<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 28, 1995 Commission file number 0-13944
GoodMark Foods, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
North Carolina 56-1330788
------------------------ -------------------------------
(State of Incorporation) (I.R.S. Employer Identification
Number)
6131 Falls of Neuse Road
Raleigh, North Carolina 27609
---------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (919) 790-9940
Securities registered pursuant to Section 12(g) of the Act:
$.01 Par Value Common Stock
---------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports),and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [X]
As of August 4, 1995, there were 7,817,023 shares of the Registrant's
common stock outstanding, $.01 par value per share. The aggregate market value
of the Registrant's common stock at August 4, 1995 held by those persons deemed
by the Registrant to be nonaffiliates was approximately $70 million.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Where Incorporated
--------- ------------------
1. Annual Report to Shareholders for year ended Part II
May 28, 1995
2. Proxy Statement for Annual Meeting of Shareholders Part III
to be held September 28, 1995
<PAGE> 2
GOODMARK FOODS, INC.
Form 10-K Annual Report
Index
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I.
Item 1. Business
General development of business 3
Narrative description of business 3
Financial information about export sales 6
Item 2. Properties 8
Item 3. Legal proceedings 8
Item 4. Submission of matters to a vote of security
holders 8
PART II.
Item 5. Market for Registrant's common equity
and related stockholder matters 9
Item 6. Selected financial data 9
Item 7. Management's discussion and analysis of
financial condition and results of operations 9
Item 8. Financial statements and supplementary data 9
Item 9. Changes in and disagreements with accountants
on accounting and financial disclosure 10
PART III.
Item 10. Directors and executive officers of the
Registrant 10
Item 11. Executive compensation 10
Item 12. Security ownership of certain beneficial
owners and management 10
Item 13. Certain relationships and related transactions 10
PART IV.
Item 14. Exhibits, financial statement schedules,
and reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business. GoodMark Foods, Inc. (the "Company") was
formed in May 1982 as a management buyout of the business from General
Mills, Inc. It became publicly-owned in November, 1985.
Narrative Description of Business. The Company manufactures consumer food
products including meat snacks, packaged meats, and extruded grain snacks.
The Company is the leading producer and marketer of meat snacks in the
United States. Its principal products are meat sticks, beef jerky, and
pickled sausage sold under the SLIM JIM(R), PEMMICAN(R), PENROSE(R), and
SMOKEY MOUNTAIN(R) brand names. The first three brands are leading brands
in their respective niches of the meat snack industry.
The Company makes extruded grain snacks under the ANDY CAPP'S(R) brand.
The Company also manufactures a line of packaged meats including hot dogs,
bologna, sausage, and luncheon meats marketed in Virginia and the Carolinas
under the JESSE JONES brand.
SLIM JIM meat sticks are a ready-to-eat dry sausage made of meat, spices,
and seasonings. SLIM JIM is a widely-recognized brand name in the snack
food industry. The Company markets over thirty different types of SLIM JIM
meat sticks including Spicy, TABASCO(R), Summer Sausage, Beef'n Cheese,
Mild flavors, Beef Steak, and Pepperoni. SLIM JIM's are sold in various
sizes including the original SLIM JIM, BIG SLIM(R), SUPER SLIM(R), and SLIM
JIM GIANT(R).
SLIM JIM jerky is made from beef which has been chopped, seasoned, formed,
thinly sliced, and dried. SLIM JIM chopped and formed jerky comes in both
Spicy and TABASCO flavors.
SMOKEY MOUNTAIN premium quality chopped and formed jerky was introduced in
fiscal year 1991. It is packaged in both a pouch and a stick, and is
offered in Hickory Smoked, Sweet Barbecue, and Hot & Spicy flavors.
PEMMICAN natural style beef jerky is made from thinly-sliced beef which has
been seasoned, smoked, and dried. PEMMICAN natural style jerky comes in
several flavors including natural, teriyaki, peppered, and hickory.
PENROSE beef and pork products are sausages which are seasoned, cooked,
pickled, and packed in a variety of sizes. A large segment of the pickled
meat snack market is the single serving pouch which is an alternative to
the traditional glass containers of pickled sausages.
<PAGE> 4
ANDY CAPP'S extruded products are french fry shaped snacks that are baked
rather than fried from a grain and vegetable base. ANDY CAPP's are sold in
five flavors: Hot, Pub, Cheddar, Salsa and Ranch.
JESSE JONES packaged meats include premium quality hot dogs, bologna,
sausage, and luncheon meats. These products have been marketed regionally
for over sixty-five years and are well established in their market area of
North Carolina, South Carolina, and Virginia. Other meat products sold
under the JESSE JONES brand name include sliced cooked ham, country ham,
bacon, corn dogs, and chili.
The Company also manufactures products for sale by others under private
label and co-packing agreements. These products include meat snacks and
hot dogs.
Distribution. The Company's branded snack products are sold nationally to
retailers, and to wholesalers and distributors for resale through
convenience stores, supermarkets, service stations, drug stores, warehouse
clubs, vending machines, military commissaries and exchanges, and ships'
stores afloat. The Company relies primarily on food brokers to represent
its snack products on a nationwide basis.
Export sales are made directly to foreign importers and distributors and
through duty-free stores within and outside the United States.
JESSE JONES packaged meats are sold directly or delivered by route trucks
to retailers by a combination of Company sales personnel and independent
distributors.
Raw Materials. The Company's primary ingredients are beef, chicken, pork,
and spices. Other raw materials include casings, vegetable oil, packaging
films, and glass containers. These materials are purchased at prevailing
market prices from a number of vendors. The Company believes that there is
sufficient supply of raw materials at competitive prices.
Trademarks. The Company owns the rights to numerous trademarks which are
important to the business of the Company. In June, 1992, the Company
established GFI Holdings, Inc., a California corporation and wholly owned
subsidiary of GoodMark Foods, Inc. to own, manage, and control all of the
trademarks, tradenames, licenses, and patents of the Company. GFI
Holdings, Inc. by assignment from GoodMark Foods, Inc. is the owner and
licensor of all tradenames and trademarks of the Company and by separate
agreement licenses these tradenames and trademarks to the Company.
<PAGE> 5
The Company has an agreement with Field Enterprises, Inc. to use the ANDY
CAPP'S trademark in connection with snack foods sold in the United States,
Canada, and Mexico. This license agreement continues to 2001.
The Company has an agreement with McIlhenny Company to use the TABASCO
trademark in connection with TABASCO flavored meat snacks. This license
agreement continues to 2002 and may be extended to 2017 at the Company's
option.
Seasonality. Meat snack sales are higher in the warm weather months and
lower in the cool weather months with December being the lowest month due
to the holiday season. Packaged meats sales are traditionally higher in
the warm weather months. There is no seasonality in the extruded snacks.
Working Capital Items. Because of its emphasis on product freshness, the
Company maintains finished goods inventories at a level equal to two weeks'
sales or less. The Company generally reimburses a customer's return of any
snack product not sold by the end of its shelf life in accordance with
general industry practice. Industry terms of payment cause accounts
receivable to be less than four weeks of sales.
Customer Concentration. In fiscal year 1995 sales to WalMart Stores, Inc.
and its subsidiaries' represented more than 10% of the Company net sales.
All of the sales to WalMart Inc. were comprised of the Company's branded
products. A significant portion of the sales to WalMart Inc. are to its
McLane Division which is the largest food and grocery distributor in the
U.S.
Backlog. Orders are filled promptly from product on hand so there is a
limited order backlog. Business with the U.S. Government. The Company
sells its snacks on open account to the U.S. military for resale in
commissaries, post exchanges, and ships' stores afloat. None of this
business is subject to profit renegotiation.
Competition. The Company's products compete in the snack food and packaged
meat categories both with similar products and with products which are
substitute foods. Competitive factors include product quality, taste,
brand awareness, method of distribution, promotional support, and price.
The Company believes that it has a competitive advantage in the meat snack
portion of the snack food market because of its reputation, brand identity,
product quality, marketing skills, and distribution system. While the
Company maintains a market share of over 40% of the meat snack portion of
the snack food industry, it is a relatively small competitor in the total
snack food industry.
The Company's principal competitors in the meat stick and beef jerky market
are; Oberto Sausage Co.; Frito-Lay, Inc., a subsidiary of PepsiCo. Inc.,;
and Tombstone Pizza Corp., a subsidiary of Phillip Morris Cos. Within the
pickled meat snack market, Geo. A. Hormel & Company is the Company's
principal competitor. Numerous small regional companies also compete in
the meat snack market. The meat snack market generally has low
<PAGE> 6
barriers to entry and is subject to competition from large, multi-line
companies as well as small, regional producers. The Company's competitors
in the packaged meats business include many regional and national
manufacturers. The Company believes it has a competitive advantage in its
regional market because of strong brand name recognition, superior quality,
and direct sales and distribution system.
Regulation. The Company's meat snack and packaged meats operations are
regulated by the United States Department of Agriculture ("USDA"). The
Food and Drug Administration ("FDA") regulates the production and labeling
of the Company's non-meat products. The Company maintains strict quality
control standards and believes that it is in full compliance with all
applicable USDA and FDA regulations.
The Company is subject to and believes that it is in compliance with
numerous environmental protection requirements, including the regulation of
its waste water discharge. The Company believes compliance with Federal,
State, and local provisions regulating the discharge of materials into the
environment will not have a material effect upon its capital expenditures,
earnings, or competitive position.
Employees. The Company employs approximately 1,237 persons, including 307
salaried employees and 930 hourly employees of whom 503 are covered by
collective bargaining agreements. The Company believes that its relations
with its employees are good.
Financial Information About Export Sales. Financial information relating
to export sales is as follows:
<TABLE>
<CAPTION>
Year (in $000's)
----------------
1993 1994 1995
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<S> <C> <C> <C>
Export sales $5,111 $5,307 $5,134
Income before taxes 291 522 319
Identifiable assets -0- -0- -0-
</TABLE>
The Company's major export markets are currently in the Pacific Rim and
Puerto Rico, and the Company believes Mexico and selected European markets
also offer potential long-term growth.
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information on the executive officers of the
Company. There are no family relationships between any of the executive
officers or directors of the Company.
<TABLE>
<CAPTION>
Position with Company and
Name Age Business Experience
---- --- -------------------
<S> <C> <C>
Ron E. Doggett 60 Chairman of the Board since June 1, 1987 and a Director since
1982; Chief Executive Officer since 1985;
President from 1983 to 1989; Executive Vice President and
Chief Financial Officer from 1982 to 1983 Vice President from
1968 to 1982. Mr. Doggett served as Interim Chief
Financial Officer from July 1, 1992 until December, 1992
because of the medical disability of Edward B. McLean who
ceased serving as Vice President and Chief Financial Officer.
Richard C. Miller 56 President and Chief Operating Officer since April 1989 and
a Director since September 1989. Previously with Sun-Diamond
Growers of California Inc., Pleasanton, CA as President from
1988 to March 1989 and as Senior Vice President Business
Management/Marketing from 1986 to 1989; President and Chief
Executive Officer of S. B. Thomas division of CPC
International, Inc. from 1984 to 1986.
Paul L. Brunswick 55 Vice President and Chief Financial Officer since December 1,
1992. Previously with CompuChem Corporation as Vice
President, Chief Financial Officer from 1987 to 1992 and as
Vice President, Finance for Castle Company, Division of
Sybron Corporation from 1984 to 1987.
Alvin C. Blalock 49 Vice President and Director of Manufacturing since February
16, 1994 and Secretary since June 1, 1987; Vice President and
Chief Administrative officer from June 1, 1992 to February
15, 1994; Vice President Personnel and Corporate Relations
from 1985 to May 31, 1992; Director of Personnel from 1983
to 1985; Personnel Manager of Garner Plant from 1971 to 1983.
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Charles E. Hancock 62 Senior Vice President, Operations since February 16, 1994;
Vice President Operations from 1984 to February 15, 1984;
Director of Operations from 1983 to 1984; General Manager of
Garner Plant from 1968 to 1983.
Richard E. Kennedy 50 Vice President since January 10, 1984 and Director of Snack
Sales since 1984; Regional Sales Manager from 1979 to 1984.
</TABLE>
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
Size
Location (Sq. Ft) Ownership Activity
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<S> <C> <C>
Garner, NC 277,000 owned Manufacture of SLIM JIM,
PENROSE and Smokey Mountain
meat snack products and
JESSE JONES packaged meats
products.
Folcroft, PA 125,000 owned Packaging of PENROSE meat
36,800 leased snacks, manufacture of
ANDY CAPP'S extruded snacks,
and eastern U.S. distribu-
tion of all snack products.
San Jose, CA 45,000 owned Manufacture of PEMMICAN
10,400 leased natural style beef jerky,
SMOKEY MOUNTAIN beef jerky,
and western U.S. distribu-
tion of all snack products.
Raleigh, NC 18,616 owned Corporate offices.
9,060 leased
</TABLE>
All the Company's properties are considered suitable for their present use.
All properties owned by the Company are free of major encumbrances. In
July 1995, construction was completed on a project that increased capacity
at the Garner, North Carolina plant to accommodate increased unit volume
and to achieve gains in efficiency and productivity. This expansion
project added 128,000 square feet to the Garner plant.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
This information is incorporated by reference from page 6, "Market and
Dividend Information", of the Company's 1995 Annual Report to Shareholders
included as exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 7, "Selected
Financial Data" of the Company's 1995 Annual Report to Shareholders
included as exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is incorporated by reference from pages 8 and 9,
"Management's Discussion and Analysis of Results of Operations and
Financial Condition", of the Company's 1995 Annual Report to Shareholders
included as exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, supplementary financial information,
and independent auditors report dated July 7, 1995 are incorporated by
reference from pages 6 and 10 - 19 of the Company's 1995 Annual Report to
Shareholders included as exhibit 13.
<TABLE>
<CAPTION>
Reference to
------------------------
1995 Annual Form
Report Page 10K Page
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<S> <C> <C>
Consolidated Balance Sheets 10 22
Consolidated Statements of Income 11 23
Consolidated Statements of Stockholders' 12 24
Equity
Consolidated Statements of Cash Flows 13 25
Notes to Consolidated Financial Statements 14 - 19 26 - 31
Independent Auditors' Report 19 31
Supplementary Financial Information
Quarterly Financial Data (Unaudited) 6 18
Report of Independent Certified Public
Accountants re: Supplemental Schedules 12
Valuation and Qualifying Accounts (Schedule II) 13
</TABLE>
<PAGE> 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the directors is incorporated by reference from pages 4
through 6, "Proposal 1: Election of Directors", in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held September 28,
1995. Information on executive officers is included under the caption
"Executive Officers of the Registrant" on pages 7 and 8 of this report.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from pages 6 through 11,
"Executive Compensation", in the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held September 28, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from pages 2 and 3, "Share
Ownership of Management and Others", in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held September 28, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements. See Item 8 for a listing of all Financial
Statements, Independent Auditors' Report, and Supplementary Data.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended May 28, 1995.
(c) Exhibits. The exhibits required by Item 601 of Regulation S-K are
listed below. Executive compensation plans and arrangements are listed
in exhibits 10.1 through 10.4.
(3) Articles of Incorporation and Bylaws.
(4) Specimen copy of certificate for common stock, $0.01 face value.
<PAGE> 11
<TABLE>
<S> <C>
(4.1) Loan Agreement dated January 12, 1995.
Loan Agreement dated January 7, 1994, as amended.
Loan Agreement dated May 22, 1990, as amended.
(10.1) Severance Compensation Agreements between the Company and the executive officers other than Mr.
Doggett.
(10.2) Employment Agreement dated August 1, 1988 between the Company and Mr. Doggett as amended August 1,
1995.
(10.3) 1985 Non-Qualified Stock Option Plan as amended and restated.
(10.4) Restricted Stock Award Plan.
(13) Pages 6 - 19 of Annual Report to Shareholders for year ended May 28, 1995.
(21) Subsidiaries of the Company.
(23) Consent of independent auditors.
(27) Financial Data schedule (for SEC use only).
</TABLE>
<PAGE> 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of GoodMark Foods, Inc.:
We have audited the consolidated financial statements of GoodMark Foods, Inc.
and its subsidiaries as of May 28, 1995 and May 29, 1994, and for each of the
three fiscal years in the period ended May 28, 1995, and have issued our report
thereon dated July 7, 1995; such consolidated financial statements and report
are included in your 1995 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also comprehended the supplemental schedules
of GoodMark Foods, Inc. and its subsidiaries, listed in Item 14. These
supplemental schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such supplemental schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Raleigh, North Carolina
July 7, 1995
<PAGE> 13
GoodMark Foods, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions Collections
Balance at Charged to of Accounts
Beginning Costs and Previously Deductions- Balance at
Year Description of Period Expenses Written Off Write-Offs End of Period
---- ----------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 30, 1993 Allowance for
doubtful accounts $205,557 $121,000 $13,533 $143,774 $196,316
May 29, 1994 Allowance for
doubtful accounts $196,316 $121,000 $ 8,488 $ 87,633 $238,171
May 28, 1995 Allowance for
doubtful accounts $238,171 $125,004 $ 4,063 $ 90,680 $276,558
</TABLE>
<PAGE> 14
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, in Raleigh, North
Carolina, on the 23th day of August, 1995.
GoodMark Foods, Inc.
By: /s/ Ron E. Doggett
----------------------------------
Ron E. Doggett
Chairman & 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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ron E. Doggett Chairman, Chief August 23, 1995
-------------------------- Executive Officer
Ron E. Doggett
/s/ Paul L. Brunswick Vice President, August 23, 1995
-------------------------- Chief Financial Officer
Paul L. Brunswick
/s/ H. Hawkins Bradley Director August 23, 1995
--------------------------
H. Hawkins Bradley
/s/ Donald H. Grubb Director August 23, 1995
--------------------------
Donald H. Grubb
/s/ Thomas W. D'Alonzo Director August 23, 1995
--------------------------
Thomas W. D'Alonzo
/s/ Richard C. Miller President, Chief August 23, 1995
-------------------------- Operating Officer,
Richard C. Miller and Director
/s/ Robert B. Seidensticker Director August 23, 1995
--------------------------
Robert B. Seidensticker
/s/ Rollie Tillman, Jr. Director August 23, 1995
--------------------------
Rollie Tillman
/s/ Alvin C. Blalock Vice President, August 23, 1995
-------------------------- Director of Manufacturing,
Alvin C. Blalock and Secretary
</TABLE>
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Form 10-K
Exhibit Sequential
Number Description of and Reference to Exhibit Page No.
------ --------------------------------------- ----------
<S> <C> <C>
(3) Restated Articles of Incorporation and Bylaws *
filed as Exhibit 3 to Form 10-K for the fiscal
year ended May 27, 1990 and incorporated herein
by reference.
(4) Specimen copy of certificate for common stock, *
$.01 par value, filed as Exhibit 4.1 to the
Registration Statement (No. 33-660) on Form S-1,
Amendment No. 1, filed with the Commission on
November 5, 1985 and incorporated herein by
reference.
