........................ 74,000 Owned 1996 --
</TABLE>
In addition, the Company leases space in nine public warehouse facilities in
Atlanta, Georgia; Chicago, Illinois; Fort Worth, Texas (2); Denver, Colorado;
Anaheim, California; Portland, Oregon; Fogelsville, Pennsylvania and Orefield,
Pennsylvania.
ITEM 3 LEGAL PROCEEDINGS
- ------ -----------------
The Company is not a party to any material litigation nor is it aware
of any litigation threatened against it which, if commenced and adversely
determined, would likely have a material adverse effect upon the business or
financial condition of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
Not applicable.
- 12 -
<PAGE> 13
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------ -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The information required by this Item 5 is incorporated by reference
herein from page 20 of the Worthington Foods, Inc. Annual Report to Shareholders
for the year ended December 31, 1998.
On October 16, 1998, the Company purchased the Harvest Burger brand of
meat alternative products from Archer-Daniels-Midland Company. The purchase
price was paid by issuing 488,750 common shares of the Company with a market
value of $8.4 million. The Company issued the common shares in reliance upon the
exemptions from registration provided by Section 4(6) and Rule 506 of Regulation
D under the Securities Act of 1933.
ITEM 6 SELECTED FINANCIAL DATA
- ------ -----------------------
The information required by this Item 6 is incorporated by reference
herein from page 8 of the Worthington Foods, Inc. Annual Report to Shareholders
for the year ended December 31, 1998.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The information required by this Item 7 is incorporated by reference
herein from pages 9 through 11 of the Worthington Foods, Inc. Annual Report to
Shareholders for the year ended December 31, 1998.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
- ------- ----------------------------------------------
MARKET RISK
-----------
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company has not
entered into derivative financial instruments for trading purposes. The
Company's primary market risk exposure relates to interest rate risk. The
Company has managed its interest rate risk by balancing its exposure between
fixed and variable rates while attempting to minimize its interest costs. The
Company had a balance of $22,450,000 on its revolving credit facility at
December 31, 1998 which was subject to a variable rate of interest. In March,
1999, the Company locked-in $10,000,000 of its outstanding balance under its
revolving credit facility at a fixed rate of 6.27% over a four and one-half year
term. Assuming remaining variable rate borrowings at December 31, 1998 of
$12,450,000, a one-hundred basis point change in interest rates would impact net
interest expense by approximately $125,000 per year.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The information required by this Item 8 is incorporated by reference
herein from pages 12 through 19 of the Worthington Foods, Inc. Annual Report to
Shareholders for the year ended December 31, 1998.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
- 13 -
<PAGE> 14
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
Information regarding directors of Worthington Foods, Inc. is included
in the Worthington Foods, Inc. definitive Proxy Statement for the annual meeting
of shareholders to be held on April 20, 1999, under the caption "ELECTION OF
DIRECTORS," and is incorporated herein by reference. Information regarding
executive officers of Worthington Foods, Inc. is included forth under the
caption "Executive Officers of the Registrant" in Item 1a hereof. No disclosure
is required under Item 405 of Regulation S-K.
ITEM 11 EXECUTIVE COMPENSATION
- ------- ----------------------
Information regarding executive compensation is set forth in the
Worthington Foods, Inc. definitive Proxy Statement for the annual meeting of
shareholders to be held on April 20, 1999, under the captions "ELECTION OF
DIRECTORS," and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS," and is
incorporated herein by reference. Neither the report on executive compensation
nor the performance graph included in the Worthington Foods, Inc. definitive
Proxy Statement for the annual meeting of shareholders to be held April 20,
1999, shall be deemed to be incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
Information regarding security ownership of certain beneficial owners
and management is set forth in the Worthington Foods, Inc. definitive Proxy
Statement for the annual meeting of shareholders to be held April 20, 1999,
under the captions "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS," and
"SECURITY OWNERSHIP OF CERTAIN OFFICERS AND DIRECTORS," and is incorporated
herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
Not Applicable
- 14 -
<PAGE> 15
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
- ------- ---------------------------------------------------
ON FORM 8-K
-----------
(a)(1) Financial Statements
--------------------
The following Consolidated Financial Statements of Worthington Foods,
Inc. are incorporated by reference in Item 8 of this Form 10-K from
the pages identified below of the Worthington Foods, Inc.
Annual Report to Shareholders for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Page No. of
Annual Report
-------------
<S> <C>
Report of Independent Auditors........................................ 19
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... 12
Consolidated Statements of Income for each of the Three Years Ended
December 31, 1998.................................................. 13
Consolidated Statements of Shareholders' Equity for each of the Three
Years Ended December 31, 1998...................................... 13
Consolidated Statements of Cash Flows for each of the Three Years
Ended December 31, 1998............................................ 14
Notes to Consolidated Financial Statements ........................... 15-18
</TABLE>
(a)(2) Financial Statement Schedules
-----------------------------
For each of the three years in the period ended December 31, 1998:
Page No. of this
Form 10-K
----------------
Schedule II - Valuation and Qualifying Accounts 18
The other schedules for which provision is made in Regulation S-X are
not required under the instructions contained therein, are
inapplicable, or the information is included in the Notes to the
Consolidated Financial Statements.
(a)(3) Exhibits
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits see the "Exhibit Index" at pages
18 and 19 of this Form 10-K. The following table provides certain
information concerning the executive compensation plans and
arrangements required to be filed as exhibits to this Annual Report
on Form 10-K.
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10(a) Worthington Foods, Inc. 1995 Stock Option Plan
10(b) Worthington Foods, Inc. Supplemental Executive Retirement Plan *
10(c) Summary Description of the Worthington Foods, Inc. 1999 Executive Bonus Plan Page 98
10(d) Worthington Foods, Inc. Group Life Insurance Plan *
10(e) Split Dollar Insurance Policy for Dale E. Twomley *
10(f) Form of Agreements dated August 28, 1995, between Worthington Foods, Inc. and
William T. Kirkwood, Ronald L. McDermott, Jay L. Robertson and Dale E. Twomley ***
10(g) Worthington Foods, Inc. 1993 Stock Option Plan for Non-Employee Directors
(reflects share splits and amendments through April 22, 1997) (Exhibit 4) **
** Incorporated by reference to the Registrant's Registration Statement on Form S-8
filed May 12, 1995. (Registration No. 33-92222) (Exhibit 4)
* Incorporated by reference to the Registrant's Registration Statement on Form S-1
filed February 26, 1992. (Registration No. 33-45945) Exhibit numbers herein are the
same as those in the S-1 Registration Statement.
*** Incorporated by reference to the Registrant's Annual Report on 10-K for the fiscal
year ended December 31, 1997 filed March 27, 1998 (File No. 0-19887) (Exhibit 10(g))
** Incorporated by reference to the Registrant's Registration Statement on Form S-8
filed August 7, 1997. (Registration No. 333-33041)
(b) Reports on Form 8-K
-------------------
None
(c) Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits see the "Exhibit Index" at pages
18 and 19 hereof.
</TABLE>
- 16 -
<PAGE> 17
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1999
--------------
WORTHINGTON FOODS, INC.
(Registrant)
By: /S/ WILLIAM T. KIRKWOOD
--------------------------
William T. Kirkwood
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
ALLAN R. BULLER*
- -------------------------------
Allan R. Buller Chairman of the Board, Treasurer and Director 3/29/99
DALE E. TWOMLEY*
- -------------------------------
Dale E. Twomley President, Chief Executive Officer and Director 3/29/99
/S/ WILLIAM T. KIRKWOOD
- -------------------------------
William T. Kirkwood Executive Vice President, Chief Financial Officer 3/29/99
ROGER D. BLACKWELL*
- -------------------------------
Roger D. Blackwell Director 3/29/99
EMIL J. BROLICK*
- -------------------------------
Emil J. Brolick Director 3/29/99
GEORGE T. HARDING, IV*
- -------------------------------
George T. Harding, IV Director 3/29/99
DONALD G. ORRICK*
- -------------------------------
Donald G. Orrick Director 3/29/99
WILLIAM D. PARKER*
- -------------------------------
William D. Parker Director 3/29/99
FRANCISCO J. PEREZ*
- -------------------------------
Francisco J. Perez Director 3/29/99
DONALD B. SHACKELFORD*
- -------------------------------
Donald B. Shackelford Director 3/29/99
* By /S/ WILLIAM T. KIRKWOOD 3/29/99
- -------------------------------
William T. Kirkwood, Attorney in Fact
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
WORTHINGTON FOODS, INC. AND SUBSIDIARY
Additions
---------------------------
Balance Charged to Charge to
at Beginning Costs and Other Accounts Deductions Balance at
of Period Expenses - Describe - Describe End of Period
--------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Deducted from asset accounts:
Allowances for doubtful accounts ......... $100,000 $ 4,667 $4,667 A $100,000
Reserve for obsolete inventory ............. 150,000 616,415 716,415 B 50,000
-------- -------- -------- --------
$250,000 $621,082 $721,082 $150,000
======== ======== ======== ========
Year ended December 31, 1997
Deducted from asset accounts:
Allowances for doubtful accounts ......... $100,000 $ 9,772 $ 9,772 A $100,000
Reserve for obsolete inventory ............. 150,000 616,415 645,712 B 150,000
-------- -------- -------- --------
$250,000 $621,082 $721,082 $250,000
======== ======== ======== ========
Year ended December 31, 1996
Deducted from asset accounts:
Allowances for doubtful accounts ......... $100,000 $ 18,421 $ 18,421 $100,000
Reserve for obsolete inventory ............. 150,000 630,083 630,083 150,000
-------- -------- -------- --------
$250,000 $648,504 $648,504 $250,000
======== ======== ======== ========
Note A - Uncollectible accounts written off, net of recoveries.
Note B - Obsolete inventory written off during the year.
</TABLE>
- 18 -
<PAGE> 19
<TABLE>
<CAPTION>
WORTHINGTON FOODS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
-------------------------------------------
EXHIBIT INDEX
-------------
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
2 Asset Sale and Purchase Agreement between Archer
Daniels Midland Company and Worthington Foods, Inc.
dated September 28, 1998 Pages 21-97
3(a) Amended and Restated Articles of Incorporation of
Worthington Foods, Inc. (as filed with the Ohio
Secretary of State on February 25, 1992) *
3(b) Certificate of Amendment to Amended and Restated
Articles of Incorporation of Worthington Foods,
Inc. (as filed with the Ohio Secretary of State on
June 13, 1995) (Exhibit 3(b) in registration
statement from which incorporated by reference) **
3(c) Certificate of Amendment by Directors of Worthington
Foods, Inc. (as filed with the Ohio Secretary of State
of May 6, 1997) (Exhibit 3(c) in registration statement
from which incorporated by reference) **
3(d) Certificate of Amendment by Shareholders to the
Amended and Restated Articles of Incorporation of
Worthington Foods, Inc. (as filed with the Ohio Secretary
of State of May 6, 1997) (Exhibit 3(d) in registration
Statement from which incorporated by reference) **
3(e) Amended and Restated Articles of Incorporation of
Worthington Foods, Inc. (reflecting amendments
through May 6, 1997) [For purposes of SEC
reporting compliance only; not filed with Ohio
Secretary of State] (Exhibit 3(e) in registration
statement from which incorporated by reference) xx
10(a) Worthington Foods, Inc. 1995 Stock Option Plan
10(b) Worthington Foods, Inc. Supplemental Executive Retirement Plan *
10(c) Summary Description of the Worthington Foods, Inc. 1999
Executive Bonus Plan Page 98
10(d) Worthington Foods, Inc. Group Life Insurance Plan *
10(e) Split Dollar Insurance Policy for Dale E. Twomley *
10(f) Form of Agreements dated August 28, 1995, between
Worthington Foods, Inc. and William T. Kirkwood,
Ronald L. McDermott, Jay L. Robertson and Dale E. Twomley ***
10(g) Worthington Foods, Inc. 1993 Stock Option Plan for
Non-Employee Directors (reflects share splits and
amendments through April 22, 1997) (Exhibit 4 in
registration statement from which incorporated by reference) **
10(j) Amended and Restated License Agreement between
Worthington Foods, Inc. and Specialty Foods Investment
Company dated February 1, 1990 *
10(k) Note Agreement between Worthington Foods, Inc. and
Principal Mutual Life Insurance Company, dated January 1,
1990 for $10,000,000 Principal Amount 9.75% Senior Secured
Notes Due January 15, 2004 including Amendment to Note
Agreement dated March 1, 1990, Second Amendment to Note
Agreement dated June 1, 1990, Third Amendment to Note
Agreement dated August 1, 1991, Fourth Amendment
to Note Agreement dated January 1, 1992, and Fifth
Amendment to the Note Agreement dated as of February 1, 1992 *
10(l) $10,000,000 9.75% Senior Secured Note, dated January 16, 1990,
issued to Principal Mutual Life Insurance Company *
10(m) Open-End Mortgage, dated January 15, 1990, on Worthington
and Zanesville Facilities including first Amendment to
Open-End Mortgage dated February 24, 1992 *
10(n) Security Agreement between Worthington Foods, Inc. and
Principal Mutual Life Insurance Company dated
January 15, 1990 including First Amendment to Security
Agreement dated February 24, 1992 *
</TABLE>
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10(r) Worthington Foods, Inc. Incentive Stock Purchase
Plan for Eligible Employees o
10(ab) Rights Agreement, dated as of June 13, 1995,
between Worthington Foods, Inc. and National City
Bank, as Rights Agent xxx
10(ac) Certificate of Adjustment of Preferred Stock Purchase Rights xxxx
10(ad) Certificate of Adjustment of Preferred Stock Purchase Rights oo
10(ae) Certificate of Adjustment of Preferred Stock Purchase Rights ooo
10(af) Credit Agreement between Worthington Foods, Inc.
and Specialty Foods Investment Company and
National City Bank dated September 9, 1998
including First Amendment dated January 14, 1999
and Second Amendment dated March 15, 1999 Pages 99-137
13 Annual Report to Shareholders Pages 138-168
21 Subsidiary of the Registrant *
23 Consent of Ernst & Young LLP Page 169
24 Power of Attorney Page 170
27 Financial Data Schedule Page 171
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 filed February 26, 1992. (File No. 0-19887, Registration No.
33-45945) - Exhibit numbers herein are the same as those in the S-1
Registration Statement.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed August 7, 1997. (Registration No. 333-33041)
xx Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed May 12, 1995. (Registration No. 33-92222) (Exhibit 4)
*** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 filed March 27, 1998 (File No.
0-19887) (Exhibit number herein is the same as in that Form 10-K)
o Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed March 29, 1996. (Registration No. 333-2904) (Exhibit 4)
xxx Incorporated by reference to the Registrant's Current Report on Form 8-K
filed June 14, 1995. (File No. 0-19887) (Exhibit 1)
xxxx Incorporated by reference to the Registrant's Current Report on Form 8-K
filed December 11, 1995. (File No. 0-19887) (Exhibit 99(a))
oo Incorporated by reference to the Registrant's Current Report on Form 8-K
filed October 31, 1996. (File No. 0-19887) (Exhibit 99(a))
ooo Incorporated by reference to the Registrant's Current Report on Form 8-K
filed November 6, 1997. (File No. 0-19887) (Exhibit 99(a))
</TABLE>
- 20 -
<PAGE> 1
EXHIBIT 2
- --------------------------------------------------------------------------------
ASSET SALE AND PURCHASE
AGREEMENT
BETWEEN
ARCHER-DANIELS-MIDLAND COMPANY
("SELLER")
AND
WORTHINGTON FOODS, INC.
("BUYER")
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I. CERTAIN DEFINITIONS ........................................... 1
1.01 Acquired Assets ................................................. 1
1.02 Action .......................................................... 1
1.03 Affiliate ....................................................... 1
1.04 Antitrust Laws .................................................. 2
1.05 Authorization ................................................... 2
1.06 Books and Records ............................................... 2
1.07 Business ........................................................ 2
1.08 Business Day .................................................... 2
1.09 Closing ......................................................... 2
1.10 Closing Date .................................................... 2
1.11 Control ......................................................... 2
1.12 Effective Time .................................................. 3
1.13 Excluded Assets ................................................. 3
1.14 Financial Information ........................................... 3
1.15 Governmental Entity ............................................. 3
1.16 Intellectual Property ........................................... 3
1.17 Inventory ....................................................... 3
1.18 IRS ............................................................. 3
1.19 Knowledge ....................................................... 3
1.20 Manufacturing Agreement ......................................... 3
1.21 Material ........................................................ 3
1.22 Person .......................................................... 4
1.23 Products ........................................................ 4
1.24 Taxes ........................................................... 4
1.25 Technology ...................................................... 4
1.26 Trademarks ...................................................... 4
1.27 Trademark Assignment ............................................ 4
1.28 Transaction Documents ........................................... 4
1.29 United States ................................................... 4
1.30 Other Definitions ............................................... 5
ARTICLE II. PURCHASE AND SALE OF ASSETS .................................. 5
2.01 Sale and Purchase of the Business ............................... 5
2.02 Issuance of the Worthington Shares .............................. 5
2.03 Representations and Warranties of Seller Concerning its Purchase
of the Worthington Shares ..................................... 5
ARTICLE III. CLOSING ..................................................... 6
3.01 Actions to be Taken at Closing .................................. 6
-i-
<PAGE> 3
3.02 Interdependence ................................................. 8
3.03 Time and Place of Closing ....................................... 8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER ..................... 9
4.01 Authority ....................................................... 9
4.02 Authorizations .................................................. 9
4.03 Compliance with Applicable Laws ................................. 9
4.04 Financial Information ........................................... 9
4.05 Finder's Fees and Commissions ................................... 10
4.06 Intellectual Property ........................................... 10
4.07 Litigation and Claims ........................................... 14
4.08 Major Customers ................................................. 14
4.09 Organization and Good Standing .................................. 15
4.10 Permits ......................................................... 15
4.11 Recent Conduct of the Business .................................. 15
4.12 Intentionally Deleted ........................................... 15
4.13 Taxes ........................................................... 15
4.14 Title to Acquired Assets ........................................ 15
4.15 Violations/Breaches ............................................. 16
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER ....................... 16
5.01 Authority ....................................................... 16
5.02 Authorizations .................................................. 17
5.03 Finder's Fees and Commissions ................................... 17
5.04 Litigation and Claims ........................................... 17
5.05 Organization and Good Standing .................................. 17
5.06 Violations/Breaches ............................................. 17
5.07 Financial Statements ............................................ 17
5.08 SEC Reports ..................................................... 18
5.09 Capitalization of Buyer ......................................... 18
5.10 Worthington Shares .............................................. 18
ARTICLE VI. COVENANTS .................................................... 18
6.01 Access .......................................................... 18
6.02 Additional Documents ............................................ 19
6.03 Additional Records .............................................. 19
6.04 Bulk Transfer Laws .............................................. 19
6.05 Confidentiality ................................................. 19
6.06 Cooperation in Litigation ....................................... 20
6.07 Cooperation in Tax Matters ...................................... 20
6.08 Cooperation of Third Persons .................................... 21
6.09 Covenant Not to Compete ......................................... 21
6:10 Efforts to Close ................................................ 21
6.11 Employees ....................................................... 22
ii
<PAGE> 4
6.12 Expenses ........................................................ 22
6.13 Intellectual Property Assignment/Recordation/Maintenance ........ 22
6.14 No Shop ......................................................... 22
6.15 Operation of the Business Prior to Closing ...................... 23
6.16 Supplements to Schedules ........................................ 23
6.17 Use of Technology ............................................... 23
6.18 Use of Seller's Name or Reputation/Packaging Materials .......... 24
ARTICLE VII. ADDITIONAL POST-CLOSING AGREEMENTS .......................... 24
7.01 Post-Closing Transition of Business ............................. 24
7.02 Television Advertising .......................................... 24
7.03 Product Development ............................................. 24
7.04 Sales and Marketing Assistance to Buyer ......................... 25
7.05 Trade Support by Seller ......................................... 25
7.06 Manufacturing Transition ........................................ 25
7.07 Registration Rights ............................................. 26
7.08 Purchase of Ingredients from Seller ............................. 26
ARTICLE VIII. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE ................. 26
8.01 Authorizations/Waiting Periods .................................. 26
8.02 No Injunction/Order ............................................. 26
8.03 Performance of Buyer's Obligations .............................. 26
8.04 Buyer's Representations and Warranties True ..................... 26
ARTICLE IX. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE .................... 27
9.01 Authorizations/Waiting Periods .................................. 27
9.02 No Injunction/Order ............................................. 27
9.03 Performance of Seller's Obligations ............................. 27
9.04 Seller's Representations and Warranties True .................... 27
ARTICLE X. INDEMNIFICATION AND ARBITRATION ............................... 27
10.01 Indemnification by Seller ....................................... 27
10.02 Indemnification by Buyer ........................................ 29
10.03 Dispute Resolution .............................................. 31
10.04 Damage Limitations .............................................. 32
10.05 Termination of Indemnification .................................. 32
10.06 Claims Under Manufacturing Agreement ............................ 33
ARTICLE XI. TERMINATION AND ABANDONMENT .................................. 33
11.01 Termination ..................................................... 33
11.02 Procedure and Effect of Termination ............................. 33
ARTICLE XII. MISCELLANEOUS ............................................... 33
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12.01 Amendment and Modification ...................................... 34
12.02 Waiver of Compliance ............................................ 34
12.03 Survival of Representations and Warranties; Other Matters ....... 34
12.04 Notices ......................................................... 34
12.05 Exhibits and Schedules; Incorporation by Reference .............. 35
12.06 Successors and Assigns .......................................... 35
12.07 Entire Agreement ................................................ 36
12.08 Severability .................................................... 36
12.09 Captions ........................................................ 36
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AGREEMENT
This is an ASSET SALE AND PURCHASE AGREEMENT, dated September 28, 1998 by and
between Archer-Daniels-Midland Company, a Delaware corporation ("Seller") and
Worthington Foods, Inc., an Ohio corporation ("Buyer"). Each of Seller and Buyer
may hereinafter be referred to as a "Party" or, collectively, as "Parties."
This agreement ("Agreement") sets forth the terms and conditions upon which
Seller will sell to Buyer, and Buyer will purchase from Seller, the Business (as
hereinafter defined).
In consideration of the mutual agreements contained herein, and intending to be
legally bound hereby, the signatories hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 "ACQUIRED ASSETS" means only the following assets:
(a) the Books and Records;
(b) to the extent transferable without the consent of any third party, all
claims of Seller against third parties exclusively related to the
Acquired Assets, including, without limitation, claims for past
infringement or violation of rights associated with the Intellectual
Property;
(c) goodwill exclusively related to the Business not otherwise
specifically identified herein; and
(d) the Intellectual Property.
Notwithstanding the above, the Acquired Assets do not include any of the
Excluded Assets.
1.02 "ACTION" means any dispute, controversy, claim, action, litigation, suit,
cause of action, arbitration, mediation, or any proceeding by or before any
mediator or Governmental Entity, or any investigation, subpoena, or demand
preliminary to any of the foregoing.
1.03 "AFFILIATE" means, with respect to a Person, another Person that directly,
or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
<PAGE> 7
1.04 "ANTITRUST LAWS" means the Sherman Act (as amended); the Clayton Act (as
amended); the Hart-Scott-Rodino Antitrust Improvement Act of 1971 (as
amended); the Federal Trade Commission Act (as amended); and all other
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws (whether foreign, federal, state, provincial,
local or other) that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or
restraint of trade.
1.05 "AUTHORIZATION" means any consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any
Governmental Entity, including, without limitation, any required filing
with any Governmental Entity.
1.06 "BOOKS AND RECORDS" means all books, records and other documents
(including, without limitation, customer lists and files; distribution
lists; mailing lists; sales, marketing, promotional and advertising
materials; Seller's pricing information (other than pricing information on
sales of the Products to Pillsbury and pricing information relating to
competitive activities permitted by Seller under Section 6.09 of this
Agreement); operating, production and other manuals; plans; files;
specifications; process drawings; computer programs, data and information;
manufacturing and quality control records and procedures; research and
development files) exclusively related to the Business and existing at the
Effective Time.
1.07 "BUSINESS" means all rights, title and interests related to the
manufacturing, packaging, distributing, marketing and selling of the
Products under the Trademarks or in connection with or pursuant to any
other Intellectual Property, provided that in no event shall the Business
be construed to include the formulation, manufacture, marketing, packaging,
distribution and sale of soy protein, meat substitute products to national
fast food restaurant chains, including McDonalds, Burger King, Taco Bell,
Wendy's and other similar national fast food restaurants or the other
competitive activities permitted by Seller under Section 6.09 of this
Agreement.
1.08 "BUSINESS DAY" means any day on which commercial banks in New York City are
open for business providing substantially all services offered by such
banks.
1.09 "CLOSING" means the closing of the transactions contemplated by this
Agreement in accordance with the terms and upon the conditions set forth in
this Agreement.
1.10 "CLOSING DATE" means the date on which the Closing occurs, as provided in
Section 3.03 of this Agreement.
1.11 "CONTROL" means, with respect to a Person, the ownership by another Person
of greater than 50% of the income or voting interests of such Person, or
such other
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arrangement as constitutes the ability to direct the management or affairs
of such Person.
1.12 "EFFECTIVE TIME" means 9:00 a.m. Eastern Standard Time on the Closing Date.
1.13 "EXCLUDED ASSETS" means any and all assets not expressly listed as Acquired
Assets, whether or not related to the Business.
1.14 "FINANCIAL INFORMATION" means the unaudited customer sales information set
forth in Schedule 1.14.
1.15 "GOVERNMENTAL ENTITY" means any arbitrator, court, judicial, legislative,
administrative or regulatory agency, commission, department, board or
bureau or body or other governmental authority or instrumentality or any
Person or entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, whether foreign,
federal, state, provincial, local or other.
1.16 "INTELLECTUAL PROPERTY" means the Trademarks and the Technology, and such
other trade names, service marks, brand names, copyrights, slogans, rights
to trade dress, labels, advertising and designs, whether or not registered,
as are owned as of the date hereof by Seller and are exclusively related to
the Business, as well as all the registrations and applications for the
foregoing, or, if not owned by Seller, that Seller has the right (whether
with or without the consent of the owner thereof) to assign, license or
sublicense to Buyer that are utilized exclusively in connection with the
Business.
1.17 "INVENTORY" means the finished goods inventory relating to the Products
manufactured by the Seller for the Pillsbury Company pursuant to the
Agreement between the Seller and Pillsbury dated October 1,1995.
1.18 "IRS" means the United States Internal Revenue Service.
1.19 "KNOWLEDGE" means, in the case of an entity, the actual knowledge of the
officers of such entity after reasonable investigation.
1.20 "MANUFACTURING AGREEMENT" means the Manufacturing Agreement between Buyer
and Seller in the form attached hereto as Exhibit 1.20.
1.21 "MATERIAL" and its variations mean, with respect to an item, event,
circumstance or condition, that such item, event, circumstance or
condition, individually or in the aggregate, is reasonably likely to have a
substantially adverse effect upon the assets, operations, financial
condition or earnings of the Business.
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1.22 "PERSON" means (as the context requires) an individual, a corporation, a
partnership, an association, a trust, a limited liability company, or other
entity or organization, including a Governmental Entity.
1.23 "PRODUCTS" means the products described in SCHEDULE 1.23.
1.24 "TAXES" means all foreign, federal, state, provincial, local or other
taxes, fees, levies, duties or other assessments or charges of whatever
kind (including, without limitation, income, sales, use, transfer, excise,
stamp, property, value added, recording, registration, intangible,
documentary, goods and services, real estate, sales, payroll, gains, gross
receipts, withholding, and franchise taxes) imposed by the United States or
any state, county or local government, subdivision or agency thereof, or
any other jurisdiction outside the United States. Such term will include
any interest, penalties, or additions payable in connection with such
taxes, fees, levies, duties or other assessments or charges.
1.25 "TECHNOLOGY" means all of Seller's know-how, patented and unpatented
formulas (including, without limitation, current and discontinued flavors
and products, recipes and mixing instructions), improvements, trade
secrets, research and results thereof, inventions, data, methods,
processes, instructions, drawings, and specifications that are used for the
production of the Products or otherwise used directly in the Business.
Technology shall not be construed to include any rights or information with
respect to formulation or manufacture of ingredients used to produce the
Products.
1.26 "TRADEMARKS" means those trademarks, registrations and applications
therefor that are set forth in SCHEDULE 1.26.
1.27 "TRADEMARK ASSIGNMENT" means the overall assignment of the Trademarks to
Buyer from Seller, which will be in the form attached as EXHIBIT 1.27 or in
such other form as agreed to in writing by Seller and Buyer. Individual
Trademark assignment documents, by country, will be prepared and filed as
stated in Section 6.13 of this Agreement.
1.28 "TRANSACTION DOCUMENTS" means collectively (a) this Agreement; (b) the
Manufacturing Agreement; and (c) the Trademark Assignment, Bill of Sale and
any other transaction document executed and delivered by Seller or Buyer to
the other Party at the Closing. The phrase "the consummation of the
transactions contemplated by this Agreement" or such similar phrases
includes the execution and delivery of these Transaction Documents.
1.29 "UNITED STATES" means the United States of America.
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1.30 OTHER DEFINITIONS. Other terms defined in this Agreement, and the location
where they are defined, are:
Location
--------
"Act" ............................ Section 2.03
"Bill of Sale" ................... Section 3.01(a)(i)
"Exchange Act" ................... Section 5.08
"Financial Statements" ........... Section 5.07
"SEC" ............................ Section 5.08
"SEC Reports" .................... Section 5.08
"Securities Act" ................. Section 2.03
"Worthington Shares" ............. Section 2.02
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.01 SALE AND PURCHASE OF THE BUSINESS. In accordance with the terms and upon
the conditions of this Agreement, at the Closing Seller will sell, convey,
assign, transfer and deliver to Buyer the Acquired Assets, and Buyer will
purchase, acquire and accept, the Acquired Assets. Anything contained in
this Agreement or in any of the other Transaction Documents to the contrary
notwithstanding, Buyer will not assume pursuant to this Agreement or any of
the other Transaction Documents any liabilities or obligations of Seller or
any other Person, whether or not relating to the Business.
2.02 ISSUANCE OF THE WORTHINGTON SHARES. Upon the terms and subject to the
conditions of this Agreement, as consideration for the sale of the Acquired
Assets to Buyer, Buyer shall deliver to Seller at the Closing a number of
duly authorized, validly issued, fully paid and nonassessable common shares
of Buyer (the "Worthington Shares") determined by dividing $9,300,000 by
the arithmetic average of the per share closing price of the common shares
of Buyer as reported in The Wall Street Journal, Midwest Edition for each
of the twenty (20) trading days immediately prior to the Closing; provided,
however, that the number of Worthington Shares shall not be more than
581,250.
2.03 REPRESENTATIONS AND WARRANTIES OF SELLER CONCERNING ITS PURCHASE OF THE
WORTHINGTON SHARES. Seller represents and warrants to Buyer that:
(a) It will acquire the Worthington Shares solely for investment purposes
and not with a view to the distribution thereof in violation of
applicable securities laws.
(b) It is an "accredited investor" within the meaning of Rule 501 of the
General Rules and Regulations under the Securities Act of 1933, as
amended (the "Securities Act").
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(c) It recognizes and agrees that the certificates representing the
Worthington Shares may be subject to appropriate stop transfer
instructions to be given by Buyer to its transfer agent and shall have
endorsed thereon a legend substantially as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or under any applicable state law, and may not be
transferred without registration under the Act or such applicable
state law unless an exemption from registration is available
thereunder.
(d) It understands that the Worthington Shares may not be sold,
transferred or otherwise disposed of without registration under the
Act or an available exemption therefrom.
ARTICLE III
CLOSING
3.01 ACTIONS TO BE TAKEN AT CLOSING. At the Closing, the following actions will
be taken:
(a) Seller will deliver to Buyer, duly executed, the following:
(i) a bill of sale (the "Bill of Sale") in the form attached as
EXHIBIT 3.01 (a)(i) or in such other form as agreed to in writing
by Seller and Buyer for those Acquired Assets that will not be
transferred pursuant to specific documents described elsewhere in
this Section 3.01(a);
(ii) a certificate by the President or Vice-President of Seller, in a
form reasonably acceptable to Buyer, to the effect that, to the
Knowledge of Seller, the warranties and representations set forth
in Section 2.03 and in Article IV of this Agreement are true and
correct in all material respects, and that all representations
and warranties set forth in Article IV of this Agreement that are
qualified as to materiality are true in all respects, as of the
Closing;
(iii) a short-form certificate of good standing and certificate of
incorporation of Seller, in each case certified by the Secretary
of State of the State of Delaware as of a date no more than 5
Business Days prior to the Closing Date;
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(iv) an assignment of the copyrights set forth in SCHEDULE 3.01
(a)(iv) in such other form as agreed to in writing by Seller and
Buyer;
(v) an opinion of Seller's counsel with respect to the due
authorization, execution and delivery of the Transaction
Documents by Seller and the enforceability of the Transaction
Documents against Seller in form reasonably satisfactory to
Buyer;
(vi) certified copies of any resolutions by Seller's board of
directors, or any other necessary corporate actions of Seller,
authorizing the execution and performance of this Agreement, the
other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby;
(vii) the Trademark Assignment;
(viii) assignments for the Trademarks in a form suitable for recording
with the appropriate Governmental Entities, including proper
notarization, authentication, legalization, execution and/or
consularization by Seller, if needed;
(ix) an agreement in form reasonably satisfactory to Buyer between
Seller and The Pillsbury Company ("Pillsbury"), pursuant to
which, among other things, (a) the Agreement dated October 1,
1995 between Seller and Pillsbury, pursuant to which Pillsbury
marketed and distributed the Products, is terminated, (b)
Pillsbury agrees to permit Producer to insert into packages of
the Harvest Burger Products produced by Producer through December
31, 1998 a coupon and other information about the intended
changes in distribution of the Products, (c) Pillsbury agrees
that no Products shall be shipped by it after December 31, 1998
so long Seller notifies Pillsbury prior to such date the Seller
or its designee shall begin distribution of the Products without
the Green Giant trademarks, trade dress or UPC and (d) Pillsbury
agrees to cooperate in the orderly transition of the sales and
distribution functions related to the Products;
(xi) such other documents as are, in the reasonable opinion of counsel
for Seller and Buyer, necessary or advisable to transfer the
Acquired Assets to Buyer.
(b) Buyer will deliver to Seller, duly executed, the following:
(i) a certificate by the President or Vice-President of Buyer, in a
form reasonably acceptable to Seller, to the effect that, to the
Knowledge of Buyer, the warranties and representations set forth
in
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Article V of this Agreement are true and correct in all material
respects, and that all representations and warranties set forth
in Article V of this Agreement that are qualified as to
materiality are true in all respects, as of the Closing;
(ii) a short-form certificate of good standing and certificate of
incorporation of Buyer, in each case certified by the Secretary
of State of the State of Ohio as of a date no more than 5
Business Days prior to the Closing Date;
(iii) an opinion of Buyer's counsel with respect to the due
authorization, execution and delivery of the Transaction
Documents by Buyer to which it is a party, the enforceability of
such Transaction Documents against Buyer and the status of the
Worthington Shares in form reasonably satisfactory to Seller;
(iv) certificates for the Worthington Shares, delivered as described
in Section 2.02;
(v) a receipt for the Acquired Assets in such form as agreed to by
Seller and Buyer; and
(vi) certified copies of any resolutions by Buyer's board of
directors, or any other necessary corporate actions of Buyer,
authorizing the execution and performance of this Agreement, the
other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby.
(c) Seller and Buyer concurrently will duly execute and deliver to each
other:
(i) a certificate of its Secretary or an Assistant Secretary as to
the incumbency of all officers executing documents in connection
with the Transaction Documents; and
(ii) the Manufacturing Agreement.
