<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Fiscal Year Ended December 28, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 .
Commission File No. 1-9973
THE MIDDLEBY CORPORATION
------------------------
(Exact name of Registrant as specified in its charter)
Delaware 36-3352497
-------- ----------
(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) Number)
1400 Toastmaster Drive, Elgin, Illinois 60120
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-741-3300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common stock,
par value $0.01 per share
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. ( )
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 14, 1997 was approximately $29,025,000. The number of
shares outstanding of the Registrant's class of common stock, as of March 14,
1997, was 8,470,938 shares.
Documents Incorporated by Reference
-----------------------------------
Part III of Form 10-K incorporates by reference the Company's definitive proxy
statement to be filed pursuant to Regulation 14A in connection with the 1997
annual meeting of stockholders.
<PAGE>
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
DECEMBER 28, 1996
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 7
Item 3. Legal Proceedings................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.............. 8
Item 4A. Executive Officers of the Registrant............................. 8
PART II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters................................. 9
Item 6. Selected Financial Data..........................................10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................11
Item 8. Financial Statements and Supplementary Data......................14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................37
PART III
Item 10. Directors and Executive Officers of the Registrant...............37
Item 11. Executive Compensation...........................................37
Item 12. Security Ownership of Certain Beneficial Owners
and Management..............................................37
Item 13. Certain Relationships and Related Transactions...................37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................37
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PART 1
Item 1. Business
- ----------------
General
- -------
The Middleby Corporation ("Middleby" or the "Company"), through its operating
subsidiary Middleby Marshall Inc. ("Middleby Marshall") and Middleby Marshall's
subsidiaries and their operating divisions, is engaged in the design,
manufacture and sale of commercial and institutional foodservice equipment. The
Company designs, develops, manufactures and markets a broad line of equipment
used for the cooking and preparation of food for commercial and institutional
kitchens and restaurants throughout the world.
On January 23, 1997, the Company sold substantially all of the assets of its
Victory Refrigeration Company ("Victory") subsidiary to an investor group led by
local management at Victory. Proceeds from the sale, as well as from the sale
and leaseback of the Victory facility to an unrelated third party which was
completed on December 27, 1996, were expected to amount to $11.8 million, less
amounts for retained liabilities and transaction costs aggregating $2.6 million.
The net proceeds, which were used to reduce debt, are subject to post closing
adjustments. The following discussion of the Company excludes Victory.
Principal Products and Operating Divisions
- ------------------------------------------
The Company's operations are conducted principally through two domestic and two
international business units. Each of the business units operates independently
of the others with its own management, marketing, manufacturing and product
development capabilities. The business unit Presidents or General Managers
report to the Company's President and Chief Executive Officer, and the Company's
corporate staff performs cash management, capital expenditure authorization,
financial reporting, planning, corporate accounting, and certain other
marketing, service and operations management, and administrative functions.
Middleby Cooking Systems Group, Elgin, IL
-------------------------------
The principal product lines manufactured at this operating division are
Middleby Marshall-Registered Trademark- conveyor ovens, CTX-Registered
Trademark- infrared ovens, Toastmaster-Registered Trademark- counterline
cooking and warming equipment, and Titan-Registered Trademark- mixers. The
Middleby Marshall and CTX products and the Toastmaster and Titan products
are handled through two distinct independent sales and marketing
divisions within the Cooking Systems Group.
Middleby Marshall is one of the leading producers of conveyor cooking equipment
in the world. Its conveyor ovens utilize a patented process, "Jet-Sweep"-TM- air
impingement, that forces heated air at high velocities through a system of
nozzles above and below the food product which is placed on a moving conveyor
belt. This process achieves faster baking times and greater consistency of bake
than conventional ovens. As a manufacturer of baking and cooking equipment since
1888, Middleby Marshall is renowned for quality and durability. Its ovens are
used by the majority of major global and domestic pizza chains and other
restaurants and institutions.
1
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The CTX line of conveyor ovens utilizes patented infrared cooking and precision
control technology.
Toastmaster commercial electric cooking and warming equipment includes
toasters, hot food servers, foodwarmers, griddles, fryers, convection
ovens and ranges. Toastmaster products feature energy saving and food safety
technologies such as that offered in the Accumiser-TM- griddle. As a
long-term supplier to major restaurant chains, Toastmaster has developed
the capabilities to provide customized equipment for a chain's
particular needs. An example is the development of a conveyor toaster
for a major quick service chain, resulting in improved operating
efficiencies and less food waste. Toastmaster also has distribution
arrangements with a European manufacturer of rotisserie cooking and
merchandising display equipment. In 1996, Toastmaster entered into
another arrangement with the same European manufacturer to distribute
the RoFry-Registered Trademark- oil-less fryer on an exclusive basis in
North and South America and on a non-exclusive basis in certain other
areas of the world. The RoFry trademark is owned by its European manufacturer.
The Company also has a distribution agreement with a European manufacturer to
distribute Rational Combi-Steamers in North America.
The Company does not produce consumer products under the
Toastmaster-Registered Trademark- name, as the rights to the Toastmaster
brand name for consumer markets are owned by an unaffiliated company,
Toastmaster, Inc.
Southbend, Fuquay-Varina, NC
----------
Southbend-Registered Trademark- designs, manufactures and markets core
cooking equipment specified for use by the professional chef, as well as
standardized equipment for general use in restaurants and institutions.
Principal products are heavy duty gas ranges, convection ovens, broilers,
fryers and griddles. Southbend also offers a broad line of steam cooking
equipment under the SteamMaster-Registered Trademark- name, some of which
it produces and some of which is produced for it by other manufacturers.
Asbury Associates, Inc., Miramar, FL
------------------------
Asbury Associates ("Asbury") is an export management and distribution
company engaged in the representation and distribution of foodservice
equipment. Asbury sells the Company's product lines and certain
non-competing product lines of other American and European manufacturers
throughout the world (except for Canada, where the Company has a
distribution company division under the name of Escan). Asbury is
headquartered in Miramar, Florida with Asian sales and administrative
operations based in Manila, the Philippines. Asbury has sales offices in
Bilbao, Spain; Paris, France; Taipei, Taiwan; Shanghai, China; Tokyo, Japan;
Jakarta, Indonesia; Jeddah, Saudi Arabia; Mexico City, Mexico; and Sao Paulo,
Brazil. The Company acquired a majority interest in Asbury in April, 1990,
which was increased to 80% in 1991. Asbury has established three additional
business units: ICES, a foodservice equipment dealer in the Philippines,
Asbury S.L., a foodservice equipment distributor in Spain and France, and
Asbury Taiwan Co. Ltd., a foodservice equipment distributor in Taiwan.
Distribution companies in Mexico, Japan and Korea are expected to be
established in 1997.
2
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Asbury has the ability to offer customers a complete package of equipment,
delivered and installed in over 100 countries throughout the world. For a local
country distributor or dealer, Asbury provides centralized sourcing of a broad
line of American and European equipment with complete export management
services, including export documentation, freight forwarding, equipment
warehousing and consolidation, installation, warranty service and parts support.
Middleby Philippines Corporation, the Philippines
---------------------------------
Middleby Philippines Corporation ("MPC") was incorporated in 1995 as part of a
major expansion of the Company's manufacturing capabilities in the Philippines.
The Company owns 80% of MPC, with the remaining 20% being owned by local
management. Its operations were moved in April, 1996 into a newly constructed
54,000 square foot facility outside of Manila. At that facility, MPC designs,
engineers, fabricates and installs semi-custom kitchen equipment units used
primarily in conjunction with standard equipment manufactured in the United
States to make a complete kitchen installation. This operation also manufactures
certain kitchen equipment for sale in Asian markets. MPC's customers are
primarily Asian operations of major foodservice chains and hotels.
MPC's predecessor, Fab-Asia, Inc. ("Fab-Asia"), was formed in 1991 at which time
the Company acquired a majority interest. The Company increased its ownership
interest in MPC to 80% in 1994. The operating assets of Fab-Asia were
transferred to MPC on January 1, 1996.
The Market and Customers
- ------------------------
The Company's products are sold primarily through independent dealers and
distributors for use in the commercial and institutional foodservice industry.
Certain large restaurant and hotel chain customers own purchasing organizations
that manage product procurement for their own systems. End-user customers
include full service restaurants, quick service restaurants, cafeterias, hotels
and resorts, recreational and sports facilities, retail outlets such as
supermarkets and convenience stores, and private and public institutions, such
as schools, hospitals, long-term care facilities, correctional facilities,
military establishments and government agencies. The products are marketed in
the United States and in over 100 countries through a combination of the
Company's own sales personnel and international marketing subsidiaries, and an
extensive network of independent dealers, distributors, consultants, sales
representatives and agents.
During the past several decades, growth in the foodservice market in the United
States has been driven primarily by population growth, economic growth and
demographic changes, including the emergence of families with multiple
wage-earners and growth in the number of higher-income households, leading to a
demand for convenience in food preparation and consumption. Eating out and carry
out continue to be on an upward trend in the U.S., though slower than the 1970's
and 1980's due to lower economic growth. Higher growth is evidenced in the
international markets as U.S. national restaurant concepts, particularly quick
service chains, increasingly enter those markets. Aggressive expansion in
3
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international markets is expected to be driven by the explosive population
growth and economic development in nonindustrialized and industrializing
nations, along with the favorable operating economics for the foodservice
operator.
The foodservice equipment market generally has grown in response to the primary
growth factors of the foodservice industry noted above. However, large
foodservice chains generally have a greater influence on the equipment market as
a result of new store openings, remodeling and upgrade programs and equipment
purchases to support new menu items. According to published industry sources,
the foodservice equipment market in the U.S. increased 6.2% to $6.21 billion in
1996 and is expected to grow by 6.6% in 1997. The industry's top 50 specifying
chain giants, per a leading publication, grew by an even larger percentage
during 1996 led by new construction and nontraditional site development.
The United States has had only moderate growth in the foodservice equipment
market since the economic downturn of 1991-1992. The international foodservice
equipment market, however, has grown more substantially. The Company believes
that the ability to support the domestic and international growth of foodservice
and hotel chains through worldwide sales and service networks will be a key
element in establishing its market position.
International sales accounted for approximately 37% of total sales in fiscal
1996, 36% of total sales in fiscal 1995 and 35% of total sales in fiscal 1994.
No customer accounted for more than 10% of sales in fiscal 1996, 1995 or 1994.
The backlog of orders was $15,017,000 at December 28, 1996, all of which is
expected to be filled during 1997. The Company's backlog was $11,253,000 at
December 30, 1995. The backlog is not necessarily indicative of the level of
business expected for the year, as there is generally a short time between order
receipt and shipment for the majority of the Company's products.
Marketing and Distribution
- --------------------------
Each of the Company's business units is responsible for the marketing of its
products, under the direction of the unit's President or General Manager, Sales
Manager and supporting personnel. Each business unit manages its own sales,
promotion and marketing programs with coordination and support from corporate
sales and marketing functions.
The Company's marketing strategy is conducted through each of the principal
distribution channels to reach the worldwide foodservice market. These are:
direct sales to the major foodservice chains; sales to foodservice equipment
dealers for distribution to the broader foodservice market; sales through
consultant-specifiers representing large project equipment installations; and
international sales primarily through the Asbury distribution organization. The
Company's relationships with major national restaurant chains is primarily
handled through an integrated effort of top-level executive and sales management
at the corporate and division level to best service the customers' needs.
Management believes that its extensive capabilities in engineering,
manufacturing, field service and technical sales support enables the Company to
respond effectively to a chain's requirements.
4
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There is a broad base of non-exclusive foodservice equipment dealers in the U.S.
serving the independent end-users. The Company's products are marketed through a
combined network of approximately 2,000 foodservice equipment dealers, who in
turn are supported by over 300 manufacturers' marketing representatives.
International sales are primarily made through Asbury's distribution network to
larger end-users and to independent local country distributors and dealers. The
Company's products are serviced by independent service agencies, and supported
through a factory training and certification program for technicians.
Competition
- -----------
In general, the foodservice equipment industry is highly competitive and
fragmented. Within a given product line, the industry remains fairly
concentrated, with typically a small number of competitors accounting for the
bulk of the line's industry-wide sales. Industry competition includes companies
who manufacture a broad line of commercial foodservice equipment products and
those who specialize in a particular product line. Competition in the industry
is based upon many factors, including name recognition, product features and
design, quality, price, serviceability, after-market service and deliverability.
The Company attempts to differentiate its products through advanced
technological features and benefits. Management believes that the demand for
labor saving, energy efficient and flexible equipment will increase, driven by
quick service chains that face labor supply issues, space limitations and
increasing operating costs. The Company also focuses on the user interface and
serviceability factors across its global product markets.
In the international markets, the Company competes with U.S. manufacturers and
numerous local competitors. Management believes the Company's international
export management and distribution capabilities uniquely position it to provide
value-added services to the U.S. and international based chains, as well as to
local country distributors offering a complete line of kitchen equipment.
The Company believes it is among the largest multiple-line manufacturers of
foodservice equipment, both in the United States and worldwide, though some of
its competitors are units of operations which are larger than the Company and
possess greater financial and personnel resources. Among the Company's major
domestic competitors are Welbilt Corporation (a subsidiary of Berisford
International plc), Specialty Equipment Companies, Inc., G.S. Blodgett Corp.,
and Hobart and Vulcan Hart (which are both units of Premark International,
Inc.).
Sources of Supply
- -----------------
The Company purchases its raw materials and component parts from a number of
suppliers. The majority of the Company's material purchases are standard
commodity-type materials, such as stainless steel, electrical components,
hardware and various components. Such materials and parts generally are
available in adequate quantities from numerous suppliers. Some component parts
are obtained from sole sources of supply for reasons the Company deems
advantageous. In such instances, management believes it can substitute other
suppliers as it may require. The majority of the required fabrication is done
internally through the use of automated equipment. Certain equipment and
accessories are
5
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manufactured by other suppliers for sale by the Company. The Company believes it
enjoys good relationships with its suppliers and considers the present sources
of supply to be adequate for its present and anticipated future requirements.
Licenses, Patents, and Trademarks
- ---------------------------------
Middleby Marshall has an exclusive license from Patentsmith II, Inc. to
manufacture, use and sell in the United States Jetsweep(TM) air impingement type
ovens for commercial food applications in which the interior length or width of
a rectangular cooking area, or in which the diameter of a circular cooking area,
equals or exceeds 36 inches. The Patentsmith II license covers numerous patents,
some of which extend beyond the year 2000. Middleby Marshall also holds an
exclusive sublicense from Lincoln Foodservice Products, Inc., a division of
Welbilt Corporation, to manufacture, use and sell throughout the world, other
than the United States and Japan, impingement type ovens of the above-described
dimensions for commercial food applications. This sublicense covers the foreign
analogues of the patents covered by the Patentsmith II license and grants
Middleby Marshall rights of first refusal for a similar sublicense in Japan. The
Patentsmith II license and the Lincoln sublicense expire upon the expiration of
the last patented improvement covered by the license. While the loss of the
Patentsmith II license would have an adverse effect on the Company, management
believes it is capable of designing, manufacturing and selling similar
equipment, although not as technologically advanced. Lincoln and Fuji Chubo
Setsubi Company, Ltd. are the only other foodservice equipment manufacturers
licensed under the Patentsmith II patents.
The Company holds numerous patents covering technology and applications related
to various products, equipment and systems. Management believes the expiration
of any one of these patents would not have a material adverse effect on the
overall operations or profitability of the Company.
The Company owns numerous trademarks and trade names; among them,
Middleby Marshall-Registered Trademark-, CTX-Registered Trademark-,
Southbend-Registered Trademark-, SteamMaster-Registered Trademark-,
Toastmaster-Registered Trademark- and Titan-Registered Trademark- are
registered in the U.S. Patent and Trademark Office and in various foreign
countries.
Employees
- ---------
As of December 28, 1996, the Company employed 965 persons. Of this amount,
approximately 325 were management, administrative, sales, engineering and
supervisory personnel; approximately 386 were hourly production non-union
workers; and approximately 254 were hourly production union members. Included in
these totals were 315 individuals employed outside of the United States, of
which 97 were management, sales, administrative and engineering personnel, and
218 were hourly production non-union workers. The Company's Elgin, Illinois
facility has a union contract with the International Brotherhood of Teamsters.