(4.1) Loan agreement dated January 12, 1995. Amendment
dated February 7, 1995 to Loan Agreement dated January 7,
1994 filed as Exhibit 4.2 to Form 10K for the fiscal
year ended May 29, 1994. Amendments dated February 7,
1995 and May 25, 1995 to Loan Agreement dated May 22,
1990. Amendments dated October 4, 1993 and December 21,
1993 to Loan Agreement dated May 22, 1990 filed as
Exhibit 4.2 to Form 10K for the fiscal year ended
May 29, 1994. Amendments dated September 3, 1991 and May 1,
1992 to Loan Agreement dated May 22, 1990 filed as Exhibit 4.2
to Form 10k for the fiscal year ended May 31, 1992. Amendments
dated November 5, 1990 and April 29, 1991 to Loan Agreement
dated May 22, 1990 filed as Exhibit 4.2 to Form 10K for the
fiscal year ended May 26, 1991 and Loan Agreement filed as
Exhibit 4.2 to Form 10K for the fiscal year ended May 27, 1990,
both incorporated herein by reference.
(10.1) Severance Compensation Agreements between the Company *
and executive officers other than Mr. Doggett filed
as Exhibit 10.1 to Form 10-K for the fiscal year
ended May 29, 1988 and incorporated herein by reference.
(10.2) Amendment dated August 1, 1995 to Employment Agreement
dated August 1, 1988 between the Company and Mr. Doggett.
Employment Agreement filed as Exhibit 10.2 to Form 10-K
for the fiscal year ended May 29, 1988 incorporated herein
by reference.
(10.3) 1985 Non-Qualified Stock Option Plan as amended and *
restated July 25, 1991 filed as Exhibit 10.3 to Form
10-K for the fiscal year ending May 26, 1991 and
incorporated herein by reference.
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
(10.4) Restricted Stock Award Plan dated October 15, 1985 *
filed as Exhibit 10.4 to the Company's Form 10-K
for the fiscal year ended May 28, 1989 and
incorporated herein by reference.
(13) Pages 6 - 19 of Annual Report to Shareholders for
year ended May 28, 1995.
(21) Subsidiaries of the Company
(23) Consent of independent auditors.
(27) Financial Data Schedule (for SEC use only).
</TABLE>
*Incorporated by reference
<PAGE> 1
EXHIBIT 4.1
WACHOVIA
--------------------------------------------------------------------------------
Wachovia Bank of North Carolina, N.A.
Post Office Box 27886
Raleigh, NC 27611-7886
January 10, 1995
Mr. Paul L. Brunswick
Vice President Finance and
Chief Financial Officer
Goodmark Foods, Inc.
6131 Falls of Neuse Road
Raleigh, NC 27609
Dear Paul:
Wachovia Bank of North Carolina, N.A. (the "Bank"), is pleased to make
available to your company a Ten Million Dollar ($10,000,000.00) line of credit.
This commitment expires on September 30, 1996, and is subject to the
maintenance by your company of a condition satisfactory to the Bank and the
execution of loan documents satisfactory to the Bank. This line of credit is
subject to a 1/10 of 1% per annum fee on the unused portion, payable quarterly
or annually in arrears. Fees shall be calculated on the basis of a 360-day
year for the actual number of days in the calculation period.
Borrowings shall bear interest at the Bank's Prime Rate (currently 8.50%), or
at your option, the 30-day, 60-day, or 90-day adjusted LIBOR rate, plus Fifty
(50) basis points. The LIBOR rate option is available only when the borrowings
exceed $1,000,000.00.
As used herein, the adjusted LIBOR Rate applies to any interest rate period of
30, 60, 90 days, and shall mean a rate per annum equal to the sum of (a) the
quotient obtained (rounded upward) if necessary, to the higher one-one
hundredth percent) by dividing (i) the applicable London Interbank Offered Rate
for such interest period by (ii) 1.00 minus the Euro-Dollar reserve percentage;
plus (b) Fifty (50) basis points.
As used herein, the "Prime Rate" refers to the interest rate so denominated and
set by the Bank from time to time as an interest rate basis for borrowings.
The Prime Rate is one of several interest rate bases used by the Bank. The
Bank lends at interest rates above and below the Prime Rate. The rate of
interest shall be calculated on the basis of a 360-day year for the actual
number of days in each interest period.
No condition or other term of this commitment may be waived or modified except
by a writing signed by both your company and the Bank.
Sincerely,
/s/ John J. Hunt, Jr.
---------------------
John J. Hunt, Jr.
Senior Vice President
Accepted by: /s/ P.L. Brunswick
----------------------------
P.L. Brunswick
Vice President & CFO (Title)
-------------------------------
GOODMARK FOODS, INC.
January 12, 1995 (Date)
-------------------------------
<PAGE> 2
<TABLE>
<S> <C>
WACHOVIA
--------------------------------------------------------------------------------------------------------------------------
NOTE
Date January 10, 1995 $10,000,000.00
---------------- --------------
FOR VALUE RECEIVED, the undersigned (hereinafter called the "Borrower") hereby promises to pay to the order of WACHOVIA
BANK OF NORTH CAROLINA, N.A. (hereinafter called the "Lender") at its office where borrowed, in immediately available
funds, the sum of Ten Million and no/100*************************************************************** dollars together
-------------------------------------------------------------------------------------
with any unpaid interest hereon from date of advance, in accordance with the terms contained in this Note. The optional
provisions applicable to this Note are checked below.
REPAYMENT:
[X] One payment in full of principal and unpaid interest due September 30, 1996
------------------
[ ] On Demand
-----------------------------------------------------------------
[ ] Payments of $ beginning and thereafter
----- ---------------------- ------------------- ----------------------------
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
until , .
--------------------------------------------------------- ---------------------------- --------------------
when the entire principal amount then outstanding and all accrued but unpaid interest shall be paid in full.
[ ] On Demand the principal amount set forth above or the unpaid principal amount of all advances which the Lender
actually makes hereunder to the Borrower, whichever amount is less. Each advance and each payment made on account
of the principal thereof, shall be evidenced on an attachment hereto; provided, however, any such notation or the
failure of the Lender or other holder to make any such notation shall not limit or otherwise affect the obligation
of the Borrower with respect to repayment of all advances actually made hereunder. This Note and any attachment
hereto shall be used to record the outstanding principal balance advanced hereunder until it is surrendered to the
Borrower by the Lender, and it shall continue to be used even though there may be periods prior to such surrender
when no amount of principal or interest is owing hereunder. If advances of the principal amount hereof are to be
made by Lender to the Borrower after the date of this Note, Lender, at its sole discretion, is hereby authorized to
make such advances under this Note upon telephonic or written communication of a borrowing request from any person
representing himself or herself to be the Borrower or, in the event the Borrower is a partnership or corporation, a
duly authorized officer or representative of Borrower.
INTEREST:
Payable: [X] in arrears; [ ] in advance.
[X] in addition to the payments described above; [ ] included in the payments described above.
Payable at the rate per annum of: [ ] Prime Rate plus %; [ ] % of Prime Rate; [ ] % Fixed;
--------- -------- --------
[ ] Those rates which may be offered from time to time by the Lender for borrowings of various maturities and
agreed to by the Borrower and so noted by the Lender on an attachment hereto. In the event of a good faith
dispute among the parties to this Note as to rate under this rate option, the rate shall be the Prime Rate,
adjusted for any changes in the Prime Rate as of the day such Prime Rate changes;
[ ] The rate(s) set forth in Schedule 1 attached to this Note and incorporated herein by reference;
[X] Those rates which have been offered by the Lender to the Borrower in the Loan agreement or Commitment Letter
checked below, the provisions of which shall determine such rates, the procedure for the selection of such
rates and the time periods for which such rates shall apply.
In no case shall interest exceed the maximum rate permitted by applicable law.
If the interest is based upon the Prime rate, such interest rate will be adjusted on: [X] The day the Prime Rate
changes; [ ] Other .
----------------
Due: [ ] On principal payment dates; [X] Other Maturity date of each advance under commitment.
-----------------------------------------------
Interest will be calculated on the basis of [ ] A year of 360 days and paid for the actual number of days elapsed;
[ ] Other .
----------------
After demand or maturity (whether by acceleration or otherwise), as applicable, interest on any unpaid balance hereof
shall be payable on demand at a rate per annum equal to 150% of the Prime Rate, adjusted for any changes in the Prime
Rate as of the day such Prime Rate changes, not to exceed the maximum rate permitted by applicable law.
As used herein, "Prime Rate" refers to that interest rate so denominated and set by the Lender from time to time as an
interest rate basis for borrowings. The Prime Rate is one of several interest rate bases used by the Lender. The Lender
lends at interest rates above and below the Prime Rate.
All payments on this Note shall be applied first to accrued interest and then to principal.
[ ] The terms and conditions in a Loan Agreement dated between the parties hereto, as the same may be
-----------------
amended from time to time, shall be considered a part hereof to the same extent as if written herein.
[X] The terms and conditions in a Commitment Letter dated January 10, 1995 from the Lender to the Borrower, as the same
----------------
may be amended, extended or replaced from time to time, shall be considered a part hereof to the same extent as if
written herein.
No waiver by the Lender of any default shall be effective unless in writing nor operate as a waiver of any other default
on a past or future occasion. The Borrower hereby grants to the Lender and to such Lender's Affiliates (as the case may
be) a security interest in and security title to (i) all other property of the Borrower of every kind or description now
or hereafter in the possession or control of the Lender or of any of Lender's Affiliates for any reason including,
without limitation, all cash, stock or other dividends and all proceeds thereof, and all rights to subscribe for
securities incident thereto and any substitutions or replacements for, or other rights in connection with, any of such
collateral and (ii) any balance or deposit accounts of the Borrower, whether such accounts be general or special, or
individual or multiple party, and upon all drafts, notes, or other items deposited for collection or presented for
payment by the Borrower with the Lender or the Lender's Affiliates (as the case may be), and the Lender and the Lender's
Affiliates (as the case may be) may at any time, without demand or notice, appropriate and apply any of such to the
payment of any indebtedness, obligations and liabilities of the Borrower to the Lender or to any of Lender's Affiliates
(as the case may be), now existing or hereafter incurred or arising (hereinafter sometimes referred to collectively as
the "Obligations"), whether or not due, with the exception of indebtedness, obligations and liabilities extended in
North Carolina by Lender or by any of Lender's Affiliates that constitute open-end credit under, or are subject to, the
disclosure requirements of the Truth-In-Lending Act and Federal Reserve Board Regulation Z. As used herein, "Lender's
Affiliates" means any entity or entities
Wachovia Bank of North Carolina, N.A.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
now or hereafter directly or indirectly controlled by Wachovia Corporation or any successor thereto. All parties to this
Note, including the markers, endorsers, sureties and guarantors, whether bound by this or by separate instrument or
agreement, shall be jointly and severally liable for the indebtedness evidenced by this Note and hereby (1) waive
presentment for payment, demand, protest, notice of nonpayment or dishonor and of protest and any and all other notices
and demands whatsoever; (2) consent that at any time, or from time to time, payment of any sum payable under this Note
may be extended without notice, whether for a definite or indefinite time; and (3) agree to remain liable until the
indebtedness evidenced hereby is paid in full irrespective of any extension, modification or renewal. No conduct of the
holder shall be deemed a waiver or release of such liability, unless the holder expressly releases such party in
writing. Upon (i) any failure of any Obligor (which term shall include the Borrower and each endorser, surety or
guarantor of this Note) to pay any of the Obligations when due or to observe or perform any agreement, covenant or
promise hereunder or in any other agreement, note, instrument or certificate of any Obligor to the Lender, or to any of
Lender's Affiliates, now existing or hereafter executed in connection with any of the Obligations, including, but not
limited to, a loan agreement, if applicable, and any agreement guaranteeing payment of any of the Obligations; (ii) any
default of any Obligor in the payment or performance of any other liabilities, indebtedness or obligations to any other
creditor or to allow or permit any other liabilities, indebtedness or obligations to any other creditor to be
accelerated; (iii) any failure of any Obligor to furnish Lender current financial information upon request; (iv) any
failure of any person to observe or perform any agreement, covenant or promise contained in any agreement, instrument or
certificate executed in connection with the granting of a security interest in property to secure the Obligations; (v)
any warranty, representation or statement made or furnished to the Lender by or on behalf of any Obligor in connection
with the extension of credit evidenced by this Note proving to have been false in any material respect when made or
furnished; (vi) the death, dissolution, termination of existence, insolvency, business failure, appointment of a
receiver or any part of the property of, assignment for the benefit of creditors by, or the commencement of any
proceeding under any bankruptcy or insolvency laws, state or federal, by or against the Borrower or any other Obligor;
(vii) any discontinuance or termination of any guaranty of any of the Obligations by a guarantor; or (viii) the Lender
deeming itself insecure, thereupon, or at any time thereafter, the Lender at its option may terminate any obligation to
extend any additional credit or make any other financial accommodation to the Borrower and/or may declare all of the
Obligations to be immediately due and payable. If any Obligation (including but not limited to the Note) is a demand
instrument, the statement of a maturity date or the recitation of defaults and the right of Lender to declare any
Obligation due and payable shall not constitute an election by Lender to waive its right to demand payment under a
demand at any time and in any event as Lender in its sole discretion may deem appropriate. In the event the indebtedness
evidenced hereby is collected by or through an attorney, the holder shall be entitled to recover reasonable attorney's
fees and all other costs and expenses of collection. Time is of the essence.
This Note, and the rights and obligations of the parties hereunder, shall be governed and construed in accordance with
the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Borrower has executed this Note under seal the day and year set forth above.
Witness:
-------------------------------------------------- (Seal)
(Individual Borrower)
--------------------------------------------------- -------------------------------------------------- (Seal)
(Individual Borrower)
Borrower:
---------------------------------------------------
Attest: Goodmark Foods, Inc.
--------------------------------------------------
(Name of Corporation or Partnership)
/s/ Alvin C. Blalock By /s/ P.L. Brunswick (Seal)
--------------------------------------------------- -----------------------------------------------
Title Secretary Title Vice President & CFO
--------------------------------------------- --------------------------------------------
[Corporate Seal]
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT NUMBER NOTE LENDING FRB SECUR NOTE REPAY NOTE TRANSACTION PRIME RATE CLASS BRAN
NUMBER OFFICER CODE CODE TYPE CODE QUAL DATE CODE - FACTOR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----- ----- -- ------ ------- ---- ---- ---- ---- ---- ----- ----- ----- --- --- - ------- ----- ----
<CAPTION>
INTEREST PAID TO INT. INTEREST/DISCOUNT FEES COLLECTED COMMITMENT COMMIT. C TAX BILLING
DATE BASE COLLECTED ACCOUNT NUMBER NUMBER BAL CODE CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---- ---- ---- --- -- ---- ---- - ---- ----- ---- - --- ----- ----- -- ------ --- ---- -- ----
Wachovia Bank of North Carolina, N.A.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
WACHOVIA
--------------------------------------------------------------------------------------------------------------------------
DIRECTORS' RESOLUTION AUTHORIZING
THE BORROWING OF MONEY AND
CERTIFICATE OF INCUMBENCY
RESOLVED, that this corporation is authorized, from time to time and without limitation, to obtain credit, to
discount notes and other receivables with, and to borrow money from, Wachovia Bank of Georgia, N.A. and/or Wachovia
Bank of North Carolina, N.A., (hereinafter called the Bank), pursuant to the attached Acceptance Credit Agreement or
otherwise, and that the amounts to be borrowed, the maturities, interest rates, security (if any), and all other terms
and provisions of any loan or credit arrangement be left to the discretion of any one of the following officers of the
---
corporation, or their successors in office, CEO, VP CFO, President
----------------------------------------------------------------------------------
("The President, the Secretary, the Treasurer, any Vice President, any Assistant Treasurer, etc.")
-------------------------------------------------------------------------------------------------------------------------
and that such officer(s) be and they hereby are authorized to execute in the name of this corporation agreements,
indemnities, guarantees, notes and other instruments evidencing such credit arrangements, loans or renewals thereof, and
to endorse, assign, and guarantee receivables and other obligations discounted.
RESOLVED, that such officer(s) be and they hereby are authorized to designate by written notice addressed to the Bank
and on which the Bank may rely another officer or employee of this corporation to act for him on behalf of this
corporation hereunder, the power and authority of such designee being as set forth in such written notice.
RESOLVED, that such officer(s) be and they hereby are authorized to give as security for any loans to be obtained from,
for credit arrangements with, and for any other liabilities of this corporation to the Bank, then existing or thereafter
arising, whether due or not due, however arising or evidenced, any of this corporation's assets, including, but not
being limited to, any of the following and combinations thereof: mortgages or deeds of trust upon real or personal
property; pledges of, or security interests in, tangible property and pledges or assignments of, or security interests
in, intangible properties such as stocks, bonds, or other securities, accounts receivable, rents, warehouse receipts,
bills of lading, and insurance policies, and the Bank is authorized to sell, assign and endorse for transfer
certificates representing stocks, bonds or other securities now registered or hereafter registered in the name of this
corporation; and such officer(s) are authorized to make agreements limiting the rights of this corporation while any
such loans remain unpaid or any such credit arrangements are in existence; provided that with respect to giving or
perfecting any such security or taking any other action with respect thereto, the signature of only one such officer
shall be sufficient to bind this corporation. If the officer(s) specified above exercise their authority to obtain
loans, enter into credit arrangements or give security therefor, any other officer or employee is authorized to do all
things necessary, convenient, or proper in connection with obtaining the loan or credit arrangement or giving and
perfecting the security.
RESOLVED, that all transactions by any of the officers or representatives of this corporation, in its name and for its
account with the Bank prior to this meeting, be and the same are hereby ratified and approved.
RESOLVED, that the foregoing powers and authority shall continue in full force until written notice of revocation has
been given to the Bank and its receipts obtained therefor.
The undersigned hereby certifies that the foregoing is a true and correct copy of resolutions duly adopted by the Board
of Directors of this corporation on the 21st day of March, 1991, and that the such resolutions are still in full force
---- ----- ----
and effective and have not been rescinded, amended or modified.
The undersigned hereby further certifies that as of the date hereof the persons listed below have been duly elected or
appointed to, and are presently acting incumbents of, the offices of said corporation set forth opposite their
respective names, that they are the officers of said corporation empowered to act pursuant to the foregoing resolutions
(including without limitation providing the Bank telephone instructions pursuant to the attached Acceptance Credit
Agreement), and that opposite the name of each his true signature appears.
