<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 26, 1996 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. [ ]
As of August 5, 1996, there were 7,601,329 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 5, 1996
held by those persons deemed by the Registrant to be nonaffiliates
was approximately $65 million.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
<TABLE>
<CAPTION>
Documents Where Incorporated
- - --------- ------------------
<S> <C>
1. Annual Report to Shareholders for year ended Part II
May 26, 1996
2. Proxy Statement for Annual Meeting of Shareholders Part III
to be held September 19, 1996
</TABLE>
<PAGE> 2
GoodMark Foods, Inc.
Form 10-K Annual Report
Index
<TABLE>
<CAPTION>
Page
<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\ 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 1996 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 1,125 persons, including 316
salaried employees and 809 hourly employees of whom 625 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)
----------------------------------
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Export sales $5,307 $5,134 $4,504
Income before taxes 522 319 (28)
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 61 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 57 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 56 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 50 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 63 Will retire effective September 1,
1996. Senior Vice President,
Operations since February 16, 1994;
Vice President Operations from 1984
to February 15, 1994; Director of
Operations from 1983 to 1984;
General Manager of Garner Plant from
1968 to 1983.
Richard E. Kennedy 51 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
- - -------- -------- --------- --------
<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 27,676 leased Corporate offices. A sale/
leaseback agreement was
executed on June 5, 1996 for
18,616 sq. ft. of office
space.
</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 1996 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 1996 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 1996 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 9, 1996 are incorporated by
reference from pages 6 - 19 of the Company's 1996 Annual Report to
Shareholders included as exhibit 13.
<TABLE>
<CAPTION>
Reference to
--------------------------
1996 Annual Form
Report Page 10K Page
----------- --------
<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 19,
1996. 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 7 through 11,
"Executive Compensation", in the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held September 19, 1996.
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 19, 1996.
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 26, 1996.
(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
(4.1) Loan Agreement dated November 21, 1995.
(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, 1996.
(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
26, 1996.
(21) Subsidiaries of the Company.
(23) Consent of independent auditors.
(27) Financial Data schedule (for SEC use only).
<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 26, 1996 and May 28, 1995, and for each of the
three fiscal years in the period ended May 26, 1996, and have issued our report
thereon dated July 9, 1996; such consolidated financial statements and report
are included in your 1996 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.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
July 9, 1996
<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 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
May 26, 1996 Allowance for
doubtful accounts $276,558 $140,000 $ 5,086 $ 97,123 $324,521
</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 23rd day of August, 1996.
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, 1996
- - ------------------------ Executive Officer
Ron E. Doggett
/s/ Alvin C. Blalock Vice President, August 23, 1996
- - ------------------------ Director of Manufacturing,
Alvin C. Blalock and Secretary
/s/ Paul L. Brunswick Vice President, August 23, 1996
- - ------------------------ Chief Financial Officer
Paul L. Brunswick
/s/ Thomas W. D'Alonzo Director August 23, 1996
- - ------------------------
Thomas W. D'Alonzo
/s/ Donald H. Grubb Director August 23, 1996
- - ------------------------
Donald H. Grubb
/s/ Eric J. Lomas Director August 23, 1996
- - ------------------------
Eric J. Lomas
/s/ Richard C. Miller President, Chief August 23, 1996
- - ------------------------ Operating Officer,
Richard C. Miller and Director
/s/ Robert B. Seidensticker Director August 23, 1996
- - ----------------------------
Robert B. Seidensticker
/s/ Rollie Tillman, Jr. Director August 23, 1996
- - ------------------------
Rollie Tillman
</TABLE>
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Form 10-K
Exhibit Sequential
Number Description of and Reference to Exhibit Page No.
------- ---------------------------------------- -----------
<S> <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 November 21, 1995. Loan agreement 32
dated January 12, 1995 filed as Exhibit 4.1 to Form 10-K
for fiscal year ended May 27, 1995. Amendment
dated February 7, 1995 to Loan Agreement dated January 7,
1994 filed as Exhibit 4.2 to Form 10-K 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 10-K for the fiscal year ended
May 29, 1994, 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, 1996 to Employment Agreement 96
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>
(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 18
year ended May 26, 1996.
(21) Subsidiaries of the Company 17
(23) Consent of independent auditors. 98
(27) Financial Data Schedule (for SEC use only).
</TABLE>
*Incorporated by reference
<PAGE> 1
EXHIBIT 4.1
LOAN AGREEMENT
THIS LOAN AGREEMENT entered into as of the 21st day of November, 1995,
by and between GOODMARK FOODS, INC., a North Carolina corporation (the
"Company"), and NationsBank, N.A., a national banking association with offices
in Charlotte, North Carolina (the "NationsBank"), Wachovia Bank of North
Carolina, N.A. , a national banking association with offices in Raleigh, North
Carolina ("Wachovia"), and First Union National Bank of North Carolina, a
national banking association with offices in Raleigh, North Carolina ("FUNB")
(NationsBank, Wachovia and FUNB are sometimes referred to herein individually
as "Bank" and collectively as "Banks").
WITNESSETH:
WHEREAS, the Company has requested that the Banks extend to the
Company Revolving Credit Facilities in the aggregate maximum principal amount
of $30,000,000 (the "Revolving Credit Facilities") and Term Loan Facilities
in the aggregate principal amount of $15,000,000 ("Term Loans").
WHEREAS, the Banks have agreed to provide the Revolving Credit
Facilities and Term Loans upon the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto agree as follows:
1
<PAGE> 2
1. 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 Raleigh,
North Carolina;
(b) "Closing Date" means the date as of which this Agreement is
executed by the Company and the Banks;
(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) "EBITDA" means the Company's earnings before deduction of
interest expense, income taxes, depreciation and amortization for the preceding
four quarters, as determined in accordance with Generally Accepted Accounting
Principles consistently applied;
(e) "Funded Debt" means the sum of (i) indebtedness for borrowed
money, (ii) capital leases, (iii) standby letters of credit, excluding those
letters of credit used to support the Company's self-insurance programs and
(iv) guaranty obligations;
(f) "Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of
2
<PAGE> 3
the Financing 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;
(g) "LIBOR" means, for any LIBOR Loan for any Interest Period
therefore, the rate per annum appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in United States
dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term "LIBOR" shall
mean, for any LIBOR Loan for any Interest Period therefore, the rate per annum
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of
all such rates. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Adjusted LIBOR" means, for any LIBOR Loan for any Interest
Period therefore, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of
3
<PAGE> 4
1%) determined by the Banks to be equal to the quotient obtained by
dividing (i) the LIBO Rate for such LIBOR Loan for such Interest
Period by
(ii) 1 minus the Reserve Requirement for such LIBOR Loan
for such Interest Period. "LIBOR Loans" means Loans that bear
interest at rates based upon Adjusted LIBOR. With respect to any
LIBOR Loan,
(A) "Interest Period" means each period
commencing on the date such Loan is made or converted from a Loan of another
type or the last day of the next preceding Interest Period with respect to such
Loan, and ending on the numerically corresponding day in the first, second,
third, or sixth calendar month thereafter, as the Company may select, except
that each such Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month. Notwithstanding the
foregoing: each Interest Period which would otherwise end on a day which is not
a Business Day shall end on the next succeeding Business Day (or, in the case
of an Interest Period for LIBOR Loans, if such succeeding Business Day falls in
the next succeeding calendar month, on the next preceding Business Day); and
any Interest Period which would otherwise extend beyond the termination date
shall end on the termination date.
4
<PAGE> 5
(B) "Reserve Requirement" means, at any time, the
maximum rate at which reserves (including any marginal, special, supplemental,
or emergency reserves) are required to be maintained under regulations issued
from time to time by the Board of Governors of the Federal Reserve System (or
any successor) by member banks of the Federal Reserve System in New York City
with deposits exceeding one billion dollars against the case of LIBOR Loans,
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks with respect to
(i) any category of liabilities which included deposits by reference to which
the Adjusted LIBOR is to be determined, or (ii) any category of extensions of
credit or other assets which include fixed rate loans. Adjusted LIBOR shall be
adjusted automatically on and as of the effective date of any change in the
Reserve Requirement.
(h) "Loan Documents" means this Agreement and the Notes;
(i) "Loans" means the Revolving Credit Facilities and the Term Loans
and "Loan" means any of the Loans evidenced by one of the Notes;
(j) "Tangible Net Worth" means, at any time, consolidated net
stockholders' equity, determined in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis less good will, patents,
5
<PAGE> 6
trademarks, tradenames, copyrights and other related intellectual property
rights;
(k) "Notes" means the Revolving Credit Facility Notes and
the Term Loan Notes;
(l) "Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government or
agency or political subdivision thereof or any other entity;
(m) "Revolving Credit Facility Notes" means the three promissory
notes of the Company, for the Revolving Credit Facilities, substantially in the
form of Exhibit A, dated as of the Closing Date payable to the order of FUNB,
NationsBank and Wachovia, respectively, each in the original principal amount
of $10,000,000, 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;
(n) "Term Loan Notes" means the three promissory notes of the
Company, for the Term Loans, substantially in the form of Exhibit B, dated as
of the Closing Date payable to the order of FUNB, NationsBank and Wachovia,
respectively, in the original principal amounts of $6,000,000, $6,000,000 and
$3,000,000, 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;
6
<PAGE> 7
(o) "Total Capitalization" means the sum of Net Worth and Funded
Debt;
1.1 All accounting terms not specifically defined herein
shall be construed in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis.
2. AMOUNT AND TERMS OF THE LOANS.
2.1 THE LOANS.
(a) Subject to the terms and conditions provided in this
Agreement and in the Term Loan Notes, the Banks each agree to make
the Term Loans to the Company on the Closing Date;
(b) Subject to the terms and conditions provided in this
Agreement and in the Revolving Credit Facility Notes, the Banks each
agree to make the Revolving Credit Facilities, and advances
thereunder, available to the Company from the Closing Date.
2.2 PURPOSE.
(a) The Company will use the proceeds of the Term Loans to
refinance existing indebtedness.