3.02 INTERDEPENDENCE. The transfers and deliveries described in this Article Ill
are mutually interdependent and are to be regarded as occurring
simultaneously as of the Effective Time. Unless agreed to in writing by
Seller and Buyer, no such transfer or delivery will become effective until
all other transfers and deliveries provided for in this Article Ill have
also become effective.
3.03 TIME AND PLACE OF CLOSING. Subject to the satisfaction or waiver of all of
the conditions set forth in Articles VII and VIII, the Closing will take
place at the offices of Buyer's counsel, Vorys, Sater, Seymour and Pease
LLP, at 10:00 a.m. local time on the later of October -16, 1998 or 5
Business Days after receipt of all
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<PAGE> 14
Authorizations necessary to consummate the sale by Seller and the purchase
by Buyer, of the Acquired Assets, or on such other date as may be mutually
agreed to in writing by Seller and Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants that the following are true and correct as of the
date of this Agreement, and will be true and correct as of the Closing:
4.01 AUTHORITY. Seller has full corporate power and authority to execute and
deliver this Agreement and each of the other Transaction Documents to which
it is a party and to consummate the transactions contemplated hereby and
thereby. All corporate actions and proceedings on the part of Seller that
are necessary to approve and authorize the execution and delivery of this
Agreement and each of the other Transaction Documents to which it is a
party and the consummation of the transactions contemplated hereby and
thereby have, or prior to Closing will have, occurred, and, assuming proper
execution and delivery by Buyer, this Agreement is enforceable against
Seller in accordance with its terms and each of the other Transaction
Documents to which it is a party will be so enforceable upon proper
execution and delivery to Buyer.
4.02 AUTHORIZATIONS. No Authorization is needed by Seller for the execution,
delivery, or performance of this Agreement or any of the other Transaction
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby, except as set forth in SCHEDULE 4.02 or
where the failure to obtain such Authorization will not have a material
adverse effect on the Business, the Products, this Agreement or the
consummation of the transactions contemplated hereby.
4.03 COMPLIANCE WITH APPLICABLE LAWs. Except as set forth in SCHEDULE 4.03, to
the Knowledge of Seller, the Business is being conducted in compliance in
all Material respects with all statutes, laws, ordinances, rules, orders,
and regulations and, since January 1, 1997, Seller has not received any
written communication from a Governmental Entity or other Person that
alleges the Business or the Products are not in such compliance. The
Products and the packaging, advertising and promotion of the Products are
in all Material respects in compliance with the United States Federal Food,
Drug and Cosmetic Act, including the Nutrition Labeling and Education Act
of 1990 and the regulations issued thereunder.
4.04 FINANCIAL INFORMATION. The Financial Information has been derived from the
accounting books and records of Seller used as a basis for the preparation
of the consolidated financial statements of Seller and presents fairly in
all Material
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respects the customer sales information for the Business on the basis
described in SCHEDULE 1.14 for the periods covered by such Schedule, in
accordance with past practices consistently applied.
4.05 FINDER'S FEES AND COMMISSIONS. Seller has no liability or obligation to pay
any fees or commissions to any broker, finder or other agent with respect
to the transactions contemplated by this Agreement for which Buyer could
become liable or obligated.
4.06 INTELLECTUAL PROPERTY.
(a) Trademarks
(i) Except as set forth in SCHEDULE 4.06(a)(i), the Trademarks
listed on SCHEDULE 1.26 comprise all the trademarks registered in
the United States and any other country that contain the "Harvest
Burgers" name as well as all the trademarks registered in the
United States or in any other country that are in current use in
the Business.
(ii) Except as set forth in SCHEDULE 4.06(a)(ii), Seller owns all
Trademarks that use the "Harvest Burgers" name, as well as all
the Trademarks in current use in the Business (whether or not
they use the Harvest Burgers name), free and clear of any
security interests, liens, pledges, claims, charges, licenses or
options.
(iii) Except as set forth in SCHEDULE 4.06(a)(iii), Seller is the owner
of record title of all the Trademarks, not as a nominee or agent
of any third party.
(iv) Except as set forth in SCHEDULE 4.06(a)(iv), each of the
Trademark registrations is valid and subsisting in the territory
in which such Trademark is registered for use on the products for
which such Trademark is currently being used in the Business.
(v) Except as set forth in SCHEDULE 4.06(a)(v):
(A) no claims are currently being asserted against Seller, any
Affiliate of Seller or any licensee of Seller (including
Pillsbury) by any person regarding the use of any
Trademarks, or challenging or questioning the validity of
any Trademarks;
(B) to the Knowledge of Seller, the use of the Trademarks, by
Seller, any Affiliate of Seller or any licensee of the
Seller
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(including Pillsbury) does not infringe on any trademark,
trade name or service mark of any third party; and
(C) no Actions are pending or, to the Knowledge of Seller,
threatened against Seller or any Affiliate of Seller or any
licensee of the Seller (including Pillsbury) with respect to
the Trademarks.
(vi) Except as set forth on SCHEDULE 4.06(vi):
(A) the Trademarks are owned and used exclusively by Seller and
there are no licenses, sublicenses, assignments, agreements,
undertakings, restrictions or joint ownership agreements
currently in effect pertaining to any of the Trademarks to
which Seller or any Affiliate of Seller is a party, other
than any intercompany licenses which will be terminated as
of the Closing Date and a license to Pillsbury, which will
be terminated in accordance with the provisions of this
Agreement; and
(B) no third party will have a right to use, license, terminate
a license or acquire any of the Trademarks as a consequence
of the consummation of the transactions contemplated by this
Agreement.
(vii) Except as set forth in SCHEDULE 4.06(a)(vii), no consent of
any third party will be required for the use of any
Trademark as a result of the consummation of the
transactions contemplated by this Agreement.
(viii) Except as set forth in SCHEDULE 4.06(a)(viii), there are no
common law or state-registered trademarks that contain the
Harvest Burgers name which are used by Seller or any
Affiliate of Seller in the United States or in any other
country other than exclusively in connection with the
Business.
(b) TECHNOLOGY
(i) Except as set forth in SCHEDULE 4.06(b)(i), the Technology
comprises all of Seller's process knowledge necessary for
Seller's conduct of the Business.
(ii) Except as set forth in SCHEDULE 4.06(b)(ii), there are no
security interests, liens, pledges, claims, charges, licenses or
options on Technology.
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(iii) Except as set forth in SCHEDULE 4.06(b)(iii):
(A) no claims are currently being asserted against Seller or any
Affiliate of Seller by any Person regarding the use of any
Technology; or challenging or questioning Seller's ownership
or right to use any Technology;
(B) the use of such Technology does not infringe on any patent
of any third party; and
(C) no Actions are pending or, to the Knowledge of Seller,
threatened against Seller or any Affiliate of Seller with
respect to the use of Technology.
(iv) Except as set forth in SCHEDULE 4.06(b)(iv):
(A) the Technology is owned and used exclusively by Seller and
there are no licenses, sublicenses, assignments or joint
ownership agreements currently in effect pertaining to use
of any of the Technology to which Seller or any Affiliates
of Seller is a party, other than any intercompany licenses
which will be terminated as of the Closing Date; and
(B) no third party will have a right to use, license, terminate
a license or acquire any of the Technology as a consequence
of the consummation of the transactions contemplated by this
Agreement.
(v) No consent of any third party will be required for the use of any
Technology by Buyer as a result of the consummation of the
transactions contemplated by this Agreement.
(vi) Seller and its Affiliates have taken reasonable steps in
accordance with customary industry standards to maintain the
confidentiality of the Technology and to maintain and protect the
Technology.
(c) MISCELLANEOUS INTELLECTUAL PROPERTY
(i) Except as set forth in SCHEDULE 4.06(c)(i), the Intellectual
Property (including the Trademarks and the Technology, above)
comprises all of Seller's intellectual property necessary for
Seller's conduct of the Business as it is currently conducted.
(ii) Except as set forth in SCHEDULE 4.06(c)(ii), Seller owns all the
Intellectual Property (except for the Trademarks and the
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Technology, which are addressed in Section 4.06(a) and 4.06(b)
above).
(iii) Except as set forth in SCHEDULE 4.06(c)(iii):
(A) no claims are currently being asserted against Seller or any
Affiliate of Seller by any person regarding the use of any
Intellectual Property (except for the Trademarks and the
Technology, which are addressed in Section 4.06(a) and
4.06(b) above), or challenging or questioning the validity
of any license or agreement relating to the use of any
Intellectual Property (except for the Trademarks and the
Technology, which are addressed in Section 4.06(c) and
4.06(b) above);
(B) to the knowledge of Seller, the use of such Intellectual
Property (except for the Trademarks and the Technology,
which are addressed in Section 4.06(a) and 4.06(b) above),
by Seller or any Affiliate of Seller does not infringe on
any trademark, trade name or service mark of any third
party; and
(C) no Actions are pending or, to the Knowledge of Seller,
threatened against Seller or any Affiliate of Seller with
respect to the Intellectual Property (except for the
Trademarks and the Technology, which are addressed in
Section 4.06(a) and 4.06(b) above).
(iv) Except as set forth on SCHEDULE 4.06(c)(iv):
(A) there are no licenses, sublicenses, assignments, agreements,
undertakings, restrictions or joint ownership agreements
currently in effect pertaining to any of the Intellectual
Property (except for the Trademarks and the Technology,
which are addressed in Section 4.06(a) and 4.06(b) above) to
which Seller or any Affiliate of Seller is a party, other
than any intercompany licenses which will be terminated as
of the Closing Date; and
(B) no third party will have a right to use, license, terminate
a license or acquire any of the Intellectual Property
(except for the Trademarks and the Technology, which are
addressed in Section 4.06(a) and 4.06(b) above) as a
consequence of the consummation of the transactions
contemplated by this Agreement.
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(v) No consent of any third party will be required for the use of any
Intellectual Property (except for the Trademarks and the
Technology, which are addressed in Section 4.06(a) and 4.06(b)
above) as a result of the consummation of the transactions
contemplated by this Agreement.
4.07 LITIGATION AND CLAIMS. Except as set forth in Schedule 4.07, there are no
pending Actions relating to the Business or the Products with respect to
which Seller or any of its Affiliates, or to the Knowledge of Seller,
Pillsbury, has received service of process or has been threatened in
writing and which:
(a) involve a claim against Seller, any of its Affiliates or Pillsbury of,
or which involve any unspecified amount which is reasonably expected
to result in a liability to Seller, any of its Affiliates or Pillsbury
of, more than fifty thousand United States dollars (US $50,000);
(b) seek injunctive relief which would Materially affect Buyer's
acquisition, ownership or operation of the Acquired Assets or the
Business or its marketing and sale of the Products; or
(c) directly relate to the transactions contemplated by this Agreement.
Except as set forth in SCHEDULE 4.07, there are no:
(d) outstanding judgments, orders, writs, injunctions or decrees of any
Governmental Entity against Seller or any of its Affiliates which have
or are reasonably expected to have a material adverse effect on the
ability of Seller to consummate the transactions contemplated by this
Agreement or to have a material adverse effect on Buyer's ownership or
operation of the Acquired Assets or the Business or its marketing and
sale of the Products;
(e) Actions pending or, to the Knowledge of Seller, threatened against
Seller or any of its Affiliates which have or are reasonably expected
to have a material adverse effect on the ability of Seller to
consummate the transactions contemplated by this Agreement or to have
a material adverse effect on Buyer's ownership or operation of the
Acquired Assets or the Business or its marketing and sale of the
Products).
Except as set forth in SCHEDULE 4.07, to the Knowledge of Seller, neither
Seller nor Seller's Affiliates is in Material default under any judgment,
order or decree of any Governmental Entity applicable to the Business, the
Acquired Assets or the Products.
4.08 MAJOR CUSTOMERS. To the Knowledge of Seller, since January 1,1998, neither
Seller nor Pillsbury has received oral or written notice from any of its
top 10
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customers of either party related to the Business (as measured by sales
volume during calendar year ended December 31, 1997) expressing its current
intention to terminate 25% or more of its purchases of the Products.
4.09 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and has full corporate power to own its properties and conduct the
Business presently being conducted by it, except where not Material. Seller
is duly licensed or qualified to transact business in each state or other
jurisdiction in which the Business is currently transacted and applicable
laws require such licensing or qualification.
4.10 PERMITS. To the Knowledge of Seller, Seller possesses all licenses, permits
and other approvals of Governmental Entities necessary to enable it to
carry on the Business as it is currently conducted, except where not
Material.
4.11 RECENT CONDUCT OF THE BUSINESS. From January 1,1998, until the date of this
Agreement, Seller has conducted the Business in all Material respects in
the same manner as it has historically been conducted by Seller since
January 1, 1994, and there has been no Material change in the Business,
except for changes attributable to general economic conditions or relating
to the consumer or food products industries generally or changes resulting
from actions of Buyer or the announcement of the transactions contemplated
by this Agreement.
4.12 INTENTIONALLY DELETED.
4.13 TAXES. All returns, reports and declarations of every nature required to be
filed with respect to Taxes by or on behalf of Seller (either separately or
as part of a consolidated group) prior to the Closing Date with respect to
the Business have been timely filed (taking into account any extensions)
and such returns, reports and declarations as so filed are complete and
accurate and disclose all Taxes required to be paid for the periods covered
thereby, except for any such failures to file and such errors which would
not be Material.
4.14 TITLE TO ACQUIRED ASSETS. Seller has and will convey to Buyer good and
marketable title to all of the Acquired Assets free and clear of any
security interests, liens, pledges, claims, charges or options, except:
(a) as set forth in SCHEDULE 4.14 and
(b) imperfections of title, security interests, liens, pledges, claims,
charges or options, if any, which do not, individually or in the
aggregate, materially impair the continued use and operation of the
Acquired Assets to which they relate in the operation of the Business
as currently conducted or reduce in any material respect the value of
the Acquired Assets to Buyer (collectively, the "Permitted Liens");
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provided, however, that this representation and warranty will not apply to
any Intellectual Property.
4.15 VIOLATIONS/BREACHES. Except as set forth in SCHEDULE 4.15, or where not
Material, the execution, delivery and compliance with this Agreement and
each of the other Transaction Documents to which it is a party by Seller
will not, and the consummation by Seller of the transactions contemplated
by this Agreement and each of the other Transaction Documents to which it
is a party will not, conflict with, or result in any violation of or
default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a benefit under, or result in
the creation of any lien, claim, encumbrance, security interest, option,
charge or restriction of any kind upon any of the Acquired Assets under, or
require any consent, authorization or approval under:
(a) any provision of the certificate of incorporation or by-laws of
Seller;
(b) any Material Agreement or permit to which Seller is a party or by
which any of the Acquired Assets may be bound; or (c) to the Knowledge
of Seller, any judgment, order or decree or any statute, rule,
regulation, order, decree, administrative or judicial doctrine, or
other law (whether foreign, federal, state, provincial, local or
other) binding on or applicable to Seller, the Products, the Business
or any of the Acquired Assets.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants that the following are true and correct as of the
date of this Agreement, and will be true and correct as of the Closing.
5.01 AUTHORITY. Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. All corporate actions and proceedings on the part of Buyer that are
necessary to approve and authorize the execution and delivery of this
Agreement and each of the other Transaction Documents to which it is a
party and the consummation of the transactions contemplated hereby and
thereby have, or prior to Closing will have, occurred, and, assuming proper
execution and delivery by Seller, this Agreement is enforceable against
Buyer in accordance with its terms and such other Transaction Documents
will be so enforceable upon proper execution and delivery to Seller.
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5.02 AUTHORIZATIONS. Except for Authorization from NASDAQ National Market System
related to the approval of the issuance of the Worthington Shares, no
Authorization is needed by Buyer for the execution, delivery, or
performance of this Agreement or any of the other Transaction Documents to
which it is a party and the consummation of the transactions contemplated
hereby and thereby, except as set forth in SCHEDULE 5.02 or where the
failure to obtain such Authorization will not have a material adverse
effect on the Business, the Products, this Agreement or the consummation of
the transactions contemplated hereby.
5.03 FINDER'S FEES AND COMMISSIONS. Neither Buyer nor its Affiliates have any
liability or obligation to pay any fees or commissions to any broker,
finder or other agent with respect to the transactions contemplated by this
Agreement for which Seller or any Affiliate of Seller could become liable
or obligated.
5.04 LITIGATION AND CLAIMS. There are no pending Actions relating to the
Business with respect to which Buyer has received service of process or has
been threatened in writing and which: (a) seek injunctive relief which
would Materially affect Buyer's acquisition, ownership or operation of the
Acquired Assets or its marketing and sale of the Products; or (b) directly
relate to the transactions contemplated by this Agreement. There are no:
(c) outstanding judgments, orders, writs, injunctions or decrees of any
Governmental Entity against Buyer which have or could reasonably be
expected to have a material adverse effect on the ability of Buyer to
consummate the transactions contemplated by this Agreement; or (d) Actions
pending or, to the Knowledge of Buyer, threatened against Buyer which have
or could reasonably be expected to have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated by this
Agreement or any of the other Transaction Documents to which it is a party
or to conduct the Business after the Closing.
5.05 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Ohio.
5.06 VIOLATIONS/BREACHES. Except where not Material, the execution, delivery and
compliance with this Agreement and each of the other Transaction Documents
to which it is party by Buyer will not, and the consummation by Buyer of
the transactions contemplated by this Agreement and each of the other
Transaction Documents to which it is a party will not, conflict with, or
result in any violation of or default under, or require any consent,
authorization or approval under: (a) any provision of the articles of
incorporation or code or regulations of Buyer; (b) any material contract to
which Buyer is a party; or (c) to the Knowledge of Buyer, any judgment,
order or decree or any statute, law, rule or regulation binding on or
applicable to Buyer.
5.07 FINANCIAL STATEMENTS. Buyer has delivered to Seller: (a) audited balance
sheets of Buyer as at December 31, in each of the years 1995, 1996 and
1997,
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and the related audited statements of income for each of the years then
ended (the "Financial Statements"), and (b) an unaudited balance sheet of
Buyer as at June 30, 1998, and the related unaudited statement of income
for the six (6) month period then ended. Such financial statements fairly
present in all material respects the financial condition and results of
operations of Buyer as at the respective dates of and for the periods
referred to in such financial statements in accordance with GAAP. Any
interim financial statements are further subject to normal recurring year
end adjustments (none of which, individually or in the aggregate, shall be
material) and the absence of footnotes.
5.08 SEC REPORTS. Since January 1,1997, Buyer has timely filed with the
Securities and Exchange Commission ("SEC") all materials and documents
required to be filed by it under the Exchange Act. (All the materials and
documents filed with the SEC by Buyer since January 1,1997, are hereinafter
referred to as the "SEC Reports.") The SEC Reports, copies of which have
been delivered to Seller, are true and correct in all material respects,
including the financial statements and other financial information
contained therein, and do not omit to state any material fact necessary to
make the statements in such SEC Reports, in light of the circumstances in
which they were made, not misleading.
5.09 CAPITALIZATION OF BUYER. SCHEDULE 5.09 hereto sets forth the authorized
capitalization of Buyer and the number of shares of each class of stock of
Buyer issued and outstanding thereof. All of such issued and outstanding
shares have been duly authorized and validly issued, are fully paid and
nonassessable and free of any claims of preemptive rights. Other than as
set forth in SCHEDULE 5.09 or as created pursuant to this Agreement or
stock option plans adopted prior to the date hereof by the Company and
reflected in the Financial Statements and preferred stock purchase rights
issued pursuant to a Shareholder Rights Plan, there are no outstanding
subscriptions, options, warrants, rights, convertible or exchangeable
securities or other agreements of any character relating to the issued or
unissued capital stock of the Company obligating it to issue additional
shares of capital stock.
5.10 WORTHINGTON SHARES. When delivered to Seller pursuant to the terms and
conditions of this Agreement, the Worthington Shares will be duly
authorized, fully paid and nonassessable common shares, without par value,
of Buyer.
ARTICLE VI
COVENANTS
6.01 ACCESS. From the date of this Agreement through the Closing, Seller will
permit Buyer, its employees, counsel and accountants to have reasonable
access, during normal business hours and upon reasonable notice, to the
personnel, properties, books and records of Seller relating to the
Business; provided,
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however, that such access must not unreasonably interfere with the normal
operations of Seller or the Business.
6.02 ADDITIONAL DOCUMENTS. From time to time after the Closing, Seller and Buyer
will execute and deliver, without further consideration, such documents as
either Party may reasonably request, in such form as may be appropriate, if
necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement and the other Transaction
Documents.
6.03 ADDITIONAL RECORDS. Within a reasonable time (but not more than 45 days)
after Closing, Seller will provide to Buyer copies of books, records or
other documents, if any, which were not exclusively related to the Business
but which are necessary for the operation of the Business. Seller and its
Affiliates may redact from such copies any information that does not relate
to the Business, and Buyer will have the right to use such copies only in
connection with its operation and ownership of the Business and its
marketing and sale of the Products.
6.04 BULK TRANSFER LAWS. Buyer waives compliance by Seller with any laws
relating to bulk transfers and bulk sales applicable to the transactions
contemplated by this Agreement. Seller will indemnify Buyer from any third
party Actions arising out of or related to the failure of Seller to comply
with such bulk transfer and bulk sales laws.
6.05 CONFIDENTIALITY.
(a) Buyer and Seller will each hold in strict confidence and not use for
its own benefit the documents and information furnished concerning the
other party, its assets, properties, the Products and Business. If the
transactions contemplated by this Agreement shall not be consummated,
such confidence shall be maintained and all such documents and all
copies thereof shall immediately thereafter be returned to the party
from whom received or, at the written request of such party from whom
received, destroyed.
(b) Except as otherwise expressly permitted by this Agreement, Seller and
Buyer will not disclose the terms of the Transaction Documents to any
Person other than such directors, officers, shareholders, employees,
attorneys and accountants of Seller and Buyer and their financial
advisors, or such other Persons acting on behalf of or in the
interests of Seller and Buyer to whom disclosure of the terms of this
Agreement is necessary for the consummation of the transactions
contemplated hereby or the operation of the Business before or after
the Closing or the operation of Seller's or Buyer's business
otherwise. Any disclosure permitted by this Section 6.05(b) will be
made on a confidential basis.
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(c) Notwithstanding anything to the contrary in this Agreement, Seller and
Buyer may disclose the terms of this Agreement to any Person, whether
by providing such Person with photocopies of all or portions thereof
or otherwise: (i) to the extent required by applicable laws, rules or
regulations; (ii) as may be required in the reasonable opinion of
Seller or Buyer, as the case may be, in connection with the
consummation of the transactions contemplated by this Agreement; (iii)
as may be required, in the reasonable opinion of Seller or Buyer, as
the case may be, in the defense of Seller or Buyer in any Action; or
(iv) as may be legally required, in the reasonable opinion of counsel
to Buyer or Seller, in any filings under the Act or the Exchange Act.
(d) Any press releases, public announcements or similar publicity with
respect to this Agreement or the transactions contemplated hereby must
be approved by both Seller and Buyer in advance, provided that such
approval may not be unreasonably withheld or delayed, and further
provided that nothing herein will prevent either Seller or Buyer, upon
reasonable notice to the other, from making public announcements to
comply with the requirements of law or any listing agreement with any
securities exchange or NASDAQ or to inform their respective employees
of the transactions contemplated by this Agreement.
(e) Subject to the principles set forth in Section 6.05(c)(i) (except for
applicable laws, rules or regulations related to the SEC and Section
6.05(c)(iii)), Buyer will not disclose, and will cause its employees,
counsel and accountants not to disclose, to any Person, any
information relating to the cost structure of the Business as
conducted by the Seller that is made available to Buyer, its
employees, counsel or accountants. Buyer will be responsible for any
breach of this Section 6.05(e) by any of Buyer's employees, counsel,
accountants or other advisors.
6.06 COOPERATION IN LITIGATION. Seller, and Buyer will, in the defense of any
third-party Action relating to the Business or the Products, make available
during normal business hours, but without unreasonably disrupting their
respective businesses, all personnel and records of the Business and the
Products reasonably necessary to permit the effective defense or
investigation of such Action. If business information other than that
pertaining to the Business or the Products, is contained in such records,
Seller and Buyer will either agree that such information may be omitted or
red acted by the producing Party, or will enter into appropriate secrecy
commitments to protect such information.
6.07 COOPERATION IN TAX MATTERS. Seller and Buyer will make available during
normal business hours, but without unreasonably disrupting their respective
businesses, all personnel and records of the Business reasonably necessary
in connection with: the filing of any Tax return, amended return or claim
for refund;
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determining a liability for Taxes or a right to refund for Taxes; or
conducting an audit or other proceeding in respect of Taxes.
6.08 COOPERATION OF THIRD PERSONS. Where the cooperation of third Persons such
as insurers or trustees would be necessary in order for a Party to
completely fulfill its obligations under the Transaction Documents, such
Party will use all commercially reasonable efforts to cause such third
Persons to provide such cooperation.
6.09 COVENANT NOT TO COMPETE. From the Closing Date until the later of (a)
October 31, 2002 or (b) the termination of the Manufacturing Agreement,
Seller will not for itself or for any of its Affiliates engage in any
enterprise engaged in the business of manufacturing, marketing or selling
meatless products that are the same or similar to the Products (in taste,
texture, appearance or otherwise) anywhere in the United States or Canada.
Notwithstanding the foregoing restriction, Seller may continue to
manufacture and sell existing meatless products that are similar to the
Products on a private label basis to the extent it sells such products to
its existing customers identified on SCHEDULE 6.09. In addition,
notwithstanding the foregoing restriction, Seller may negotiate and enter
into agreement to manufacture meatless products that are similar to the
Products pursuant to agreements with McDonalds, Burger King, Taco Bell,
Wendy's and other similar national fast food restaurants.
6.10 EFFORTS TO CLOSE.
(a) Seller and Buyer will use all commercially reasonable efforts to cause
all of the conditions, as specified in Articles VII and VIII of this
Agreement, to the obligations of the other to consummate the
transactions contemplated hereby to be met as soon as practicable
after the date of this Agreement.
(b) Seller and Buyer will each use commercially reasonable efforts to
obtain, as soon as practicable, the Authorizations that may be or
become necessary for the performance of its obligations under this
Agreement and the consummation of the transactions contemplated hereby
and will cooperate fully with each other in promptly seeking to obtain
such Authorizations.
(c) Seller and Buyer will promptly take any and all of the following
actions to the extent required to eliminate any concerns on the part
of any Governmental Entity regarding the legality under any Antitrust
Law of Buyer's purchase of the Business: (i) use commercially
reasonable efforts to prevent the entry in an Action brought under any
Antitrust Law of any preliminary or permanent injunction or other
order that would prevent, delay or make unlawful the consummation of
the transactions contemplated by this Agreement; (ii) in the event
that such an injunction or order has been issued, promptly take any
and all commercially
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reasonable actions necessary to vacate, modify or suspend such
injunction or order so as to permit the consummation of the
transactions contemplated by this Agreement as nearly as possible on
the schedule contemplated by this Agreement, including, without
limitation, appeal and the posting of a bond; and (iii) promptly take
all other commercially reasonable actions necessary to avoid or
eliminate each and every impediment under any Antitrust Law to the
consummation of the transactions contemplated by this Agreement. The
obligations contained in this Section 6.10 are in addition to and not
in limitation of any other obligations of Seller and Buyer under this
Agreement.
6.11 EMPLOYEES. No employees of Seller will be transferred to Buyer pursuant to
the transactions contemplated by this Agreement.
6.12 EXPENSES. Except as otherwise expressly provided in this Agreement, whether
or not the transactions contemplated by this Agreement are consummated,
Seller and Buyer will each bear its own costs and expenses.
6.13 INTELLECTUAL PROPERTY ASSIGNMENT/RECORDATION/MAINTENANCE. For purposes of
this Section 6.13, the term "expenses" will include, without limitation,
expenses of drafting, notarization, authentication, legalization and/or
consularization.
(a) Seller will prepare and will pay all expenses (whether incurred before
or after the Effective Time) involved in preparing the Trademark
assignment documents, by country, and obtaining appropriate signatures
from Seller's representatives. Buyer will be responsible, and will pay
all expenses (whether incurred before or after the Effective Time)
involved in, obtaining appropriate signatures from Buyer's
representatives on such Trademark assignment documents. Buyer shall
pay all expenses in connection with recording such Trademark
assignment documents with the appropriate Governmental Entities.
(b) Seller will pay all bills for Trademark expenses which are received
after the Effective Time but which relate to work performed for the
benefit of Seller before the Effective Time or to costs to maintain
the Trademarks up to the Effective Time. The phrase "work performed
for the benefit of Seller" will not include any work, whether
performed before or after the Effective Time, related to the transfer
of the Trademarks to Buyer, other than that specifically assumed by
Seller pursuant to Section 6.13(a) above.
6.14 NO SHOP. From the date of this Agreement until the earlier of (a) the
termination of this Agreement pursuant to Section 11.01 and (b) December
31, 1998, Seller will not, and will cause its subsidiaries, Affiliates,
agents, representatives, and any other person acting on behalf of Seller
not to, directly or indirectly solicit, negotiate with respect to, actively
facilitate or accept any offers for the purchase
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or sale of or otherwise transfer the Business, the Acquired Assets or the
Products (other than in the ordinary course of business), or otherwise
effect any transaction inconsistent with the transactions contemplated by
this Agreement.
6.15 OPERATION OF THE BUSINESS PRIOR TO CLOSING. Except for actions taken
pursuant to the prior written consent of Buyer, Seller from the date of
this Agreement until the Closing will:
(a) conduct the Business in the ordinary course;
(b) not transfer any of the Acquired Assets, other than in the ordinary
course of business;
(c) continue to meet the contractual obligations of, and pay obligations
relating to, the Business as they mature in the ordinary course; and
(d) maintain in the ordinary course the business relations of Seller with
its suppliers, business customers and others with whom it has business
relations in connection with the Business.
6.16 SUPPLEMENTS TO SCHEDULES. From time to time prior to the Closing, Seller
may deliver to the Buyer information supplementing or amending the
representations and warranties, and the disclosures made in connection
therewith in the Schedules. Such supplemental information will identify the
specific item or event to be disclosed, and set forth Seller's good faith
estimate of the adverse effect, if any, that such item or event will have
on the Business. Any representation or warranty of Seller will be deemed to
have been amended accordingly; provided, however, that no representation or
warranty will be deemed to have been amended with respect to any Material
supplement or amendment with respect to which Buyer has, within 5 Business
Days of receipt of such supplement or amendment notified Seller of its
desire to modify the terms of this Agreement as a result of such supplement
or amendment, unless and until the parties have negotiated in good faith an
appropriate modification to the terms of this Agreement to reflect such
supplement or amendment.
6.17 USE OF TECHNOLOGY. To the extent that Buyer is operating the Business
subsequent to the Closing Date using the same know-how, formulas
(including, without limitation, current and discontinued flavors and
products, recipes and mixing instructions), improvements, trade secrets,
research and results thereof, inventions, data, methods, processes,
instructions, drawings, and specifications that Seller and its Affiliates
used in operating the Business prior to the Closing Date, or to the extent
Seller makes such use in connection with the permitted competitive
activities described in Section 6.09, Seller hereby waives any right,
remedy or cause of action it might have against Buyer or any Affiliate of
Buyer arising out of or related to such use, regardless of whether such
know-how, patented and unpatented formulas (including, without limitation,
current and
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discontinued flavors and products, recipes and mixing instructions),
improvements, trade secrets, research and results thereof, inventions,
data, methods, processes, instructions, drawings, and specifications
constitute Technology transferred to Buyer under this Agreement. Further,
Buyer grants to Seller a perpetual, nonexclusive, royalty free license to
utilize the Technology in connection with the permitted competitive
activities described in Section 6.09.
6.18 USE OF SELLER'S NAME OR REPUTATION/PACKAGING MATERIALS. Buyer will not
operate the Business utilizing, based on or taking advantage of the name,
reputation or corporate goodwill of Seller without the prior consent of
Seller. Buyer will not utilize packaging, advertising, sales and
promotional materials bearing any of Seller's corporate names, product
identification numbers or consumer information telephone numbers after the
Closing.
ARTICLE VII
ADDITIONAL POST-CLOSING AGREEMENTS
7.01 POST-CLOSING TRANSITION OF BUSINESS. Subject to the terms of conditions of
the agreement between Seller and Pillsbury referenced in Section 3.01(a)(x)
of this Agreement, following the Closing, Buyer will commence as soon as is
reasonably practicable the marketing, sales and distribution of the
Products. Seller agrees to use its best efforts to assist Buyer in promptly
transitioning the Business to Buyer, including, without limitation,
providing assistance in implementing packaging changes and making changes
in brokers and distribution network.
7.02 TELEVISION ADVERTISING. During each of the first three years following the
Closing, Seller will provide, at its expense and at its advertising rates,
for use by Buyer television advertising time having a market value of not
less than $2.3 million during each of such three years, which time shall be
used by Buyer to promote jointly the Products and/or Morningstar Farms
Products owned by Buyer. Buyer shall be responsible for preparing, and the
cost of preparing, each such television advertisement. Buyer agrees to
provide copies of the advertisements to Seller prior to airing such
commercials for Seller's review and approval, which approval shall not be
unreasonably withheld or delayed.
7.03 PRODUCT DEVELOPMENT. Following the Closing and for the term of the
Manufacturing Agreement, Seller will assist Buyer in developing new
products to be marketed and sold by Buyer under the Harvest Burgers brand
name. In addition, during such period, Seller will assist Buyer in
developing enhancements to the existing Products. Any new formulas, recipes
or manufacturing technology developed by Buyer with the assistance of
Seller shall belong to Buyer. Seller shall provide such assistance to Buyer
only upon request of Buyer. If Seller
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provides such assistance at the request of Buyer, Buyer shall reimburse
Seller for its direct cost, including internal costs, incurred in providing
such assistance.
7.04 SALES AND MARKETING ASSISTANCE TO BUYER. During the term of the
Manufacturing Agreement, Seller, at the request of Buyer, will provide
assistance to Buyer in developing new business relationships to sell
Products under the Harvest Burgers and Morningstar Farms brand names to
food service businesses such as major restaurant chains. If Buyer requests
such assistance from Seller, Seller shall be entitled to reimbursement from
Buyer for its direct costs, including internal costs, incurred in providing
such assistance. During the term of the Manufacturing Agreement, Seller and
Buyer will endeavor to identify mutually beneficial opportunities for the
production, marketing and sales of Harvest Burgers and Morningstar Farms
Products in international markets. Seller agrees to discuss with Buyer a
possible business relationship between Buyer and Haldane in the United
Kingdom. During the term of the Manufacturing Agreement, Buyer shall
generally discuss with Seller, at least quarterly, its current sales and
marketing reports and plans relating to the Harvest Burger Products.
(provided, however, that Buyer shall under no circumstance be required to
discuss in any respect its sales and marketing reports or plans relating to
the food service industry).
7.05 TRADE SUPPORT BY SELLER. Seller will provide $300,000 to provide trade
support of the Harvest Burger Products and to otherwise assist Buyer in
communicating with the trade and customers concerning packaging changes
involving the Harvest Burger Products during the fourth quarter of 1998.
Seller and Buyer shall discuss and mutually agree on the expenditure of
such funds. Up to $100,000 of such funds shall be used to reimburse Buyer
in connection with the production of one or more television commercials
focusing on the transition of the Products from Pillsbury to Buyer, which
commercials the parties agree shall air during the fourth quarter of 1998
as soon as is reasonably practicable following the completion of such
commercials.
7.06 MANUFACTURING TRANSITION. Consistent with the agreement referenced in
Section 3.01(a)(ix) to be entered into between Pillsbury and Seller, Seller
agrees that it will cease manufacturing any of the Harvest Burger Products
under the Green Giant label as soon as Buyer provides to Seller the new
packaging materials for the Harvest Burger Products. Seller agrees to use
its best efforts to ensure an orderly transition of the manufacture of the
Harvest Burger Products for Pillsbury to Buyer as soon as is reasonably
practicable. Seller acknowledges and agrees that Buyer shall have no
obligations relating to any of the Inventory or any Harvest Burger Products
that were manufactured by Seller for Pillsbury. Seller agrees to promptly
notify Pillsbury at such time as Buyer delivers new packaging materials for
the Harvest Burger Products and advise Pillsbury that, following such date,
Seller shall no longer supply Products to Pillsbury.