Name Office/Title Signature
Ron E. Doggett CEO /s/ Ron E. Doggett
------------------------------------- ------------------------------------------- ---------------------------------
Richard C. Miller President /s/ Richard C. Miller
------------------------------------- ------------------------------------------- ---------------------------------
Paul L. Brunswick VP CFO /s/ Paul L. Brunswick
------------------------------------- ------------------------------------------- ---------------------------------
------------------------------------- ------------------------------------------- ---------------------------------
------------------------------------- ------------------------------------------- ---------------------------------
------------------------------------- ------------------------------------------- ---------------------------------
IN WITNESS WHEREOF, I have hereunto placed my hand and affixed an impression of the corporate seal this 12th day of January, 1995
---- ------- ----
Month Year
[Corporate Seal] /s/ Alvin C. Blalock
-----------------------------
I, , of said corporation, do hereby certify that the
---------------------------------- -----------------------------
person who executed the above certificate was as of the date hereof the duly elected or appointed Secretary or Assistant
Secretary of said corporation.
/s/ R.C. Miller
-----------------------------
Date January 12, 1995
------------------------
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
WACHOVIA
--------------------------------------------------------------------------------------------------------------------------
ACCEPTANCE CREDIT AGREEMENT
[ ] Wachovia Bank of Georgia, N.A.
[ ] Wachovia Bank of North Carolina, N.A.
From time to time, we (or persons designated in writing by us to you) shall either: (i) deliver, or cause to be
delivered to you, drafts or (ii) by telephone authorize you to complete or cause to be completed pre-signed drafts
previously delivered to you, or (iii) by telephone authorize you to complete or cause to be completed drafts which shall
be executed by you on our behalf and as our agent, drawn on you by us at a maximum maturity of six (6) months (each
draft for acceptance by you pursuant to the provisions of this agreement being herein called a "Draft"), for your
acceptance at your option.
We hereby request you to accept and discount each Draft in your discretion in each instance and in consideration of
your so doing, we hereby agree as follows:
1. We shall pay to you in United States currency in immediately available funds at your accepting office, or such
other office as you may designate, the face amount of each Draft no later than the maturity date of such Draft. In
addition, in the event we fail to pay the face amount of a Draft at maturity, we shall pay to you, on demand: (a)
interest on the face amount of such Draft from maturity until payment by us of such face amount at the rate per annum of
125% of your Prime Rate or the maximum rate permitted by law, whichever is less, and (b) all liabilities, charges, and
expenses (including reasonable attorneys' fees and legal expenses) paid or incurred by you in connection with such Draft
or this agreement or the enforcement of either of them. For purposes of this agreement, "Prime Rate" refers to that
interest rate so denominated and set by you from time to time as an interest rate basis for borrowings. The Prime Rate
is one of several interest rate bases used by you, and you lend at rates above and below the Prime Rate.
2. Rates for discounting each Draft will be determined and offered by you in your sole discretion. All discount and
interest charges pursuant to this agreement shall be based on a year consisting of 360 days and shall be computed for
the actual number of days until maturity for discount charges or actual number of days elapsed in all other cases.
3. Promptly following each acceptance by you of each Draft hereunder, we agree to confirm to you in writing or by
telephone (a) the face amount of the Draft; (b) the value date; (c) the maturity date; and (d) the payment instructions
for any discounted proceeds. Furthermore, we shall furnish you such other information as you may from time to time
require concerning a Draft and the transaction(s) to which such Draft relates.
4. We agree that in the event of an extension of the maturity or time for presentation of Drafts, acceptances, or
documents, or any other modification of the terms of any transaction hereunder at our request, this agreement shall be
binding upon us with regard to any transactions hereunder so modified, to Drafts, documents, and property covered
thereby and to any action taken by you in accordance with such extension or other modification.
5. In the event of the happening of any one or more of the following events: (a) our non-payment of any of the
above described indebtedness when due; (b) our default in or nonperformance of any financial obligation, which in your
opinion is material, causing an acceleration of the maturity of such obligation; (c) our failure to perform or observe
any other covenant or agreement with you, or if any representation or warranty made by us in this agreement shall prove
to have been untrue when made; or (d) if we or any of our property shall become subject to order of any court or any
other legal process or restraint or to any legal adverse claim that you shall deem material, then any and all of your
obligations to extend further credit to us under this agreement or any draft shall terminate and all indebtedness
hereunder shall, at your option, immediately mature and become payable without presentment, demand, protest, or notice
of any kind, which are hereby expressly waived, and you may, at your sole discretion and without notice to us, exercise
any and all rights and remedies available to you hereunder or under applicable law.
6. This agreement shall be binding upon us, our heirs, executors, administrators, successors, and assigns and shall
inure to the benefit of, and be enforceable by, you, your successors, transferees, and assigns. We shall not, however,
transfer or assign any rights or duties under this agreement without your prior written consent. If this agreement
should be terminated or revoked by operation of law as to us or any of us, we will indemnify and save you harmless from
any loss which may be suffered or incurred by you in acting hereunder prior to the receipt by you, or your transferees
or assigns, of notice in writing of such termination or revocation.
7. This agreement may not be amended or modified except in writing signed by the parties hereto. This agreement
shall continue in effect until such date as may be specified in a written notice from either party to this agreement of
discontinuance hereof; provided, however, that the date so specified by us shall be at least thirty (30) days after your
receipt of such notice; and provided further that notwithstanding any discontinuance or termination of this agreement,
this agreement shall continue to apply to any Drafts accepted by you prior to the effective date of such discontinuance
or termination and to all other obligations of us to you existing at such date.
8. If this agreement is signed by two or more parties, it shall be the joint and several agreement of such parties
and whenever used herein, the singular numbers shall include the plural, and the plural the singular. This agreement
shall be governed by and construed in accordance with the laws of the State of Georgia where "you" refers to Wachovia
Bank of Georgia, N.A. or the State of North Carolina where "you" refers to Wachovia Bank of North Carolina, N.A.
In the case of "Eligible" transactions [bankers' acceptances considered eligible for discount or sale to any Federal
Reserve Bank and which may also be sold to third parties without being subject to reserves under Regulation D of the
Board of Governors of the Federal Reserve System ("Regulation D")] we also agree as follows:
a. We represent and warrant to you with respect to each Draft that: (i) the proceeds of such Draft will finance a
transaction(s) involving either (A) the importation or exportation of goods by us or our agent, (B) one or more
current sales involving the domestic shipment of goods, or (C) the domestic storage of readily marketable staples
pending reasonably immediate sale, shipment, or distribution; (ii) the tenor of such Draft will be consistent
with the normal period to finance the purchase and/or sale, shipment, and distribution into the commercial
channels of trade on usual credit terms for transactions of such kind; (iii) unless the Draft is financing the
domestic storage of readily marketable staples as described above, such Draft has been drawn within thirty (30)
days of the shipping date of the goods; and (iv) no other financing of the transaction is outstanding.
b. Any Drafts that finance the domestic storage of readily marketable staples, as described above, will be
accompanied and secured, at the time of acceptance, by a warehouse receipt issued by an independent warehouse
conveying or securing title to the underlying goods. Such warehouse receipt shall be in a form and such
independent warehouse shall be satisfactory to you.
c. We agree to provide you a brief description of the underlying transaction supporting each Draft. Furthermore, we
shall retain for a reasonable period of time and furnish to you promptly on request at no expense to you, such
documents which you deem necessary to substantiate the representations and warranties contained herein.
d. If you determine in good faith that reserves under Regulation D (or any other law or regulation enacted or
adopted after the date hereof imposing reserves or additional costs) are allocable to a Draft accepted by you, we
shall pay to you within (10) days after our receipt of notice thereof, the amount determined by you to be
necessary to compensate you for the cost of maintaining such reserves or reimburse you for such additional cost.
IN WITNESS WHEREOF, We have executed this agreement under seal this date, January 12, 1995.
---------- ----
Attest /s/ Alvin C. Blalock GoodMark Foods Inc.
---------------------------------------------------- --------------------------------------------------------
(Name of Corporation)
Title VP Mfg By /s/ P.L. Brunswick
----------------------------------------------------- -----------------------------------------------------
[Corporate Seal] Title VP CFO
--------------------------------------------------
</TABLE>
<PAGE> 6
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
Corporate Banking
Post Office Box 3008
Raleigh, North Carolina 27602
919 829-6201
[LOGO] FIRST
UNION
February 7, 1995
Mr. Paul L. Brunswick
Vice President Finance/CFO
GoodMark Foods, Inc.
6131 Falls of Neuse Road
Raleigh, NC 27609
Dear Paul:
The purpose of this letter is to amend a Loan Commitment dated December 20,
1993 in the amount of Twenty Million and No/100ths U.S. Dollars
($20,000,000.00), a copy of which is attached, its terms and conditions
incorporated herein by reference. The Commitment is amended as follows:
LOAN AMOUNT:
The Loan Commitment amount is hereby reduced to Fifteen Million and
00/100 U.S. Dollars ($15,000,000.00).
EXPIRATION:
The expiration date of this Loan Commitment is extended to September
30, 1996. In the Bank's sole discretion, this credit facility will be
subject to reconfirmation on September 30, 1996.
Except as modified herein, all terms and conditions of the original Loan
Commitment dated December 20, 1993 remain in full force and effect.
<PAGE> 7
Mr. Paul L. Brunswick
February 7, 1995
Page 2
Paul, thank you again for the opportunity to extend this credit facility to
GoodMark Foods, Inc. We appreciate your business and look forward to expanding
our relationship in 1995. I look forward to visiting with you soon.
Sincerely,
/s/ G. Mendel Lay, Jr.
----------------------
G. Mendel Lay, Jr.
Vice President
Enclosure
ACCEPTED THIS THE 7TH DAY OF FEBRUARY, 1995.
GOODMARK FOODS, INC. ("BORROWER")
BY: /s/ Paul L. Brunswick
-------------------------
Title Vice President/CFO
<PAGE> 8
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
Post Office Box 3008
Raleigh, North Carolina 27602
919 829-6161
[LOGO] FIRST
UNION
December 20, 1993
Mr. Paul L. Brunswick
Vice President Finance/CFO
GoodMark Foods, Inc.
6131 Falls of Neuse Road
Raleigh, NC 27609
Dear Paul:
First Union National Bank of North Carolina ("Bank") is pleased to commit a
loan facility to GoodMark Foods, Inc. ("Borrower") as outlined by the following
terms and conditions:
BORROWER:
GoodMark Foods, Inc.
LOAN AMOUNT:
Up to Twenty Million and 00/100 Dollars ($20,000,000.00)
PURPOSE:
Proceeds will be used to fund the expansion of the Garner, N.C.
manufacturing facility, to fund the general purchase of new equipment,
and to fund short-term working capital needs.
TERMS:
Interest on the outstanding principal balance shall be payable monthly
with all outstanding principal and accrued interest payable in full at
maturity. If an interest rate option shorter than 30 days is selected,
interest and principal will be payable in full at the maturity of the
respective interest rate period.
INTEREST RATE:
Interest will accrue on the outstanding principal balance based on the
lesser of the following options, selected on a monthly basis:
A. Bank's Prime Rate as that rate may change from time to time,
said changes to occur on the date the Prime Rate changes.
Bank's Prime Rate shall be that rate announced by Bank from
time to time as its Prime Rate.
<PAGE> 9
Page 2 of 4
B. Thirty (30) Day Adjusted Certificate of Deposit ("CD") Base
Rate plus .75%, with the rate to be determined on the first
business day of each month and fixed until the first business
day of the following month. The Adjusted CD Base Rate shall
mean a rate per annum (rounded upwards, if necessary, to the
next higher 1/100 of 1%) determined pursuant to the following
formula:
Adjusted CD Base Rate = CD Base Rate + Assessment Rate
CD Base Rate shall mean that rate per annum at which, in the
opinion of the Bank, the Bank can obtain funds in the national
Certificate of Deposit market in the amount of $20,000,000.00
at approximately 9:00 a.m. Charlotte, N.C. time, on the first
day of an Interest Period for a maturity period equal to the
Interest Period selected.
Assessment Rate shall mean the actual, if known, or the
estimated, if the actual rate is not known, assessment rate
percentage (expressed as a decimal rounded upwards, if
necessary, to the next higher 1/100 of 1%) paid by Bank to the
Federal Deposit Insurance (or any successor), excluding any
refund, insuring the Bank's liability for time deposits as in
effect from time to time.
In addition to the two rate options committed above, Bank is pleased to
make available from time to time, subject to availability, a
negotiated offering basis rate with shorter term interest rate
options, from one to thirty days, with the accrued interest and
principal payable in full at the maturity of each respective interest
rate period selected. Individual advances are subject to a minimum
amount of $100,000.
UNUSED COMMITMENT FEE:
An Unused Commitment Fee of .10% will be calculated and paid on a
calendar quarterly basis with quarterly settlement dates of March 31,
June 30, September 30, and December 31, with each quarter due in
arrears. The unused fee will be calculated based on the difference
between the committed line amount and the average line outstandings
for the quarter, using a 360 day base, with a minimum annual unused
fee of $10,000.00 to be collected per year as of December 31.
<PAGE> 10
Page 3 of 4
COLLATERAL:
This commitment shall be unsecured.
LOAN AGREEMENT:
This line of credit will be subject to and cross-defaulted to that
certain Loan Agreement by and between Borrower and NCNB National Bank
of North Carolina, dated the 22nd day of May, 1990, and all amendments
and modifications thereto through the date of the closing of this loan
commitment, which is incorporated into this commitment by reference
and which will survive the termination of the Loan Agreement in the
event the Loan Agreement is terminated prior to the termination of
this commitment; Borrower hereby agrees that this Loan Agreement shall
not be further modified or amended subsequent to loan closing without
the prior written consent of Bank.
WARRANTIES AND REPRESENTATIONS:
Borrower represents and warrants that all financial statements and all
other information previously given Bank are correct and complete, that
Borrower has the authority to enter into this Agreement and to execute
all Notes and other Documents in connection with this loan. At Bank's
request, Borrower shall furnish to Bank, prior to closing, a certified
copy of a resolution of its Board of Directors authorizing this
borrowing, its by-laws, charter, and a certificate of good standing.
FINANCIAL REPORTING:
Annual audited financial statements and 10-K delivered within ninety
days after the end of each fiscal year, and quarterly financial
statements and 10-Q delivered within forty-five days of each
quarter-end.
EXPIRATION:
In the Bank's sole discretion, this credit facility will be subject to
reconfirmation on December 31, 1995.
COMMITMENT PROVISIONS SURVIVE CLOSING:
The provisions of this Agreement shall survive the closing of the loan
and shall not be merged into any of the loan documents. If any terms
herein are inconsistent with those of the loan documents, the terms of
the loan documents shall control.
<PAGE> 11
Page 4 of 4
MODIFICATION:
No modification or amendment of any provision of this Agreement or any
other loan document executed pursuant to this Agreement shall be
effective unless in writing and signed by the Bank.
Paul, First Union is very appreciative of an opportunity to provide this
commitment to GoodMark Foods. Please do not hesitate to give me a call with any
questions or comments.
Sincerely,
/s/ G. Mendel Lay, Jr.
----------------------
G. Mendel Lay, Jr.
Vice President
ACCEPTED THIS THE 7TH DAY OF JANUARY, 1994.
GOODMARK FOODS, INC. ("Borrower")
BY: /s/ Paul L. Brunswick Vice President/CFO
---------------------------------------------------------
Title
BY:
---------------------------------------------------------
Title
<PAGE> 12
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PROMISSORY NOTE
[LOGO] FIRST
UNION $15,000,000.00 February 7 , 1995
--------------------------------------------------------------------------------------------------- --
(Date of Execution and Delivery)
LENDER: FIRST UNION NATIONAL BANK OF NORTH CAROLINA (hereinafter termed "LENDER"), , North Carolina
----------------------
(City)
BORROWER(S): GoodMark Foods, Inc.
------------------------------------------------------------------------------------------------------------
(Name)
6131 Falls of Neuse Road Raleigh Wake NC 27609
------------------------------------------------------------------------------------------------------------
(No., Street RFD) (City) (County) (State) (Zip Code)
FOR VALUE RECEIVED: to wit, money loaned, undersigned BORROWER(S) (hereinafter collectively termed "BORROWER"), jointly
and severally (if more than one BORROWER), promise(s) to pay to the order of LENDER at its office in the above city, or
wherever else LENDER may specify, the sum of
Fifteen Million and 00/100 ($15,000,000.00) DOLLARS, with interest until paid,
---------------------------------------------------------------------- -------------
( [ ] at the rate of percent ( %);
( ------- -------
( [ ] at the rate of LENDER'S PRIME RATE Plus percent ( %) as that rate may change from
CONTRACT ( --------------- --------
RATE OF ( time to time with changes to occur on the date the LENDER'S PRIME RATE changes;
INTEREST ( [ ] at the rate of
( -----------------------------------------------------------------------------------------
( to be adjusted beginning ;
( ------------------------------------------------- ----------------------------
( [X] payable in full on September 30, 1996 ,
( ------------------------------------------------------------------------------------
( with interest payable Monthly commencing on March 1, 1995, and each thereafter;
( --------- -------- -- ---------------------
( [ ] payable in consecutive payments of principal commencing on
( ---------------------------------------------
( , 19 , in equal payments of $
( -------------------------------------- ---- ------ ---------------------------
TERMS ( plus an irregular payment of $ due on , 19 ,
OF ( --------------------------- ------------------------------ ----
PAYMENT ( with interest payable commencing on , 19 , and each thereafter;
( --------------- ------------ ---- ---------
( [ ] payable in consecutive payments of principal and interest commencing on
( --------------------------------
( , 19 , in equal payments of $
( -------------------------------------- ---- ------ ---------------------------
( plus an irregular payment of all remaining principal and interest due on , 19 ;
( ---------------------- ----
( [X] see attached Schedule "B," terms of which are incorporated herein by reference;
</TABLE>
(TERMS ABOVE NOT COMPLETED ARE DELETED)
together with a late charge of four percent (4%) of each payment past due for
fifteen (15) or more days. If BORROWER fails to make a payment when due,
subsequent payments shall first be applied to the past due payment. If BORROWER
resumes making payments but has not paid all past due payments, then LENDER
will impose a separate late payment charge for each payment that becomes due
until the default is cured.
Further, upon BORROWER'S Default (as hereinafter defined) and where LENDER
deems it necessary or proper to employ an Attorney to enforce collection of any
unpaid balance hereunder, then BORROWER agrees to pay LENDER'S reasonable
Attorneys' fees and collection costs. Liability for reasonable Attorneys' fees
and costs shall exist whether or not any suit or proceeding is commenced;
BORROWER agrees and stipulates that reasonable Attorneys' fees shall be deemed
to be fifteen percent (15%) of the sum of all unpaid principal and interest due
as permitted under the law of the state of LENDER'S office as set forth herein.
In addition to all other rights contained herein, if the original principal
amount of the loan is more than Three Hundred Thousand and no/100 Dollars
($300,000.00) the contract rate during any period while the loan is in Default
shall be the interest rate set out above plus three percent (3%) commencing
with and continuing for as long as the loan or any portion thereof is in
Default.
The contract rate of interest shall apply until the Note or any judgment
thereon shall be paid in full.
Interest is computed on the basis of a 360 day year for the actual number of
days in the interest period (Actual/360 Computation) unless indicated below.