(b) The Company will use the proceeds of the Revolving
Credit Facilities for general corporate purposes, including capital
expenditures, working capital and stock repurchases.
7
<PAGE> 8
2.3 BORROWINGS.
(a) Borrowings under the Term Loans shall be made on the Closing
Date.
(b) Borrowings under the Revolving Credit Facilities may be made
from time to time, at the Company's request, from any Bank or Banks, pursuant to
the procedure set forth in Section 2.7.
2.4 INTEREST RATES.
(a) The Term Loans shall bear interest at the rate of six and
one-half percent (6.5%) per annum.
(b) Interest on borrowings under the Revolving Credit Facilities
shall be at such rates as may be agreed upon, from time to time, by the
Company and the Bank, provided, that the Company shall have the option to
borrow under the Revolving Credit Facilities at a rate not to exceed the LIBOR
rate plus the applicable margin indicated, based on the Company's Funded
Debt/EBITDA ratio in the table below:
<TABLE>
<CAPTION>
Funded Debt/
EBITDA Margin
------------ ------
<S> <C> <C> <C> <C>
< 0.75 37.5 basis points
-
< 0.75 but < = 1.50 50.0 basis points
< 1.50 but < = 2.25 75.0 basis points
< 2.25 but < = 3.00 100.0 basis points
< 3.00 but < = 3.50 125.0 basis points
</TABLE>
(c) Upon the occurrence and continuance, beyond any applicable cure
period, of an event of default, the Loans
8
<PAGE> 9
shall bear interest at the applicable rate plus two percent (2%).
2.5 FEES.
(a) For the Term Loans, the Company shall pay a one time
commitment fee to each Bank, on the Closing Date, equal to .125% of the
original principal amount of the Bank's Term Loan Note;
(b) For the Revolving Credit Facilities, the Company shall pay to
each Bank an unused commitment fee equal to .10% on the daily average unused
amount of such Bank's Revolving Credit Facility Note for each calendar quarter,
using a 360 day base. This fee will be calculated and paid (in arrears) on a
calendar quarter basis, with quarterly settlement dates of March 31, June 30,
September 30, and December 31, commencing with the quarter ending December 31,
1995.
(c) The Company will pay all reasonable fees and expenses
(including legal fees) incurred by the Banks in connection with making the
loans.
2.6 REPAYMENT.
(a) Interest on the Term Loans shall be payable monthly, in
arrears, with the principal balance and any accrued interest payable in full
five (5) years from the Closing Date;
9
<PAGE> 10
(b) Loans under the Revolving Credit Facilities may be made on a
fully revolving basis from the Closing Date. Interest shall be paid in arrears
at the end of each Interest Period, or other agreed upon due date, but no less
frequently than quarterly. The principal amount of borrowings for specified
interest rate periods may not be prepaid, but such principal amount shall be
due and payable at the end of such interest rate period. The principal balance
and any accrued interest shall be payable in full five (5) years from the
Closing Date.
(c) In the event of a prepayment of the principal of the Term
Loans, in whole or in part, such prepayment shall be accompanied by an
additional amount deemed necessary by the Bank to compensate the Bank for any
losses, costs or expenses which the Bank may incur as a result of such
prepayment. Compensation due the Bank shall be determined in accordance with
the following formula:
PREPAYMENT COMPENSATION = (A - B) x C x D
A = The sum, determined as of the funding date of the Loan, of (i)
the Bond equivalent bid side yield of the U.S. Treasury Note
with a maturity closest to the maturity of the fixed rate
period as quoted by The Wall Street Journal (or other
published source), plus (ii) the corresponding bid side
market swap spread as determined by the Bank from quotes
generally available in the interbank dealer market for
interest rate swaps.
10
<PAGE> 11
B = The sum, determined as of the prepayment date of the Loan, of
(i) the Bond equivalent bid side yield of the U. S. Treasury
Note with a maturity closest to the remaining maturity of the
fixed rate period as quoted by The Wall Street Journal (or
other published source), plus (ii) the corresponding bid side
market swap spread as determined by the Bank from quotes
generally available in the interbank dealer market for
interest rate swaps.
C = Principal Amount Prepaid.
D = Number of days from the date of prepayment to the end of the
fixed rate period divided by a year base of 360 days.
As used herein, the "fixed rate period" shall be the period during
which the applicable fixed rate is to remain in effect. In the event the
amount determined as variable B above is greater than the amount determined as
variable A above, no prepayment compensation shall be due hereunder. The
determination of prepayment compensation due the Bank hereunder shall be made
by the Bank in good faith using methodology as the Bank deems appropriate and
customary under the circumstances and shall be conclusive absent manifest
error.
No prepayment of any Bank's Term Loan may be made without a
corresponding pro-rata prepayment of the other Banks' Term Loans.
(d) All payments required by, and any payment permitted under,
this Section 2.6 shall be made in U.S. dollars, immediately available funds
and made no later
11
<PAGE> 12
than 11:00 a.m. Raleigh time, without set off, defense or
counterclaim.
2.7 BORROWING PROCEDURE. The Company shall give each Bank prior
telephonic or written notice of each borrowing under Section 2.3 (b). Not
later than 2:00 p.m. (at the principal office) on the date specified for
each borrowing hereunder, the Bank or Banks will make available the amount of
the Loan to be made by it on such date to the Company by depositing the same,
in immediately available funds, in an account of the Company (designated by the
Company) maintained with such Bank at the principal office or as otherwise
directed by the Company. Each borrowing notice shall be deemed to include the
Company's representation and warranty that (i) the representations and
warranties contained in Section 3 will be true and correct on the date of such
borrowing and, (ii) no Default or Event of Default has occurred and is
continuing, or will result from such borrowing.
2.8 COMPUTATIONS. Interest and fees payable by the Company
hereunder and under the other Loan Documents shall be computed on the basis of
a year of 360 days and the actual number of days elapsed (including the first
day but excluding the last day) occurring in the period for which payable.
2.9 INCREASED COST AND REDUCED RETURN.
(a) If on or after the date hereof, any Bank shall have
determined that the adoption of any applicable law, rule, or regulation, or any
change in any applicable law, rule, or
12
<PAGE> 13
regulation, or any change in the interpretation or administration thereof, or
compliance by any Bank with any request or directive (whether or not having the
force of law) of any such governmental authority:
(i) shall change the basis of taxation of any amounts payable to
any Bank under this Agreement or the Notes in respect of any Loans (other
than taxes imposed on the overall net income of the Banks by the
jurisdiction in which the Banks have its principal office);
(ii) shall impose or modify any reserve, special deposit, or
similar requirement (other than the Reserve Requirement utilized in the
determination of Adjusted LIBOR Rate) relating to any extensions of
credit or other assets of, or any deposits with or other liabilities or
commitments of, any Bank; or
(iii) shall impose on any Bank or on the United States market or
the London interbank market any other condition affecting this Agreement
or the Note or any of such extensions or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to any Bank of
making or maintaining any Loans or the reduce any sum received or receivable by
any Bank under this Agreement or the Notes, then the Company shall pay to such
Banks on demand such
13
<PAGE> 14
amount or amounts as will compensate such Banks for such increased cost or
reduction.
(b) If any Bank shall have determined that the adoption of
any applicable law, rule, or regulation regarding capital adequacy or any change
therein or in the interpretation or administration thereof, by any governmental
authority charged with interpretation or administration thereof, or any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such governmental authority, has or would have the effect of reducing the
rate of return on the capital of any Bank as a consequence of such Bank's
obligations hereunder to a level below that which such Bank could have achieved
but for such adoption, change, request, or directive (taking into consideration
its policies with respect to capital adequacy) by an amount deemed by such Bank
to be material, then from time to time upon demand the Company shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
reduction.
(c) A certificate of each Bank claiming compensation under this
section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of clearly demonstrable error. In
determining such amount, each Bank may use any reasonable averaging and
attribution methods.
2.10. ILLEGALITY. Notwithstanding any other provision of this
Agreement in the event that it becomes unlawful for any Bank to make, maintain,
or fund LIBOR Loans hereunder, then such Bank
14
<PAGE> 15
shall promptly notify the Company thereof and the Banks' obligations to make
or Continue LIBOR Loans shall be suspended until such time as such Bank may
again make, maintain, and fund LIBOR Loans and the Company shall, on the last
day of the Interest Period for each outstanding LIBOR Loan (or earlier, if
required by law), either prepay such Loans or convert such Loans into fixed
rate loans.
2.11. TAXES. (a) Any and all payments by the Company to or for
the account of the Banks hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any and all present or future
taxes, duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Banks, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which each Bank is organized or any political subdivision
thereof (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). If the Company shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Loan Document to the Bank,
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 2.11) each Bank receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Company
shall make such deductions,
15
<PAGE> 16
(iii) the Company shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law, and
(iv) the Company shall furnish to each Bank, at its address referred to in
Section 8, the original or a certified copy of a receipt evidencing payment
thereof.
(b) In addition, the Company agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made hereunder or under
any other Loan Document or from the execution or delivery of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").
(c) The Company agrees to indemnify the Bank for the full amount
of Taxes and Other Taxes (including, without limitation, any Taxes or Other
Taxes imposed or asserted by any jurisdiction on amounts payable under this
Section 2.11 paid by such Bank and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto.
3. 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;
16
<PAGE> 17
(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 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 Notes 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 bylaws of the
Company, or any provisions of any indenture, agreement or other instrument
to which the
17
<PAGE> 18
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;
(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, 1995, 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 is complete and correct and 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
18
<PAGE> 19
such balance sheet thereto shows all known and determinable direct
liabilities of the Company as of the date thereof;
(ii) since the date of the financial statements set forth
in Section 3 (c) (i) hereinabove, and since the financial
statements dated August 27, 1995, furnished to the Banks, 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, embargo,
acts of God or by cancellation of loss of an major contract;
(d) The Company has good and marketable fee simple title to all
its properties and such properties are free and clear of mortgages, pledges,
liens, charges, and all other encumbrances, except as disclosed in financial
statements submitted by the Company to the Banks or otherwise disclosed in
writing to the Banks.