The current three year contract expires on May 1, 1997. It is management's
opinion that the relationships between its employees, union and management are
good.
6
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Item 2. Properties
- ------------------
The Company's principal executive offices are located in the Elgin, Illinois
manufacturing facility. The Company's property, plant and equipment are
encumbered pursuant to its current credit agreements. (See Note 4 of the Notes
to Consolidated Financial Statements.)
The principal properties of the Company are listed below:
Building
Division and Principal Square Owned/
Location Function Footage Leased
-------- -------- ------- ------
Middleby Cooking Manufacturing 207,000 Owned
Systems Group Warehousing and
Elgin, Illinois Offices
Southbend Manufacturing, 131,000 Owned
Fuquay-Varina, Warehousing and
North Carolina Offices
Asbury Assoc., Inc. Offices and 18,000 Leased(a)
Miramar, Florida Warehousing
Middleby Philippines Manufacturing and 54,000 Owned
Corporation Warehousing
Laguna, the
Philippines
Note:
(a) Lease expires October 2002, with payments of approximately $12,000 per
month.
At various other locations the Company leases small amounts of office space for
administrative and sales functions, and in certain instances limited short-term
inventory storage; these principal locations are in Manila, the Philippines;
Bilbao, Spain; Paris, France; Taipei, Taiwan; Shanghai, China; Tokyo, Japan;
Jakarta, Indonesia; Jeddah, Saudi Arabia; Mexico City, Mexico; Sao Paulo,
Brazil and Toronto, Canada.
Management believes that all of these facilities are adequate for the operation
of the Company's business as presently conducted.
7
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Item 3. Legal Proceedings
- -------------------------
The Company is routinely involved in litigation incidental to its business,
including product liability actions which are generally covered by insurance.
Such routine claims are being vigorously contested and management does not
believe that the outcome of any such litigation will have a material adverse
effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the security holders in the fourth
quarter of the year ended December 28, 1996.
Item 4A. Executive Officers of the Registrant
- ---------------------------------------------
Principal Occupation and
Principal Position and
Name Age Office with the Company
---- --- -----------------------
William F. Whitman, Jr. 57 Chairman of the Board of
the Company and Middleby Marshall
David P. Riley 50 President and Chief Executive
Officer of the Company and
Middleby Marshall
John J. Hastings 41 Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
The officers of the Company are elected annually by the Board of Directors,
hold office until their successors are chosen and qualify, and may be
removed by the Board of Directors at any time, at a duly convened
meeting of the Board of Directors or by written consent. The Company has
employment agreements with Messrs. Whitman and Riley. Laura B. Whitman, a
director of the Company, is the daughter of Mr. Whitman.
8
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PART II
Item 5. Market for Registrant's Common Equity and
- -------------------------------------------------
Related Stockholder Matters
---------------------------
On November 28, 1995, the Company's common stock became listed on the NASDAQ
National Market under the symbol "MIDD". Prior to that date, the Company's stock
was listed on the American Stock Exchange under the symbol "MBY". Set forth
below for the calendar quarters indicated are the high and low closing prices.
1996 1995
----------------- -------------
High Low High Low
---- --- ---- ---
1st Quarter 8-5/8 7 6-3/4 3-7/8
2nd Quarter 13-15/16 7-3/8 8-3/4 5-1/4
3rd Quarter 8 5-3/4 8-1/8 5-3/8
4th Quarter 6-3/4 4-3/4 9-3/4 5-3/8
As of December 28, 1996, the Company estimates there were approximately 2,500
beneficial owners of the Company's common stock.
The Company has not paid a dividend since 1991. Its current financing agreements
preclude payment of dividends for the foreseeable future.
During the fiscal year ended December 28, 1996, the Company issued an aggregate
of 74,500 shares of the Company's common stock to current and former employees
and directors, pursuant to the exercise of stock options, for an aggregate
consideration of $179,000. Such options were granted under the Company's Amended
and Restated 1989 Stock Incentive Plan, or outside of any plan, and had exercise
prices ranging between a maximum of $4.38 and a minimum of $1.25. The issuance
of such shares was exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof, as transactions by an issuer not
involving a public offering.
9
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PART II
Item 6. Selected Financial Data
- -------------------------------
<TABLE>
<CAPTION>
Restated Restated Restated Restated
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales..................... $124,765 $106,348 $94,158 $85,789 $90,415
Income from
operations............... 8,677 6,896 6,593 (246) 3,814
Earnings (loss)
before taxes............. 4,472 2,605 2,849 14,682 (950)
Earnings (loss) from
continuing operations.... $ 3,083 $ 2,745 $ 2,235 $14,441 $(1,281)
====== ====== ====== ======= =======
Per common share from
continuing operations:
Primary earnings
(loss).............. $ .35 $ .31 $ .26 $ 1.72 $ (.15)
Fully diluted
earnings (loss)..... .35 .31 .26 1.72 (.15)
Cash dividends................ - - - - -
At year-end:
Total assets............. $85,968 $85,231 $76,700 $73,394 $76,148
Total debt............... 41,268 43,028 44,472 47,401 59,545
Shareholders'
equity.............. $22,450 $21,758 $14,657 $10,100 $(3,823)
======= ======= ======= ======= =======
</TABLE>
Notes:
(1) Results relating to the Company's former Seco Division are included
for the period until its sale on August 21, 1992.
(2) The above selected financial data excludes the Victory Refrigeration
Company which has been accounted for as a discontinued operation (see
Note 3 to the Financial Statements).
(3) Certain amounts in the prior years' financial data have been
reclassified to be consistent with the fiscal 1996 presentation.
10
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Item 7. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Informational Note
- ------------------
This report contains forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers that these projections are based upon future results or events
and are highly dependent upon a variety of important factors which could cause
such results or events to differ materially from any forward-looking statements
which may be deemed to have been made in this report, or which are otherwise
made by or on behalf of the Company. Such factors include, but are not limited
to, changing market conditions; the availability and cost of raw materials; the
impact of competitive products and pricing; the timely development and market
acceptance of the Company's products; foreign exchange risks affecting
international sales; and other risks detailed herein and from time-to-time in
the Company's Securities and Exchange Commission filings.
Results of Operations
- ---------------------
Fiscal 1996 vs. Fiscal 1995
---------------------------
Net sales increased $18,417,000 or 17.3% to $124,765,000 in fiscal 1996 as
compared to $106,348,000 in fiscal 1995. Net sales for the Company's domestic
cooking and warming equipment manufacturing divisions increased 11.8% in 1996
compared to 1995. Domestic sales increased 15.8% in 1996 compared to 1995.
International sales increased 20.0% in 1996 as compared to 1995, primarily from
increased sales of distributed products. International sales represented 37.0%
of total sales in 1996 as compared to 36.2% in 1995. The continued strong growth
in international sales is attributable to the Company's continued strategy of
expanding its sales and distribution presence in overseas markets.
Gross margin increased $4,928,000 or 15.2% to $37,435,000 in fiscal 1996 as
compared to $32,507,000 in fiscal 1995. As a percent to sales, gross margin
declined slightly to 30.0% in 1996 as compared to 30.6% in 1995. The decline in
gross margin percentage is attributable to the Company's direct service program
which was initiated at the end of 1995 and terminated during the fourth quarter
of 1996, and to start-up costs associated with the Company's Philippines
manufacturing facility.
Selling, distribution, general and administrative expenses increased
$4,047,000 or 16.4% to $28,758,000 in fiscal 1996 from $24,711,000 in
fiscal 1995. As a percent of sales, expenses decreased slightly to 23.0%
from 23.2% in 1995. The increased expenses were largely due to the increased
sales, additional support for the Company's expanding international
operations and costs associated with dealer promotional programs.
Income from operations increased $1,781,000 or 25.8% to $8,677,000 in fiscal
1996 as compared to $6,896,000 in fiscal 1995. The improvement in income from
operations is primarily due to increased sales.
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Interest expense and deferred financing amortization increased $24,000 or 0.6%
to $4,351,000 in fiscal 1996 compared to $4,327,000 in fiscal 1995. Stable
interest rates and average outstanding balances contributed to the consistent
expense amount.
The Company recorded a net tax provision of $1,389,000 in 1996 compared to a
net tax benefit of $140,000 in 1995. The tax provision includes a benefit of
$865,000 related to the utilization of tax loss carry-forwards as
compared to a benefit of $1,710,000 in 1995 associated with NOL
utilization and valuation allowance reductions.
The Company recorded earnings from continuing operations of $3,083,000 in 1996,
as compared to $2,745,000 in 1995. Net earnings were $473,000 in 1996, as
compared to $3,164,000 in 1995.
Fiscal 1995 vs. Fiscal 1994
---------------------------
Net sales increased $12,190,000 or 12.9% to $106,348,000 compared to $94,158,000
in fiscal 1994. Several new products contributed to the gain, including
Toastmaster's new conveyor toaster for a large international fast-food chain and
Middleby Marshall's extra wide belt conveyor oven introduced in late 1994. The
Company's international sales increased 15.9% over 1994 and represented 36.2% of
total sales, evidencing the tremendous demand for foodservice equipment in
global markets, particularly in the emerging markets of the world where major
U.S. restaurant chains are quickly developing their concepts.
The Company improved gross margins as a percent of net sales to 30.6.% in 1995
as compared to 30.3% in 1994. This increase resulted from increased sales
volumes, improved operating efficiencies and improved margins on products
distributed internationally.
Selling, distribution, general and administrative expenses increased
$2,740,000 or 12.5% to $24,711,000 compared to $21,971,000 in fiscal 1994.
As a percent of net sales, expenses decreased slightly to 23.2% in fiscal
1995 from 23.3% in fiscal 1994. The increase in expenses is attributable to
expenses associated with a new line of combi-steamers the Company began
distributing in January, 1995, start-up expenses for a new direct service
program which began operation in the fourth quarter of 1995, increased
promotional expenses and higher commissions due to increased sales.
Income from operations, including a $900,000 provision for the discontinuance of
a product line discussed in Note 6 to the Consolidated Financial Statements,
increased $303,000 or 4.6%, to $6,896,000 in 1995 as compared to $6,593,000 in
1994. Excluding the $900,000 provision, income from operations increased
$1,203,000 or 18.2%. The improvement in income from operations is primarily due
to increased sales and margin improvement.
12
<PAGE>
Interest expense and deferred financing amortization increased $1,065,000 or
32.6% to $4,327,000 in 1995 as compared to $3,262,000 in 1994, primarily from
higher interest rates and deferred financing costs associated with the Company's
January 10, 1995 refinancing.
The Company recorded a net tax benefit of $140,000. The tax benefit includes
a credit of $1,710,000 resulting from utilization of NOL carryforwards and
the reduction of tax valuation allowances. The reduction in the valuation
allowance reflected management's increased confidence in the future
utilization of the Company's net operating loss carry-forwards.
The Company recorded earnings from continuing operations of $2,745,000 in 1995,
as compared to $2,235,000 in 1994. Net earnings were $3,164,000 in 1995, as
compared to $2,740,000 in 1994.
Financial Condition and Liquidity
- ---------------------------------
Cash flow provided from operations before balance sheet changes, including the
utilization of net operating tax loss carry-forwards, was $3,323,000 in fiscal
1996 compared to $6,051,000 in fiscal 1995. Changes in current assets and
liabilities of continuing operations resulted in cash usage of $6,829,000 in
fiscal 1996 and cash provided of $1,499,000 in fiscal 1995. Additions to
property, plant and equipment amounted to $2,966,000 and $2,728,000 in fiscal
1996 and 1995, respectively.
The Company's total long-term debt, including current maturities, decreased
during fiscal 1996 by $1,760,000 to $41,268,000 at fiscal year end. This
decrease was largely due to proceeds received from the sale and leaseback of the
Victory facility in December 1996, offset in part by expenditures associated
with the opening of the new Middleby Philippines Corporation facility during the
first half of the year. Long-term debt, including current maturities, as a
percentage of total capitalization was 64.8% at December 28, 1996 and 66.4% at
December 30, 1995.
On January 10, 1995, the Company's subsidiaries consummated a $57,500,000
financing package to replace existing bank debt of $44,000,000 and provide
working capital for future growth. The financing includes a $42,500,000 senior
secured credit facility from a group of lenders led by an affiliate of a major
international bank and a $15,000,000 senior secured note placement with a major
insurance company. The credit facility includes a $15,000,000 five-year term
loan, a $25,000,000 revolving credit line and a $2,500,000 capital expenditure
facility renewable annually. The senior secured notes have an eight-year term
with payments beginning in the sixth year and bear interest at 10.99%. There was
$23,650,000 available to borrow under the revolving credit facility, of which
$14,575,000 was outstanding at December 28, 1996. The outstanding term loan
balance was $8,362,000 at December 28, 1996.
13
<PAGE>
Management believes the Company has sufficient financial resources available to
meet its anticipated requirements for funds for operations in the current fiscal
year and can satisfy the obligations under its credit and note agreements.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
Page
Report of Independent Public Accountants......................... 15
Consolidated Balance Sheets...................................... 16
Consolidated Statements of Earnings.............................. 17
Consolidated Statements of Changes in Shareholders' Equity....... 18
Consolidated Statements of Cash Flows............................ 19
Notes to Consolidated Financial Statements....................... 21
The following consolidated financial statement schedule
is included in response to Item 14(d).