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7.07 REGISTRATION RIGHTS. Seller shall have registration rights with respect to
the Worthington Shares as are set forth on SCHEDULE 7.07.
7.08 PURCHASE OF INGREDIENTS FROM SELLER. With respect to the ingredients that
are produced by Seller that are used in Buyer's products, it is the current
intention, but not the legal obligation, of Buyer to purchase from Seller a
majority of such ingredients used in Buyer's products so long as such
ingredients are functionally equivalent to the ingredients specified or
otherwise sourced by Buyer for such products (with such functional
equivalence being determined in the sole discretion of Buyer) and the terms
and conditions of such purchase are not less favorable to Buyer than those
offered to Buyer by competitors of Seller.
ARTICLE VIII
CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
All obligations of Seller to sell the Acquired Assets, to transfer the Business,
and to perform any other action at the Closing are subject to the fulfillment,
prior to or at the Closing, of each of the following conditions, any of which
may be waived by Seller in whole or in part without written or oral notice of
such waiver to Buyer.
8.01 AUTHORIZATIONS/WAITING PERIODS. All Authorizations necessary for the
Closing will have been obtained, except where failure to obtain such
Authorizations will not have a material adverse effect on Seller, the
Business, this Agreement or the consummation of the transactions
contemplated hereby.
8.02 NO INJUNCTION/ORDER. No preliminary or permanent injunction or other order
will have been issued that would make unlawful the consummation of the
transactions contemplated by this Agreement.
8.03 PERFORMANCE OF BUYER'S OBLIGATIONS. Buyer will have fully performed all
commitments required by this Agreement to be performed prior to Closing
(except for those which, in the aggregate, will not have a material adverse
effect on this Agreement or the consummation of the transactions
contemplated hereby) and will have delivered at the Closing the Worthington
Shares and the documents required in Section 3.01(b) and (c).
8.04 BUYER'S REPRESENTATIONS AND WARRANTIES TRUE. All representations and
warranties of Buyer contained in this Agreement will be true and correct in
all material respects (except that all representations and warranties
qualified as to materiality will be true in all respects) as of the
Closing, except for those which, in the aggregate, will not have a material
adverse effect on this Agreement or the consummation of the transactions
contemplated hereby.
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<PAGE> 32
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
All obligations of Buyer to purchase the Acquired Assets, to issue the
Worthington Shares and to perform any other action at the Closing are subject to
the fulfillment, prior to or at the Closing, of each of the following
conditions, any of which may be waived by Buyer in whole or in part without
written or oral notice of such waiver to Seller.
9.01 AUTHORIZATIONS/WAITING PERIODS. All Authorizations necessary for the
Closing will have been obtained, except where failure to obtain such
Authorizations will not have a material adverse effect on this Agreement or
the consummation of the transactions contemplated hereby. In addition, the
Worthington Shares will have been approved for issuance by the NASDAQ
National Market System.
9.02 NO INJUNCTION/ORDER. No preliminary or permanent injunction or other order
will have been issued that would make unlawful the consummation of the
transactions contemplated by this Agreement.
9.03 PERFORMANCE OF SELLER'S OBLIGATIONS. Seller will have fully performed all
commitments required by this Agreement to be performed prior to Closing,
except for those which, in the aggregate are not Material, and will have
tendered at the Closing the documents required in Section 3.01(a) and (c).
9.04 SELLER'S REPRESENTATIONS AND WARRANTIES TRUE. All representations and
warranties of Seller contained in this Agreement will be true and correct
in all material respects (except that all representations and warranties
qualified as to materiality will be true in all respects) as of the
Closing, except for those which, in the aggregate, are not Material.
ARTICLE X
INDEMNIFICATION AND ARBITRATION
10.01 INDEMNIFICATION BY SELLER.
(a) Subject to the terms and conditions of this Agreement, Seller will
defend, indemnify and hold Buyer and its Affiliates harmless from and
against: (i) all claims, losses, liabilities, damages, costs and
expenses (including, without limitation, reasonable fees and expenses
of attorneys incurred in investigation or defense of any third-party
Action, but excluding fees, costs and expenses of attorneys,
accountants, consultants or other experts or witnesses incurred in the
investigation or prosecution of any non third-party Action) related to
(A) any liability or obligation of Seller of
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<PAGE> 33
any nature whatsoever which has not been expressly (and in writing)
assumed by Buyer, including without limitation, any obligation or
liability incurred in connection with the operation of the Business
prior to the Closing or (B) any breach of a representation and
warranty or covenant of Seller in this Agreement and (ii) all costs
and expenses of Buyer (including, without limitation, reasonable fees
and expenses of attorneys) incurred in connection with the successful
enforcement of any rights of Buyer under the indemnity provided in
this Section 10.01.
(b) Promptly after receipt by Buyer of notice of any third-party Action in
respect of which indemnity may be sought against Seller hereunder (for
purposes of this Section 10.01, a "Buyer's Assertion"), Buyer will
notify Seller in writing of the Buyer's Assertion, but the failure to
so notify Seller will not relieve Seller of any liability it may have
to Buyer, except to the extent Seller has suffered actual prejudice
thereby. Seller will be entitled to participate in the defense of such
Buyer's Assertion. If Seller, by written notice to Buyer within 30
days after receipt by Seller of notice of such Buyer's Assertion,
acknowledges its responsibility to indemnify Buyer based on the facts
alleged in the third-party Action and the Buyer's Assertion and if
Seller elects to do so, Seller will also be entitled to assume the
defense of such Buyer's Assertion, at its own expense, with counsel
chosen by it which will be reasonably satisfactory to Buyer. With
respect to any such Buyer's Assertion, Buyer will promptly provide
Seller with: (i) notice and copies of any documents served upon Buyer;
and (ii) all reasonable cooperation which Seller deems necessary to
defend such Buyer's Assertion, including, without limitation,
providing Seller and its attorneys access to any potentially-relevant
documents, information, or individuals within the control of Buyer. If
business information of Buyer other than that pertaining to the
Business is contained in such documents or information, Seller and
Buyer will enter into appropriate secrecy commitments to protect such
documents or information. Notwithstanding that Seller may have elected
as provided above to assume the defense of any Buyer's Assertion,
Buyer will have the right to participate in the investigation and
defense thereof, with separate counsel chosen by Buyer, but in such
event the fees and expenses of Buyer (above those which would
otherwise have been incurred) and such separate counsel will be paid
by Buyer.
(c) Notwithstanding anything in this Section 10.01 to the contrary: (i)
Seller will have no obligation with respect to any Buyer's Assertion
if, in connection therewith, Buyer, without the written consent of
Seller, settles or compromises any Action or consents to the entry of
any judgment (provided Seller has not rejected the Buyer's Assertion
or failed to respond within the time allotted under Section 10.01(b)
above to proper notice of the Buyer's Assertion, in which case Sellers
obligation will be determined by mutual agreement between the Parties
or under the
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<PAGE> 34
procedures described in Section 10.03 below); and (ii) Seller will
not, without the written consent of Buyer with respect to any Buyer's
Assertion: (A) settle or compromise any Action or consent to the entry
of any judgment which does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to Buyer of a duly
executed written release of Buyer from all liability in respect of
such Action, which release will be reasonably satisfactory in form and
substance to counsel for Buyer; or (B) settle or compromise any Action
in any manner that, in the reasonable judgment of Buyer or its
counsel, may materially adversely affect Buyer or its Affiliates, it
being acknowledged and agreed that any settlement or compromise
pursuant to which the sole relief is monetary damages that are paid in
full by Seller will not be deemed to materially adversely affect Buyer
or its Affiliates.
(d) Upon the payment of any settlement or judgment pursuant to this
Section 10.01 with respect to any Buyer's Assertion, Seller will be
subrogated to all rights and remedies of Buyer and its Affiliates
against any third party in respect of such Buyer's Assertion to the
extent of the amount so paid by Seller.
(e) The indemnity provided for by this Section 10.01 will be Buyer's and
its Affiliates' exclusive source of recovery against Seller with
respect to matters covered hereby.
10.02 INDEMNIFICATION BY BUYER.
(a) Subject to the terms and conditions of this Agreement, Buyer will
defend, indemnify and hold Seller and its Affiliates harmless from and
against: (i) all claims, losses, liabilities, damages, costs and
expenses (including, without limitation, reasonable fees and expenses
of attorneys incurred in investigation or defense of any third-party
Action, but excluding fees, costs and expenses of attorneys,
accountants, consultants or other experts or witnesses incurred in the
investigation or prosecution of any non third-party Action) related to
(A) any liability or obligation of Buyer of any nature whatsoever
including, without limitation, any liability or obligation of Buyer
incurred in connection with Buyer's operation of the Business after
the Closing; or (B) any breach of a representation and warranty or
covenant of Buyer in this Agreement and (ii) all costs and expenses of
Seller and its Affiliates (including, without limitation, reasonable
fees and expenses of attorneys) incurred in connection with the
successful enforcement of any rights of Seller under the indemnity
provided in this Section 10.02.
(b) Promptly after receipt by Seller of notice of any third-party Action
in respect of which indemnity may be sought against Buyer hereunder
(for purposes of this Section 10.02, a "Seller's Assertion"), Seller
will notify
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<PAGE> 35
Buyer in writing of the Seller's Assertion, but the failure to so
notify Buyer will not relieve Buyer of any liability it may have to
Seller or its Affiliates, except to the extent Buyer has suffered
actual prejudice thereby. Buyer will be entitled to participate in the
defense of such Seller's Assertion. If Buyer, by written notice to
Seller within 30 days after receipt by Buyer of notice of such
Seller's Assertion, acknowledges its responsibility to indemnify
Seller based on the facts alleged in the third-party Action and the
Seller's Assertion and if Buyer elects to do so, Buyer will also be
entitled to assume the defense of such Seller's Assertion, at its own
expense, with counsel chosen by it which will be reasonably
satisfactory to Seller. With respect to any such Seller's Assertion,
Seller will promptly provide Buyer with: (i) notice and copies of any
documents served upon Seller or its Affiliates; and (ii) all
reasonable cooperation which Buyer deems necessary to defend such
Seller's Assertion, including, without limitation, providing Buyer and
its attorneys access to any potentially- relevant documents,
information, or individuals within the control of Seller or Seller's
Affiliates. If business information of Seller or its Affiliates other
than that pertaining to the Business is contained in such documents or
information, Seller and Buyer will enter into appropriate secrecy
commitments to protect such documents or information. Notwithstanding
that Buyer may have elected as provided above to assume the defense of
any Seller's Assertion, Seller will have the right to participate in
the investigation and defense thereof, with separate counsel chosen by
Seller, but in such event the fees and expenses of Seller (above those
which would otherwise have been incurred) and such separate counsel
will be paid by Seller.
(c) Notwithstanding anything in this Section 10.02 to the contrary: (i)
Buyer will have no obligation with respect to any Seller's Assertion
if, in connection therewith, Seller or its Affiliates, without the
written consent of Buyer, settle or compromise any Action or consent
to the entry of any judgment (provided Buyer has not rejected the
Seller's Assertion or failed to respond within the time allotted under
Section 10.02(b) above to proper notice of the Seller's Assertion, in
which case Buyer's obligation will be determined by mutual agreement
between the Parties or under the procedures described in Section 10.03
below); and (ii) Buyer will not, without the written consent of Seller
with respect to any Seller's Assertion: (A) settle or compromise any
Action or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or
plaintiff to Seller of a duly executed written release of Seller and
its Affiliates from all liability in respect of such Action, which
release will be reasonably satisfactory in form and substance to
counsel for Seller; or (B) settle or compromise any Action in any
manner that, in the reasonable judgment of Seller or its Affiliates or
their counsel, may materially adversely affect Seller or its
Affiliates, it being acknowledged and agreed that any settlement or
compromise pursuant to
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<PAGE> 36
which the sole relief is monetary damages that are paid in full by
Buyer will not be deemed to materially adversely affect Seller or its
Affiliates.
(d) Upon the payment of any settlement or judgment pursuant to this
Section 10.02 with respect to any Seller's Assertion, Buyer will be
subrogated to all rights and remedies of Seller and its Affiliates
against any third party in respect of such Seller's Assertion to the
extent of the amount so paid by Buyer.
(e) The indemnity provided for by this Section 10.02 will be Seller's and
its Affiliates' exclusive source of recovery against Buyer with
respect to matters covered hereby.
10.03 DISPUTE RESOLUTION.
(a) Any Action asserted by Seller against Buyer or by Buyer against Seller
(a "Claim") arising out of or related to the Transaction Documents,
including, without limitation, any Claim for indemnification pursuant
to Article X hereof or any issue as to whether or not a Claim is
arbitrable, will be resolved pursuant to the procedures described in
this Section 10.03.
(b) Should any Claim arise, Seller and Buyer will first attempt to resolve
such Claim by entering into good faith negotiations by or among their
appropriate employees or officers. Such negotiations will commence as
soon as practicable after Seller and Buyer have both received notice
of such Claim, but no later than 10 days after such receipt, and will
terminate 30 calendar days after such commencement. During
negotiations, Seller and Buyer will not have the right to any
discovery unless agreed to by both Seller and Buyer.
(c) Any Claim which has not been resolved pursuant to Section 10.03(b) of
this Agreement will be determined by arbitration. The arbitration will
be conducted by three arbitrators, one of whom will be appointed by
Seller, one of whom will be appointed by Buyer, and the third who will
be chosen by the first two arbitrators. The arbitration will be held
in a mutually agreed to location in Ohio and will be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), except that the rules set forth in
this Section 10.03(c) will govern such arbitration to the extent they
conflict with the rules of the AAA. Costs of the arbitration will be
shared equally by Seller and Buyer, except Seller and Buyer will each
pay its own arbitrator, attorneys, accountants, consultants and other
experts and witnesses. Seller and Buyer will use commercially
reasonable efforts to cause the arbitration to be conducted in an
expeditious manner. Seller and Buyer will use their commercially
reasonable efforts to cause the arbitration to be completed within 60
days after final selection of the arbitrators. In the arbitration,
Ohio law will
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<PAGE> 37
govern, except to the extent that those laws conflict with the
Commercial Arbitration Rules of the AAA and the provisions of this
Section 10.03(c). There will be no discovery except as the arbitrators
will permit following a determination by the arbitrators that the
Person seeking such discovery has a substantial demonstrable need. All
other procedural matters will be within the discretion of the
arbitrators. In the event a Person fails to comply with the procedures
in any arbitration in a manner deemed material by the arbitrators, the
arbitrators will fix a reasonable period of time for compliance and,
if the Person does not comply within said period, a remedy deemed just
by the arbitrators, including an award of default, may be imposed. The
determination of the arbitrators will be final and binding on the
Seller and Buyer. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
10.04 DAMAGE LIMITATIONS.
(a) Notwithstanding anything to the contrary in the Transaction Documents,
neither Seller nor Buyer will be permitted to recover from the other
any consequential, indirect, or punitive damages arising out of or
related to the Transaction Documents, regardless of the form of the
Claim or Action, including, without limitation, Claims or Actions for
indemnification, tort, breach of contract, warranty, representation or
covenant.
(b) Seller's aggregate liability arising out of or related to breaches of
representations or warranties contained in this Agreement, regardless
of the form of the Claim or Action, including, without limitation,
Claims or Actions for indemnification, tort, breach of contract,
warranty or representation, is limited to the amount by which all such
liabilities exceed twenty-five thousand United States dollars
(US $25,000).
(c) Buyer's aggregate liability arising out of or related to breaches of
representations or warranties contained in this Agreement regardless
of the form of the Claim or Action, including, without limitation,
Claims or Actions for indemnification, tort, breach of contract,
warranty or representation, is limited to the amount by which all such
liabilities exceed twenty-five thousand United States dollars (US
$25,000).
10.05 TERMINATION OF INDEMNIFICATION. The obligation to indemnify a Person
pursuant to Sections 10.01(a)(i)(B) and 10.02(a)(i)(B) will terminate when
the applicable representation or warranty terminates pursuant to Section
12.03; provided, however, that such indemnification obligation will not
terminate with respect to any item as to which the Person to be
indemnified will have, prior to the expiration of the applicable period,
previously delivered written notice (stating in reasonable detail the
nature of, and factual and legal basis for, any Claim, and the provisions
of this Agreement on which such Claim is made) to the other Party.
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<PAGE> 38
10.06 CLAIMS UNDER MANUFACTURING AGREEMENT. Anything contained in this Agreement
to the contrary notwithstanding, a claim by Buyer or Seller for breach of
the Manufacturing Agreement shall be asserted pursuant to the terms and
conditions of the Manufacturing Agreement and, except as otherwise set
forth in the Manufacturing Agreement, shall not be subject to the
provisions of this Article X.
ARTICLE XI
TERMINATION AND ABANDONMENT
11.01 TERMINATION. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written consent of Seller and Buyer;
(b) by either of Seller or Buyer if the Closing has not occurred before
December 31, 1998, provided that the terminating Person is not then
in default hereunder; and
(c) by either of Seller or Buyer if any Governmental Entity has issued a
final, non-appealable order, decree or ruling permanently enjoining
or prohibiting the consummation of the transactions contemplated by
this Agreement.
11.02 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of this
Agreement and abandonment of the transactions contemplated hereby pursuant
to Section 11.01 hereof, written notice thereof will promptly be given to
all appropriate entities and this Agreement will terminate and the
transactions contemplated hereby will be abandoned, without further action
by either of Seller or Buyer, and without additional liability on the part
of either of them or their Affiliates, directors, officers, shareholders,
employees, contractors or agents, except for Sections 6.05, 6.12, 10.03
and 11.02 and any definitions pertaining thereto, which sections and
definitions will continue to bind the Parties as necessary to effectuate
their purpose. Nothing contained in this Section 11.02 will release either
of Seller or Buyer from liability for any breach of this Agreement prior
to its termination.
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<PAGE> 39
ARTICLE XII
MISCELLANEOUS
12.01 AMENDMENT AND MODIFICATION. The Transaction Documents may be amended,
modified or supplemented only by the written agreement of Seller and
Buyer.
12.02 WAIVER OF COMPLIANCE. Except as otherwise provided in the Transaction
Documents, the failure by any Person to comply with any obligation,
covenant, agreement or condition under such agreements may be waived by
the Person entitled to the benefit thereof only by a written instrument
signed by the Person granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition will not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure. The failure of any Person to enforce at
any time any of the provisions of such agreements will in no way be
construed to be a waiver of any such provision, nor in any way to affect
the validity of such agreements or any part thereof or the right of any
Person thereafter to enforce each and every such provision. No waiver of
any breach of such provisions will be held to be a waiver of any other or
subsequent breach.
12.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; OTHER MATTERS. Each and every
representation and warranty of Seller or Buyer contained in this Agreement
will survive any investigation and will not be extinguished by the
Closing, but will survive for a period of 24 months from the Closing Date.
No Party may initiate any Claim nor will any Party be responsible for any
Action arising out of or related to a breach of a representation or
warranty under this Agreement, regardless of the form of the Claim or
Action, including, without limitation, indemnification, tort, breach of
contract, warranty or representation, unless such Claim or Action is
initiated prior to the expiration of the relevant representation or
warranty. All other covenants and agreements of the Parties hereto are
subject to all applicable statutes of limitation, statutes of repose and
other similar defenses provided by law or equity.
12.04 NOTICES. All notices required or permitted pursuant to this Agreement will
be in writing and will be deemed to be properly given when actually
received by the Person entitled to receive the notice at the address
stated below, or at such other address as a Party may provide by notice to
the other:
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<PAGE> 40
Seller: Mailing Delivery
------- --------
Worthington Foods, Inc. Worthington Foods, Inc.
900 Proprietors Road 900 Proprietors Road
Worthington, Ohio 43085 Worthington, Ohio 43085
ATTENTION: Dale E. Twomley ATTENTION: Dale E. Twomley
Buyer: Mailing Delivery
------- --------
Archer-Daniels-Midland Company Archer-Daniels-Midland Company
P.O. Box 1470 4666 Faries Parkway
Decatur Illinois 62525 Decatur, Illinois 62526
ATTENTION: General Counsel
12.05 EXHIBITS AND SCHEDULES; INCORPORATION BY REFERENCE. The exhibits and
schedules attached to this Agreement, each when executed and delivered,
are incorporated by reference into and made a part of this Agreement. The
fact that any document, asset, item, action, entity, event, condition,
claim, agreement, or other matter (hereinafter collectively referred to as
"Matter') is set forth or described or referred to in any one or more
exhibits or schedules will not be construed as a representation, warranty,
acknowledgment or admission by any Person or as evidence that such Matter
is, or may at any time be or have been, Material or in any way significant
to the transactions contemplated by this Agreement. Disclosure in any
exhibit or schedule to this Agreement will be deemed to be disclosure in
any exhibit(s) or schedule(s) where such disclosure would be appropriate
or required.
12.06 SUCCESSORS AND ASSIGNS. The Transaction Documents will be binding upon and
will inure to the benefit of the signatories thereto and their respective
successors and permitted assigns. Except as otherwise set forth in the
applicable Transaction Document, neither Seller nor Buyer may assign any
of the Transaction Documents, or any of their rights or liabilities
thereunder, without the prior written consent of the other Party, provided
that: (a) Seller and Buyer may so assign in whole or in part, to one or
more of their Affiliates; and (b) Buyer may so assign in whole or in part
in connection with the sale of all or substantially all of the assets of
the Business to any unaffiliated third party (regardless of the form of
the transaction); provided however, that Seller will have no obligations
whatsoever, including, without limitation, obligations to provide
information or assistance in connection with such sale or the third
party's financing thereof, and provided further that no such assignment
will limit or otherwise affect Buyer's obligations hereunder.
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<PAGE> 41
12.07 ENTIRE AGREEMENT. The Transaction Documents constitute the entire
agreement between the signatories hereto with respect to the subject
matter thereof and will supersede all previous negotiations, commitments,
and writings with respect to such subject matter. SELLER AND BUYER MAKE NO
REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, OTHER THAN
THOSE SPECIFICALLY SET FORTH IN THE TRANSACTION DOCUMENTS.
12.08 SEVERABILITY. The illegality or partial illegality of any or all of the
Transaction Documents, or any provision thereof, will not affect the
validity of the remainder of such agreements, or any provision thereof,
and the illegality or partial illegality of any such agreements will not
affect the validity of any such agreement in any jurisdiction in which
such determination of illegality or partial illegality has not been made,
except in either case to the extent such illegality or partial illegality
causes such agreements to no longer contain all of the material provisions
reasonably expected by the signatories to be contained therein.
12.09 CAPTIONS. The captions appearing in the Transaction Documents are inserted
only as a matter of convenience and as a reference and in no way define,
limit or describe the scope or intent of such agreements or any of the
provisions thereof.
12.10 COUNTERPARTS. The Transaction Documents may be executed in one or more
counterparts, each of which will be deemed to be an original, but all of
which will constitute one agreement.
12.11 GOVERNING LAW. The Transaction Documents will be governed by and construed
in accordance with the laws of Ohio, whether common law or statutory,
without reference to the choice of law provisions thereof.
IN WITNESS WHEREOF, each of the signatories hereto has caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
ARCHER-DANIELS-MIDLAND COMPANY WORTHINGTON FOODS, INC.
By: /s/ By: /s/ Dale E. Twomley
---------------------------- ------------------------------
Dale E. Twomley, President
Its: GROUP VICE PRESIDENT
----------------------------
<PAGE> 42
SCHEDULE 1.14
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
GREEN GIANT HARVEST BURGERS CASE VOLUME:
(NUMBERS REPRESENT THOUSANDS OF 12 PACKS)
<TABLE>
<CAPTION>
HB
Month & Year Burgers For Recipe Total
- ----------- ------- ---------- -----
<S> <C> <C> <C>
August 1998 40.9 12.8 53.7
July 1998 61.9 14.3 76.2
June 1998 59.2 13.0 72.2
May 1998 43.6 12.0 55.6
April 1998 43.6 13.0 56.6
March 1998 47.3 16.9 64.2
February 1998 35.7 19.0 54.7
January 1998 34.8 16.4 51.2
<CAPTION>
HB
Month & Year Burgers For Recipe Total
- ----------- ------- ---------- -----
<S> <C> <C> <C>
December 1997 38.3 16.1 54.4
November 1997 36.6 16.1 52.7
October 1997 39.8 21.2 61.0
September 1997 54.5 16.6 71.1
August 1997 42.0 8.1 50.7
July 1997 39.2 15.2 54.4
June 1997 62.2 16.6 78.8
May 1997 80.6 14.9 95.5
April 1997 47.5 13.3 60.8
March 1997 50.1 14.7 64.8
February 1997 50.2 14.6 64.8
January 1997 59.6 14.6 74.2
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
HB
Month & Year Burgers For Recipe Total
- ----------- ------- ---------- -----
<S> <C> <C> <C>
December 1996 29.9 9.1 39.0
November 1996 44.4 15.1 59.5
October 1996 64.3 19.4 83.7
September 1996 65.5
August 1996 49.7
July 1996 72.8 4.8 77.6
June 1996 73.5 8.6 82.1
May 1996 86.0 2.9 88.9
April 1996 48.1 20.9 69.0
March 1996 38.8 3.5 42.3
February 1996 65.3 15.0 80.3
January 1996 43.9 16.7 60.6
<CAPTION>
HB
Month & Year Burgers For Recipe Total
- ----------- ------- ---------- -----
<S> <C> <C> <C>
December 1995 29.2 -- 29.2
November 1995 52.1 -- 52.1
October 1995 54.0 .3 54.3
September 1995 -- 58.8
August 1995 -- 81.5
July 1995 -- 42.2
June 1995 -- 87.0
May 1995 -- 40.6
April 1995 -- 54.0
March 1995 -- 70.5
February 1995 -- 65.5
January 1995 -- 76.9
</TABLE>
<PAGE> 44
ESTIMATED FOOD SERVICE & DRY RETAIL SALES NUMBERS
- -------------------------------------------------
<TABLE>
<CAPTION>
1995 Number of Cases
- ---- ---------------
<S> <C>
Frozen (48 - 3.2 oz. Burgers/Case) 4,780
Dry Mix (45 - 4 oz. Pouch & 30 - 6 oz. Pouch) 759
Dry Mix (9 - 20 oz. Pouch & 6 - 30 oz. Pouch) 2,326
10 kg. Bag 5,129
1996 Number of Cases
- ---- ---------------
Frozen (48 - 3.2 oz. Burgers/Case) 7,457
Dry Mix (45 - 4 oz. Pouch & 30 - 6 oz. Pouch) 486
Dry Mix (9 - 20 oz. Pouch & 6 - 30 oz. Pouch) 1,667
10 kg. Bag 3,060
1997 Number of Cases
- ---- ---------------
Frozen (48 - 3.2 oz. Burgers/Case) 6,863
Dry Mix (45 - 4 oz. Pouch & 30 - 6 oz. Pouch) 418
Dry Mix (9 - 20 oz. Pouch & 6 - 30 oz. Pouch) 1,398
10 kg. Bag 3,256
1998 (January - July 31) Number of Cases
- ------------------------ ---------------
Frozen (48 - 3.2 oz. Burgers/Case) 7,149
Dry Mix (45 - 4 oz. Pouch & 30 - 6 oz. Pouch) 1,091
Dry Mix (9 - 20 oz. Pouch & 6 - 30 oz. Pouch) 971
10 kg. Bag 1,387
</TABLE>
<PAGE> 45
SCHEDULE 1.23
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
Harvest Burgers - Original Flavor
Harvest Burgers - Southwestern Style
Harvest Burgers - Italian Style
Harvest Burgers For Recipes
Harvest Burgers - Food Service Products
Harvest Burgers - Retail Dry Mixes
Breakfast Links
Breakfast Patties
<PAGE> 46
SCHEDULE 1.26
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
TRADEMARK NAME
- --------------
<TABLE>
<CAPTION>
Appln. Number Reg. Number
Country Status Appln. Date Reg. Date Renewal Date
- --------------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
HARVEST BURGERS
Argentina Pending 2054994
30-Oct-96
Benelux Registered 768095 501664
21-Aug-91 21-Aug-91 21-Aug-01
Canada Registered 688999 426854
30-Aug-91 06-May-94 06-May-09
Chile Registered 237272 430086
14-Apr-93 12-Aug-94 12-Aug-04
Finland Registered 3955/91 129991
22-Aug-91 20-Jan-94 20-Jan-04
Germany Registered A50837/29W 2060404
23-Aug-91 23-Aug-91 23-Aug-01
Italy Registered M191C006343 00625960
30-Aug-91 30-Aug-91 30-Aug-01
Japan Abandoned 3-91832
04-Sep-91
New Zealand Pending 288107
18-Feb-98
Peru Pending 031984
11-Feb-97
Singapore Registered S/8041/91 S/8041/91
27-Aug-91 27-Aug-91 27-Aug-01
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Appln. Number Reg. Number
Country Status Appln. Date Reg. Date Renewal Date
- --------------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
United Kingdom Registered 2158212 2158212
14-Feb-98 14-Feb-98 14-Feb-08
United States Registered 74/128573 1665961
07-Jan-91 26-Nov-91 26-Nov-01
Uruguay Pending 291234
11-Nov-96
Venezuela Pending 17.922-91
06-Sep-91
</TABLE>
<PAGE> 48
SCHEDULE 3.01(a)(iv)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 49
SCHEDULE 4.02
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 50
SCHEDULE 4.03
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 51
SCHEDULE 4.06(a)(i)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 52
SCHEDULE 4.06(a)(ii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
"For Recipe"
<PAGE> 53
SCHEDULE 4.06(a)(iii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 54
SCHEDULE 4.06(a)(vi)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 55
SCHEDULE 4.06(a)(v)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 56
SCHEDULE 4.06(a)(vi)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 57
SCHEDULE 4.06(a)(vii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 58
SCHEDULE 4.06(a)(viii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 59
SCHEDULE 4.06(b)(i)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 60
SCHEDULE 4.06(b)(ii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 61
SCHEDULE 4.06(b)(iii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 62
SCHEDULE 4.06(b)(iv)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 63
SCHEDULE 4.06(c)(i)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 64
SCHEDULE 4.06(c)(ii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 65
SCHEDULE 4.06(c)(iii)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 66
SCHEDULE 4.06(c)(iv)
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 67
SCHEDULE 4.07
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 68
SCHEDULE 4.14
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 69
SCHEDULE 4.15
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 70
SCHEDULE 5.02
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
None
<PAGE> 71
SCHEDULE 5.09
-------------
WORTHINGTON FOODS, INC.
CAPITALIZATION
Authorized Capital Stock: 30,000,000 common shares, without par value,
11,750,859 common shares issued and
outstanding as of July 29, 1998; no material
change since July 29, 1998.
2,000,000 preferred shares, without par value,
none issued or outstanding
<PAGE> 72
SCHEDULE 6.09
TO ASSET SALE AND
PURCHASE AGREEMENT
DATED SEPTEMBER 28, 1998
Food Club
Bounty Gourmet
Veggieland
O'Neil Foods
Overhill Farms
Dixie USA
<PAGE> 73
SCHEDULE 7.07
-------------
SELLER'S REGISTRATION RIGHTS
PROVISIONS APPLICABLE TO DEMAND REGISTRATION
1. Seller may at any time after tenth month following the Closing
Date request Buyer, in writing (a "Registration Notice"), to register any or all
of the Worthington Shares then owned by Seller. Buyer shall use its best efforts
to cause the number of Worthington Shares specified in such request to bee
registered with the Securities and Exchange Commission ("SEC") as soon as
reasonably practicable so as to permit the sale thereof, and in connection
therewith prepare and file as promptly as practicable with the SEC a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") to effect such registration (a "Demand Registration").
Seller's Registration Notice shall (i) specify the number of Worthington Shares
intended to be offered and sold (the "Registration Shares"); (ii) express the
present intention of Seller to offer or cause the offering of the Registration
Shares for distribution; (iii) describe the nature or method of the proposed
offer and sale of the Registration Shares, including the plan of distribution
therefor; (iv) contain the undertaking of Seller to provide all such information
and materials and take all such action as may be required in order to permit
Buyer to comply with all applicable requirements of the SEC and to obtain any
desired acceleration of the effective date of such registration statement. Buyer
shall be obligated to use its best efforts to keep any such registration
statement effective for the earlier of (i) twelve months from the date the
registration statement becomes effective or (ii) the Termination Date (as
defined in paragraph 2 below). Buyer will not be required to file and obtain
effectiveness for more than one registration statement pursuant to this
paragraph 1.
2. The obligation of Buyer to register any Worthington Shares
pursuant to a Demand Registration and to maintain the effectiveness of any
registration statement shall expire on the second anniversary of the Closing
Date (the "Termination Date").
3. The obligation of Buyer to use its best efforts to cause the
Worthington Shares to be registered under the Securities Act is subject to the
limitation that Buyer will be entitled to postpone for a reasonable period of
time, but not more than 90 days from the receipt of Seller's Registration
Notice, the filing of any registration statement if at the time it receives such
Registration Notice, Buyer, based on advice of its counsel, determines that such
registration and sale (i) would interfere with any financing, acquisition,
corporate reorganization or other material transaction involving Buyer or (ii)
would require the disclosure of material information and such disclosure would
adversely affect Buyer.
4. In connection with any Demand Registration, other than a
registration in connection with an underwritten offering, Buyer shall pay all
SEC and blue sky registration and filing fees, fees and disbursements of legal
counsel for Buyer, transfer agents' fees and fees and disbursements of any
public accountants used by Buyer in connection with such registration
(collectively, "Registration Expenses"); provided, however, that Registration
Expenses do not
<PAGE> 74
include any of Seller's own expenses in connection with any Demand Registration,
including any fees and expenses of Seller's own counsel and any brokerage fees
or commissions or any underwriting discounts incurred in connection with
Seller's sale of Worthington Shares, all of which expenses will be paid by
Seller. If Seller seeks to offer and sell Worthington Shares in an underwritten
offering, Seller will pay (or reimburse Buyer for) all Registration Expenses in
excess of $15,000.
PROVISIONS APPLICABLE TO PIGGYBACK REGISTRATION
1. If Buyer, at any time prior to the second anniversary of the
Closing Date, proposes the registration under the Securities Act of an
underwritten offering for cash of any of its equity securities, Buyer shall give
notice of such proposed registration to Seller and shall use its best efforts to
include in such registration the sale of such number of Worthington Shares as
Seller shall request, within 14 days after the giving of such notice, upon the
same terms (including the method of distribution) as such offering; provided
that Buyer will not be required to provide notice to Seller or include in such
registration any Worthington Shares owned by Seller if the proposed registration
is primarily a registration of a stock option or other compensation plan or
securities issued or issuable pursuant to any such plan or a registration of
securities proposed to be issued in exchange for securities or assets of, or in
connection with a merger of consolidation with, another corporation (a
"Piggyback Registration").
2. In connection with any Piggyback Registration, if the managing
underwriters for such offering advise that the inclusion of all securities
sought to be registered may interfere with an orderly sale and distribution or
may materially adversely affect the price of such offering, the securities to be
registered shall be included in such registration in accordance with the
following priorities: first, all securities to be sold for the account of Buyer,
and second, all securities to be sold for the account of Seller and all other
selling shareholders (allocated pro rata based upon the number of shares that
Seller and such other selling shareholders desire to sell in such offering), up
to the limit specified by the managing underwriters.
3. The Registration Expenses in connection with any Piggyback
Registration shall be borne by Buyer.
