<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________to_______________
Commission file number
1-9050
HUDSON FOODS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 71-0427616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1225 Hudson Road, Rogers, Arkansas 72756
(Address of principal executive offices) (Zip Code)
(501) 636-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 22, 1996 Hudson Foods, Inc. had 20,491,963 shares of $0.01 par
value Class A Common Stock outstanding and 9,602,672 shares of $0.01 par value
Class B Common Stock outstanding.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 30, September 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,041 $ 2,159
Receivables, net 98,105 81,078
Inventory:
Field inventory 54,656 45,103
Feed, eggs and other 33,899 30,441
Finished products 135,022 101,511
Other 32,893 36,313
----------- -------------
Total current assets 371,616 296,605
----------- -------------
Property, plant and equipment, net of
accumulated depreciation of
$141,601 and $137,579 324,882 275,624
Excess cost of investment, net 14,400 14,682
Other assets 22,107 36,630
----------- -------------
Total assets $733,005 $623,541
=========== =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 30, September 30,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 12,300
Current portion of long-term obligations 9,511 8,742
Accounts payable 41,921 47,676
Accrued liabilities 46,477 44,590
Deferred income taxes 4,020 2,839
----------- -------------
Total current liabilities 101,929 116,147
----------- -------------
Long-term obligations 245,096 129,973
----------- -------------
Deferred income taxes and deferred gain 71,130 73,072
----------- -------------
Stockholders' equity:
Common stock:
Class A, $.01 par value; 40,000,000
shares authorized; issued 21,362,814
and 21,331,374 shares 213 213
Class B, $.01 par value; 40,000,000
shares authorized; issued and outstanding
9,602,672 shares 96 96
Additional capital 159,213 158,842
Retained earnings 166,175 156,432
Treasury stock, at cost (876,251 and
915,438 Class A shares) (10,847) (11,234)
----------- -------------
Total stockholders' equity 314,850 304,349
----------- -------------
Total liabilities and stockholders' equity $733,005 $623,541
=========== =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $330,297 $271,814 $670,971 $551,769
Cost of sales 293,369 227,520 587,126 465,722
---------- ---------- ---------- ----------
Gross profit 36,928 44,294 83,845 86,047
Selling 24,134 19,150 47,791 38,198
General and administrative 8,208 7,402 15,329 14,654
---------- ---------- ---------- ----------
Operating income 4,586 17,742 20,725 33,195
---------- ---------- ---------- ----------
Other expense (income):
Interest, net 1,540 19 2,810 476
Interest on tax settlement -- 4,500 -- 4,500
Other -- (801) -- (2,190)
---------- ---------- ---------- ----------
Total other expense 1,540 3,718 2,810 2,786
---------- ---------- ---------- ----------
Income before income taxes 3,046 14,024 17,915 30,409
Income tax expense 1,164 5,856 7,034 12,406
---------- ---------- ---------- ----------
Net income $ 1,882 $ 8,168 $ 10,881 $ 18,003
========== ========== ========== ==========
Earnings per share:
Primary $0.06 $0.27 $0.36 $0.62
Fully diluted $0.06 $0.27 $0.36 $0.62
========== ========== ========== ==========
Shares used in earnings per share computations:
Primary 30,426 30,114 30,409 28,952
Fully diluted 30,426 30,123 30,409 28,980
========== ========== ========== ==========
Dividends per share:
Class A $0.0200 $0.0200 $0.0400 $0.0400
Class B $0.0167 $0.0166 $0.0334 $0.0332
========== ========== ========== ==========
Sales Growth 21.5% 6.0% 21.6% 8.9%
Margins (Percent of Sales):
Gross Profit 11.2% 16.3% 12.5% 15.6%
Operating Income 1.4% 6.5% 3.1% 6.0%
Income Before Income Taxes 0.9% 5.2% 2.7% 5.5%
Net Income 0.6% 3.0% 1.6% 3.3%
========== ========== ========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
HUDSON FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 30, April 1,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,881 $ 18,003
Items included in net income not requiring cash:
Depreciation 11,962 11,334
Amortization 689 426
Deferred gain (1,195) (1,388)
Deferred income taxes 1,979 (143)
Other -- 72
Changes in operating assets and liabilities (81,838) (31,547)
---------- -----------
Cash flows used for operations (57,522) (3,243)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (76,118) (37,117)
Disposition of property, plant and equipment, net 305 313
Funds received from (held by) trustee for
capital project 16,926 (23,786)
Sale of business (Note 2) 31,912 --
Other (3,238) (1,331)
---------- -----------
Cash flows used for investments (30,213) (61,921)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction to notes payable (12,300) (5,700)
Additions to long-term obligations (Note 3) 120,000 25,000
Reduction of long-term obligations (4,108) (5,981)
Sale of Class A common stock -- 51,264
Dividends (1,138) (1,116)
Exercise of stock options and other 163 1,079
---------- -----------
Cash flows provided by financing 102,617 64,546
---------- -----------
Increase (decrease) in cash and cash equivalents 14,882 (618)
Cash and cash equivalents at beginning of period 2,159 1,899
---------- -----------
Cash and cash equivalents at end of period $ 17,041 $ 1,281
========== ===========
==============================================================================
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized $ 3,152 $ 1,090
Income taxes paid $ 7,318 $ 15,764
==============================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
HUDSON FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The condensed consolidated financial statements for the periods ended
March 30, 1996 and April 1, 1995 include, in the opinion of management, all
adjustments necessary to present fairly the results of operations and cash
flows for such periods. The Annual Report for the year ended September 30,
1995, and the Company's Form 10-K contain additional information which should
be read in conjunction with these financial statements.
Note 2. On December 29, 1995, the Company sold its Topeka, Kansas, luncheon
meat plant and its Ohse and Roegelein brand names for approximately $32.3
million, of which $31.9 million was received at March 30, 1996. The initial
sales price of $32.3 million is subject to certain post-closing adjustments
which should be finalized in the third quarter of fiscal 1996. Additionally,
the Company closed its Wichita, Kansas, luncheon meat processing facility on
January 13, 1996. The Company has recorded the sale of the Topeka assets, the
Ohse and Roegelein brand names, and the write-down of the Wichita assets to
estimated net realizable value in its Condensed Consolidated Financial
Statements as of and for the periods ended March 30, 1996. These transactions
did not significantly impact the Company's results of operations for the
periods ended March 30, 1996.
Note 3. On December 28, 1995, the Company borrowed $55.0 million under six
unsecured term loan agreements from two insurance companies at 6.69% due
December 28, 2005. Interest payments only will be due in the first three
years. Beginning in the fourth year, one-seventh of the principal balance
will be due each year. On January 31, 1996, the Company borrowed $15.0
million under an unsecured loan agreement from a bank at 6.45% due January 31,
2006. Interest and principal payments are due each month. A balloon payment
of $6.8 million will be due on January 31, 2006. On March 22, 1996, the
Company borrowed $50.0 million under two unsecured loans from an insurance
company at 6.63% due March 22, 2006. Interest payments only will be due in
the first four years. Beginning on March 22, 2000, and continuing through
March 22, 2006, one-seventh of the principal balance will be due annually.
The loan agreements, among other things, limit the payment of dividends to
approximately $2.8 million in any fiscal year and limit annual capital
expenditures and lease obligations. They require the maintenance of minimum
levels of working capital and tangible net worth and require that the current
ratio, leverage ratio and cash flow coverage ratio be maintained at certain
levels. They also limit the creation of new secured debt to $25.0 million and
new unsecured short-term debt with parties outside the Company's $200.0
million credit agreement to $20.0 million.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Hudson Foods, Inc.
We have reviewed the condensed consolidated balance sheet of Hudson Foods,
Inc. and subsidiaries as of March 30, 1996 and the related condensed
consolidated statements of operations for the three and six month periods
ended March 30, 1996 and April 1, 1995, and cash flows for the six month
periods ended March 30, 1996 and April 1, 1995. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1995, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein); and in our report dated October 31, 1995, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of September 30, 1995 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
April 19, 1996
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Historically, the Company's operating results have been heavily influenced by
two external factors: the cost of feed grains and commodity-based finished
product prices. These two factors have fluctuated significantly and
independently. In recent years the Company has undertaken a business strategy
to increase the production and sale of further-processed products and increase
sales to large customers such as club store and foodservice chains. In fiscal
1995, one such customer accounted for approximately 14.7 % of total sales.
This strategy decreases the proportion of feed grain costs to total cost of
sales, which reduces the impact of commodity cost fluctuations. In addition,
the sales prices of further-processed products are less sensitive to commodity
price fluctuations. Even so, a material increase in feed costs or a material
decrease in finished product prices could have an adverse effect on the
Company, but management believes that the implementation of this strategy has
reduced the Company's vulnerability to such price fluctuations.
On March 4, 1996, the Company announced a 7% cutback in its broiler production
due to higher feed costs, an oversupply of meats in the U. S. marketplace and
the February 1996 Russian threat to embargo U.S. poultry products. The
Company's sales to Russia accounted for 11.3% of its total sales through the
second quarter of fiscal 1996. The Company believes that its sales to Russia
will continue to be strong and will remain an important part of the Company's
international strategy.