(e) except as set forth in Schedule 3(e) 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, against or affecting the Company or any properties or
rights of the Company which, if adversely determined, would
19
<PAGE> 20
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); or
(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" (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
20
<PAGE> 21
Reserve Form U-1 referred to in Regulation U. In addition, no
part of the proceeds of any loan hereunder will be used for the
purchase of commodity future contracts (or margins therefore 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 of any other
Person;
(i) none of the Loan Documents contains any
misrepresentations or untrue statement of 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 any
subsidiary nor of its business or properties, nor any relationship
between the Company and any other Person, nor any circumstances in
connection with the offer, issue, sale or delivery of the Notes is
such as to equire a consent, approval or authorization of, or filing,
registration or qualification with any governmental authority on the
part of the Company as a condition of 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
21
<PAGE> 22
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 3(c)(i)
above. The Company will furnish to the Banks;
(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;
(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
22
<PAGE> 23
(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");
(l) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company" within the meaning of, or otherwise regulated under, the Public
Utility Holding Company Act of 1935, as amended;
(m) The Company's obligations under the Loan Documents rank at
least pari passu with its other obligations as a borrower;
(n) All tax returns required to be filed by the Company in any
jurisdiction have been filed and all taxes, assessments, fees and other
governmental charges upon the Company or upon any of its properties,
income or franchises have been paid prior to the time that such taxes
could give rise to a lien thereon.
4. Affirmative Covenants. The Company agrees that from the date
hereof and until the Banks have received final payment in full of the principal
and interest on the Notes and any other amounts
23
<PAGE> 24
due pursuant to this Agreement and the Banks are no longer obligated to lend
hereunder, unless the Banks 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 Banks 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 from 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 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 Banks);
(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 Banks 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
24
<PAGE> 25
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 4(a) and 4(b) hereof, deliver to the Banks a
statement signed by the chief financial officer of the Company setting
forth a calculation as to compliance with the financial covenants
contained in Sections 4(g), (h) and (i) and, 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 that no
such event of default specified in Section 6(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;
25
<PAGE> 26
(d) promptly upon becoming available, deliver to the Banks
a copy of all financial statements, reports' notices and proxy
statements sent to stockholders;
(e) promptly, from time to time, deliver to the Banks such
other information regarding its operations, business affairs and
financial condition as the Banks may reasonably request. The Banks are
hereby authorized to deliver a copy of any such financial information
delivered hereunder to the Banks to any regulatory authority having
jurisdiction over the Banks (or any of them) and entitled by law to
such information;
(f) together with each delivery of the financial statements
required by Section 4(a) hereof, deliver to the Banks 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 4 or 5 of this Agreement; and
if the accountants have obtained knowledge of such an event of default
a statement specifying, to the best of their knowledge, the nature and
period of existence thereof;
(g) maintain Tangible Net Worth of not less than
$40,000,000, plus fifty percent (50%) of cumulative net income
26
<PAGE> 27
(excluding 100% net losses) reported quarterly beginning with the first
quarter of the 1996 fiscal year and tested quarterly thereafter;
(h) maintain a Funded Debt to EBITDA ratio not to exceed
3.50 to 1. 00, calculated as of the end of each fiscal quarter;
(i) maintain a ratio of Funded Debt to Total Capitalization
at all times of not more than .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 Banks, reasonable reserves satisfactory to the Banks
will be established;
(m) at all times keep its insurable properties insured to
such extent and against such risks, including, without
27
<PAGE> 28
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 Banks;
(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 any 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;
28
<PAGE> 29
(r) upon the written request of any 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 Banks 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 Banks 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 in each
case and more than $5,000,000 in the aggregate;
(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
29
<PAGE> 30
material change in this or any other contractual agreement;
(iii) any levy of an attachment, execution or
other process against its assets;
(iv) any change in any existing agreement or
contract which may material adversely affect its business or
affairs, financial or otherwise.
5. NEGATIVE COVENANTS. Without the prior written consent of the
Banks, until payment in full of the Notes and until the Banks are 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 in the aggregate outstanding at any time,
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;
30
<PAGE> 31
(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
case of real property interests used for corporate offices or 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 loan transaction with any bank or
institutional lender (other than pursuant to this Agreement) which
obligates or allows the Company to borrow amounts, in the aggregate,
in excess of $1,000,000.00;
(j) create or permit to exist any subsidiaries,
partnerships, joint ventures or make any substantial
31
<PAGE> 32
investment other than as permitted hereunder or in furtherance of the
Company's snack food business; or
(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.
6. 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 10 days
after the earlier to occur of (A) written notice from any
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
32
<PAGE> 33
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
(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 $1,000,000 which notice of
lien is not removed, or satisfied or contested in
good faith within ninety (90) days after any officer
of the Company becomes are 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 is not cured within any applicable cure period; or
(vi) in the event of a change of control which
shall mean the occurrence of any one or more of the following:
33
<PAGE> 34
(A) the Company shall merge with or
into another corporation with the effect that the
Persons who were the shareholders of the Company
immediately prior to the effective time of such
merger hold less than fifty-one percent (51%) of the
combined voting power of the outstanding securities
of the surviving corporation of such merger
ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in
the election of directors; or
(B) the acquisition, whether directly
or indirectly, by any Person or "group" (as defined
in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) of more than fifty percent (50%) of
the common stock of the Company shall have occurred.
(b) Upon the occurrence of any such event of default and
unless the Banks agree to waive in writing such an event of default:
(i) the Banks shall have no further obligation
to advance funds under the Revolving Credit Facilities;
(ii) all of the indebtedness of any and every
kind owing by the Company to any Bank or a corporate affiliate
of any Bank shall become due and payable upon written notice
to the Company without the necessity of any other
34
<PAGE> 35
demand, presentment, protest or notice upon the Company, all
of which are hereby expressly waived by the Company;
(iii) any Bank shall have the right, immediately
and without further action or notice (any such notice being
expressly waived by the Company), to set-off against the Notes
all money owed by any of the Banks in any capacity to the
Company, whether or not matured, and a 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 such Bank subsequent thereto, irrespective of
whether any Bank shall have made any demand under this
Agreement or any of the Notes;
If any Bank shall, by exercising any right of set-off
or counterclaim or otherwise, receive payment of a proportion
of the aggregate amount of principal and interest due with
respect to any Note held by it which is greater than the
proportion received by any other Bank in respect of the
aggregate amount of principal and interest due with respect to
any Note held by such other Bank, then such Bank receiving
such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such
other adjustments shall be made, as may be required so that
all such payments of
35
<PAGE> 36
principal and interest with respect to the Notes held by the
Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to
exercise any right of set-off or counterclaim it may have and
to apply the amount subject to such exercise to the payment of
indebtedness of the Company other than its indebtedness under
the Notes. The Company agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a
participation in a Note acquired pursuant to the foregoing
arrangements may exercise rights of set-off or counterclaim
and other rights with respect to such participation as fully
as if such holder of a participation were a direct creditor of
the Company in the amount of such participation.
(iv) the Banks may exercise such other rights and
remedies as may be provided in the Notes or as provided under
the laws of North Carolina.
7. CONDITIONS PRECEDENT TO LOANS. Prior to the Banks making the
Loans, the Company will cause to be delivered to the Banks the following:
(a) the favorable written opinion of Smith, Anderson,
Blount, Dorsett, Mitchell & Jernigan, L.L.P., counsel to the Company,
dated as of the date hereof, addressed to the Banks:
36
<PAGE> 37
(i) confirming the accuracy of the
representations and warranties set forth in subsection 3 (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, 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 Banks may
reasonably request.
The opinion delivered pursuant to this section with
respect to the enforceability of any instrument, may be made
subject to (i) applicable bankruptcy, reorganization,
insolvency and similar laws and to moratorium laws from time
to time in effect and (ii) general principles of equity. As to
matters of fact, such opinions may be qualified to the extent
of the knowledge of such counsel based upon reasonable
investigation;
37
<PAGE> 38
(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:
(d) the executed Notes;
(e) certified copies of the Company's Articles of
Incorporation and Bylaws;
(f) Certificate of Existence for the Company and
certificate(s) of incumbency; and
(g) the Banks shall receive such other approvals,
opinions, or documents as the Banks may reasonably request.
8. NOTICE. Any notice shall be conclusively deemed to have been
received by either part 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:
(a) if to the Company:
GoodMark Foods, Inc.
6131 Falls of Neuse Road
Raleigh, North Carolina 27609
Attention: Chief Financial Officer
With a copy to:
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P.
38
<PAGE> 39
Post Office Box 2611
Raleigh, North Carolina 27602-2611
Attention: Henry A. Mitchell, Jr., Esq.
(b) if to the Banks:
First Union National Bank
of North Carolina
600 First Union Capitol Center
Raleigh, North Carolina 27601
Attention: G. Mendel Lay, Jr.
NationsBank, N.A.
100 North Tryon Street NC1-007-08-07
Charlotte, North Carolina 28255
Attention: Gregory W. Powell
Wachovia Bank of North Carolina, N.A.
Post Office Box 27886
Raleigh, North Carolina 27611-7886
Attention: Richard G. Protasewich
9. MISCELLANEOUS.
(a) No failure or delay on the part of the Banks 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 Banks of the loans herein contemplated and the
execution and delivery to the Banks of the Loan Documents and shall
continue in full force and effect so long as any of the indebtedness
of the Company to the Banks
39
<PAGE> 40
or any obligations of the Company to the Banks 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 Banks.
(c) No approval, decision, opinion, or action required by
the Banks ("Approval") hereunder nor any 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 8 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 only
upon each signing 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.
40
<PAGE> 41
(e) Each Bank covenants and agrees that it will deliver
to the Company at closing or promptly thereafter, the original
promissory note or notes, listed under each Bank's respective name on
Schedule 9(e), marked "PAID AND SATISFIED".
(f) The terms hereof shall extend to any subsequent
holder of the Notes.
(g) 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 decisions of the State of North Carolina.