PROVISIONS APPLICABLE TO DEMAND REGISTRATION AND PIGGYBACK REGISTRATION
1. The registration rights of Seller provided for in this
Schedule may not be transferred or assigned by Seller except to an affiliate of
Seller.
2. Anything contained herein to the contrary notwithstanding, the
registration rights of Seller provided for in this Schedule will terminate
immediately if Buyer engages in any transaction in which the outstanding shares
of Buyer cease to be publicly traded.
<PAGE> 75
3. All capitalized terms used in this Schedule without definition
shall have the meanings given to them in the Asset Sale and Purchase Agreement
dated as of September 28, 1998 between Seller and Buyer.
<PAGE> 76
EXHIBIT 1.27
TRADEMARK ASSIGNMENT
--------------------
WHEREAS, Archer-Daniels-Midland Company ("Assignor"), a Delaware
corporation, with an address of 4666 Faries Parkway, Decatur, Illinois 62526, is
the owner of the trademarks, registrations and applications identified in the
attached Schedule;
WHEREAS, Worthington Foods, Inc. ("Assignee"), an Ohio corporation,
with an address of 900 Proprietors Road, Worthington, Ohio 43085, is acquiring
from Assignor these trademarks, registrations and applications;
NOW, THEREFORE, in exchange for good and valuable consideration, the
receipt of which is hereby acknowledged, Assignor hereby transfers and assigns
to Assignee all of Assignor's rights, title and interest in and to the
trademarks, registrations and applications identified in the attached Schedule,
together with the goodwill of the business associated with these trademarks,
registrations and applications.
The rights transferred by this assignment include the right to bring
all legal actions related to the trademarks, registrations and applications,
including actions for any infringement of these, no matter whether the
infringement occurred before or after the assignment, and the right to recover
damages for such infringement.
IN WITNESS WHEREOF, the Assignor has executed this instrument on this
______ day of ______________, 1998.
ARCHER-DANIELS-MIDLAND COMPANY
By: ___________________________________
Name: _________________________________
Title: ________________________________
STATE OF ___________ )
)SS
COUNTY OF___________ )
The foregoing instrument was acknowledged before me this _____ day of
_____________, 1998 by _____________, _______________ of Archer-Daniels-Midland
Company. He is personally known to me.
(SEAL) _________________________________
Notary Public
State of_________________________
<PAGE> 77
EXHIBIT 3.01(a)(1)
BILL OF SALE
------------
BILL OF SALE, dated _______________, 1998, given by Archer-Daniels-
Midland Company, a Delaware corporation ("Seller"), to Worthington Foods, Inc.,
an Ohio corporation ("Buyer").
WHEREAS, Seller and Buyer have entered into the Asset Sale and Purchase
Agreement dated September 25, 1998 (the "Sale Agreement") providing for, among
other things, the sale by Seller of the Business and Acquired Assets to Buyer
and the purchase by Buyer of the Business and Acquired Assets from Seller (terms
used but not defined herein shall have the meanings ascribed to them in the Sale
Agreement); and
WHEREAS, Section 3.01 (a)(i) of the Sale Agreement provides for Seller
to execute and deliver to Buyer a bill of sale conveying to Buyer all of
Seller's right, title and interest in and to the Business and Acquired Assets;
NOW, THEREFORE, on the terms and subject to the conditions of the Sale
Agreement, and for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged:
Seller hereby sells and assigns to Buyer, and transfers
ownership to Buyer of, all of its right, title and interest in
and to the Business and Acquired Assets.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale on the date
first written above.
ARCHER-DANIELS-MIDLAND COMPANY
By: ___________________________________
Name: _________________________________
Title: ________________________________
STATE OF ___________ )
)SS
COUNTY OF___________ )
The foregoing instrument was acknowledged before me this ____ day of
_______,1998 by _______________, the _______________, of Archer-Daniels-Midland
Company. He is personally known to me.
My Commission Expires: ___________________________________
Notary Public, State of____________
<PAGE> 1
EXHIBIT 10(c)
SUMMARY DESCRIPTION OF THE WORTHINGTON FOODS, INC.
1999 EXECUTIVE BONUS PLAN
The Board of Directors of the Company adopted an incentive compensation
program for the President and the Vice Presidents of the Company which began in
1993. Under this plan, such executives are eligible to receive year end cash
bonuses. These bonuses are tied to the Company's financial plan for 1999. The
bonuses are designed to place the executives' compensation at approximately the
mid-point of total compensation paid to executives of similar sized companies
(based upon a survey conducted by William Mercer & Company) when the Company
reaches its financial plan. When the Company exceeds its financial plan, the
cash bonuses to be paid increases up to a maximum of 60% of the base salaries of
the Company's Vice Presidents, 90% of the base salary for the Company's
Executive Vice Presidents and 120% of the base salary of the Company's
President. At the maximum, the total compensation paid the executives is
approximately the 75th percentile of comparable companies.
The exact amount of the bonus paid to each executive is also tied to
specific performance goals established for each executive. The Compensation
Committee of the Board evaluates the performance of the President, and the
President evaluates the performance of the Executive Vice Presidents and Vice
Presidents.
- 98 -
<PAGE> 1
EXHIBIT 10(AF)
WORTHINGTON FOODS, INC.
SPECIALTY FOODS INVESTMENT COMPANY
CREDIT AGREEMENT
Dated as of September 9, 1998
NATIONAL CITY BANK
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS.....................................................4
1.1. Defined Terms...................................................4
1.2. Accounting Terms...............................................10
1.3. Other Definitional Provisions..................................10
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENT AND LOANS.......................11
2.1. Commitment.....................................................11
2.2. Revolving Nature...............................................11
2.3. Types of Loans.................................................11
2.4. Procedures With Respect to Prime Loans.........................11
2.5. Procedures With Respect to LIBOR Loans and Fixed Loans.........10
2.6. Conversion of Loans............................................11
2.7. Conditions to Each Loan........................................12
2.8. Warranty.......................................................12
2.9. Note...........................................................13
2.10. Recordkeeping..................................................12
2.11. Interest Rates.................................................13
2.12. Interest Payment Dates.........................................13
2.13. Interest Periods...............................................13
2.14. Commitment Fee.................................................13
2.15. Termination or Reduction of Commitment.........................14
2.16. Optional Prepayments of Certain Loans..........................14
2.17. Computation of Interest and Fees...............................14
2.18. Payments.......................................................14
2.19. Use of Proceeds of Loans.......................................15
2.20. Security for Loans.............................................15
2.21. Increased Taxes and Costs......................................15
2.22. Changes in Circumstances.......................................16
2.23. Funding Losses.................................................16
ARTICLE 3. LETTERS OF CREDIT..............................................17
3.1. Letters of Credit Generally....................................17
3.2. Notice of Issuance.............................................17
3.3. Payment of Amounts Drawn Under Letters of Credit...............18
3.4. Compensation...................................................17
3.5. Obligations Absolute...........................................18
3.6. Increased Taxes and Costs and Changes in Circumstances.........18
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.................................18
4.1. Corporate Existence; Compliance with Law.......................18
4.2. Corporate Power; Authorization; Enforceable Obligations........20
<PAGE> 3
4.3. No Legal Bar...................................................19
4.4. No Material Litigation.........................................19
4.5. No Default or Event of Default.................................21
4.6. Federal Regulations............................................21
4.7 Investment Company Act.........................................21
4.8. Disclosure.....................................................19
4.9. Financial Condition............................................20
4.10. No Change......................................................22
4.11. Ownership of Property; Liens...................................22
4.12. Taxes..........................................................22
4.13. ERISA..........................................................22
4.14. Subsidiaries...................................................23
4.15. Year 2000 Compliant............................................21
4.16 Environmental..................................................24
4.17. Compliance with Occupational Safety and Health Act.............24
4.18 Patents, Trademarks and Licenses...............................24
ARTICLE 5. CONDITIONS PRECEDENT...........................................22
5.1. Conditions to Initial Loan.....................................22
5.2. Conditions to All Loans........................................26
ARTICLE 6. AFFIRMATIVE COVENANTS..........................................23
6.1. Financial Statements...........................................23
6.2. Certificates; Other Information................................27
6.3. Payment of Obligations.........................................28
6.4. Conduct of Business and Maintenance of Existence...............28
6.5. Maintenance of Property; Insurance.............................28
6.6. Inspection of Property; Books and Records; Discussions.........28
6.7. Notices........................................................29
6.8. Environmental Indemnification..................................26
ARTICLE 7. NEGATIVE COVENANTS.............................................30
7.1. Indebtedness...................................................30
7.2. Limitation on Liens............................................30
7.3. Prohibition of Fundamental Changes.............................31
7.4. Consolidated Adjusted Tangible Net Worth Tests.................32
7.5. Current Ratio..................................................32
7.6. Consolidated Working Capital...................................32
7.7. Compliance with ERISA..........................................32
7.8. No Change in Fiscal Year Period................................32
ARTICLE 8. EVENTS OF DEFAULT..............................................33
ARTICLE 9. MISCELLANEOUS..................................................35
9.1. Amendments, Etc................................................35
9.2. Notices........................................................35
9.3. No Waiver; Cumulative Remedies.................................36
<PAGE> 4
9.4. Survival of Representations and Warranties.....................36
9.5. Payment of Expenses and Taxes..................................36
9.6. Successors and Assigns.........................................37
9.7. Governing Law; No Third Party Rights...........................37
9.8. Adjustments; Set-off...........................................37
9.9. Joint and Several Obligations..................................38
9.10. Counterparts...................................................38
9.11. Effectiveness..................................................38
9.12. Severability...................................................38
SIGNATURES.................................................................39
SCHEDULES
Schedule 4.11 - Exceptions to Title to Property
Schedule 4.13 - ERISA Matters
Schedule 7.2(f) - Liens
EXHIBITS
Exhibit 2.9 - Form of Revolving Credit Note
Exhibit 2.20 - Form of Security Agreement
Exhibit 5.1(c) - Form of Legal Opinion
Exhibit 5.1(i) - Form of Borrowing Certificate
<PAGE> 5
CREDIT AGREEMENT
This CREDIT AGREEMENT (this "Agreement"), dated as of September 9,
1998, is by and between WORTHINGTON FOODS, INC., an Ohio corporation ("WFI"),
and SPECIALTY FOODS INVESTMENT COMPANY, a Delaware corporation and wholly owned
subsidiary of WFI ("SFI", and collectively with WFI, the "Borrowers"), on the
one hand, and NATIONAL CITY BANK, a national banking association (the "Bank"),
on the other hand.
The parties hereto hereby agree as follows:
ARTICLE 1. DEFINITIONS.
------------
1.1 DEFINED TERMS. as used in this Agreement, the following terms
shall have the following meanings:
"AGREEMENT" shall have the meaning assigned to it in the
introductory paragraph of this Agreement.
"BANK" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"BORROWERS" shall have the meaning assigned to it in the
introductory paragraph of this Agreement.
"BORROWING DATE" shall mean the date of any borrowing by the
Borrowers pursuant to this Agreement.
"BREAKEVEN PREPAYMENT PREMIUM" shall mean a premium based on the
principal amount of the prepaid Loan and computed for the remainder of
the applicable Interest Period at a rate equal to the excess, if any,
of the Bank's Cost of Funds on the date of the prepaid Loan over the
Reinvestment Rate at the time of the prepayment (discounted to the
present value in accordance with standard financial practice at a rate
equal to the Reinvestment Rate at the time of the prepayment).
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in Columbus, Ohio are authorized
or required by law to close.
"CAPITAL LEASE" shall mean a lease with respect to which the
lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP and, in any event,
any lease (a) pursuant to which the lessee shall receive title to the
Property subject thereto at the expiration of such lease or shall have
the right or shall have an option to purchase the Property subject
thereto at a nominal amount or an amount less than a reasonable
estimate of the Fair Market Value of such Property at the date of such
purchase, (b) with respect to which the lessor shall have filed a
financing statement (other than for informational purposes with
respect to an operating lease), (c) with respect to which the present
value of all rental and other fixed payments due under such lease is
equal to or exceeds ninety percent (90%) of the remainder of (x) the
Fair Market Value of the Property subject thereto minus (y) the amount
of any related investment tax credit retained by the lessor under such
lease, or (d) the term of which approximate or exceeds seventy-five
percent (75%) of the reasonably estimated economic life of the
Property subject thereto.
"CLOSING DATE" shall mean the date of the first borrowing under
this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, and all
regulations promulgated and rulings issued pursuant thereto, as
amended from time to time.
<PAGE> 6
"COMMITMENT" shall mean $25,000,000 or such lesser amount as may
be determined pursuant to Section 2.15.
"COMMITMENT FEE" shall have the meaning assigned to it in Section
2.14.
"COMMITMENT PERIOD" shall mean the period from and including the
Effective Date to but not including the Commitment Termination Date.
"COMMITMENT TERMINATION DATE" shall mean August 31, 2003.
"CONSOLIDATED ADJUSTED TANGIBLE NET WORTH" shall mean, at any
time, without duplication, the sum of the amounts which would be set
forth on the consolidated balance sheet of the Borrowers as of such
time in respect of (a) the par or stated value of all capital stock,
(b) capital surplus and (c) retained earnings, minus the sum of the
amounts set forth on such balance sheet in respect of the items which
are Excluded Net Worth Assets.
"CONSOLIDATED CURRENT ASSETS" shall mean, at a particular date,
all amounts which would be included under current assets on a
consolidated balance sheet of the Borrowers as at such date.
"CONSOLIDATED CURRENT LIABILITIES" shall mean, at a particular
date, all amounts which would be included under current liabilities on
a consolidated balance sheet of the Borrowers as at such date,
including without limitation Indebtedness incurred hereunder and under
the Note.
"CONSOLIDATED NET INCOME" shall mean, for any fiscal period, net
earnings (but not loss) after income taxes of the Borrowers determined
on a consolidated basis.
"CONSOLIDATED TOTAL LIABILITIES" shall mean, at a particular
date, all amounts which would be included under liabilities on a
consolidated balance sheet of the Borrowers as at such date.
"CONSOLIDATED WORKING CAPITAL" shall mean, at any time, the
amount by which Consolidated Current Assets (excluding therefrom
prepaid expenses and other deferred assets of every type and
description) exceed Consolidated Current Liabilities.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("Primary
Obligations") of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, including without limitation
any obligation of such Person, whether or not contingent, (a) to
purchase any such Primary Obligation or any Property constituting
direct or indirect security therefor, (b) to advance or supply funds
(i) for the purchase or payment of any such Primary Obligation or (ii)
to maintain working capital or equity capital of the Primary Obligor
or otherwise to maintain the net worth or solvency of the Primary
Obligor, (c) to purchase Property, Securities or services primarily
for the purpose of assuring the owner of any such Primary Obligation
of the ability of the Primary Obligor to make payment of such Primary
Obligation or (d) otherwise to assure or hold harmless the owner of
such Primary Obligation against loss in respect thereof; PROVIDED,
HOWEVER, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of
the Primary Obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good
faith.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument or undertaking to which such Person is a party or by which
it or any of its Property is bound.
<PAGE> 7
"COST OF FUNDS" shall mean the Bank's cost of funds as determined
by the Bank in the exercise of its sole discretion, which shall be the
same cost of funds quoted to other customers of the Bank for
obligations of similar amount, maturity and loan structure to the
Loans hereunder.
"DEFAULT" shall mean any event specified in Article 8, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or for the happening of any further condition, event or act has
been satisfied.
"DOLLARS" shall mean the lawful currency of the United States.
"EFFECTIVE DATE" shall mean the date as of which this Agreement
shall become effective pursuant to Section 9.11.
"ENVIRONMENTAL LAWS" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss.9601, et seq., the Toxic Substances Control Act, 15 U.S.C. ss.2601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901, et seq., the Water Quality Act of 1987, 33 U.S.C. ss.1251, et
seq., and the Clean Air Act, 42 U.S.C. ss.7401, et seq., and any state
or local statute, ordinance, law, code, rule, regulation or order
regulating or imposing liability (including strict liability) or
standards of conduct regarding Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"EUROCURRENCY RESERVE PERCENTAGE" shall mean, with respect to any
day, the then applicable maximum percentage (expressed as a decimal)
prescribed by the Federal Reserve Board for determining reserve
requirements (including without limitation any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank
of the Federal Reserve System in respect of "Eurocurrency Liabilities"
pursuant to Regulation D or any other then applicable regulation of
the Federal Reserve Board which prescribes reserve requirements
applicable to "Eurocurrency Liabilities" as presently defined in said
Regulation D.
"EVENT OF DEFAULT" shall mean any of the events specified in
Article 8, PROVIDED that any requirement for the giving of notice or
the lapse of time, or both, or any other condition, event or act, has
been satisfied.
"EXCLUDED NET WORTH ASSETS" shall mean the following assets:
(a) Deferred assets, other than prepaid insurance and
prepaid taxes;
(b) Patents, copyrights, trademarks, trade names,
franchises, goodwill, experimental expense and other similar
intangible assets;
(c) Unamortized debt discount and expense; and
(d) Assets not listed in clause(a), clause(b) or clause(c)
above which would be characterized as intangible assets by GAAP.
"FAIR MARKET VALUE" shall mean, at any time with respect to
any Property, the sale value of such Property that would be
realized in an arm's-length sale at such time between an informed
and willing buyer, and an informed and willing seller, under no
compulsion to buy or sell, respectively.
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of
the Federal Reserve System or any successor thereto.
"FIXED LOAN" shall mean a Loan accruing interest at a rate
based on the Fixed Rate.
<PAGE> 8
"FIXED RATE" shall mean the rate of interest determined by
the Bank for a Fixed Loan pursuant to Section 2.5(b).
"GAAP" shall mean generally accepted accounting principles
in the United States in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation or
government, any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"HAZARDOUS SUBSTANCES" shall mean and include all hazardous
and toxic substances, wastes, materials, compounds, pollutants
and contaminants (including without limitation asbestos,
polychlorinated biphenyls, and petroleum products) which are
included under or regulated by the Environmental Laws.
"HUNTINGTON" shall mean The Huntington National Bank,
Columbus, Ohio.
"HUNTINGTON LOAN AGREEMENT" shall mean the Second Amended
and Restated Loan Agreement dated as of June 15, 1993 between WFI
and Huntington, as amended.
"HUNTINGTON NOTE" shall mean the promissory note issued by
the Borrowers to Huntington and now outstanding under and
pursuant to the Huntington Loan Agreement.
"INDEBTEDNESS" shall mean, with respect to a Person at a
particular date, and without duplication, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price
of Property including all items of indebtedness or liability
which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of a balance
sheet of such Person as at such time, (b) the face amount of all
Letters of Credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (c) all
liabilities secured by any Lien on any Property owned by such
Person, to the extent attributable to such Person's interest in
such Property, even though such Person has not assumed or become
liable for the payment thereof, PROVIDED that, if such
indebtedness shall not have been assumed by such Person or if
such Person shall otherwise not be personally liable in respect
of such indebtedness, such indebtedness shall be deemed, for
purposes of this definition only, not to exceed the higher of the
then book value or Fair Market Value of the Property encumbered
by the Lien securing such indebtedness, (d) lease obligations of
such Person under Capital Leases, excluding any Capital Lease
entered into by any of the Borrowers for a Retail Store, and (e)
all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect
to Property acquired by such Person even though the rights and
remedies of the obligee thereunder in the event of default are
limited to repossession or sale of such Property; PROVIDED,
HOWEVER, that any indebtedness or liability of such Person which
constitutes deferred taxes or minority interest, as determined in
accordance with GAAP, shall be excluded from this definition of
Indebtedness.
"INDEMNIFIED LIABILITIES" shall have the meaning assigned to
it in Section 9.5.
"INITIAL MONTHLY PAYMENT DATE" shall mean September 30,
1998.
"INITIAL QUARTERLY PAYMENT DATE" shall mean December 31,
1998.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor
Agreement of even date herewith between Principal and the Bank.
"INTEREST PERIOD" shall have the meaning assigned to it in
Section 2.13.
"LETTERS OF CREDIT" shall mean letters of credit (including
both standby and documentary trade letters of credit) issued by
the Bank under the Commitment pursuant to this Agreement.
"LETTERS OF CREDIT LIMIT" shall mean $5,000,000.
<PAGE> 9
"LETTERS OF CREDIT TERMINATION DATE" shall mean such day as
is 30 days prior to the Commitment Termination Date.
"LIBOR BUSINESS DAY" shall mean a day which is a Business
Day and on which dealings are carried on in the London interbank
LIBOR market.
"LIBOR LOAN" shall mean a Loan accruing interest at a rate
based on the LIBOR Rate (Reserve Adjusted).
"LIBOR RATE" shall mean, with respect to any LIBOR Loan for
any Interest Period, the rate PER ANNUM equal to the average of
the respective rates at which Dollar deposits in immediately
available funds are offered to the LIBOR office of the Bank two
LIBOR Business Days prior to the beginning of such Interest
Period by major prime banks in the New York interbank LIBOR
market at or about 10:00 a.m. New York time, for delivery on the
first day of such Interest Period, for the number of days
comprised therein, and in an amount equal or comparable to the
amount of the LIBOR Loan to which such Interest Period is to
apply.
"LIBOR RATE (RESERVE ADJUSTED)" shall mean, with respect to
any LIBOR Loan for any Interest Period, a rate PER ANNUM (rounded
upwards, if necessary, to the nearest 1/100%), determined
pursuant to the following formula:
LIBOR Rate = LIBOR Rate
----------
(Reserve 1 - Eurocurrency
Adjusted) Reserve Percentage
"LIEN" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner
of the Property, whether such interest is based on the common
law, statute or contract, and including without limitation any
mortgage, pledge, hypothecation, assignment, security interest,
lien, charge or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or
nature whatsoever. The term Lien shall include reservations,
exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and
encumbrances (including, with respect to stock, shareholder
agreements, voting trust agreements, buy-back agreements and all
similar arrangements) affecting Property. For the purpose of this
Agreement, a Borrower shall be deemed to be the owner of any
Property which it shall have acquired or holds subject to a
conditional sale agreement, Capital Lease or other arrangement
pursuant to which title to the Property shall have been retained
by or vested in some other Person for security purposes and such
retention or vesting shall be deemed to be a Lien.
"LOAN DOCUMENTS" shall mean this Agreement, the Note and the
Security Agreement, and all documents executed pursuant thereto
and/or in connection therewith, as the same may from time to time
be amended, modified or supplemented in accordance with the terms
herein and therein.
"LOANS" shall have the meaning assigned to it in Section
2.1.
"MONTHLY PAYMENT DATE" shall mean the last day of each
calendar month.
"MULTIEMPLOYER PLAN" shall mean a Plan which is a
"multiemployer pension plan" as defined in Section 4001(a)(3) of
ERISA.
"MULTIPLE EMPLOYER PLAN" shall mean any Single Employer Plan
in respect of which there are two (2) or more "contributing
sponsors", as such term is defined in Section 4001 of ERISA, at
least two (2) of which are not under common control.
"NEW LOAN" shall have the meaning assigned to it in Section
2.6.
<PAGE> 10
"NOTE" shall have the meaning assigned to it in Section 2.9.
"OLD LOAN" shall have the meaning assigned to it in Section
2.6.
"OUTSTANDING LETTERS OF CREDIT AMOUNTS" shall mean the
aggregate face amount of all outstanding Letters of Credit.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"PERSON" shall mean and include an individual, a
partnership, a limited liability company, a corporation, a
business trust, a joint stock company, a trust, an unincorporated
association, a joint venture or other entity or a Governmental
Authority.
"PLAN" shall have the meaning assigned to it in Section
4.13.
"PREMISES" shall mean any real Property owned or leased by
the Borrowers.
"PRIMARY OBLIGATIONS" shall have the meaning assigned to it
in the definition of "Contingent Obligation" contained in this
Section 1.1.
"PRIMARY OBLIGOR" shall have the meaning assigned it in the
definition of "Contingent Obligation" contained in this Section
1.1.
"PRIME LOAN" shall mean a Loan accruing interest at a rate
determined by reference to the Prime Rate.
"PRIME RATE" shall mean the rate of interest in effect from
time to time which is publicly announced by the Bank from time to
time as its prime rate. Said prime rate is not necessarily nor is
it intended to be the lowest rate of interest charged by the Bank
in connection with extensions of credit.
"PRINCIPAL" shall mean Principal Life Insurance Company
(formerly named Principal Mutual Life Insurance Company) and its
permitted successors and assigns.
"PRINCIPAL INDEBTEDNESS" shall have the meaning assigned to
it in Section 7.1(b).
"PROPERTY" shall mean any interest in any kind of property
or asset, whether real, personal or mixed, and whether tangible
or intangible.
"QUARTERLY DETERMINATION DATES" shall mean the last day of
each March, June, September and December commencing with December
31, 1998.
"QUARTERLY PAYMENT DATES" shall mean the last day of each
March, June, September and December.
"REINVESTMENT RATE" shall mean, when used with respect to
any period, a per annum rate of interest equal to the "bond
equivalent yield" for the most actively traded issues of United
States Treasury Bills, United States Treasury Notes, or United
States Treasury Bonds for a term similar to the remainder of the
applicable Interest Period.
"REPORTABLE EVENT" shall mean any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder with
respect to which the 30-day notice requirement to the PBGC has
not been waived.
"REQUIREMENTS OF LAW" shall mean, as to any Person, the
certificate or articles of incorporation and regulations or
by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or determination
of an arbitrator or a court or
<PAGE> 11
other Governmental Authority, in each case applicable to or binding
upon such Person or any of its Property or to which such Person or any
of its Property is subject.
"SECURITY" shall have the same meaning as in Section 2(l) of
the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" shall have the meaning assigned to it
in Section 2.20.
"SFI" shall have the meaning assigned to it in the
introductory paragraph of this Agreement.
"SINGLE EMPLOYER PLAN" shall mean any Plan which is not a
Multiemployer Plan.
"SUBSIDIARY" of a Person shall mean a corporation or limited
liability company with respect to which more than 50% of the
outstanding shares of stock or membership interests of each class
having ordinary voting power (other than stock or membership interests
having such power only by reason of the happening of a contingency) is
at the time owned by such Person or by one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such
Person.
"SUBSIDIARY GUARANTY DOCUMENTS" shall mean a Subsidiary's
guaranty of the Borrowers' obligations under the Loan Documents, in
form and substance reasonably satisfactory to the Bank, duly executed
by a duly authorized officer of such Subsidiary, together with
certified resolutions and an incumbency certificate for such
Subsidiary comparable to those required by Sections 5.1(d) and 5.1(e).
"SYSTEMS" shall mean all devices, systems, machinery,
information technology, computer software and hardware and other date
sensitive technology.
"TRANSFEREE" shall have the meaning assigned to it in
Section 9.6.
"UNITED STATES" shall mean the United States of America.
"WFI" shall have the meaning assigned to it in the
introductory paragraph of this Agreement.
"YEAR 2000 COMPLIANT", with respect to Systems, shall mean
that such Systems are designed to be used prior to, during and after
the Gregorian calendar year 2000 A.D. and will operate during each
such time period without error relating to date data, specifically
including any error relating to, or the product of, date data which
represents or references different centuries or more than one century.
1.2. ACCOUNTING TERMS. As used in this Agreement and in the other
Loan Documents and in any certificate, report or other document made or
delivered pursuant hereto and thereto, accounting terms not defined in Section
1.1 and accounting terms partly defined in Section 1.1 to the extent not
defined, shall have the respective meanings given to them under GAAP.
1.3. Other Definitional Provisions.
------------------------------
(a) Unless otherwise defined therein, all terms defined in this
Agreement shall have the defined meanings when used in the Note and the other
Loan Documents and in any other certificate, report or document made or
delivered pursuant hereto or thereto.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
<PAGE> 12
ARTICLE 2. AMOUNT AND TERMS OF COMMITMENT AND LOANS.
-----------------------------------------
2.1. COMMITMENT. Subject to the terms and conditions of this
Agreement, the Bank agrees to make loans to the Borrowers on a revolving basis,
from time to time during the Commitment Period, in such amounts as the Borrowers
may from time to time request in accordance with Section 2.4, Section 2.5 or
Section 2.6 (such loans are herein called "Loans"); provided that the aggregate
principal amount which the Bank shall have outstanding hereunder on loan to the
Borrowers (including for this purpose the Outstanding Letters of Credit Amounts)
shall not at any time exceed the amount of the Commitment.
2.2. REVOLVING NATURE. The Loans are revolving in nature and, within
the limits set forth in Section 2.1 and subject to the other terms and
conditions of this Agreement, the Borrowers may borrow under Section 2.1, prepay
and reborrow at any time prior to the Commitment Termination Date.
2.3. TYPES OF LOANS. Each Loan shall be a Prime Loan, a LIBOR Loan or a
Fixed Loan, it being understood that: (a) Prime Loans shall be made as provided
in Section 2.4 and Section 2.6, (b) LIBOR Loans shall be made as provided in
Section 2.5 and Section 2.6 and (c) Fixed Loans shall be made as provided in
Section 2.5 and Section 2.6.
2.4. PROCEDURES WITH RESPECT TO PRIME LOANS. For Prime Loans, the
Borrowers shall give the Bank notice (which notice must be received by the Bank
prior to 3:00 p.m. Columbus, Ohio time on the requested Borrowing Date), which
notice shall state:
(a) The Loan comprising such borrowing is to be a Prime Loan;
(b) The requested Borrowing Date, which shall be a Business Day; and
(c) The aggregate principal amount of such borrowing, which shall be
in an amount equal to $10,000 or an integral multiple of $10,000.
Upon fulfillment of the applicable conditions set forth in Section 5.2, the Bank
shall provide to the Borrowers, at the Bank's office at the address applicable
for notices under Section 9.2, immediately available funds covering the
borrowing pursuant to this Section 2.4. No notice of borrowing given pursuant to
this Section 2.4 shall be revocable by the Borrowers at any time after its
receipt by the Bank.
2.5. PROCEDURES WITH RESPECT TO LIBOR LOANS AND FIXED LOANS. LIBOR
Loans and Fixed Loans may be made from and after the date hereof and prior to
the Commitment Termination Date, PROVIDED that the maturity of any such LIBOR
Loans or Fixed Loans shall not extend past the Commitment Termination Date in
any event. Certain provisions with respect to LIBOR Loans and Fixed Loans are as
follows:
(a) For a LIBOR Loan, the Borrowers shall give the Bank notice (which
notice must be received by the Bank at least three LIBOR Business Days before
each requested LIBOR Loan borrowing), which notice shall state:
(i) The Loan comprising such borrowing is to be a LIBOR Loan;
(ii) The requested Borrowing Date, which shall be a LIBOR Business Day;
(iii) The aggregate principal amount of such borrowing, which shall be in an
amount equal to an integral multiple of $10,000 but shall not, in any
event, be less than $500,000; and
(iv) The duration of the Interest Period (see Section 2.13) with respect
thereto, which shall not end after the Commitment Termination Date in
any event.
(b) For a Fixed Loan, the Borrowers may from time to time request the
Bank to quote a Fixed Rate for a specified amount for a specified Interest
Period ending on or before the Commitment Termination Date, which Fixed Rate so
quoted by the Bank shall be equal to the Bank's Cost of Funds plus .80%. After
receiving any such quote the Borrowers may accept the same by giving the Bank
notice
<PAGE> 13
on or before the Borrowing Date of the requested Fixed Loan (provided that such
notice shall not be given later than 12:00 noon Columbus, Ohio time on the
Borrowing Date), which notice shall repeat the quoted Fixed Rate given by the
Bank and shall further state:
(i) The Loan comprising such borrowing is to be a Fixed Loan;
(ii) The requested Borrowing Date, which shall be a Business Day;
(iii) The aggregate principal amount of such borrowing, which
shall be in an amount equal to an integral multiple of $10,000 but
shall not, in any event, be less than $500,000; and
(iv) The duration of the Interest Period (see Section 2.13) with
respect thereto, which shall not end after the Commitment Termination
Date in any event.
Upon fulfillment of the applicable conditions set forth in Section 5.2, the Bank
shall provide to the Borrowers, at the Bank's office at the address applicable
for notices under Section 9.2, immediately available funds covering the
borrowing pursuant to this Section 2.5. No notice of borrowing given pursuant to
this Section 2.5 shall be revocable by the Borrowers at any time after its
receipt by the Bank.
2.6. CONVERSION OF LOANS. The Borrowers may convert all or any part of
any outstanding Prime Loan, LIBOR Loan or Fixed Loan (herein in this Section 2.6
called an "Old Loan") into another Prime Loan, LIBOR Loan or Fixed Loan of the
same type or of another of such types (herein in this Section 2.6 called a "New
Loan"), by giving advance notice thereof in accordance with the procedures set
forth in Section 2.4 or Section 2.5, whichever is applicable (which notice
shall, in addition to the matters specified in Section 2.4 or Section 2.5,
specify the type and amount of the Old Loan that is to be converted into the New
Loan which is requested pursuant to Section 2.4 or Section 2.5); provided that:
(a) no LIBOR Loan or Fixed Loan shall be converted on any day other than the
last day of the then-current Interest Period relating to such LIBOR Loan or
Fixed Loan (except as permitted under Section 2.16), (b) no LIBOR Loan or Fixed
Loan shall in any event have (and the Borrowers shall not in any event
designate) an Interest Period ending after the Commitment Termination Date, (c)
no New Loan of a particular type shall be less than the amount specified in
Section 2.4(c), Section 2.5(a)(iii) or Section 2.5(b)(iii) applicable to such
type and (d) no conversion shall be permitted hereunder when a Default or Event
of Default has occurred and is continuing. If, with respect to any Old Loan
which is a LIBOR Loan or Fixed Loan, the Borrowers do not give the notice
provided for in this Section 2.6, or no conversion with respect thereto shall be
permitted pursuant to the preceding sentence, the Borrowers shall be deemed to
have requested that such Old Loan be converted to a Prime Loan in the same
principal amount. In effecting each conversion, the Bank shall, on the
Borrowers' behalf, directly apply the proceeds of the New Loan to the payment of
the Old Loan, and only the excess (if any) of the proceeds of the New Loan over
the amount being repaid shall be directly paid over to the Borrowers. No notice
of conversion given pursuant to this Section 2.6 shall be revocable by the
Borrowers at any time after its receipt by the Bank.
2.7. CONDITIONS TO EACH LOAN. The Bank shall not have any obligation to
make (whether initially, pursuant to Section 2.4, pursuant to Section 2.5,
pursuant to Section 2.6 or otherwise) any Loan if the conditions precedent to
the making of such Loan specified in Section 5.2 shall have not been satisfied
or if a Default or Event of Default shall have occurred and be continuing or
will result therefrom.
2.8. WARRANTY. Each notice of borrowing referred to in Section 2.4,
Section 2.5 or Section 2.6 shall constitute a representation and warranty by the
Borrowers to the Bank that on the requested Borrowing Date no Default or Event
of Default shall have then occurred and be continuing or will result therefrom.
<PAGE> 14
2.9. NOTE. The Loans shall be evidenced by a joint and several
promissory note of the Borrowers (the "Note") substantially in the form set
forth in Exhibit 2.9, dated the Effective Date, payable to the order of the Bank
in a principal amount equal to the Commitment, it being expressly agreed that
all principal and all interest shall be payable at maturity (whether by
acceleration or otherwise).
2.10. RECORDKEEPING. The Bank may record on the schedule attached to
the Note or elsewhere in its records the date and amount of each Loan made by
the Bank, each repayment thereof and, in the case of each Loan other than a
Prime Loan, the dates on which the Interest Period for such Loan shall begin and
end. The amounts so recorded shall be rebuttable presumptive evidence of the
amounts owing and unpaid on the Note. The failure to so record any such amount
or any error in so recording any such amount shall not, however, limit or
otherwise affect the obligations of the Borrowers hereunder or under the Note to
repay the principal amount of the Loans together with all interest accruing
thereon.