The Company believes that its operations are in substantial compliance with
applicable environmental laws and regulations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SECOND QUARTER OF FISCAL 1996 COMPARED WITH
SECOND QUARTER OF FISCAL 1995
Sales from the Company's operations were $330.3 million for the second quarter
of fiscal 1996, an increase of $58.5 million, or 21.5%, over the second
quarter of fiscal 1995. The sales increase primarily resulted from the
following:
Chicken sales increased 34.5% to $196.6 million in the second quarter of
fiscal 1996 from $146.2 million in the second quarter of fiscal 1995 due
to a 31.7% increase in volume and a 2.1% increase in selling prices. The
volume increase was due to increased sales in both international and
domestic markets. International sales were primarily to Russia and
Eastern Europe. The increase in selling prices was primarily due to
stronger market prices.
Portioned entree sales increased slightly to $45.0 million in the second
quarter of fiscal 1996 from $44.8 million in the second quarter of fiscal
1995 primarily due to a 7.0% increase in selling prices which was offset
by a 6.1% decrease in volume. Portioned entree sales have suffered
somewhat due to changes in customer base and product lines, but new
product sales and new markets are expected to have a favorable impact.
Luncheon meat sales decreased 54.4% to $16.7 million in the second quarter
of fiscal 1996 from $36.7 million in the second quarter of fiscal 1995
primarily due to a 53.8% decrease in volume. The Company sold its
luncheon meat plant in Topeka, Kansas, and the Ohse and Roegelein brand
names on December 29, 1995. Also, the Company closed its Wichita, Kansas,
luncheon meat plant on January 13, 1996. Those two plants accounted for
approximately 70% of fiscal 1995 luncheon meat sales. The Company
continues to produce a full line of Schweigert luncheon meat products at
its plant in Albert Lea, Minnesota.
Turkey sales increased 32.3% to $38.8 million in the second quarter of
fiscal 1996 from $29.3 million in the second quarter of fiscal 1995 due to
a 40.4% increase in volume offset by a slight decrease in selling prices.
The volume increase was primarily due to increased sales in international
markets, especially in Russia, Latin America and Eastern Europe and also
increased sales to Boston Market.
Beef sales increased to $22.7 million in the second quarter of fiscal 1996
from $4.5 million in the second quarter of fiscal 1995. The Company moved
into a new area of food processing when its hamburger plant in Columbus,
Nebraska began production in February 1995. The plant produces beef
patties primarily for the Burger King restaurant chain but also produces
frozen patties and chub packages for club stores and other customers.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SECOND QUARTER OF FISCAL 1996 COMPARED WITH
SECOND QUARTER OF FISCAL 1995 (CONTINUED)
Cost of sales was $293.4 million in the second quarter of fiscal 1996, an
increase of $65.8 million, or 28.9%, over the second quarter of fiscal 1995.
As a percentage of sales, cost of sales increased to 88.8% for the second
quarter of fiscal 1996 from 83.7% in the second quarter of fiscal 1995. The
increase in cost of sales primarily resulted from a 56.7% increase in feed and
ingredient costs and higher processing costs due to increased sales of
further-processed products.
Gross profit was $36.9 million in the second quarter of fiscal 1996, a
decrease of $7.4 million, or 16.6%, from the second quarter of fiscal 1995.
As a percentage of sales, gross profit decreased to 11.2% in the second
quarter of fiscal 1996 from 16.3% in the second quarter of fiscal 1995 due to
the factors discussed above.
Selling and general and administrative expenses were $32.3 million in the
second quarter of fiscal 1996, an increase of $5.8 million, or 21.8%, over the
second quarter of fiscal 1995. As a percentage of sales, selling and general
and administrative expenses were 9.8% in both the second quarter of fiscal
1996 and the second quarter of fiscal 1995.
Operating income was $4.6 million for the second quarter of fiscal 1996
compared with $17.7 million for the second quarter of fiscal 1995. The
decrease was primarily due to the higher feed costs described previously.
Interest expense increased primarily due to the interest expense on new
unsecured term loans.
Other income for the second quarter of fiscal 1995 of $0.8 million resulted
from gains on assets destroyed by fire.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST SIX MONTHS OF FISCAL 1996 COMPARED WITH
FIRST SIX MONTHS OF FISCAL 1995
Sales from the Company's operations were $671.0 million for the first six
months of fiscal 1996, an increase of $119.2 million, or 21.6%, over the first
six months of fiscal 1995. The sales increase primarily resulted from the
following:
Chicken sales increased 29.2% to $365.2 million in the first six months of
fiscal 1996 from $282.6 million in the first six months of fiscal 1995 due
to a 23.1% increase in volume and a 5.0% increase in selling prices. The
volume increase was due to increased sales in both international and
domestic markets. International sales were primarily to Russia and
Eastern Europe. The increase in selling prices was primarily due to
stronger market prices.
Portioned entree sales decreased slightly to $88.6 million in the first
six months of fiscal 1996 from $88.7 million in the first six months of
fiscal 1995 primarily due to a slight decrease in volume. Portioned entree
sales have suffered somewhat due to changes in customer base and product
lines, but new product sales and new markets are expected to have a
favorable impact.
Luncheon meat sales decreased 26.3% to $60.3 million in the first six
months of fiscal 1996 from $81.7 million in the first six months of fiscal
1995 primarily due to a 25.8% decrease in volume. The Company sold its
luncheon meat plant in Topeka, Kansas, and the Ohse and Roegelein brand
names on December 29, 1995. Also, the Company closed its Wichita, Kansas,
luncheon meat plant on January 13, 1996. Those two plants accounted for
approximately 70% of fiscal 1995 luncheon meat sales. The Company will
continue to produce a full line of Schweigert luncheon meat products at
its plant in Albert Lea, Minnesota.
Turkey sales increased 26.2% to $91.7 million in the first six months of
fiscal 1996 from $72.6 million in the first six months of fiscal 1995 due
to a 24.0% increase in volume and a 1.8% increase in selling prices. The
volume increase was primarily due to increased sales in international
markets, especially in Russia, Latin America and Eastern Europe and also
increased sales to Boston Market.
Beef sales increased to $43.4 million in the first six months of fiscal
1996 from $6.7 million in the first six months of fiscal 1995. The
Company moved into a new area of food processing when its hamburger plant
in Columbus, Nebraska began production in February 1995. The plant
produces beef patties primarily for the Burger King restaurant chain but
also produces frozen patties and chub packages for club stores and other
customers.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST SIX MONTHS OF FISCAL 1996 COMPARED WITH
FIRST SIX MONTHS OF FISCAL 1995 (CONTINUED)
Cost of sales was $587.1 million in the first six months of fiscal 1996, an
increase of $121.4 million, or 26.1%, over the first six months of fiscal
1995. As a percentage of sales, cost of sales increased to 87.5% for the
first six months of fiscal 1996 from 84.4% in the first six months of fiscal
1995. The increase in cost of sales primarily resulted from a 50.9% increase
in feed and ingredient costs and higher processing costs due to increased
sales of further-processed products.
Gross profit was $83.8 million in the first six months of fiscal 1996, a
decrease of $2.2 million, or 2.6%, from the first six months of fiscal 1995.
As a percentage of sales, gross profit decreased to 12.5% in the first six
months of fiscal 1996 from 15.6% in the first six months of fiscal 1995 due to
the factors discussed above.
Selling and general and administrative expenses were $63.1 million in the
first six months of fiscal 1996, an increase of $10.3 million, or 19.4%, over
the first six months of fiscal 1995. As a percentage of sales, selling and
general and administrative expenses decreased to 9.4% in the first six months
of fiscal 1996 from 9.6% in the first six months of fiscal 1995.
Operating income was $20.7 million for the first six months of fiscal 1996
compared with $33.2 million for the first six months of fiscal 1995. The
decrease was primarily due to the higher feed costs described previously.
Interest expense increased primarily due to the interest expense on new
unsecured term loans.
Other income for the first six months of fiscal 1995 of $2.2 million resulted
from gains on assets destroyed by fire.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 30, 1996 was $269.7 million compared with $180.5
million at September 30, 1995 and the current ratio was 3.65 to 1 and 2.55 to
1 at March 30, 1996 and September 30, 1995, respectively. Accounts receivable
increased primarily due to increased international receivables as a result of
increased sales. Inventory increased primarily due to inventory build-up to
meet increased sales, especially in international markets. Other current
assets decreased primarily due to the receipt of $15.0 million on an insurance
claim receivable for fire losses which was offset by the recording of
miscellaneous prepaid expenses, notes receivable and other current assets.
The Company's total capitalization, as represented by long-term obligations
plus stockholders' equity, was $559.9 million on March 30, 1996, compared with
$434.3 million on September 30, 1995. Long-term obligations represented 43.8%
and 29.9% of total capitalization on March 30, 1996 and September 30, 1995,
respectively.