(h) Expenses. The Company shall on demand pay or
reimburse each Bank for paying (a) all reasonable costs and expenses
of each Bank, including the fees and disbursements of counsel for each
Bank, in connection with the administration of the Loan Documents, the
preparation of any waiver or consent thereunder or any amendment
thereof or any Default or alleged Default and (b) if an Event of
Default occurs, all reasonable costs and expenses incurred by each
Bank, including the actual fees and disbursements of counsel in
connection with such Event of Default and collection, bankruptcy,
insolvency, and other enforcement proceedings resulting therefrom.
41
<PAGE> 42
(i) Indemnification. The Company agrees to indemnify
each Bank and each affiliate thereof and their respective officers,
directors employees, attorneys, and agents (each an "Indemnified
Person") from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages, penalties, judgments,
disbursements, costs, and expenses, including all fees and
disbursements of counsel (collectively the "Indemnified Liabilities"),
which directly or indirectly arise from or relate to any Loan Document
or any of the transactions contemplated thereby, but excluding any of
the foregoing to the extent caused by the negligence or willful
misconduct of the Indemnified Person.
(j) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not
assign or transfer any of its rights or obligations hereunder without
the prior written consent of all of the Banks. The Banks may at any
time and from time to time (a) grant participating interests in the
Loans to any Person, and (b) assign all or any portion of their
respective rights and/or obligations under the Loan Documents to any
Person; provided, that the Banks may not grant participating interests
in, or assign, their Loans to any Person (other than an affiliate of
the Bank) without the prior written consent of the Company. All
information provided by the Company to the
42
<PAGE> 43
Bank may be furnished by the Banks to their affiliates and to any
actual or proposed assignee or participant.
(k) ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
(l) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina.
(m) Any act which the Company is prohibited from doing
shall not be done through a subsidiary or by any other indirect means.
(n) All covenants, agreements, representations and
warranties made herein and the documents delivered pursuant hereto
shall survive the making by the Banks of the Loans and shall continue
in full force and effect as long as any Notes are outstanding and
unpaid.
(o) No modification, or amendment of any provision of this
Agreement shall in any event be effective unless the same shall be in
writing signed by the Company and all of the Banks.
(p) Any suit, action or proceeding against the Company
with respect to this Agreement, the Notes or any judgment entered by
any court in respect thereof, may be brought in the
43
<PAGE> 44
courts of the State of North Carolina, County of Wake, or in the
United States courts located in the State of North Carolina as any
Bank in its sole discretion may elect, and the Company hereby submits
to the non-exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding. The Company hereby further
irrevocably consents to the service of process in any suit, action, or
proceeding in said court by the mailing thereof by any Bank by
registered or certified mail, postage prepaid, to its address set
forth in Section 8 hereof. The Company hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this
Agreement or any Note brought in the courts located in the State of
North Carolina, County of Wake, and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient form.
(q) If any provision of this Agreement or any Note is
held to be illegal, invalid or unenforceable under present or future
laws during the term of this Agreement, such provision shall be fully
severable, and the remaining provisions of such document shall remain
in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance from such
document.
44
<PAGE> 45
(r) Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
45
<PAGE> 46
IN WITNESS WHEREOF, the Banks and the Company, by their respective
duly authorized officers, have executed this Agreement as of the day and year
first above written.
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ James T. Fain III
-----------------------------
Senior Vice President
-----------------------------
NATIONSBANK, N.A.
By: /s/ Jan A. Schipper
-----------------------------
Mr. Jan A. Schipper
-----------------------------
Officer
WACHOVIA BANK OF NORTH CAROLINA, N.A.
By: /s/ Richard G. Protasewich
-----------------------------
Vice President
-----------------------------
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
-----------------------------
Title: Vice President-Finance,
Chief Financial Officer and
Assistant Secretary
46
<PAGE> 47
EXHIBIT A
FORM OF REVOLVING CREDIT NOTE
$ __________________
November ___, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North Carolina
corporation, hereby unconditionally promises to pay as provided in the Loan
Agreement (defined below) to the order of [INSERT NAME OF BANK] (the "Bank"),
the lesser of (a)_________________________________________________ DOLLARS
($_______) and (b) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Bank to the undersigned pursuant to the Loan
Agreement ("Revolving Credit Loans"), in lawful money of the United States of
America and in immediately available funds. The undersigned further agrees to
pay interest in like money at such office on the unpaid principal amount hereof
from time to time outstanding at the rates per annum specified in the Loan
Agreement, until paid in full (both before and after judgment to the extent
permitted by law). The holder of this Revolving Credit Note is hereby
authorized to endorse the date, and amount of each Revolving Credit Loan made
or converted by the Bank to the undersigned, the date and amount of each
repayment of principal thereof, and, in the case of LIBOR Loans, the Interest
Period (in each case, as defined in the Loan Agreement) with respect thereto,
on the schedules annexed hereto and made a part hereof, or on a continuation
thereof which shall be attached hereto and made a part hereof, which
endorsement shall constitute prima facie evidence of the accuracy of the
information so endorsed; provided, however, that failure by any holder to make
any such recordation on such schedules or continuation thereof shall not in any
manner affect any of the obligations of the undersigned to make payments of
principal and interest in accordance with the terms of this Revolving Credit
Note and the Loan Agreement.
This Revolving Credit Note is one of the Revolving Credit Facility
Notes referred to in the Loan Agreement dated as of November ____, 1995 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement") among the undersigned, the Bank, and the other Banks parties
thereto, each of which is entitled to the benefits thereof and is subject to
optional and mandatory prepayment in whole or in part as provided therein.
Terms used herein which are defined in the Loan Agreement shall have such
defined meanings unless otherwise defined herein. The terms of the Loan
Agreement are incorporated herein by reference.
47
<PAGE> 48
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
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, actually incurred, and all other costs and expenses of
collection. Time is of the essence.
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this
Revolving Credit Note shall become, or may be declared to be, immediately due
and payable as provided therein, and the Bank shall have all other rights and
remedies as provided in the Loan Agreement.
This Revolving Credit Note shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina.
GOODMARK FOODS, INC.
By:
-----------------------
Title:
-----------------------
Date:
-----------------------
48
<PAGE> 49
EXHIBIT B
PROMISSORY NOTE
$ ________________ November ___, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North Carolina
corporation (the "Company"), hereby promises to pay to the order of (INSERT
NAME OF BANK], the ("Bank"), at its principal office, in lawful money of the
United States of America and in immediately available funds, the principal
amount of ____________ Dollars ($_________) or such lesser amount as shall
equal the aggregate unpaid principal amount of the Term Loan made by the Bank
to the Company under the Loan Agreement referred to below, on the dates and in
the principal amounts provided in the Loan Agreement, and to pay interest on
the unpaid principal amount of each such Loan, at such office, in like money
and funds for the period commencing on the date of such Loan until such Loan
shall be paid in full, at the rates per annum and on the dates provided in the
Loan Agreement.
The books and records of the Bank shall be prime facie evidence of all
amounts outstanding hereunder.
This Note is the Note referred to in the Loan Agreement of even date
herewith, between the Company and the Banks (such Loan Agreement, as the same
may be amended, modified, or supplemented from time to time, being referred to
herein as the "Loan Agreement"), and evidences the Term Loan made by the Bank
thereunder. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of certain stated
events and for prepayments of the Term Loan prior to the maturity of this Note
upon the terms and conditions specified in the Loan Agreement. Capitalized
terms used in this Note have the respective meanings assigned to them in the
Loan Agreement. The terms of the Loan Agreement are incorporated herein by
reference.
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
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, actually incurred, and all other costs and expenses of
collection. Time is of the essence.
49
<PAGE> 50
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina and the applicable laws of the United
States of America.
GOODMARK FOODS, INC.
By:
---------------------------
Title:
---------------------------
Date:
---------------------------
50
<PAGE> 51
SCHEDULE 9(e)
Promissory Notes Paid in Full at Closing
First Union National Bank of North Carolina
Promissory Note in the original amount of $15,000,000 dated
August 28, 1995 by GoodMark Foods, Inc. payable to the order of First
Union National Bank of North Carolina.
NationsBank, N.A.
Amended, Restated and Substituted Promissory Note (Revolving Credit
Note) in the original principal amount of $15,000,000 dated May 28,
1995 by GoodMark Foods, Inc. payable to the order of NationsBank of
North Carolina, N.A.
Wachovia Bank of North Carolina, N.A.
Note in the original principal amount of $10,000,000 dated January 10,
1995 by GoodMark Foods, Inc. payable to the order of Wachovia Bank of
North Carolina, N.A.
<PAGE> 52
REVOLVING CREDIT NOTE
$10,000,000 November 21, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North
Carolina corporation, hereby unconditionally promises to pay as provided in the
Loan Agreement (defined below) to the order of First Union National Bank of
North Carolina (the "Bank"), the lesser of (a) TEN MILLION DOLLARS
($10,000,000) and (b) the aggregate unpaid principal amount of all Revolving
Credit Loans made by the Bank to the undersigned pursuant to the Loan Agreement
("Revolving Credit Loans"), in lawful money of the United States of America and
in immediately available funds. The undersigned further agrees to pay interest
in like money at such office on the unpaid principal amount hereof from time
to time outstanding at the rates per annum specified in the Loan Agreement,
until paid in full (both before and after judgment to the extent permitted by
law). The holder of this Revolving Credit Note is hereby authorized to endorse
the date, and amount of each Revolving Credit Loan made or converted by the
Bank to the undersigned, the date and amount of each repayment of principal
thereof, and, in the case of LIBOR Loans, the Interest Period (in each case, as
defined in the Loan Agreement) with respect thereto, on the schedules annexed
hereto and made a part hereof, or on a continuation thereof which shall be
attached hereto and made a part hereof, which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
however, that failure by any holder to make any such recordation on such
schedules or continuation thereof shall not in any manner affect any of the
obligations of the undersigned to make payments of principal and interest in
accordance with the terms of this Revolving Credit Note and the Loan Agreement.