2.11. INTEREST RATES. The unpaid principal amount from time to time
outstanding of the Note shall bear interest as follows:
(a) As to any unpaid principal amount representing Prime Loans: on
and from the Effective Date to the Commitment Termination Date, at a rate per
annum equal to the Prime Rate;
(b) As to any unpaid principal amount representing LIBOR Loans:
during each applicable Interest Period, at a rate per annum equal to the sum of
(i) the LIBOR Rate (Reserve Adjusted) applicable to such Interest Period, plus
(ii) .80%;
(c) As to any unpaid principal amount representing Fixed Loans:
during the Interest Period, at a rate PER ANNUM equal to the Fixed Rate for the
Interest Period; and
(d) Notwithstanding the provisions of the preceding clauses (a), (b)
or (c), all unpaid principal of any Loan shall bear interest after maturity
(whether by acceleration or otherwise) at a rate PER ANNUM equal to the higher
of the rate in effect prior to such maturity or the sum of (i) the Prime Rate
plus (ii) 2% (but not in any event less than the Prime Rate in effect as at such
maturity).
2.12. Interest Payment Dates. Subject to Section 2.17, all accrued
interest on all Prime Loans shall be payable monthly on each Monthly Payment
Date and at maturity (whether by acceleration or otherwise), commencing with the
Initial Monthly Payment Date. Subject to Section 2.17, all accrued interest on
each LIBOR Loan shall be payable on the last day of each Interest Period
relating to such Loan (PROVIDED that, with respect to any such LIBOR Loan having
an Interest Period greater than three months, all interest accrued thereon shall
be payable every three months and at maturity (whether by acceleration or
otherwise)). Subject to Section 2.17, all accrued interest on each Fixed Loan
shall be payable on the last day of each Interest Period relating to such Loan
(PROVIDED that, with respect to any such Fixed Loan having an Interest Period
greater than three months, all interest accrued thereon shall be payable monthly
on each Monthly Payment Date and at maturity (whether by acceleration or
otherwise)).
2.13. INTEREST PERIODS. Except as is hereinafter provided in this
Section 2.13, each period for the payment of interest on a Loan which is a LIBOR
Loan or Fixed Loan (the "Interest Period") shall commence on the date the Loan
is made, continued or converted and shall end on the date (a) which in the case
of a LIBOR Loan is one, two, three, four, six or twelve months thereafter, as
the Borrowers shall have specified in the Borrowers' related notice of borrowing
given pursuant to Section 2.5, and (b) which in the case of a Fixed Loan ends at
the end of the Interest Period specified pursuant to Section 2.5(b). Each
Interest Period which in the case of a LIBOR Loan would otherwise end on a day
which is not a LIBOR Business Day shall end on the next succeeding LIBOR
Business Day (unless the result would be to extend the Interest Period of a
LIBOR Loan to the next succeeding calendar month, in which case with respect to
such LIBOR Loan such Interest Period shall end on the next preceding LIBOR
Business Day). Each Interest Period which in the case of a Fixed Loan would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day.
2.14. COMMITMENT FEE. The Borrowers agree to pay to the Bank a
commitment fee (the "Commitment Fee") accruing from the Effective Date computed
at the rate of .20% PER ANNUM on the
<PAGE> 15
average daily unused portion of the Commitment. In computing the Commitment Fee,
the unused portion shall be reduced by the Outstanding Letters of Credit
Amounts. The Commitment Fee shall be payable quarterly (except that the initial
payment shall be for the period from the Effective Date through and including
December 31, 1998) in arrears on each Quarterly Payment Date, commencing with
the Initial Quarterly Payment Date, and ending on the Commitment Termination
Date.
2.15. TERMINATION OR REDUCTION OF COMMITMENT. The Borrowers shall have
the right, upon not less than three Business Days' prior notice to the Bank, to
terminate, or from time to time ratably reduce, the Commitment, provided that
(a) any reduction shall be accompanied by the ratable prepayment of the Note,
together with accrued interest thereon to the date of such prepayment, to the
extent, if any, that the aggregate unpaid principal amount thereof then
outstanding (including for this purpose any Outstanding Letters of Credit
Amounts) exceeds the amount of the Commitment as then reduced, together with the
payment of any unpaid Commitment Fee then accrued hereunder in respect of the
Commitment, (b) any termination shall be accompanied by prepayment in full of
the unpaid principal amount of the Note, together with accrued interest thereon
to the date of such prepayment and the payment of any unpaid Commitment Fee then
accrued hereunder in respect of the Commitment, and (c) no reduction or
termination may in any event reduce the Commitment to an amount less than the
Outstanding Letters of Credit Amounts plus the amount of any unmatured LIBOR
Loans and Fixed Loans except to the extent they can be and are prepaid as
provided in Section 2.16. Any such reduction of the Commitment shall be in an
aggregate amount of $500,000, or a whole multiple thereof. If not terminated
earlier, the Commitment shall automatically terminate on the Commitment
Termination Date.
2.16. OPTIONAL PREPAYMENTS OF CERTAIN LOANS. Prepayments of certain
Loans will be permitted, as follows:
(a) The Borrowers may, at their option, prepay the Prime Loans, without
premium or penalty, in whole or in part, upon notice to the Bank, not later than
3:00 p.m. Columbus, Ohio time on the date of prepayment, specifying the amount
of prepayment. Such notice shall be irrevocable and the payment amount specified
in such notice shall be due and payable on the date specified, together with
accrued interest to such date on the amount prepaid. Partial optional
prepayments of the Prime Loans shall be in an aggregate principal amount of at
least $10,000 or a whole multiple thereof.
(b) The Borrowers may, subject to payment of a Breakeven Prepayment
Premium with respect thereto, prepay (i) all (but not less than all) of any
LIBOR Loan having an Interest Period of twelve months or (ii) all (but not less
than all) of any Fixed Loan. The Bank's determination of the Breakeven
Prepayment Premium shall be conclusive absent manifest error. The Borrowers
acknowledge and agree that the Breakeven Prepayment Premium (a) constitutes
liquidated damages, (b) is a reasonable method of determining the Bank's
out-of-pocket loss in the applicable payment event and (c) is not a penalty.
2.17. COMPUTATION OF INTEREST AND FEES. Interest on the Loans and the
Note and all fees payable pursuant hereto shall be calculated on the basis of a
year of 360 days for the actual days elapsed. Any change in the interest rate on
the Loans resulting from a change in the Prime Rate shall become effective as of
the opening of business on the day on which such change in the Prime Rate shall
become effective. The Bank shall as soon as practicable notify the Borrowers of
the effective date and the amount of each such change in the Prime Rate.
2.18. PAYMENTS. All payments (including prepayments) to be made by the
Borrowers on account of principal of and interest on the Note and fees payable
pursuant hereto shall be made without set-off or counterclaim and shall be made
to the Bank at the Bank's office at the address applicable for notices under
Section 9.2, or at such other office as is designated from time to time by
notice from the Bank to the Borrowers, in each case in Dollars and in
immediately available funds. If any payment hereunder becomes due and payable on
a day other than a Business Day or LIBOR Business Day, whichever is applicable,
the due date for such payment shall be extended to the next succeeding Business
Day or LIBOR Business Day, whichever is applicable, and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension, unless the result of the foregoing in the case of a
LIBOR Loan would be to extend the due date of such LIBOR Loan to the next
<PAGE> 16
succeeding calendar month, in which case such due date shall end on the next
preceding LIBOR Business Day.
2.19. USE OF PROCEEDS OF LOANS. The proceeds of the Loans shall be used
by the Borrowers initially to repay in full all revolving credit loan amounts
outstanding under the Huntington Loan Agreement and the Huntington Note and
thereafter for their working capital requirements, capital expenditures and
other general corporate purposes.
2.20. SECURITY FOR LOANS. As security for the Loans, the Borrowers
shall grant to the Bank a security interest in all its accounts, inventory and
general intangibles and products and proceeds thereof, whether now owned or
hereafter acquired or created by the Borrowers. In connection therewith, the
Borrowers shall execute a security agreement (the "Security Agreement")
substantially in the form set forth in Exhibit 2.20 and, at the request of the
Bank, the Borrowers shall authorize and cause to be executed any and all other
documents which the Bank shall require in order to effect the foregoing. The
Bank agrees that it will share all the foregoing security pro rata with
Principal pursuant to the terms of the Intercreditor Agreement.
2.21. INCREASED TAXES AND COSTS. If the Bank shall have determined that
(a) Regulation D of the Federal Reserve Board, (b) the adoption of any
applicable law, rule or regulation, whether domestic or foreign, after the
Effective Date, (c) any change after the Effective Date in any applicable law,
rule or regulation, whether domestic or foreign, whether now or hereafter in
effect, and whether or not presently applicable to the Bank, or any change after
the Effective Date in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or (d) compliance by the Bank with any
request or directive issued after the Effective Date including any such request
or directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency:
(i) Shall subject the Bank to any tax, duty or other charge with
respect to the Loans, the Note or its obligation to make or maintain the Loans,
or shall change the basis of taxation of payments to the Bank of the principal
of or interest on the Loans or any other amounts due under this Agreement in
respect of the Loans or its obligation to make or maintain the Loans (except for
a change in the rate of tax on the overall net income of the Bank);
(ii) Shall impose, modify or deem applicable any reserve (including
without limitation any reserve imposed by the Federal Reserve Board), special
deposit, minimum capital, capital ratio or similar requirement against assets
of, deposits with or for the account of, or credit extended by, the Bank; or
(iii) Shall impose on the Bank any other condition affecting the Loans,
the Note or its obligation to make or maintain the Loans;
and the result of any of the foregoing is to increase the cost to or impose a
cost on the Bank of making or maintaining any Loan (other than Prime Loans) or
the Commitment, or reduce the amount of any rate of return on the Bank's capital
as a consequence thereof or any sum received or receivable by the Bank under
this Agreement or under the Note with respect thereto, by an amount deemed by
the Bank to be material, then from time to time, within 30 days after demand by
the Bank, the Borrowers shall pay to the Bank such additional amount or amounts
as will compensate the Bank for such costs, increased costs or reduction less
the amount, if any, of such costs, increased costs or reduction that is
reasonably attributable to unsafe or unsound banking practices of the Bank. The
Bank shall promptly notify the Borrowers of any event of which it has knowledge,
occurring after the Effective Date, which shall entitle the Bank to compensation
pursuant to this Section 2.21. In determining such amount, the Bank may use any
reasonable averaging and attribution methods.
<PAGE> 17
2.22. CHANGES IN CIRCUMSTANCES.
-------------------------
(a) If any of the matters described in clause (b), (c) or (d) of the
introductory portion of Section 2.21 shall make it unlawful or impossible for
the Bank to make, maintain or fund a type of Loan, then (i) the Bank shall
promptly notify the Borrowers of that fact (which notification shall be
accompanied by a statement from the Bank setting forth the basis therefor), (ii)
the obligation of the Bank to make or effect conversions into the type of Loans
made unlawful for the Bank shall, upon the effectiveness of such event, be
suspended for the duration of such unlawfulness, and (iii) on the last day of
the current Interest Period for Loans of such type or, in any event, if the Bank
so requests, on such earlier date as may be required by the relevant law,
regulation or interpretation, the Loans of such type then made by the Bank
shall, unless then repaid in full, together with accrued interest thereon,
automatically convert to Prime Loans.
(b) If, with respect to any Interest Period relating to a Loan:
(i) The Bank determines that deposits in Dollars in the
applicable amounts are not being offered in the relevant market for
such Interest Period; or
(ii) The Bank determines in its reasonable discretion that the
interest rate applicable to the Loan relating to such Interest Period
will not adequately and fairly reflect the cost to the Bank of
maintaining or funding the Loan;
the Bank shall give notice thereof to the Borrowers (which notice shall be
accompanied by a statement from the Bank setting forth the basis therefor),
whereupon the obligations of the Bank to make Loans of the affected type shall
be suspended until it notifies the Borrowers that the circumstances giving rise
to such suspension no longer exist.
2.23. FUNDING LOSSES. The Borrowers hereby agree that, upon demand by
the Bank (which demand shall be accompanied by a statement from the Bank setting
forth the basis for such demand), the Borrowers shall indemnify the Bank against
any reasonable amount of loss or expense which the Bank may reasonably sustain
or incur (including without limitation lost profits or any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by the Bank to fund or maintain LIBOR Loans or Fixed Loans), as
reasonably determined by the Bank, as a result of (a) any prepayment or
conversion of any such Loan on a date other than the last day of an Interest
Period for the Loan except where Section 2.16 applies thereto, or (b) any
failure of the Borrowers to borrow or convert any such Loan on the date
specified therefor in a notice of borrowing or conversion pursuant to this
Agreement; PROVIDED, HOWEVER, that the Borrowers shall indemnify the Bank
against lost profits only if such loss occurred as a result of an action or
failure to act of the Borrowers, and not if such loss occurred as a result of
any change in the law rendering certain such Loans unlawful.
ARTICLE 3. LETTERS OF CREDIT.
------------------
3.1. LETTERS OF CREDIT GENERALLY. The Borrowers may request, in
accordance with the provisions of this Section 3.1, that the Bank issue Letters
of Credit for the account of the Borrowers. With respect to such Letters of
Credit, (a) the Outstanding Letters of Credit Amounts may not at any time exceed
the Letters of Credit Limit), (b) the Letters of Credit shall have an expiration
date no later than the Letters of Credit Termination Date and (c) the aggregate
of the principal amount of the Loans outstanding from the Bank (including the
Outstanding Letters of Credit Amounts) may not exceed the Commitment then in
effect. The issuance of any Letter of Credit in accordance with the provisions
of this Section 3.1 shall be given effect in the calculation of and thereby
reduce the remaining Commitment available for the Loans (and shall also be given
effect in the calculation of and thus shall reduce the amount of the Commitment
Fee payable pursuant to Section 2.14), and shall require the satisfaction of
each condition set forth in Section 5.2 as if such issuance were the making of a
Loan.
<PAGE> 18
Each Letter of Credit may provide that the Bank may (but shall not be
required to) pay the beneficiary thereof upon the occurrence of a Default or
Event of Default and the acceleration of the maturity of the Loans or, if
payment is not then due to the beneficiary, provide for the deposit of funds in
an account to secure payment to the beneficiary and that any funds so deposited
shall be paid to the beneficiary of the Letter of Credit if conditions to such
payment are satisfied or returned to the Bank for the benefit of the Bank (or,
if all obligations of the Borrowers under this Agreement and the Note shall have
been indefeasibly paid in full, to the Borrowers) if no payment to the
beneficiary has been made and the final date available for drawings under the
Letter of Credit has passed. Each such payment or deposit of funds by the Bank
shall be treated for all purposes of this Agreement as a drawing duly honored by
the Bank under the related Letter of Credit.
3.2. NOTICE OF ISSUANCE. Whenever the Borrowers desire the issuance of
a Letter of Credit, they shall deliver to the Bank a written notice no later
than 1:00 p.m. Columbus, Ohio time at least three Business Days, or such shorter
period as may be agreed to by the Bank in any particular instance, in advance of
the proposed date of issuance. That notice shall specify (a) the type of Letter
of Credit (standby or documentary trade), (b) the proposed date of issuance
(which shall be a Business Day) of the Letter of Credit, (c) the face amount of
the Letter of Credit, (d) the expiration date of the Letter of Credit and (e)
the name and address of the beneficiary of the Letter of Credit. Prior to the
date of issuance, the Borrowers shall specify a precise description of the
documents and the verbatim text of any certificate to be presented by the
beneficiary of such Letter of Credit which, if presented by such beneficiary
prior to the expiration date of the Letter of Credit, would require the Bank to
make payment under the Letter of Credit; PROVIDED that the Bank, in its sole
reasonable judgment, may require changes in any such documents and certificates;
and PROVIDED, FURTHER, that no Letter of Credit shall require payment against a
conforming draft to be made thereunder on the same Business Day that such draft
is presented if such presentation is made after 11:00 a.m. Columbus, Ohio time
on such Business Day. In determining whether to pay under a Letter of Credit,
the Bank shall be responsible only to determine that the documents and
certificates required to be delivered under that Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit.
3.3. PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In the event of
any request for drawing under any Letter of Credit by the beneficiary thereof,
the Bank shall notify the Borrowers on or before the date on which the Bank
intends to honor such drawing, and the Borrowers shall reimburse the Bank on the
day on which such drawing is honored in an amount in same day funds equal to the
amount of such drawing; PROVIDED that, anything contained in this Agreement to
the contrary notwithstanding, (a) unless the Borrowers shall have notified the
Bank prior to 11:00 a.m. Columbus, Ohio time on the Business Day immediately
prior to the date of such drawing that the Borrowers intend to reimburse the
Bank for the amount of such drawing with funds other than the proceeds of Loans,
the Borrowers shall be deemed to have timely given a notice of borrowing to the
Bank pursuant to Section 2.4 requesting the Bank to make Loans which are Prime
Loans on the date on which such drawing is honored in an amount equal to the
amount of such drawing, and (b) subject to satisfaction or waiver of the
conditions specified in Section 5.2, the Bank shall, on the date of such
drawing, make Loans which are Prime Loans on the date on which such drawing is
honored in amount equal to the amount of such drawing, the proceeds of which
shall be applied directly by the Bank to reimburse the Bank for the amount of
such drawing.
3.4. COMPENSATION. The Borrowers agree to pay the following amounts to
the Bank with respect to Letters of Credit issued by the Bank:
(a) With respect to each Letter of Credit, an administrative fee established by
the Bank, payable upon the issuance of the Letter of Credit or at such other
time established by the Bank;
(b) With respect to drawings made under any Letter of Credit, interest, payable
on demand, on the amount paid by the Bank in respect of each such drawing from
the date of the drawing through the date such amount is reimbursed by the
Borrowers (including any such reimbursement out of the proceeds of Loans
pursuant to Section 3.3) at a rate which is at all times equal to 2% per annum
in excess of the Prime Rate;
(c) With respect to the issuance, amendment or transfer of each Letter of Credit
and each drawing made thereunder, negotiating, documentary and processing
charges in accordance with the Bank's standard schedule for such charges in
effect at the time of such issuance, amendment, transfer or drawing, as the case
may be; and
<PAGE> 19
(d) A fee computed at .80% per annum on the average daily balance of the
Outstanding Letters of Credit Amounts, which fee shall be payable quarterly on
the Quarterly Payment Dates.
3.5. OBLIGATIONS ABSOLUTE. The obligations of the Borrowers to
reimburse the Bank for drawings made under the Letters of Credit issued by the
Bank shall, other than in the case of gross negligence or willful misconduct on
the part of the Bank, be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including without limitation the following circumstances:
(a) Any lack of validity or enforceability of any Letter of Credit;
(b) The existence of any claim, set-off, defense or other right which
any of the Borrowers may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons or entities for whom any such
beneficiary or transferee may be acting), the Bank or any other Person, whether
in connection with this Agreement, the transactions contemplated herein or any
unrelated transaction;
(c) Any draft, demand, certificate or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(d) Payment by the Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of the Letter of Credit;
(e) Any other circumstance or happening whatsoever which is similar to
any of the foregoing; or
(f) The fact that a Default or Event of Default shall have occurred
and be continuing.
3.6. INCREASED TAXES AND COSTS AND CHANGES IN CIRCUMSTANCES. The
provisions of Section 2.21 and Section 2.22 shall apply to the issuance and
maintenance of Letters of Credit the same as if such Letters of Credit
themselves were Loans hereunder.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and to make
the Loans (including any issuances of Letters of Credit pursuant to Article 3),
the Borrowers hereby jointly and severally represent and warrant to the Bank
that:
4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrowers
(a) is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation, (b) has the corporate power and authority
and the legal right to own or lease and operate its Property, and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and the failure to qualify would have a material
adverse effect on the business, operations, Property or financial or other
condition of such Borrower and (d) is in compliance with all Requirements of
Law, except to the extent that the failure to comply therewith could not, in the
aggregate, have a material adverse effect on the business, operations, Property
or financial or other condition of the Borrowers taken as a whole, and could not
materially adversely affect the ability of the Borrowers to perform their
obligations under and in respect of this Agreement and the other Loan Documents.
4.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of
the Borrowers has the corporate power and authority to make, deliver and perform
this Agreement and the other Loan Documents and to borrow hereunder and each of
the Borrowers has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and the other Loan
Documents. No consent or authorization of, filing with or other act by or in
respect of any other Person is
<PAGE> 20
required in connection with the borrowings hereunder or with the execution,
delivery or performance by the Borrowers, or the validity or enforceability
against the Borrowers, of this Agreement and the other Loan Documents. All
consents and authorizations of, filings with and other acts by or in respect of
any other Person required in connection with the execution, delivery or
performance by the Borrowers, or the validity or enforceability against the
Borrowers, of this Agreement and the other Loan Documents have been obtained or
performed and are in full force and effect. This Agreement has been, and the
other Loan Documents will be, duly executed and delivered on behalf of the
Borrowers. This Agreement constitutes, and the other Loan Documents when
executed and delivered will constitute, a legal, valid and binding obligation of
the Borrowers, enforceable against the Borrowers in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally and except as enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity).
4.3. NO LEGAL BAR. The execution, delivery and performance by the
Borrowers of this Agreement and the other Loan Documents will not violate any
Requirements of Law or any Contractual Obligation applicable to or binding upon
any of the Borrowers or any of its respective Properties or assets and will not
result in the creation or imposition of any Lien on any of its respective
Properties or assets pursuant to the provisions of any Requirements of Law
applicable to it or any of its respective Contractual Obligations, except to the
extent that such violation or the creation or imposition of any such Lien would
not, in the aggregate, have a material adverse effect on the business,
operations, Property or financial or other condition of the Borrowers taken as a
whole, and could not materially adversely affect the ability of the Borrowers to
perform their obligations under and in respect of this Agreement and the other
Loan Documents.
4.4. NO MATERIAL LITIGATION. No litigation or proceeding or, to the
knowledge of the Borrowers, investigation of or before any arbitrator or
Governmental Authority, is pending or, to the knowledge of the Borrowers,
threatened by or against any of the Borrowers or against any of its respective
properties or revenues (a) with respect to this Agreement or any of the other
Loan Documents or any of the transactions contemplated hereby or thereby or (b)
which, if adversely determined, would have a material adverse effect on the
business, operations, Property or financial or other condition of the Borrowers
taken as a whole.
4.5. NO DEFAULT OR EVENT OF DEFAULT. None of the Borrowers is in
default in the payment or performance of any of its Contractual Obligations
(except as to such default which would not have a material adverse effect upon
the business, operations, Property or financial or other condition of the
Borrowers taken as a whole), and no Default or Event of Default has occurred and
is continuing. None of the Borrowers is in default under any order, award or
decree of any Governmental Authority or arbitrator binding upon or affecting it
or by which any of its Properties or assets may be bound or affected (except as
to such default which would not have a material adverse effect upon the
business, operations, Property or financial or other condition of the Borrowers
taken as a whole).
4.6. FEDERAL REGULATIONS. None of the Borrowers is engaged, nor will
any of the Borrowers engage, principally or as one of its important activities,
in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Federal Reserve Board as now and from
time to time hereafter in effect. No part of the proceeds of any Loans will be
used for any purpose which violates, or which would be inconsistent with, the
provisions of Regulation U of the Federal Reserve Board. No part of the proceeds
of any Loans will be used for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of the Federal Reserve Board.
4.7. INVESTMENT COMPANY ACT. None of the Borrowers is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
4.8. DISCLOSURE. No representation or warranty made by any of the
Borrowers in this Agreement or any of the other Loan Documents or in any other
document furnished to the Bank from time to time in connection herewith or
therewith, as of the date of such document, contains any untrue
<PAGE> 21
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading.
4.9. FINANCIAL CONDITION. The consolidated balance sheet of the
Borrowers as at December 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended, certified
by Ernst & Young LLP, and the unaudited consolidated balance sheet of the
Borrowers as of June 30, 1998 and the related unaudited consolidated statement
of income of the Borrowers for the six-months' period then ended, copies of
which financial statements have been furnished to the Bank, present fairly the
consolidated financial position of the Borrowers as at such dates and the
results of their operations for such periods. All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the period involved, except
for the absence of notes and normal year-end audit adjustments required with
respect to such June 30, 1998 financial statements.
4.10. NO CHANGE. Since June 30, 1998, there has been no material
adverse change in the business, operations, Property or financial or other
condition of the Borrowers taken as a whole.
4.11. OWNERSHIP OF PROPERTY; LIENS. Except as set forth on Schedule
4.11, except for Liens that are not material and except for any changes which
have occurred in the ordinary course of business of the Borrowers, each of the
Borrowers has good record title in fee simple to, or valid and subsisting
leasehold interests in, all of their respective real Property, and good title to
all their respective other Property, reflected on the balance sheets referred to
in Section 4.9.
4.12. TAXES. Each of the Borrowers has filed or caused to be filed all
tax returns which, to the knowledge of the Borrowers, are required to have been
filed, and has paid all taxes shown to be due and payable on said returns, all
assessments made against it or any of its Property and all other taxes, fees or
other charges imposed on it or any of its Property by any Governmental Authority
(other than those the amount or validity of which is currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrowers); and no
tax liens have been filed and, to the knowledge of the Borrowers, no claims are
being asserted with respect to any such taxes, fees or other charges.
4.13. ERISA.
-----
(a) Except as set forth on Schedule 4.13, none of the Borrowers is a
party to, makes or is required to make employer contributions to, or has any
current or future obligation or liability with respect to, any pension,
profit-sharing, retirement, deferred compensation, bonus, stock purchase,
severance, hospitalization, medical insurance, life insurance, vacation policy
or other employee benefit plan, agreement, arrangement or understanding
maintained for the benefit of its current or former employees (a "Plan"). Each
Plan set forth or described on Schedule 4.13 is, except to the extent stated
therein, in full force and effect in accordance with its terms and complies in
all material respects with all applicable laws. Neither of the Borrowers is in
default under any Plan and, except as set forth on Schedule 4.13, to the
knowledge of the Borrowers, no other party is in default thereunder. The
Borrowers have made or provided for all payments due under or with respect to
each Plan to date, and all amounts properly accrued to date as liabilities of
the Borrowers under each Plan in the current plan years have been recorded on
the books of the Borrowers. Each Plan listed on Schedule 4.13 that is intended
to qualify under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and each trust
established under a Plan that is intended to be exempt from taxation under
Section 501(a) or (c) of the Code has been determined by the Internal Revenue
Service to be so exempt, and nothing has occurred which would cause the loss of
such qualifications or exemptions. None of the Plans is a Multiple Employer Plan
or a Multiemployer Plan, and none of the Borrowers has made any contributions to
or participated in any Multiple Employer Plan or Multiemployer Plan within the
last five years.
<PAGE> 22
(b) Except as set forth on Schedule 4.13, to the knowledge of the
Borrowers, the Borrowers have satisfied all material reporting and disclosure
requirements and all other material requirements applicable to them under the
Code or ERISA, and the Department of Labor and the Internal Revenue Service
regulations promulgated thereunder, with respect to the Plans. Except as set
forth on Schedule 4.13, there are no material actions, suits or asserted claims
pending and served on any of the Borrowers (other than routine claims for
benefits) or, to the knowledge of any of the Borrowers, threatened, against any
Plan or against the assets of any Plan. No Plan which is subject to Part III of
Subtitle B of Title I of ERISA or Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in ERISA), whether or not waived.
No Plan that is or was subject to Title IV of ERISA has been terminated, no
proceeding has been initiated to terminate any such Plan, and none of the
Borrowers has incurred, nor reasonably expects to incur, any liability to the
PBGC, except for required premium payments, none of which payments is overdue.
(c) The present value of all accrued benefits (whether or not vested)
under each Plan subject to Title IV of ERISA did not exceed, as of January 1,
1998, and does not exceed as of the Effective Date, the then current Fair Market
Value of the assets of such Plan by more than the amount set forth on Schedule
4.13. For purposes of determining the present value of accrued benefits under
the Plans, the actuarial assumptions and methods used under each Plan for the
most recent Plan valuation shall be used.
(d) With respect to each Plan that is an "employee benefit plan",
within the meaning of Section 3(3) of ERISA, true and complete copies of (i) the
documents embodying the Plan, any related trust and all amendments thereto, (ii)
the summary plan description and all modifications thereto, (iii) the last filed
Annual Report (Form 5500 Series) and Schedules A and B thereto, (iv) the most
recent Internal Revenue Service determination letter, if applicable, (v) the
most recent actuarial valuation report, if any, and (vi) the most recent annual
and periodic financial statements, have been delivered or made available to the
Bank and are correct in all material respects.
4.14. SUBSIDIARIES. SFI is a Subsidiary of WFI, and otherwise the
Borrowers have no Subsidiaries.
4.15. YEAR 2000 COMPLIANT. With respect to being Year 2000 Compliant:
-------------------
(a) All Systems necessary for the Borrowers to carry on their business
as presently conducted and as contemplated to be conducted in the future are
Year 2000 Complaint or will be Year 2000 Compliant within a period of time
calculated to result in no material disruption of any of the Borrowers' business
operations.
(b) The Borrowers have: (i) undertaken a detailed inventory, review and
assessment of all areas within their business and operations that could be
adversely affected by the failure of the Borrowers to be Year 2000 Compliant on
a timely basis, (ii) developed a detailed plan and time line for becoming Year
2000 Compliant on a timely basis and (iii) to date implemented that plan in
accordance with that timetable in all material respects.
(c) The Borrowers have made written inquiry of each of their key
suppliers, vendors and customers, as to whether such persons have initiated
programs to become Year 2000 Compliant, and on the basis of such inquiries, the
Borrowers reasonably believe that all such persons will be or become Year 2000
Compliant.
4.16 ENVIRONMENTAL. The Borrowers (a) have no actual knowledge of the
permanent placement, burial or disposal of any Hazardous Substances on any
Premises, of any spills, releases, discharges, leaks or disposal of Hazardous
Substances that have occurred or are presently occurring on, under or onto any
Premises, or of any spills, releases, discharges, leaks or disposal of Hazardous
Substances that have occurred or are occurring off any Premises as a result of
the Borrowers' improvement, operation or use of any Premises which would result
in non-compliance with any of the Environmental Laws; (b) have been in
compliance with all applicable Environmental Laws; (c) know of no pending or
threatened environmental civil, criminal or administrative proceedings against
the Borrowers relating to Hazardous Substances; (d) know of no facts or
circumstances that would give rise
<PAGE> 23
to any future civil, criminal or administrative proceeding against the Borrowers
relating to Hazardous Substances; and (e) will not permit any of their
employees, agents, contractors, subcontractors or any other person occupying or
present on any Premises to generate, manufacture, store, dispose or release on,
about or under any Premises any Hazardous Substances which would result in the
Premises not complying with the Environmental Laws.
4.17. COMPLIANCE WITH OCCUPATIONAL SAFETY AND HEALTH ACT. The Borrowers
are not in violation of any requirement of any applicable occupational safety
and health act or any standard, rule or order promulgated pursuant thereto or
any regulation prescribed pursuant thereto, the violation of which involves the
possibility of a material adverse effect on (a) the business, operations,
Property or financial or other condition of the Borrowers or (b) the ability of
the Borrowers to perform this Agreement.
4.18 PATENTS, TRADEMARKS AND LICENSES. The Borrowers own all patents,
trademarks, service marks, trade names, copyrights, permits and licenses, or
rights with respect to the foregoing, necessary for the present and planned
future conduct of their business, without any known conflict with the rights of
others.
ARTICLE 5. CONDITIONS PRECEDENT.
---------------------
5.1. CONDITIONS TO INITIAL LOAN. The obligation of the Bank to make the
initial Loan shall be subject to the fulfillment prior to or contemporaneously
with the making of such Loan of the following conditions to the satisfaction of
the Bank:
(a) NOTE. The Bank shall have received the Note conforming to the
requirements hereof and duly executed by the duly authorized officers of the
Borrowers.
(b) SECURITY AGREEMENT AND INTERCREDITOR AGREEMENT. The Borrowers shall
have executed and delivered to the Bank the Security Agreement and financing
statements and any other documents requested by the Bank in connection
therewith, and the Bank and Principal shall have executed and delivered to each
other the Intercreditor Agreement.
(c) LEGAL OPINION OF COUNSEL. The Bank shall have received the opinion,
dated the Closing Date, of Vorys, Sater, Seymour and Pease LLP, counsel to the
Borrowers, in substantially the form of Exhibit 5.1(c).
(d) CORPORATE PROCEEDINGS. The Bank shall have received a copy of the
resolutions of the Board of Directors of each of the Borrowers authorizing (i)
the execution, delivery and performance by each of the Borrowers of this
Agreement and the other Loan Documents, (ii) the consummation of the
transactions contemplated hereby and thereby and (iii) the borrowings provided
for herein, certified by the appropriate Secretary or Assistant Secretary of
each of the Borrowers on the Closing Date. Such certificate shall state that the
resolutions set forth therein have not been amended, modified, revoked or
rescinded as of the date of such certificate.
(e) INCUMBENCY CERTIFICATES. The Bank shall have received a certificate
of the Secretary or an Assistant Secretary of each of the Borrowers, dated the
Closing Date, as to the incumbency and signature of the officer or officers
signing this Agreement and the other Loan Documents on its behalf and any
certificate or other document to be delivered pursuant hereto or thereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
(f) NO LEGAL RESTRAINTS. There shall be no injunction, writ,
preliminary restraining order or any order of any nature issued by any
Governmental Authority directing that the transactions provided for in this
Agreement or the other Loan Documents or any of them not be consummated as
herein or therein provided.
(g) FINANCIAL INFORMATION. The Bank shall have received copies of the
financial statements referred to in Section 4.9.
<PAGE> 24
(h) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Borrowers in this Agreement and the other Loan Documents, and the
representations and warranties made by any of the Borrowers which are contained
in any certificate, document or financial or other statement furnished in
connection herewith or therewith, shall be true and correct in all material
respects on and as of the Closing Date after giving effect to the initial Loan.
(i) BORROWING CERTIFICATE. The Bank shall have received a borrowing
certificate, dated the Closing Date, substantially in the form of Exhibit
5.1(i), executed by the duly authorized officers of the Borrowers.
(j) Huntington Loan Agreement and Note. The Borrowers shall have repaid
in full, or shall repay in full as of the time of the initial Loan with proceeds
of the initial Loan, all outstanding loans and any other amounts owing under the
Huntington Loan Agreement and the Huntington Note. The Borrowers shall also have
terminated the Huntington Loan Agreement and the Huntington Note and all
security agreements and other documents relating thereto.
(k) ADDITIONAL MATTERS. All corporate and other proceedings and all
other documents and legal matters in connection with the transactions
contemplated by the Loan Documents shall be satisfactory in form and substance
to the Bank and its counsel.
5.2. CONDITIONS TO ALL LOANS. The obligation of the Bank to make any
Loan (including the initial Loan on the Closing Date) is subject to fulfillment
of the following conditions precedent to the satisfaction of the Bank:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Borrowers in this Agreement and the other Loan Documents, and the
representations and warranties made by any of the Borrowers which are contained
in any certificate, document or financial or other statement furnished at any
time under or in connection herewith or therewith, shall be true and correct in
all material respects on and as of the Borrowing Date for such Loan after giving
effect to such Loan, as if made on and as of such date unless stated to relate
to a specific earlier date.
(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing on such Borrowing Date or after giving
effect to each Loan to be made on such Borrowing Date.
(c) LITIGATION. No suit, action, investigation, inquiry or other
proceeding by any Governmental Authority or other Person or any other legal or
administrative proceeding shall be pending or threatened which questions the
validity or legality of the transactions contemplated by the Loan Documents, or
seeks damages in connection therewith.
(d) SUBSIDIARY GUARANTY DOCUMENTS. The Bank shall have received
Subsidiary Guaranty Documents from each Subsidiary created subsequent to the
Effective Date.
Each borrowing hereunder shall be deemed a representation and warranty jointly
and severally by the Borrowers to the effect that the conditions set forth in
clauses (a), (b), (c) and (d) above are satisfied.