--------------------------------------------------------------------------------
DEFINITION OF LENDER'S PRIME RATE AND COMPUTATION FORMULAE APPEAR ON OTHER SIDE
All payments received during normal banking hours after 2:00 P.M. shall be
deemed received at the opening of the next banking day.
BORROWER'S payment will increase if the scheduled payment amount is
insufficient to pay accrued interest. If the scheduled payment amount is
insufficient to pay accrued interest, the scheduled payment amount shall be
immediately increased as is necessary to pay all accruals of interest for the
period and all accruals of unpaid interest from previous periods. Such
adjustments to the scheduled payment amount shall remain in effect for as long
as the interest accruals shall exceed the original scheduled payment amount and
shall be further adjusted upward or downward to reflect changes in the variable
interest rate. In no event shall the scheduled payment amount be reduced below
the original scheduled payment specified herein.
Each of the undersigned whether BORROWER, sureties, or endorsers, and
all others who may become liable for all or any part of the obligations
evidenced and secured hereby, do hereby, jointly and severally, waive
presentment, demand, protest, notice of protest and/or of dishonor, and also
notice of acceleration of maturity on default or otherwise. Further, they
agree that LENDER may, from time to time, extend, modify, amend or renew this
Note for any period (whether or not longer than the original period of the
Note) and grant any releases, compromises or indulgences with respect to the
Note or any extensions, modifications, amendments or renewals thereof or any
security therefor, or to any party liable thereunder or hereunder, all without
notice to or consent of any of the undersigned and without affecting the
liability of the undersigned hereunder.
If this Note is subject to the terms of a Commitment Letter and/or Loan
Agreement, LENDER may advance and readvance under this Note pursuant to its
terms and/or the terms of such other contractual obligations between the
parties, and all the request of BORROWER, LENDER in its sole discretion may
make other advances and readvances under this Note pursuant thereto.
THIS PROMISSORY NOTE IS SUBJECT TO THE ADDITIONAL PROVISIONS, TERMS,
UNDERTAKINGS AND RIGHTS SET FORTH ON THE REVERSE SIDE HEREOF, THE SAME BEING
INCORPORATED HEREIN BY REFERENCE.
IN WITNESS WHEREOF, the Borrower, on the day and year first written above,
has caused this Note to be executed under seal by, (i) if a corporation,
adoption of the facsimile seal printed hereon for such special occassion and
purpose (or if an impression seal appears hereon by affirming such impression
seal) by its duly authorized officer(s), or (ii) if by individuals, by hereunto
selling their hands and seals.
CORPORATE BORROWER
GoodMark Foods, Inc.
--------------------------------- ------------------------------------------
Name of Corporation Name of Corporation
By: By: P.L. Brunswick
------------------------------ --------------------------------------
Title: Vice President
--------------------------- ------------------------------------------
INDIVIDUAL BORROWER(S), By:
PROPRIETORSHIPS, PARTNERSHIPS ---------------------------------------
---------------------------(SEAL) ------------------------------------(SEAL)
---------------------------(SEAL) ------------------------------------(SEAL)
Taxpayer Identification Number(s)
----------------------------------------------
<PAGE> 13
Schedule "B" to Promissory Note dated 2/7/95, in the amount of $15,000,000.00,
by and between GoodMark Foods, Inc. ("Borrower") and First Union National Bank
of North Carolina ("Lender" or "Bank").
Interest will accrue on the outstanding principal balance based on the
lesser of the following options, selected on a monthly basis:
A. Bank's Prime Rate as that rate may change from time to time,
said changes to occur on the date the Prime Rate changes.
Bank's Prime Rate shall be that rate announced by Bank from
time to time as its Prime Rate.
B. Thirty (30) Day Adjusted Certificate of Deposit ("CD") Base
Rate plus .75%, with the rate to be determined on the first
business day of each month and fixed until the first business
day of the following month. The Adjusted CD Base Rate shall
mean a rate per annum (rounded upwards, if necessary, to the
next higher 1/100 of 1%) determined pursuant to the following
formula:
Adjusted CD Base Rate = CD Base Rate + Assessment Rate
CD Base Rate shall mean that rate per annum at which, in the
opinion of the Bank, the Bank can obtain funds in the national
Certificate of Deposit market in the amount of $15,000,000.00
at approximately 9:00 a.m. Charlotte, N.C. time, on the first
day of an Interest Period for a maturity period equal to the
Interest Period selected.
Assessment Rate shall mean the actual, if known, or the
estimated, if the actual rate is not known, assessment rate
percentage (expressed as a decimal rounded upwards, if
necessary, to the next higher 1/100 of 1%) paid by Bank to
the Federal Deposit Insurance (or any successor), excluding
any refund, insuring the Bank's liability for time deposits as
in effect from time to time.
In addition to the two rate options committed above, Bank is pleased to make
available from time to time, subject to availability, a negotiated offering
basis rate with shorter term interest rate options, from one to thirty days,
with the accrued interest and principal payable in full at the maturity of each
respective interest rate period selected. Individual advances are subject to a
minimum amount of $100,000.00.
GoodMark Foods, Inc.
BY: /s/ Paul L. Brunswick Vice President/CFO
---------------------------------------------------------
Title
<PAGE> 14
NINTH AMENDMENT
TO
LOAN AGREEMENT
THIS NINTH AMENDMENT TO LOAN AGREEMENT, dated as of May 25, 1995 (the
"Ninth Amendment"), is to that certain Loan Agreement dated May 22, 1990 and
previously amended by a First Amendment to Loan Agreement dated as of November
5, 1990, a Second Amendment to Loan Agreement dated as of April 29, 1991, a
Third Amendment to Loan Agreement dated as of September 3, 1991, a Fourth
Amendment to Loan Agreement dated as of May 1, 1992, a Fifth Amendment to Loan
Agreement dated as of November 4, 1992 and a Sixth Amendment to Loan Agreement
dated as of October 4, 1993 by and between the parties hereto (as previously
amended and as amended hereby, the "Loan Agreement"; all of the defined terms
of the Loan Agreement are incorporated herein by reference), and is by and
between
GOODMARK FOODS, INC., a North Carolina corporation (the "Company"); and
NATIONSBANK, N.A. (CAROLINAS) (formerly named NATIONSBANK OF NORTH
CAROLINA, N.A.), a national banking association with offices in Charlotte,
North Carolina (the "Bank").
RECITALS:
The Company and the Bank have agreed to amend the Loan Agreement to
reflect certain changes agreed to by the Company and the Bank.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Bank agree as follows:
1. The Loan Agreement is amended in the following respects:
A. The definition of "Notes" set forth in Paragraph 2(1)
on page 3 is amended to read as follows:
"(1) "Notes" means, collectively, (i) the amended,
restated and substituted promissory note of the Company dated
May 28, 1995 in favor of the Bank in the original face amount
of $15,000,000.00 and (ii) any promissory note or notes issued
by the Company in substitution, replacement, extension,
renewal or amendment of any of the foregoing promissory note
or notes;"
<PAGE> 15
B. Paragraph 7(a)(v) on page 19 is amended to read in
its entirety as follows:
7. Events of Default.
(a) The occurrence of any one or more of the
following events shall constitute an Event of Default
hereunder:
****************
(v) (A) if an "Event of Default" shall occur
under (and as defined in) the Reimbursement Agreement
dated as of May 25, 1995 between the Company and the
Bank or if an event of default shall occur under any
other agreement between the Company and the Bank or
(B) if the Company in the performance of any other
agreement between it and the Bank or any other lender
defaults and such default results in acceleration of
any other indebtedness of the Company for borrowed
money.
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement and exhibits thereto remain in full force and effect.
3. This Ninth Amendment may be executed in counterparts, each of
which when so executed and delivered shall be deemed an original, and it shall
not be necessary in making proof of this Ninth Amendment to produce or account
for more than one counterpart.
4. This Ninth Amendment shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Company and the Bank, by their respective duly
authorized officers, have executed this Ninth Amendment as of the day and year
first above written.
GOODMARK FOODS, INC.
By /s/ Paul L. Brunswick
---------------------------------
Title: Vice President/CFO
NATIONSBANK, N.A. (CAROLINAS)
By /s/
---------------------------------
Title: Vice President
- 2 -
<PAGE> 16
EIGHTH AMENDMENT
TO
LOAN AGREEMENT
THIS EIGHTH AMENDMENT TO LOAN AGREEMENT, dated as of February 7, 1995
(the "Eighth Amendment"), is to that certain Loan Agreement dated May 22, 1990
and previously amended as of November 5, 1990, as of April 29, 1991, as of
September 3, 1991, as of May 1, 1992, as of November 4, 1992, as of October 4,
1993 and as of March 31, 1994 by and between the parties hereto (as previously
amended and as amended hereby, the "Loan Agreement"; all of the defined terms
of the Loan Agreement are incorporated herein by reference), and is by and
between
GOODMARK FOODS, INC., a North Carolina corporation (the "Company"); and
NATIONSBANK, N.A. (CAROLINAS) (formerly named NationsBank of North
Carolina, N.A.), a national banking association with offices in Charlotte,
North Carolina (the "Bank").
RECITALS:
The Company and the Bank have agreed to amend the Loan Agreement to
reflect certain changes agreed to by the Company and the Bank.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Bank agree as follows:
1. The Loan Agreement is amended in the following respects:
A. The first WHEREAS paragraph on page 1 is amended to
read as follows:
"WHEREAS, the Company has requested that the Bank extend to the Company
a credit facility in the aggregate principal amount of $15,000,000.00
(the "Loans");
B. The definition of "Notes" set forth in Section 2(1)
on page 3 is amended to read as follows:
"(1) "Notes" means, collectively, (i) the amended, restated
and substituted promissory note of the Company dated February 7, 1995
in favor of the Bank in the original face amount of $15,000,000.00 and
(ii) any promissory note or notes issued by the Company in
<PAGE> 17
substitution, replacement, extension, renewal or amendment of any of
the foregoing promissory note or notes;"
2. Except as hereby modified, all the terms and provisions of the
Loan Agreement and exhibits thereto remain in full force and effect.
3. The Company will execute such additional documents as are
reasonably requested by the Bank to reflect the terms and conditions of this
Eighth Amendment.
4. This Eighth Amendment may be executed in counterparts, each of
which when so executed and delivered shall be deemed an original, and it shall
not be necessary in making proof of this Eighth Amendment to produce or account
for more than one counterpart.
5. This Eighth Amendment and all other documents executed
pursuant to the transactions contemplated herein shall be governed by and
construed and interpreted in accordance with the laws of the State of North
Carolina.
- 2 -
<PAGE> 18
IN WITNESS WHEREOF, the Company and the Bank, by their respective duly
authorized officers, have executed this Eighth Amendment as of the day and year
first above written.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
----------------------------------
Title: Vice President/CFO
-------------------------------
NATIONSBANK, N.A. (CAROLINAS)
By: /s/ Gregory W. Powell
----------------------------------
Title: Senior Vice President
-------------------------------
- 3 -
<PAGE> 19
AMENDED, RESTATED AND SUBSTITUTED
PROMISSORY NOTE
(Revolving Credit Note)
$15,000,000.00 February 7, 1995
Charlotte, North Carolina
FOR VALUE RECEIVED, GOODMARK FOODS, INC , a North Carolina corporation (the
"Borrower"), promises to pay to the order of
NATIONSBANK, N.A (CAROLINAS) (formerly named NationsBank of North Carolina,
N.A.), a national banking association (the "Bank"), at its offices in Charlotte,
North Carolina or such other place or places as the Bank may from time to time
designate, the principal sum of up to
FIFTEEN MILLION DOLLARS ($15,000,000.00) pursuant to the terms and conditions
hereinafter set forth.
Advances. The Bank agrees to make advances to the Borrower under this
Note from time to time until the Revolving Loans Termination Date upon request
(or, in the case of a Quoted Rate advance, acceptance) by the Borrower of the
principal amount, applicable interest rate and applicable interest period,
provided that (i) the sum of the amount outstanding hereunder plus the Bank's
share of Bankers' Acceptances outstanding shall never exceed $15,000,000.00 and
(ii) both immediately prior to and immediately after giving effect to any such
advance, no event of default, or event or condition which upon notice or lapse
of time or both would constitute such an event of default, shall then exist and
continuing hereunder.
Interest. This Note shall bear interest on the outstanding balance
from time to time at a rate equal to (i) the Floating CD Rate plus the
Applicable Margin (computed on the basis of actual number of days elapsed over
a year of 360 days), provided that such rate of interest shall never exceed the
Prime Rate; (ii) the LIBOR Rate plus the Applicable Margin (computed on the
basis of actual number of days elapsed over a year of 360 days); or (iii) the
Quoted Rate, as the Borrower may request.
The applicable interest period for a LIBOR Rate election shall be 30, 60, 90 or
120 days, as the Borrower shall request from time to time, provided that (A)
each such interest period which would otherwise end on a day which is not a
business day shall end on the next succeeding business day and (B) no such
interest period shall extend beyond the Termination Date.
Unless otherwise agreed, the applicable interest rate hereunder automatically
shall be converted to the rate based on the Floating CD Rate at the end of the
interest period for any LIBOR Rate or Quoted Rate election.
<PAGE> 20
Payment of Principal and Interest. Unless otherwise agreed, payments
of interest only shall be due and payable quarterly on each August 31, November
30, February 28 and May 31, beginning with the first of such dates to occur
after the date hereof and continuing thereafter until the Revolving Loans
Termination Date. All outstanding principal, plus accrued, unpaid interest,
shall be due and payable on the Revolving Loans Termination Date.
Prepayments. If any prepayment hereunder is made during a LIBOR Rate
or Quoted Rate election, the Borrower shall reimburse the Bank upon demand for
any actual out-of-pocket loss incurred by the Bank in the reemployment of funds
released by such prepayment. Voluntary prepayment of this Note shall not be
permitted during any LIBOR Rate or Quoted Rate election unless such prepayment
is accompanied by payment of amounts specified in the preceding sentence.
Unused Fee. In consideration of the Bank's commitment to making
revolving credit loans hereunder, the Borrower agrees to pay an unused fee of
ten basis points per annum (computed on the basis of actual number of days
elapsed over a year of 360 days) on the average daily unused commitment
hereunder during the preceding period, payable quarterly in arrears upon the
same dates as payments of interest are due hereunder; provided that,
notwithstanding the above, the Borrower agrees that aggregate payments on the
unused fee pursuant to the terms of this paragraph during any calendar year
shall not be less than $10,000 (regardless of usage of the Bank's commitment
during such year and regardless of whether the Bank's commitment shall have
expired or been terminated at any time prior to the end of such year.)
Unavailability; Increased Costs; Illegality. In the event the Bank
shall determine (which determination shall be final and conclusive and binding
absent manifest error):
(i) On any date for determining the appropriate LIBOR Rate for any
interest period, that by reason of any changes arising on or after the
date of this Note affecting the interbank Eurodollar market dollar
deposits in the principal amount requested are not generally available
in the interbank Eurodollar market for such interest period; or
adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR
Rate for such interest period; then the LIBOR Rate will no longer be
available until such time as the Bank shall notify the Borrower that
the circumstances giving rise thereto no longer exist.
(ii) At any time, that the Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any LIBOR Rate election because of (x) any change since the
date of this Note in any applicable law, governmental rule,
regulation, guideline or order (or in the interpretation or
administration thereof and
- 2 -
<PAGE> 21
including the introduction of any new law or governmental rule,
regulation, guideline or order) including without limitation the
imposition, modification or deemed applicability of any reserves,
deposits or similar requirements as related to advances hereunder
bearing interest at the LIBOR Rate (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves required under Regulation D to the extent
included in the computation of the LIBOR Rate) and/or (y) other
circumstances affecting the Bank, the interbank Eurodollar market or
the position of the Bank in such market; then the Borrower shall pay
to the Bank promptly upon written demand therefor, such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as the Bank may determine in its
sole discretion) as may be required to compensate the Bank for such
increased costs or reductions in amounts receivable hereunder (written
notice as to the additional amounts owed to the Bank, showing the
basis for calculation thereof, shall, absent manifest error, be final
and conclusive and binding on all parties hereto).
(iii) At any time, that making or continuing advances at the LIBOR
Rate (A) has become unlawful due to compliance by the Bank in good
faith with any law, governmental rule, regulation, guideline or order
(or would conflict with any such governmental rule, regulation,
guideline or order not having the force of law even though the failure
to comply therewith would not be unlawful) or (B) has become
impractical as a result of a contingency occurring after the date of
this Note which materially and adversely affects the interbank
Eurodollar market; then (1) the LIBOR Rate will no longer be available
until such time as the Bank shall notify the Borrower that the
circumstances giving rise thereto no longer exist and (2) the interest
rate hereunder, if necessary, shall be converted to the interest rate
based on the Floating CD Rate or to the Quoted Rate, as agreed upon by
the Borrower and the Bank.
Taxes. Promptly upon notice from the Bank to the Borrower, the
Borrower will pay, prior to the date on which penalties attach thereto, but
without duplication, all present and future, stamp and other taxes, levies, or
costs and charges whatsoever imposed, assessed, levied or collected on or in
respect of advances hereunder solely as a result of the interest rate being
determined by reference to the LIBOR Rate and/or the provisions of this Note
relating to the LIBOR Rate and/or the recording, registration, notarization or
other formalization of any thereof and/or any payments of principal, interest
or other amounts made on or in respect of advances hereunder when the interest
rate is determined by reference to the LIBOR Rate, and any increases thereof
(all such taxes, levies, costs and charges being herein collectively call
"Taxes"), provided that Taxes shall not include taxes imposed on or measured by
the income of the Bank by the United States of America or any political
subdivision or taxing
- 3 -
<PAGE> 22
authority thereof or therein, or taxes on or measured by the overall net income
of any foreign office, branch, subsidiary or affiliate of the Bank by any
foreign country of subdivision thereof in which that office, branch, subsidiary
or affiliate is doing business. Promptly after the date on which payment of any
such Tax is due pursuant to applicable law, the Borrower will at the request of
the Bank, furnish to the Bank evidence, in form and substance satisfactory to
the Bank, that the Borrower has met its obligations under this paragraph. The
Borrower will indemnify the Bank against, and reimburse the Bank on demand for,
any Taxes, as determined by the Bank in its good faith discretion. The Bank
shall provide the Borrower with appropriate receipts for any payments or
reimbursements made by the Borrower pursuant to this paragraph.
Capital Adequacy.
(a) In the event that the Bank shall have determined that the
adoption of any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof or
by any court, or compliance by the Bank (or any lending office of the Bank)
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank, or comparable agency,
has or would have the effect of reducing the rate of return on the Bank's
capital as a consequence of its obligations hereunder to a level below that
which the Bank could have achieved but for such adoption, change or compliance
(taking into consideration the Bank's policies as the case may be, with respect
to capital adequacy) by an amount deemed by the Bank to be material, then from
time to time the Borrower shall pay to the Bank such additional amount or
amounts as will compensate the Bank for any such reduction suffered. Within a
reasonable time after making a request for such additional amount hereunder,
the Bank will furnish to the Borrower a statement certifying the amount of such
reduction and describing the event giving rise to such reduction, which
determination shall be conclusive absent manifest error.