This Revolving Credit Note is one of the Revolving Credit Facility
Notes referred to in the Loan Agreement dated as of November 21, 1995 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement") among the undersigned, the Bank, and the other Banks parties
thereto, each of which is entitled to the benefits thereof and is subject to
optional and mandatory prepayment in whole or in part as provided therein.
Terms used herein which are defined in the Loan Agreement shall have such
defined meanings unless otherwise defined herein. The terms of the Loan
Agreement are incorporated herein by reference.
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
-1-
<PAGE> 53
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, actually incurred, and all other costs and expenses of
collection. Time is of the essence.
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this
Revolving Credit Note shall become, or may be declared to be, immediately due
and payable as provided therein, and the Bank shall have all other rights and
remedies as provided in the Loan Agreement.
This Revolving Credit Note shall be governed by and construed
and interpreted in accordance with the laws of the State of North Carolina.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
----------------------
Title: Vice President, CFO
----------------------
Date: 11/21/95
----------------------
-2-
<PAGE> 54
REVOLVING CREDIT NOTE
$10,000,000 November 21, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North Carolina
corporation, hereby unconditionally promises to pay as provided in the Loan
Agreement (defined below) to the order of NationsBank, N.A. (the "Bank"), the
lesser of (a) TEN MILLION DOLLARS ($10,000,000) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the
undersigned pursuant to the Loan Agreement ("Revolving Credit Loans"), in
lawful money of the United States of America and in immediately available
funds. The undersigned further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time outstanding at
the rates per annum specified in the Loan Agreement, until paid in full (both
before and after judgment to the extent permitted by law). The holder of this
Revolving Credit Note is hereby authorized to endorse the date, and amount of
each Revolving Credit Loan made or converted by the Bank to the undersigned,
the date and amount of each repayment of principal thereof, and, in the case of
LIBOR Loans, the Interest Period (in each case, as defined in the Loan
Agreement) with respect thereto, on the schedules annexed hereto and made a
part hereof, or on a continuation thereof which shall be attached hereto and
made a part hereof, which endorsement shall constitute prima facie evidence of
the accuracy of the information so endorsed; provided, however, that failure by
any holder to make any such recordation on such schedules or continuation
thereof shall not in any manner affect any of the obligations of the
undersigned to make payments of principal and interest in accordance with the
terms of this Revolving Credit Note and the Loan Agreement.
This Revolving Credit Note is one of the Revolving Credit Facility Notes
referred to in the Loan Agreement dated as of November 21, 1995 (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement")
among the undersigned, the Bank, and the other Banks parties thereto, each of
which is entitled to the benefits thereof and is subject to optional and
mandatory prepayment in whole or in part as provided therein. Terms used
herein which are defined in the Loan Agreement shall have such defined meanings
unless otherwise defined herein. The terms of the Loan Agreement are
incorporated herein by reference.
The undersigned hereby waives presentment for payment, demand, notice of
nonpayment or dishonor and of protest and any notice required by law relative
hereto, except to the extent as otherwise expressly provided for in the Loan
Agreement.
In the event the indebtedness evidenced hereby is collected by or through
an attorney, the holder shall be entitled to recover
-1-
<PAGE> 55
reasonable attorney's fees, actually incurred, and all other costs and expenses
of collection. Time is of the essence.
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this
Revolving Credit Note shall become, or may be declared to be, immediately due
and payable as provided therein, and the Bank shall have all other rights and
remedies as provided in the Loan Agreement.
This Revolving Credit Note shall be governed by and construed and interpreted
in accordance with the laws of the State of North Carolina.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
-----------------------
Title: Vice President CFO
-----------------------
Date: 11/21/95
-----------------------
-2-
<PAGE> 56
REVOLVING CREDIT NOTE
$10,000,000 November 21, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North
Carolina corporation, hereby unconditionally promises to pay as provided in the
Loan Agreement (defined below) to the order of Wachovia Bank of North Carolina,
N.A. (the "Bank"), the lesser of (a) TEN MILLION DOLLARS ($10,000,000) and (b)
the aggregate unpaid principal amount of all Revolving Credit Loans made by the
Bank to the undersigned pursuant to the Loan Agreement ("Revolving Credit
Loans"), in lawful money of the United States of America and in immediately
available funds. The undersigned further agrees to pay interest in like money
at such office on the unpaid principal amount hereof from time to time
outstanding at the rates per annum specified in the Loan Agreement, until paid
in full (both before and after judgment to the extent permitted by law). The
holder of this Revolving Credit Note is hereby authorized to endorse the date,
and amount of each Revolving Credit Loan made or converted by the Bank to the
undersigned, the date and amount of each repayment of principal thereof, and,
in the case of LIBOR Loans, the Interest Period (in each case, as defined in
the Loan Agreement) with respect thereto, on the schedules annexed hereto and
made a part hereof, or on a continuation thereof which shall be attached hereto
and made a part hereof, which endorsement shall constitute prima facie evidence
of the accuracy of the information so endorsed; provided, however, that
failure by any holder to make any such recordation on such schedules or
continuation thereof shall not in any manner affect any of the obligations of
the undersigned to make payments of principal and interest in accordance with
the terms of this Revolving Credit Note and the Loan Agreement.
This Revolving Credit Note is one of the Revolving Credit Facility
Notes referred to in the Loan Agreement dated as of November 21, 1995 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement") among the undersigned, the Bank, and the other Banks parties
thereto, each of which is entitled to the benefits thereof and is subject to
optional and mandatory prepayment in whole or in part as provided therein.
Terms used herein which are defined in the Loan Agreement shall have such
defined meanings unless otherwise defined herein. The terms of the Loan
Agreement are incorporated herein by reference.
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
In the event the indebtedness evidenced hereby is collected by
or through an attorney, the holder shall be entitled to recover
-1-
<PAGE> 57
reasonable attorney's fees, actually incurred, and all other costs and expenses
of collection. Time is of the essence.
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this
Revolving Credit Note shall become, or may be declared to be, immediately due
and payable as provided therein, and the Bank shall have all other rights and
remedies as provided in the Loan Agreement.
This Revolving Credit Note shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
-------------------------------
Title: Vice President CFO
-------------------------------
Date: 11/21/95
-------------------------------
-2-
<PAGE> 58
PROMISSORY NOTE
$6,000,000 November 21, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North
Carolina corporation (the "Company"), hereby promises to pay to the order of
First Union National Bank of North Carolina, the ("Bank"), at its principal
office, in lawful money of the United States of America and in immediately
available funds, the principal amount of Six Million Dollars ($6,000,000) or
such lesser amount as shall equal the aggregate unpaid principal amount of the
Term Loan made by the Bank to the Company under the Loan Agreement referred to
below, on the dates and in the principal amounts provided in the Loan
Agreement, and to pay interest on the unpaid principal amount of each such
Loan, at such office, in like money and funds for the period commencing on the
date of such Loan until such Loan shall be paid in full, at the rates per annum
and on the dates provided in the Loan Agreement.
The books and records of the Bank shall be prime facie evidence of all
amounts outstanding hereunder.
This Note is the Note referred to in the Loan Agreement of even date
herewith, between the Company and the Banks (such Loan Agreement, as the same
may be amended, modified, or supplemented from time to time, being referred to
herein as the "Loan Agreement"), and evidences the Term Loan made by the Bank
thereunder. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of certain stated
events and for prepayments of the Term Loan prior to the maturity of this Note
upon the terms and conditions specified in the Loan Agreement. Capitalized
terms used in this Note have the respective meanings assigned to them in the
Loan Agreement. The terms of the Loan Agreement are incorporated herein by
reference.
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
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, actually incurred, and all other costs and expenses of
collection. Time is of the essence.
-1-
<PAGE> 59
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina and the applicable laws of the United
States of America.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
--------------------------
Title: Vice President CFO
--------------------------
Date: 11/21/95
--------------------------
-2-
<PAGE> 60
PROMISSORY NOTE
$6,000,000 November 21, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North
Carolina corporation (the "Company"), hereby promises to pay to the order of
NationsBank, N.A., the ("Bank"), at its principal office, in lawful money of
the United States of America and in immediately available funds, the principal
amount of Six Million Dollars ($6,000,000) or such lesser amount as shall equal
the aggregate unpaid principal amount of the Term Loan made by the Bank to the
Company under the Loan Agreement referred to below, on the dates and in the
principal amounts provided in the Loan Agreement, and to pay interest on the
unpaid principal amount of each such Loan, at such office, in like money and
funds for the period commencing on the date of such Loan until such Loan shall
be paid in full, at the rates per annum and on the dates provided in the Loan
Agreement.
The books and records of the Bank shall be prime facie evidence of all
amounts outstanding hereunder.
This Note is the Note referred to in the Loan Agreement of even date
herewith, between the Company and the Banks (such Loan Agreement, as the same
may be amended, modified, or supplemented from time to time, being referred to
herein as the "Loan Agreement"), and evidences the Term Loan made by the Bank
thereunder. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of certain stated
events and for prepayments of the Term Loan prior to the maturity of this Note
upon the terms and conditions specified in the Loan Agreement. Capitalized
terms used in this Note have the respective meanings assigned to them in the
Loan Agreement. The terms of the Loan Agreement are incorporated herein by
reference.
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
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, actually incurred, and all other costs and expenses of
collection. Time is of the essence.
-1-
<PAGE> 61
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina and the applicable laws of the United
States of America.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
----------------------------
Title: Vice President CFO
----------------------------
Date: 11/21/95
----------------------------
-2-
<PAGE> 62
PROMISSORY NOTE
$3,000,000 November 21, 1995
FOR VALUE RECEIVED, the undersigned, Goodmark Foods, Inc., a North
Carolina corporation (the "Company"), hereby promises to pay to the order of
Wachovia Bank of North Carolina, N.A., the ("Bank"), at its principal office,
in lawful money of the United States of America and in immediately available
funds, the principal amount of Three Million Dollars ($3,000,000) or such
lesser amount as shall equal the aggregate unpaid principal amount of the Term
Loan made by the Bank to the Company under the Loan Agreement referred to
below, on the dates and in the principal amounts provided in the Loan
Agreement, and to pay interest on the unpaid principal amount of each such
Loan, at such office, in like money and funds for the period commencing on the
date of such Loan until such Loan shall be paid in full, at the rates per annum
and on the dates provided in the Loan Agreement.