The Company did not have any notes payable due under its unsecured credit
agreements at March 30, 1996 compared with $12.3 million on September 30,
1995. Total long-term obligations and current portion of long-term
obligations increased $115.9 million due to the net effect of the following:
1) proceeds received on loans from insurance companies totaling $105.0
million; 2) proceeds received on a loan from a bank totaling $15.0 million and
3) normal debt payments. (See discussion of loans that follows).
The Company's cash flows used for operations was $57.5 million in the first
six months of fiscal 1996 compared with $3.2 million in the first six months
of fiscal 1995. The increase was primarily due to increases in operating
assets, especially accounts receivable and finished product inventory, and a
decrease in accounts payable.
For the first six months of fiscal 1996 and 1995, the Company had capital
expenditures of $76.1 million and $37.1 million, respectively. Capital
expenditures, in the first six months of fiscal 1996, were for the
construction of a chicken complex near Henderson, Kentucky, and the expansion
and/or upgrading of existing production facilities and related equipment. The
Kentucky chicken complex is expected to begin production in July 1996. The
capital expenditures have been and will continue to be financed by operations,
borrowings, lease arrangements and the issuance of common stock.
Loan proceeds of $25.0 million received on March 2, 1995, from the county of
Henderson, Kentucky, were placed with a trustee, earning interest, until the
Company expended construction funds, at which time the trustee reimbursed the
Company. The proceeds were used to finance the construction of solid waste
disposal and sewage facilities at the Company's new chicken complex being
built near Henderson, Kentucky. During the first six months of fiscal 1996,
the Company was reimbursed for $16.9 million of construction expenditures.
(Recorded as a reduction to "Other assets".) At March 30, 1996, the trustee
did not hold any of the $25.0 million loan proceeds.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On December 29, 1995, the Company sold its Topeka, Kansas, luncheon meat plant
and its Ohse and Roegelein brand names for approximately $32.3 million, of
which $31.9 million was received at March 30, 1996. The sales price of $32.3
million is subject to certain post-closing adjustments which should be
finalized in the third quarter of fiscal 1996.
The Company's capital budget for fiscal 1996 contemplates aggregate capital
expenditures of approximately $100.0 million for the completion of the chicken
complex in Kentucky and upgrading and/or expanding current production
facilities and related equipment. To achieve this level of capital
expenditures, the Company will be required to obtain waivers of debt covenants
from certain lenders. Management believes that such waivers will be obtained.
However, there can be no assurance that such waivers will be granted.
Historically, the Company's operations have been financed through internally
generated funds, borrowings, lease arrangements and the issuance of common
stock. On April 26, 1994, the Company entered into a $100.0 million unsecured
credit agreement that was to expire June 30, 1998. At March 30, 1996, the
Company had $90.3 million available under the agreement. The Company did not
have any notes payable outstanding under the agreement but had $9.7 million in
outstanding letters of credit. On April 30, 1996, the Company replaced the
$100.0 million credit agreement with a new $200.0 million unsecured credit
agreement that expires on June 30, 1999. The terms and covenants of the new
agreement are substantially the same as those of the prior agreement.
The new credit agreement, among other things, limits the payment of dividends
to approximately $2.8 million in any fiscal year and limits annual capital
expenditures and lease obligations. It requires the maintenance of minimum
levels of working capital and tangible net worth and requires that the current
ratio, leverage ratio and cash flow coverage ratio be maintained at certain
levels. It also limits the creation of new secured debt to $25.0 million and
new unsecured short-term debt with parties outside the credit agreement to
$20.0 million. Additionally, an event of default will occur if the aggregate
outstanding voting power of James T. Hudson and his immediate family is
reduced below 51%.
Also, at March 30, 1996, the Company had entered into four separate unsecured
short-term credit agreements with financial institutions (outside the $100.0
million credit agreement) giving the Company the right to borrow up to $10.0
million each from three institutions and $15.0 million from one institution.
At March 30, 1996, the Company did not have any notes payable outstanding
under these agreements. When the new $200.0 million credit agreement was
signed, changes were also made to these agreements. Beginning on April 30,
1996, the Company has two separate unsecured short-term credit agreements with
financial institutions (outside the $200.0 million credit agreement) giving
the Company the right to borrow up to $15.0 million from one institution and
$10.0 million from the other.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On December 28, 1995, the Company borrowed $55.0 million under six unsecured
term loan agreements from two insurance companies at 6.69% due December 28,
2005. Interest payments only will be due in the first three years. Beginning
in the fourth year, one-seventh of the principal balance will be due each
year.
On January 31, 1996, the Company borrowed $15.0 million under an unsecured
loan agreement from a bank at 6.45% due January 31, 2006. Interest and
principal payments are due each month. A balloon payment of $6.8 million will
be due on January 31, 2006.
On March 22, 1996, the Company borrowed $50.0 million under two unsecured
loans from an insurance company at 6.63% due March 22, 2006. Interest
payments only will be due in the first four years. Beginning on March 22,
2000, and continuing through March 22, 2006, one-seventh of the principal
balance will be due annually.
The unsecured loan agreements discussed above contain restrictions and
covenants which are substantially the same as those included in the $200.0
million credit agreement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the February 9, 1996 Annual Meeting of Stockholders of Hudson
Foods, Inc., the stockholders elected the following persons to the
Company's Board of Directors by the votes indicated below:
Name For Withheld
----------------------- ----------- --------
James T. Hudson 107,562,545 159,368
Michael T. Hudson 107,567,349 154,564
Charles B. Jurgensmeyer 107,567,114 154,799
Elmer W. Shannon 106,835,476 886,437
Jerry L. Hitt 107,714,274 7,639
Kenneth N. May 106,892,947 828,966
James R. Hudson 107,562,685 159,228
Jane M. Helmich 107,663,748 58,165
By 102,987,874 votes for, 2,633,081 votes against, 2,100,954 votes
abstaining and no broker non-votes, the stockholders granted
discretionary authority to the proxies to vote for other
matters properly brought before the Annual Meeting. However, no
votes were cast pursuant to that authority.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Sequentially
Number Description of Exhibit Numbered Page
--------------------------------------------------------------
4a Restated Certificate of Incorporated by
Incorporation of Hudson reference from
Foods, Inc., Section 4 Registration
Statement No.
33-15274
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
Exhibit Sequentially
Number Description of Exhibit Numbered Page
--------------------------------------------------------------
10/1/ Purchase and Supply Agreement
(Amended and Restated as of
April 1, 1996) between
Hudson Foods, Inc. and
Boston Chicken, Inc.
11 Calculation of earnings
per share Page 18
15 Letter regarding unaudited
interim financial information Page 19
27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
- -------------------
/1/ This exhibit is subject to a Confidential Treatment Request and the
omitted material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Hudson Foods, Inc.
Date May 3, 1996 Michael T. Hudson
President
Date May 3, 1996 Charles B. Jurgensmeyer
Chief Financial Officer
<PAGE>
EXHIBIT 11
HUDSON FOODS, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $1,882 $8,168 $10,881 $18,003
==============================================================================
PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 30,083 29,531 30,065 28,388
Common stock equivalents:
Dilutive options 343 583 344 564
-------- -------- -------- --------
Weighted average number of common
and common equivalent shares 30,426 30,114 30,409 28,952
======== ======== ======== ========
Primary earnings per share $0.06 $0.27 $0.36 $0.62
==============================================================================
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 30,083 29,531 30,065 28,388
Common stock equivalents:
Dilutive options 343 592 344 592
-------- -------- -------- --------
Weighted average number of common
and common equivalent shares 30,426 30,123 30,409 28,980
======== ======== ======== ========
Fully diluted earnings per share $0.06 $0.27 $0.36 $0.62
==============================================================================
</TABLE>
<PAGE>
EXHIBIT 15
HUDSON FOODS, INC. AND SUBSIDIARIES
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Hudson Foods, Inc.
Registration on Forms S-8
We are aware that our report dated April 19, 1996 on our review of the interim
financial information of Hudson Foods, Inc. for the periods ended March 30,
1996 and April 1, 1995, and included in this Form 10-Q is incorporated by
reference in the Company's registration statements on Form S-8 (File nos. 33-
36690 and 33-41839). Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration
statement prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
Coopers & Lybrand L.L.P.
Tulsa, Oklahoma
April 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 17,041
<SECURITIES> 0
<RECEIVABLES> 99,822
<ALLOWANCES> 1,717
<INVENTORY> 223,577
<CURRENT-ASSETS> 371,616
<PP&E> 466,483
<DEPRECIATION> 141,601
<TOTAL-ASSETS> 733,005
<CURRENT-LIABILITIES> 101,929
<BONDS> 0
0
0
<COMMON> 309
<OTHER-SE> 314,541
<TOTAL-LIABILITY-AND-EQUITY> 733,005
<SALES> 670,971
<TOTAL-REVENUES> 670,971
<CGS> 587,126
<TOTAL-COSTS> 650,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,810
<INCOME-PRETAX> 17,915
<INCOME-TAX> 7,034
<INCOME-CONTINUING> 10,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,881
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
<PAGE>
EXHIBIT 10
HUDSON FOODS, INC. AND SUBSIDIARIES
CONFORMED COPY
PURCHASE AND SUPPLY AGREEMENT
(AMENDED AND RESTATED)
This PURCHASE AND SUPPLY AGREEMENT ("Agreement"), originally made the 12th
day of October, 1994 (as originally made, herein called the "Initial
Agreement"), by and between Hudson Foods, Inc., a Delaware corporation (the
"Supplier"), and Boston Chicken, Inc., a Delaware corporation (the "Company"),
is amended and restated as of April 1, 1996.