Schedule II - Valuation and Qualifying Accounts and Reserves..... 36
All other schedules for which provision is made to applicable
regulation of the Securities and Exchange Commission are not
required under the related instruction or are inapplicable and,
therefore, have been omitted.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors
of The Middleby Corporation
We have audited the accompanying consolidated balance sheets of THE
MIDDLEBY CORPORATION (a Delaware corporation) and Subsidiaries as of
December 28, 1996, and December 30, 1995, and the related consolidated
statements of earnings, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 28, 1996. 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
The Middleby Corporation and Subsidiaries as of December 28, 1996, and December
30, 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 28, 1996, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The data on Schedule II is presented
for purposes of additional analysis and is not a required part of the
basic financial statements. This information has been subjected to the
auditing procedures applied in our audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 17, 1997
15
<PAGE>
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 AND DECEMBER 30, 1995
---------------------------------------
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Restated
ASSETS 1996 1995
- ------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 1,410 $ 972
Accounts receivable, net............................. 19,859 14,058
Inventories, net..................................... 20,956 18,320
Prepaid expenses and other........................... 939 879
Net assets of discontinued operations................ 4,082 12,803
Current deferred taxes............................... 2,086 2,086
----- -----
Total Current Assets............................ 49,332 49,118
Property, Plant and Equipment, net........................ 18,843 17,305
Excess Purchase Price Over Net Assets Acquired, net....... 13,339 13,796
Deferred Taxes............................................ 2,950 2,930
Other Assets.............................................. 1,504 2,082
----- -----
Total Assets.................................... $85,968 $85,231
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt................. $ 3,916 $ 1,710
Accounts payable..................................... 10,369 10,587
Accrued expenses..................................... 10,001 8,075
------ -----
Total Current Liabilities....................... 24,286 20,372
Long-Term Debt............................................ 37,352 41,318
Minority Interest and Other Non-current Liabilities....... 1,880 1,783
Shareholders' Equity:
Preferred stock, $.01 par value;
none issued..................................... - -
Common stock, $.01 par value;
8,468,000 and 8,388,000 shares issued
and outstanding in 1996 and 1995,
respectively.................................... 85 84
Paid-in capital...................................... 28,108 27,934
Cumulative translation adjustment.................... (184) (228)
Accumulated deficit.................................. (5,559) (6,032)
------ ------
Total Shareholders' Equity...................... 22,450 21,758
------ ------
Total Liabilities and Shareholders' Equity...... $85,968 $85,231
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
---------------------
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Restated Restated
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Sales...................................... $124,765 $106,348 $ 94,158
Cost of Sales.................................. 87,330 73,841 65,594
------ ------ ------
Gross Margin......................... 37,435 32,507 28,564
Selling and Distribution Expenses.............. 18,319 15,385 13,398
General and Administrative Expenses............ 10,439 9,326 8,573
Provision for Product Line Discontinuance...... - 900 -
------ --- ------
Income from Operations............... 8,677 6,896 6,593
Interest Expense and Deferred
Financing Amortization.................... 4,351 4,327 3,262
Other (Income) Expense, net.................... (146) (36) 482
---- --- ---
Earnings Before Income Taxes......... 4,472 2,605 2,849
Provision (Benefit) for Income Taxes........... 1,389 (140) 614
Earnings from Continuing Operations.. 3,083 2,745 2,235
Discontinued Operations, Net of Income Tax:
(Loss) Earnings from Discontinued
Operations.......................... (744) 419 505
Loss on Disposal Including Operating
Losses During the Phase Out Period.. (1,866) - -
------ ------ ------
Net Earnings......................... $ 473 $ 3,164 $ 2,740
======== ======== ========
Net Earnings (Loss) Per Common Share:
Continuing Operations................ $ .35 $ .31 $ .26
Discontinued Operations.............. (.30) .05 .06
---- --- ---
Net Earnings Per Common Share........ $ .05 $ .36 $ .32
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
17
<PAGE>
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
---------------------
(In Thousands)
<TABLE>
<CAPTION>
Common Paid-in Accumulated
Stock Capital Deficit CTA Total
----- ------- ------- --- -----
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1,1994 (Restated)...... $83 $22,207 $(11,936) $(254) $10,100
--- ------- -------- ----- -------
Net Earnings................... - - 2,740 - 2,740
NOL Utilization and Change in
Tax Asset Valuation
Allowance................. - 1,924 - - 1,924
Exercise of Employee
Stock Options............. - 23 - - 23
Change in Cumulative
Translation Adjustment.... - - - (130) (130)
BALANCE,
December 31, 1994 (Restated)... $83 $24,154 $(9,196) $(384) $14,657
--- ------- -------- ----- -------
Net Earnings................... - - 3,164 - 3,164
NOL Utilization and Change in
Tax Asset Valuation
Allowance................. - 3,409 - - 3,409
Exercise of Employee
Stock Options............. 1 121 - - 122
Issuance of Deferred
Warrant................... - 250 - - 250
Change in Cumulative
Translation Adjustment.... - - - 156 156
BALANCE,
December 30, 1995 (Restated)... $84 $27,934 $(6,032) $(228) $21,758
--- ------- ------- ----- =======
Net Earnings................... - - 473 - 473
Exercise of Employee
Stock Options............. 1 174 - - 175
Change in Cumulative
Translation Adjustment.... - - - 44 44
BALANCE
December 28, 1996.............. $85 $28,108 $(5,559) $(184) $22,450
=== ======= ======== ====== =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
18
<PAGE>
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
---------------------
(In Thousands)
<TABLE>
<CAPTION>
Restated Restated
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating
Activities -
Net Earnings................................. $ 473 $ 3,164 $ 2,740
Adjustments to reconcile net
earnings to net cash provided by
continuing operating activities-
Depreciation and
amortization....................... 2,752 3,024 2,107
Utilization of N.O.L.'s................. 98 (137) 601
Discontinued Operations................. 2,610 (419) (505)
Cash effects of changes in -
Accounts receivable................ (5,801) 862 (2,782)
Inventories........................ (2,636) (3,147) 812
Prepaid expenses and
other assets.................. (99) 911 28
Accounts payable................... (218) 3,071 (785)
Accrued expenses and
other liabilities............. 1,925 (198) 2,463
----- ----- -----
Net Cash (Used in) Provided by
Continuing Operating Activities......... (896) 7,131 4,679
Net Cash Provided by (Used in)
Discontinued Operating Activities....... 1,311 (2,268) 408
Net Cash Provided by Operating
Activities.............................. 415 4,863 5,087
--- ----- -----
Cash Flows From Investing
Activities -
Additions to property and
equipment............................... $(2,966) $(2,728) $(1,922)
Proceeds from Sale and Leaseback
of Discontinued Operations............. 4,800 - -
Net cash received from
sale of investment...................... - 1,337 -
------ ----- ------
Net Cash Provided by (Used in)
Investing Activities.................... 1,834 (1,391) (1,922)
------- ------- -------
</TABLE>
19
<PAGE>
THE MIDDLEBY CORPORATION AND SDUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
---------------------
(In Thousands)
(Continued)
<TABLE>
<CAPTION>
Restated Restated
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Financing
Activities -
Proceeds from senior
secured note............................ $ - $ 15,000 $ -
Proceeds from credit facility................ - 31,000 -
Extinguishment of bank debt.................. - (44,055) -
Reduction in revolving credit
line, net............................... (425) (1,000) (3,366)
Reduction in term loans...................... (3,597) (2,932) (20)
Proceeds from foreign bank debt.............. 2,233 1,200 -
Cost of financing activities................. - (1,726) -
Other financing activities, net.............. (22) (640) 457
-- ---- ---
Net Cash Used in
Financing Activities.................... (1,811) (3,153) (2,929)
------- ------ ------
Changes in Cash and Cash Equivalents -
Net increase in cash
and cash equivalents............... $ 438 $ 319 $ 236
Cash and cash equivalents
at beginning of year............... 972 653 417
--- --- ---
Cash and Cash Equivalents
at end of year..................... $ 1,410 $ 972 $ 653
======= ======== =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
20
<PAGE>
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
The Middleby Corporation (the "Company") is engaged in the design,
manufacture and sale of commercial and institutional foodservice equipment.
Its major lines of products consist of conveyor ovens, toasters,
counter-top cooking and warming equipment, heavy duty gas ovens, convection
ovens, broilers, steamers and semi-custom fabrication units. The Company
manufactures and assembles most of this equipment at two factories in the
United States and one operation in the Philippines. The Company conducts
its business principally through two domestic and two international
business units. Each unit operates primarily on a decentralized basis.
The Company's products are sold primarily to independent dealers and
distributors and are marketed primarily through the Company's sales
personnel and network of independent manufacturers' representatives. End
user customers include quick service restaurant chains, general full
service restaurants, cafeterias, hotels, resorts, supermarkets, convenience
stores and certain healthcare, educational and correctional institutions.
Included in these customers are several large multi-national restaurant
chains which account for a significant portion of the company's business,
although no single customer accounts for more than 10% of net sales.
The Company purchases raw materials and component parts, the majority of
which are standard commodity type materials, from a number of suppliers.
Although certain component parts are procured from a sole source, the
Company can purchase such parts from alternate vendors.
The Company has numerous licenses and patents to manufacture, use and sell
its products and equipment. Certain of these licenses begin to expire in
the year 2000. Management believes the loss of any one of these licenses or
patents would not have a material adverse effect on the financial and
operating results of the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal
years 1996, 1995 and 1994 ended on December 28, 1996, December 30, 1995 and
December 31, 1994, respectively, and each included 52 weeks.
21
<PAGE>
(b) Accounts Receivable
Accounts receivable, as shown in the consolidated balance sheets, is net of
allowances for doubtful accounts of $495,000 and $413,000 at December 28,
1996 and December 30, 1995, respectively.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
utilizing the first-in-first-out (FIFO) inventory method. Inventories, as
of December 28, 1996 and December 30, 1995, are as follows:
(In Thousands)
1996 1995
---- ----
Raw materials and parts......... $ 6,492 $ 6,338
Work in process................. 4,621 4,652
Finished goods.................. 9,843 7,330
----- -----
$20,956 $18,320
======= =======
The amounts shown above are net of inventory reserves of $946,000 and
$1,016,000 as of December 28, 1996 and December 30, 1995, respectively.
(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost as follows:
(In Thousands)
1996 1995
---- ----
Land and improvements...... $ 3,322 $ 3,293
Building and improvements.. 11,012 10,206
Machinery and equipment.... 16,250 14,516
------ ------
$30,584 $28,015
Less accumulated
depreciation.......... (11,741) (10,710)
-------- --------
Property, Plant and
Equipment, net........ $18,843 $17,305
======= =======
22
<PAGE>
Depreciation is provided for financial statement purposes using the
straight-line method and amounted to $1,594,000, $1,543,000 and $1,547,000
in fiscal 1996, 1995 and 1994, respectively. Following is a summary of the
estimated useful lives:
Description Life
----------- ----
Land improvements................ 7 years
Building and improvements........ 20 to 40 years
Machinery and equipment.......... 3 to 10 years
Expenditures which significantly extend useful lives are capitalized.
Maintenance and repairs are charged to expense as incurred.
(e) Excess Purchase Price Over Net Assets Acquired
The excess purchase price over net assets acquired is being amortized using
a straight-line method over 40 years. Amounts presented are net of
accumulated amortization of $4,216,000 in fiscal 1996 and $3,759,000 in
fiscal 1995. The Company periodically evaluates the useful life and
realizability of the excess purchase price over net assets acquired based
on current events and circumstances. Impairments are measured utilizing an
undiscounted forecasted income method pertaining to business units and are
recorded at the time management deems an impairment has occurred.
(f) Intangible Assets
Trademarks, patents, license agreements and other intangibles, included in
other assets in the consolidated balance sheets, are being amortized on a
straight-line basis over estimated useful lives ranging from 5 to 14 years.
Net recorded intangible assets of $243,000 and $364,000 are presented net
of accumulated amortization of $2,314,000 and $2,193,000 in fiscal 1996 and
1995, respectively.
(g) Accrued Expenses
Accrued expenses consist of the following:
(In Thousands)
1996 1995
---- ----
Accrued payroll and
related expenses.... $ 3,567 $3,200
Accrued commissions...... 1,392 1,190
Accrued warranty......... 1,252 879
Other accrued expenses... 3,790 2,806
----- -----
$10,001 $8,075
======= ======
23
<PAGE>
(h) Research and Development Costs
Research and development costs, included in cost of sales in the
consolidated statements of earnings, are charged to expense when incurred.
These costs were $1,515,000, $1,438,000 and $1,295,000 in fiscal 1996, 1995
and 1994, respectively.
(i) Earnings Per Share
Primary earnings per share is based upon the weighted average number of
outstanding shares of common stock and common stock equivalents. The
weighted average number of shares outstanding was 8,666,000, 8,678,000 and
8,434,000 shares for the fiscal years 1996, 1995 and 1994, respectively.
Fully diluted earnings per common and common equivalent shares are not
presented, since dilution is less than 3%.
(j) Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments with a maturity of three months or
less to be cash equivalents. Cash paid for interest was $4,397,000,
$4,076,000 and $4,060,000 in fiscal 1996, 1995 and 1994, respectively. Cash
payments totaling $256,000, $371,000 and $192,000 were made for income
taxes during fiscal 1996, 1995 and 1994, respectively.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(l) Fair Value of Financial Instruments
The carrying value of all assets and liabilities approximates the fair
value of those financial instruments.
(m) Adoption of Accounting Standards
In fiscal 1996, the Company adopted "SFAS 121: Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of"
and "SFAS 123: Accounting for Stock-Based Compensation." The adoption of
these accounting standards did not have a material impact on the financial
statements.
24
<PAGE>
(n) Restatements
Sale of Discontinued Operations:
The financial statements presented have been restated for all periods
presented to exclude the Victory Refrigeration Company which has been
accounted for as a discontinued operation (see Note 3 to the Financial
Statements).
Litigation Settlement Accounting:
During 1996, the Company determined that a better technical interpretation
of generally accepted accounting principles (GAAP) existed for its 1993
accounting for the proceeds from its legal settlement with Hussmann
Corporation. The Securities and Exchange Commission (SEC) has concurred
with this revised accounting treatment. The effect of this change was to
record a greater gain from the settlement and restore certain assets
related to the 1989 acquisition that were written-off in the original
accounting for the settlement in 1993. This accounting has been reflected
in the historical financial statements. The net effect on the 1993 balance
sheet was to increase excess purchase price over net assets acquired and
fixed assets by $6,930,000 and increase equity by $6,930,000. The effect
on the statement of earnings was to increase non-cash amortization charges
by $276,000 for each year since 1993.
(3) DISCONTINUED OPERATION
On January 23, 1997, the Company completed the sale of substantially all of
the assets of its Victory Refrigeration Company ("Victory") subsidiary to
an investor group led by local management at Victory. Gross proceeds from
the sale are expected to amount to approximately $7,300,000, less amounts
for retained liabilities and transaction costs aggregating approximately
$2,600,000. The proceeds are subject to post-closing adjustments. The terms
of the sale were the results of arms-length negotiations. This sale was
announced on November 1, 1996, concluding the sale of all of the assets of
Victory. The sale and leaseback of the Victory facility to an unrelated
third party had previously been completed on December 27, 1996 for net
proceeds of approximately $4,556,000. Proceeds from these transactions were
used to pay down debt.
The results of the Victory Refrigeration Company subsidiary have been
reported separately as a discontinued operation in the consolidated
financial statements for all periods presented. The results of the
discontinued operations are not necessarily indicative of the results which
may have been obtained had the continuing and
25
<PAGE>
discontinuing operations been operating independently. Summarized results
of the Victory Refrigeration Company are as follows:
(In Thousands)
1996 1995 1994
---- ---- ----
Net Sales............................. $27,261 $32,841 $35,809
Operating (Loss) Income............... (458) 1,642 1,572
(Loss) Earnings Before Taxes.......... (1,111) 603 754
Provision for Taxes................... (367) 184 249
----- --- ---
(Loss) Earnings from Discontinued
Operations...................... (744) 419 505
Estimated Loss on Disposal Including
Operating Results During the
Phase-out Period................. (1,866) - -
------- ---- ----
Total (Loss) Earnings Related to
Discontinued Operations.......... $(2,610) $ 419 $ 505
======== ======= =======
During the fourth quarter of 1996, the Company provided for additional
losses on disposal of $495,000 net of taxes. The additional provision was
required due to higher than anticipated operating losses prior to the sale
of Victory. The loss on disposal of Victory consists primarily of operating
losses of $1,409,000 during the fourth quarter of 1996 and $457,000 during
1997 until the sale was completed. The effective tax rate included in
these amounts differs from the U.S. statutory rate due to permanent book
vs. tax differences.
Interest expense of $809,000, $771,000 and $818,000 for 1996, 1995 and
1994, respectively, has been allocated based upon the ratio of the net
assets of the discontinued operations to the consolidated capitalization of
the Company. Continuing operations and discontinued operations reflect the
net tax expense or tax benefit generated by the respective operations,
limited, however, by the income tax benefit recognized in the Company's
historical financial statements. No general corporate expenses have been
allocated to the discontinued operations.
The net assets of discontinued operations included in the Consolidated
Balance Sheets at December 28, 1996 and December 30, 1995 amounted to
$4,082,000 and $12,803,000, respectively, and consist primarily of
receivables, inventory, and property, plant and equipment related to the
discontinued operations, net of accounts payable, accrued liabilities and
closing costs associated with the sale. Property and plant are not included
in the December 28, 1996 amount, as the sale and leaseback transaction was
completed on December 27, 1996.
26
<PAGE>
(4) FINANCING ARRANGEMENTS
The following is a summary of long-term debt as of December 28, 1996 and
December 30, 1995.
(In Thousands)
1996 1995
---- ----
Senior secured credit facility:
Revolving credit line............ $14,575 $15,000
Term loans....................... 8,362 11,959
Senior secured note................... 15,000 15,000
Other................................. 3,331 1,069
----- -----
$41,268 $43,028
Less current maturities of
long-term debt................... 3,916 1,710
----- -----
Total long-term debt... $37,352 $41,318
======= =======
On January 10, 1995, the Company's subsidiaries consummated a $57,500,000
financing package to replace the existing bank debt and provide working
capital for future growth. The financing included a $42,500,000 senior
secured credit facility from a group of lenders led by an affiliate of a
major international bank and a $15,000,000 senior secured note placement
with a major insurance company.
The senior secured credit facility included a $15,000,000 five-year term
loan, a $2,500,000 capital expenditure facility renewable annually, and a
$25,000,000 revolving credit line expiring in January, 2000. Borrowings
under the revolving credit line are limited to specified percentages of
defined accounts receivable and inventories. The credit agreement initially
permitted borrowings for the term loan and revolving credit line at
floating rates of 2.5% above LIBOR rate or 1% above base rate. The interest
rate can be adjusted quarterly based on the Company's achievement of
defined coverage ratios on a rolling four quarter basis. As of December 28,
1996, borrowings under LIBOR contracts were at 2.5% above the LIBOR rate
and borrowings under prime rate contracts were at 1% above the base rate. A
facility fee of .0625% is payable annually and a commitment fee of .375% is
charged on the unused portion of the revolving credit facility and capital
expenditure facility. The term loan is repayable in quarterly installments
that total $2,325,000 in 1997, plus a one-time payment of $1,470,000
related to the sale of Victory due also in 1997. Additional scheduled
repayments towards the term loan will total $2,625,000 in 1998 and
$1,517,000 in 1999. The outstanding capital expenditure loans of $425,000
are repayable in quarterly installments that total $100,000 in each of
1997, 1998, and 1999 with a lump sum payment of $125,000 or the remaining
balance on January 2,
27
<PAGE>
2000. Mandatory prepayments are required in the case of any excess cash
flow, as defined, or in the event of any sale or disposition of assets. The
credit facility is secured by a senior security interest of substantially
all property, plant and equipment and all accounts receivable and inventory
of the Company's domestic subsidiaries.