The books and records of the Bank shall be prime facie evidence of all
amounts outstanding hereunder.
This Note is the Note referred to in the Loan Agreement of even date
herewith, between the Company and the Banks (such Loan Agreement, as the same
may be amended, modified, or supplemented from time to time, being referred to
herein as the "Loan Agreement"), and evidences the Term Loan made by the Bank
thereunder. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Note upon the happening of certain stated
events and for prepayments of the Term Loan prior to the maturity of this Note
upon the terms and conditions specified in the Loan Agreement. Capitalized
terms used in this Note have the respective meanings assigned to them in the
Loan Agreement. The terms of the Loan Agreement are incorporated herein by
reference.
The undersigned hereby waives presentment for payment, demand, notice
of nonpayment or dishonor and of protest and any notice required by law
relative hereto, except to the extent as otherwise expressly provided for in
the Loan Agreement.
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, actually incurred, and all other costs and expenses of
collection. Time is of the essence.
-1-
<PAGE> 63
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina and the applicable laws of the United
States of America.
GOODMARK FOODS, INC.
By: /s/ Paul L. Brunswick
---------------------------
Title: Vice President CFO
---------------------------
Date: 11/21/95
---------------------------
-2-
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is entered into effective the 1st day of August, 1996
("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 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, 1995 Amendment, a copy of which is attached
hereto as Exhibit B, and replacing it with a new section 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, 2001. By
mutual agreement of the Company and the Employee, the term of this
Agreement may be extended for additional 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,
1996.
GOODMARK FOODS, INC.
(Employer)
ATTEST:
/s/ Alvin C. Blalock By: /s/ Paul L. Brunswick
- - -------------------- ---------------------
Alvin C. Blalock Paul L. Brunswick
Secretary Vice President,
Chief Financial Officer
[Corporate Seal] By: /s/ 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. 27 Nov. 26, Feb. 25, May 26,
Fiscal 1996 1995 1995 1996 1996 Year
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 46,273 $ 43,538 $ 42,737 $ 45,367 $ 177,915
Gross profit 17,590 14,971 15,840 17,520 65,921
Net income 2,720 1,273 1,600 1,106 6,699
Net income per share .34 .16 .20 .14 .83
Average shares outstanding 8,095 8,152 8,085 7,885 8,055
</TABLE>
<TABLE>
<CAPTION>
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>
MARKET AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
Stock Price / Dividend Data
Quarter Ended
----------------------------------------
Aug. 27, Nov. 26, Feb. 25, May 26,
Fiscal 1996 1995 1995 1996 1996 Year
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High $ 18 1/4 $ 19 $ 18 3/4 $ 16 7/8 $ 19
Low 15 1/2 16 1/4 14 1/4 14 14
Cash dividend declared per common share .04 .04 .04 .04 .16
</TABLE>
<TABLE>
<CAPTION>
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>
The common stock of GoodMark Foods, Inc. is listed and traded on the
National Market System under the Nasdaq symbol GDMK. At May 26, 1996, 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.
6
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended May 26, 1996 May 28, 1995 May 29, 1994
- - --------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
<S> <C> <C> <C>
Net sales (1) $ 177,914,908 $ 177,425,669 $ 159,689,808
Cost of goods sold 111,993,797 110,266,138 100,394,425
------------------------------------------------------
Gross profit 65,921,111 67,159,531 59,295,383
Selling, general and administrative expenses 53,441,196 51,801,846 47,557,953
------------------------------------------------------
Income from operations 12,479,915 15,357,685 11,737,430
------------------------------------------------------
Other income (expense)
Interest expense, net (1,186,889) (43,831) (70,618)
Other (558,287) 68,014 (277,257)
------------------------------------------------------
Total (1,745,176) 24,183 (347,875)
------------------------------------------------------
Income before income taxes and cumulative effect of accounting change 10,734,739 15,381,868 11,389,555
Income taxes 4,036,000 5,784,000 4,275,000
------------------------------------------------------
Income before cumulative effect of accounting change 6,698,739 9,597,868 7,114,555
Cumulative effect of accounting change - - (211,300)
------------------------------------------------------
Net income $ 6,698,739 $ 9,597,868 $ 6,903,255
======================================================
Income per common share before cumulative effect of accounting change $ .83 $ 1.20 $ .88
======================================================
Net income per common share $ .83 $ 1.20 $ .86
======================================================
Average shares outstanding 8,054,849 8,017,768 8,043,800
======================================================
BALANCE SHEET DATA:
Working capital $ 15,348,428 $ 14,581,159 $ 11,842,741
Total assets 85,056,133 86,814,432 59,558,993
Long-term debt and obligations (2) 17,800,000 20,150,000 5,500,000
Stockholders' equity 48,808,327 46,190,491 37,394,212
Cash dividends declared per common share $ .16 $ .12 $ .10
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended May 30, 1993 May 31, 1992
- - ----------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
<S> <C> <C>
Net sales (1) $ 141,221,039 $ 144,463,508
Cost of goods sold 89,906,169 95,710,662
-------------------------------
Gross profit 51,314,870 48,752,846
Selling, general and administrative expenses 42,849,164 41,489,633
-------------------------------
Income from operations 8,465,706 7,263,213
-------------------------------
Other income (expense)
Interest expense, net (290,762) (1,232,898)
Other (214,424) (825,145)
-------------------------------
Total (505,186) (2,058,043)
-------------------------------
Income before income taxes and cumulative effect of accounting change 7,960,520 5,205,170
Income taxes 3,105,000 1,981,000
-------------------------------
Income before cumulative effect of accounting change 4,855,520 3,224,170
Cumulative effect of accounting change - -
-------------------------------
Net income $ 4,855,520 $ 3,224,170
===============================
Income per common share before cumulative effect of accounting change $ .56 $ .37
===============================
Net income per common share $ .56 $ .37
===============================
Average shares outstanding 8,637,916 8,607,734
===============================
BALANCE SHEET DATA:
Working capital $ 13,909,831 $ 17,709,463
Total assets 57,709,403 63,282,391
Long-term debt and obligations (2) 4,547,373 13,747,569
Stockholders' equity 38,571,693 33,460,360
Cash dividends declared per common share - -
</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 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>
As a Percentage of
Net Sales for Fiscal May 26, May 28, May 29,
Years Ended 1996 1995 1994
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 62.9 62.1 62.9
-----------------------
Gross profit 37.1 37.9 37.1
Selling, general and
administrative expenses 30.1 29.2 29.8
-----------------------
Income from operations 7.0 8.7 7.3
Other expenses 1.0 - .2
-----------------------
Income before income
taxes and cumulative
effect of accounting
change 6.0 8.7 7.1
Income taxes 2.2 3.3 2.7
-----------------------
Income before
cumulative effect
of accounting
change 3.8 5.4 4.4
Cumulative effect
of accounting
change - - .1
-----------------------
Net income 3.8% 5.4% 4.3%
-----------------------
</TABLE>
Fiscal 1996 Compared with Fiscal 1995
Net sales for the fiscal year ended May 26, 1996, were $177,915,000
compared with $177,426,000 in fiscal 1995. Revenues from snack items were only
1% above last year due mostly to a 28% decline in our private label volume,
along with operational problems related to our plant expansion, and the
unusually adverse winter weather conditions in our largest market area, the
eastern half of the United States. Notwithstanding these problems, our branded
snack sales were 5% over last year. Packaged meats revenues (which account for
approximately 12% of total revenues) were 2% below last year.
There were no price changes in snack items. Commensurate with lower meat
costs, we reduced packaged meats prices to remain competitive. Packaged meats
volume as measured in pounds increased 9% over last year, offsetting some of
the impact of the price reduction.
Gross profit margin decreased to 37% from 38% last year. The decline in
gross profit was due to the higher level of fixed manufacturing costs
associated with the expansion in production capacity with only a slight sales
volume increase.
Selling, general, and administrative expense as a percentage of sales was
30%, compared with last year's 29%. This unfavorable comparison was due to
increased trade spending in an effort to regain sales momentum after the
operational and weather problems referred to above.
Net interest expense compares unfavorably with last year due to an
increase in the average level of debt and last year's interest cost of $524,000
being capitalized as part of the cost of expanding the Garner, North Carolina
production facility.
The unfavorable comparison in other expense is due to a pretax charge of
$508,000 to reserve for a note receivable related to the divestiture of
Fleetwood Snacks in fiscal 1993. The company that bought Fleetwood Snacks has
filed for Chapter 11 bankruptcy protection.
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
8
<PAGE> 4
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
Financial Condition
Cash provided by operating activities for the year ended May 26, 1996, was
$13,985,000, 15% higher than last year's $12,170,000.
Cash and cash equivalents increased to $858,000 from $386,000 at the end
of last year. Working capital increased to $15,348,000 from $14,581,000 a year
ago. The current ratio was 2.1 compared with 1.9 a year ago.
Long-term debt and obligations decreased $2,350,000, from $20,150,000 to
$17,800,000, or from 30% to 27% of capitalization since the end of the last
fiscal year. These reductions were achieved with the cash provided by
operations, notwithstanding a repurchase of 250,000 shares of the Company's
stock at a total cost of $4,031,000.
Fiscal 1996 capital expenditures totaled $6,583,000 compared with a record
$26,289,000 last year, of which $22,496,000 was spent on the expansion of the
Garner, North Carolina production facility. The expansion expenditures were
completed during the first quarter of 1996, at which time capital spending
returned to a more normal level. Cash from operating activities, plus amounts
available under unused bank lines of credit, are expected to be sufficient to
fund planned capital expenditures, required amortization of long-term
obligations, working capital requirements, dividends, and authorized stock
repurchases.
Inflation
Inflation affects GoodMark principally through higher costs for materials
and wages. Historically, we have been able to offset cost increases by more
effective purchasing, productivity improvements and price increases.