ARTICLE 6. AFFIRMATIVE COVENANTS.
---------------------
The Borrowers hereby jointly and severally agree that, so long as the
Commitment remains in effect or the Note or any Letter of Credit issued
hereunder remains outstanding and unpaid or any other amount is owing to the
Bank hereunder, the Borrowers shall:
6.1. FINANCIAL STATEMENTS. Furnish to the Bank:
(a) As soon as available, but in any event not later than 90 days after
the end of each fiscal year of the Borrowers, a copy of the consolidated balance
sheet of the Borrowers as at the end of such fiscal year and the related
consolidated statements of income and stockholders' equity and cash flows of
<PAGE> 25
the Borrowers for such fiscal year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope of
the audit, by Ernst & Young LLP or other independent certified public
accountants of nationally recognized standing acceptable to the Bank.
(b) As soon as available, but in any event not later than 45 days after
the end of each of the first three quarterly periods of each fiscal year of the
Borrowers, a copy of the unaudited consolidated balance sheet of the Borrowers
as at the end of each such quarter and the related unaudited consolidated
statement of income of the Borrowers for such quarterly period and the portion
of the fiscal year through the end of such quarter, setting forth in each case
in the form required by Form 10-Q under the Securities Exchange Act of 1934, as
amended, the figures for the corresponding period of the previous year, and
certified by the chief financial officer of the Borrowers as being fairly stated
in all material respects, and (ii) such other financial information with respect
to the Borrowers, certified by the chief financial officer of the Borrowers as
being fairly stated in all material respects, as the Bank may request, such
information not to be unreasonably withheld by the Borrowers.
All such financial statements referred to in clauses (a) and (b) of this Section
6.1 shall present fairly the consolidated financial position of the Borrowers as
at such date and shall be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein (subject, in
the case of unaudited interim statements, to the absence of notes and to normal
year-end audit adjustments).
6.2. CERTIFICATES; OTHER INFORMATION. Furnish to the Bank:
(a) Concurrently with the delivery of the financial statements referred
to in clause (a) of Section 6.1, a certificate of such accountants who certify
such financial statements, stating that they have reviewed this Agreement and
stating further, whether, in making their audit, such accountants have become
aware of any condition or event which then constitutes a Default or Event of
Default and, if such accountants are aware that any such condition or event then
exists, specifying the nature and period of existence thereof;
(b) Concurrently with the delivery of the financial statements referred
to in clauses (a) and (b) of Section 6.1, a certificate of the chief financial
officer of each of the Borrowers (i) stating that, to the best of such officer's
knowledge, such Borrower during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained in the
Loan Documents to be observed, performed or satisfied by it, and that such
officer has obtained no knowledge of any Default or Event of Default except as
specified in such certificate, (ii) showing in detail as of the end of the
related fiscal period the calculations supporting such statement in respect of
Sections 7.4, 7.5 and 7.6 and (iii) stating that all such consolidated financial
statements present fairly the consolidated financial position of the Borrowers
and have been prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (subject, in the case of
unaudited interim statements, to the absence of notes and to normal year-end
audit adjustments);
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by WFI to its security holders, all regular and periodic reports and
all final registration statements and final prospectuses, if any, filed by the
Borrowers with any securities exchange or with the Securities and Exchange
Commission or any Governmental Authority succeeding to any of its functions; and
(d) Promptly, such additional financial and other information as the
Bank may from time to time reasonably request.
6.3. PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all of
their obligations and liabilities of whatever nature, except when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrowers.
<PAGE> 26
6.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as conducted by them, and preserve,
renew and keep in full force and effect their corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of their business, except as otherwise permitted
by Section 7.3; and comply with all material applicable Requirements of Law
except to the extent that the failure to comply therewith would not, in the
aggregate, have a material adverse effect on the business, operations, Property
or financial or other condition of the Borrowers taken as a whole.
6.5. MAINTENANCE OF PROPERTY; INSURANCE. Keep all Property useful and
necessary in their business in good working order and condition (ordinary wear
and tear excepted); maintain with financially sound and reputable insurance
companies insurance on all their Property in at least such amounts and against
at least such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business and furnish to the Bank,
upon written request, full information as to the insurance carried.
6.6. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of record and account in which entries in conformity with GAAP and
all Requirements of Law shall be made of all dealings and transactions in
relation to their business and activities; and permit representatives of the
Bank to visit and inspect any of their Properties and examine and make abstracts
from any of their books and records at any reasonable time and as often as may
reasonably be desired, and to discuss the business, operations, Properties and
financial and other condition of the Borrowers with officers and employees of
the Borrowers and with their independent certified public accountants.
6.7. NOTICES. Promptly give notice to the Bank:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any instrument or
other agreement of any of the Borrowers which default or event of default could
have a material adverse effect on the business, operations, Property or
financial or other condition of the Borrowers taken as a whole or (ii)
litigation, investigation or proceeding which may exist at any time between any
of the Borrowers and any Governmental Authority, which in any such case, if
adversely determined, would have a material adverse effect on the business,
operations, Property or financial or other condition of the Borrowers taken as a
whole;
(c) of any litigation or proceeding affecting any of the Borrowers
(i) in which the amount claimed is $100,000 or more and not covered by insurance
or (ii) in which injunctive or similar relief is sought which, if obtained,
would have a material adverse effect on the business, operations, Property or
financial or other condition of the Borrowers taken as a whole; and
(d) of the following events, as soon as practicable after, and in any
event within 30 days after, either of the Borrowers knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any Single
Employer Plan which Reportable Event could have a material adverse effect on the
business, operations, Property or financial or other condition of the Borrowers
taken as a whole, or (ii) the institution of proceedings or the taking or
expected taking of any other action by the PBGC or either of the Borrowers to
terminate, withdraw or partially withdraw from any Plan and, with respect to a
Multiemployer Plan, the "reorganization" or "insolvency" of the Plan (as those
terms are defined in Sections 4241 and 4245 of ERISA, respectively) in each of
the foregoing cases which could have a material adverse effect on the business,
operations, Property or financial or other condition of the Borrowers taken as a
whole, and, in addition to such notice, deliver to the Bank whichever of the
following may be applicable: (A) a certificate of the chief financial officer of
each of the Borrowers setting forth details as to such Reportable Event and the
action that the Borrowers propose to take with respect thereto, together with a
copy of any notice of such Reportable Event that may be required to be filed
with the PBGC, or (B) any notice delivered by the PBGC evidencing its intent to
institute such proceedings or any notice to the PBGC that such Plan is to be
terminated, as the case may be.
Each notice given pursuant to this Section 6.7 shall be accompanied by a
statement of the chief executive officer or chief financial officer of each of
the Borrowers setting forth details of the
<PAGE> 27
occurrence referred to therein and stating what action each of the Borrowers
proposes to take with respect thereto.
6.8. ENVIRONMENTAL INDEMNIFICATION. The Borrowers hereby indemnify and
hold harmless the Bank against and from any loss, damage, cost, expense or
liability (including strict liability) directly or indirectly arising out of or
attributable to the generation, storage, release, threatened release, discharge,
disposal or presence (whether prior to or during the term of the Loans) of
Hazardous Substances on, under or about the Premises (whether by the Borrowers
or any employees, agents, contractors or subcontractors of the Borrowers or any
predecessor in title or any third persons occupying or present on the Premises),
or the breach of any of the representations and warranties regarding the
Premises, including without limitation: (a) those damages or expenses arising
under the Environmental Laws; (b) the costs of any required or necessary repair,
cleanup or detoxification of the Premises, including the soil and ground water
thereof, and the preparation and implementation of any closure, remedial or
other required plans; (c) damage to any natural resources; and (d) all
reasonable costs and expenses incurred by the Bank in connection with clauses
(a), (b) and (c), including without limitation reasonable attorneys' fees. Such
indemnification shall not apply to any losses, liabilities, damages, injuries,
expenses or costs which: (i) arise from the gross negligence or willful
misconduct of the Bank or (ii) relate to Hazardous Substances placed or disposed
of on the Premises after the Bank acquires title to the Premises through
foreclosure or otherwise.
ARTICLE 7. NEGATIVE COVENANTS.
-------------------
The Borrowers hereby jointly and severally agree that, so long as the
Commitment remains in effect or the Note or any Letter of Credit issued
hereunder remains outstanding and unpaid or any other amount is owing to the
Bank hereunder, the Borrowers shall not, directly or indirectly:
7.1. INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness under the Note;
(b) Indebtedness to Principal in an amount not exceeding
$6,000,000 (the "Principal Indebtedness");
(c) Indebtedness incurred in connection with trade and other
accounts payable in the ordinary course of business and in accordance with
customary trade terms;
(d) Indebtedness under Capital Leases, conditional sale agreements
and other purchase money financing agreements entered into to finance capital
expenditures;
(e) Indebtedness between the Borrowers; and
(f) Indebtedness incurred in connection with the Liens permitted
pursuant to Section 7.2.
7.2. LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of their Property, assets, income or profits, whether now owned or
hereafter acquired, except:
(a) Liens for taxes not yet due or, in the case of real estate taxes,
not yet the subject of interest and penalties for the nonpayment thereof, or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Borrowers in accordance with GAAP;
(b) Carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's, vendors' or other like Liens arising in the ordinary course of
business (i) which are not overdue for a period of more than 60 days or (ii)
which are being contested in good faith and by appropriate proceedings if
<PAGE> 28
adequate reserves with respect thereto are maintained on the books of the
Borrowers in accordance with GAAP, and in addition thereto any such Liens
arising in the ordinary course of business other than those described in clauses
(i) and (ii) which do not in the aggregate exceed $100,000;
(c) Pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) Deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) Easements, rights-of-way, landlords' liens, zoning and similar
restrictions and other similar encumbrances or title defects incurred in the
ordinary course of business which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
Property subject thereto or interfere with the ordinary conduct of the business
of either of the Borrowers;
(f) Liens in existence on the Effective Date and securing the
Principal Indebtedness and other liens in existence on the Effective Date and
disclosed in Schedule 7.2(f), provided that such Liens are not spread to cover
any additional Property and the principal amount of Indebtedness secured thereby
is not increased;
(g) Liens for Capital Leases, conditional sale agreements and other
purchase money financing agreements entered into to finance capital
expenditures;
(h) Liens in favor of the Bank;
(i) Mortgage Liens granted after the Effective Date on real Property
to secure financing for the acquisition or development of or construction of
improvements on such real Property; and
(j) Purchase money Liens granted to the seller of Property to finance
all or part of the purchase price therefor.
7.3. PROHIBITION OF FUNDAMENTAL CHANGES. Enter into any transaction of
sale, acquisition or merger or consolidation or amalgamation, or liquidate in
one transaction or in a series of transactions, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, in a single transaction or in a series of related
transactions, all or substantially all of its Property or assets, or make any
fundamental change in the present method of conducting business except:
(a) The sale of inventory in the ordinary course of business of the
Borrowers consistent with the current practices of the Borrowers;
(b) SFI or any other Subsidiary may be merged or consolidated with or
into WFI;
(c) SFI or any other Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
WFI; and
(d) The creation and maintenance of one or more Subsidiaries created
subsequent to the Effective Date, provided each such Subsidiary has provided to
the Bank its Subsidiary Guaranty Documents.
7.4. CONSOLIDATED ADJUSTED TANGIBLE NET WORTH TESTS. Permit (a)
Consolidated Adjusted Tangible Net Worth at any Quarterly Determination Date to
be less than $45,000,000 plus 50% of the Consolidated Net Income for all years
beginning with 1998 which are prior to the year in which falls the applicable
Quarterly Determination Date (thus, for Quarterly Determination Dates which fall
in 1998, none of the Consolidated Net Income from 1997 and prior thereto would
be included, for Quarterly Determination Dates which fall in 1999 50% of the
Consolidated Net Income for 1998 would be included, for Quarterly Determination
Dates which fall in 2000 50% of the aggregate Consolidated Net Income
<PAGE> 29
for both 1998 and 1999 would be included, and so on) or (b) the ratio of
Consolidated Total Liabilities to Consolidated Adjusted Tangible Net Worth at
any Quarterly Determination Date to be greater than 1.50 to 1.00.
7.5. CURRENT RATIO. Permit the ratio of Consolidated Current Assets to
Consolidated Current Liabilities at any Quarterly Determination Date to be less
than 1.25 to 1.00.
7.6. CONSOLIDATED WORKING CAPITAL. Permit the Consolidated Working
Capital at any Quarterly Determination Date to be less than $10,000,000.
7.7. COMPLIANCE WITH ERISA. (a) Terminate any Plan so as to result in
any material liability to the PBGC, (b) engage in any "prohibited transaction"
(as defined in Section 4975 of the Code) involving any Plan which would result
in a material liability for an excise tax or civil penalty in connection
therewith, (c) incur or suffer to exist any material "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan, or (d) allow or suffer to exist any event or condition which
presents a material risk of incurring a material liability to the PBGC by reason
of termination of any such Plan.
7.8. NO CHANGE IN FISCAL YEAR PERIOD. Change its fiscal year period
without the prior written consent of the Bank.
ARTICLE 8. EVENTS OF DEFAULT.
Upon the occurrence of any of the following events (an "Event of
Default"):
(a) The Borrowers shall fail to pay (i) any principal of any Loan when
due (whether at the stated maturity, by acceleration or otherwise) in accordance
with the terms hereof or of the Note or (ii) any interest on the Note or any fee
or any other amount payable hereunder within five days after any such amount
becomes due;
(b) Any representation or warranty made or deemed made by any one or
more of the Borrowers in this Agreement or any other Loan Document or contained
in any certificate, document or financial or other statement furnished at any
time under or in connection herewith or therewith shall prove to have been
incorrect in any material respect on or as of the date made or deemed made;
(c) Either of the Borrowers shall default in the observance or
performance of any covenant or agreement contained in Article 6 and such default
shall continue unremedied for a period of 30 days;
(d) Either of the Borrowers shall default in the observance or
performance of any provision contained in Article 7 or any other covenant or
agreement contained in any Loan Document and such default shall continue
unremedied for a period of 30 days after notice from the Bank;
(e) Either of the Borrowers (i) shall default in any payment of
principal of or interest on any Indebtedness or in the payment of any Contingent
Obligations beyond the period of grace (not to exceed 30 days), if any, provided
in the instrument or agreement under which such Indebtedness or Contingent
Obligation was created or (ii) shall default in the observance or performance of
any agreement or condition relating to any such Indebtedness or Contingent
Obligation or contained in any instrument or agreement evidencing, securing or
relating thereto or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or bank on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, any such Indebtedness or Contingent Obligation to become due prior to
its stated maturity (any applicable grace period having expired);
(f) (i) Either of the Borrowers shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment,
<PAGE> 30
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or either of the Borrowers shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against either of the
Borrowers any case, proceeding or other action of a nature referred to in clause
(i) above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) is not dismissed, discharged, stayed or
bonded within 90 days; or (iii) there shall be commenced against either of the
Borrowers any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets, which results in the entry of an order for any
such relief which shall not have been vacated, discharged, stayed or bonded
pending appeal within 90 days from the entry thereof and which shall involve in
the aggregate a liability (to the extent not paid or covered by insurance) of
more than $100,000 at any one time outstanding; or (iv) either of the Borrowers
shall take any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii)
above; or (v) either of the Borrowers shall generally not pay its debts as they
become due;
(g) (i) Either of the Borrowers (or any officer or director thereof)
shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA
or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA) shall exist with respect to any
Single Employer Plan, (iii) with respect to any Multiemployer Plan, either
Borrower fails to make a contribution required to be made thereto, or withdraws
therefrom, where in either event the liability of either Borrower is in excess
of $100,000, (iv) a Reportable Event shall occur with respect to, or proceedings
shall commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
institution of proceedings is, in the reasonable opinion of the Bank, likely to
result in the termination of such Plan for purposes of Title IV of ERISA, and,
in the case of a Reportable Event, the continuance of such Reportable Event
unremedied for ten days after notice of such Reportable Event pursuant to
Section 4043(a), (c) or (d) of ERISA is given or the continuance of such
proceedings for ten days after commencement thereof, as the case may be, (v) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, or (vi)
any other similar event or condition shall occur or exist with respect to any
Plan; and in each case in clauses (i) through (vi) above, in the opinion of the
Bank, such event or condition, together with all other such events or conditions
in clauses (i) through (vi) above, if any, would subject either or both of the
Borrowers to any tax, penalty or other liabilities under ERISA in the aggregate
material in relation to the business, operations, Property or financial or other
condition of the Borrowers taken as a whole;
(h) One or more judgments or decrees shall be entered against either
of the Borrowers and shall not be dismissed, discharged, stayed or bonded within
a period of 60 days and shall involve in the aggregate a liability (to the
extent not paid or covered by insurance) of more than $100,000 at any one time
outstanding; or
(i) (i) Any one or more of the Borrowers shall fail to make any
payment (beyond any applicable grace period with respect thereto) due on any
Indebtedness or Security in an aggregate amount in excess of $10,000 or (ii) any
event shall occur or any condition shall exist in respect of any such
Indebtedness or Security of the Borrowers, or under any agreement securing or
relating to such Indebtedness or Security, the effect of which is (A) to cause
(or permit any holder of such Indebtedness or Security or a trustee to cause)
such Indebtedness or Security, or a portion thereof, to become due prior to its
stated maturity or prior to its regularly scheduled date or dates of payment, or
(B) to permit the holder of any Security (other than common stock of either of
the Borrowers) or a trustee to elect a majority of the directors on the board of
directors of either of the Borrowers;
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above, automatically the Commitment shall
immediately terminate and the Loans (with accrued interest thereon) and all
other amounts owing under and in respect of this Agreement and the Note shall
immediately become due and payable, and (b) if such event is any other Event of
Default, so long as any such Event of Default shall be continuing, either of the
following actions may be taken: (i) the Bank may, by notice to the Borrowers,
declare the Commitment to be terminated forthwith, whereupon the Commitment
shall immediately
<PAGE> 31
terminate; and (ii) the Bank may, by notice of default to the Borrowers, declare
the Loans (with accrued interest thereon) and all other amounts owing under and
in respect of this Agreement and the Note to be due and payable forthwith,
whereupon the same shall immediately become due and payable. Except as expressly
provided above in this Article 8, presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
ARTICLE 9. MISCELLANEOUS.
--------------
9.1. AMENDMENTS, ETC. The Loan Documents to which the Borrowers are
parties may not be changed, amended, waived, discharged or terminated unless
such change, amendment, waiver, discharge or termination is in writing signed by
the Borrowers and the Bank. Any such waiver and any such amendment, supplement
or modification shall be binding upon the Borrowers, the Bank and all future
holders of the Note. In the case of any waiver, the Borrowers and the Bank shall
be restored to their former position and rights hereunder and under the Note,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
9.2. NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including telex
or facsimile) and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made when delivered by hand, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telex or
facsimile notice, when sent, answer back received, addressed as follows, or to
such other address as may be hereafter notified by the respective parties hereto
and any future holders of the Note:
Borrowers: Worthington Foods, Inc.
900 Proprietors Road
Worthington, Ohio 43085
Attention: William T. Kirkwood
Executive Vice President and
Chief Financial Officer
With a copy to: Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
P.O. Box 1008
Columbus, Ohio 43216-1008
Attention: Roger E. Lautzenhiser, Esq.
Bank: National City Bank
155 East Broad Street
Columbus, Ohio 43251
Attention: William J. Whitley
Senior Vice President
With a copy to: Squire, Sanders & Dempsey L.L.P.
41 South High Street
Suite 1300
Columbus, Ohio 43215
Attention: Daniel M. Maher, Esq.
PROVIDED that any notice, request or demand to or upon the Bank pursuant to
Articles 2 and 3 shall not be effective until received by the Bank.
9.3. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The
<PAGE> 32
rights, remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
9.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of the Loan Documents.
9.5. PAYMENT OF EXPENSES AND TAXES. Each of the Borrowers and the Bank
agrees to be responsible for and pay all of its own out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of this Agreement and the other Loan Documents and any other documents prepared
in connection herewith and therewith, and the consummation of the transactions
contemplated hereby and thereby, including without limitation the reasonable
fees and disbursements of their own counsel, provided that the Bank agrees to
reimburse the Borrowers for up to $2,000 of fees payable by the Borrowers to
their counsel in connection therewith. The Borrowers agree to (a) pay or
reimburse the Bank for all its reasonable out-of-pocket costs and expenses
incurred hereafter in connection with any amendment, supplement or modification
to this Agreement and the other Loan Documents and any other documents prepared
in connection herewith and therewith, including without limitation the
reasonable fees and disbursements of counsel to the Bank, (b) to pay or
reimburse the Bank for all its costs and expenses incurred in connection with,
and to pay, indemnify and hold harmless the Bank against and from, any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
arising out of or in connection with the enforcement or preservation of any
rights under the Loan Documents and any such other documents, including without
limitation reasonable fees and disbursements of counsel to the Bank, (c) to pay,
indemnify and hold harmless the Bank against and from any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement and the other Loan Documents and any such other documents, and
(d) to pay, indemnify and hold harmless the Bank against and from any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever arising
out of or in connection with the use or the proposed use of the proceeds of the
Loans (all of the foregoing, collectively, the "Indemnified Liabilities"),
PROVIDED that the Borrowers shall have no obligation hereunder for Indemnified
Liabilities with respect to the Bank arising from (i) the gross negligence or
willful misconduct of the Bank, (ii) legal proceedings commenced against the
Bank by any Security holder or creditor of the Bank, arising out of and based
upon rights afforded any such Security holder or creditor solely in its capacity
as such, or (iii) legal proceedings commenced against the Bank by any
Transferee. The agreements in this Section 9.5 shall survive repayment of the
Note and all other amounts payable hereunder.
9.6. SUCCESSORS AND ASSIGNS. This Agreement and the other Loan
Documents and any certificate or other document delivered pursuant hereto and
thereto shall be binding upon and inure benefit of the Borrowers, the Bank, all
future holders of the Note and their respective successors and assigns, except
that the Borrowers may not assign or transfer any of their rights under this
Agreement or any other Loan Documents without the prior written consent of the
Bank. The Borrowers acknowledge that the Bank may at any time sell, assign,
transfer or grant participations in the Loans to other financial institutions
(each a "Transferee"). The Borrowers agree that each Transferee may exercise all
rights of payment (including without limitation rights of set-off) with respect
to the portion of the Loans held by it as fully as if such Transferee were the
direct holder thereof.
9.7. GOVERNING LAW; NO THIRD PARTY RIGHTS. This Agreement and the other
Loan Documents and the rights and obligations of the parties under this
Agreement and the other Loan Documents shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Ohio. This Agreement is
solely for the benefit of the parties hereto and their respective successors and
assigns, and no other Person shall have any right, benefit, priority or interest
under, or because of the existence of, this Agreement.
<PAGE> 33
9.8. ADJUSTMENTS; SET-OFF. In addition to any rights or remedies of the
Bank provided by law, upon the occurrence of any Event of Default or upon all of
the Loans becoming or being declared to be due pursuant to Article 8, the Bank
is hereby irrevocably authorized without notice to the Borrowers (any such
notice being expressly waived) to set-off and appropriate and apply all deposits
(general and special, time or demand, provisional or final) in any currency and
other indebtedness at any time held or owing by the Bank to or for the credit or
the account of the Borrowers against and on account of any obligations,
liabilities and claims of the Borrowers to the Bank and in such amounts as the
Bank may elect, although such obligations, liabilities and claims may be
contingent or unmatured, provided that any such application of deposits shall be
made first against obligations, liabilities and claims under the Loan Documents.
The Bank shall promptly give the Borrowers notice of any set-off, provided that
the failure to give such notice shall not affect the validity of such set-off.
9.9. JOINT AND SEVERAL OBLIGATIONS. All indebtedness, liabilities and
obligations of the Borrowers under this Agreement and the other Loan Documents,
including without limitation all principal, interest, fees and costs and
expenses, shall be joint and several, regardless of whether they are referred to
as joint and several herein or therein, and each Borrower shall be liable for
all such indebtedness, liabilities and obligations of either of the Borrowers,
and the Bank shall have the right, in its sole discretion, to pursue its
remedies against either Borrower without the need to pursue its remedies against
the other Borrower. Notwithstanding anything herein to the contrary,
indebtedness, obligations and liabilities of either Borrower referred to herein
or in the other Loan Documents shall be interpreted to be the joint and several
indebtedness, obligations and liabilities of both Borrowers.
9.10. COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
9.11. EFFECTIVENESS. This Agreement shall become effective and binding
upon the Borrowers and the Bank as of the date of this Agreement.
9.12. SEVERABILITY. Any provision of this Agreement which is
prohibited, invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, invalidity or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition, invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction or
any other provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
WORTHINGTON FOODS, INC. NATIONAL CITY BANK
By: By:
-------------------------------- --------------------------------
Name: William T. Kirkwood Name: William J. Whitley
Title: Executive Vice President and Title: Senior Vice President
Chief Financial Officer
SPECIALTY FOODS INVESTMENT COMPANY
By:
- -----------------------------------
Name: William T. Kirkwood
Title: Treasurer
<PAGE> 34
FIRST AMENDMENT TO LOAN DOCUMENTS
This First Amendment to Loan Documents (this "Amendment") is entered
into effective as of January 14, 1999 by and between WORTHINGTON FOODS, INC., an
Ohio corporation ("WFI"), and SPECIALTY FOODS INVESTMENT COMPANY, a Delaware
corporation and wholly owned subsidiary of WFI ("SFI," and collectively with
WFI, the "Borrowers"), on the one hand, and NATIONAL CITY BANK, a national
banking association (the "Bank"), on the other hand, who hereby agree as set
forth below.
BACKGROUND INFORMATION
----------------------
A. The Borrowers and the Bank executed and delivered to each other that
certain Credit Agreement dated as of September 9, 1998 (the "Credit Agreement").
B. Concurrently with the execution and delivery of the Credit
Agreement, the Borrowers executed and delivered to the Bank that certain
Revolving Credit Note in the principal amount of $25,000,000 in favor of the
Bank (the "Note").
C. The Borrowers' obligations to pay to the Bank the principal and
interest under the Note, along with all other Obligations, are secured pursuant
to that certain Security Agreement executed by the Borrowers and delivered to
the Bank concurrently with the execution and delivery of the Credit Agreement
and the Note (the "Security Agreement," and collectively with the Credit
Agreement and the Note, the "Loan Documents").
D. The Borrowers and the Bank desire to amend and otherwise express
agreement with respect to the Loan Documents as hereafter set forth.
E. All terms used but not defined herein shall be given the meanings
ascribed thereto in the Loan Documents.
STATEMENT OF AGREEMENT
----------------------
Section 1. AMENDMENT OF THE CREDIT AGREEMENT. Section 1.1 of the
Credit Agreement is hereby amended by changing the dollar amount expressed in
the definition of "Commitment" from "$25,000,000" to "$30,000,000."
Section 2. AGREEMENT REGARDING THE CREDIT AGREEMENT. The Borrowers
hereby jointly and severally agree, represent and warrant to the Bank that all
of the Borrowers' representations and warranties set forth in Article 4 of the
Credit Agreement are accurate as of the date of this Amendment, with the "Loan
Documents" as referred to in said Article 4, for this purpose, including the
Loan Documents as amended by this Amendment.
Section 3. AMENDMENT OF THE NOTE. The Note is hereby amended by
changing "$25,000,000.00" and "Twenty-Five Million Dollars ($25,000,000.00),"
respectively, to "$30,000,000.00" and "Thirty Million Dollars
($30,000,000.00)," respectively, where they appear therein.
Section 4. AMENDMENT OF THE SECURITY AGREEMENT. The Security Agreement
is hereby amended by changing the reference therein from "$25,000,000.00" to
"$30,000,000.00."
<PAGE> 35
Section 5. AGREEMENT REGARDING THE SECURITY AGREEMENT. The Borrowers
hereby agree, represent and warrant to the Bank that all of the Borrower's
representations and warranties set forth in Section 1 of the Security Agreement
are accurate as of the date of this Amendment.
Section 6. MISCELLANEOUS PROVISIONS. The following miscellaneous
provisions apply to this Amendment:
(a) No provision of the Loan Documents as modified herein may be
changed, discharged, supplemented, terminated or waived
except in a writing signed by the parties thereto.
(b) The Loan Documents as amended herein shall be binding upon
and shall inure to the benefit of the Borrowers and the Bank
and their successors and assigns, provided, however, the
Borrowers may not assign any of their rights or delegate any
of their obligations under the Loan Documents and any
purported assignment or delegation shall be void.
(c) This Amendment shall be governed by and construed in
accordance with the laws of the State of Ohio without giving
effect to conflicts of law principles.
(d) This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original and all of which
together shall constitute one and the same document.
Signature pages may be detached from the counterparts and
attached to a single copy of this Amendment to physically
form one document.
(e) This Amendment is an amendment only and not a novation.
Except for the amendments herein, the Loan Documents, and
all the terms and conditions thereof, shall be and remain in
full force and effect with the amendments herein deemed to
be incorporated therein. This Amendment shall not release or
affect the liability of any guarantor, surety or endorser of
the Note or release any owner of collateral securing the
Note. The validity, priority and enforceability of the Note
shall not be impaired hereby.
<PAGE> 36
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first above written.
BORROWERS: BANK:
- --------- -----
WORTHINGTON FOODS, INC. NATIONAL CITY BANK
By: By:
----------------------------- --------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
-------------------------- -----------------------------
SPECIALTY FOODS INVESTMENT COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 37
SECOND AMENDMENT TO LOAN DOCUMENTS
This Second Amendment to Loan Documents (this "Second Amendment") is
entered into effective as of March ____, 1999 by and between WORTHINGTON FOODS,
INC., an Ohio corporation ("WFI"), and SPECIALTY FOODS INVESTMENT COMPANY, a
Delaware corporation and wholly owned subsidiary of WFI ("SFI," and collectively
with WFI, the "Borrowers"), on the one hand, and NATIONAL CITY BANK, a national
banking association (the "Bank"), on the other hand, who hereby agree as set
forth below.
BACKGROUND INFORMATION
----------------------
A. The Borrowers and the Bank executed and delivered to each other that
certain Credit Agreement dated as of September 9, 1998 (the "Credit Agreement").
B. Concurrently with the execution and delivery of the Credit
Agreement, the Borrowers executed and delivered to the Bank that certain
Revolving Credit Note in the principal amount of $25,000,000 in favor of the
Bank (the "Note").
C. The Borrowers' obligations to pay to the Bank the principal and
interest under the Note, along with all other Obligations, are secured pursuant
to that certain Security Agreement executed by the Borrowers and delivered to
the Bank concurrently with the execution and delivery of the Credit Agreement
and the Note (the "Security Agreement," and collectively with the Credit
Agreement and the Note, the "Loan Documents").
D. The Borrowers and the Bank executed and delivered to each other that
certain First Amendment to Loan Documents dated as of January 14, 1999 amending
the Loan Documents (the "First Amendment").
E. The Borrowers and the Bank desire to further amend and otherwise
express agreement with respect to the Loan Documents, as amended by the First
Amendment (the "First Amended Loan Documents"), as hereafter set forth.
F. All terms used but not defined herein shall be given the meanings
ascribed thereto in the First Amended Loan Documents.
STATEMENT OF AGREEMENT
----------------------
Section 7. Amendment of the Credit Agreement.
---------------------------------------------
(a) Section 1.1 of the Credit Agreement, as amended by the First
Amendment, is hereby amended by changing the dollar amount expressed
in the definition of "Commitment" from "$30,000,000" to "$35,000,000."
(b) Section 7.6 of the Credit Agreement is hereby amended to read
as follows:
"7.6 CONSOLIDATED WORKING CAPITAL. Permit the Consolidated
Working Capital to be less than $10,000,000 at the first Quarterly
Determination Date (December 31, 1998) or $20,000,000 at any Quarterly
Determination Date thereafter."
Section 2. AGREEMENT REGARDING THE CREDIT AGREEMENT. The Borrowers
hereby jointly and severally agree, represent and warrant to the Bank that all
of the Borrowers' representations and
<PAGE> 38
warranties set forth in Article 4 of the Credit Agreement are accurate as of the
date of this Second Amendment, with the "Loan Documents" as referred to in said
Article 4, for this purpose, including the First Amended Loan Documents as
amended by this Second Amendment.
Section 3. AMENDMENT OF THE NOTE. The Note, as amended by the First
Amendment (the "First Amended Note"), is hereby amended by changing
"$30,000,000.00" and "Thirty Million Dollars ($30,000,000.00),"
respectively, to "$35,000,000.00" and "Thirty-Five Million Dollars
($35,000,000.00)," respectively, where they appear therein.
Section 4. AMENDMENT OF THE SECURITY AGREEMENT. The Security Agreement,
as amended by the First Amendment, is hereby amended by changing the reference
therein from "$30,000,000.00" to "$35,000,000.00."
Section 5. AGREEMENT REGARDING THE SECURITY AGREEMENT. The Borrowers
hereby agree, represent and warrant to the Bank that all of the Borrowers'
representations and warranties set forth in Section 1 of the Security Agreement
are accurate as of the date of this Second Amendment.
Section 6. MISCELLANEOUS PROVISIONS. The following miscellaneous
provisions apply to this Second Amendment:
(f) No provision of the First Amended Loan Documents as modified
herein may be changed, discharged, supplemented, terminated
or waived except in a writing signed by the parties thereto.
(g) The First Amended Loan Documents as amended herein shall be
binding upon and shall inure to the benefit of the Borrowers
and the Bank and their successors and assigns, provided,
however, the Borrowers may not assign any of their rights or
delegate any of their obligations under the First Amended
Loan Documents as amended herein and any purported
assignment or delegation shall be void.
(h) This Second Amendment shall be governed by and construed in
accordance with the laws of the State of Ohio without giving
effect to conflicts of law principles.
(i) This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original and
all of which together shall constitute one and the same
document. Signature pages may be detached from the
counterparts and attached to a single copy of this Second
Amendment to physically form one document.
(j) This Second Amendment is an amendment only and not a
novation. Except for the amendments herein, the First
Amended Loan Documents, and all the terms and conditions
thereof, shall be and remain in full force and effect with
the amendments herein deemed to be incorporated therein.
This Second Amendment shall not release or affect the
liability of any guarantor, surety or endorser of the First
Amended Note or release any owner of collateral securing the
First Amended Note. The validity, priority and
enforceability of the First Amended Note shall not be
impaired hereby.
<PAGE> 39
IN WITNESS WHEREOF, this Second Amendment is executed effective as of
the date first above written.
BORROWERS: BANK:
- ---------- -----
WORTHINGTON FOODS, INC. NATIONAL CITY BANK
By: By:
------------------------------ -------------------------------
Name: Name:
---------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
SPECIALTY FOODS INVESTMENT COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 1
Exhibit 13
1998 WORTHINGTON FOODS ANNUAL REPORT
OUR MISSION
Worthington Foods is solely dedicated to producing and marketing vegetarian and
other healthful foods.
OUR VISION
We envision "veggie burgers" becoming a billion dollar mainstream food category
within the next ten years, with our Company continuing to be the leader.
OUR VALUES
More than just an organization to make money, Worthington Foods holds, without
compromise, our core values summarized in G.R.I.P.
GOOD TASTE, GOOD NUTRITION. For 60 years Worthington Foods has been "Putting
Good Taste Into Good Nutrition." We will continue our tradition of producing the
best meatless products. We believe we can be a part of our customers' healthful
living by producing and marketing an expanding range of good tasting, nutritious
foods.
RESPECT FOR OUR EMPLOYEES. We believe our employees are our greatest asset. By
consistently demonstrating respect and concern for our employees, we believe our
employees respond with their best efforts for the continued good and success of
the Company.