WHEREAS, the Supplier has the capability to produce chicken products for
distribution and retail sale by the Company, which products and their
specifications are described in Exhibit A (the "BC Chicken Products"); and
WHEREAS, the Company desires to assure a continuing supply of the BC
Chicken Products and the Supplier desires to supply the Company with a portion
of its requirements of the BC Chicken Products; and
WHEREAS, as provided in the Initial Agreement, the Supplier was willing to
dedicate the entire chicken products production of its chicken processing
facility at Dexter, Missouri (the "Dexter Facility") and, upon commencement of
operations, the entire chicken products production of its chicken processing
facility (exclusive of the protein plant associated therewith) currently under
construction near Henderson, Kentucky (the "Henderson Facility" and, together
with the Dexter Facility, the "Facilities") for sale under the Initial
Agreement to or for the account of the Company, and the Company, as provided
in the Initial Agreement, desired to purchase or have sold for its account the
entire chicken products production of the Facilities;
WHEREAS, since the date of the Initial Agreement, the Company has altered
the product mix offered by Boston Chicken and Boston Market stores operated by
the Company and its franchisees (the "Stores") to include turkey, meatloaf and
ham; and
WHEREAS, the alteration of the product mix at the Stores has altered the
requirements of the Company and its franchisees for the BC Chicken Products
and affected the rate of growth of volume requirements of such items; and
WHEREAS, the Supplier believes and the Company concurs that, given changed
circumstances, the most advantageous use of the Henderson Facility is to
produce chicken products which include types which may not be required by the
Company and its franchisees; and
<PAGE> 2
WHEREAS, the Company and the Supplier wish to amend and restate the
Initial Agreement to take into account such aforementioned matters in a manner
intended to preserve the aggregate economic effect of the Initial Agreement,
but which will adjust the responsibilities and opportunities of the parties in
light of the aforementioned matters and provide certain incentives and
disincentives for the profitable operation of the Dexter Facility and the
Henderson Facility, as well as certain incentives and opportunities relating
to the supply of turkey, ham and beef by the Supplier to the Company and its
franchisees; and
WHEREAS, the Company and the Supplier have each determined that the
Agreement, as herein amended and restated, is potentially more advantageous
than the Initial Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual promises set forth herein, the parties hereto agree to, and hereby do,
amend and restate the Initial Agreement as set forth herein:
1. Definitions. As used herein, the following terms have the
respective meanings set forth below or set forth in the Section of this
Agreement following such term:
"Agreement" -- means the Purchase and Supply Agreement between the
Supplier and the Company, dated October 12, 1994, as amended and restated as
of April 1, 1996.
"Annual Aggregate Dexter Purchase Price" -- Section 5(b).
"Annual Dexter Adjustment Amount" -- Section 5(b).
"Annual Henderson Operating Payment" -- Section 5(c).
"Authorized Recipient" -- Section 2(b).
"Average Bid" -- Section 2(d).
"BC Chicken Products" -- Preamble.
"BC Other Products" -- Section 2(d).
"Bidding Affiliate" -- Section 2(d).
"Cap Reduction" -- Section 2(e).
"Chicken Products" -- Section 2(a).
"Commencement Date" -- Section 2(a).
"Company" -- means Boston Chicken, Inc., a Delaware corporation.
"Contract Year" -- means a fiscal year of the Company (or such portion of
a fiscal year of the Company) during the Term of this Agreement.
"Cost Improvement Program" -- Section 5(i).
<PAGE> 3
"Credit Amount" -- Section 5(f).
"Dexter Facility" -- Preamble.
"Dexter Loss" -- Section 5(b).
"Dexter Inside Sales" -- Section 5(b).
"Dexter Outside Sales" -- means Outside Sales relating to the Dexter
Facility.
"Dexter Term" -- means the period beginning on the Commencement Date and
ending on the Dexter Termination Date.
"Dexter Termination Date" -- Section 2(a).
"Excluded Costs" -- means the following costs or expenses: (i) the cost of
shipping Chicken Products from the relevant Facility, (ii) any payment made by
the Supplier pursuant to Section 11(a) hereof or any cost, expense or
liability for which the Supplier has been indemnified, (iii) any cost, fine,
defense expense or judgment relating to any failure of the Supplier to comply
with applicable laws, (iv) any cost incurred in, directly related to, or
assigned or allocated to the protein plant at the Henderson Facility, (v) any
taxes levied or paid solely with respect to the Supplier's income, (vi) any
amount relating to any action, occurrence, incident, transaction, omission,
claim, contract or liability prior to the Commencement Date or the Henderson
Facility Commencement Date, as applicable, (vii) any environmental liability
or clean-up, remediation or contribution imposed by applicable environmental
law (but not including (A) any utilities surcharges or (B) any expenditures
for preventive measures required by changes in applicable environmental laws
after the date of this Agreement), (viii) any costs incurred in violation of
this Agreement, including any costs relating to Chicken Products or Third-
Party Products failing to meet applicable specifications, (ix) costs of Third-
Party Products, (x) all depreciation expense with respect to the Dexter
Facility capital assets listed on Exhibit C hereto accrued during any period
prior to the earlier of the first week that the production of the Dexter
Facility reaches 650,000 chickens or June 1, 1995, and (xi) prior to the first
week that production of the Henderson Facility reaches 1,300,000 chickens, all
depreciation expense with respect to the Henderson Facility that exceeds the
depreciation expense of the Dexter Facility, measured on a cents-per-pound-of-
production basis.
"Facility" or "Facilities" -- means the Dexter Facility or the Henderson
Facility or both, as appropriate.
"Facilities Cost" -- means, with respect to the relevant Contract Year and
the appropriate Facility (either the Dexter Facility or the Henderson
Facility, as the case may be), from and after the Commencement Date or the
Henderson Facility Commencement Date, as the case may be, all costs and
expenses (other than costs or expenses that constitute Excluded Costs) that
are (i) incurred in, or directly related to, the operation of such Facility
during the Dexter Term or the Henderson Term, as the case may be, or (ii)
assigned or allocated by the Supplier to such Facility (including, without
limitation, a reasonable allocation of the Supplier's corporate overhead
<PAGE> 4
expenses, determined in good faith based upon the methodology used by the
Supplier in the allocation of corporate overhead expenses to all of its
production facilities), less the following credits: (i) an amount equal to
any employee withholding credits allowed the Supplier under the KREDA program
applicable to the operation of the Henderson Facility and (ii) an amount
representing the sales or transfers of offal from the Facility to the Supplier
or affiliates of the Supplier, which amount shall be based on the then-current
Jacobsen Mid-South poultry and feather meal quote as adjusted by the schedule
attached hereto as
Exhibit B.
"Full Production" -- means, with respect to the Dexter Facility or the
Henderson Facility, as appropriate, that such Facility averages, for the
weekly periods ending in any calendar month, at least 85% of the minimum
average targets set forth in Section 2(a) for the Dexter Facility or Section 3
for the Henderson Facility; provided, however, that for purposes of the
calculations required by Sections 5(b) and 5(c), the Henderson Facility will
not be deemed to be in Full Production prior to the Henderson First
Anniversary Date and the Dexter Facility will not be deemed to be in Full
Production prior to the first anniversary of the Commencement Date or
following the Dexter Termination Date.
"Henderson Facility" -- Preamble.
"Henderson Facility Commencement Date" -- Section 3.
"Henderson First Anniversary Date" -- Section 3.
"Henderson Loss" -- Section 5(c).
"Henderson Sales" -- means Outside Sales relating to the Henderson
Facility plus any proceeds actually received from sales to the Company of
Chicken Products or other products produced at the Henderson Facility.
"Henderson Term" -- means the period beginning on the Henderson Facility
Commencement Date and ending on the Termination Date.
"Initial Agreement" -- Preamble.
"Interim Purchase Prices" -- means those purchase prices for Chicken
Products from the Dexter Facility invoiced to and paid by the Company during
the relevant time period, which prices shall be equivalent to the average
prices invoiced to third parties for the same Chicken Products on the same day
(or the most recent day on which a third party was invoiced for such Chicken
Products), adjusted for the Supplier's standard volume discounts and freight
and transportation differentials, and, in the event that the Chicken Product
is one which has not been purchased by any third party, the invoiced price
will be a flat price determined annually by mutual agreement of the Supplier
and the Company, which flat price is intended to be a reasonable estimate of
_____*% of Supplier's all-in costs in producing such Chicken Product.
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 5
"Make-Whole Amount" -- Section 5(e).
"Orders" -- Section 2(c).