Net Cash Provided by Operating Activities ($ in thousands)
[GRAPH]
1992...........$10,507
1993...........$12,847
1994...........$10,774
1995...........$12,170
1996...........$13,985
Return on Average Equity
[GRAPH]
1992...........10.1%
1993...........13.5%
1994...........18.2%
1995...........23.0%
1996...........14.1%
Return on Average Assets
[GRAPH]
1992........... 4.9%
1993........... 7.8%
1994...........11.8%
1995...........13.1%
1996........... 7.8%
9
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 26, 1996 and May 28, 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 857,529 $ 386,281
Accounts receivable (net of allowance for doubtful accounts:
1996 - $324,521; 1995 - $276,558) 9,295,951 11,016,534
Inventories (Note 2) 12,336,388 13,027,639
Prepaid expenses (Note 8) 4,843,096 5,090,600
Notes receivable (Note 3) 27,104 9,522
Income taxes receivable 662,166 549,524
Deferred income taxes (Note 10) 867,000 1,175,000
------------------------
Total current assets 28,889,234 31,255,100
PROPERTY AND EQUIPMENT, net (Note 3) 53,935,810 52,512,223
OTHER ASSETS (including goodwill resulting from purchase of Acme Foods Company:
1996 - $1,629,570; 1995 - $2,005,614 (Note 1) 2,231,089 3,047,109
------------------------
TOTAL $85,056,133 $86,814,432
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,020,780 $ 8,817,447
Accrued expenses and other liabilities (Notes 7 and 9) 7,520,026 7,856,494
------------------------
Total current liabilities 13,540,806 16,673,941
------------------------
LONG-TERM DEBT -
Notes payable and other long-term obligations (Note 5) 17,800,000 20,150,000
------------------------
DEFERRED INCOME TAXES (Note 10) 4,907,000 3,800,000
COMMITMENTS AND CONTINGENCIES (Note 6) ------------------------
STOCKHOLDERS' EQUITY (Note 11):
Common stock 75,924 77,323
Additional paid-in capital 5,313,406 4,126,875
Retained earnings 43,420,104 41,989,020
Unearned stock award compensation (1,107) (2,727)
------------------------
Stockholders' equity 48,808,327 46,190,491
------------------------
TOTAL $85,056,133 $86,814,432
========================
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended May 26, 1996; May 28, 1995; and May 29, 1994 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 177,914,908 $ 177,425,669 $ 159,689,808
COST OF GOODS SOLD 111,993,797 110,266,138 100,394,425
-------------------------------------------
GROSS PROFIT 65,921,111 67,159,531 59,295,383
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 6, 7, 8 and 9) 53,441,196 51,801,846 47,557,953
-------------------------------------------
INCOME FROM OPERATIONS 12,479,915 15,357,685 11,737,430
-------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 90,794 86,785 78,587
Interest expense (Note 5) (1,277,683) (130,616) (149,205)
Other (558,287) 68,014 (277,257)
-------------------------------------------
Total (1,745,176) 24,183 (347,875)
-------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 10,734,739 15,381,868 11,389,555
-------------------------------------------
INCOME TAXES (Note 10):
Currently payable 2,621,000 4,909,000 4,240,000
Deferred 1,415,000 875,000 35,000
-------------------------------------------
Total 4,036,000 5,784,000 4,275,000
-------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,698,739 9,597,868 7,114,555
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 1) - - (211,300)
-------------------------------------------
NET INCOME $ 6,698,739 $ 9,597,868 $ 6,903,255
===========================================
Income per common and common share equivalent before cumulative effect
of accounting change (Note 1) $ .83 $ 1.20 $ .88
===========================================
Net income per common and common share equivalent (Note 1) $ .83 $ 1.20 $ .86
===========================================
Cash dividends per common share (Note 11) $ .16 $ .12 $ .10
===========================================
Average shares outstanding 8,054,849 8,017,764 8,043,800
===========================================
</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 26, 1996; May 28, 1995 and May 29, 1994 Stock Capital Earnings Compensation Total
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
================================================================
Stock options exercised 1,064 788,186 789,250
Amortization of stock award plan 1,620 1,620
Payments of dividends (1,239,242) (1,239,242)
Issuance of common stock under dividend reinvestment plan 37 59,638 59,675
Stock repurchase (2,500) (4,028,413) (4,030,913)
Tax benefit of stock options exercised 338,707 338,707
Net income 6,698,739 6,698,739
----------------------------------------------------------------
Balance, May 26, 1996 $ 75,924 $ 5,313,406 $ 43,420,104 $ (1,107) $ 48,808,327
================================================================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 8
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended May 26, 1996; May 28, 1995 and May 29, 1994 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 6,698,739 $ 9,597,868 $ 6,903,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,637,082 4,723,542 3,809,543
Provision for deferred income taxes 1,415,000 875,000 35,000
Loss on disposal of fixed assets 13,512 109,995 331,772
Provision for loss on note receivable 486,279 - -
Cumulative effect of accounting change - - 211,300
Changes in assets and liabilities:
Accounts receivable 1,720,583 (2,182,904) (1,812,618)
Inventories 691,251 (2,421,848) (616,668)
Prepaid expenses 247,504 (1,417,865) (180,893)
Notes receivable (17,582) 144,314 -
Accounts payable (2,796,667) 4,421,314 (127,052)
Accrued expenses and other liabilities (336,468) 193,638 1,148,231
Income taxes 226,065 (1,872,943) 1,072,488
------------------------------------------
Net cash provided by operating activities 13,985,298 12,170,111 10,774,358
==========================================
INVESTING ACTIVITIES:
Proceeds from disposal of fixed assets 20,128 208,111 26,985
Purchase of investments - - (2,733,702)
Proceeds from disposal of investments - - 2,733,70
Capital expenditures (6,583,228) (26,289,132) (6,240,287)
Decrease (increase) in other assets net of amortization (179,720) (22,665) 4,147
------------------------------------------
Net cash used in investing activities (6,742,820) (26,103,686) (6,209,155)
==========================================
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 42,250,000 43,510,000 20,800,000
Principal payments on long-term debt and obligations under licensing agreement (44,600,000) (28,907,373) (20,050,196)
Stock options exercised 789,250 86,361 265,338
Dividends paid (1,239,242) (926,769) (794,689)
Repurchase of common stock (4,030,913) - (7,562,500)
Issuance of common stock under dividend reinvestment plan 59,675 36,107 5,283
------------------------------------------
Net cash provided by (used in) financing activities (6,771,230) 13,798,326 (7,336,764)
------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 471,248 (135,249) (2,771,561)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 386,281 521,530 3,293,091
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 857,529 $ 386,281 $ 521,530
==========================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 26, 1996; May 28, 1995 and
May 29, 1994
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 1996.
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-In Fiscal 1994 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS 109), which
requires a change from the deferred method 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. 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 as 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 1996, 1995, and 1994, sales to WalMart
Stores, Inc. and affiliates totaled approximately $30,000,000, $27,000,000,
and $20,000,000, respectively.
h. Earnings Per Share-In fiscal 1996 and 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 1994, common share equivalents were not included as their
effect was immaterial.
i. Use of Estimates-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. Inventories
<TABLE>
<CAPTION>
Inventories consisted of:
1996 1995
- - -------------------------------------------------
<S> <C> <C>
Raw materials $ 4,861,904 $ 5,324,052
Work in process 798,694 1,269,051
Finished goods 6,884,654 6,761,840
---------------------------
Total 12,545,252 13,354,943
Less LIFO reserve 208,864 327,304
---------------------------
Net inventories $ 12,336,388 $ 13,027,639
===========================
</TABLE>
If the Company had used first-in, first-out (FIFO) inventory
costing, net income would decrease by $74,000, $.01 per share; $344,000, $.04
per share; and $351,820, $.04 per share for the years ended May 26, 1996, May
28, 1995, and May 29, 1994, respectively, from that which has been reported.
14
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Notes Receivable
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
<TABLE>
<CAPTION>
Property and equipment balances are summarized as follows:
1996 1995
- - ----------------------------------------------------------
<S> <C> <C>
Land $ 2,402,140 $ 2,402,140
Land improvements 536,961 536,961
Buildings 25,557,549 25,068,709
Machinery and equipment 52,205,973 48,508,411
Transportation equipment 230,561 185,410
Construction in progress 2,212,825 410,231
----------------------------
Total 83,146,009 77,111,862
Less accumulated depreciation 29,210,199 24,599,639
----------------------------
Property and
equipment, net $53,935,810 $52,512,223
============================
</TABLE>
5. Notes Payable and Other Long-Term Obligations
<TABLE>
<CAPTION>
Notes payable and other long-term obligations consisted of:
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Unsecured revolving bank
lines of credit due
November 21, 2000;
interest due quarterly
at varied rates based on
LIBOR (5.795% to
6.06% at May 26, 1996) $ 2,800,000 $ -
Term notes due
November 21, 2000;
interest due monthly
at an annual rate of 6.5% 15,000,000 -
Unsecured revolving bank
lines of credit, repaid
during 1996 - 20,150,000
---------------------------------
Notes payable and other
long-term obligations $17,800,000 $20,150,000
=================================
</TABLE>
Unused bank lines of credit are also available in the amount of
$27,200,000 at May 26, 1996.
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 26, 1996, the Company
was in compliance with the terms of the agreements.
Interest paid on the above obligations in 1996, 1995, and 1994 was
approximately $1,274,000, $646,000, and $144,000, respectively.