INTEGRITY IS MORE IMPORTANT THAN PROFITS. Honesty and integrity are hallmarks of
Worthington Foods. We depend on our employees to carry out these values in all
phases and levels of the organization. We do not want, nor will we permit, our
employees to be a part of any Company transaction that is less than 100 percent
honest and honorable.
PEOPLE ARE WHOLE BEINGS. We believe people are whole beings that require a
balance among mind, body and spirit. Through our employee programs, we assist
our employees' efforts to be whole beings-- capable of giving their best to
their God, families, friends and Worthington Foods.
We believe that because we are focused on our mission, inspired by our vision
and guided by our values, we will achieve our objectives.
<PAGE> 2
Table of Contents
- -------------------------------------------------------------------------------
Financial Highlights 1
Shareholders' Letter 2
Chairman's Tribute 3
Historical Perspective & Company Overview 4
Retail Grocery 5
Specialty, Foodservice and International Markets 6
Research & Development and Operations 7
Selected Consolidated Financial Data 8
Management's Discussion and
Analysis of Financial Condition and Results of Operations 9-11
Consolidated Balance Sheets 12
Consolidated Statements of Income 13
Consolidated Statements of Shareholders' Equity 13
Consolidated Statements of Cash Flows 14
Notes to Consolidated Financial Statements 15-18
Report of Independent Auditors 19
Officers and Directors 19
Shareholder Information 20
<PAGE> 3
<TABLE>
<CAPTION>
Worthington Foods, Inc. Financial Highlights
1998 1997
--------------- ---------------
<S> <C> <C>
Net Sales $ 139,491,429 $ 117,943,832
Gross Profit $ 60,326,913 $ 48,720,909
Income From Operations $ 15,309,605 $ 14,013,028
Income Before Income Taxes $ 13,595,796 $ 12,541,528
Income Taxes $ 5,574,000 $ 4,535,000
Net Income $ 8,021,796 $ 8,006,528
Earnings Per Share (Diluted) $ 0.66 $ 0.67
Weighted Average Shares Outstanding (Diluted) 12,213,966 12,015,052
Total Assets $ 120,949,401 $ 95,486,460
</TABLE>
To Our Shareholders, Employees and Other Friends
We are pleased to report that for the fifth consecutive year, Worthington Foods
has achieved record earnings and record sales, with net sales up more than 18%
and income before taxes up 8% over 1997.
As the world's largest company devoted solely to the manufacture and marketing
of vegetarian and other healthful foods, Worthington Foods is dedicated to
providing vegetarian and other health-conscious consumers with a broad range of
preferred, high-quality meat alternatives, for dining at home or when dining
out.
I believe our performance demonstrates how strongly the marketplace has
responded to our leadership in product innovation, realized through unique
product offerings, continuous enhancements in taste and presentation, and
category-leading brand name recognition.
Indeed, it's a good time to be in our business. There is unprecedented strength
in the meat alternative category -- reflecting the broad consumer trend toward
healthier eating that has transformed the category from a niche business to one
of mass appeal.
But ever since Worthington Foods was founded 60 years ago, we knew that our
customers would continue to purchase our products only if the taste and quality
were unsurpassed.
That's why early on we made a significant commitment to product innovation, one
which continues to pay dividends. A number of successful new product
introductions -- including MeatFree Corn Dogs, MeatFree Buffalo Wings and Hard
Rock Cafe Veggie Burgers, and our acquisition of the Harvest Burgers brand from
Archer Daniels Midland Company -- help to bring new customers to our brands
every day. Foodservice sales alone rose nearly 33% in 1998 compared with the
prior year.
Hard work to drive continuous improvement in our operations and successful
efforts to gain new distribution in retail and foodservice outlets like Subway,
Blimpie International and Planet Hollywood, as well as tests now being conducted
with mass merchandisers like Costco Wholesale, will provide benefits for our
company during 1999.
Expect to see more innovative products from Worthington Foods this year,
including new offerings in the chilled meat case of supermarkets and in the
frozen retail and foodservice areas. And, we'll aggressively support these
products in the marketplace.
<PAGE> 4
We are optimistic about the strong outlook for the meat alternative products
category in general and the strength of the Morningstar Farms brand as the
category leader. We are committed to maintaining our leadership position and
share in this fast-growing category.
The coming year marks yet another milestone for the company. This is Chairman
Allan Buller's 53rd year with the company, the past 10 as chairman. In April,
Mr. Buller will retire and I will add the responsibilities as chairman to my
current duties.
I look forward to yet another record year.
Mr. Buller will be missed. His legacy, however, is indelible.
Dale E. Twomley
President and Chief Executive Officer
As he steps down after 53 years of service to the company, Worthington Foods
honors Allan R. Buller -- visionary, leader, friend.
At a time when most people think of retiring, Allan Buller made one of the
boldest moves of his life. The then 65-year-old vice president of Worthington
Foods withdrew his retirement savings and refinanced his house to further the
pursuit of his lifelong dream: "To make healthful vegetarian foods readily
available to mainstream consumers."
Buller and a handful of other investors -- including Dr. George Harding IV and
James Hagle -- raised $9.5 million to reacquire the assets of Worthington Foods
from Miles Laboratories in October 1982. The deal closed on a Friday; and the
reorganized company -- with Buller as president -- started production the next
Monday without missing a single order or shipment.
It was his belief in the benefits of vegetarianism that brought Buller and his
wife Mickey to Worthington -- the company and the community -- on his birthday
in December 1945. Freshly discharged from army after 4+ years of service in the
United States and Europe, he came at the encouragement of college friend and
Worthington manager Jim Hagle, accepting a position as Hagle's assistant. "Jim
and I shared the dream that one day vegetarian foods would become widely
available and accepted replacements for meat -- just as margarine had become a
replacement for butter," Buller remembers.
When he arrived, the company had sales of less than $250,000 and had only
recently moved its manufacturing from a two-story white frame house to a
newly-built plant. Distribution consisted largely of mailing its most popular
product, gluten-based Choplets, to households across the country at a price of
three cans for a dollar.
But Allan Buller's vision was much larger. He recognized the opportunity to
dramatically expand Worthington's retail business through the addition of
regional warehouses, and he organized the first Worthington Foods sales force to
more efficiently serve the company's growing number of retailers.
In the 1950s, Buller's talent for recognizing and seizing opportunity paid off
again, when he and director of Research & Development Warren (Kelly) Hartman
made Worthington the first company in the world to offer frozen vegetarian
foods. Recognizing that many of his retailers lacked sufficient freezer space,
Buller provided roll-about freezers that enabled the stores to market these
revolutionary new products. The company continued to grow, reaching its first
million-dollar sales year in 1960.
As Worthington grew, Buller's responsibilities grew with it. In 1948, when Jim
Hagle became president of Worthington Foods and administrator of Harding
Hospital, Buller succeeded Hagle as general manager. He was
<PAGE> 5
named vice president when the company merged with Miles Laboratories in 1970.
And when the local group reacquired the company from Miles in 1982, he was named
president. He retired as president in 1986, when Dale Twomley was named to the
post. But he continued as an active leader of the company, serving as corporate
secretary-treasurer for a time, and as chairman beginning in 1989. Now, a decade
later, he steps down as board chairman, succeeded by Twomley.
Just as Allan Buller has spearheaded the growth of the company and the
vegetarian movement, he has also contributed immeasurably to the quality of life
in Worthington, Ohio. When Miles Laboratories first submitted plans to expand
the plant in 1972, drawings called for chopping down a landmark, 250-year-old
oak tree -- one of the largest in central Ohio. Buller convinced Miles senior
management to save the stately tree -- even though it meant a costly revision to
the plans.
Buller's church and a wide variety of community organizations have benefited
from his personal attention and generosity. An elder in the Worthington
Seventh-day Adventist Church, he has also served as a member of the church's
local and regional executive committees. He has held positions on the boards of
Harding Hospital and Andrews University. He is a former chairman of the
Worthington Area Chamber of Commerce and a founding member of the
Dublin/Worthington Rotary Club.
In December 1995, Buller "inducted" himself as the exclusive member of what he
proudly calls "The 50-50-50 Club," signifying more than 50 years of marriage to
Mickey, 50 years of residence in Worthington, and 50 years of service to
Worthington Foods.
And what about the dream that brought Buller to Worthington in the first place?
That dream shines more brightly in his eyes than ever. As he retires from active
service more than half a century after joining fellow visionaries Jim Hagle and
George Harding, Buller envisions a brilliant future for vegetarian foods.
"When I was growing up, vegetarianism was accepted largely on faith," he
recalls. "But today, we have strong scientific evidence to support the benefits
of this dietary approach. That can only mean a continually growing market for
our products."
Continuous growth. It's the dream of a genuine leader whose legacy will continue
to inspire his company and his community.
<PAGE> 6
World Leadership - Built on a Solid Foundation and Continuous Innovation
From its humble birth in a two-story frame house 60 years ago, Worthington
Foods, Inc. has grown to become the world's largest company dedicated solely to
the manufacture and marketing of vegetarian and other healthful foods.
Today, Worthington Foods is the world leader in sales, technology and product
innovation in the meat alternative food category. As the trend toward healthy
eating and the demand for meat alternatives continue to grow, the company is
well positioned to build on its success and strengthen its leadership position.
In 1998 Worthington introduced a variety of new and exciting products - many of
them unchallenged by our competitors. MeatFree Corn Dogs and MeatFree Buffalo
Wings are two especially successful examples. These additions to our already
impressive line, as well as taste and packaging improvements for some of our
most popular products, mean even more variety, higher quality and more
convenience for consumers. The growing trend away from the consumption of
processed meats led many people to try Worthington Foods' products in 1998 - and
the taste and quality have kept them coming back.
Worthington technology advanced dramatically in 1998, too. Research and advanced
manufacturing are two key elements that will help us maintain and extend our
category leadership. Production lines were expanded at our Zanesville, Ohio,
plant to meet demand; and an innovative partnership with a former competitor led
to the purchase of the popular Harvest Burgers(R) product line without adding a
new production burden to existing facilities.
Worthington Foods brands include:
MORNINGSTAR FARMS(R)
For the 25th straight year, Morningstar Farms continued to be the number one
brand of meat alternatives available in retail supermarkets -- providing the
largest variety of products available. New "fun foods" have helped Morningstar
Farms reach new consumers just entering the meat alternative category.
Aggressive marketing and the new Hard Rock Cafe Veggie Burger have also
increased the brand's visibility in restaurant/foodservice operations.
WORTHINGTON(R)
The Worthington brand is sold primarily through health food stores and those
operated by Seventh-day Adventists. The original brand in the Worthington Foods
family, Worthington offers a wide variety of canned, dry and frozen meat
alternatives to a loyal and longstanding consumer base.
LOMA LINDA(R)
Loma Linda products complement the Worthington line with nutritious canned and
frozen meat alternatives marketed primarily to Seventh-day Adventists and other
specialty food shoppers following vegetarian dietary practices.
NATURAL TOUCH(R)
The Natural Touch brand offers a variety of products for consumers who follow
stricter dietary requirements that call for vegetarian products free of
artificial additives, flavors or colors. Natural Touch products are sold
primarily in natural food stores.
<PAGE> 7
Out Front in America's Supermarkets
Morningstar Farms (including Harvest Burgers) leads the meat alternative market
category in supermarkets across the U.S., capturing a 52% market share. As the
only brand with meat alternative products for every meal occasion, Morningstar
Farms continues to provide consumers with the largest variety of products and
tastes.
Shoppers can find the Morningstar Farms brand in more than 96% of the nation's
supermarkets. The line now includes more than two dozen frozen and refrigerated
food items to replace whole eggs and processed meats. Most of these meat
alternatives are made from high-quality soy protein, making them attractive
low-fat or fat-free choices. Most are cholesterol-free, and many provide a good
source of fiber. But what makes Morningstar Farms stand out above the
competition is the variety and great taste of its products.
Several new Morningstar Farms products are especially attractive to busy parents
looking for great-tasting, healthful, convenient foods the entire family can
enjoy. New Morningstar Farms products introduced in 1998 include:
* HARD ROCK CAFE VEGGIE BURGERS -- Through an innovative partnership with
Worthington Foods, Hard Rock Cafe(R) restaurants around the world now serve
this delicious, all natural blend of sauteed vegetables, grains and roasted
nuts. And the same great co-branded product is in supermarket freezers
across the U.S.
* BUFFALO WINGS -- A "fun food," great for kids and adults alike, these spicy
vegetarian drumettes prepared from vegetable and grain protein were an
instant success in 1998. And we expect sales in 1999 to be even stronger.
* CORN DOGS -- Frozen corn dogs make up one of the industry's top-performing
frozen food categories, and Morningstar Farms MeatFree Corn Dogs are
positioned to challenge for category leadership. Made with our own America's
Original Veggie Dogs(R), this product could become the company's number-one
seller per point of distribution in the near future.
* HARVEST BURGERS(R) -- Worthington purchased the Harvest Burgers product line
from the Archer Daniels Midland Company (ADM) in 1998. As part of the
agreement, ADM continues to produce the Harvest Burgers -- previously
marketed by Pillsbury under the Green Giant label -- at its Illinois plant.
This enables Worthington Foods to provide consumers with a variety of new
products under the Morningstar Farms name, without the significant capital
investment that would have been needed to build new production lines.
Harvest Burgers products now sold under the Morningstar Farms brand name
include Original Flavor, Southwestern-Style and Italian, as well as
pre-cooked Crumbles for Recipes.
In addition, improvements and increased distribution in 1998 led to increased
sales of two existing Morningstar Farms products:
* RECIPE CRUMBLES(TM) -- Our popular burger- and sausage-style Recipe Crumbles
were repackaged from a box to an easy-open, reclosable zipper bag.
* AMERICA'S ORIGINAL VEGGIE DOG(TM) --1998 was the first year our Veggie Dog
was available for the peak summer hot-dog-eating season, an important reason
they were so well received by retailers and consumers alike.
After successfully test marketing three refrigerated items in "modified
atmosphere packaging" (MAP) in 1997, we introduced two additional products in
the MAP format in 1998, Chik Nuggets(TM)and Breakfast Patties. MAP products are
sold in the grocer's meat case, introducing a new consumer to Morningstar Farms
products. With distribution of MAP products increased by 50%, Morningstar Farms
now offers five MAP products in 9,000 supermarkets -- and demand is growing.
<PAGE> 8
Tending to Our Roots--And Extending Our Reach
SPECIALITY MARKETS
The Speciality Markets division of our business reaches two distinct, but
related categories of consumers, Seventh-day Adventist Church members and
natural food shoppers, who are served through the Worthington, Loma Linda and
Natural Touch brands.
Sales to the Seventh-day Adventist Church are deeply rooted in the Worthington
Foods tradition. We have served this population since the company's inception 60
years ago. Worthington and Loma Linda products are sold to members, the majority
of whom follow a vegetarian diet, through approximately 60 high-volume, direct
accounts with Seventh-day Adventist Church retailers. A longstanding and loyal
customer base, these consumers rely on our large variety of products to satisfy
their vegetarian tastes.
Natural Touch products are carried in specialty food stores to address the
stricter requirements of health-food shoppers who seek vegetarian products free
of artificial additives, flavors or colors.
New or improved Specialty Markets products for 1998 included:
* LOMA LINDA CORN DOGS--We developed a new recipe for this already-popular
Worthington Foods product that reduced fat content by 50% to create a
product with even greater consumer appeal.
* VEGETARIAN TUNO(R)--Now available in a can, this popular tuna alternative
was previously available only in frozen form. Consumers can now choose
either the Worthington or Natural Touch brand as a convenient alternative
for dishes that feature tuna as an ingredient.
* NATURAL TOUCH TOASTER SQUARES--Toaster Squares provide a healthful entry
into the growing "hand-held breakfast" market. Made with fruit, wholesome
grains and other all-natural ingredients, Toaster Squares come in blueberry
and date & walnut flavors.
* HARD ROCK CAFE VEGGIE BURGER--This exciting new product was also introduced
under the Natural Touch label in 1998.
FOODSERVICE
We successfully introduced Morningstar Farms brand products into several highly
visible national and regional restaurant chains in 1998. Rain Forest Cafe,
Planet Hollywood and Hard Rock Cafe were among the leading chains adding
Morningstar Farms products to their menus. Additional growth came from expansion
into new franchisees' operations at national chain customers Subway and Blimpie
International.
We also positioned the company for continued growth in other important "away
from home" market segments, most notably the college & university and health
care segments. Many of the nation's leading universities have added multiple
Morningstar Farms products to their menus.
The Foodservice group also successfully launched test markets with two of the
largest operations in the club store channel, Costco Wholesale and BJ's
Wholesale Club. These tests, initiated during the fourth quarter of 1998, have
met with an initial positive response from both consumers and the clubs.
INTERNATIONAL MARKETS
Our International group laid a strong foundation for the future in 1998, with
special focus on our Morningstar Farms branded business. Exports for retail and
specialty foods totaled almost $7 million -- or 5% of total company revenues.
Export sales were up 5% over 1997, and we developed new business plans and
strategies, many of which will be implemented in 1999 with new partners in
Europe and the Asia Pacific region. New products not available in the U.S. will
be introduced overseas. And we will continue to develop our global brand
strategy for Morningstar Farms. It's a strategy that positions us well to meet
our growth objectives.
<PAGE> 9
Newer, Faster, Better
RESEARCH & DEVELOPMENT
Research & Development plays a vital role in retaining Worthington Foods'
leadership in the meat alternative category. Our aggressive approach to new
product development over the past several years continued in 1998 with the
introduction of 18 new products.
Uniquely different tastes and textures set our 1998 new products apart from our
competitors'. Our talented nutritionists and food technologists are never
content with merely creating flavor alternatives of the same basic product.
Instead, we continue to be the innovative leader in the meat alternative
category.
We also made significant nutritional, taste and texture improvements to dozens
of existing products, including improvements to the taste and texture of our
popular Better'n Burgers(TM). We developed new recipes for 25 products in 1998
to reduce the amount of hydrogenated fat--resulting in even healthier, lower-fat
product offerings.
OPERATIONS
With increased growth comes the ongoing challenge to keep pace with anticipated
product demand. In 1998 we implemented many improvements, partnerships and
innovative solutions that will enable us to maintain our leadership in the years
to come. 1998 operations highlights included:
* The successful negotiation of a new five-year labor contract covering 320
employees at the Worthington plant. n The addition of two new production
lines in Zanesville to handle the increased demand for crumble and Modified
* Atmosphere Package products. This $1 million expansion included the
installation of automated weighing and bagging equipment and positions us
solidly for the expected growth of these products.
* Groundbreaking on the expansion of the frozen storage warehouse in
Zanesville. Scheduled for completion in the first half of 1999, this will
add 53,000 square feet of storage -- more than double the space needed to
meet current demand.
* The upgrade of steam production capability at the Worthington facility with
the addition of new boilers and automated controls.
* The repair and upgrade of blast freezing capabilities at the Worthington
plant through the replacement of refrigeration equipment and control
systems.
<PAGE> 10
Selected Consolidated Financial Data
The following table summarizes certain selected consolidated financial data for
the periods indicated and is derived from the Consolidated Financial Statements
of the Company. The Consolidated Financial Statements for each of the five years
ended December 31, 1998 have been audited by Ernst & Young LLP, independent
public accountants. The data presented below should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto included
elsewhere in this Report. All per share amounts have been adjusted to reflect
the four-for-three share splits in December, 1997 and December, 1996, and also
the five-for-four share split in December, 1995.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $ 139,492 $117,944 $109,075 $91,075 $88,220
Cost of goods sold 79,165 69,223 65,954 54,893 55,575
---------- --------- --------- -------- --------
Gross profit 60,327 48,721 43,121 36,182 32,645
Selling and distribution expenses 39,863 29,936 25,752 21,736 20,945
General and administrative expenses 3,489 3,359 3,242 3,289 2,889
Research and development expenses 1,665 1,413 1,280 1,227 1,370
---------- --------- --------- -------- --------
Total expenses 45,017 34,708 30,274 26,252 25,204
Gain from sale of refrigerated egg assets -- -- -- -- 1,578
---------- --------- --------- -------- --------
45,017 34,708 30,274 26,252 23,626
---------- --------- --------- -------- --------
Income from operations 15,310 14,013 12,847 9,930 9,019
Interest expense 1,714 1,471 1,164 1,138 1,811
---------- --------- --------- -------- --------
Income before income taxes 13,596 12,542 11,683 8,792 7,208
Provision for income taxes 5,574 4,535 4,290 3,561 2,876
---------- --------- --------- -------- --------
Net income $ 8,022 $ 8,007 $ 7,393 $ 5,231 $ 4,332
=========== ========= ======== ======== ========
Earnings per share
Basic $ 0.68 $ 0.70 $ 0.65 $ 0.47 $ 0.39
=========== ========= ======== ======== ========
Diluted $ 0.66 $ 0.67 $ 0.63 $ 0.45 $ 0.39
=========== ========= ======== ======== ========
Dividends per share $ 0.09 $ 0.08 $ 0.07 $ 0.06 $ 0.05
=========== ========= ======== ======== ========
Weighted average number of common and common
equivalent shares used in computing earnings per share
Basic 11,847 11,516 11,332 11,246 11,202
Diluted 12,214 12,016 11,802 11,552 11,238
BALANCE SHEET DATA (AT YEAR END):
Working capital $ 35,554 $ 25,112 $ 20,130 $ 16,987 $ 15,182
Total assets 120,949 95,486 80,738 69,933 61,578
Total long-term debt 26,583 22,333 17,960 12,790 13,646
Total shareholders' equity 72,789 56,416 48,730 41,968 37,098
</TABLE>
<PAGE> 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS: The following table sets forth for the years indicated
information derived from the Company's Consolidated Statements of Income
expressed as a percentage of net sales and the percentage change in the dollar
amount of such items compared to the prior period.
<TABLE>
<CAPTION>
Percentage
Percentage of Net Sales Increase(Decrease)
Years Ended December 31, ---------------------------
---------------------------------- 1998 Over 1997 Over
1998 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 18.3% 8.1%
Cost of goods sold 56.8 58.7 60.5 14.4 5.0
------- ------ -------
Gross profit 43.2 41.3 39.5 23.8 13.0
Selling and distribution expenses 28.5 25.4 23.6 33.2 16.2
General and administrative expenses 2.5 2.8 3.0 3.9 3.6
Research and development expenses 1.2 1.2 1.1 17.8 10.4
------- ------ -------
Total expenses 32.2 29.4 27.7 29.7 14.6
------- ------ -------
Income from operations 11.0 11.9 11.8 9.3 9.1
Interest expense 1.2 1.3 1.1 16.5 26.4
------- ------ -------
Income before income taxes 9.8 10.6 10.7 8.4 7.4
Provision for income taxes 4.0 3.8 3.9 22.9 5.7
------- ------ -------
Net income 5.8% 6.8% 6.8% 0.2 8.3
======= ====== =======
</TABLE>
RAW MATERIAL COST FLUCTUATIONS: Certain Company products are sensitive to
changes in raw material costs. As a result, operating results for comparative
periods may vary significantly. The cost of several of the Company's principal
raw materials, such as liquid and dried egg whites, dry vital gluten, vegetable
oils and caseinates are primarily dependent upon broadly and sometimes rapidly
fluctuating agricultural commodity markets. When these fluctuations occur, the
Company's resultant costs in raw materials may also fluctuate. For example,
liquid and dried egg whites are primarily dependent upon fresh shell egg prices,
yolk prices and feed costs, and can fluctuate significantly. Quoted market
prices for liquid egg decreased from $0.57 per pound in late 1989 to $0.34 per
pound in December, 1998. Similarly, quoted market prices for dried egg whites
decreased from $5.20 per pound in late 1989 to $3.13 in December, 1998.
From time to time, the Company has entered into fixed price contracts for the
purchase of some or all of these raw ingredients to minimize the potential
negative impact of unfavorable price fluctuations. Such contracts can also
reduce the benefits of favorable price fluctuations. For example, during 1998
the Company purchased 90% of its dried egg white requirements under such
contracts. As a result, the company was able to purchase its egg white
requirements at an average price per pound under average market prices.
As of December 31, 1998, the Company was a party to fixed price contracts for
delivery of $3,600,000 of dried egg whites in 1999, which represents
approximately 60% of the Company's estimated 1999 dried egg white requirements.
Also, the Company has entered into fixed price contracts for delivery of
$1,750,000 and $780,000 of dry vital gluten and vegetable oils in 1999, which
represents approximately 50% of the Company's estimated requirements for these
items. The average price per pound for dried egg whites, dry vital gluten and
vegetable oils covered by the fixed purchase contracts is equal to or below 1998
prices. As a result of these contracts, the Company's raw material costs will be
more stable than would otherwise be the case. The Company expects to either
negotiate additional fixed price contracts or purchase the remainder of its
dried egg white, dry vital gluten and vegetable oil requirements at market
prices prevailing at the time of purchase.
1998 COMPARED TO 1997: Net sales in 1998 increased approximately $21,548,000 or
18.3% over 1997. Net sales in 1998 to the Company's Specialty Markets
(Seventh-day Adventist, Health Food and International) increased approximately
$4,363,000 or 5.5% over 1997. This increase in sales was driven by an increase
in Health Food sales of approximately $1,006,000 or 10.3% and an increase in
Seventh-day Adventist sales of $709,000 or 3.5%. The Company expects that these
sales trends will continue during 1999. International sales increased
approximately
<PAGE> 12
$303,000 or 4.8% over 1997. The Company believes that an important base for
future development was established during 1998.
Net sales to Foodservice accounts in 1998 increased approximately $4,363,000 or
32.8% over 1997. The Company continued its penetration into the Foodservice
marketplace with Morningstar Farms items placed on menus of leading chain
restaurants.
Net sales of Morningstar Farms products to supermarkets in 1998 increased
approximately $15,166,000 or 22.3% over 1997. Net sales of Morningstar Farms
meat alternative products in 1998 increased approximately $16,030,000 or 27.4%
over 1997. The increase in 1998 was attributable to new products such as
America's Original Veggie Dogs, Corn Dogs, Meat Free Buffalo Wings and Hard Rock
Cafe Burger as well as expanded distribution of existing items. On October 16,
1998, the Company purchased the Harvest Burgers brand of meat alternatives items
from Archer Daniels Midland Co. The Company began selling and distributing
Harvest Burgers under the Morningstar Farms brand on January 1, 1999. The
Company expects these new items to contribute significantly to sales growth in
1999 and beyond.
Gross profit as a percentage of net sales increased to 43.2 % in 1998 from 41.3%
in 1997. The increased gross profit percentage was the result of higher selling
prices and direct labor efficiencies. During the fourth quarter of 1998, gross
profit was adversely affected by a temporary increase in egg white prices and
higher manufacturing spending to achieve improved performance beginning in 1999.
Selling and distribution expenses increased as a percentage of net sales from
25.4% in 1997 to 28.5% in 1998. Significant marketing programs were implemented
during 1998 to reinforce the Company's market leadership and increase sales.
General and administrative expenses as a percent of net sales decreased from 2.8
% in 1997 to 2.5% in 1998, primarily due to efficiencies gained through
increased sales volume. Research and development expenses as a percentage of net
sales during 1998 remained the same as 1997 at 1.2%.
Interest expense in 1998 increased approximately $242,000 or 16.5% over 1997
primarily due to higher average borrowing levels for capital expansion and
higher inventory levels required for additional sales growth.
Net income in 1998 remained approximately the same as 1997 primarily due to the
increases in sales and gross profit being offset by increases in selling and
distribution expenses, interest expense and a higher state income tax rate.
1997 Compared to 1996: Net sales in 1997 increased approximately $8,869,000 or
8.1% over 1996. Net sales in 1997 to the Company's Specialty Markets
(Seventh-day Adventist, Health Food and International) increased approximately
$1,517,000 or 4.3% over 1996. This increase in sales was driven by an increase
in Health Food sales of approximately $932,0000 or 9.5%, and an increase in
International sales of approximately $639,000 or 11.2%. Net sales to the
Seventh-day Adventist market in 1997 were comparable with 1996.
Net sales to Foodservice accounts in 1997 increased approximately $1,610,000 or
13.6% over 1996.
Net sales of Morningstar Farms products to supermarkets in 1997 increased
approximately $5,741,000 or 9.2% over 1996. Net sales of Morningstar Farms meat
alternative products in 1997 increased approximately $6,840,000 or 13.3% over
1996. The increase in sales in 1997 was attributable to new products such as,
Burger Style Recipe Crumbles, Sausage Style Recipe Crumbles, and Chik Nuggets as
well as expanded distribution of existing items. During 1997, the Company began
test marketing three Morningstar Farms items in the refrigerated meatcase. This
test provided convincing evidence that this concept is one the Company must
aggressively pursue. Accordingly, the Company began a roll-out of five
refrigerated products into additional markets which were supported with
increased advertising and sales personnel. Additionally, in late 1997 the
Company introduced America's Original Veggie Dogs, which contain only one-half
gram of fat and closely resembles the texture and flavor of the best selling hot
dogs. Trade acceptance of this product has been exceptional.
The Company expects these new items to contribute significantly to sales growth.
Gross profit as a percentage of net sales increased from 39.5% in 1996 to 41.3%
in 1997. The increased gross profit percentage was the result of focused efforts
to reduce variable costs, reductions in material prices, improved operating
efficiencies at the Company's two manufacturing facilities, the elimination of
contract manufacturers, and a modest price increase that went into effect in
January, 1997. During the fourth quarter of 1997, gross profit was adversely
impacted by lower than anticipated sales and production which resulted in higher
fixed costs as a percentage of net sales.
Selling and distribution expenses increased as a percentage of net sales from
23.6% in 1996 to 25.4% in 1997. The Company expanded certain marketing and
advertising programs to further strengthen and broaden its position in the meat
alternative category, and to support both new product introductions and the
expanded distribution of its existing products. General and administrative
expenses as a percentage of net sales decreased from 3.0% in 1996 to 2.8% in
<PAGE> 13
1997, primarily due to efficiencies gained through increased sales volume.
Research and development expenses as a percentage of net sales remained
comparable, increasing slightly from 1.1% in 1996 to 1.2% in 1997.
Interest expense in 1997 increased approximately $307,000 or 26.4% over 1996
primarily due to higher average borrowing levels associated with the Company's
capital expansion at the Zanesville facility, and higher inventory levels to
support future sales growth.
Net income in 1997 increased approximately $614,000 or 8.3% over 1996, primarily
due to increased sales, increased gross profit and a lower income tax rate,
partially offset by higher selling, general and administrative expenses as well
as higher interest costs. In 1997 the Company benefited from a one-time
Investment Tax Credit from the State of Ohio in the amount of $782,000, related
to the purchase of property, plant and equipment at its Zanesville facility.
This credit reduced the Company's provision for income taxes from approximately
42.4% to 36.2%. The Company also benefited from a similar credit during 1996 in
the amount of $500,000.
LIQUIDITY AND CAPITAL RESOURCES: On January 14, 1999, the Company increased its
revolving facility from $25,000,000 to $30,000,000. The Company relies on cash
generated from operations and the $30,000,000 revolving credit facility as its
principal sources of liquidity. As of February 17, 1999, $2,100,000 of this
credit facility was unused. The Company is currently negotiating to increase its
revolving credit facility to $35,000,000. The Company believes that this new
borrowing capability plus internally generated funds will be adequate to finance
estimated growth levels into the foreseeable future.
The Company plans on spending approximately $7,800,000 to expand the frozen
distribution center in Zanesville. This expansion will allow the Company to
maintain higher finished goods inventory to support future sales growth. The
distribution center expansion is expected to be completed in the second quarter
of 1999 and will be funded through cash generated from operations and the
revolving credit facility. As of January 29, 1999, $914,000 of the $7,800,000
had been spent.
Net cash provided by operating activities decreased in 1998 primarily due to
changes in operating assets and liabilities. Net cash provided from operating
activities increased in 1997 primarily due to an increase in net income and
changes in operating assets and liabilities.
Net cash used for investing activities decreased in 1998 primarily due to lower
expenditures for property, plant, and equipment. Net cash used for investing
activities increased in 1997 due to increased expenditures for property, plant
and equipment at the Zanesville facility. The Company completed an $11,500,000
project at that facility in October, 1997.
Net cash provided by financing activities decreased in 1998 from 1997 primarily
due to lower borrowings for capital expenditures.
INFLATION: Although inflation has slowed in recent years, the Company continues
to seek ways to moderate any inflationary impact. To the extent possible based
on competitive conditions, the Company passes increased costs on to its
customers by increasing sales prices over time. As discussed previously, the
cost of egg whites has fluctuated in the past and the Company recognizes that
such volatility may occur in the future.
The Company uses the LIFO method of accounting for raw materials, packaging
materials and the materials content of work-in-process and finished goods. Under
this method, the cost of products sold reported in the financial statements
approximates current costs.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION REGULATIONS: The Company does not
anticipate that compliance with federal, state, and local regulations with
respect to the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have a material effect on
capital expenditures, earnings or the competitive position of the Company.
YEAR 2000: The Company intends this information to constitute notice under the
YEAR 2000 Information and Readiness Disclosure Act as "YEAR 2000 Readiness
Disclosure." The YEAR 2000 issue refers to a condition in computer software
where a two-digit field rather that a four-digit field is used to distinguish a
calendar year. Unless corrected, date sensitive software may recognize a date
using "00" as the year 1900 rather that the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations. Such an uncorrected condition could significantly interfere with the
conduct of the Company's business, including disruption of its supply,
manufacturing, processing, distribution and financial chains.
The Company has conducted as assessment of the YEAR 2000 issue and the potential
effect it will have on the Company and its business. The Company has also
prepared a formal plan for dealing with the YEAR 2000 issue. The
<PAGE> 14
plan covers information systems, financial and administrative systems, process
control and manufacturing operating systems and significant vendors and
customers. The Company is in the process of updating much of its existing
software for YEAR 2000 compliance by modifying existing software or obtaining
YEAR 2000 compliant software updates from current software providers. The
Company is utilizing internal personnel, contract programmers and vendors to
identify YEAR 2000 noncompliance problems, modify codes and test the
modifications.
While the Company believes it has made substantial progress in resolving any
YEAR 2000 issues regarding our company-wide computer mainframe system,
sufficient testing to date has not been completed to fully validate readiness.
Additional testing is planned during the first quarter of 1999. The Company is
planning to complete all necessary YEAR 2000 upgrades of its systems by June 1,
1999.
The majority of the Company's manufacturing and process equipment is currently
YEAR 2000 compliant. Equipment that is non-compliant will be modified by
purchasing YEAR 2000 compliant upgrades or replacing the equipment. Compilation
of documentation regarding YEAR 2000 compliance is currently underway and is
scheduled to be completed by June 1, 1999, as is any equipment upgrade.
The Company may also be affected by third-party suppliers that have not modified
their systems to adequately address the YEAR 2000 issue. The Company has
initiated efforts to evaluate the status of suppliers' efforts to resolve YEAR
2000 issues. The Company is monitoring the suppliers' efforts and addressing
options in case of non-compliance. These options include identification of
alternate suppliers and accumulation of inventory to assure production capacity.
These activities are intended to provide a means of managing risk, but cannot
eliminate the potential for disruption due to third party failure.
The Company is also dependent upon its customers for sales and cash flow. The
Company has also sent surveys to its customers regarding YEAR 2000 compliance.
Non-compliance by our customers could result in reduced sales, higher accounts
receivable and inventory levels and reduced cash flow to the Company. The
Company believes that its customer base is broad enough to minimize the effects
of a single occurrence, however, we are taking steps to monitor the status of
our customers as a means of determining risks and alternatives.
The possibility exists that the Company could inadvertently fail to correct a
YEAR 2000 problem. However, failure to meet testing implementation dates
identified in our readiness plan would provide advance notice and steps would be
taken correct any problem prior to January 1, 2000. The Company believes that
the impact of such an occurrence would be minor. The Company does not yet have a
comprehensive contingency plan, but plans to establish such a plan during 1999
as part of its ongoing YEAR 2000 compliance effort.