"Outside Sales" -- means, with respect to the relevant Contract Year and
with respect to the relevant Facility, the proceeds actually received by the
Supplier for sales of Chicken Products (plus, in the case of the Henderson
Facility, proceeds received for sales of any other products produced at such
Facility) to any purchasers other than the Company (which purchasers may
include the Supplier or affiliates of the Supplier); provided, however, that
for purposes of computing Outside Sales, (i) no credit will be given for the
sales of products from the protein plant at the Henderson Facility, and (ii)
no credit will be given for any sales proceeds that are payment for or
reimbursement of shipping expenses.
"Supplier" -- means Hudson Foods, Inc., a Delaware corporation.
"Term" -- Section 4(a).
"Termination Date" -- Section 4(a).
"Third-Party Products" -- Section 2(a).
"Turkey Products" -- Section 2(b).
2. Production and Sale of Various Products.
a. Chicken Products. The Supplier agrees to sell to the Company,
or cause to be sold for the Company's account, the entire chicken products
production (the "Chicken Products," which term shall include the BC Chicken
Products) of the Dexter Facility, commencing on April 1, 1995 (the
"Commencement Date") and ending on April 1, 2000 (the "Dexter Termination
Date"), and the Company agrees to purchase such Chicken Products. The
Supplier will cause the Dexter Facility to process a minimum average of
487,000 chickens per week from April 1, 1995 continuously to June 1, 1995, and
continuously thereafter until the Dexter Termination Date to process a minimum
average of 650,000 chickens per week, such averages to be computed on a
rolling twelve-week basis (or such lesser number of weeks as has elapsed since
the Commencement Date). In the event that the production of the Dexter
Facility does not meet the targeted minimum averages set forth in this Section
2(a), whether by reason of lower than expected production rates, closure or
production limitations imposed by law, partial condemnation or destruction of
the Dexter Facility, or otherwise, the Supplier shall use its reasonable best
efforts to purchase sufficient Chicken Products from third-party suppliers
("Third-Party Products") to achieve the targeted minimum averages and shall
sell such Third-Party Products to the Company at a price equal to the Dexter
Facilities Cost plus ____________* (with the Dexter Facilities Cost being
measured on a per-pound basis for purposes of setting the selling price for
Third-Party Products) for such Chicken Products during the last period such
minimum average was met. At the request of the Company, the Supplier shall
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 6
increase production of Chicken Products at the Dexter Facility to levels not
inconsistent with prudent business practices. To the extent that the
Company's Orders do not provide for shipment of all of the Dexter Facility's
production of Chicken Products, the Supplier shall arrange the sale or
otherwise dispose of such excess Chicken Products on commercially reasonable
terms, consistent with efforts to maximize the selling price thereof, for the
account of the Company and apply the proceeds of such sales (less any returns)
to the Annual Aggregate Dexter Purchase Price pursuant to Section 5(b) hereof.
b. Turkey Products. (i) The Company agrees that, during the
period from February 1, 1996 until the end of the 1996 Contract Year, it shall
order for purchase from the Supplier not less than __________* pounds of
turkey products conforming to the recipes, specifications and standards set
forth in Exhibit E hereto (the "Turkey Products"). The Company's orders for
Turkey Products shall total for each week in such period not less than the
lesser of (A) __________* pounds or (B) _____*% of the Boston Chicken/Boston
Market system requirements for such week. The Supplier may appropriately
reduce to meet the level mentioned below any order which would cause the total
orders for any week in such period to exceed __________* pounds. The price
for such Turkey Products shall be $_____* per pound. Upon the payment by the
Company of the invoiced price for Turkey Products supplied by the Supplier
pursuant to this Section 2(b), the Supplier shall credit to the Credit Amount
an amount equal to _____* percent (_____*%) of the invoice amount for all
Turkey Products shipped pursuant to such orders.
(ii) The Supplier shall credit to the Credit Amount an
amount equal to _____* percent (_____*%) of all payments made by the Company
to the Supplier for the purchase of Turkey Products prior to February 1, 1996
in which the average price paid was $_____* per pound or greater (including
shipping to the distributor).
(iii) The Company and the Supplier hereby agree that the
Company may designate any subsidiary, affiliate, joint venture, area
developer, franchisee, commissary, vendor, processor, or other entity involved
in the Boston Chicken/Boston Market concept (as such concept may exist from
time to time) as an authorized product recipient ("Authorized Recipient") of
Turkey Products pursuant to this Section 2(b), in which event the Company
shall be deemed to have ordered and purchased Turkey Products pursuant to this
Section 2(b) and resold them to such Authorized Recipient and the Supplier
shall act as the Company's agent in receiving orders, delivering product, and
receiving payment therefor, and the Company shall receive the credit provided
for in this Section 2(b) as if such Turkey Products had been ordered by and
delivered and invoiced directly to, and payment made directly by, the Company.
The Supplier agrees that each order form and invoice sent to any such
Authorized Recipient shall conspicuously state that the Supplier is acting as
the Company's agent in the sale of, and receipt of funds for, such products.
The Supplier agrees that each shipment of Turkey Products to an Authorized
Recipient shall be subject to indemnification at least as broad as that set
forth in Section 11(a) of this Agreement. Amounts credited to the Credit
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 7
Amount pursuant to this credit program shall be available to the same extent
and for the same purposes as any other amount credited or elected to be so
credited under this Agreement.
c. Chicken and Turkey Product Orders. Upon receipt of shipping
orders from the Company, its Authorized Recipients, or any distributor
designated by either which is reasonably acceptable to the Supplier
("Orders"), the Supplier agrees to ship to the Company or third parties
designated by the Company, (i) from the production of the Dexter Facility or
Third-Party Products, any and all Chicken Products that the Company shall
request shipment of pursuant to the Orders, and (ii) from the production of
Supplier's turkey processing facilities, such Turkey Products that the Company
shall request shipment of pursuant to the Orders (subject to any order
reductions permitted by Section 2(b)). All sales of Chicken Products
hereunder (including any Outside Sales) are F.O.B. at the Dexter Facility,
with the Company solely responsible for any costs of shipping the Chicken
Products. All sales of Turkey Products under Section 2(b) are inclusive of
shipping from the Supplier's turkey processing plant to the Company's
distributors in the continental United States.
d. Bidding for BC Other Products. The Company agrees that it
shall not later than thirty (30) days prior to the beginning of each Contract
Year solicit bids from the Supplier and other meat processors for the supply
of turkey, ham and meatloaf to the Company in accordance with such recipes,
specifications, standards, terms, and conditions as it may determine in its
sole discretion (the "BC Other Products"); provided, however, that bids for
the 1996 Contract Year shall be solicited not later than April 30, 1996 (but
not earlier than March 30, 1996) for meatloaf, and not later than June 30,
1996 (but not earlier than May 31, 1996) for ham, and shall not include bids
for Turkey Products. Such bids shall be solicited in good faith from at least
three suppliers in addition to the Supplier and will be for such amounts of BC
Other Products as the Company shall have estimated in good faith as being at
least _____*% of its turkey requirements, _____*% of its ham requirements and
_____*% of its meatloaf requirements for a one-year period, and bids will be
sought in terms of either a fixed price per pound or a specified averageable
formula-based price of the requested protein. In the event that the Supplier
(or any affiliate thereof specified by Supplier as its designated bidder for
such bid, such affiliate being herein called the "Bidding Affiliate") shall
meet the requirements of such recipes, specifications, standards, terms and
conditions, and its price for such turkey, ham or meatloaf shall be not more
than $_____* per pound higher than the average of the bona fide comparable
bids received by the Company (which average, herein called the "Average Bid,"
shall be based upon the bona fide comparable bids received by the Company, and
shall exclude any bids submitted by the Supplier or any Bidding Affiliate),
such business will be awarded by the Company to the Supplier or its Bidding
Affiliate, as the case may be, at the price bid by the Supplier or such
Bidding Affiliate. In the event that the Supplier or any Bidding Affiliate
shall meet the requirements of such recipes, specifications, standards, terms
and conditions, but its price for such turkey, ham or meatloaf shall be more
than $_____* per pound higher than the Average Bid, then the Supplier or its
Bidding Affiliate, as the case may be, shall be notified immediately by the
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 8
Company of the Average Bid and given until the second business day following
such notice to revise its bid to not more than $_____* per pound higher than
the Average Bid, in which event such business will be awarded by the Company
to the Supplier or its Bidding Affiliate, as the case may be, at the revised
price bid by the Supplier or such Bidding Affiliate. All BC Other Products so
supplied to the Company by the Supplier or any Bidding Affiliate pursuant to
any initial or revised bid shall be invoiced to the Company at a price equal
to ____________* percent (_____*%) of the Supplier's or the Bidding
Affiliate's bid price forming the basis for such award. Upon the payment by
the Company of the invoiced price for BC Other Products supplied by the
Supplier or its Bidding Affiliate, as the case may be, pursuant to such a bid
award, the Supplier shall credit to the Credit Amount an amount equal to
_____* percent (_____*%) of the invoice amount for all such BC Other Products
shipped by the Supplier. The Company and the Supplier hereby agree that the
Company may designate any Authorized Recipient as the recipient of BC Other
Products pursuant to such bid and award, in which event the Company shall be
deemed to have purchased BC Other Products pursuant to such bid and award and
resold them to such Authorized Recipient and the Supplier shall act as the
Company's agent in receiving orders, delivering product, and receiving payment
therefor, and the Company shall receive the credit provided for in this
Section 2(d) as if such BC Other Products had been ordered by and delivered
and invoiced directly to, and payment made directly by, the Company. The
Supplier agrees that each order form and invoice sent to any such Authorized
Recipient shall conspicuously state that the Supplier is acting as the
Company's agent in the sale of, and receipt of funds for, such products. The
Supplier agrees that each bid made by it or its Bidding Affiliate will confirm
such agency provisions and include indemnification at least as broad as that
set forth in Section 11(a) of this Agreement. Amounts credited to the Credit
Amount pursuant to this credit program shall be available to the same extent
and for the same purposes as any other amount credited or elected to be so
credited under this Agreement.