As of December 28, 1996, the Company's revolving credit facility provided
$23,650,000 of total borrowing availability. There was $14,575,000
outstanding under that facility at December 28, 1996. The Company had
executed letters of credit of $632,000 against this facility, leaving an
available line of credit of $8,443,000 at December 28, 1996. As of December
28, 1996, the assets of Victory Refrigeration Company provided $5,412,000
of the $23,650,000 total borrowing availability of the revolving credit
facility.
The senior secured note bears interest at 10.99% and has an eight-year term
maturing January, 2003 with semi-annual payments of $2,500,000 beginning in
July, 2000. A warrant for the purchase of 250,000 shares of common stock of
the Company at an exercise price of $3 per share was issued in conjunction
with the note. Alternatively, the terms of the warrant provide for the
purchase of 200,000 shares at $.01 per share. The note agreement is secured
by a senior security interest in substantially all the intellectual
property collateral of the Company's subsidiaries.
The terms of the credit and note agreements prohibit the paying of
dividends, limit capital expenditures and leases, and require, among other
terms, a minimum amount, as defined, of shareholders' equity, and minimum
ratios of current assets to current liabilities, cash flow coverage
indebtedness and fixed charged coverage. The credit and note agreements
also provide that if a material adverse change in the Company's business
operations or conditions occurs, the lender and noteholder could declare an
event of default. The Company was in compliance with all covenants as
amended for the period ending December 28, 1996.
A foreign subsidiary of the Company had borrowings of $3,433,000 at
December 28, 1996, including a $1,700,000 term loan and a $1,733,000
omnibus revolving credit line. The term loan is secured by the real
property of the foreign subsidiary. The revolving credit line is guaranteed
by the Company. Interest on both the term loan and the revolving credit
line are at the prevailing bank rate. The term loan is repayable in twenty
equal quarterly installments starting on March 31, 1998 and the revolving
credit line is payable in full on January 1, 1998 if not renewed for an
additional one-year period.
The weighted average interest rates under credit agreements during fiscal
1996, 1995 and 1994 were 9.3%, 9.5% and 8.7%, respectively.
28
<PAGE>
The aggregate amount of long-term debt payable during each of the next five
years is as follows:
(In Thousands)
1997.......................$ 3,916
1998.......................$ 4,819
1999.......................$ 1,963
2000.......................$17,390
2001.......................$ 5,340
Thereafter.................$ 7,840
-------
Total................$41,268
=======
(5) COMMON AND PREFERRED STOCK
(a) Shares Authorized
At December 28, 1996 and December 30, 1995, the Company had 20,000,000
shares of common stock and 2,000,000 shares of Non-voting Preferred Stock
authorized.
(b) Warrant
In conjunction with the issuance of the senior secured notes in January,
1995 (see Note 4), the Company issued a transferrable warrant to the
noteholders for the purchase of 250,000 shares of common stock at an
exercise price of $3 per share. Alternatively under certain conditions,
which have been met, the terms of the warrant provide for the purchase of
200,000 shares at $.01 per share. The warrant provides for adjustment of
the exercise price if the Company issues additional shares at a purchase
price below the then current market price, as defined, and for adjustment
of the number of shares if the Company declares a stock dividend. The
warrant became exercisable on February 10, 1995 and expires July 10, 2003.
(c) Stock Options
The Company maintains an Amended and Restated 1989 Stock Incentive Plan
(the "Plan"), effective as of February 16, 1989, which provides key
employees of the Company rights to purchase shares of common stock at the
fair market value of the stock on the date of grant. The Plan was amended
in 1996, by shareholder approval, to increase the maximum amount that can
be issued under the Plan to 400,000 shares from 200,000 shares. Options may
be exercised upon certain vesting requirements being met but expire, to the
extent unexercised, within a maximum of ten years from the date of grant.
147,075 shares remain available for issue at December 28, 1996 under the
Plan. The weighted average exercise price of options outstanding under the
Plan was $4.43 at December 28, 1996 and $3.10 at December 30, 1995.
29
<PAGE>
In addition to the above Plan, the directors of the Company have options
for 7,000 shares exercisable at $1.875 per share and 75,000 shares
exercisable at $7.50 per share.
A summary of stock option activity is presented below.
Key Option
Stock Option Activity Employees Directors Price Per Share
--------------------- --------- --------- ---------------
Outstanding at
December 31, 1994......... 140,000 9,000 $1.25 to $4.38
Granted................... 39,000 - $5.63
Exercised................. (22,000) - $1.25 to $4.38
Forfeited................. (2,000) - $3.00
------- ---
Outstanding at
December 30, 1995......... 155,000 9,000 $1.25 to $5.63
Granted................... 60,000 75,000 $5.25 to $7.50
Exercised............... (72,500) (2,000) $1.25 to $4.38
Forfeited............... (5,900) - $3.00 to $5.63
------- ---
Outstanding at
December 28, 1996......... 136,600 82,000 $1.25 to $7.50
======= ======
The weighted average fair value of options granted was $5.78 and $3.82 in
1996 and 1995, respectively. The Company accounts for options under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for
30
<PAGE>
these options been recorded, the Company's net income and earnings per
share would have been reduced as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Earnings from Continuing Operations: As Reported $3,083,000 $2,745,000
Pro Forma $2,893,000 $2,671,000
Net Earnings: As Reported $ 473,000 $3,164,000
Pro Forma $ 283,000 $3,090,000
Continuing Operations EPS: As Reported $ 0.35 $ 0.31
Pro Forma $ 0.33 $ 0.31
EPS: As Reported $ 0.05 $ 0.36
Pro Forma $ 0.03 $ 0.36
</TABLE>
Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the following general assumptions for 1995 and 1996:
risk-free interest rate of 6.5 percent, no expected dividend yield,
expected lives of four to five years, and an expected annual increase in
stock value of ten percent.
(6) PROVISION FOR PRODUCT LINE DISCONTINUANCE AND
RESTRUCTURING CHARGE
Company management made the decision to discontinue the production of a
unique line of mixers during the fourth quarter of 1995. A provision of
$900,000 was recorded for this product line discontinuance. The charge
related to the disposal and rationalization of assets associated with the
product line and its operations. No changes in operating personnel were
made as a result of this decision.
(7) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
Taxes."
The provision for income taxes for continuing operations is summarized as
follows:
(In Thousands)
1996 1995 1994
---- ---- ----
Federal $1,153 $ (385) $ 460
State and Local 188 183 144
Foreign 48 62 10
------ ------ ------
Total $1,389 $ (140) $ 614
====== ====== ======
31
<PAGE>
Although the Company is not a Federal taxpayer due to its NOL
carry-forwards, a tax provision is still required to be recorded. The
majority of the NOL carry-forwards expiring prior to 1998 relate to a 1983
quasi-reorganization and were not recorded as a credit to the tax
provision, but were directly credited to paid-in-capital. NOL's expiring in
1998 and thereafter will be recorded entirely as a credit to the tax
provision as they are recognized. Reconciliation of the differences between
income taxes computed at the Federal statutory rate and effective rate are
as follows:
(In Thousands)
1996 1995 1994
---- ---- ----
U.S. Federal statutory tax rate........ 34.0% 34.0% 34.0%
Utilizations of NOL and reductions
in valuation allowance............ (19.3) (65.6) (18.1)
Permanent book vs. tax
differences....................... 1.2 15.5 7.6
Foreign tax losses and rate
differentials..................... 11.0 3.7 (7.0)
State taxes, net of federal
benefit........................... 4.2 7.0 5.1
--- --- ---
Consolidated effective tax rate for
continuing operations............. 31.1% (5.4%) 21.6%
===== ====== =====
As of December 28, 1996 and December 30, 1995, the Company had recorded the
following deferred tax assets and liabilities which were comprised of the
following:
(In Thousands)
1996 1995
---- ----
Deferred Tax Assets:
Net operating loss carry-forwards... $12,073 $13,736
Tax credit carry-forwards........... 1,503 1,426
Accrued pension benefits............ 703 606
Accrued warranty.................... 641 469
Other............................... 1,141 960
Valuation allowance................. (9,437) (10,515)
------- -------
Deferred Tax Assets....... 6,624 6,682
Deferred Tax Liabilities:
Depreciation........................ (1,588) (1,666)
------ ------
Net Deferred Tax Assets....................... $ 5,036 $ 5,016
======= =======
32
<PAGE>
As of December 28, 1996, the consolidated tax loss carry-forwards for
Federal income tax purposes were approximately $12,073,000 on a tax
effected basis. These carry-forwards expire as follows: $6,849,000 in 1997;
$3,000 in 1998; $264,000 in 2001; $508,000 in 2004; $1,619,000 in 2005;
$1,913,000 in 2006; and $917,000 in 2007. Consolidated business tax credit
carry-forwards available at December 28, 1996 to reduce future tax
liabilities were approximately $898,000 and expire from 1996 through 2000.
The Company also has tax credits of approximately $605,000 resulting from
Federal AMT payments which do not expire.
The decrease in the gross tax asset and the related Valuation allowance was
primarily due to the utilization of NOL carryforwards during the year. The
utilization of the net operating loss and credit carry-forwards depend
on future taxable income during the applicable carry-forward periods.
Management evaluates and adjusts the valuation allowance, based on the
Company's expected taxable income as part of the annual budgeting process.
These adjustments reflect management's judgment as to the Company's ability
to generate taxable income which will, more likely than not, be sufficient
to recognize these tax assets.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases office and plant facilities and equipment under
operating leases which expire in fiscal 1997 through 2001. Rental expense
was $692,000, $816,000 and $897,000 in fiscal 1996, 1995, and 1994,
respectively. Future minimum rental payments under these leases are as
follows:
(In Thousands)
1997................. $782,000
1998................. 709,000
1999................. 550,000
2000................. 552,000
2001................. 405,000
Thereafter....... -
--------
$2,998,000
==========
In addition to the above, the Company entered into an agreement with the
landlord of the Victory Refrigeration Company facility (before that
subsidiary was sold - see Note 3) to guarantee Victory's lease payments.
The duration of this lease guarantee is 19 months. The contingent liability
related to this guarantee totals approximately $996,000 at December 28,
1996. This contingent liability is scheduled to decrease by approximately
$52,400 per month during fiscal 1997.
33
<PAGE>
(9) SEGMENT INFORMATION
The Company is engaged in the manufacture and sale of commercial and
institutional food cooking and preparation equipment for the foodservice
industry. The Company's principal operations are in the United States, with
a majority of sales made to domestic dealers and distributors. No customer
accounted for 10% or more of sales during fiscal 1996, 1995 and 1994.
Sales outside the United States, based on dealer locations, are given
below. These export sales represented 37%, 36% and 35% of the Company's net
sales in fiscal 1996, 1995 and 1994, respectively. Additionally, a small
amount of sales to U.S. customers are transshipped by those customers for
installation at their international locations.
The following represents net sales as reported by each major geographic
region:
Restated Restated
1996 1995 1994
---- ---- ----
United States $ 78,594 $ 67,878 $60,971
Asia/Pacific 25,606 20,161 13,641
Europe/Other 11,248 10,430 8,986
Latin America 5,281 4,036 6,790
Canada 4,036 3,843 3,770
----- ----- -----
Total International 46,171 38,470 33,187
Total Net Sales $124,765 $106,348 $94,158
======== ======== =======
(10) EMPLOYEE BENEFIT PLANS
The Company has a discretionary profit sharing plan and a 401(k) savings
plan for salaried and non-union hourly employees. The company had profit
sharing expense of $350,000, $325,000 and $300,000 in fiscal 1996, 1995 and
1994, respectively.
The Company has a defined benefit pension plan for union hourly plant
employees at the Elgin, Illinois facility. The company's funding policy is
to contribute the minimum required by the Employee Retirement Income
Security Act of 1974. The plan had projected benefit obligations of
$1,911,000 and $1,653,000 at December 28, 1996 and December 30, 1995,
respectively. The market values of plan assets were $1,549,000 and
$1,371,000 at December 28, 1996 and December 30, 1995, respectively. The
discount rates used to determine the projected benefit obligations were
7.5% and 7.5% for 1996 and 1995, respectively. The net pension expense for
this plan was $155,000, $140,000 and $185,000 for fiscal 1996, 1995 and
1994, respectively.
34
<PAGE>
In fiscal 1993, the Company adopted a non-qualified defined benefit pension
plan for certain officers of the Company and entered into a retirement
benefit agreement with its President. The Company also has a retirement
benefit agreement with its Chairman. The retirement benefit is based on a
percentage of the officer's final base salary and the number of years of
employment. The projected benefit obligations under these agreements were
$2,067,000 and $1,812,000 at December 28, 1996 and December 30, 1995,
respectively, and is currently unfunded. The discount rates used to
determine the projected benefit obligations were 7.5% and 7.5% for 1996 and
1995, respectively. Retirement benefit expense was $255,000, $255,000 and
$259,000 in fiscal 1996, 1995 and 1994, respectively.
(11) QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Restated Restated Restated Restated
1st 2nd 3rd 4th
--- --- --- ---
<S> <C> <C> <C> <C>
1996
----
Net sales...................... $29,510 $28,661 $31,400 $35,194
Gross margin................... 8,567 8,529 9,373 10,966
Operating income............... 2,288 1,671 2,062 2,656
Earnings from continuing
operations................ 766 401 624 1,292
(Loss) earnings from
discontinued operations... (80) (432) (1,603) (495)
Net earnings (Loss)............ 686 (31) (979) 797
Net earnings (loss) per share:
Continuing operations..... .09 .04 .07 .15
Discontinued operations... (.01) (.04) (.19) (.06)
Net earnings (Loss) per common
share..................... .08 .00 (.12) .09
=== === ==== ===
1995
----
Net sales...................... $25,743 $25,646 $27,558 $27,401
Gross margin................... 7,667 7,492 8,389 8,959
Operating income............... 1,836 1,484 2,117 1,459
Earnings from continuing
operations................ 497 437 739 1,072
(Loss) earnings from
discontinued operations... 168 180 144 (73)
Net earnings................... 665 617 883 999
Net earnings (loss) per share:
Continuing operations..... .06 .05 .08 .12
Discontinued operations... .02 .02 .02 (.01)
Net earnings per common
share..................... .08 .07 .10 .11
==== ==== === ===
</TABLE>
35
<PAGE>
THE MIDDLEBY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
---------------------
<TABLE>
<CAPTION>
Balance Additions Write-Offs Balance
Beginning Charged During the At End
Of Period Expense the Period Of Period
--------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts;
deducted from
accounts receiv-
able on the
balance sheets-
1994 $345,000 $202,000 $(205,000) $342,000
1995 $342,000 $170,000 $ (99,000) $413,000
1996 $413,000 $117,000 $ (35,000) $495,000
Reserve for
inventory
obsolescence;
deducted from
inventories on
the balance
sheets-
1994 $940,000 $457,000 $(882,000) $515,000
1995 $515,000 $783,000 $(282,000) $1,016,000
1996 $1,016,000 $209,000 $(279,000) $946,000
</TABLE>
36
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
- ------- ------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None.
PART III
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference, to the extent necessary, in accordance with General Instruction
G(3), from the Company's definitive proxy statement filed pursuant to Regulation
14A in connection with the 1997 annual meeting of stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements.
The financial statements listed on Page 14 are filed as part of this
Form 10-K.