The Company continually upgrades its personal computers as part of its annual
capital budget, therefore, the Company does not anticipate any problems
regarding operating systems and ancillary software that reside on the Company's
personal computers. As of February 17, 1999, YEAR 2000 readiness has cost the
Company an estimated $162,000 and will cost approximately $200,000 in the
aggregate to complete, not including internal resources.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: Certain statements in this
Annual Report to Shareholders which are not historical fact are "forward looking
statements" within the meaning of the Private Securities Litigation Act of 1995.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results to differ materially. Such risks, uncertainties
and other factors include, but are not limited to, changes in general economic
conditions, fluctuation in interest rates, increases in raw material costs,
level of competition, market acceptance of new and existing products, capital
expenditure amounts, uninsured product liability, the effective detection and
remediation of YEAR 2000 issues by the Company and its key third party vendors,
suppliers and customers, and other factors described in detail in the Company's
Form 10-K for the year ended December 31, 1998, other filings with the
Securities and Exchange Commission and communication to shareholders.
<PAGE> 15
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,054,093 $ 714,034
Accounts receivable, less allowance of $100,000 in 1998 and 1997 13,108,572 9,754,521
Inventories:
Finished goods 18,032,394 13,874,478
Work in process 1,689,413 1,038,109
Raw materials 4,872,155 3,453,424
Packaging materials and supplies 2,356,783 1,668,111
---------------- --------------
26,950,745 20,034,122
Income taxes refundable 1,686,309 1,229,808
Prepaid expenses and other 4,936,141 3,387,130
---------------- --------------
Total Current Assets 47,735,860 35,119,615
PROPERTY, PLANT AND EQUIPMENT:
Land 837,497 781,217
Buildings and improvements 26,854,930 25,711,953
Machinery and equipment 60,820,293 53,676,850
Furniture and fixtures 2,851,163 2,714,307
Construction in progress 2,033,320 1,767,617
---------------- --------------
93,397,203 84,651,944
Less accumulated depreciation
and amortization (30,860,115) (25,639,338)
---------------- --------------
62,537,088 59,012,606
OTHER ASSETS:
Goodwill 352,248 674,520
Trade name 8,409,566 --
Intangible pension asset 1,227,036 --
Other intangible assets 687,603 679,719
---------------- --------------
10,676,453 1,354,239
---------------- --------------
TOTAL ASSETS $ 120,949,401 $ 95,486,460
================ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (including outstanding checks of
$2,634,000 in 1998 and $1,292,000 in 1997) $ 7,958,910 $ 4,730,664
Accrued compensation 764,798 512,276
Other accrued expenses 2,658,505 2,262,729
Current portion of long-term debt and capital lease obligations 800,000 2,501,572
---------------- --------------
Total Current Liabilities 12,182,213 10,007,241
LONG-TERM LIABILITIES:
Long-term debt 26,583,333 22,333,333
Minimum pension liability 1,395,200 --
Deferred income taxes 8,000,000 6,730,000
---------------- --------------
Total Long-Term Liabilities 35,978,533 29,063,333
SHAREHOLDERS' EQUITY:
Preferred shares, with no par value, authorized 2,000,000 shares -- --
Common shares, $1.00 stated value, authorized 30,000,000 shares,
issued 12,356,440 shares in 1998 and 11,580,507 shares in 1997 12,356,440 11,580,507
Additional paid-in capital 18,930,734 10,165,266
Accumulated other comprehensive income (168,164) --
Retained earnings 41,669,645 34,670,113
---------------- --------------
72,788,655 56,415,886
---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 120,949,401 $ 95,486,460
================ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 16
<TABLE>
<CAPTION>
Consolidated Statements of Income
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
-------------- --------------- --------------
<S> <C> <C> <C>
Net sales $139,491,429 $117,943,832 $109,075,223
Cost of goods sold 79,164,516 69,222,923 65,954,035
-------------- --------------- --------------
Gross profit 60,326,913 48,720,909 43,121,188
Selling and distribution expenses 39,863,678 29,935,584 25,751,508
General and administrative expenses 3,488,832 3,359,715 3,242,480
Research and development expenses 1,664,798 1,412,582 1,279,892
-------------- --------------- --------------
Total expenses 45,017,308 34,707,881 30,273,880
Income from operations 15,309,605 14,013,028 12,847,308
Interest expense 1,713,809 1,471,500 1,164,353
-------------- --------------- --------------
Income before income taxes 13,595,796 12,541,528 11,682,955
Provision for income taxes:
Currently payable (refundable):
Federal 3,139,000 2,880,000 3,325,000
State and local 1,165,000 (250,000) 305,000
Deferred 1,270,000 1,905,000 660,000
-------------- --------------- --------------
5,574,000 4,535,000 4,290,000
-------------- --------------- --------------
Net income $ 8,021,796 $ 8,006,528 $ 7,392,955
============== =============== =============
Earnings per share
Basic $ 0.68 $ 0.70 $ 0.65
============== =============== =============
Diluted $ 0.66 $ 0.67 $ 0.63
============== =============== =============
Weighted average number of common and common
equivalent shares used in computing earnings per share
Basic 11,847,407 11,515,851 11,331,961
Diluted 12,213,966 12,015,552 11,801,922
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997, and 1996
Common Shares Accumulated
------------------------- Additional Other Total
Number Paid-In Retained Deferred Comprehensive Shareholders'
Of Shares Amount Capital Earnings Compensation Income Equity
------------ ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996 11,301,126 $ 11,301,126 $ 9,732,403 $ 20,955,278 $ (20,795) $ -- $41,968,012
Net income -- -- -- 7,392,955 -- -- 7,392,955
Exercise of options at
$3.10 - $5.06 per share 91,775 91,775 44,153 -- -- -- 135,928
Amortization of deferred
compensation -- -- -- -- 20,795 -- 20,795
Dividends at $0.07 per share -- -- (787,199) -- -- (787,199)
------------ ------------ ------------ ------------ ------------ ------------ -----------
BALANCES AT DECEMBER 31, 1996 11,392,901 11,392,901 9,776,556 27,561,034 -- -- $48,730,491
Net income -- -- -- 8,006,528 -- -- 8,006,528
Exercise of options at
$3.10 - $8.72 per share 187,606 187,606 388,710 -- -- -- 576,316
Dividends at $0.08 per share -- -- -- (897,449) -- -- (897,449)
------------ ------------ ------------ ------------ ------------ ------------ -----------
BALANCES AT DECEMBER 31, 1997 11,580,507 11,580,507 10,165,266 34,670,113 -- -- 56,415,886
Net income -- -- -- 8,021,796 -- -- 8,021,796
Other comprehensive income -
minimum pension liability
adjustment -- -- -- -- -- (168,164) (168,164)
-----------
Comprehensive income -- -- -- -- -- -- 7,853,632
Exercise of options at
$3.10 - $13.36 per share 287,183 287,183 884,218 -- -- -- 1,171,401
Purchase of trade name 488,750 488,750 7,881,250 -- -- -- 8,370,000
Dividends at $0.09 per share -- -- -- -- -- (1,022,264)
------------ ------------ ------------ ------------ ------------ ------------ -----------
BALANCES AT DECEMBER 31, 1998 12,356,440 $ 12,356,440 $ 18,930,734 $ 41,669,645 $ -- $ (168,164) $72,788,655
============ ============ ============ ============ ============ ============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,021,796 $8,006,528 $ 7,392,955
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,384,624 4,526,327 3,804,291
Deferred income taxes 1,270,000 1,905,000 660,000
Amortization of intangible assets 357,024 362,024 357,024
Deferred compensation -- -- 20,795
Cash provided by (used for) current assets and liabilities:
Accounts receivable (3,354,051) (1,090,369) (1,228,263)
Inventories (6,916,623) (2,615,188) 573,241
Prepaid expenses and other (1,549,011) (1,056,721) (724,148)
Accounts payable and accrued expenses 3,876,544 (86,852) (1,738,136)
Income taxes (456,501) (1,101,622) (226,814)
(Increase) decrease in other assets (82,202) 107,516 (59,739)
------------ ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,551,600 8,956,643 8,831,206
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (8,909,106) (13,977,335) (13,550,520)
------------ ----------- ----------
Net cash used for investing activities (8,909,106) (13,977,335) (13,550,520)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 91,170,000 61,999,000 48,025,000
Payments on long-term borrowings (88,621,572) (56,754,129) (42,806,126)
Proceeds from issuance of common shares 1,171,401 576,316 135,928
Dividends paid (1,022,264) (897,449) (787,199)
------------ ----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,697,565 4,923,738 4,567,603
NET INCREASE (DECREASE) IN CASH 340,059 (96,954) (151,711)
Cash at beginning of year $ 714,034 $ 810,988 962,699
------------ ----------- ----------
CASH AT END OF YEAR $ 1,054,093 $ 714,034 $ 810,988
============ ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE> 19
Notes to Consolidated Financial Statements
December 31, 1998
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEGMENT INFORMATION: Worthington Foods, Inc. (the Company) is one of the leading
food companies dedicated solely to developing, producing and marketing
vegetarian, egg substitute and other healthful food products. The Company
markets its products nationwide to a wide variety of customers, including
supermarkets, specialty stores and other institutional facilities. The Company
operates in only one business segment and no single customer represents more
than 10% of the Company's net sales.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Worthington Foods, Inc. and its wholly-owned subsidiary, Specialty
Foods Investment Company. All intercompany balances and transactions are
eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of the Company's cash,
accounts receivable, accounts payable, accrued compensation, other accrued
expenses and long-term debt and capital lease obligations approximate the
carrying values at December 31, 1998 and 1997.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out method (LIFO) for raw materials, packaging
materials and the materials content of work in process and finished goods. If
current costs had been used, the aforementioned inventories would have been
$417,000 and $259,000 higher than reported at December 31, 1998 and 1997,
respectively.
Labor and overhead conversion costs are determined by the first-in, first-out
method. Conversion costs are $9,107,000 and $7,341,000 of the reported inventory
values at December 31, 1998 and 1997, respectively.
ADVERTISING COSTS: Advertising costs are expensed as incurred, on an annual
basis, thus there are no advertising costs recorded as assets at December 31,
1998 or 1997. Advertising expense was approximately $21,026,000, $14,278,000 and
$11,248,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
SLOTTING COSTS: Slotting costs associated with new products or new territories
are deferred and amortized over the twelve month period following the initial
introduction. The amount deferred at December 31, 1998 and 1997 was $2,648,000
and $1,641,000, respectively. Slotting costs expensed were $2,777,000,
$2,391,000 and $1,528,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
PROPERTY AND DEPRECIATION: Property, plant and equipment are carried at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets. Assets under construction or not fully operational are not
depreciated until placed in service. Expenditures for maintenance and repairs
are charged to operations as incurred. Included in property, plant and equipment
at December 31, 1997 is $7,592,000 of equipment under capital lease obligation.
Amortization of capital lease assets is included in depreciation expense.
Accumulated amortization was $4,852,000 at December 31, 1997. The capital lease
obligation was paid in full during 1998.
GOODWILL: Goodwill acquired in the purchase of La Loma Foods, Inc. is being
amortized over 10 years using the straight-line method. Accumulated amortization
was $2,893,000 and $2,571,000 at December 31, 1998 and 1997, respectively.
TRADE NAME: On October 16, 1998, the Company purchased the Harvest Burgers brand
of meat alternative products from the Archer Daniels Midland Company. The
purchase price was paid by issuing 488,750 common shares. The purchase price of
$8.4 million is being amortized over 20 years. There was no amortization expense
recognized during 1998.
OTHER INTANGIBLE ASSETS: Other intangible assets are primarily debt issuance
costs and package design costs. Debt issuance costs are being amortized using
the straight-line method over the life of the debt. Package design costs are
being amortized over a maximum of five years. Accumulated amortization was
$1,327,000 and $1,110,000 at December 31, 1998 and 1997, respectively.
EARNINGS PER SHARE: The Company calculates earnings per share based upon the
weighted average number of common shares outstanding and common share
equivalents derived from dilutive stock options and restricted share awards.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred.
STOCK-BASED COMPENSATION: In accordance with the provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation", the Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its employee stock options, and, accordingly, does not recognize
compensation expense when the exercise price of its employee stock options is
equal to the fair market value of the stock at the grant date.
<PAGE> 20
NOTE B -- CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
------------ ------------
<S> <C> <C>
9.75% notes due January 15, 2004 $ 4,933,333 $5,733,333
Bank credit agreement,
variable rates (weighted average
of 6.08% at December 31, 1998) 22,450,000 17,400,000
6.10% capital lease obligation
due October 31, 1998 -- 1,701,572
------------ ------------
27,383,333 24,834,905
Less current maturities (800,000) (2,501,572)
------------ ------------
Total long-term debt $ 26,583,333 $22,333,333
============ ===========
</TABLE>
On September 9, 1998, the Company entered into a new bank credit agreement. The
bank credit agreement provides for $25,000,000 total borrowings and extends
through August 31, 2003. Under the agreement, the Company borrows at an interest
rate not to exceed the prime rate (7.75% at December 31, 1998). The Company is
required to pay a fee of 1/5% per annum on the unused portion of the credit
agreement. Available borrowings under this credit agreement were $2,550,000 at
December 31, 1998. The bank credit agreement and the 9.75% notes are secured by
accounts receivable and inventory. On January 14, 1999, the Company amended the
agreement to increase the total borrowing level to $30,000,000.
The Company's credit arrangements provide for, among other things, the
maintenance of certain minimum financial requirements and restrictions on
investments, acquisitions, purchases and borrowings. In addition, the credit
agreement limits payments of dividends and purchases of common shares to
$3,000,000 plus 75% of net income earned subsequent to December 31, 1989
($28,523,000 available at December 31, 1998). Prior to January 15, 1999, the
Company could not prepay its 9.75% note without incurring a prepayment penalty.
Additionally, if the Company elects to prepay the note, it must pay the lender
the present value of the remaining interest due through the original due date.
Maturities of long-term debt during the next five years are: 1999--$800,000;
2000--$800,000; 2001--$833,000; 2002--$833,000; 2003--$23,283,000 and thereafter
- --$834,000.
Interest expense of $157,000, $430,000 and $245,000 was capitalized during 1998,
1997 and 1996, respectively, in connection with the Company's construction
activities. Interest paid during 1998, 1997 and 1996 was $1,814,000, $1,913,000
and $1,419,000, respectively.
NOTE C -- OPERATING LEASES
The Company rents warehouse space for distribution of its finished products. In
addition, the Company leases certain equipment and motor vehicles for use in its
operations. Rental expense amounted to $909,000, $909,000 and $1,244,000 for
1998, 1997 and 1996, respectively. At December 31, 1998, future minimum lease
payments are: 1999--$318,000; 2000--$321,000; 2001--$401,000; 2002--$326,000;
2003--$141,000.
NOTE D -- PENSION PLANS
The Company has a defined benefit pension plan covering substantially all of its
hourly employees. The Plan provides retirement benefits that are based on length
of service and age. The Company's funding policy is to contribute annually the
minimum amount required by applicable regulations.
<PAGE> 21
The following sets forth the Plan's funded status for the years ended December
31, 1998 and 1997: December 31
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning
of year $ 2,875,672 $ 2,185,369
Service Cost 315,305 248,804
Interest Cost 185,422 156,956
Actuarial Loss 719,148 331,092
Benefits Paid (49,279) (46,549)
Amendment 1,222,625 --
----------- -----------
Benefit Obligation at End of Year $ 5,268,893 $ 2,875,672
=========== ===========
Change in plan assets
Fair value of plan assets at
beginning of year $ 3,749,355 $ 2,848,645
Actual return on plan assets 158,006 712,723
Employer Contributions 250,865 234,536
Benefits paid (49,279) (46,549)
----------- -----------
Fair value of plan assets at
end of year $ 4,108,947 $ 3,749,355
=========== ===========
RECONCILIATION OF FUNDED STATUS
Funded status (underfunded)/
overfunded $(1,159,946) $ 873,683
Unrecognized net actuarial
(gain)/loss 240,248 (634,986)
Unrecognized transition asset (72,084) (90,807)
Unrecognized prior service cost 1,227,036 5,062
----------- -----------
Prepaid benefit cost $ 235,254 $ 152,952
=========== ===========
ADDITIONAL MINIMUM
LIABILITY DISCLOSURES
Minimum pension liability $(1,395,200) $ --
Intangible asset $ 1,227,036 $ --
Other comprehensive income $ 168,164 $ --
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 315,305 $ 248,804
Interest cost 185,422 156,956
Expected return on plan assets (295,289) (228,273)
Recognized net actuarial gain (18,803) (15,678)
Amortization of transition asset (18,723) (18,723)
Amortization of prior service cost 651 651
----------- ------------
Net periodic benefit cost $ 168,563 $ 143,737
=========== ============
December 31
1998 1997
------------ ------------
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 5.50% 6.50%
Expected long term rate of return 8.00% 7.75%
Weighted average rate of
compensation increase N/A N/A
Amortization method Straight-line Straight-line
</TABLE>
Salaried employees are covered by a 401(k) plan and an employee stock ownership
plan (ESOP). The Company contributes to the 401(k) plan 50% of the employee's
contribution, up to 2.0% of the employee's annual salary. Additional
contributions may be made on behalf of the employees at the discretion of the
Company. During 1997, the Company elected to discontinue contributions to the
ESOP. The ESOP owns 741,927 common shares of the Company, all of which are
allocated to participants as of December 31, 1998. The Company recognizes as
expense during the year the plan contributions and any administrative expenses
related to the plans.
The Company also provides additional retirement benefits to selected key
employees through a supplemental executive retirement plan (SERP). Contributions
to the plan are based on an amount projected to fund targeted benefits under the
provisions of the plan. There was no contribution to the SERP during 1998 and
1997.
<TABLE>
<CAPTION>
The Company's expense applicable to the above plans, including administrative
expenses, is as follows:
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
Pension plan $204,000 $176,000 $247,000
ESOP 29,000 29,000 245,000
401(k) 531,000 460,000 168,000
SERP -- -- 92,000
----------- ---------- --------
$764,000 $665,000 $752,000
=========== ========== ========
</TABLE>
NOTE E -- INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
<PAGE> 22
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 7,240,000 $ 6,305,000
State and local taxes 302,000 293,000
Slotting 1,027,000 667,000
Other 53,000 47,000
----------- -----------
Total deferred tax liabilities $ 8,622,000 $ 7,312,000
----------- -----------
Deferred tax assets:
Inventory $ 284,000 $ 255,000
Accrued expenses 299,000 286,000
Other 39,000 41,000
----------- -----------
Total deferred tax assets $ 622,000 $ 582,000
----------- -----------
Net deferred tax liabilities $ 8,000,000 $ 6,730,000
=========== ===========
</TABLE>
The Company's provisions for income taxes differ from the amounts computed by
applying the federal statutory rate due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Expected tax $ 4,623,000 $ 4,264,000 $ 3,972,000
State and local taxes 809,000 129,000 241,000
Goodwill 110,000 110,000 110,000
Other 32,000 32,000 (33,000)
----------- ----------- -----------
Provision for
income taxes $ 5,574,000 $ 4,535,000 $ 4,290,000
=========== =========== ===========
</TABLE>
Taxes paid during 1998, 1997 and 1996 were $4,761,000, $3,732,000 and
$3,857,000, respectively.
During 1997 and 1996, the Company earned Investment Tax Credits from the State
of Ohio in the amounts of $782,000 and $500,000, respectively.
NOTE F -- SHAREHOLDERS' EQUITY
On October 14, 1997, the Board of Directors declared a four-for-three share
split that was distributed to shareholders of record as of November 14, 1997. On
October 22, 1996, the Board of Directors declared a four-for-three share split
to shareholders of record as of November 15, 1996. All references to number of
shares and per share information in the accompanying financial statements have
been adjusted to reflect the share splits on a retroactive basis.
On June 13, 1995, the Company's Board of Directors adopted a shareholder rights
plan by declaring a special distribution of one right to purchase one
one-hundredth of a share of Worthington Foods Series A Junior Participating
Preferred Shares (the "Preferred Shares") for each outstanding common share of
Worthington Foods for a purchase price of $92.00, subject to adjustment. The
rights were distributed on June 26, 1995, to shareholders of record as of the
close of business on that date but generally will become exercisable only if a
person or group, without the prior approval of the Board of Directors, (i)
acquires 15 percent or more of Worthington Foods common shares, or (ii)
announces a tender offer that would, if consummated, result in beneficial
ownership of 30 percent or more of its common shares.
In accordance with the terms of the rights agreement, the above-mentioned share
splits caused an adjustment in the number of Preferred Shares purchasable upon
exercise of the rights. As so, adjusted, each common share is now accompanied by
one right to purchase .0045 Preferred Shares for a purchase price of $92.00
NOTE G - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Numerator:
Net income $ 8,021,796 $ 8,006,528 $ 7,392,955
=========== =========== ===========
Denominator:
Denominator for basic
earnings per share--
-- weighted-average shares 11,847,407 11,515,851 11,331,961
Effect of dilutive outstanding
employee stock options 366,559 499,701 469,961
----------- ----------- -----------
Denominator for diluted
earnings per share
-- adjusted weighted-
average shares and
assumed conversions 12,213,966 12,015,552 11,801,922
=========== =========== ===========
Basic earnings per share $ 0.68 $ 0.70 $ 0.65
=========== =========== ===========
Diluted earnings per share $ 0.66 $ 0.67 $ 0.63
=========== =========== ===========
</TABLE>
<PAGE> 23
NOTE H -- STOCK OPTION PLANS
In 1995, the shareholders approved the Worthington Foods, Inc. 1995 Stock Option
Plan (1995 Plan) for full-time key employees of the Company. The plan authorizes
the granting of either incentive stock options or other stock options. Incentive
stock options are granted at exercise prices not less than the fair market value
of the common shares at the date of the grant while other stock options may be
granted at an exercise price of not less than $1.00. The Company has 140,019
additional options reserved for issuance under the 1995 Plan.
On April 22, 1997, the shareholders approved an amendment to the Worthington
Foods, Inc. 1993 Stock Option Plan for Non-Employee Directors. The amended plan
provides that each Non-Employee Director is granted an option at the beginning
of each term for which they are elected or re-elected as a director to purchase
10,000 common shares of the Company at the fair market value of the common
shares on the date the option is granted. Each option will be for a term of five
years and will become exercisable with respect to one-third of the grant on each
anniversary of the grant date. The Company has 250,000 additional options
reserved for issuance under this plan.
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
Opinion No. 25, "Accounting of Stock Issued to Employees" and related
Interpretations in accounting for its employee stock options, and accordingly,
does not recognize compensation costs when the exercise price of its employee
stock options is equal to the fair market value of the stock at the grant date.
If the company had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the table below.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income $ 7,305,000 $ 7,554,000 $ 7,184,000
=========== =========== ===========
Pro forma earnings per share
Basic $ 0.62 $ 0.66 $ 0.66
=========== =========== ===========
Diluted $ 0.60 $ 0.63 $ 0.61
=========== =========== ===========
</TABLE>
The estimated fair value of the options is amortized into expense over the
options' vesting period. The fair value for these options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Expected dividend yield 0.48% 0.57% 0.50%
Expected stock
price volatility 0.441 0.432 0.370
Risk free Interest rate 4.84% to 5.08% 5.38% to 6.63% 5.88% to 6.25%
Expected life of options 3 to 6 years 3 to 5 years 3 to 5 years
</TABLE>
A summary of the Company's stock option activity during 1998, 1997 and 1996, and
related information follows:
<TABLE>
<CAPTION>
1998 1997 1996
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
---------- -------------- --------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 979,686 $8.62 1,138,182 $7.61 860,493 $5.80
Granted 214,400 $13.33 53,333 $14.27 427,898 $13.00
Exercised (343,168) $6.06 (202,941) $4.21 (116,045) $3.97
Forfeited (65,992) $10.99 (8,888) $13.36 (34,164) $5.10
---------- ---------- ----------
Outstanding-end of year 784,926 $10.78 979,686 $8.62 1,138,182 $7.61
========== ========== ==========
Exercisable at end of year 485,411 607,738 579,452
========== ========== ==========
Weighted-average fair value
of options granted during the year $5.04 $5.68 $4.06
</TABLE>
<PAGE> 24
Exercise prices for options outstanding as of December 31, 1998 ranged from
$3.10 to $18.94. The weighted-average remaining contractual life of those
options is 2.5 years.
The financial effects of applying SFAS No. 123 are not likely to be
representative of the effects on reported net income for future years.
NOTE I -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table set forth certain financial data of the Company for each
thirteen week period. The financial data for each of these quarters is unaudited
but includes all adjustments, consisting of only normal recurring adjustments,
which the Company believes to be necessary for a fair presentation. These
operating results, however, are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
Income Earnings
Sales Profit Operations Income (Diluted)
- ------------------------------------------------------------------------------------------------------------
(000's omitted except per share data)
<S> <C> <C> <C> <C> <C>
1998
First quarter $ 31,310 $ 13,347 $ 4,107 $ 2,157 $ .18
Second quarter 36,038 16,224 5,304 2,870 .24
Third quarter 34,838 15,365 4,346 2,319 .19
Fourth quarter 37,306 15,391 1,553 676 .05
---------- -------- --------- -------- -------
$ 139,492 $ 60,327 $15,310 $ 8,022 $ .66
========== ======== ========= ======== =======
1997
First quarter $ 26,489 $ 10,934 $ 3,520 $ 1,855 $ .16
Second quarter 31,398 13,451 4,645 2,535 .21
Third quarter 28,805 12,546 4,321 2,359 .19
Fourth quarter 31,252 11,790 1,527 1,258 .11
---------- -------- --------- -------- -------
$ 117,944 $ 48,721 $14,013 $ 8,007 $ .67
========== ======== ========= ======== =======
1996
First quarter $ 24,353 $ 9,284 $ 2,419 $ 1,287 $ .11
Second quarter 27,548 10,781 3,300 1,991 .17
Third quarter 27,259 10,971 3,371 1,913 .16
Fourth quarter 29,915 12,085 3,757 2,202 .19
---------- -------- --------- -------- -------
$109,075 $ 43,121 $12,847 $ 7,393 $ .63
========== ======== ========= ======== =======
</TABLE>
Fourth quarter 1998 results were adversely affected by advertising costs and
materials and manufacturing costs which reduced net income by $1,700,000 or
$0.14 per share.
Fourth quarter 1997 results were adversely affected by advertising costs and
inventory variances which reduced net income by $600,000 or $0.05 per share.
<PAGE> 25
Report of Independent Auditors
Board of Directors
Worthington Foods, Inc.
We have audited the accompanying consolidated balance sheets of Worthington
Foods, Inc. and Subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Worthington Foods, Inc. and Subsidiary at December 31, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Columbus, Ohio
February 3, 1999
<PAGE> 26
Officers and Directors
ALLAN R. BULLER
Chairman of the Board, Treasurer and Director
DALE E. TWOMLEY
President, Chief Executive Officer and Director
DAVID W. FERGUSON
Vice President of International Operations
B. EUGENE FLUCK
Vice President of Manufacturing
WILLIAM T. KIRKWOOD
Executive Vice President and Chief Financial Officer
RONALD L. MCDERMOTT
Vice President of Research and Technology, Secretary
JAY L. ROBERTSON
Senior Vice President of Retail Sales
DAVID L. SCHWANTES
Vice President of Marketing
JOAN M. LIEB
Assistant Secretary
ROGER D. BLACKWELL**
Professor of Marketing, The Ohio State University
Director, 1992
EMIL J. BROLICK**
Senior Vice President, Strategic Planning, Research and
New Product Marketing, Wendy's International, Inc.
Director, 1997
GEORGE T. HARDING, IV*
Chairman, Board of Trustees, Harding
Director, 1982
DONALD G. ORRICK**
Retired Dentist
Director, 1983
WILLIAM D. PARKER*
Retired President of Kroger Columbus, Ohio
Director, 1995
FRANCISCO J. PEREZ*
President and Chief Executive Officer,
Kettering Medical Center
Director, 1997
DONALD B. SHACKELFORD*
Chairman, Fifth Third Bank of Columbus
Director, 1991
* Member of Audit Committee
** Member of Executive Compensation Committee
<PAGE> 27
Shareholder Information
MARKET INFORMATION FOR COMMON SHARES
The Company's common shares trade on the Nasdaq National Market tier of the
Nasdaq Stock Market under the Symbol "WFDS." The following table sets forth, for
the quarterly periods shown, the high and low sale price per share as reported
on the NASDAQ-National Market System. All per share amounts have been adjusted
to reflect the four-for-three share splits in December, 1997 and December, 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- --------------- ------------------
High Low High Low High Low
--------- --------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $17.00 $9.88 $16.31 $13.31 $9.28 $7.17
Second Quarter $21.13 $14.00 $18.75 $12.75 $9.70 $8.16
Third Quarter $21.25 $15.75 $18.38 $15.00 $14.63 $9.00
Fourth Quarter $21.94 $16.75 $18.38 $12.75 $14.91 $11.81
</TABLE>
As of February 17, 1999, there were approximately 720 holders of record of
common shares, without determination of the number of individual participants in
security positions.
DIVIDENDS
The Company has paid quarterly cash dividends on its common shares since 1983.
The annual rate was $0.09 and $0.08 per common share or approximately $1,022,000
and $897,000 during 1998 and 1997, respectively. On February 23, 1999, the
Company's Board of Directors declared a $0.0215 per common share dividend
payable on April 30, 1999 to shareholders of record as of March 26, 1999.
The payment of cash dividends in the future will depend on the Company's
earnings, financial condition, capital requirements, loan agreement restrictions
and other factors considered relevant by the Board of Directors. There can be no
assurance that the Company will in the future pay any cash dividends. The
Company's loan agreements restrict its ability to pay dividends. The amount
available and unrestricted for the payment of dividends as of December 31, 1998
was approximately $28,523,000. See Note B of the Company's notes to the
Consolidated Financial Statements.
MARKET MAKERS
Firms making a primary market in Worthington Foods, Inc. common shares at
February 17, 1999, include the following:
ADAM
Adams Harkness & Hill, Inc.
BAUM
George K. Baum & Co.
BRAD
J.C. Bradford & Co.
BTAB
BT Alex Brown
HRZG
Herzog, Heine, Geduld, Inc.
MASH
Mayer & Schweitzer, Inc.
MDLD
McDonald & Company Securities, Inc.
MONT
NationsBanc Montgomery Securities
OHIO
The Ohio Company
PIPR
Piper Jaffray Companies, Inc.
RHCO
Robinson Humphrey Company, Inc.
SHWD
Sherwood Securities Corp.
SLKC
Spear, Leeds & Kellogg
TSCO
Troster Singer Corporation
WBLR
William Blair & Company L.L.C.
WEDB
Wedbush Morgan Securities Inc.
<PAGE> 28
GENERAL COUNSEL
VORYS, SATER, SEYMOUR and PEASE LLP
Columbus, Ohio
CERTIFIED PUBLIC ACCOUNTANTS
ERNST & YOUNG LLP
Columbus, Ohio
TRANSFER AGENT
NATIONAL CITY BANK
Stock Transfer Department
P.O. Box 92301
Cleveland, OH 44193-0900
(800) 622-6757
FORM 10-K
A copy of the Annual Report on Form 10-K for the fiscal year ended December 31,
1998 is available without charge to any shareholder upon written request
directed to Joan Lieb at Worthington Foods, Inc., 900 Proprietors Road,
Worthington, Ohio 43085 or can be accessed on the internet at
www.investquest.com.
NOTICE OF ANNUAL MEETING
Shareholders are cordially invited to attend the Worthington Foods, Inc. 1999
Annual Meeting on April 20, 1999. The meeting will convene at 11:00 am at the
Radisson Hotel Columbus North, 4900 Sinclair Road, Columbus, Ohio.
Worthington Foods produces more than 150
different items to provide healthier alternatives to
meat, eggs and dairy products.
These food items are free of meat, animal fat and cholesterol.
WORTHINGTON FOODS MARKETS ITS PRODUCTS
NATIONALLY UNDER FOUR BRAND NAMES:
The Morningstar Farms(R) brand offers healthier alternatives to processed meats
and whole eggs. The line enables health motivated consumers to reduce fat and
dietary cholesterol through its "low-fat" and "fat-free" offerings.
<PAGE> 29
Morningstar Farms is distributed nationally through supermarkets and foodservice
operations and has become the #1 brand of meat alternatives.
The Worthington brand satisfies the preferences of consumers seeking premium
quality meat alternatives. The line is sold in health and specialty food stores.
The Loma Linda(R) brand complements the Worthington products by offering
nutritious meat alternatives to health and specialty food shoppers.
The Natural Touch(R) brand meets the needs of health food shoppers seeking
products free of artificial additives, flavors or colors. These products
are made from all-natural ingredients with minimal processing.
WORTHINGTON FOODS, INC.
NASDAQ Symbol-WFDS
900 Proprietors Road
Worthington, Ohio 43085
614/885-9511
Visit our internet site -- www.wdfs.com
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Worthington Foods, Inc. of our report dated February 3, 1999,
included in the 1998 Annual Report to Shareholders of Worthington Foods, Inc.
Our audit also included the financial statement schedule of Worthington
Foods, Inc. and Subsidiary listed in Item 14(a)(2). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-55842) pertaining to the 1985 Stock Option Plan, in
the Registration Statements (Form S-8 No. 33-67290 and Form S-8 No. 333-33041)
pertaining to the 1993 Stock Option Plan for Non-Employee Directors, in the
Registration Statement (Form S-8 No. 33-92222) pertaining to the 1995 Stock
Option Plan, in the Registration Statement (Form S-8 No. 333-2904) pertaining to
the Incentive Stock Purchase Plan for Eligible Employees and in the Registration
Statement (Form S-8 No. 333-36841) pertaining to the Tax Savings and Profit
Sharing Plan (October 1, 1997 Restatement) of our report dated February 3, 1999,
with respect to the consolidated financial statements of Worthington Foods, Inc.
and Subsidiary incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Worthington Foods, Inc.
ERNST & YOUNG LLP
Columbus, Ohio
March 25, 1999
- 169 -
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of Worthington Foods, Inc., an Ohio corporation, which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, an Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, hereby constitutes and appoints William T.
Kirkwood and Dale E. Twomley, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
such Annual Report on Form 10-K and to file the same with all exhibits and
financial statements and schedules thereto, and other documents in connection
therewith, including any amendment thereto, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or either of them or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has set his hand this 23rd day of
February, 1999.
Roger D. Blackwell Emil J. Brolick
- --------------------------- ---------------------------
Roger D. Blackwell Emil J. Brolick
Allan R. Buller George T. Harding, IV
- --------------------------- ---------------------------
Allan R. Buller George T. Harding, IV
Francisco J. Perez Donald B. Shackelford
- --------------------------- ---------------------------
Francisco J. Perez Donald B. Shackelford
Donald G. Orrick William D. Parker
- --------------------------- ---------------------------
Donald G. Orrick William D. Parker
Dale E. Twomley William T. Kirkwood
- --------------------------- ---------------------------
Dale E. Twomley William T. Kirkwood
- 170 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,054
<SECURITIES> 0
<RECEIVABLES> 13,109
<ALLOWANCES> 100
<INVENTORY> 26,951
<CURRENT-ASSETS> 47,736
<PP&E> 93,397
<DEPRECIATION> 30,860
<TOTAL-ASSETS> 120,949
<CURRENT-LIABILITIES> 12,182
<BONDS> 0
0
0
<COMMON> 12,356
<OTHER-SE> 60,433
<TOTAL-LIABILITY-AND-EQUITY> 120,949
<SALES> 139,491
<TOTAL-REVENUES> 139,491
<CGS> 79,165
<TOTAL-COSTS> 124,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,714
<INCOME-PRETAX> 13,596
<INCOME-TAX> 5,574
<INCOME-CONTINUING> 8,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,022
<EPS-PRIMARY> .68
<EPS-DILUTED> .66
</TABLE>