e. Penalty for Lack of Capacity. In the event the Supplier or
its Bidding Affiliate shall not be awarded business for turkey, ham or
meatloaf pursuant to Section 2(d) in any Contract Year for failure of the
Supplier or a Bidding Affiliate to have sufficient internal capacity to
produce at least ________ * pounds per week of turkey, at least ________ *
pounds per week of ham, or at least ________ * pounds per week of meatloaf,
then the product expressed in proviso (Y) of Section 5(b) and the product
expressed in provisos (X) and (Z) of Section 5(c) shall be reduced by
$__________* for the relevant Contract Year if such failure relates to ham,
$__________* for the relevant Contract Year if such failure relates to
meatloaf, and $__________* for the relevant Contract Year if such failure
relates to turkey (each of such reductions being referred to as a "Cap
Reduction"). To the extent that any Cap Reduction pursuant to the immediately
preceding sentence does not actually reduce amounts owed by the Company to the
Supplier as Annual Dexter Adjustment Amounts or Annual Henderson Operating
Payments in the Contract Year to which such Cap Reduction first applies, such
unused portion of the Cap Reduction shall carry over to the next succeeding
Contract Year or Contract Years until fully used. Any Cap Reductions unused
as of the Termination Date shall expire without further effect.
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 9
3. Henderson Facility. The Supplier agrees to use its reasonable
best efforts to cause the Henderson Facility to be constructed and ready to
begin initial production of Chicken Products not later than July 1, 1996
(which date, or such earlier date as the Supplier certifies in writing to the
Company that the Henderson Facility is first available for commercial
production, shall be the "Henderson Facility Commencement Date"). The
Supplier will cause the Henderson Facility to process a minimum average of
1,300,000 chickens per week from the first anniversary of the Henderson
Facility Commencement Date (the "Henderson First Anniversary Date")
continuously until the Termination Date, such average to be computed on a
rolling twelve-week basis (or such lesser number of weeks as has elapsed since
the Henderson First Anniversary Date) and will increase production consistent
with commercially reasonable business practice. The Supplier shall arrange
the sale or otherwise dispose of Chicken Products and other products produced
at the Henderson Facility on commercially reasonable terms, consistent with
efforts to maximize the selling price thereof. The Supplier agrees that,
during the period from the Henderson First Anniversary Date to the end of the
Term, for each month in which the Henderson Facility is not in Full
Production, any loss incurred by the Henderson Facility during such month
shall not be taken into account in computing the Henderson Loss pursuant to
Section 5(c) hereof, unless the Company has consented to the operation of the
Henderson Facility at less than Full Production for such month.
4. Term.
a. Term. The term of this Agreement (the "Term") shall be a
period beginning on the Commencement Date and ending on the date that is the
fifth anniversary of the Henderson Facility Commencement Date (the
"Termination Date").
b. Termination. Notwithstanding the foregoing Section 4(a),
the Company or the Supplier may terminate this Agreement prior to the
expiration of the Term as provided in Section 12 hereof.
5. Contributions to Operating Costs and Other Payments; Credit Amount;
Examinations.
a. Initial Payment. The Company shall deposit with the
Supplier, upon execution of this Agreement, an aggregate amount of
$__________*, such amount to be retained by the Supplier as the Company's
contribution towards costs of design and construction of the Dexter Facility
and the Henderson Facility.
b. Annual Adjusting Payments for Chicken Products. The Company
shall pay, as the total purchase price for all Chicken Products purchased by
the Company from the Dexter Facility hereunder in any Contract Year during the
Dexter Term, an aggregate amount (the "Annual Aggregate Dexter Purchase
Price") equal to the sum of (x) the sum of all Interim Purchase Prices for
Chicken Products from the Dexter Facility properly invoiced to and paid by the
Company (the "Dexter Inside Sales") during such Contract Year and (y) an
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 10
adjustment amount (the "Annual Dexter Adjustment Amount") calculated annually
by Contract Year equal to fifty percent (50%) of any Dexter Loss for such
Contract Year, where "Dexter Loss" is an amount equal to the difference
between (i) ____________* percent (_____*%) of the Dexter Facilities Cost for
such relevant Contract Year, minus (ii) both (a) the Dexter Inside Sales for
such relevant Contract Year and (b) the Dexter Outside Sales for such relevant
Contract Year; provided, however, that (W) no Annual Dexter Adjustment Amount
shall be due unless and until such time as the cumulative Annual Dexter
Adjustment Amounts plus Annual Henderson Operating Payments otherwise payable
(but for operation of this proviso (W)) by the Company to the Supplier would
exceed $__________*, in which event Annual Dexter Adjustment Amounts shall be
due only with respect to such excess, (X) no Annual Dexter Adjustment Amount
shall be payable for any period prior to March 31, 1996 or any period
following the Dexter Termination Date, (Y) the Annual Dexter Adjustment Amount
for any Contract Year shall not exceed the product of (1) $__________* times
(2) the quotient of (a) the sum of the number of plant-months of Full
Production by the Dexter Facility during such Contract Year plus the number of
plant-months of Full Production by the Henderson Facility during such Contract
Year, divided by (b) 24, and (Z) if the Annual Dexter Adjustment Amount for
any Contract Year shall be a negative number, then Supplier shall, at the
Company's option (exercisable in whole or in part in any combination between
cash and credits), pay to the Company in cash or credit to the Credit Amount
such Annual Dexter Adjustment Amount.
c. Annual Henderson Operating Payments. The Company shall pay,
as a contribution to the operating costs of the Henderson Facility for each
Contract Year (or portion thereof) during the Henderson Term, an amount (the
"Annual Henderson Operating Payment") equal to fifty percent (50%) of any
Henderson Loss for such Contract Year, where "Henderson Loss" is an amount
equal to the difference between (i) ____________* percent (_____*%) of the
Henderson Facilities Cost for such relevant Contract Year, minus (ii) the
Henderson Sales for such relevant Contract Year; provided, however, that (V)
no Annual Henderson Operating Payment shall be due unless and until such time
as the cumulative Annual Henderson Operating Payments plus Annual Dexter
Adjustment Amounts otherwise payable (but for operation of this proviso (V))
by the Company to the Supplier would exceed $__________*, in which event
Annual Henderson Operating Payments shall be made only with respect to such
excess, (W) no Annual Henderson Operating Payment shall be payable for the any
period prior to the Henderson First Anniversary Date or any period following
the Termination Date, (X) the Annual Henderson Operating Payment for any
Contract Year shall not exceed the product of (1) $__________* times (2) the
quotient of (a) the sum of the number of plant-months of Full Production by
the Henderson Facility during such Contract Year plus the number of plant-
months of Full Production by the Dexter Facility during such Contract Year,
divided by (b) 24, (Y) if the Annual Henderson Operating Payment for any
Contract Year shall be a negative number, then Supplier shall, at Company's
option (exercisable in whole or in part in any combination of cash and
credits), pay in cash or credit to the Credit Amount such Annual Henderson
Operating Payment, and (Z) the sum of the Annual Dexter Adjustment Amount and
the Annual Henderson Operating Payment shall not, for any Contract Year,
exceed the product of (1) $__________* times (2) the quotient of (a) the sum
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 11
of the number of plant-months of Full Production by the Henderson Facility
during such Contract Year plus the number of plant-months of Full Production
by the Dexter Facility during such Contract Year, divided by (b) 24.
d. Advertising Contribution. The Supplier shall pay to the
Company or such advertising fund or account as the Company may direct at the
end of the 1995 Contract Year $__________* to be utilized by the Company or
such fund or account to promote and advertise to consumers the products
supplied to the Company by the Supplier during the Term of this Agreement.
Such advertising and promotion may include chicken, chicken products, and to
the extent supplied partially or wholly by Supplier, ham, turkey, meatloaf,
and ham, turkey, and meatloaf products, and meals including the foregoing.