(b) Failure on the part of the Bank to demand compensation for
any reduction in amounts received or receivable or reduction in return on
capital with respect to any period shall not constitute a waiver of the Bank's
rights to demand compensation for any reduction in amounts received or
receivable on reduction in return on capital in such period or in any other
period. The protection of this Section shall be available to the Bank
regardless of any possible contention of invalidity or inapplicability of the
law, regulation or condition which shall have been imposed.
- 4 -
<PAGE> 23
Bankers' Acceptances Subfacility.
(a) Subject to the terms and conditions hereof, at any time
prior to the Revolving Loans Termination Date, the Bank shall create and
discount such Bankers' Acceptances as Borrower may request by notice to the
Bank, provided that, upon creating and discounting such Bankers' Acceptance,
the sum of all amounts outstanding hereunder plus such outstanding Bankers'
Acceptance shall not exceed the sum of $15,000,000.00. The discount rate for
such Bankers' Acceptance shall be the per annum rate quoted by the Bank and
accepted by the Borrower at the time such Bankers' Acceptance is created.
Notwithstanding anything herein to the contrary, the Bank shall not be
obligated to create or discount any Bankers' Acceptance (i) that is not eligible
pursuant to Section 13 of the Federal Reserve Act, 12 U.S.C. Section 372, as
amended; (ii) if creation thereof would cause the Bank to exceed the maximum
amount of outstanding Bankers' Acceptances permitted by applicable law; (iii)
if, in the reasonable opinion of the Bank, general conditions in the public
market for rediscounting Bankers' Acceptances render it inadvisable to do so;
or (iv) that would have a maturity date later than the Revolving Loans
Termination Date.
(b) Each request for Bankers' Acceptance shall be submitted in
writing upon the application specified by the Bank at least one business day
prior to the date of creation of the requested Bankers' Acceptance and shall be
accompanied by such documents as are specified in such application.
(c) The Borrower shall pay the face amount of each Bankers'
Acceptance on its maturity date in immediately available funds to the Bank.
Events of Default. The following shall constitute events of default
under this Note: (i) the failure by the Borrower to pay when due any
installment of principal or interest within five (5) days of receipt of notice
from the Bank that such payment is overdue; (ii) the occurrence of an event of
default under that certain Loan Agreement dated as of May 22, 1990, as amended
from time to time thereafter, between the Borrower and the Bank; (iii) the
occurrence of a default under any other agreement between the Borrower and the
Bank; or (iv) the filing of any bankruptcy o other insolvency proceeding by or
against the Borrower. Upon the occurrence of any event of default, this Note
and all other indebtedness of the Borrower to the Bank shall immediately become
due and payable at the option of the Bank without the necessity of demand,
presentment, protest or notice of any kind, all of which are hereby waived by
the Borrower. In the event of default, the then outstanding principal balance,
and all accrued but unpaid interest shall bear interest at a rate 2% in excess
of the rate otherwise applicable.
- 5 -
<PAGE> 24
Definitions. As used herein:
"Applicable Margin" means, at any time, the applicable margin corresponding to
the ratio described below in effect as of the most recent Rate Determination
Date:
<TABLE>
<CAPTION>
Leverage Ratio Applicable Margin
-------------- -----------------
<S> <C>
Less than 0.75:1.00 50.0 bps
Equal to or greater than
0.75:1.00 but less than
1.20:1.00 75.0 bps
Equal to or greater than
1.20:1.00 87.5 bps
</TABLE>
The Applicable Margin as of the date hereof is 50.0 basis points. Thereafter,
determination of the appropriate Applicable Margin based on the Leverage Ratio
shall be made as of each August 31, November 30, February 28 and May 31 (each
such date a "Rate Determination Date"). The Leverage Ratio in effect as of a
Rate Determination Date shall establish the Applicable Margin for the second
calendar quarter immediately following such Rate Determination Date. A change
in the Applicable Margin shall be effective as of the first day of the second
calendar quarter after the Rate Determination Date giving rise to such change
and shall be applicable thereafter until the effective date of any subsequent
change. Each determination by the Bank of the Applicable Margin shall be
conclusive absent manifest error.
"Bankers' Acceptances" means a draft drawn by the Borrower on, and accepted and
discounted by, the Bank in the standard form for Bankers' Acceptances of the
bank accepting such draft.
"Certificate Rate" means the average daily market rate in the secondary market
on negotiable certificates of deposit having maturity dates approximately three
(3) months after issuance, as determined, compiled, and published by the
Federal Reserve System.
"Floating CD Rate" means the rate of interest which is equal to the sum of (A)
the quotient of (i) the Certificate Rate for the immediately preceding business
day, divided by (ii) an amount equal to one minus the appropriate reserve
requirement imposed by the Federal Reserve System (expressed as a decimal),
plus (B) the appropriate assessment rate imposed on the Bank by the Federal
Deposit Insurance Corporation. The Certificate Rate used in determining the
Floating CD Rate for Saturday and Sunday of each week shall be the Certificate
Rate for the immediately preceding Thursday. Whenever the day to be used in
determining the Floating CD Rate is a day for which the Federal Reserve System
does not publish the Certificate Rate, the Certificate Rate for the next
preceding business day shall be used instead.
- 6 -
<PAGE> 25
"Leverage Ratio" means, at any time, the ratio of (i) all items which would be
classified as liabilities on a balance sheet of the Borrower and its
consolidated subsidiaries as of such time to (ii) tangible net worth of the
Borrower and its consolidated subsidiaries as of such time, all as determined
in accordance with generally accepted accounting principles applied by the
Borrower on a basis consistent with those set forth in the quarterly financial
statements for the Borrower dated as of August 28, 1994.
"LIBOR Rate" means, for the applicable interest period, a per annum interest
rate equal to the rate of interest determined by the Bank to be the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such
average is not such a multiple) of the per annum rates at which deposits in
U.S. dollars are offered to the Bank in the interbank Eurodollar market at
10:00 A.M. (Charlotte, North Carolina time) (or as soon thereafter as is
practicable), in each case two business days before the first day of such
interest period in an amount substantially equal to the advance(s) hereunder to
bear interest at such LIBOR Rate and for a period equal to such interest
period.
"Prime Rate" means the rate announced by the Bank as its prime lending rate at
its offices in Charlotte, North Carolina, adjusted daily. The Prime Rate is not
necessarily the lowest rate offered by the Bank.
"Quoted Rate" means the fixed rate of interest quoted by the Bank for money
market instruments with maturities not exceeding thirty (30) days.
"Revolving Loans Termination Date" means September 30, 1998.
Late Payment Fee. Should any installment of principal or interest be
in default for a period of more than fifteen (15) days, there shall be imposed,
to the extent permitted by law, a late charge not to exceed four percent (4%)
of such installment in default.
Attorneys' Fees. In the event this Note is not paid when due at any
stated or accelerated maturity, the Borrower will pay, in addition to principal
and interest, all costs of collection, including reasonable attorneys' fees
actually incurred.
Choice of Law. This Note shall be governed by and construed according
to the laws of the State of North Carolina. The Borrower hereby submits to the
jurisdiction and venue of the federal and state courts located in Mecklenburg
and Wake Counties, North Carolina.
This Note represents the same indebtedness as the $20,000,000.00 Note dated
March 31, 1994 executed by the Borrower in favor of the Bank (the "Replaced
Note") and is given in substitution for and in replacement of the Replaced
Note.
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<PAGE> 26
IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and year
first above written.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
------------------------------
Title: Vice President/CFO
---------------------------
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<PAGE> 27
LOAN AGREEMENT
THIS LOAN AGREEMENT entered into this 22nd day of May, 1990, by and
between GOODMARK FOODS, INC., a North Carolina corporation (the "Company"), and
NCNB NATIONAL BANK OF NORTH CAROLINA, a national banking association with
offices in Charlotte, North Carolina (the "Bank").
WITNESSETH:
WHEREAS, the Company has requested that the Bank extend to the Company
three credit facilities in the aggregate maximum principal amount of
$21,875,000 (the "Loans"); and
WHEREAS, the Bank has agreed to provide such credit facilities upon
the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Purpose of the Loans. The Company will use the proceeds of the
Loans for purposes of funding working capital, capital expenditure needs, and
other corporate purposes.
2. Definitions. For purposes hereof:
(a) "Business Day" means a day upon which banks are open for
the transaction of business of the nature required in this Agreement
in Charlotte, North Carolina;
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<PAGE> 28
(b) "Closing Date" means the date as of which this Agreement
is executed by the Company and the Bank;
(c) "Consistent Basis" in reference to the application of
Generally Accepted Accounting Principles, means that the accounting
principles observed in the period referred to are comparable in all
material respects to those applied in the most recent preceding period
except as to any changes required by the American Institute of
Certified Public Accountants or the Financial Accounting Standards
Board;
(d) "Coverage Ratio" means the ratio of EBIT to interest
expense plus dividends plus the Prior Year's Current Maturities,
calculated on an annual basis;
(e) "Current Assets" means all assets which, in accordance
with Generally Accepted Accounting Principles, would be classified as
current assets on a balance sheet of the Company;
(f) "Current Liabilities" means all liabilities which, in
accordance with Generally Accepted Accounting Principles, would be
classified as current liabilities on a balance sheet of the Company;
(g) "Current Ratio" means the ratio of Current Assets to
Current Liabilities;
(h) "EBIT" means the net income of the Company before
deduction of interest expense and income taxes for the twelve month
period ending on the date of computation as determined in accordance
with Generally Accepted Accounting Principles consistently applied;
- 2 -
<PAGE> 29
(i) "Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report, as
such principles are from time to time supplemented and amended;
(j) "Loan Documents" means this Agreement and the Notes;
(k) "Net Worth" means at any time consolidated net
stockholders' equity, determined in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis;
(l) "Notes" means the three promissory notes of the Company
dated as of the Closing Date in favor of the Bank in the original face
amounts of $9,375,000.00, $7,500,000.00, and $5,000,000.00, as well as
any promissory note or notes issued by the Company in substitution,
replacement, extension, renewal or amendment of any such promissory
note or notes;
(m) "Person" means an individual, partnership, corporation,
trust, unincorporated organization, association, joint venture or a
government or agency or political subdivision thereof;
(n) "Prior Year's Current Maturities" means all current
maturities of long-term debt, all current maturities of any
capitalized leases, and all current maturities under the licensing
agreement with General Mills, Inc. shown on the Company's balance
sheet for the Company's prior fiscal year;
- 3 -
<PAGE> 30
(o) "Substantial Shareholder" means any Person directly or
indirectly controlling the Company; for the purposes hereof, "control"
shall mean (i) the power to direct or cause the direction of
management and policies of the Company, directly or through one or
more intermediaries, whether through the ownership of voting
securities, by contract or otherwise, or (ii) the beneficial ownership
of twenty percent (20%) or more of the common stock of the Company;
and
(p) "Total Liabilities" means all current liabilities and
long-term debt, including the obligations under the licensing
agreement of the Company with General Mills, Inc.
2.01 All accounting terms not specifically defined herein
shall be construed in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis.
3. Advances to the Company Evidenced by the Note. Subject to the
terms and conditions provided by this Agreement, the Bank agrees to make
Advances to the Company from the Closing Date in accordance with the Notes.
4. Representations and Warranties. The Company represents and
warrants that:
(a)
(i) the Company is a corporation, duly organized,
validly existing and in good standing under the laws of the
State of North Carolina;
(ii) the Company has the corporate power and
authority to own its properties and assets and to carry on its
business as now being conducted and is qualified to do
- 4 -
<PAGE> 31
business in every jurisdiction in which, by reason of the
character of its business, it is required to qualify as a
foreign corporation;
(iii) the Company has the corporate power and
authority to execute and perform this Agreement, to borrow
hereunder and to execute and deliver this Agreement, the Note
and all other certificates, instruments and documents with
respect to the indebtedness of the Company hereunder; and
(iv) when executed and delivered, the Loan Documents
will be valid and binding obligations of the Company
enforceable in accordance with their respective terms;
(b) the execution, delivery and performance of the Loan
Documents:
(i) have been duly authorized by all requisite
corporate action of the Company required for the lawful
creation and issuance thereof;
(ii) do not violate any provisions of law, any order
of any court or other agency of government or the charter
documents or by-laws of the Company, or any provisions of any
indenture, agreement or other instrument to which the Company
or the properties or assets of the Company are bound;
(iii) will not be in conflict with, result in a
breach of or constitute an event of default nor an event
which, upon notice or lapse of time, or both, would constitute
such an event of default under any indenture, agreement or
other instrument to which the Company is a party;
- 5 -
<PAGE> 32
(iv) will not result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company;
(c)
(i) the Company has heretofore furnished the Bank
with a balance sheet of the Company as of May 28, 1989, and
the related statements of income and retained earnings for the
fiscal year then ended. Such financial statements have been
prepared in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis throughout the period
involved; the balance sheet presents fairly the financial
position of the Company as of the date thereof; the statements
of income and retained earnings and the notes thereto present
fairly the results of the operation of the Company for the
period indicated; and such balance sheet thereto shows all
known and determinable direct liabilities of the Company
contemplated as of the date thereof;
(ii) since the date of the financial statements set
forth in Section 4(c)(i) hereinabove, and since the financial
statements dated February 25, 1990, furnished to the Bank,
there has been no material adverse change in the condition,
financial or otherwise, of the Company nor have such business
or properties been adversely affected as a result of any fire,
explosion, earthquake, accident, strike, lockout combination
of workers, flood,
- 6 -
<PAGE> 33
embargo, acts of God or by cancellation or loss of any major
contract;
(d) The Company has good and marketable fee simple title (i.e.
no liens or mortgages) to all its properties;
(e) except as set forth in Exhibit A hereto, there is no
action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or agency or arbitral body now pending,
or to the knowledge of the Company, threatened by or against affecting
the Company or any properties or rights of the Company which, if
adversely determined, would impair the right of the Company to carry
on business substantially as now conducted or would materially
adversely affect the financial condition, business or operations of
the Company;
(f) the Company is not
(i) a party to any judgment, order, decree or any
agreement or instrument or subject to corporate restrictions
materially adversely affecting its business, properties or
assets, operations or condition (financial or otherwise);
(ii) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a
party;
(g) no part of the proceeds of any loan hereunder will be used
to purchase or carry or to reduce or retire any loan incurred to
purchase or carry, any "margin securities"
- 7 -
<PAGE> 34
(within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System) or to extend credit to others for the purpose
of purchasing or carrying any such margin stocks. The Company is not
engaged, as one of its important activities, in extending credit for
the purpose of purchasing or carrying such margin stock. If requested
by the Bank, the Company will furnish to the Bank in connection with
any loan hereunder, a statement in conformance with the requirements
of Federal Reserve Form U-1 referred to in said Regulation. In
addition, no part of the proceeds of any loan hereunder will be used
for the purchase of commodity future contracts (or margins therefor
for short sales) for any commodity not required for the normal raw
material inventory of the Company;
(h) the Company possesses all necessary patents, licenses,
trademarks, trademark rights, tradenames, tradename rights and
copyrights to conduct its business, without known conflict with any
patent, license, trademark, tradename or copyrights or any other
Person;
(i) none of the Loan Documents contains any misrepresentations
or untrue statement or fact or omits to state a material fact
necessary in order to make any such representation or statement
contained therein not misleading;
(j) neither the nature of the Company nor of any subsidiary
nor of its business or properties, nor any relationship between the
Company and any other Person, nor any circumstance in connection with
the offer, issue, sale or
- 8 -
<PAGE> 35
delivery of the Notes is such as to require a consent, approval or
authorization of, or filing, registration or qualification with any
governmental authority on the part of the Company as a condition in
the execution and delivery of this Agreement or the Notes; and
(k) the Company has not incurred or assumed any liability for
any accumulated unfunded deficiency within the meaning of the Employee
Retirement Income Security Act of 1974 ("ERISA") nor has it incurred
any material liability to the Pension Benefit Guaranty Corporation
("PBGC") established under such Act (or any successor thereto under
such Act) in connection with any employee benefit plan established or
maintained by the Company except as disclosed in the financial
statements described in Section 4(c)(i) above. The Company will
furnish to the Bank
(i) as soon as possible and in any event within 30
days after the Company or duly appointed administrator of a
Plan knows or has reason to know that any Reportable Event
with respect to any Plan has occurred, a statement of the
chief financial officer of the Company setting forth details
as to such Reportable Event and any action which the Company
proposes to take with respect thereto, together with a copy of
the notice of such Reportable Event given to the PBGC or a
statement that said notice will be filed with the annual
report to the United States Department of Labor with respect
to such Plan if such filing has been authorized;
- 9 -
<PAGE> 36
(ii) promptly after the filing thereof with the
United States Department of Labor, the Internal Revenue
Service or the PBGC copies of each annual report and other
reports with respect to each Plan; and
(iii) promptly after receipt thereof a copy of any
notice the Company or any member of the Controlled Group may
receive from the United States Department of Labor, the
Internal Revenue Service or the PBGC with respect to any Plan;
the terms "Plan" and "Reportable Event" are defined in Title
IV of ERISA. The term "Controlled Group" is defined in Section
1563 of the Internal Revenue Code of 1954 as amended (the
"Code").