Annual maturities during the fiscal years subsequent to May 26, 1996, of
the notes payable and other long-term obligations are as follows:
<TABLE>
<S> <C>
1997 $ -
1998 -
1999 -
2000 -
2001 17,800,000
-----------
Total $17,800,000
===========
</TABLE>
6. Leases
The future minimum lease payments under operating leases are summarized as
follows:
<TABLE>
<CAPTION>
Year
- - ----------------------------------------------------
<S> <C>
1997 $791,290
1998 571,620
1999 492,533
2000 502,497
2001 518,730
</TABLE>
Rental expense incurred for operating leases and leases whose terms are
less than one year in duration, during fiscal 1996, 1995, and 1994 was
approximately $1,415,000, $1,229,000, and $1,207,000, 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>
1996 1995
- - ----------------------------------------------------------------
<S> <C> <C>
Reserve for sales returns $2,095,994 $2,555,355
Accrued incentives 483,500 2,040,652
Accrued vacation 1,705,601 1,526,649
Other 3,234,931 1,733,838
---------- ----------
Total $7,520,026 $7,856,494
========== ==========
</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 26, 1996 and May 28, 1995, the plans' funded status and amounts
recognized in the consolidated balance sheets are:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit obligation $ 11,866,060 $ 11,327,807
================================
Accumulated benefit obligation $ 12,040,497 $ 11,506,489
================================
Projected benefit obligation $(15,449,955) $(15,128,590)
Plan assets at fair value 16,896,516 14,110,524
--------------------------------
Excess (deficiency) of assets
over projected obligation 1,446,561 (1,018,066)
Unrecognized net
transition obligation 548,351 639,742
Unrecognized prior
service cost 705,694 586,562
Unrecognized (gain) loss (867,072) 1,966,667
--------------------------------
Prepaid pension cost $ 1,833,534 $ 2,174,905
================================
</TABLE>
<TABLE>
<CAPTION>
Net pension cost for 1996, 1995, and 1994 included the
following components:
1996 1995 1994
- - --------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during
the period $ 790,620 $ 666,336 $ 619,805
Interest cost on the
projected benefit
obligation 1,120,203 965,004 974,842
Expected return on
plan assets (1,371,418) (1,179,483) (1,203,689)
Net amortization of
prior service cost 53,292 32,382 32,382
Loss (Gain) from
prior years 37,979 14,789 -
Net amortization of
unrecognized
transition asset 91,391 91,391 91,391
-------------------------------------------
Net periodic pension
cost $ 722,067 $ 590,419 $ 514,731
===========================================
</TABLE>
The various rates assumed in the determination of the actuarial present
value of accumulated plan benefits are as follows:
<TABLE>
<CAPTION>
1996 1995
- - --------------------------------------------------------------
<S> <C> <C>
Discount rate 8.0% 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 year ended
May 28, 1995, the Company matched 50% of the tax-deferred contributions up to a
maximum contribution of 3% of each participant's compensation. Effective
January 1, 1996, the Company began matching 50% of the tax deferred
contributions up to a maximum of 4% of each participant's income. 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 26, 1996, May 28, 1995, and May 29, 1994 were $195,858, $167,791 and
$152,104, 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.
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. During the years
ended May 26, 1996 and May 28, 1995, the Company contributed $28,383 and
$13,128, respectively, to the plan. During the year ended May 29, 1994, the
Company made no contribution to the plan.
Effective January 1, 1996, the Company established an Investment and
Savings Plan for the hourly employees at its Folcroft, Pennsylvania
manufacturing facility. The plan allows participants to make contributions by
salary deduction pursuant to section 401(k) of the Internal Revenue Code.
Participants vest immediately in their contribution. There were no company
contributions to the plan for the year ended May 26, 1996.
16
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 26,
1996 and May 28, 1995. There are no funded plan assets that have been
designated to provide post-retirement benefits.
<TABLE>
<CAPTION>
1996 1995
- - --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of APBO:
Retirees $ 364,000 $ 300,000
Active employees
who are fully eligible 485,000 263,200
Active employees who
are not fully eligible 1,041,000 1,025,800
---------------------------------------
Total APBO 1,890,000 1,589,000
Unrecognized net loss from
changes in assumptions (308,760) (203,329)
Unrecognized transition
obligation (987,145) (1,045,212)
---------------------------------------
Accrued post-retirement
benefit cost $ 594,095 $ 340,459
=======================================
</TABLE>
The following table presents the components of net periodic post-retirement
benefit cost for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- - --------------------------------------------------------------------------------------
<S> <C> <C>
Cost of benefits earned
during the period $ 85,053 $ 74,937
Interest cost on APBO 138,867 108,314
Amortization of transition
obligation 58,067 58,067
Amortization gains and losses 28,073 6,529
-------------------------------------
Net periodic post-retirement
benefit cost $310,060 $247,847
=====================================
</TABLE>
The APBO at May 26, 1996, was computed using several actuarial
assumptions. The assumed discount rate was 8.0%. 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 $5,445, and the APBO would increase by $72,600.
10. Income Taxes
<TABLE>
<CAPTION>
Income tax expense consisted of:
Federal State Total
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Year Ended
May 26, 1996:
Currently payable $2,510,000 $ 111,000 $ 2,621,000
Deferred 1,274,000 141,000 1,415,000
---------------------------------------
Total $3,784,000 $ 252,000 $ 4,036,000
=======================================
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
=======================================
</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>
1996 1995 1994
- - --------------------------------------------------------------------
<S> <C> <C> <C>
Anticipated income
tax expense $3,649,811 $5,244,785 $ 3,872,448
Increase (decrease)
resulting from:
State income taxes,
net of federal benefit 166,320 359,832 256,931
Amortization of
goodwill 119,732 116,061 141,388
Other, net 100,137 63,322 4,233
-------------------------------------
Income tax expense $4,036,000 $5,784,000 $ 4,275,000
=====================================
</TABLE>
17
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The approximate tax effect on each type of temporary difference that gave
rise to the Company's deferred income tax assets and liabilities for 1996 under
SFAS 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Total
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Inventory reserve
for finished
goods and
packaging $ 34,846 $ - $ 34,846
Reserve for
sales returns 796,478 - 796,478
Prepayments to
employee benefit
plans - (1,095,639) (1,095,639)
Reserve for bad debts 123,318 - 123,318
Vacation accrual 504,048 - 504,048
Capitalization of
inventory costs 65,658 - 65,658
Package design costs 187,357 - 187,357
Other reserves
and accruals 250,579 - 250,579
Other 716 (361) 355
----------------------------------------------
Total current $1,963,000 $(1,096,000) $ 867,000
==============================================
</TABLE>
<TABLE>
<CAPTION>
Assets Liabilities Total
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent:
Property and
equipment $ - $(5,088,004) $(5,088,004)
Capitalized interest 26,117 - 26,117
Unamortized
earnout payments 37,653 - 37,653
Unamortized
royalty payment 142,500 - 142,500
Deferred gain on
sale of real estate - (74,027) (74,027)
Unamortized
inventory writedown - (39,341) (39,341)
Deffered compensation 53,200 - 53,200
General business
credit carryforwards 36,643 - 36,643
Other 887 (2,628) (1,741)
----------------------------------------------
Total noncurrent 297,000 (5,204,000) (4,907,000)
----------------------------------------------
Total $2,260,000 $(6,300,000) $(4,040,000)
==============================================
</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
----------------------------------------------
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 $2,372,864 $(4,997,864) $(2,625,000)
==============================================
</TABLE>
18
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS & INDEPENDENT AUDITORS REPORT
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 26,
1996 and May 28, 1995, no valuation allowance is necessary.
Income taxes paid in fiscal 1996, 1995, and 1994 were approximately
$2,562,900, $5,699,400, and $3,250,000, respectively.
11. Stockholders' Equity
Stockholders' equity consisted of:
<TABLE>
<CAPTION>
1996 1995
- - ----------------------------------------------------------------------
<S> <C> <C>
Common stock shares
authorized-$.01 par value 20,000,000 20,000,000
==============================
Shares issued and outstanding 7,592,400 7,732,300
==============================
</TABLE>
At May 26, 1996, the Company had stock options outstanding to certain
employees for 951,295 shares of common stock at prices ranging from $4.75 to
$18.25 per share exercisable until 1996-2003. Unexercised options are forfeited
upon termination of employment.
The number of shares exercised under stock options in fiscal 1996, 1995
and 1994, and the respective average price, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - --------------------------------------------------------
<S> <C> <C> <C>
Number of shares
exercised 106,400 14,920 50,830
Average price per share $7.42 $5.79 $5.22
</TABLE>
On June 17, 1996, the Company declared a quarterly cash dividend of $.05
per share payable on August 1, 1996, to stockholders of record on July 15,
1996. This rate represents a 25% increase from the previous quarterly rate of
$.04 per share.
On June 27, 1994, the Board of Directors voted a 2-for-1 stock split to
be effected in the form of a 100% stock dividend to be distributed August 1,
1994 to stockholders of record on July 15, 1994. Accordingly, all amounts per
share and number of shares and options for all periods included in the
consolidated financial statements and notes to the financial statements have
been retroactively adjusted to reflect the stock split.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning May 27, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings 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 26, 1996 and May 28, 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three fiscal years in the period ended May 26, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of GoodMark Foods, Inc. and its
subsidiaries at May 26, 1996 and May 28, 1995, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended May 26, 1996 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.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
July 9, 1996
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 9,
1996, appearing in and incorporated by reference in the Annual Report on Form
10-K of GoodMark Foods, Inc. for the year ended May 26, 1996.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
August 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL 1996
YEAR ENDED MAY 26, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-26-1996
<PERIOD-START> MAY-29-1995
<PERIOD-END> MAY-26-1996
<CASH> 858
<SECURITIES> 0
<RECEIVABLES> 9,296
<ALLOWANCES> 0
<INVENTORY> 12,336
<CURRENT-ASSETS> 28,889
<PP&E> 53,936
<DEPRECIATION> 0
<TOTAL-ASSETS> 85,056
<CURRENT-LIABILITIES> 13,541
<BONDS> 17,800
76
0
<COMMON> 0
<OTHER-SE> 48,732
<TOTAL-LIABILITY-AND-EQUITY> 85,056
<SALES> 177,915
<TOTAL-REVENUES> 177,915
<CGS> 111,994
<TOTAL-COSTS> 111,994
<OTHER-EXPENSES> 558
<LOSS-PROVISION> 325
<INTEREST-EXPENSE> 1,278
<INCOME-PRETAX> 10,735
<INCOME-TAX> 4,036
<INCOME-CONTINUING> 6,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,699
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>