Such advertising and promotion may be included with the advertising and
promotion of other products and shall be in such form or forms and through
such media as the Company may determine in its sole discretion.
e. Make-Whole Amount. Promptly following the Termination Date,
the Supplier shall compute the "Make-Whole Amount," which shall be a positive
or negative number, computed as:
X + Y - Z = Make-Whole Amount,
where
X = the sum (which sum will be $__________* or less) of all amounts
that would have been required to be paid by the Company to the
Supplier as Annual Dexter Adjustment Amounts or Annual Henderson
Operating Payments under this Agreement but are excepted from such
payment solely by reason of the operation of proviso (W) of Section
5(b) or proviso (V) of Section 5(c),
Y = all amounts required to be paid by the Company to the Supplier as
Annual Dexter Adjustment Amounts or Annual Henderson Operating
Payments under this Agreement, and
Z = the sum of all amounts required to be paid by the Supplier to the
Company (or credited to the Credit Amount) as Annual Dexter
Adjustment Amounts or Annual Henderson Operating Payments under
this Agreement.
If the Make-Whole Amount shall be:
(i) a positive number, the Company shall pay to the Supplier an amount
equal to the Make-Whole Amount, such payment to be made, to the
extent possible, by immediately applying to the amount owed any
remaining balance in the Credit Amount, up to the amount owed, and,
to the extent the Credit Amount is insufficient to pay the full
amount owed, by cash payments in the amount of such insufficiency;
or
- ----------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 12
(ii) zero or a negative number, the Supplier shall pay to the Company an
amount, in cash, equal to $__________* minus X;
provided, however, in the event that X is less than $__________*, the Supplier
shall pay to the Company an amount, in cash, equal to $__________* minus X,
and no payment shall be due under either (i) or (ii) above.
Upon the payments of any amounts due under this Section 5(e), the
remaining balance, if any, in the Credit Amount shall be paid in cash by the
Supplier to the Company. Any cash payments required under this Section 5(e)
shall be made by the party owing payment in 24 equal monthly installments
beginning not later than one month following the Termination Date.
f. Credit Amount. The "Credit Amount" shall be that number of
dollars credited to such amount pursuant to this Agreement, less any amounts
deducted therefrom by the Company in lieu of a cash payment to the Supplier.
Once credited to the Credit Amount, dollars may not be deducted therefrom
except for payment in lieu of cash to the Supplier, except that upon
termination of this Agreement the remaining balance in the Credit Amount shall
be applied or distributed as provided in Section 5(e). Any amount payable by
the Company to the Supplier may be paid, at the Company's sole option, by
deducting such amount from credits in the Credit Amount from previous
calculations or by offsetting amounts which would be simultaneously credited
to the Credit Amount at the same time as such calculation. The Company agrees
that it shall not utilize its option under certain provisions of this
Agreement to elect cash payment in lieu of credit to the Credit Amount at any
time if calculation of the Make-Whole Amount at such time as if it were the
Termination Date would result in a positive number (and, in the event the
result was a negative number, to limit cash payment to such amount as would
offset such negative number).
g. Computation of Various Payments. Not later than forty-five
(45) days after the end of any Contract Year, the Supplier shall provide the
Company with a written report showing in reasonable detail the calculation of
each of the Annual Aggregate Dexter Purchase Price, the Interim Purchase
Prices for the Dexter Facility from Dexter Inside Sales, Dexter Outside Sales,
the Annual Dexter Adjustment Amount, _____*% of the Dexter Facilities Cost,
Henderson Sales, the Annual Henderson Operating Payment, _____*% of the
Henderson Facilities Cost, and any amount available for adjustment of the
Credit Amount.
h. Examination of Books and Records. The Company shall be
entitled, at its expense, (i) to examine the books and records of the Supplier
that are relevant to the determination of all defined terms and amounts
provided for in this Agreement, provided that any such examination shall be
conducted during the Supplier's normal business hours and in such a manner as
to reasonably minimize disruption of the Supplier's business, (ii) to
participate in the Supplier's preparation of budgets for the Facilities and,
following the Commencement Date or the Henderson Facility Commencement Date,
as appropriate, to approve any capital expenditures or related series of
- ---------
* Confidential information deleted from this exhibit and filed separately
with the Securities and Exchange Commission.
<PAGE> 13
capital expenditures at either Facility that exceeds $100,000, (iii) to direct
the Supplier with respect to the purchase of feed for the production of
chickens to be processed at the Facilities, (iv) to review the Supplier's
allocation of overhead expenses and costs and allocation of the Henderson
protein plant, (v) to review and approve all general increases in wages (or
bonuses or increases for specific employees or groups not in accordance with
past practice) or material changes in working conditions, benefits and
regulation, if such increases or changes are not generally applicable to the
Supplier's other chicken processing facilities, (vi) to review and approve or
disapprove all self-dealing transactions of the Supplier and its directors,
officers, employees and affiliates affecting the Facilities Cost, if such
transactions are not based on market prices and terms, and (vii) to determine,
jointly with the Supplier, the amounts of bonuses, if any, to be paid to the
management employees of the Facilities. Any management bonuses so determined
shall be paid by the Supplier and included in the calculation of the
Facilities Cost. All amortization and depreciation of equipment, products and
services used in the computation of Facilities Cost shall be included in
Facilities Cost in accordance with the depreciation and amortization schedules
and policies attached as Exhibit D to this Agreement or as may otherwise be
mutually agreed. No cost incurred in violation of this Agreement shall be
included in Facilities Cost.
i. Cost Improvement Program. In the second Contract Year for
each Facility, both parties, in good faith, will outline and implement a
program to reduce costs (the "Cost Improvement Program"). The Cost
Improvement Program is intended to lower costs while maintaining or improving
quality, service, and productivity. The Cost Improvement Program will also be
a component in establishing objectives for Facilities management in connection
with any Facilities management performance bonus program.
6. Specifications and Inspection.
a. Quality Standards. The BC Chicken Products shall be
produced according to the quality and production standards as set forth on
Exhibit A hereto. The BC Other Products shall be produced according to
quality and production standards mutually agreed upon from time to time by the
Company and the Supplier.
b. Inspection. The Facilities and the BC Chicken Products and
the BC Other Products shall be subject to inspection and test by the Company
to the extent practicable at all times and places, including during the period
of manufacture and, in any event, prior to final acceptance by the Company or
other purchaser.
c. Quality Control. The Supplier shall provide and maintain a
quality control system covering any BC Chicken Products or BC Other Products
sold to the Company or for the Company's account. Records of all inspection
work by the Supplier shall be kept complete and available to the Company
during the performance of an Order.
7. Supplier's Covenants.
a. Affirmative Covenants. The Supplier covenants that, during
the Term of this Agreement, it shall:
<PAGE> 14
i. operate the Facilities in compliance with all applicable
laws and regulations;
ii. use its best efforts, consistent with industry
practices, (A) to produce and offer for sale to the Company the BC Other
Products and (B) to minimize the Facilities Cost;
iii. cooperate in good faith with the Company in any
investigation or health or other inspection relating to the Facilities or the
BC Chicken Products and the BC Other Products; and
iv. process and package the BC Chicken Products and the BC
Other Products as specified by the Company from time to time.
b. Negative Covenants. The Supplier covenants that, during the
Term of this Agreement, it shall not, without the prior consent or approval of
the Company, which consent or approval shall not unreasonably be withheld:
i. produce at the Dexter Facility any product, other than
Chicken Products sold to the Company;
ii. following the Commencement Date or the Henderson
Facility Commencement Date, as appropriate, make any capital expenditure or
related series of capital expenditures at either Facility in excess of
$100,000;
iii. depreciate any of the Facilities' capital assets in a
manner inconsistent with the manner in which the Supplier has depreciated
comparable capital assets at its other production facilities in the past, as
set forth in Exhibit D;
iv. take any hedging position with respect to any feed grain
or other commodity that would be included in the calculation of the Facilities
Cost; or
v. change its current method of corporate overhead
allocation (based upon an imputed interest expense at an interest factor that
may vary during any of the Supplier's fiscal years).
8. Ordering and Logistics. The Supplier and the Company hereby
undertake to establish jointly an efficient ordering, shipping and inventory
procedure within ninety days after the date of this Agreement.
9. Force Majeure. Neither the Supplier nor the Company shall be liable
for, or deemed to be in default hereunder or subject to any remedies of the
other party as a result of, delays or performance failures due to fire or
other acts of God, strikes, riots or similar causes beyond such party's
reasonable control, and without the fault or negligence of the Company or the
Supplier; provided, however, that when the Supplier has reason to believe that
deliveries of BC Chicken Products will not be made as scheduled, written
notice setting forth the cause of the anticipated delay shall be given
immediately to the Company and the Supplier shall use reasonable efforts to
facilitate the Company in securing alternative supplies of BC Chicken
Products.
<PAGE> 15
10. Warranties.
a. Supplier Warranties. The Supplier represents and warrants
that:
i. the Supplier is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware;
ii. the execution, delivery and performance by the Supplier
of this Agreement are within the Supplier's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene the
Supplier's charter or by-laws or any law or contractual restriction binding on
or affecting the Supplier;
iii. there is no pending or threatened litigation challenging
the Supplier's authority to enter into and perform under this Agreement;
iv. each and every Chicken Product produced at either
Facility and its packaging: (A) will not be adulterated or misbranded within
the meaning of any applicable federal, state or local law, or any rules and
regulations promulgated thereunder; (B) will be produced (if a BC Chicken
Product) in accordance with the quality and production standards set forth on
Exhibit A hereto; and (C) will comply with applicable federal, state and local
laws, and the rules and regulations promulgated thereunder; and
v. the production of Chicken Products at either Facility
does not infringe any patent, copyright, trade secret or other proprietary
right or process.
b. Company Warranties. The Company represents and warrants
that:
i. the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware;
ii. the execution, delivery and performance by the Company
of this Agreement are within the Company's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene the
Company's charter or by-laws or any law or contractual restriction binding on
or affecting the Company;
iii. there is no pending or threatened litigation challenging
the Company's authority to enter into and perform under this Agreement.