5. Affirmative Covenants. The Company agrees that from the date
hereof and until the Bank has received final payment in full of the principal
and interest on the Notes and the Bank is no longer obligated to lend
hereunder, unless the Bank shall otherwise consent in writing, the Company
will:
(a) as soon as practical and in any event not later than
ninety (90) days after the end of each fiscal year ending after the
Closing Date, deliver to the Bank a financial report including a
balance sheet of the Company as at the end of such fiscal year, and
the notes thereto, and the related statements of income and
stockholders' equity and the notes thereto and of cash flows for such
fiscal year, setting forth in each case comparative financial
statements for the corresponding period in the preceding year, all
prepared in accordance with Generally Accepted Accounting
- 10 -
<PAGE> 37
Principles applied on a Consistent Basis and containing, with respect
to such financial reports an unqualified opinion of Deloitte & Touche
(or of other independent certified public accountants selected by the
Company and acceptable to the Bank);
(b) as soon as practical and in any event not later than
forty-five (45) days after the end of the first three fiscal quarters
deliver to the Bank a financial report including a balance sheet of
the Company as at the end of such quarterly period and the related
statements of income and cash flows for the period from the beginning
of the current fiscal year to the end of such quarterly period,
setting forth in each case comparative financial statements for the
corresponding period in the preceding year, all prepared in accordance
with Generally Accepted Accounting Principles applied on a Consistent
Basis and approved by the chief financial officer of the Company as
presenting fairly the financial condition of the Company;
(c) together with each delivery of financial reports required
by Sections 5(a) and 5(b) hereof, deliver to the Bank a statement
signed by the chief financial officer of the Company, setting forth
that, to the best of his knowledge, the Company has kept, observed,
performed, and fulfilled each and every agreement binding on it
contained in the Loan Documents and is not at the time in default in
the keeping, observance, performance, or fulfillment of any of the
terms, provisions, and conditions of any of the Loan Documents and
- 11 -
<PAGE> 38
that no event of default specified in Section 7(a) hereof, nor any
event, which, upon notice or lapse of time or both, would constitute
such an event of default, has occurred, or if such event of default
exists or would occur, as the case may be, stating the nature thereof,
the period of existence thereof, and what action the Company proposes
to take with respect thereto;
(d) promptly upon becoming available, deliver to the Bank a
copy of all financial statements, reports, notices and proxy
statements sent to stockholders;
(e) promptly, from time to time, deliver to the Bank such
other information regarding its operations, business affairs and
financial condition as the Bank may reasonably request. The Bank is
hereby authorized to deliver a copy of any such financial information
delivered hereunder to the Bank to any regulatory authority having
jurisdiction over the Bank and entitled by law to such information;
(f) together with each delivery of the financial statements
required by Section 5(a) hereof, deliver to the Bank a letter of the
Company's certified public accountants stating that in performing the
examination necessary to render an opinion on the financial statements
delivered therewith, they obtained no knowledge of any event of
default by the Company in the fulfillment of the terms and provisions
of the financial covenants contained in Sections 5 or 6 of this
Agreement; and if the accountants have obtained knowledge of such an
event of default a statement specifying,
- 12 -
<PAGE> 39
to the best of their knowledge, the nature and period of existence
thereof;
(g) maintain Net Worth at all times of not less than
$25,000,000.00, which amount shall increase by $1,000,000.00 each year
for the duration of this Agreement;
(h) maintain a Current Ratio at all times of at least 1.50 to
1.00;
(i) maintain a ratio of Total Liabilities to Net Worth at all
times of not more than 1.50 to 1.00;
(j) maintain all personal property in good working order and
condition and make all needed repairs, replacements and renewals as is
necessary to conduct the business in accordance with prudent business
practices;
(k) do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and any and
all rights, franchises, licenses, trademarks and tradenames which are
necessary in order to transact its business;
(l) comply with or contest in good faith all statutes and
governmental regulations and pay all taxes, assessments, governmental
charges, claims for labor, supplies, rent and any other obligation
which, if unpaid, might become a lien against any of its property
except liabilities being contested in good faith and against which, if
requested by the Bank, reasonable reserves satisfactory to the Bank
will be established;
- 13 -
<PAGE> 40
(m) at all times keep its insurable properties insured to such
extent and against such risks, including, without limitation, public
liability insurance, worker's compensation and other insurance
required by law, as is customary with companies of comparable size in
the same or similar business unless higher limits or other types of
coverage are reasonably required by the Bank;
(n) continue to conduct and operate its business substantially
as conducted and operated by the Company during the present and
preceding fiscal year;
(o) preserve and protect its patents, licenses trademarks,
trademark rights, tradenames, tradename rights and copyrights and
maintain all of its other properties and assets used or useful in the
conduct of its business in good repair, working order and condition
and from time to time cause to be made all proper replacements,
betterments and improvements thereto;
(p) keep true books of records and accounts in accordance with
Generally Accepted Accounting Principles applied on a Consistent
Basis, and in which full, true and correct entries will be made of all
of its dealings and transactions;
(q) permit any officer of the Bank designated in writing by
the Bank, to visit and inspect any of its properties, corporate books,
and financial records at such times as the Bank may reasonably request
upon reasonable notice and during ordinary business hours;
- 14 -
<PAGE> 41
(r) upon the written request of the Bank, authorize any
officer of the Bank to discuss its financial statements and financial
affairs at any time from time to time with the Company's independent
certified public accountants upon reasonable notice and during
ordinary business hours;
(s) deliver to the Bank forthwith, upon any officer of the
Company obtaining knowledge of an event of default under the Loan
Documents (and such officer being aware that such event was an event
of default under the Loan Documents) or an event which would
constitute such an event of default but for the requirement that
notice be given or time elapse or both, a certificate of the chief
financial officer of the Company specifying the nature and period of
existence thereof and what action the Company proposes to take with
respect thereto;
(t) notify the Bank in writing within five (5) Business Days
of the occurrence of any of the following with respect to the Company:
(i) the pendency or commencement of any material
action, suit or proceeding at law or in equity wherein the
opposing party seeks damages of more than $1,000,000.00;
(ii) any event or condition which shall constitute an
event of default under this Agreement or any other agreement
for borrowed money or any known or potential material change
in this or any other contractual agreement;
- 15 -
<PAGE> 42
(iii) any levy of an attachment, execution or other
process against its assets;
(iv) any change in any existing agreement or contract
which may materially adversely affect its business or affairs,
financial or otherwise; and
(u) maintain a Coverage Ratio at all times of at least 1.00 to
1.00 during the Company's 1991 and 1992 fiscal year, increasing to
1.25 to 1.00 during the Company's 1993 fiscal year and each year
thereafter.
6. Negative Covenants. Without the prior written consent of the
Bank, until payment in full of the Notes and until the Bank is no longer
obligated to make loans hereunder, the Company covenants that it will not:
(a) incur, create, assume, or permit to exist any mortgage,
pledge, lien, charge, or other encumbrance of any nature whatsoever on
any of its assets now or hereafter owned, other than
(i) tax liens which are being contested in good faith;
(ii) purchase money liens to secure indebtedness of
up to $1 million, provided such indebtedness is secured only
by such assets as are being purchased.
(b) acquire, consolidate, merge or combine with any Person
unless the Company is the surviving entity and immediately following
the transaction, the Company is not in violation of this Agreement;
- 16 -
<PAGE> 43
(c) sell, lease, transfer or otherwise dispose of all or a
substantial part of its properties and assets to any Person (for the
purpose of this Agreement, "substantial part" means assets having an
aggregate net book value of more than $1,000,000.00) other than in the
ordinary course of business;
(d) seek or permit dissolution or liquidation of the Company
in whole or in part;
(e) guarantee directly or indirectly the obligations of any
Person other than in the ordinary course of business;
(f) make any loans or advances to any Person except for
short-term loans to officers or employees not to exceed $100,000.00 in
the aggregate at any time;
(g) pay any dividends in any fiscal year in excess of 30% of
the net income for the prior fiscal year;
(h) discount or sell any of its notes or accounts receivable;
(i) enter into any transaction, including, without limitation,
the purchase, sale, leasing or exchange of property, real or personal,
or the rendering of any service, with any Substantial Stockholder,
officer or director, except in the ordinary course of and pursuant to
the reasonable requirements of the Company's business and upon fair
and reasonable terms no less favorable to the Company than the Company
would obtain in a comparable arm's-length transaction with a Person
not a Substantial Stockholder;
(j) create or permit to exist any subsidiaries, partnerships,
joint ventures or make any substantial investment other than as
permitted hereunder; or
- 17 -
<PAGE> 44
(k) incur non-capitalized lease or rental obligations with
terms of twelve or more months in an aggregate amount exceeding
$1,000,000.00 during any fiscal year.
7. Events of Default.
(a) The occurrence of any one or more of the following events
shall constitute an Event of Default hereunder:
(i) the Company's failure to make payment when due of
any installment of principal or interest as provided in the
Notes;
(ii) the Company's failure to comply with any other
terms and conditions in this Agreement within 25 days after
the earlier to occur of (A) written notice from the Bank; or
(B) an officer of the Company becoming aware of such
violation;
(iii) if any representation or warranty made by the
Company herein or in any certificate, statement or report
heretofore or hereafter made shall be untrue in any material
respect;
(iv) in the event that the Company
(A) shall make an assignment for the benefit
of creditors; or
(B) has a petition initiating a proceeding
under any section or chapter of the Bankruptcy Code
or its amendments, filed by or against the Company
and, if against the Company, such petition is not set
aside within forty-five (45) days after such filing;
or
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<PAGE> 45
(C) shall file any proceedings for
dissolution or liquidation; or
(D) has a receiver, trustee or custodian
appointed for all or part of its assets; or
(E) seeks to make an adjustment, settlement
or extension of its debts with its creditors
generally; or
(F) has a notice of an action for enforcement
of a lien filed or recorded or a judgment lien or
execution obtained against it in excess of an
aggregate of $100,000 which notice of lien is not
removed, or satisfied or contested in good faith
within thirty (30) days after any officer of the
Company becomes aware of such lien; or
(v) if the Company in the performance of any other
agreement between it and any other lender defaults and such
default results in acceleration of any other indebtedness of
the Company for borrowed money; or
(b) Upon the occurrence of any such event of default and
unless the Bank agrees to waive in writing such an event of default:
(i) all of the indebtedness of any and every kind
owing by the Company to the Bank or any corporate affiliate of
the Bank shall become due and payable upon written notice to
the Company without the necessity of any other demand,
presentment, protest or notice upon the Company, all of which
are hereby expressly waived by the Company;
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<PAGE> 46
(ii) the Bank shall have the right, immediately and
without further action by it, to set-off against the Notes all
money owed by the Bank in any capacity to the Company, whether
or not due, and the Bank shall be deemed to have exercised
such right of set-off and to have made a charge against any
such money immediately upon the occurrence of such event of
default even though such charge is made or entered on the
books of the Bank subsequent thereto.
8. Conditions Precedent to Loans. Prior to the Bank making the
initial Loan, the Company will cause to be delivered to the Bank the following:
(a) the favorable written opinion of Smith, Anderson, Blount,
Dorsett, Mitchell & Jernigan, counsel to the Company, dated as of the
date hereof, addressed to the Bank and satisfactory to Moore & Van
Allen, special counsel to the Bank
(i) confirming the accuracy of the representations and
warranties set forth in subsection 4(a), (b), (e) and (f)
hereof;
(ii) confirming that this Agreement and the Notes are,
or will be upon execution, valid and binding agreements
enforceable in accordance with their respective terms;
(iii) to the effect that no registration with or
consent or approval of other action by any Federal,
- 20 -
<PAGE> 47
State or other government authority or regulatory body is, or
will be, required for the execution and delivery of this
Agreement or the Notes; and
(iv) as to such other matters as the Bank may
reasonably request.
The opinion delivered pursuant to this section with
respect to the enforceability of any instrument, may be made
subject as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency and similar laws and to
moratorium laws from time to time in effect. As to matters of
fact, such opinions may be qualified to the extent of the
knowledge of such counsel based upon reasonable investigation;
(b) resolutions of the Company certified by its corporate
secretary approving and adopting the Agreement and the Notes and
authorizing the execution and delivery thereof;
(c) the executed Agreement; and
(d) the executed Notes.
9. Notice. Any notice shall be conclusively deemed to have been
received by either party hereto and be effective on the day on which delivered
to such party at the address set forth below or such other address as such
party shall specify to the other party in writing, or if sent prepaid by
certified or registered mail or by telegram or telex (where the receipt of such
message is verified by return) on the third Business Day after the day on which
mailed (or sent), addressed to such party at said address:
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<PAGE> 48
(a) if to the Company:
GoodMark Foods, Inc.
P.O. Box 18300
Raleigh, North Carolina 27619
Attention: Chief Financial Officer
With a copy to:
Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan
1300 St. Mary's Street
Raleigh, North Carolina 27605
Attention: Henry A. Mitchell, Jr., Esq.
(b) if to the Bank:
NCNB National Bank of North Carolina
One NCNB Plaza (T10-7)
Charlotte, North Carolina 28255
Attention: James L. Sigman
With a copy to:
Moore & Van Allen
One Hannover Square
Raleigh, North Carolina 27601
Attention: C. Steven Mason, Esq.
10. Miscellaneous.
(a) No failure or delay on the part of the Bank in the
exercise of any right, power or privilege hereunder or under the Notes
shall operate as a waiver of any such right, power or privilege nor
shall any such failure or delay preclude any other or further exercise
thereof. The rights and remedies herein provided are cumulative and
not exclusive of any rights or remedies provided by law.
(b) All covenants, agreements, representations, and warranties
made herein and in the other Loan Documents shall survive the making
by the Bank of the loans herein contemplated and the execution and
delivery to the Bank of the Loan Documents and shall continue in full
force and
- 22 -
<PAGE> 49
effect so long as any of the indebtedness of the Company to the Bank
or any obligations of the Company to the Bank remain outstanding and
unpaid. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors
and assigns of such party and all covenants, provisions, and
agreements by or on behalf of the Company which are contained in this
Agreement shall inure to the benefit of the successors and assigns of
the Bank.
(c) No approval, decision, opinion, or action required by the
Bank ("Approval") hereunder nor any modification, amendment or waiver
("Waiver") of any provision of this Agreement or any other Loan
Document, nor any consent to any departure by the Company therefrom
("consent") shall in any event be effective unless the same shall be
delivered in accordance with the provisions of Section 9 hereof, and
then such Approval, Waiver or Consent shall be effective only in the
specific instance and for the purpose for which given, but any such
Approval, Waiver or Consent when so signed shall be effective and
binding upon the Bank. No notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or
demand in the same, similar or other circumstances.
(d) This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be
deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such
counterpart.
- 23 -
<PAGE> 50
(e) The terms hereof shall extend to any subsequent holder of
the Notes.
(f) All documents executed pursuant to the transactions
contemplated herein, including without limitation this Agreement and
the Notes, shall be deemed to be contracts made under, and for all
purposes shall be construed in accordance with, the internal laws and
judicial decision of the State of North Carolina.
IN WITNESS WHEREOF, the Bank and the Company, by their respective duly
authorized officers, have executed this Agreement as of the day and year first
above written.
NCNB NATIONAL BANK OF NORTH CAROLINA
By /s/ J.L. Sigman
---------------------------------
Assistant Vice President
---------------------------------
GOODMARK FOODS, INC.
By: /s/ ???
---------------------------------
Title: Vice President and
Chief Financial Officer
ATTEST:
/s/ Alvin C. Blalock
--------------------------------
Secretary
(Corporate Seal)
- 24 -
<PAGE> 51
EXHIBIT A
Legal Proceedings
None, except as set forth below:
(1) As disclosed in the Borrower's Form 10-Q filed with the SEC
for the quarter ended August 28, 1988 under Part II, Item 1 "Legal
Proceedings." On October 20, 1989, Borrower filed a Motion for Summary Judgment
as to all of the Plaintiff's claims for relief as stated in the Amended
Complaint. On April 6, 1990, Borrower's Motion was argued orally before the
Honorable Milton L. Schwartz, United States District Judge for the Eastern
District of California. The District Court tentatively ruled in the Borrower's
favor as to eight of the Plaintiff's nine claims for relief, reserving its
ruling on the Motion for Summary Judgment as to one claim. Although a final
Order has not been entered, the ten (10) day period for filing objections by
Plaintiff's counsel as to the tentative Order has expired without comment. The
Court's ruling on the Plaintiff's remaining claim for relief is expected on or
before June 10, 1990.
(2) General Mills, Inc. recently requested that the Borrower pay
to General Mills the sum of $235,426.69, which is allegedly owed pursuant to
the terms of a Settlement Agreement between General Mills and the Borrower,
among others, dated September 15, 1982. The Borrower has responded that it is
not liable to General Mills under the Settlement Agreement for the amount
requested, or any amount.
At this time, there is no litigation pending in which this
claim has been asserted. If, however, this claim is eventually asserted against
the Borrower, the Borrower intends to contest the claim vigorously.
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT is entered into effective the 1st day of August, 1995
("Effective Date"), by and between GOODMARK FOODS, INC., a corporation with
offices located in Raleigh, North Carolina (the "Company"), and RON E. DOGGETT
(the "Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated August 1, 1988, a copy of which is attached hereto as Exhibit A
(the "Employment Agreement"), whereby the Employee agrees to serve as the
Company's employee and officer;
WHEREAS, the Employment Agreement has been amended from time to time by
amendments; and
WHEREAS, the Employee wishes to receive the compensation and benefits
of continued employment by the Company, and the Company wishes to receive the
continued services of Employee;
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties hereby agree to amend the Employment Agreement further as follows:
1. The Employment Agreement is amended by deleting section "2."
entitled "TERM" of the August 1, 1994 Amendment, a copy of which is attached
hereto as Exhibit B, and replacing it with a new section to read as follows:
2. TERM
The Employee's employment shall continue for a period beginning on
the Effective Date of this Agreement and ending on August 1, 2000. By
mutual agreement of the Company and the Employee, the term of this
Agreement may be extended for additional
<PAGE> 2
successive periods of mutually agreed duration as the parties shall
agree.
2. Except as herein set forth, the Employment Agreement, as amended,
is not modified or amended and the parties hereto hereby reaffirm and agree to
all the terms and provisions of the Employment Agreement, as amended, in all
other respects.
IN WITNESS WHEREOF, the parties have executed this Amendment and with
due authorization set or adopted their seals effective the 1st day of August,
1995.
GOODMARK FOODS, INC.
(Employer)
ATTEST:
Alvin C. Blalock By: /s/ P.L. Brunswick
---------------- --------------------------------
Alvin c. Blalock Title: Vice President,
Chief Financial Officer
Secretary
(Corporate Seal)
Ron E. Doggett
-------------------------(SEAL)
Ron E. Doggett
(Employee)
<PAGE> 1
EXHIBIT 13
[ QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) ]
<TABLE>
<CAPTION>
(In thousands, except per share data)
Quarter Ended
-------------------------------------------
Aug. 28, Nov. 27, Feb. 26, May 28,
Fiscal 1995 1994 1994 1995 1995 Year
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $43,407 $44,493 $41,150 $48,376 $177,426
Gross profit 17,220 17,576 15,228 17,136 67,160
Net income 2,850 3,075 1,953 1,720 9,598
Net income per share .37 .38 .24 .21 1.20
Average shares outstanding 7,716 8,023 8,042 8,054 8,018
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------
Aug. 29, Nov. 28, Feb. 27, May 29,
Fiscal 1994 1993 1993 1994 1994 Year
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $39,268 $41,154 $35,069 $44,199 $159,690
Gross profit 14,013 14,839 13,022 17,421 59,295
Income before cumulative effect of accounting change 1,674 1,816 1,234 2,390 7,114
Net income 1,463 1,816 1,234 2,390 6,903
Income per share before cumulative effect of accounting change .19 .22 .16 .31 .88
Net income per share .17 .22 .16 .31 .86
Average shares outstanding 8,676 8,084 7,702 7,712 8,044
</TABLE>
[ MARKET AND DIVIDEND INFORMATION ]
<TABLE>
<CAPTION>
Stock Price / Dividend Data
Quarter Ended
-------------------------------------------
Aug. 28, Nov. 27, Feb. 26, May 28,
Fiscal 1995 1994 1994 1995 1995 Year
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High $13 1/4 $16 1/2 $16 3/4 $16 3/4 $16 3/4
Low 9 5/8 12 3/4 13 1/4 13 3/4 9 5/8
Cash dividend declared per common share .03 .03 .03 .03 .12
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------
Aug. 29, Nov. 28, Feb. 27, May 29,
Fiscal 1994 1993 1993 1994 1994 Year
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High $8 1/2 $10 1/4 $12 1/4 $11 1/8 $12 1/4
Low 6 5/8 7 1/8 8 1/2 7 3/8 6 5/8
Cash dividend declared per common share .025 .025 .025 .025 .10
</TABLE>
The common stock of GoodMark Foods, Inc. is listed and traded on the
National Market System under the Nasdaq symbol GDMK. At May 28, 1995, the
approximate number of shareholders was 2,000.