3. Exhibits.
(3)(i) Unofficial Restated Certificate of Incorporation of The
Middleby Corporation (as amended to August 23, 1996),
incorporated by reference to the Company's Form 10-Q/A,
Amendment No. 1, Exhibit 3(i), for the fiscal quarter ended
June 29, 1996, filed on August 23, 1996;
(3)(ii) Unofficial Amended and Restated Bylaws of The Middleby
Corporation (as amended to August 23, 1996), incorporated by
reference to the Company's Form 10-Q/A, Amendment No. 1,
Exhibit 3(ii), for the fiscal quarter ended June 29, 1996,
filed on August 23, 1996;
(4)(a) Certificate of Designations dated October 30, 1987, and
specimen stock certificate relating to the Company's
Preferred Stock, incorporated by reference from the
Company's Form 10-K, Exhibit (4), for the fiscal year ended
December 31, 1988, filed on March 15, 1989;
37
<PAGE>
(4)(b) Loan and Security Agreement dated January 9, 1995, by and
among Middleby Marshall Inc. and Asbury Associates, Inc., as
Borrowers, certain lenders named therein, as Lenders, and
Sanwa Business Credit Corporation, as Agent and Lender,
incorporated by reference to the Company's Form 10-K,
Exhibit (4) (b), for the fiscal year ended December 31,
1994, filed on March 31, 1995;
(4)(b)(i) First Amendment to Loan and Security Agreement, incorporated
by reference to the Company's Form 10-Q, Exhibit (4)(b)(i),
for the fiscal quarter ended June 29, 1996, filed on
August 13, 1996;
(4)(b)(ii) Second Amendment to Loan and Security Agreement, dated as
of December 26, 1996;
(4)(b)(iii) Third Amendment to Loan and Security Agreement, dated as of
January 22, 1997;
(4)(c) Note Agreement dated as of January 1, 1995, among Middleby
Marshall Inc. and Asbury Associates, Inc. as Obligors,
incorporated by reference to the Company's Form 10-K,
Exhibit (4) (c), for the fiscal year ended December 31,
1994, filed on March 31, 1995;
(4)(c)(i) Amendment No. 1 to Note Agreement, incorporated by reference
to the Company's Form 10-Q, Exhibit (4)(c)(i), for the
fiscal quarter ended June 29, 1996, filed August 13, 1996;
(4)(c)(ii) Amendment No. 2 to Note Agreement, incorporated by reference
to the Company's Form 10-Q, Exhibit (4)(c)(ii), for the
fiscal quarter ended June 29, 1996, filed on August 13,
1996;
(4)(c)(iii) Amendment No. 3 to Note Agreement, dated as of August 15,
1996;
(4)(c)(iv) "Second Amendment" (Amendment No. 4) to Note Agreement,
dated as of January 15, 1997;
(4)(d) Warrant to purchase common stock of The Middleby Corporation
dated January 10, 1995, incorporated by reference to the
Company's Form 10-K, Exhibit (4) (d), for the fiscal year
ended December 31, 1994, filed on March 31, 1995;
38
<PAGE>
(4)(e) Intercreditor Agreement dated as of January 10, 1995, by and
among Sanwa Business Credit Corporation, as Agent, the
Northwestern Mutual Life Insurance Company, as the Senior
Noteholder, and First Security Bank of Utah, National
Association, as Security Trustee and collateral Agent,
incorporated by reference to the Company's Form 10-K,
Exhibit (4) (e), for the fiscal year ended December 31,
1994, filed on March 31, 1995;
(4)(e)(i) Amendment No. 1 to Intercreditor Agreement, incorporated by
reference to the Company's Form 10-Q, Exhibit (4)(e)(i), for
the fiscal quarter ended June 29, 1996, filed on August 13,
1996;
(4)(e)(ii) Amendment No. 2 to Intercreditor Agreement, incorporated by
reference to the Company's Form 10-Q, Exhibit (4)(e)(ii),
for the fiscal quarter ended June 29, 1996, filed on
August 13, 1996;
(10)(iii)(a)* Amended and Restated Employment Agreement of William F.
Whitman, Jr., dated January 1, 1995, incorporated by
reference to the Company's Form 10-Q, Exhibit (10)(iii)(a),
for the fiscal quarter ended April 1, 1995;
(10)(iii)(b)* Amended and Restated Employment Agreement of David P. Riley,
dated January 1, 1995, incorporated by reference to the
Company's 10-Q, Exhibit (10) (iii) (b) for the fiscal
quarter ended April 1, 1995;
(10)(iii)(c)* Amended and Restated Employment Agreement of independent
directors adopted as of January 1, 1995, incorporated by
reference to the Company's Form 10-Q, Exhibit (10)(iii)(c),
for the fiscal quarter ended April 1, 1995;
(10)(iii)(d)* The Middleby Corporation Amended and Restated 1989 Stock
Incentive Plan, as amended, incorporated by reference to the
Company's Form 10-Q, Exhibit (10)(iii)(d), for the fiscal
quarter ended June 29, 1996, filed on August l3, 1996;
(10)(iii)(e)* 1993 Performance Bonus Plan (Corporate Vice Presidents)
incorporated by reference to the Company's Form 10-K,
Exhibit 10 (iii) (g), for the fiscal year ended January 1,
1994, filed on March 31, 1994;
39
<PAGE>
(10)(iii)(f)* 1996 Management Incentive Plan (Corporate Vice Presidents),
incorporated by reference to Company's Form 10-Q,
Exhibit 10(iii)(f), for the fiscal quarter ended
June 29, 1996, filed on August 13, 1996;
(10)(iii)(g)* Description of Supplemental Retirement Program, incorporated
by reference to Amendment No. 1 to the Company's Form 10-Q,
Exhibit 10 (c), for the fiscal quarter ended July 3, 1993,
filed on August 25, 1993;
(10)(iii)(h)* The Middleby Corporation Stock Ownership Plan, incorporated
by reference to the Company's Form 10-K,
Exhibit (10)(iii)(m), for the fiscal year ended
January 1, 1994, filed on March 31, 1994;
(10)(iii)(i)* Amendment to The Middleby Corporation Stock Ownership Plan
dated as of January 1, 1994; incorporated by reference to
the Company's Form 10-K, Exhibit (10) (iii) (n), for the
fiscal year ended December 31,1994, filed on March 31, 1995;
(10)(iii)(j) Agreement of Purchase and Sale of the Company's Cherry Hill,
New Jersey facility, with attached lease, incorporated by
reference to the Company's Form 10-Q, Exhibit (10)(iii)(j),
for the fiscal quarter ended September 28, 1996, filed on
November 12, 1996;
(10)(iii)(k) Asset Purchase Agreement among Middleby Marshall Inc.,
Victory Refrigeration Company and Victory Acquisition Group
dated December 27, 1996, incorporated by reference to the
Company's Form 8-K, Exhibit (10)(iii)(k), filed on February
7, 1997;
(22) List of subsidiaries;
(27) Financial Data Schedules (EDGAR only);
(99) Unaudited Pro Forma Financial Information, incorporated by
reference to the Company's Form 8-K, Exhibit (99), filed on
September 7, 1995;
* Designates management contract or compensation plan.
(b) There were no reports on Form 8-K in the fiscal fourth quarter of 1996.
Subsequent to the end of the period, on February 10, 1997, the Company
filed a Current Report on Form 8-K to report the completion of its sale of
the Victory Refrigeration Company subsidiary.
(c) See the financial statement schedule included under Item 8.
40
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 28th of March,
1997.
THE MIDDLEBY CORPORATION
BY: /s/ David P. Riley
------------------
David P. Riley
President, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 28, 1997.
Signatures Title
---------- -----
PRINCIPAL EXECUTIVE OFFICER
/s/ David P. Riley President, Chief Executive Officer,
------------------- and Director
David P. Riley
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
/s/ John J. Hastings Executive Vice President, Chief
--------------------- Financial Officer, Secretary and
John J. Hastings Treasurer
DIRECTORS
/s/ William F. Whitman, Jr. Chairman of the Board and Director
----------------------------
William F. Whitman, Jr.
/s/ Newell Garfield, Jr. Director
-------------------------
Newell Garfield, Jr.
/s/ Robert R. Henry Director
--------------------
Robert R. Henry
/s/ A. Don Lummus Director
------------------
A. Don Lummus
41
<PAGE>
/s/ John R. Miller, III Director
------------------------
John R. Miller, III
/s/ Philip G. Putnam Director
---------------------
Philip G. Putnam
/s/ Sabin C. Streeter Director
----------------------
Sabin C. Streeter
/s/ Joseph G. Tompkins Director
-----------------------
Joseph G. Tompkins
/s/ Laura B. Whitman Director
----------------------
Laura B. Whitman
/s/ Robert L. Yohe Director
-------------------
Robert L. Yohe
42
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made as of December 26, 1996, by and among MIDDLEBY MARSHALL
INC., a Delaware corporation having its principal place of business and chief
executive office at 1400 Toastmaster Drive, Elgin, Illinois 60120 ("MMI"),
ASBURY ASSOCIATES, INC., a Florida corporation having its chief executive
office at 3810 Executive Way, Miramar, Florida 33025 ("AAI"), VICTORY
REFRIGERATION COMPANY, a Delaware corporation having an office at 1400
Toastmaster Drive, Elgin, Illinois 60120 ("Victory"), VICTORY INTERNATIONAL,
INC., a Delaware corporation having an office at 1400 Toastmaster Drive,
Elgin, Illinois 60120 ("Victory International"), the lenders who are or who
may from time to time become signatories hereto ("Lenders"), and SANWA
BUSINESS CREDIT CORPORATION, a Delaware corporation having an office at One
South Wacker Drive, Chicago, Illinois 60606 ("SBCC"), as agent for the
Lenders hereunder (SBCC, in such capacity, being "Agent"). MMI, AAI, Victory
and Victory International are sometimes hereinafter collectively referred to
as "Borrowers" and individually as a "Borrower".
R E C I T A L S:
A. MMI, AAI, Lenders and Agent are party to that certain Loan and
Security Agreement dated as of January 9, 1995 and MMI, AAI, Victory, Victory
International, Lenders and Agent are party to that certain First Amendment to
Loan and Security Agreement dated as of March 28, 1996 (as amended, the "Loan
Agreement") which, as amended, provides for a total credit facility of up to
$42,500,000 in the form of a revolving line of credit, a term loan, a capital
expenditure loan and a commitment to issue letters of credit. Capitalized
<PAGE>
terms not otherwise defined herein shall have the respective meanings
assigned thereto in the Loan Agreement.
B. MMI, AAI, Victory and Victory International have determined
that it is in the best interest of the Borrowers to have Victory sell certain
real estate owned by Victory located at Woodcrest & Burnt Mill Road, Cherry
Hill, New Jersey 08034 (the "Cherry Hill Property") to Vineland Construction
Co. ("Purchaser") pursuant to that certain Agreement of Purchase and Sale
dated October 28, 1996 between Purchaser and Victory (the "Purchase
Agreement").
C. MMI, AAI, Victory, Victory International, Lenders and Agent
desire to amend and modify certain provisions of the Loan Agreement. Upon
the date on which each of the conditions set forth in Section 2 of this
Amendment have been satisfied, all such amendments shall be deemed effective
as of December ___, 1996 (the "Effective Date").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. Amendment to the Loan Agreement. MMI, AAI, Victory,
Victory International, Lenders and Agent agree that the Loan Agreement is, as
of the Effective Date, amended as follows:
1.1 The preamble to the Loan Agreement is hereby amended by (i)
deleting the zip code "60127" in lines 4, 8 and 11 thereof and replacing it
with the zip code "60120" in each instance, and (ii) deleting the address
"10340 USA Today Way, Miramar, Florida 33025" in lines 5 and 6 thereof and
replacing it with "3810 Executive Way, Miramar, Florida 33025".
1.2 Section 1.1 is hereby amended by amending the definition of
"Capital Expenditures" by deleting the last line thereof and replacing it
with the following:
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with respect to Capitalized Lease Obligations,
excluding expenditures financed by Purchase Money
Indebtedness.
1.3 Section 1.1 is hereby amended by amending the definition of
"EBITDA" by adding the following sentence to the end of such definition:
The foregoing notwithstanding, the calculation of
EBITDA for the quarter ending September 30, 1996
shall not include the one time charge of
approximately $1,371,000 from the discontinued
operations of Victory.
1.4 Section 1.1 is hereby amended by amending the definition of
"Mortgage[s]" by deleting the last line of such definition and replacing it
with the following:
Elgin, Illinois and (ii) Fuquay-Varina,
North Carolina.
1.5 Section 9.2(C) is hereby amended by deleting "One Million
Dollars ($1,000,000)" in line 18 thereof and replacing it with "Three Million
Six Hundred Thousand Dollars ($3,600,000)".
1.6 Section 9.2(M) is hereby amended by deleting "Exhibit C" in
line 5 thereof and replacing it with "Exhibit D".
1.7 Section 9.2(O) is hereby amended by (i) deleting the word "or"
in line 7 thereof, (ii) replacing the period at the end of Section 9.2(O)
with a comma, and (iii) adding the following phrase at the end of such
Section "and (v) the sale of that certain parcel of property owned by Victory
located at Woodcrest & Burnt Mill Road, Cherry Hill, New Jersey 08034
pursuant to that certain Agreement of Purchase and Sale dated October 28,
1996 between Victory and Vineland Construction Co.".
3
<PAGE>
1.8 Section 9.3(D) is hereby amended by deleting such Section in
its entirety and replacing it with the following:
(D) Cash Flow Coverage Ratio. MMI shall at the
end of each fiscal quarter within the Term hereof
shown below have a Cash Flow Coverage Ratio for
the four fiscal quarters then ended as follows:
Fiscal Quarter Ratio
-------------- -----
Fiscal Quarters Ending on 1.1 to 1.0
or after December 31, 1994
but before June 30, 1996
Fiscal Quarters Ending on .95 to 1.0
or after June 30, 1996 but
before June 29, 1997
Fiscal Quarters Ending on 1.0 to 1.0
or after June 30, 1997 but
before June 29, 1998
Fiscal Quarters Ending on 1.1 to 1.0
or after June 30, 1998
1.9 Exhibit D to the Loan Agreement is hereby amended by deleting
the address "10390 USA Today Way, Miramar, FL 33025" therein and replacing
it with "3810 Executive Way, Miramar, FL 33025".
1.10 Exhibit S to the Loan Agreement is hereby amended by adding to
Exhibit S the following:
E. Middleby Philippines Corporation
1. UCC Financing Statement by PCI Bank, attached
hereto.
SECTION 2. Conditions Precedent to Effectiveness of this
Amendment. The amendments to the Loan Agreement embodied in this Amendment
shall not be effective (in which case such agreement shall remain in full
4
<PAGE>
force and effect unamended by this Amendment) unless and until the following
conditions precedent have been satisfied:
(a) this Amendment shall have been executed by the parties hereto;
(b) an opinion of D'Ancona & Pflaum, counsel to the Borrowers, to
the effect that: (A) this Amendment has been duly authorized by all
necessary corporate action on the part of the Borrowers, has been duly
executed and delivered by the Borrowers and constitutes the legal, valid and
binding contract of the Borrowers enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law); (B) no approval, consent or withholding of
objection on the part of, or filing or regulation or qualification with, any
governmental body, Federal, state or local, is necessary in connection with
the execution, delivery and performance of this Amendment or any other
agreements being delivered by the Borrowers in connection with the amendments
contemplated hereunder; (C) the execution, delivery and performance by the
Borrowers of this Amendment or any other agreement being delivered in
connection with the amendments contemplated hereunder do not conflict with or
result in the breach of any of the provisions of, or constitute a default
under or result in the breach of any of the provisions of, or constitute a
default under or result in the creation or imposition of any Lien upon any
property of the Borrowers pursuant to the Articles or Certificate of
Incorporation or By-laws of the Borrowers or any agreement, license or other
instrument known to such counsel to which any of the Borrowers is a party or
by which any of such Borrowers may be bound; and such opinion shall cover
such other matters relating to this Amendment and the amendments contemplated
hereunder as the Lenders may reasonably request;
5
<PAGE>
(c) The Net Proceeds of the sale of the Cherry Hill Property shall
be equal to approximately $4,500,000. The Borrowers shall apply the greater
of (i) $2,250,000, or (ii) fifty percent (50%), of the Net Proceeds from the
sale of the Cherry Hill Property to prepay the principal installments of the
Term Loan in inverse order of maturity. The remaining portion of the Net
Proceeds from the sale of the Cherry Hill Property shall be used to prepay
the Revolving Credit Loan (without a permanent reduction in the Revolving
Credit Loan Commitment);
(d) The Parent shall have delivered its consent to the amendments
contemplated hereunder and reaffirmed its obligations under the Support
Agreement, by its execution and delivery of the Parent Support Letter in the
form of Exhibit A hereto; and
(e) The Northwestern Mutual Life Insurance Company shall have
delivered its consent to the amendments contemplated hereunder.
