<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of
the Commission Only
(as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ALPINE LACE BRANDS, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and O-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value
Preferred Stock, $0.01 par value
(2) Aggregate number of securities to which transaction applies:
5,121,057 shares of Common Stock, $0.01 par value
45,000 shares of Preferred Stock, $0.01 par value
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$9.125 for the Common Stock, $0.01 par value
$62.90 for the Preferred Stock, $0.01 par value
(4) Proposed maximum aggregate value of transaction:
$49,559,895
(5) Total fee paid:
$9,911.98
|X| Fee paid previously with preliminary materials.
|X| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid: $9,902.70
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LOGO]
November 10, 1997
Dear Stockholders:
I am pleased to invite you to the Special Meeting of Stockholders of
Alpine Lace Brands, Inc. (the "Company"), which will be held at the Wyndham
Garden Hotel Newark Airport, 901 Spring Street, Elizabeth, New Jersey 07201, on
December 5, 1997 at 10:00 a.m., local time, subject to any adjournment or
postponement (the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt (i) the Agreement and Plan of Merger, dated as of
October 1, 1997 (the "Merger Agreement"), among the Company, Land O'Lakes, Inc.,
a Minnesota cooperative corporation, and AVV Inc., a Delaware corporation and a
wholly-owned subsidiary of Land O'Lakes, Inc., pursuant to which the Company
will merge with AVV Inc. (the "Merger") and the Company will be the surviving
corporation in the Merger and (ii) the Merger. Upon the effectiveness of the
Merger, (i) each outstanding share of common stock, $.01 par value per share, of
the Company (the "Common Stock"), other than shares of Common Stock with respect
to which statutory appraisal rights have been properly exercised, will be
converted into the right to receive $9.125, in cash, and (ii) each outstanding
share of preferred stock, $.01 par value per share, of the Company (the
"Preferred Stock"), other than shares of Preferred Stock with respect to which
statutory appraisal rights have been properly exercised, will be converted into
the right to receive an amount, in cash, equal to the product of (x) $9.125
multiplied by (y) an amount which is equal to the quotient of (A) $50 plus all
accrued dividends on one share of Preferred Stock that remain unpaid as of the
effectiveness of the Merger, divided by (B) $7.375. The Merger Agreement is
attached to the accompanying Proxy Statement as Appendix A.
A COMMITTEE OF ALL OF THE INDEPENDENT DIRECTORS OF YOUR BOARD OF DIRECTORS
AND YOUR BOARD OF DIRECTORS HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND BELIEVE THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN
THE BEST INTERESTS OF, ALPINE LACE BRANDS, INC. AND ITS STOCKHOLDERS. YOUR BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF ALPINE LACE
BRANDS, INC. VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER.
The accompanying Proxy Statement provides detailed information concerning
the proposed Merger and other additional information that you are urged to read
carefully.
As a holder of the Common Stock you have certain dissenters' rights of
appraisal with respect to the proposed Merger. In order to exercise such rights,
you must vote against approval of the Merger or abstain from voting for or
against the Merger. Please note that a signed proxy that does not vote against
approval of the Merger or does not abstain with respect to such vote will be
voted for such approval. Your
<PAGE> 3
dissenters' rights of appraisal are governed by specific legal provisions
contained in 262 of the Delaware General Corporation Law is attached to the
accompanying Proxy Statement as Appendix B.
I hope that you will be able to attend the Special Meeting. However,
whether or not you anticipate attending in person, I urge you to complete, sign
and return the enclosed proxy card promptly to ensure that your shares will be
represented at the Special Meeting. If you do attend, you will, of course, be
entitled to vote in person, and such vote will revoke your proxy.
Sincerely,
CARL T. WOLF
Chairman of the Board
- 2 -
<PAGE> 4
ALPINE LACE BRANDS, INC.