The Company's common stock commenced trading on the Nasdaq National Market
System on November 7, 1985. On June 24, 1993, the Company's Board of Directors
approved the payment of quarterly cash dividends. On June 27, 1994, the
Company's Board of Directors approved a two-for-one stock split to be effected
in the form of a 100% stock dividend. On August 1, 1994, one additional share
of common stock was issued for every share held by shareholders of record on
July 15, 1994. On June 23, 1995, the Board also declared a regular quarterly
dividend of $.04 per share that was paid on August 1, 1995, to shareholders of
record on July 14, 1995.
[ 6 ]
<PAGE> 2
[ SELECTED FINANCIAL DATA ]
<TABLE>
<CAPTION>
Fiscal Year Ended May 28, 1995 May 29, 1994 May 30, 1993 May 31, 1992 May 26, 1991
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales (1) $177,425,669 $159,689,808 $141,221,039 $144,463,508 $139,408,322
Cost of goods sold 110,266,138 100,394,425 89,906,169 95,710,662 96,450,126
---------------------------------------------------------------------------
Gross profit 67,159,531 59,295,383 51,314,870 48,752,846 42,958,196
Selling, general and administrative
expenses 51,801,846 47,557,953 42,849,164 41,489,633 39,085,098
---------------------------------------------------------------------------
Income from operations 15,357,685 11,737,430 8,465,706 7,263,213 3,873,098
---------------------------------------------------------------------------
Other income (expense)
Interest expense, net (43,831) (70,618) (290,762) (1,232,898) (1,629,762)
Other 68,014 (277,257) (214,424) (825,145) 65,097
---------------------------------------------------------------------------
Total 24,183 (347,875) (505,186) (2,058,043) (1,564,665)
---------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 15,381,868 11,389,555 7,960,520 5,205,170 2,308,433
Income taxes 5,784,000 4,275,000 3,105,000 1,981,000 891,000
---------------------------------------------------------------------------
Income before cumulative effect of
accounting change 9,597,868 7,114,555 4,855,520 3,224,170 1,417,433
Cumulative effect of accounting change - (211,300) - - -
---------------------------------------------------------------------------
Net income $ 9,597,868 $ 6,903,255 $ 4,855,520 $ 3,224,170 $ 1,417,433
===========================================================================
Income per common share before cumulative
effect of accounting change $ 1.20 $ .88 $ .56 $ .37 $ .16
Net income per common share 1.20 .86 .56 .37 .16
===========================================================================
Average shares outstanding 8,017,768 8,043,800 8,637,916 8,607,734 8,604,266
===========================================================================
BALANCE SHEET DATA:
Working capital $ 14,581,159 $ 11,842,741 $ 13,909,831 $ 17,709,463 $ 15,005,766
Total assets 86,814,432 59,558,993 57,709,403 63,282,391 68,021,780
Long-term debt and obligations (2) 20,150,000 5,500,000 4,547,373 13,747,569 19,872,950
Stockholders' equity 46,190,491 37,394,212 38,571,693 33,460,360 30,179,207
Cash dividends declared per common share $ .12 $ .10 - - -
</TABLE>
(1) 1992 sales included $12,582 of Fleetwood Snacks sales which are
entirely excluded from 1993 sales due to the 1992 year-end decision to
sell the assets of Fleetwood Snacks.
(2) Long-term debt includes notes payable, other long-term obligations
under capital leases, and obligations under licensing agreement.
[ 7 ]
<PAGE> 3
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ]
Operations:
The following table shows the composition of our income statements as a
percentage of net sales:
<TABLE>
<CAPTION>
As a Percentage of
Net Sales for Fiscal May 28, May 29, May 30,
Years Ended 1995 1994 1993
---------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 62.1 62.9 63.7
-------------------------
Gross profit 37.9 37.1 36.3
Selling, general and
administrative expenses 29.2 29.8 30.3
-------------------------
Income from operations 8.7 7.3 6.0
Other expenses - .2 .4
-------------------------
Income before income
taxes and cumulative
effect of accounting
change 8.7 7.1 5.6
Income taxes 3.3 2.7 2.2
-------------------------
Income before
cumulative effect
of accounting
change 5.4 4.4 3.4
Cumulative effect
of accounting
change - .1 -
-------------------------
Net income 5.4% 4.3% 3.4%
-------------------------
</TABLE>
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales for the fiscal year ended May 28, 1995, increased by 11.1% over
fiscal 1994. Revenues from snack items were above last year by 13.1%. Packaged
meats revenues (which account for less than 12% of total revenues) were down
2.1% from last year.
The increase in the sales of snack items is attributable to increased
volume and favorable changes in mix. There were no price increases in snack
items. Packaged meats volume as measured in pounds decreased 5.4% from last
year. We believe this decline in our regional packaged meats business is a
reflection of the general market conditions related to the demand for processed
meats.
Gross profit margin increased to 37.9% from 37.1% last year. The
improvement in gross profit was due to increased unit volume with a more
favorable mix, productivity improvements, and lower meat costs. Notwithstanding
the favorable fiscal year gains in gross profit, approximately $2,000,000 of
unfavorable manufacturing variances were incurred in the fourth quarter due to
operating inefficiencies and excess costs related to the start-up of the
expanded production facility in Garner, North Carolina.
Selling, general and administrative expense as a percentage of sales was
29.2%, comparing favorably with last year's 29.8%. Increased selling and
marketing programs, including expanded advertising and new product
introductions, continue to drive customer sales at rates greater than spending
rates, thus improving operating margins. Income from operations as a percentage
of sales improved to 8.7% from 7.3% last year.
Interest cost of $524,000 was capitalized as part of the cost of
expanding the production facility in Garner, North Carolina. Net interest
expense decreased due to a reduction in debt unrelated to the expansion.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales for the fiscal year ended May 29, 1994, increased by 13.1% over
fiscal 1993. Revenues from snack items and packaged meats were above last year
by 15% and 1.6%, respectively.
Total physical volume for the Company as measured in pounds increased by
5.8% versus fiscal 1993. Volume of snack items in pounds was up 10.6% over
fiscal 1993. The difference in revenue growth versus pounds volume growth for
snack items is attributable solely to change in product mix. There were no
price increases in snack items. Packaged meats volume in pounds declined 3.2%
from last year due to strong margin pricing and elimination of low-volume or
low-margin products.
Gross profit margin increased to 37.1% from 36.3% last year. The
improvement in gross profit was due to unit sales growth, improved mix of
higher-margin brands, productivity improvements, and declining meat costs in
the last six months of fiscal 1994.
Selling, general and administrative expense as a percentage of sales was
29.8%, comparing favorably with last year's 30.3%. We are continuing to expand
market research, consumer marketing programs and supportive promotional
activities as a part of our long-term strategy to build our major brands. As
expected, we are experiencing a favorable leverage effect such that the
[ 8 ]
<PAGE> 4
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ]
percentage increase in revenues is exceeding the percentage increase in
spending, thus improving operating margins.
Net interest expense decreased due to lower interest rates and reduced
levels of debt.
FINANCIAL CONDITION
Cash provided by operating activities for the year ended May 28, 1995, was
$12,170,000, 13.0% higher than last year's level of cash from operating
activities of $10,774,000.
Cash and cash equivalents decreased to $386,000 from $522,000 at the end of
last year, continuing our policy to hold cash and related borrowings at a
minimum. Working capital increased to $14,581,000 from $11,843,000 a year ago.
The current ratio was 1.9, unchanged from last year.
Long-term debt and obligations have increased $14,650,000, from $5,500,000
to $20,150,000, or from 12.8% to 30.4% of capitalization since the end of last
fiscal year. The primary reason for the increased long-term debt and
obligations was to help fund the planned $28,000,000 expansion of the Garner,
North Carolina production facility.
Fiscal 1995 capital expenditures totaled a record $26,289,000 versus
$6,240,000 last year, an increase of $20,049,000. Spending on the expansion of
the Garner, North Carolina production facility was $22,496,000 in 1995. The
expansion expenditures are expected to be completed during the first quarter of
fiscal 1996. Capital expenditures will return to a more normal level in fiscal
1996. Cash from operating activities, plus amounts available under unused bank
lines of credits, are expected to be sufficient to fund planned capital
expenditures, required amortization of long-term obligations, working capital
requirements, and dividends.
INFLATION
Inflation affects GoodMark principally through higher costs for materials
and wages. Historically, we have been able to offset cost increases by more
effective purchasing, productivity improvements, and price increases. We do not
expect cost changes in these two areas to have a material effect on our net
income.
*EBITDA (Graph)
*Return On Average Equity (Graph)
*Return On Average Assets (Graph)
*Earnings before interest, income taxes, depreciation and amortization.
[ 9 ]
<PAGE> 5
[ CONSOLIDATED BALANCE SHEETS ]
<TABLE>
<CAPTION>
May 28, 1995 and May 29, 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 386,281 $ 521,530
Accounts receivable (net of allowance for doubtful accounts:
1995 - $276,558; 1994 - $238,171) 11,016,534 8,833,630
Inventories (Note 2) 13,027,639 10,605,791
Prepaid expenses (Note 8) 5,619,762 3,672,735
Notes receivable (Note 3) 9,522 153,836
Income taxes receivable 20,362 -
Deferred income taxes (Note 10) 1,175,000 1,485,000
-------------------------
Total current assets 31,255,100 25,272,522
PROPERTY AND EQUIPMENT, net (Notes 3 and 4) 52,512,223 30,671,646
OTHER ASSETS (including goodwill resulting from purchase of Acme Foods Company:
1995 - $2,005,614; 1994 - $2,370,869) (Notes 1 and 3) 3,047,109 3,614,825
-------------------------
TOTAL $86,814,432 $59,558,993
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,817,447 $ 4,396,133
Current portion of long-term debt (Note 5) - 47,373
Income taxes payable (Note 10) - 1,323,419
Accrued expenses and other liabilities (Notes 7 and 9) 7,856,494 7,662,856
-------------------------
Total current liabilities 16,673,941 13,429,781
-------------------------
LONG-TERM DEBT -
Notes payable and other long-term obligations (Note 5) 20,150,000 5,500,000
-------------------------
DEFERRED INCOME TAXES (Note 10) 3,800,000 3,235,000
-------------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 11):
Common stock 77,323 77,148
Additional paid-in capital 4,126,875 4,004,582
Retained earnings 41,989,020 33,317,921
Unearned stock award compensation (2,727) (5,439)
-------------------------
Stockholders' equity 46,190,491 37,394,212
-------------------------
TOTAL $86,814,432 $59,558,993
=========================
</TABLE>
See notes to consolidated financial statements.
[ 10 ]
<PAGE> 6
[ CONSOLIDATED STATEMENTS OF INCOME ]
<TABLE>
<CAPTION>
Years Ended May 28, 1995; May 29, 1994; and May 30, 1993 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $177,425,669 $159,689,808 $141,221,039
COST OF GOODS SOLD 110,266,138 100,394,425 89,906,169
----------------------------------------------
GROSS PROFIT 67,159,531 59,295,383 51,314,870
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes
6, 7, 8 and 9) 51,801,846 47,557,953 42,849,164
----------------------------------------------
INCOME FROM OPERATIONS 15,357,685 11,737,430 8,465,706
----------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 86,785 78,587 128,733
Interest expense (Note 5) (130,616) (149,205) (419,495)
Provision for loss on sale of Fleetwood Snacks, Inc. (Note 3) - - (444,104)
Other 68,014 (277,257) 229,680
----------------------------------------------
Total 24,183 (347,875) (505,186)
----------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 15,381,868 11,389,555 7,960,520
----------------------------------------------
INCOME TAXES (Note 10):
Currently payable 4,909,000 4,240,000 3,300,500
Deferred 875,000 35,000 (195,500)
----------------------------------------------
Total 5,784,000 4,275,000 3,105,000
----------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 9,597,868 7,114,555 4,855,520
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 1) - (211,300) -
----------------------------------------------
NET INCOME $ 9,597,868 $ 6,903,255 $ 4,855,520
==============================================
Income per common and common share equivalent before cumulative
effect of accounting change (Note 1) $ 1.20 $ .88 $ .56
==============================================
Net income per common and common share equivalent (Note 1) $ 1.20 $ .86 $ .56
==============================================
Cash dividends per common share (Note 11) $ .12 $ .10 $ -
==============================================
Average shares outstanding 8,017,764 8,043,800 8,637,916
==============================================
</TABLE>
See notes to consolidated financial statements.
[ 11 ]
<PAGE> 7
[ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ]
<TABLE>
<CAPTION>
Additional Unearned
Common Paid-in Retained Stock Award
Years Ended May 28, 1995; May 29, 1994; and May 30, 1993 Stock Capital Earnings Compensation Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1992 $43,072 $3,471,113 $29,949,909 $ (3,734) $33,460,360
Stock options exercised 237 249,988 250,225
Issuance of stock award 10 13,115 (13,125)
Amortization of stock award plan 5,588 5,588
Net income 4,855,520 4,855,520
--------------------------------------------------------------
Balance, May 30, 1993 43,319 3,734,216 34,805,429 (11,271) 38,571,693
==============================================================
Stock options exercised 254 265,084 265,338
2-for-1 stock split (Note 11) 38,574 (38,574)
Amortization of stock award plan 5,832 5,832
Repurchase of common stock (5,000) (7,557,500) (7,562,500)
Payments of dividends (794,689) (794,689)
Issuance of common stock under dividend reinvestment plan 1 5,282 5,283
Net income 6,903,255 6,903,255
--------------------------------------------------------------
Balance, May 29, 1994 77,148 4,004,582 33,317,921 (5,439) 37,394,212
==============================================================
Stock options exercised 149 86,212 86,361
Amortization of stock award plan 2,712 2,712
Payments of dividends (926,769) (926,769)
Issuance of common stock under dividend reinvestment plan 26 36,081 36,107
Net income 9,597,868 9,597,868
--------------------------------------------------------------
Balance, May 28, 1995 $77,323 $4,126,875 $41,989,020 $ (2,727) $46,190,491
==============================================================
</TABLE>
See notes to consolidated financial statements.
[ 12 ]
<PAGE> 8
[ CONSOLIDATED STATEMENTS OF CASH FLOWS ]
<TABLE>
<CAPTION>
Years Ended May 28, 1995, May 29, 1994; and May 30, 1993 1995 1994 1993
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,597,868 $ 6,903,255 $ 4,855,520
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,723,542 3,809,543 3,988,257
Provision for deferred income taxes 875,000 35,000 (195,500)
Loss (gain) on disposal of fixed assets 109,995 331,772 (100,758)
Provision for loss on sale of Fleetwood Snacks, Inc. - - 444,104
Cumulative effect of accounting change - 211,300 -
Changes in assets and liabilities:
Accounts receivable (2,182,904) (1,812,618) 187,013
Inventories (2,421,848) (616,668) (1,450,186)
Prepaid expenses (1,947,027) (180,893) (269,636)
Net assets held for sale - - 3,404,775
Notes receivable 144,314 - -
Accounts payable 4,421,314 (127,052) 386,196
Accrued expenses and other liabilities 193,638 1,148,231 689,369
Income taxes (1,343,781) 1,072,488 907,893
---------------------------------------
Net cash provided by operating activities 12,170,111 10,774,358 12,847,047
---------------------------------------
INVESTING ACTIVITIES:
Proceeds from disposal of fixed assets 208,111 26,985 129,990
Purchase of investments - (2,733,702) (2,375,000)
Proceeds from disposal of investments - 2,733,702 2,375,000
Capital expenditures (26,289,132) (6,240,287) (3,949,560)
Decrease (increase) in other assets net of amortization (22,665) 4,147 62,588
---------------------------------------
Net cash used in investing activities (26,103,686) (6,209,155) (3,756,982)
---------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 43,510,000 20,800,000 13,250,000
Principal payments on long-term debt and obligations under licensing
agreement (28,907,373) (20,050,196) (25,570,317)
Stock options exercised 86,361 265,338 250,225
Dividends paid (926,769) (794,689) -
Repurchase of common stock - (7,562,500) -
Issuance of common stock under dividend reinvestment plan 36,107 5,283 -
---------------------------------------
Net cash provided by (used in) financing activities 13,798,326 (7,336,764) (12,070,092)
---------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (135,249) (2,771,561) (2,980,027)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 521,530 3,293,091 6,273,118
---------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 386,281 $ 521,530 $ 3,293,091
=======================================
</TABLE>
See notes to consolidated financial statements.
[ 13 ]
<PAGE> 9
[ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ]
Years Ended May 28, 1995, May 29, 1994;
and May 30, 1993
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation-GoodMark Foods, Inc. (the "Company") makes consumer
food products from meat and grain. These products include meat snacks, packaged
meats and extruded snacks. They are marketed throughout the United States and
exported.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries.
Certain reclassifications have been made to prior years' financial
statements to conform to the classifications used in 1995.
Significant Accounting Policies-The significant accounting policies of the
Company are summarized below:
a. Inventories-Inventories are stated at the lower of cost, determined by
the last-in, first-out (LIFO) method, or market.
b. Property, Depreciation and Amortization-Property is carried at cost.
Depreciation is provided over the estimated useful lives of the property using
the straight-line method. Property under capital leases is recorded at the
lower of the present value of the minimum lease payments or the fair value of
the leased property at the inception of the lease. Amortization of the leased
property is computed using the straight-line method over the term of the lease.
c. Income Taxes-The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS
109), which requires a change from the deferred method, as required under the
American Institute of Certified Public Accountants Accounting Principles Board
Opinion No. 11, to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Under SFAS 109, the effect on deferred income taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. Under the deferred method, for the year 1993, deferred income
taxes were recognized using the tax rate applicable to the year of the
calculation and were not adjusted for subsequent changes in tax rates. The
Company elected to adopt SFAS 109 in 1994, and since the Company elected not to
restate prior years' financial statements, the cumulative effect on years prior
to the change in accounting principle of $211,300 was reflected as a charge to
the consolidated statement of income in 1994.
d. Pension and Other Post-retirement Benefit Costs-Pension costs are funded
as accrued. Prior service costs are amortized over the future service periods
of active employees. Other post-retirement benefit costs are accrued during the
years an employee provides services.
e. Other Policies-The Company provides a reserve for estimated sales returns
and vacation pay when earned. Unearned stock award compensation is recorded as
an expense in the period in which the restrictions lapse. Goodwill is amortized
straight-line over ten years.
f. Cash and Cash equivalents-Cash and cash equivalents include currency and
short-term, highly liquid investments that are readily convertible to cash,
having an original maturity of three months or less.
g. Customer Concentration-In fiscal 1995, 1994, and 1993, sales to WalMart
Stores, Inc. and affiliates totaled approximately $27,000,000, $20,000,000,
and $15,000,000, respectively.
h. Earnings Per Share-In fiscal 1995, earnings per common and common share
equivalent are based on the weighted-average number of common shares and common
share equivalents outstanding during the period. Common share equivalents
represent the dilutive effect of outstanding stock options. Fully diluted
earnings per share have not been presented because the differences are
insignificant. In previous periods, common share equivalents were not included
as their effect was immaterial.
2. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------
<S> <C> <C>
Raw materials $ 5,324,052 $ 3,477,184
Work in process 1,269,051 1,041,374
Finished goods 6,761,840 6,969,606
----------------------------
Total 13,354,943 11,488,164
Less LIFO reserve 327,304 882,373
----------------------------
Net inventories $13,027,639 $10,605,791
============================
</TABLE>
If the Company had used first-in, first-out (FIFO) inventory costing, net
income would increase (decrease) by ($344,000), ($.04 per share); ($351,820),
($.04 per share); and $395,035, $.05 per share for the years ended May 28,
1995, May 29, 1994 and May 30, 1993, respectively, from that which has been
reported.
3. NOTES RECEIVABLE
During February 1993, the Company sold the net assets of Fleetwood Snacks,
Inc., a subsidiary of the Company, for $3,900,000 in cash and $574,216 in notes
receivable bearing interest at 8% and 6% per year of which $150,000 matured
[ 14 ]
<PAGE> 10
[ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ]
in February 1995 and $424,216 will mature in February 2000. Estimated
provisions for loss on sale of Fleetwood Snacks of $444,104 and $1,000,737 were
recorded in 1993 and 1992, respectively.
During fiscal 1994, the Company sold an office building in exchange for a
$673,000 note receivable bearing interest at 8% and maturing January 2001. A
gain on the sale of approximately $180,000 has been deferred and is being
recognized under the installment method of accounting.
4. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------
<S> <C> <C>
Land $ 2,417,324 $ 2,417,324
Buildings 28,541,402 13,338,077
Machinery and equipment 45,557,495 32,537,767
Transportation equipment 185,410 181,883
Construction in progress 410,231 3,535,823
---------------------------
Total 77,111,862 52,010,874
Less accumulated
depreciation 24,599,639 21,339,228
---------------------------
Property and
equipment, net $52,512,223 $30,671,646
===========================
</TABLE>
5. NOTES PAYABLE AND OTHER LONG-TERM OBLIGATIONS
Notes payable and other long-term obligations consisted of:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------
<S> <C> <C>
Unsecured revolving bank
line of credit;
interest due quarterly
and varies based on
short-term interest
rates (6.58% at
May 28, 1995) $10,650,000 $4,000,000
Unsecured revolving bank
line of credit due
September 30, 1996;
interest due monthly
and varies based on
short-term interest
rates (6.56% at
May 28, 1995) 8,500,000 1,500,000
Unsecured revolving bank
line of credit due
September 30, 1996;
interest due on demand
and varies based on
short-term interest rates
(6.53% at May 28, 1995) 1,000,000 -
Other obligations - 47,373
----------------------------
Total 20,150,000 5,547,373
Less amounts due within
one year - 47,373
----------------------------
Notes payable and other
long-term obligations $20,150,000 $5,500,000
============================
</TABLE>
Unused bank lines of credit are also available in the amount of $19,850,000
at May 28, 1995.
The bank revolving credit agreements contain various covenants and
restrictions. In the event of default, the amounts owed under the agreements
become due and payable at the option of the bank. At May 28, 1995, the Company
was in compliance with the terms of the agreements.
Interest paid on the above obligations in 1995, 1994, and 1993 was
approximately $646,000, $144,000, and $408,000, respectively.
Annual maturities during the fiscal years subsequent to May 28, 1995, of the
notes payable are as follows:
<TABLE>
------------------------------------
<S> <C>
1996 $ -
1997 9,500,000
1998 -
1999 10,650,000
-----------
Total $20,150,000
===========
</TABLE>
6. LEASES
The future minimum lease payments under operating leases are summarized as
follows:
<TABLE>
<CAPTION>
Year
-------------------------------------
<S> <C>
1996 $ 214,590
1997 156,380
1998 112,723
1999 70
-----------
Total $ 483,763
===========
</TABLE>
Rental expense incurred for operating leases and leases whose terms are less
than one year in duration, during fiscal 1995, 1994, and 1993 was approximately
$1,229,000, $1,207,000, and $1,305,000, respectively. Certain operating leases
for transportation equipment contain rental clauses based on miles driven.
[ 15 ]
<PAGE> 11
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities included the following:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Reserve for sales returns $2,555,355 $2,701,035
Accrued incentives 2,040,652 2,030,000
Accrued vacation 1,526,649 1,421,988
Other 1,733,838 1,509,833
----------------------------
Total $7,856,494 $7,662,856
============================
</TABLE>
8. PENSION
The Company has defined benefit pension plans covering substantially all
of its employees who are generally eligible to participate in such plans after
no more than one year of service.
At May 28, 1995 and May 29, 1994, the plans' funded status and amounts
recognized in the consolidated balance sheets are:
<TABLE>
<CAPTION>
1995 1994
Assets Exceed Assets Exceed
Accumulated Accumulated
Benefits Benefits
-----------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit obligation $ 11,327,807 $ 9,883,625
===================================
Accumulated benefit obligation $ 11,506,489 $ 10,008,305
===================================
Projected benefit obligation $ (15,128,590) $ (13,045,353)
Plan assets at fair value 14,110,524 11,913,218
-----------------------------------
Excess of projected benefit
obligation over plan assets (1,018,066) (1,132,135)
Unrecognized net
transition obligation 639,742 731,133
Unrecognized prior
service cost 586,562 347,281
Unrecognized loss 1,966,667 822,129
-----------------------------------
Prepaid pension cost $ 2,174,905 $ 768,408
===================================
</TABLE>
Net pension cost for 1995, 1994, and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during
the period $ 666,336 $ 619,805 $ 560,910
Interest cost on the
projected benefit
obligation 965,004 974,842 791,174
Expected return on
plan assets (1,179,483) (1,203,689) (1,066,412)
Net amortization of
prior service cost 32,382 32,382 58,913
Loss (Gain) from
prior years 14,789 - (59,460)
Amount recognized
due to curtailment - - (69,681)
Net amortization of
unrecognized
transition asset 91,391 91,391 91,391
------------------------------------------
Net periodic pension
cost $ 590,419 $ 514,731 $ 306,835
==========================================
</TABLE>
The various rates assumed in the determination of the actuarial present
value of accumulated plan benefits are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.5% 7.5%
Assumed long-term rate of return 10.0% 10.0%
Rate of compensation increase 5.0% 5.0%
-----------------
</TABLE>
The Company has established an Investment and Savings Plan for its
salaried employees, who are allowed to make contributions by salary deduction
pursuant to Section 401(k) of the Internal Revenue Code. During the years ended
May 28, 1995 and May 29, 1994, the Company matched 50% of the tax-deferred
contributions up to a maximum contribution of 3% of each participant's
compensation. Participants may contribute up to a maximum of 8% of their
compensation in tax-deferred contributions and 10% in voluntary contributions.
Employees vest immediately in their contribution and vest in the Company's
contribution over a five-year period of service. The Company's contributions to
the plan for the fiscal years ended May 28, 1995, May 29, 1994, and May 30,
1993 were $ 167,791, $152,104 and $131,950, respectively.
Effective January 1, 1994, the Company established an Investment and
Savings Plan for the hourly employees at its Garner, North Carolina
manufacturing facility. The plan allows participants to make contributions by
salary deduction pursuant to Section 401(k) of the Internal Revenue Code.
During the year ended May 28, 1995, the Company contributed $13,128 to the
plan. During the year ended May 29, 1994, the Company made no contribution to
the plan. Effective January 1, 1995, the Company began matching 25% of the
tax-deferred contributions up to a maximum contribution of 3% of each
participant's compensation. Participants vest immediately in their contribution
and vest in the Company's contribution over a five-year period of service.
9. POST-RETIREMENT BENEFITS OTHER THAN PENSION BENEFITS
The Company offers health care benefits to current and future salaried
retirees. Salaried employees who retired prior to January 1, 1994 receive
benefits with no premium contribution from the retiree. Salaried employees who
retire after January 1, 1994 receive health care benefits; however, the
Company's premium contribution is based upon the employee's length of service
up to a maximum of thirty years.
On May 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other
Than Pensions," (SFAS 106), requiring recognition of post-retirement benefit
costs on an accrual basis over the active working lives of employees, rather
than on a cash basis. The unrecognized liability at the date of adoption of
SFAS 106, $1,161,346, will be amortized over 20 years.
[ 16 ]
<PAGE> 12
[ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ]
The following table reconciles the actuarial present value of the Company's
accumulated post-retirement benefit obligation (APBO) relating to health care
to the amount recorded on the consolidated balance sheet at May 28, 1995 and
May 29, 1994. There are no funded plan assets that have been designated to
provide post-retirement benefits.
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------
<S> <C> <C>
Actuarial present value of APBO:
Retirees $ 300,000 $ 464,700
Active employees
who are fully eligible 263,200 212,100
Active employees who
are not fully eligible 1,025,800 642,500
---------------------------
Total APBO 1,589,000 1,319,300
Unrecognized net loss from
changes in assumptions (203,329) (84,820)
Unrecognized transition
obligation (1,045,212) (1,103,279)
---------------------------
Accrued post-retirement
benefit cost $ 340,459 $ 131,201
===========================
</TABLE>
The following table presents the components of net periodic post-retirement
benefit cost for 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------
<S> <C> <C>
Cost of benefits earned
during the period $ 74,937 $ 43,248
Interest cost on APBO 108,314 92,908
Amortization of transition
obligation 58,067 58,067
Amortization gains and losses 6,529 -
------------------------
Net periodic post-retirement
benefit cost $247,847 $194,223
========================
</TABLE>
The post-retirement benefit cost under the cash basis for 1993 was
approximately $52,000.
The APBO at May 28, 1995, was computed using several actuarial assumptions.
The assumed discount rate was 7.5%. The health care cost trend rate was assumed
to be 10% for the first year, declining one percent for each of the next five
years, and leveling to a trend rate of 5% after the sixth year. There are no
assumptions for salary increases as benefits are not pay-related.
If the assumed health care cost trend rate factors were increased one
percentage point, the net periodic post-retirement benefit cost would increase
by $5,711, and the APBO would increase by $76,153.
10. INCOME TAXES
Income tax expense consisted of:
<TABLE>
<CAPTION>
Federal State Total
--------------------------------------------------------------------
<S> <C> <C> <C>
Year Ended
May 28, 1995:
Currently payable $4,362,200 $546,800 $4,909,000
Deferred 875,000 - 875,000
--------------------------------------
Total $5,237,200 $546,800 $5,784,000
======================================
Year Ended
May 29, 1994:
Currently payable $3,866,000 $374,000 $4,240,000
Deferred 27,000 8,000 35,000
--------------------------------------
Total $3,893,000 $382,000 $4,275,000
======================================
Year Ended
May 30, 1993:
Currently payable $2,873,000 $427,500 $3,300,500
Deferred (97,000) (98,500) (195,500)
--------------------------------------
Total $2,776,000 $329,000 $3,105,000
======================================
</TABLE>
A reconciliation of anticipated income tax expense (computed by applying the
statutory federal income tax rate of 34% to income before income taxes) to
income tax expense in the consolidated statements of income follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------------------
<S> <C> <C> <C>
Anticipated income
tax expense $5,244,785 $3,872,448 $2,706,577
Increase (decrease)
resulting from:
State income taxes,
net of federal benefit 359,832 256,931 206,472
Amortization of
goodwill 116,061 141,388 146,956
Other, net 63,322 4,233 44,995
--------------------------------------
Income tax expense $5,784,000 $4,275,000 $3,105,000
======================================
</TABLE>
The approximate tax effect on each type of temporary difference that gave
rise to the Company's deferred income tax assets and liabilities for 1995 under
SFAS 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Total
-------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Inventory reserve $ 53,580 $ - $ 53,580
Reserve for sales returns 971,035 - 971,035
Prepayments to employee
benefit plans - (910,858) (910,858)
Reserve for bad debts 105,092 - 105,092
Vacation accrual 435,095 - 435,095
Capitalization of
inventory cost 65,658 - 65,658
Package design cost 187,357 - 187,357
Other reserves
and accruals 206,171 - 206,171
Net operating loss
carryforward 59,786 - 59,786
Other 226 1,858 2,084
--------------------------------------
Total current $2,084,000 $(909,000) $1,175,000
======================================
</TABLE>
[ 17 ]
<PAGE> 13
[ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ]
<TABLE>
<CAPTION>
Assets Liabilities Total
------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent:
Property, plant and
equipment - (3,999,547) (3,999,547)
Capitalized interest 28,824 28,824
Unamortized earnout
payments 50,953 - 50,953
Unamortized royalty payment 155,167 - 155,167
Inventory writedown - (89,317) (89,317)
NOL carryforward 53,200 - 53,200
Other 720 - 720
------------------------------------------
Total noncurrent 288,864 (4,088,864) (3,800,000)
------------------------------------------
Total $2,471,259 $(5,096,259) $(2,625,000)
==========================================
</TABLE>
The approximate tax effect on each type of temporary difference that gave
rise to the Company's deferred income tax assets and liabilities for 1994 under
SFAS 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Total
------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Inventory reserve
for finished
goods and
packaging $ 68,020 $ - $ 68,020
Reserve for
sales returns 1,026,393 - 1,026,393
Prepayments to
employee benefit
plans - (713,008) (713,008)
Reserve for bad debts 90,505 - 90,505
Vacation accrual 405,267 - 405,267
Capitalization of
inventory costs 51,389 - 51,389
Package design costs 190,302 - 190,302
Other reserves
and accruals 277,575 - 277,575
Net operating loss
carryforward 83,304 - 83,304
Other 7,245 (1,992) 5,253
------------------------------------------
Total current $2,200,000 $(715,000) $1,485,000
==========================================
</TABLE>
<TABLE>
<CAPTION>
Assets Liabilities Total
------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent:
Property and
equipment $ - $(3,463,370) $(3,463,370)
Capitalized interest 32,538 - 32,538
Unamortized
earnout payments 64,253 - 64,253
Unamortized
royalty payment 167,833 - 167,833
Deferred gain on
sale of real estate - (75,536) (75,536)
Unamortized
inventory writedown _ (59,010) (59,010)
Net operating loss
carryforwards 61,359 - 61,359
General business
credit carryforwards 36,643 - 36,643
Other 2,374 (2,084) 290
------------------------------------------------------------------------
Total noncurrent 365,000 (3,600,000) (3,235,000)
------------------------------------------------------------------------
Total $2,565,000 $(4,315,000) $(1,750,000)
========================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred income tax assets will not be realized. At May 28, 1995
and May 29, 1994, no valuation allowance is necessary.
The components of the provision for deferred income taxes for the year ended
May 30, 1993, as reported under APB 11, are as follows:
<TABLE>
<CAPTION>
1993
----------------------------------------------------
<S> <C>
Prepayments to employee benefit plans $ 15,583
Inventory reserve for finished goods
and packaging 2,282
Items related to Fleetwood, Rachel's,
and Acme acquisitions, net (577,585)
Reserve for sales returns (115,674)
Property and equipment (155,473)
Obligations under licensing agreement 5,781
Reserve for bad debts 3,484
Vacation accrual (39,280)
Alternative minimum tax 272,941
Package design costs 124,555
Provision for loss on sale of
Fleetwood Snacks, Inc. 421,210
Other (153,324)
---------
Total $(195,500)
=========
</TABLE>
Income taxes paid in fiscal 1995, 1994, and 1993 were approximately
$5,699,4000, $3,250,000, and $2,835,000 respectively.
[ 18 ]
<PAGE> 14
[ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS & INDEPENDENT
AUDITORS' REPORT ]
11. Stockholders' Equity
Stockholders' equity consisted of:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------
<S> <C> <C>
Common stock shares
authorized-$.01 par value 20,000,000 20,000,000
=============================
Shares issued and outstanding 7,732,300 7,714,800
=============================
</TABLE>
On October 5, 1993, the Company purchased 1,000,000 common shares at $7.5625
per share from a director of the Company.
At May 28, 1995, the Company had stock options outstanding to certain
employees for 994,870 shares of common stock at prices ranging from $2.75 to
$9.25 per share exercisable until 1995-2003. Unexercised options are forfeited
upon termination of employment.
On June 23, 1995, the Company declared a quarterly cash dividend of $.04 per
share payable on August 1, 1995, to stockholders of record on July 14, 1995.
This rate represents a 33% increase from the previous quarterly rate of $.03
per share.
GoodMark Foods, Inc.
Board of Directors:
We have audited the accompanying consolidated balance sheets of GoodMark
Foods, Inc. and its subsidiaries as of May 28, 1995 and May 29, 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three fiscal years in the period ended May 28, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of GoodMark Foods, Inc. and its
subsidiaries at May 28, 1995 and May 29, 1994, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended May 28, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective May 31, 1993 to
conform with Statement of Financial Accounting Standards No.109.
Deloitte & Touche LLP
Raleigh, North Carolina
July 7, 1995
[ 19 ]
<PAGE> 1
EXHIBIT 21
GoodMark Foods, Inc.
Subsidiaries
Name State of Incorporation
---- ----------------------
(1) Specialty Snacks, Inc. Pennsylvania
(2) Acme Foods Company Maryland
(3) GoodMark Foreign Sales
Corporation, Inc. U.S. Virgin Islands
(4) GFI Holdings, Inc. California
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-9097, No. 33-18616 and No. 33-41947 on Forms S-8 and Registration Statement
No. 33-70090 on Form S-3 of GoodMark Foods, Inc. of our report dated July 7,
1995, appearing in and incorporated by reference in the Annual Report on Form
10-K of GoodMark Foods, Inc. for the year ended May 29, 1995.
Deloitte & Touche LLP
Raleigh, North Carolina
August 23, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL 1995
YEAR ENDED MAY 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-28-1995
<PERIOD-START> MAY-30-1994
<PERIOD-END> MAY-28-1995
<EXCHANGE-RATE> 1
<CASH> 386
<SECURITIES> 0
<RECEIVABLES> 11,017
<ALLOWANCES> 0
<INVENTORY> 5,620
<CURRENT-ASSETS> 31,255
<PP&E> 52,512
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,814
<CURRENT-LIABILITIES> 16,674
<BONDS> 20,150
<COMMON> 77
0
0
<OTHER-SE> 46,113
<TOTAL-LIABILITY-AND-EQUITY> 86,814
<SALES> 177,426
<TOTAL-REVENUES> 177,426
<CGS> 110,266
<TOTAL-COSTS> 110,266
<OTHER-EXPENSES> 68
<LOSS-PROVISION> 277
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 15,382
<INCOME-TAX> 5,784
<INCOME-CONTINUING> 9,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,598
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