SECTION 3. Representations and Warranties of Borrowers. Each
Borrower represents and warrants that:
(a) the execution, delivery and performance by it of this
Amendment has been duly authorized by all necessary corporate action or any
other necessary action on their respective parts;
(b) this Amendment has been duly executed and delivered by each
Borrower;
(c) this Amendment and the Loan Agreement are and will be, legal,
valid and binding obligations of each Borrower, enforceable against each
Borrower in accordance with its terms, except as the enforcement thereof may
be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and (ii) general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law);
6
<PAGE>
(d) the representations, warranties and covenants contained in
Sections 5, 6, 7, 8 and 9 of the Loan Agreement are true and correct in all
material respects on and as of the Effective Date as if made on such date;
(e) no Default or Event of Default under the Loan Agreement has
occurred and is continuing; and
(f) since September 30, 1996 there has been no material adverse
change in the business, financial or other conditions of any Borrower, or in
the collateral securing the Obligations or in the prospects of any Borrower,
other than the one time charge of approximately $1,371,000 from the
discontinued operations of Victory.
SECTION 4. Reference to and Effect on Loan Agreement.
(a) On and after the Effective Date, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import, and each reference to any of such agreements in any of the other
documents delivered in connection therewith, shall mean and be a reference to
the Loan Agreement as amended hereby.
(b) Except as specifically amended above, the Loan Agreement and
the Loan Documents shall remain in full force and effect and are hereby in
all respects ratified and confirmed.
(c) Notwithstanding this Amendment, Lender is not in any way
obligated to further modify, extend or amend any Loan Documents or to
forebear or forestall any collection efforts or other remedies it may have
under the Loan Documents or at law.
7
<PAGE>
(d) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Lender under the Loan Agreement or any of the
Loan Documents.
SECTION 5. Collateral Documents. Each Borrower has heretofore
executed and delivered to the Lender certain Loan Documents and each Borrower
hereby acknowledges and agrees that, notwithstanding the execution and
delivery of this Amendment, the Loan Documents remain in full force and
effect and the rights and remedies of the Lender thereunder, the obligations
of each Borrower thereunder and the liens and security interests created and
provided for thereunder remain in full force and effect and shall not be
affected, impaired or discharged hereby. Nothing herein contained shall in
any manner affect or impair the priority of the liens and security interests
created and provided for in the Loan Documents as to the indebtedness which
would be secured thereby prior to giving effect to this Amendment.
SECTION 6. Expenses. The Borrowers agree to pay on demand all
costs and expenses of or incurred by the Lender in connection with the
negotiation, preparation, execution and delivery of this Amendment and the
other instruments and documents executed and delivered in connection with the
transactions described herein (including the filing or recording thereof),
including the fees and expenses of counsel for the Lenders.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
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<PAGE>
SECTION 8. Governing Law. This Amendment shall be governed and
construed with reference to the laws of the State of Illinois, without regard
to principles of conflicts of law.
SECTION 9. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purposes.
IN WITNESS WHEREOF, this Amendment has been duly executed in
Chicago, Illinois, on the day and year specified at the beginning hereof.
BORROWERS:
MIDDLEBY MARSHALL INC. VICTORY REFRIGERATION COMPANY
By: By:
Its: By:
ASBURY ASSOCIATES, INC. VICTORY INTERNATIONAL, INC.
By: By:
Its: Its:
SANWA BUSINESS CREDIT THE CIT GROUP/BUSINESS CREDIT
CORPORATION, as Agent and Lender INC., as Lender
By: By:
Its: Its:
9
<PAGE>
LIST OF EXHIBITS
Exhibit A Parent Support Letter
10
<PAGE>
EXHIBIT A
PARENT SUPPORT LETTER
Reference is made to that certain Second Amendment to Loan and Security
Agreement dated as of December ____, 1996 by and among Middleby Marshall Inc.
("MMI"), Asbury Associates, Inc. ("AAI"), Victory Refrigeration Company
("Victory"), Victory International, Inc. ("Victory International"), the
lenders who are or may from time to time become signatories thereto
("Lenders") and Sanwa Business Credit Corporation, a Delaware corporation
("SBCC"), as agent for the Lenders thereunder (SBCC, in such capacity, being
"Agent"). Said Second Amendment to Loan and Security Agreement supplements
and amends that certain Loan Agreement dated as of January 9, 1995 by and
among MMI, AAI, the Lenders and Agent as amended by that certain First
Amendment to Loan and Security Agreement dated as of March 28, 1996 among
MMI, AAI, Victory, Victory International, the Lenders and Agent. Said Loan
Agreement, as amended from time to time, is hereinafter referred to as the
"Loan Agreement." Unless otherwise defined herein, capitalized terms shall
have the meaning given to them in the Loan Agreement.
In order to induce the Lenders and Agent to enter into the Second
Amendment to Loan Agreement, The Middleby Corporation, a Delaware corporation
(the "Parent Corporation"), which owns 100% of the issued and outstanding
capital stock of MMI, represents, warrants and covenants to the Lenders and
Agent and each successor of such party that each of the representations,
warranties and covenants set forth in that certain Support Agreement
delivered by the Parent Corporation on January 9, 1995 remains in full force
and effect on and as of the date hereof. The Parent Corporation by its
execution and delivery of this Parent Support Letter reaffirms its
obligations under and pursuant to the Support Agreement and by its execution
and delivery of this Parent Support Letter consents to the changes
contemplated in the Second Amendment to Loan and Security Agreement.
IN WITNESS WHEREOF, this Parent Support Letter has been executed and
delivered by the Parent Corporation on this _________ day of December, 1996.
THE MIDDLEBY CORPORATION
By
Its
Address:
1400 Toastmaster Drive
Elgin, Illinois 60120
Attention: John J. Hastings
Telephone No.: (708) 741-9215
Telecopier No.: (708) 741-9476
<PAGE>
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is
made as of January 22, 1997, by and among MIDDLEBY MARSHALL INC., a Delaware
corporation having its principal place of business and chief executive office at
1400 Toastmaster Drive, Elgin, Illinois 60120 ("MMI"), ASBURY ASSOCIATES, INC.,
a Florida corporation having its chief executive office at 3810 Executive Way,
Miramar, Florida 33025 ("AAI"), VICTORY REFRIGERATION COMPANY, a Delaware
corporation having an office at 1400 Toastmaster Drive, Elgin, Illinois 60120
("Victory"), VICTORY INTERNATIONAL, INC., a Delaware corporation having an
office at 1400 Toastmaster Drive, Elgin, Illinois 60120 ("Victory
International"), the lenders who are or who may from time to time become
signatories hereto ("Lenders"), and SANWA BUSINESS CREDIT CORPORATION, a
Delaware corporation having an office at One South Wacker Drive, Chicago,
Illinois 60606 ("SBCC"), as agent for the Lenders hereunder (SBCC, in such
capacity, being "Agent"). MMI, AAI, Victory and Victory International are
sometimes hereinafter collectively referred to as "Borrowers" and individually
as a "Borrower".
R E C I T A L S:
A. MMI, AAI, Lenders and Agent are party to that certain Loan and Security
Agreement dated as of January 9, 1995 and MMI, AAI, Victory, Victory
International, Lenders and Agent are party to that certain First Amendment to
Loan and Security Agreement dated as of March 28, 1996 (the "First Amendment")
and that certain Second Amendment to Loan and Security Agreement dated as of
December 26, 1996 (as amended, the "Loan Agreement") which, as amended, provides
for a total credit facility of up to $42,500,000 in the form of a revolving line
of credit, a term
1
<PAGE>
loan, a capital expenditure loan and a commitment to issue letters of credit.
Capitalized terms not otherwise defined herein shall have the respective
meanings assigned thereto in the Loan Agreement.
B. MMI, AAI, Victory and Victory International have determined that it is
in the best interest of the Borrowers to have Victory sell substantially all of
its assets (the "Victory Assets") to Victory Acquisition Group L.L.C.
("Purchaser") pursuant to that certain Asset Purchase Agreement dated as of
December 27, 1996 among Victory, MMI and Purchaser (the "Purchase Agreement").
C. MMI, AAI, Victory, Victory International, Lenders and Agent desire to
amend and modify certain provisions of the Loan Agreement. Upon the date on
which each of the conditions set forth in Section 2 of this Amendment have been
satisfied, all such amendments shall be deemed effective as of January 22, 1997
(the "Effective Date").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. Amendment to the Loan Agreement. MMI, AAI, Victory, Victory
International, Lenders and Agent agree that the Loan Agreement is, as of the
Effective Date, amended as follows:
1.1 Section 9.2(O) is hereby amended by deleting such section in its
entirety and replacing it with the following:
(O) Disposition of Assets. Sell, lease or otherwise dispose of any of
their Properties, or permit any Subsidiary to sell, lease or otherwise
dispose of any of their Properties including in either case any disposition
of Property as part of a sale and leaseback transaction, to or in favor of
any Person, except (i) sales of Inventory in the ordinary course of
Borrowers' businesses or sales of slow-moving, obsolete or other Inventory
which is not Eligible Inventory, in either case for so long as no Event of
Default exists hereunder, (ii) a transfer of Property to a Borrower by a
Subsidiary, (iii) dispositions expressly authorized by this Agreement, (iv)
sales or dispositions of
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<PAGE>
Equipment and/or real Property which would not alone or in conjunction with
other sales or dispositions materially and adversely affect Borrowers
business operations or abilities to repay the Obligations, (v) the sale of
that certain parcel of property owned by Victory located at Woodcrest &
Burnt Mill Road, Cherry Hill, New Jersey 08034 pursuant to that certain
Agreement of Purchase and Sale dated October 28, 1996 between Victory and
Vineland Construction Co., or (vi) the sale of substantially all of the
assets of Victory pursuant to that certain Asset Purchase Agreement dated
as of December 27, 1996 among Victory, MMI and Victory Acquisition Group
L.L.C.; provided, however, that $1,470,000 of the proceeds of such sale
shall be applied to prepay the principal installments of the Term Loan in
inverse order of maturity and the remaining balance of the proceeds of such
sale shall be applied to prepay the Revolving Credit Loan (without a
permanent reduction in the Revolving Credit Loan Commitment).
SECTION 2. Conditions Precedent to Effectiveness of this Amendment. The
amendments to the Loan Agreement embodied in this Amendment shall not be
effective (in which case such agreement shall remain in full force and effect
unamended by this Amendment) unless and until the following conditions precedent
have been satisfied:
(a) this Amendment shall have been executed by the parties hereto;
(b) an opinion of D'Ancona & Pflaum, counsel to the Borrowers,
to the effect that: (A) this Amendment has been duly authorized by
all necessary corporate action on the part of the Borrowers, has been
duly executed and delivered by the Borrowers and constitutes the
legal, valid and binding contract of the Borrowers enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in
equity or at law); (B) no approval, consent or withholding of
objection on the part of, or filing or regulation or qualification
with, any governmental body, Federal, state or local, is
necessary in connection with the execution, delivery and
performance of this Amendment or any other agreements being
delivered by the Borrowers in connection with the amendments
contemplated
3
<PAGE>
hereunder; (C) the execution, delivery and performance by the
Borrowers of this Amendment or any other agreement being delivered in
connection with the amendments contemplated hereunder do not conflict
with or result in the breach of any of the provisions of, or
constitute a default under or result in the breach of any of the
provisions of, or constitute a default under or result in the creation
or imposition of any Lien upon any property of the Borrowers pursuant
to the Articles or Certificate of Incorporation or By-laws of the
Borrowers or any agreement, license or other instrument known to such
counsel to which any of the Borrowers is a party or by which any of
such Borrowers may be bound; and such opinion shall cover such other
matters relating to this Amendment and the amendments contemplated
hereunder as the Lenders may reasonably request;
(c) the net proceeds of the sale of the Victory Assets received by
Victory upon closing shall be equal to approximately $5,000,000 and,
subject to the terms of the Purchase Agreement, an additional $1,000,000
shall be payable to Victory after the closing subject to the terms of the
Purchase Agreement. The Borrowers shall apply $1,470,000 of the net
proceeds from the sale of the Victory Assets to prepay the principal
installments of the Term Loan in inverse order of maturity. The remaining
balance of the net proceeds from the sale of the Victory Assets shall be
used to prepay the Revolving Credit Loan (without a permanent reduction in
the Revolving Credit Loan Commitment);
(d) the Parent shall have delivered its consent to the amendments
contemplated hereunder and reaffirmed its obligations under the Support
Agreement, by its execution and delivery of the Parent Support Letter in
the form of Exhibit A hereto;
(e) the representations and warranties of the Borrowers contained in
Section 3 of this Amendment shall be true and correct as of the Effective
Date;
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<PAGE>
(f) the Agent shall have received:
(i) the fully executed Taiwanese Subsidiary Guaranty (as defined
in the First Amendment) pursuant to Section 5(c) the First Amendment;
(ii) the fully executed Taiwanese Subsidiary Stock Pledge
Agreement (as defined in the First Amendment) pursuant to Section 5(d)
of the First Amendment and the related shares of capital stock shall
be endorsed in blank; and
(iii) evidence of the existence and good standing of Asbury
Worldwide (Taiwan) Company, Ltd. (the "Taiwanese Subsidiary");
(g) the Northwestern Mutual Life Insurance Company shall have
delivered its consent to the amendments contemplated hereunder; and
(h) the Agent shall have received copies, certified as being true,
correct and complete, of the Purchase Agreement and evidence satisfactory
in form and substance to it that the transactions contemplated therein have
been consummated.
SECTION 3. Representations and Warranties of Borrowers. Each Borrower
represents and warrants that:
(a) the execution, delivery and performance by it of this Amendment
has been duly authorized by all necessary corporate action or any other
necessary action on their respective parts;
(b) this Amendment has been duly executed and delivered by each
Borrower;
(c) this Amendment and the Loan Agreement are and will be, legal,
valid and binding obligations of each Borrower, enforceable against each
Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy,
5
<PAGE>
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, and (ii) general principles of equity (regardless of
whether such enforcement is sought in a proceeding in equity or at law);
(d) the representations, warranties and covenants contained in
Sections 5, 6, 7, 8 and 9 of the Loan Agreement are true and correct in all
material respects on and as of the Effective Date as if made on such date;
(e) MMI owns and controls either directly or indirectly not less than
80% of the capital stock (and any securities convertible at any time and
from time to time into capital stock) of the Taiwanese Subsidiary; MMI has
capitalized the Taiwanese Subsidiary in an amount not to exceed U.S.
$200,000; and the Taiwanese Subsidiary is authorized to guarantee all
outstanding indebtedness of the Borrowers, including the Obligations;
(f) no Default or Event of Default under the Loan Agreement has
occurred and is continuing; and
(g) since September 30, 1996 there has been no material adverse change
in the business, financial or other conditions of any Borrower, or in the
collateral securing the Obligations or in the prospects of any Borrower,
other than the one time charge of approximately $1,371,000 from the
discontinued operations of Victory.
SECTION 4. Reference to and Effect on Loan Agreement.
(a) On and after the Effective Date, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import, and each reference to any of such agreements in any of the
other documents delivered in connection therewith, shall mean and be a
reference to the Loan Agreement as amended hereby.
6
<PAGE>
(b) Except as specifically amended above, the Loan Agreement and the
Loan Documents shall remain in full force and effect and are hereby in all
respects ratified and confirmed.
(c) Notwithstanding this Amendment, Lender is not in any way obligated
to further modify, extend or amend any Loan Documents or to forebear or
forestall any collection efforts or other remedies it may have under the
Loan Documents or at law.
(d) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lender under the Loan Agreement or any of the Loan
Documents.
SECTION 5. Collateral Documents. Each Borrower has heretofore executed and
delivered to the Lender certain Loan Documents and each Borrower hereby
acknowledges and agrees that, notwithstanding the execution and delivery of this
Amendment, the Loan Documents remain in full force and effect and the rights and
remedies of the Lender thereunder, the obligations of each Borrower thereunder
and the liens and security interests created and provided for thereunder remain
in full force and effect and shall not be affected, impaired or discharged
hereby. Nothing herein contained shall in any manner affect or impair the
priority of the liens and security interests created and provided for in the
Loan Documents as to the indebtedness which would be secured thereby prior to
giving effect to this Amendment.