111 Dunnell Road
Maplewood, New Jersey 07040
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 5, 1997
----------------------
To our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders (the
"Special Meeting") of Alpine Lace Brands, Inc. (the "Company") will be held at
10:00 a.m., local time, on December 5, 1997 at the Wyndham Garden Hotel Newark
Airport, 901 Spring Street, Elizabeth, New Jersey 07201, for the following
purposes:
1. To approve and adopt (i) the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of October 1, 1997, among the
Company, Land O'Lakes, Inc., a Minnesota cooperative
corporation, and AVV Inc., a Delaware corporation and a
wholly-owned subsidiary of Land O'Lakes, Inc., pursuant to
which the Company will merge with AVV Inc. (the "Merger") and
the Company will be the surviving corporation in the Merger
and (ii) the Merger. Upon the effectiveness of the Merger, (i)
each outstanding share of common stock, $.01 par value per
share, of the Company (the "Common Stock"), other than shares
of Common Stock with respect to which statutory appraisal
rights have been properly exercised, will be converted into
the right to receive $9.125, in cash, and (ii) each
outstanding share of preferred stock, $.01 par value per
share, of the Company (the "Preferred Stock"), other than
shares of Preferred Stock with respect to which statutory
appraisal rights have been properly exercised, will be
converted into the right to receive an amount, in cash, equal
to the product of (x) $9.125 multiplied by (y) an amount which
is equal to the quotient of (A) $50 plus all accrued dividends
on one share of Preferred Stock that remain unpaid as of the
effectiveness of the Merger, divided by (B) $7.375.
2. To consider and act upon any other business as may properly
come before the Special Meeting or any adjournment or
postponement thereof.
A COMMITTEE OF ALL THE INDEPENDENT DIRECTORS OF YOUR BOARD OF DIRECTORS
AND YOUR BOARD OF DIRECTORS HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND BELIEVE THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN
THE BEST INTERESTS OF, ALPINE LACE BRANDS, INC. AND ITS STOCKHOLDERS. YOUR BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF ALPINE LACE
BRANDS, INC. VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER.
Stockholders of the Company of record at the close of business on November
7, 1997 are entitled to notice of the Special Meeting or any adjournment or
postponement thereof. Only holders of Common Stock of record at the close of
business on November 7, 1997 are entitled to vote at the Special Meeting or any
adjournment or postponement thereof.
The Merger and other related matters are more fully described in the
accompanying Proxy Statement, and the appendixes thereto.
<PAGE> 5
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE RETURN ENVELOPE
PROVIDED TO THE COMPANY'S TRANSFER AGENT, CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, 2 BROADWAY, NEW YORK, NEW YORK 10004. IN ORDER TO AVOID THE ADDITIONAL
EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN
MAILING IN YOUR PROXY PROMPTLY.
By Order of the Board of Directors
KENNETH E. MEYERS
Secretary
November 10, 1997
<PAGE> 6
ALPINE LACE BRANDS, INC.
111 Dunnell Road
Maplewood, New Jersey 07040
-------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 5, 1997
-------------
This Proxy Statement is being furnished to the holders of common stock,
$.01 par value per share ("Common Stock"), of Alpine Lace Brands, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at a special meeting of
stockholders (the "Special Meeting") of the Company to be held at 10:00 a.m.,
local time, on December 5 , 1997 at the Wyndham Garden Hotel Newark Airport, 901
Spring Street, Elizabeth, New Jersey 07201, and at any adjournment or
postponement thereof. This Proxy Statement is also being furnished to the
holders of Preferred Stock (as defined below) of the Company in order to provide
such holders with notice of the Special Meeting and of their right to dissent
from the Merger (as defined below) pursuant to statutory appraisal rights as
described more fully herein. See "Appraisal Rights." Holders of Preferred Stock
should be aware that pursuant to the designation, rights and privileges of such
Preferred Stock, such holders of Preferred Stock have no right to vote on the
Merger Agreement (as defined below), the Merger or the transactions contemplated
thereby.