11. Indemnity.
a. Supplier's Indemnity. The Supplier agrees to protect and
indemnify and hold harmless the Company and its customers, shareholders,
officers, directors, employees, franchisees, joint venturers, agents and
affiliates from any claim, demand, loss, damage, liability, cost or expense,
directly or indirectly arising out of, or in connection with, or resulting
from, the willful or negligent acts or omissions of the Supplier, or any of
its employees, agents or contractors, relating to the manufacture, sale, use
or consumption of any article of food sold or delivered by the Supplier from
<PAGE> 16
the Facilities during the Term of this Agreement. In the event the Company is
required to conduct a recall or notification campaign due to an alleged defect
in the food so sold, the Supplier will conduct the same or pay the Company's
costs and expenses thereof at the Company's option.
b. Company's Indemnity. The Company agrees to protect and
indemnify and hold harmless the Supplier, its shareholders, officers,
directors, employees, joint venturers, agents and affiliates from any claim,
demand, loss, damage, liability, cost or expense, directly or indirectly
arising out of, or in connection with, or resulting from, the willful or
negligent acts or omissions of the Company, or any of its employees, agents or
contractors, relating to the sale, use or consumption of any article of food
sold or delivered by the Supplier to the Company.
12. Termination of Agreement. Notwithstanding anything to the
contrary herein stated, this Agreement shall terminate prior to the expiration
of the Term provided for in Section 4 hereof:
a. at the option of the Company, upon the filing of a voluntary
bankruptcy or insolvency petition by the Supplier or an involuntary bankruptcy
or insolvency petition against the Supplier which is not vacated within 30
days from the date of filing, or the entry of an order for relief in any
bankruptcy proceeding in which the Supplier is a defendant; the appointment of
a receiver or trustee for the Supplier; the execution of an assignment for the
benefit of creditors of the Supplier or the execution of a composition with
creditors or any agreement of like import by the Supplier; or
b. at the option of the Supplier, upon the filing of a voluntary
bankruptcy or insolvency petition by the Company or an involuntary bankruptcy
or insolvency petition against the Company which is not vacated within 30 days
from the date of filing, or the entry of an order for relief in any bankruptcy
proceeding in which the Company is a defendant; the appointment of a receiver
or trustee for the Company; the execution of an assignment for the benefit of
creditors of the Company or the execution of a composition with creditors or
any agreement of like import by the Company; or
c. at the option of the Supplier, in the event that the Company
is in material default in the performance of any of the terms or conditions of
this Agreement (including payment obligations, or the Company shall breach any
representation or warranty of the Company set forth in this Agreement in any
material respect), provided that such default or breach is not cured within
thirty (30) days after written notice to the Company by the Supplier of such
default or breach; or
d. at the option of the Company but subject to the last sentence
of Section 14 hereof, in the event that the Supplier is in material default in
the performance of any of the terms or conditions of this Agreement, or the
Supplier shall breach any of its representations or warranties set forth in
this Agreement in any material respect, provided that such default or breach
is not cured within thirty (30) days after written notice to the Supplier by
the Company of such default or breach; or
e. upon a change in control of (i) the Supplier, at the option
of the Company, or (ii) the Company, at the option of the Supplier.
<PAGE> 17
If this Agreement is terminated pursuant to Section 12(c), the Company
agrees that it will purchase from the Supplier at the Supplier's net out-of-
pocket cost, or reimburse the Supplier for its net out-of-pocket cost, for all
packaging materials purchased by the Supplier for the Chicken Products and
which have been rendered unusable because of such termination.
13. Insurance. The Supplier shall at all times maintain commercial
general liability insurance, including product liability and contractual
liability coverage, the coverages, amounts and deductible levels of such
policies to be consistent with industry standards. Such policies shall name
the Company as additional insured and the Supplier shall provide the Company
with certificates of insurance evidencing these insurance coverages providing
for 30 days' advance written notice to the Company of any material change or
termination of these coverages.
14. Remedies upon Default. Termination of this Agreement by either
party pursuant to Section 12(c) or (d) shall not limit or otherwise affect the
remedies of the nondefaulting or nonbreaching party against the defaulting or
breaching party. In the event that either party is in material default under
any of the terms or conditions of this Agreement or has materially breached
any of its representations or warranties in this Agreement, the nondefaulting
or nonbreaching party shall be entitled to pursue, in addition to any remedies
specifically provided herein, all further remedies then available under the
applicable state Uniform Commercial Code or otherwise available at law or in
equity. Notwithstanding anything herein to the contrary (including, without
limitation Section 12(d) hereof), the failure of any Chicken Products or
Third-Party Products to meet applicable specifications shall not be a breach
of this Agreement, provided that in the event the purchaser rejects any such
Products, the cost of any such Products shall be an "Excluded Cost" under
clause (viii) of the definition of that term and, provided further, this
sentence shall not reduce or affect any obligation the Supplier may have
pursuant to Section 11(a) of this Agreement.
15. Proprietary Information.
a. Confidentiality Agreement. The Company and the Supplier
acknowledge that they have previously executed and delivered a Confidentiality
Agreement, dated June 23, 1994, and such Confidentiality Agreement is
incorporated herein, as if fully set forth, and shall be effective during the
Term of this Agreement.
b. Remedy on Breach. In the event of a breach or threatened
breach of the obligations of the either party pursuant to the Confidentiality
Agreement, the breaching party agrees that in addition to any other legal
rights or remedies that the other party may have, the other party shall be
entitled to injunctive and/or other equitable relief to prevent or remedy such
breach or threatened breach.
16. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto, which consent shall not
unreasonably be withheld.
<PAGE> 18
17. Notices. Any notice or other communication provided for herein
or given hereunder to a party hereto shall be in writing and shall be (i)
mailed by first class registered or certified mail, postage prepaid, (ii)
delivered by a nationally recognized overnight courier service, or (iii)
transmitted by confirmed facsimile or other confirmed electronic transmission,
addressed as follows:
If to the Company:
Boston Chicken, Inc.
14103 Denver West Parkway
P.O. Box 4086
Golden, Colorado 80401-4086
Facsimile: (303) 384-5335
Attn: Donald J. Bingle
General Counsel
If to the Supplier:
Hudson Foods, Inc.
1225 Hudson Road
Rogers, Arkansas 72756
Facsimile: (501) 631-5400
Attn: Michael T. Hudson
President
or to such other address with respect to a party as such party shall notify
the other party in writing as above provided.
18. Entire Agreement; Amendment. This Agreement (including
attachments, exhibits and materials incorporated by reference, and that
certain Vendor Quality Program Agreement attached hereto as Exhibit F)
represents the entire agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties. Any amendment of this Agreement shall be in
writing, signed by both parties. No termination of approved vendor status or
default under the Vendor Quality Program Agreement shall constitute a default
under or give rise to remedies under this Agreement unless the event or events
causing a termination of approved vendor status or default under the Vendor
Quality Program Agreement would separately, without reference to the Vendor
Quality Program Agreement, constitute a default under and give rise to
remedies under this Agreement.
19. Caption Headings. The section and paragraph headings used in this
Agreement are included for purposes of convenience only and shall not affect
the construction or interpretation of any of its provisions.
20. WAIVERS OF JURY TRIAL AND PUNITIVE DAMAGES. THE SUPPLIER AND THE
COMPANY EACH HEREBY IRREVOCABLY WAIVE (A) ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND (B) ALL RIGHT TO SEEK OR RECEIVE PUNITIVE DAMAGES IN ANY SUCH
ACTION, PROCEEDING OR COUNTERCLAIM.
<PAGE> 19
21. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware and shall be subject to the
Uniform Commercial Code of the State of Delaware to the extent not
inconsistent with the terms hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have amended and restated the
Initial Agreement, effective as of April 1, 1996.
HUDSON FOODS, INC.
By /s/ Michael T. Hudson
--------------------------------
Michael T. Hudson
President and Chief Operating Officer
BOSTON CHICKEN, INC.
By /s/ Donald J. Bingle
--------------------------------
Name: Donald J. Bingle
Title:Vice President
<PAGE> 21
SCHEDULE OF EXHIBITS TO CONFORMED COPY OF
PURCHASE AND SUPPLY AGREEMENT (AMENDED AND RESTATED)
Exhibit A Specifications for the BC Chicken Products
Exhibit B By-Product Chart
Exhibit C Dexter Facility Capital Assets
Exhibit D Depreciation Schedules and Policies
Exhibit E Recipes, Specifications and Standards for the Turkey
Products
Exhibit F Vendor Quality Program Agreement