SECTION 6. Expenses. The Borrowers agree to pay on demand all costs and
expenses of or incurred by the Lender in connection with the negotiation,
preparation, execution and delivery of this Amendment and the other instruments
and documents executed and delivered in connection with the transactions
described herein (including the filing or recording thereof), including the fees
and expenses of counsel for the Lenders.
7
<PAGE>
SECTION 7. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
SECTION 8. Governing Law. This Amendment shall be governed and construed
with reference to the laws of the State of Illinois, without regard to
principles of conflicts of law.
SECTION 9. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
8
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed in Chicago,
Illinois, on the day and year specified at the beginning hereof.
BORROWERS:
MIDDLEBY MARSHALL INC. VICTORY REFRIGERATION COMPANY
By: By:
Its: By:
ASBURY ASSOCIATES, INC. VICTORY INTERNATIONAL, INC.
By: By:
Its: Its:
SANWA BUSINESS CREDIT THE CIT GROUP/BUSINESS CREDIT
CORPORATION, as Agent and Lender INC., as Lender
By: By:
Its: Its:
9
<PAGE>
THIRD AMENDMENT TO NOTE AGREEMENT
This Third Amendment dated as of August 15, 1996 (the or this "Amendment")
to the Note Agreement dated as of January 1, 1995, (as previously amended, the
"Note Agreement") between and among Middleby Marshall Inc., a Delaware
corporation ("MMI"), Asbury Associates, Inc., a Florida corporation, Victory
International Inc., a Delaware corporation, and Victory Refrigeration Company, a
Delaware corporation (each of the foregoing an "Obligor" and collectively the
"Obligors") and The Northwestern Mutual Life Insurance Company (the
"Noteholder").
RECITALS:
A. The Obligors and the Noteholder have heretofore entered into the Note
Agreement, pursuant to which the Company has issued the $10.99% Senior Note Due
2003 (the "Notes"). The Noteholder is the holder of 100% of the outstanding
principal amount of the Notes.
B. The Company and the Noteholder now desire to amend provisions of the
Note Agreement as of April 1, 1996 (the "Effective Date") in the respects, but
only in the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Agreement unless herein defined or the context
shall otherwise require.
NOW, THEREFORE, upon the full and complete satisfaction of the conditions
precedent to the effectiveness of the Amendment set forth in ss. 3.1 hereof, and
in consideration of good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the Company and the Noteholder do hereby agree
as follows:
SECTION 1. AMENDMENTS.
1.1 Section 5.7 of the Note Agreement shall be and is hereby amended in its
entirety to read as follows:
5.7 Indebtedness Ratio. The Obligors shall not at any time permit the
ratio of Consolidated Funded Debt to Consolidated Total Capitalization to
exceed:
1
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RATIO OF CONSOLIDATED FUNDED
DEBT TO CONSOLIDATED TOTAL
DURING THE PERIOD: CAPITALIZATION:
Closing Date Through March 31, 1996 .90 to 1.00
April 1, 1996 through March 31, 1997 .80 to 1.00
April 1, 1997 through January 3, 1998 .70 to 1.00
January 4, 1998 through January 2, 1999 .60 to 1.00
January 3, 1999 and thereafter .50 to 1.00
SECTION 2. REPRESENTATIONS AND WARRANTIES.
2.1 To induce the Noteholder to execute and deliver this Amendment, each
Obligor represents and warrants to the Noteholder (which representations shall
survive the execution and delivery of this Amendment) that:
(a) this Amendment has been duly authorized, executed and delivered by
it and this Amendment constitutes the legal, valid and binding obligation,
contract and agreement of such Obligor enforceable against it in accordance
with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally;
(b) the Note Agreement, as amended by this Amendment, constitutes the
legal, valid and binding obligation, contract and agreement of such Obligor
enforceable against it in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors'
rights generally;
(c) the execution, delivery and performance by such Obligor of this
Amendment (i) have been duly authorized by all requisite corporate action
and, if required, shareholder action, (ii) do not require the consent or
approval of any governmental or regulatory body or agency, and (iii) will
not (A) violate (1) any provision of law, statute, rule or regulation or
its certificate of incorporation or bylaws, (2) any order of any court or
any rule, regulation or order of any other agency or government binding
upon it, (B) violate or require any consent under or with respect to any
provision of any material indenture, agreement or other instrument to which
it is a party or by which its properties or assets are or may be bound,
including, without limitation, the Finance Company Loan Agreement or the
Finance Company Security Documents, or (C) result in a breach or constitute
(alone or with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument; and
2
<PAGE>
(d) as of the date hereof and after giving effect to this Amendment ,
no Default or Event of Default has occurred which is continuing.
SECTION 3. CONDITIONS PRECEDENT; MISCELLANEOUS.
3.1 This Amendment shall not become effective until each and every one of
the following conditions shall have been satisfied:
(a) executed counterparts of this Amendment, duly executed by all the
Obligors, shall have been delivered to the Noteholder;
(b) the Noteholder shall have received a written consent to this
Amendment for purposes of the Finance Company Loan Agreement and Finance
Company Security Documents, duly executed by the Agent and the Lenders,
which consent shall be in form and substance satisfactory to the
Noteholder; and
(c) the Noteholder shall have received a certificate, in form
satisfactory to it, of an appropriate officer of MMI, on behalf of each
Obligor, to the effect that the representations and warranties of the
Obligors set forth in ss. 2 hereof are true and correct on and with respect
to the date hereof.
Upon receipt of all of the foregoing, this Amendment shall become effective
as of the Effective Date referred to in Paragraph B of the Recitals.
3.4. This Amendment shall be construed in connection with and as part of
the Note Agreement, and except as modified and expressly amended by this
Amendment, all terms, conditions and covenants contained in the Note Agreement
and the Notes are hereby ratified and shall be and remain in full force and
effect.
3.5 Any and all notices, requests, certificates and other instruments
executed and delivered after the execution and delivery of this Amendment may
refer to the Note Agreement without making specific reference to this Amendment
but nevertheless all such references shall include this Amendment unless the
context otherwise requires.
3.6. This Amendment shall be governed by and construed in accordance with
Illinois law.
3
<PAGE>
3.7. This Amendment may be executed in any number of counterparts, each
executed counterpart constituting an original, but all together only one
agreement.
Middleby Marshall, Inc.
By:
--------------------
Its:
Asbury Associates, Inc.
By:
--------------------
Its:
Victory International, Inc.
By:
--------------------
Its:
Victory Refrigeration Company
By:
--------------------
Its:
Accepted and Agreed to
as of August 15, 1996
The Northwestern Mutual Life
Insurance Company
By:______________________________
Its: Vice President
4
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MIDDLEBY MARSHALL INC.
AND
ASBURY ASSOCIATES, INC.
AND
VICTORY REFRIGERATION COMPANY
AND
VICTORY INTERNATIONAL, INC.
FOURTH AMENDMENT TO NOTE AGREEMENT
Dated as of January 15, 1997
Re: Note Agreement Dated as of January 1, 1995
and
$15,000,000 10.99% Senior Secured Notes
Due January 10, 2003
and
Warrant to Purchase Common Stock
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION HEADING PAGE
SECTION 1 AMENDMENTS TO THE ORIGINAL NOTE AGREEMENT............... 2
Section 1.1 Amendment to Section 5.9 of the Original Note
Agreement............................................... 2
Section 1.2 Amendment to Section 5.11 of the Original Note
Agreement............................................... 3
Section 1.3 Amendment to Section 5.14 of the Original Note
Agreement............................................... 3
Section 1.4 Amendment to Section 5.15 of the Original Note
Agreement............................................... 4
Section 1.5 Amendment to Section 8 of the Original Note
Agreement............................................... 6
SECTION 2 WAIVER AND CONSENTS..................................... 8
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.......... 8
SECTION 4 CONDITIONS PRECEDENT.................................... 9
SECTION 5 MISCELLANEOUS........................................... 10
Section 5.1 Effective Date; Ratification............................ 10
Section 5.2 Successors and Assigns.................................. 11
Section 5.3 Counterparts............................................ 11
Section 5.4 Fees and Expenses....................................... 11
Section 5.5 No Legend Required...................................... 11
Section 5.6 Governing Law........................................... 11
Exhibit A -- Second Amendment to Loan and Security Agreement
Exhibit B -- Third Amendment to Loan and Security Agreement
Exhibit C -- Form of Parent Support Letter
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<PAGE>
MIDDLEBY MARSHALL INC.
AND
ASBURY ASSOCIATES, INC.
AND
VICTORY REFRIGERATION COMPANY
AND
VICTORY INTERNATIONAL, INC.
SECOND AMENDMENT TO NOTE AGREEMENT
Re: Note Agreement Dated as of January 1, 1995
and
$15,000,000 10.99% Senior Secured Notes
Due January 10, 2003
and
Warrant to Purchase Common Stock
Dated as of
January 15, l997
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Ladies and Gentlemen:
Reference is made to the Note Agreement dated as of January 1, 1995 (the
"1995 Note Agreement"), between and among Middleby Marshall Inc., a Delaware
corporation ("MMI"), Asbury Associates, Inc., a Florida corporation ("Asbury";
Asbury and MMI each hereinafter sometimes individually referred to as an
"Obligor" and collectively as the "Original Obligors"), and you (the
"Noteholder"), under and pursuant to which $15,000,000 aggregate principal
amount of Senior Notes Due January 10, 2003 (the "Notes") were originally
issued.
Reference is further made to the First Amendment to Note Agreement dated as
of March 1, 1996 (the "First Amendment"; the 1995 Note Agreement as amended by
the First Amendment is hereinafter referred to as the "Original Note
Agreement"), between and among the Original Obligors, Victory International,
Inc. ("Victory International"), a Wholly-owned Subsidiary of MMI, and Victory
Refrigeration Company ("Victory"), a Delaware corporation and a Wholly-owned
Subsidiary of Victory International (each of Victory and Victory International
being hereinafter sometimes individually also referred to as an "Obligor" and
collectively with the Original Obligors as the "Obligors") and the Noteholder,
under and pursuant to which the 1995 Note Agreement was amended. Capitalized
terms not otherwise defined herein shall have the respective meanings assigned
thereto in the Original Note Agreement.
<PAGE>
The Obligors desire to undertake the following, namely, (i) the series of
sales covering all of the assets of Victory (the "Victory Sales") and (ii) the
amending of the terms of the Original Note Agreement and the Finance Company
Loan Agreement as would be necessary in order to permit the Victory Sales and to
permit certain investments in, and guarantees of the obligations of, the
Philippine subsidiary of MMI. The Victory Sales and such amending of the
Original Note Agreement and the Finance Company Loan Agreement are hereinafter
collectively referred to as the "1997 Changes."
Pursuant to Section 7 of the Original Note Agreement, the holders of at
least 51% in aggregate principal amount of the outstanding Notes must consent to
any amendments of the Original Note Agreement or the Security Documents in
connection with the Obligors' accomplishing the 1997 Changes. Since the
Noteholder is the holder of 100% in aggregate principal amount of the
outstanding Notes, the Obligors hereby request that it accept the amendments set
forth below. On the Effective Date (as hereinafter defined) this instrument
shall constitute an agreement which amends the Original Note Agreement in the
respects hereinafter set forth.
SECTION 1. AMENDMENTS TO THE ORIGINAL NOTE AGREEMENT.
Section 1.1. Amendment to Section 5.9 of the Original Note Agreement.
Section 5.9 of the Original Note Agreement shall be, and is hereby, amended in
its entirety to read as follows:
"Section 5.9. Fixed Charges Coverage Ratio. The Obligors will at all
times keep and maintain the ratio of Consolidated Net Income Available for
Fixed Charges for the immediately preceding four fiscal quarter period to
Consolidated Fixed Charges for such four fiscal quarter period at not less
than:
DURING THE PERIOD MINIMUM LEVEL
1995 Fiscal Year 1.75 to 1.00
December 31, 1995 through
June 29, 1996 2.00 to 1.00
June 30, 1996 through
March 29, 1997 1.55 to 1.00
March 30, 1997 through 1.75 to 1.00
January 3, 1998
1998 Fiscal Year and each 2.00 to 1.00"
Fiscal Year thereafter
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<PAGE>
Section 1.2. Amendment to Section 5.11 of the Original Note Agreement. (a)
Section 5.11(a) of the Original Note Agreement shall be, and is hereby, amended
by amending in its entirety clause (10) thereof to read as follows:
"(10) Indebtedness of MPC, FAB-Asia, the Japanese Subsidiary or
the Taiwanese Subsidiary provided that (i) FAB-Asia shall have no
Indebtedness except mortgage Indebtedness in an amount not to
exceed $500,000 outstanding on the Effective Date, (ii) no such
Indebtedness shall be secured by any Lien upon property or assets
of any Obligor or any other Subsidiary, and (iii) no Obligor or
other Subsidiary shall be liable with respect to such
Indebtedness except to the extent that any Guaranty by the
Obligors of obligations incurred by, together with the Investment
of the Obligors or any other Subsidiary in and to, (x) FAB-Asia
or MPC shall not exceed $6,400,000 in the aggregate in U.S.
dollars at any time, (y) the Japanese Subsidiary shall not exceed
$600,000 in U.S. dollars at any time or (z) the Taiwanese
Subsidiary shall not exceed $200,000 in U.S. dollars at any time;
and"
(b) Section 5.11(a) of the Original Note Agreement shall be, and is hereby,
further amended by adding a clause (11) thereto to read as follows:
"(11) Indebtedness of MMI evidenced by a Guaranty of the
obligations of MPC under the MPC Revolving Credit Facility;
provided that the obligations of MMI under such Guaranty shall
not exceed $3,700,000."
Section 1.3. Amendment to Section 5.14 of the Original Note Agreement.
Section 5.14 of the Original Note Agreement shall be, and is hereby, amended by
amending in its entirety clause (a) thereof to read as follows:
"(a) Investment by the Obligors and their respective Subsidiaries in
and to Subsidiaries, including any Investment in a corporation which, after
giving effect to such Investment, will become a Subsidiary of an Obligor or
one of its Wholly-owned Subsidiaries; provided that in no event shall the
Investment of the Obligors in and to, together with any Guaranty by the
Obligors of obligations incurred by, (i)FAB-Asia
-3-
<PAGE>
or MPC exceed $6,400,000 in the aggregate in U.S. dollars at any time, or
(ii) the Japanese Subsidiary exceed $600,000 in U.S. dollars at any time,
or (iii) the Taiwanese Subsidiary exceed $200,000 in U.S. dollars at any
time; provided further, that in each case the Investments described in
clause (i), (ii) and (iii) above shall be limited to the amounts set forth
above without regard to whether the Obligors would otherwise be permitted
to make a greater Investment in FAB-Asia, MPC, the Japanese Subsidiary or
the Taiwanese Subsidiary within the limitations of clause (k) of this
Section 5.14;"
Section 1.4. Amendment to Section 5.15 of the Original Note Agreement.
Section 5.15 of the Original Note Agreement shall be, and is hereby, amended by
amending in its entirety clause (b) thereof to read as follows:
"(b) The Obligors will not, and will not permit any of their
respective Subsidiaries to, sell, lease, transfer, abandon or otherwise
dispose of assets (except assets sold in the ordinary course of business
for fair market value); provided that the foregoing restrictions do not
apply to:
(1) the sale, lease, transfer or other disposition of assets of a
Subsidiary of MMI to MMI or a Wholly-owned Subsidiary of MMI; or
(2) the sale or transfer of assets of an Obligor or any of its
respective Subsidiaries whenever it is determined in the good faith
judgment of the Board of Directors of MMI in the event the fair market
value of such assets being disposed of equals or exceeds $1,000,000 or
a Responsible Officer of MMI in the event that the fair market value
of such assets being disposed of is less than $1,000,000 that such
assets are obsolete, worn-out or without economic value to such
Obligor or such Subsidiary; or
(3) the exchange in an arms-length transaction of assets,
provided that (i) the assets acquired by an Obligor or any of its
respective Subsidiaries in connection with such exchange shall have a
fair market value (as determined in good faith by the Board of
Directors of MMI in the event the fair market value of such assets
being disposed of equals or exceeds $1,000,000 or a Responsible
Officer of MMI in the event that the fair market value of such assets
being disposed of is less than $1,000,000) equal to or greater than
the fair market value of the assets disposed of by such Obligor or
such Subsidiary in connection with such exchange, (ii) the assets
acquired by such Obligor or such Subsidiary in connection with such
exchange shall be similar in nature to the assets sold or otherwise
disposed of in connection with such exchange, and (iii) the assets so
acquired are free and clear of any Lien and are useful and are
intended to be used in the business of the Obligors and their
respective Subsidiaries as described in Section 5.5; or
(4) the sale of the Victory Real Assets pursuant to the Victory
Real Assets Sale Agreement; provided, however, that the net proceeds
from the sale of the Victory Real Assets shall be applied towards the
payment of the obligations of the Obligors under the Finance Company
Loan Agreement; or
(5) the sale of the Victory Operating Assets pursuant to the
Victory Operating Assets Sale Agreement; provided, however, that the
net proceeds from the sale of the Victory Operating Assets shall be
applied towards the payment of the obligations of the Obligors under
the Finance Company Loan Agreement; or
-4-
<PAGE>
(6) the sale of assets for cash or other property to a Person or
Persons other than an Affiliate if all of the following conditions are
met:
(i) such assets (valued at net book value) do not, together
with all other assets of the Obligors and their respective
Subsidiaries previously disposed of during the same Fiscal Year
(other than in the ordinary course of business), exceed 10% of
Consolidated Total Assets determined as of the end of the
immediately preceding fiscal quarter;
(ii) in the opinion of the Board of Directors of MMI in the
event the fair market value of such assets being disposed of
equals or exceeds $1,000,000 or a Responsible Officer of MMI in
the event that the fair market value of such assets being
disposed of is less than $1,000,000, the sale is for fair value
and is in the best interests of the Obligors; and
(iii) immediately after the consummation of the transaction
and after giving effect thereto, no Default or Event of Default
would exist;
provided, however, that for purposes of the foregoing calculation,
there shall not be included (x) the Victory Real Assets sold
pursuant to the Victory Real Assets Sale Agreement or (y) the
Victory Operating Assets sold pursuant to the Victory Operating
Assets Sale Agreement or (z) any assets the proceeds of which were
or are (A) immediately after the consummation of such sale
deposited in an escrow account with a depository institution or
trust company of the character described in clause (g) of Section
5.14 acting as escrow agent, (B) invested in Investments of the
character described in clauses (e), (f) or (g) of said Section
5.14, and (C) applied within twelve months of the date of sale of
such assets to either (1) the acquisition of assets useful and
intended to be used in the operation of the business of the
Obligors and their respective Subsidiaries as described in Section
5.5 and having a fair market value (as determined in good faith by
the Board of Directors of MMI in the event the fair market value of
such assets being disposed of equals or exceeds $1,000,000 or a
Responsible Officer of MMI in the event that the fair market value
of such assets being disposed of is less than $1,000,000) at least
equal to that of the assets so disposed of or (2) offered on a pro
rata basis towards the prepayment at any applicable prepayment
premium of Senior Indebtedness (including, without limitation, the
Notes) of MMI ranking pari passu with the Notes. It is understood
and agreed by the Obligors and each holder of the Notes by its
acceptance thereof that any such holder may decline any such offer
of prepayment, that the failure of any such holder to accept or
decline any such offer of prepayment shall be deemed to be an
election by such holder to decline such prepayment, and that if any
such offer is so accepted, the proceeds so offered towards the
prepayment of the Notes and accepted shall be prepaid as and to
the extent provided in Section 2.2.
Computations pursuant to this Section 5.15(b) shall include
dispositions made pursuant to Section 5.15(c) and computations
pursuant to Section 5.15(c) shall include dispositions made pursuant to
this Section 5.15(b)."
-5-
<PAGE>
Section 1.5. Amendment to Section 8 of the Original Note Agreement;. (a)
Section 8.1 of the Original Note Agreement shall be, and is hereby, amended by
deleting the definition of "Consolidated Net Income" and replacing it with the
following:
""Consolidated Net Income" for any period shall mean the gross
revenues of MMI and its Subsidiaries for such period less all expenses and
other proper charges (including taxes on income and all Corporate Overhead
Expense paid or payable during such period), determined on a consolidated
basis after eliminating earnings or losses attributable to outstanding
Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such
excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary of MMI accrued
prior to the date it became a Subsidiary of MMI;
(d) net earnings and losses of any corporation (other than a
Subsidiary of MMI), substantially all the assets of which have been
acquired in any manner by MMI and its Subsidiaries or any Subsidiary
of MMI, realized by such corporation prior to the date of such
acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which MMI or any of its Subsidiaries shall have
consolidated or which shall have merged into or with MMI or any of its
Subsidiaries prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a Subsidiary)
in which MMI or any of its Subsidiaries has an ownership interest
unless such net earnings shall have actually been received by MMI or
such Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary of MMI
which for any reason is unavailable for payment of dividends to MMI or
any of its other Subsidiaries;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of the
equity in any Subsidiary of MMI at the date of acquisition thereof
over the amount invested in such Subsidiary;
-6-
<PAGE>
(j) any gain arising from the acquisition of any Securities of
MMI or any of its Subsidiaries;
(k) any reversal of any contingency reserve, except to the extent
that provision for such contingency reserve shall have been made from
income arising during such period; and
(l) any other extraordinary gain.
Notwithstanding the foregoing, for purposes of the calculation
of "Consolidated Net Income" in determining compliance with Section
5.9, for the fiscal quarter ending September 28, 1996 "Consolidated
Net Income" shall not be reduced by the one time charge of $1,371,000
resulting from the discontinued operations of Victory."
(b) Section 8.1 of the Original Note Agreement shall be, and is hereby,
further amended by deleting the definition of "Finance Company Loan Agreement"
and replacing it with the following:
""Finance Company Loan Agreement" shall mean that certain Loan and
Security Agreement dated as of January 9, 1995 as amended March 28, 1996,
December 26, 1996 and January 22, 1997 among the Obligors, Sanwa
Business Credit Corporation, as agent and lender, and the Finance Company
Lenders named therein."
(c) Section 8.1 of the Original Note Agreement shall be, and is hereby,
further amended by deleting the definition of "Taiwanese Subsidiary" and
replacing it with the following:
""Taiwanese Subsidiary" shall mean Asbury Worldwide (Taiwan) Company
Ltd., and any Person who succeeds to all, or substantially all, of the
assets and business of Asbury Worldwide (Taiwan) Company Ltd."
(d) Section 8.1 of the Original Note Agreement shall be, and is hereby,
further amended by adding thereto the following definitions:
""MPC Revolving Credit Facility" shall mean PCI Bank omnibus
credit-line."
""Victory Operating Assets" shall mean all of the assets of Victory
other than the Victory Real Assets."
""Victory Operating Assets Sale Agreement" shall mean that certain
Agreement of Purchase and Sale dated December 27, 1996 between Victory
Acquisition Group, LLC, a Delaware limited liability company, and Victory."
""Victory Real Assets" shall mean the real property of Victory."
-7-
<PAGE>
""Victory Real Assets Sale Agreement" shall mean that certain
Agreement of Purchase and Sale dated October 28, 1996 between Vineland
Construction Co. and Victory."
SECTION 2. WAIVER AND CONSENTS.
Section 2.1. Upon and by virtue of this Second Amendment becoming
effective as herein contemplated, the execution, delivery and performance
of the Second Amendment to Loan and Security Agreement in the form attached
hereto as Exhibit A and the execution, delivery and performance of the Third
Amendment to Loan and Security Agreement in the form attached hereto as
Exhibit B are hereby consented to and approved by the Noteholder. Any
failure of the Obligors to comply with the provisions of Section 5.19, which
failure constitutes an Event of Default under the Original Note
Agreement, as a result of the execution, delivery or performance such
Second Amendment to Loan and Security Agreement or Third Amendment to
the Loan and Security Agreement shall be deemed to have been waived by the
Noteholder.
Section 2.2. The Company understands and agrees that the waivers
contained in this Section 2 pertain only to the matters and to the extent
herein described and not to any other actions of the Obligors under, or
matters arising in connection with, the Original Note Agreement or to any
rights which you have arising by virtue of any such other actions or matters.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
Section 3.1. To induce the Noteholder to execute and deliver this Second
Amendment to Note Agreement, each of the Obligors represents and warrants to
Noteholder (which representations shall survive the execution and delivery of
this Second Amendment to Note Agreement) that:
(a) this Second Amendment to Note Agreement has been duly authorized,
executed and delivered by it and this Second Amendment to Note Agreement
constitutes the legal, valid and binding obligation, contract and agreement
of such Obligor enforceable against it in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors' rights generally;
(b) the Original Note Agreement, as amended by this Second Amendment
to Note Agreement, constitutes the legal, valid and binding obligations,
contracts and agreements of such Obligor enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally;
(c) the execution, delivery and performance by such Obligor of this
Second Amendment to Note Agreement (i) has been duly authorized by all
requisite corporate action and, if required, shareholder action, (ii) does
not require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or bylaws,
(2) any order of any court or any rule, regulation or order of any other
agency or government binding upon it, or (3) any provision of any material
indenture, agreement or other instrument to which it is a party or by which
its properties or assets are or may be bound, or (B) result in a breach or
constitute (alone or with due notice or lapse of time or both) a default
under any indenture, agreement or other instrument referred to in clause
(iii)(A)(3) of this Section 3.1(c);
-8-
<PAGE>
(d) as of the date hereof and after giving effect to this Second
Amendment to Note Agreement, no Default or Event of Default has occurred
which is continuing;
(e) the representations and warranties set forth in Exhibit B to the
First Amendment are true and correct on and as of the Effective Date as if
made on such date; and
(f) since September 30, 1996 there has been no material adverse change
in the business, financial or other conditions of any Obligor, or in the
collateral securing of the Notes or in the prospects of any Obligor, other
than the one-time charge of $1,371,000 from the discontinued operations of
Victory.
SECTION 4. CONDITIONS PRECEDENT.
The effectiveness and validity of this Second Amendment to the Note
Agreement is subject to the satisfaction of the following conditions precedent:
(a) The Noteholder of the shall have received the following, all of which
must be satisfactory in form and substance to such Noteholder:
(i) this Second Amendment to Note Agreement, duly executed by the
Obligors;
(ii) an opinion of D'Ancona & Pflaum, special counsel to the Obligors,
to the effect that: (A) this Second Amendment to Note Agreement has been
duly authorized by all necessary corporate action on the part of the
Obligors, has been duly executed and delivered by the Obligors and
constitutes the legal, valid and binding contract of the Obligors
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in equity
or at law); (B) no approval, consent or withholding of objection on the
part of, or filing or registration or qualification with, any governmental
body, Federal, state or local, is necessary in connection with the
execution, delivery and performance of this Second Amendment to Note
Agreement or any other agreements being delivered by the Obligors in
connection with 1997 Changes; (C) the execution, delivery and performance
by the Obligors of this Second
-9-
<PAGE>
Amendment to Note Agreement, or any other agreement being delivered in
connection with 1997 Changes do not conflict with or result in the breach
of any of the provisions of, or constitute a default under or result in the
creation or imposition of any Lien upon any property of the Obligors
pursuant to the Articles of Incorporation or By-laws of the Obligors or any
agreement, license or other instrument known to such counsel to which
either of the Obligors is a party or by which either of such Obligors may
be bound; and such opinion shall cover such other matters relating to this
Second Amendment to Note Agreement as the Noteholder may reasonably
request.
(b) This Second Amendment to Note Agreement shall have been executed
and delivered by the Noteholder.
(c) The Obligors shall have entered into amendments to the Finance
Company Loan Agreement in connection with the 1997 Changes satisfactory in
form and substance to the Noteholder.
(d) The Parent Corporation shall have delivered its consent to the
1997 Changes and reaffirmed its obligations under the Support Agreement, by
its execution and delivery of the Parent Support Letter in the form of
Exhibit C hereto.
(e) The Noteholder shall have received copies, certified as being
true, correct and complete, of the Victory Sale Agreement and evidence
satisfactory in form and substance to it that the transactions contemplated
therein have been consummated.
(f) The representations and warranties of the Obligors contained in
Section 3 of this Second Amendment to Note Agreement shall be true and
correct as of the Effective Date.
(g) The Noteholder shall have received, pursuant to Section 5.22 of
the Original Note Agreement, the executed Subsidiary Guaranty for the
Taiwanese Subsidiary and pursuant to Section 6 of the First Amendment a
stock pledge agreement between MMI and the Security Trustee regarding
the capital stock of the Taiwanese subsidiary together with the shares
of such capital stock duly endorsed in blank.
SECTION 5. MISCELLANEOUS.
Section 5.1. Effective Date; Ratification. The amendments contemplated by
this Second Amendment to Note Agreement shall be effective as of the date (the
"Effective Date") upon which (a) all conditions set forth in Section 4 hereof
have been satisfied, (b) the Noteholder shall have received a copy of the
agreements entered into by the Obligors with the Finance Company Lenders with
respect to the 1997 Changes, and (c) the fees and expenses of Chapman and Cutler
shall have been paid by the Obligors. Except as amended herein, the terms and
provisions of the Original Note Agreement are hereby ratified, confirmed and
approved in all respects.
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<PAGE>
Section 5.2. Successors and Assigns;. This Second Amendment to Note
Agreement shall be binding upon the Obligors and their respective successors and
assigns and shall inure to the benefit of the Holders and to the benefit of
their successors and assigns, including each successive holder or holders of any
Notes.
Section 5.3. Counterparts;. This Second Amendment to Note Agreement may be
executed in any number of counterparts, each executed counterpart constituting
an original but all together one and the same instrument.
Section 5.4. Fees and Expenses;. Whether or not the Effective Date occurs,
the Company agrees to pay all reasonable fees and expenses of the Holders and
special counsel to the holders in connection with the preparation of this Second
Amendment to Note Agreement.
Section 5.5. No Legend Required;. Any and all notices, requests,
certificates and other instruments may refer to the Original Note Agreement or
the Note Agreement dated as of January 1, 1995 without making specific reference
to this Second Amendment to Note Agreement, but nevertheless all such references
shall be deemed to include this Second Amendment to Note Agreement unless the
context shall otherwise require.
Section 5.6. Governing Law;. This Second Amendment to Note Agreement shall
be deemed contracts and instruments made under the laws of the State of
Illinois.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to Note Agreement as of the day and year first above written.
MIDDLEBY MARSHALL INC.
By
----------------------
Its Executive Vice President
ASBURY ASSOCIATES, INC.
By
----------------------
Its Vice President
VICTORY REFRIGERATION COMPANY
By
----------------------
Its Vice President
VICTORY INTERNATIONAL, INC.
By
----------------------
Its Vice President
Accepted as of January 22, 1996.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By
----------------------
Its
-12-
<PAGE>
THE MIDDLEBY CORPORATION
LISTING OF SUBSIDIARIES
NAME
----
Middleby Marshall Inc.
Victory International, Inc. (1)
Asbury Associates, Inc.
Middleby Philippines Corporation
Fab-Asia, Inc.
Asbury Worldwide (Taiwan) Co., Ltd.
Victory Refrigeration Company (1)
Asbury S.L.
International Catering and Equipment Supplies, Inc.
Asbury Mexico S.A. de C.V.
Middleby Japan Corporation
Peterson Distributors, Inc. (1)
Viking West, Inc. (1)
(1) Inactive wholly owned subsidiaries.
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 1,410
<SECURITIES> 0
<RECEIVABLES> 19,859
<ALLOWANCES> 0
<INVENTORY> 20,956
<CURRENT-ASSETS> 49,332
<PP&E> 30,584
<DEPRECIATION> 11,741
<TOTAL-ASSETS> 85,968
<CURRENT-LIABILITIES> 24,286
<BONDS> 37,352
0
0
<COMMON> 85
<OTHER-SE> 22,365
<TOTAL-LIABILITY-AND-EQUITY> 85,968
<SALES> 124,765
<TOTAL-REVENUES> 124,765
<CGS> 87,330
<TOTAL-COSTS> 87,330
<OTHER-EXPENSES> 28,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,351
<INCOME-PRETAX> 4,472
<INCOME-TAX> 1,389
<INCOME-CONTINUING> 3,083
<DISCONTINUED> (2,610)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