The purpose of the Special Meeting is to consider and vote upon approval
and adoption of (i) the Agreement and Plan of Merger, dated as of October 1,
1997 (the "Merger Agreement"), among the Company, Land O'Lakes, Inc., a
Minnesota cooperative corporation ("Land O'Lakes"), and AVV Inc., a Delaware
corporation and a wholly-owned subsidiary of Land O'Lakes, pursuant to which the
Company will merge with AVV Inc. (the "Merger") and the Company will be the
surviving corporation (the "Surviving Corporation") in the Merger and (ii) the
Merger. Upon the effectiveness of the Merger (the "Effective Time"), (i) each
outstanding share of Common Stock, other than shares of Common Stock with
respect to which statutory appraisal rights have been properly exercised, will
be converted into the right to receive $9.125, in cash, and (ii) each
outstanding share of preferred stock, $.01 par value per share (the "Preferred
Stock"), of the Company, other than shares of Preferred Stock with respect to
which statutory appraisal rights have been properly exercised, will be converted
into the right to receive an amount, in cash, equal to the product of (x) $9.125
multiplied by (y) an amount which is equal to the quotient of (A) $50 plus all
accrued dividends on one share of Preferred Stock that remain unpaid as of the
Effective Time, divided by (B) $7.375. At the Effective Time, all of the capital
stock of the Surviving Corporation will be owned by Land O'Lakes. See "The
Merger--Purpose, Structure and Effect of the Merger." The Merger Agreement is
attached hereto as Appendix A and is incorporated herein by reference.
This Proxy Statement is dated November 10, 1997 and is, along with the
accompanying form of proxy, first being distributed to the stockholders of the
Company on or about such date.
<PAGE> 7
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such reports,
proxy statements and other information can be obtained, at prescribed rates,
from the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities referred to above and at the Regional Offices of
the Commission as follows: the New York Regional Office, Suite 1300, 7 World
Trade Center, New York, New York 10048; and the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Common Stock is listed on the Nasdaq National Market tier of
the Nasdaq Stock Market. Reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a website that contains reports, proxy and
information statements and other information regarding the Company; the address
of such website is http://www.sec.gov.
<PAGE> 8
TABLE OF CONTENTS
THE SPECIAL MEETING.......................................................... 1
Record Date, Proxies, Voting and Revocation......................... 1
Solicitation........................................................ 1
Quorum.............................................................. 2
Votes Required...................................................... 2
Appraisal Rights.................................................... 2
THE MERGER................................................................... 3
Purpose, Structure and Effect of the Merger......................... 3
Background of the Merger............................................ 3
Reasons for the Merger.............................................. 7
Opinion of Financial Advisor........................................ 8
Interests of Certain Persons in the Merger.......................... 12
Accounting Treatment of the Merger.................................. 14
Certain Effects of the Merger....................................... 14
Regulatory Approvals................................................ 14
Certain Federal Income Tax Consequences............................. 15
THE MERGER AGREEMENT......................................................... 16
Terms of the Merger................................................. 16
Options or Warrants................................................. 18
Payment of Shares................................................... 18
Representations and Warranties...................................... 19
Conduct of Business Pending the Merger.............................. 20
Additional Agreements............................................... 22
Conditions to the Merger............................................ 23
Termination......................................................... 26
Fees and Expenses................................................... 27
Amendment........................................................... 28
Waiver of Compliance; Consents...................................... 28
APPRAISAL RIGHTS..............................................................29
BUSINESS OF THE COMPANY...................................................... 32
Branded Business.................................................... 32
Manufacturing....................................................... 33
Marketing and Advertising........................................... 34
Distribution........................................................ 35
Cheese Converting, Packaging and Manufacturing Operations........... 35
Cheese and Dairy Products Trading Business.......................... 35
Government Regulation............................................... 36
Trademarks and Patents.............................................. 36
<PAGE> 9
Competition......................................................... 36
Employees........................................................... 37
Business Segment Information........................................ 37
Properties.......................................................... 37
Legal Proceedings................................................... 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY............................................. 39
CERTAIN TRANSACTIONS......................................................... 41
Market Finders Brokerage, Inc....................................... 41
Herbloc, Inc........................................................ 41
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS........................................ 42
THE COMPANY'S DIVIDEND POLICY................................................ 42
SELECTED CONSOLIDATED FINANCIAL DATA......................................... 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................ 44
Results of Operations............................................... 44
Recent Developments................................................. 46
Inflation........................................................... 46
Liquidity; Capital Resources........................................ 47
LAND O'LAKES, INC............................................................ 48
FINANCIAL INFORMATION........................................................ 48
FEES AND EXPENSES............................................................ 48
OTHER MATTERS................................................................ 48
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..................................... 48
1998 ANNUAL MEETING OF STOCKHOLDERS.......................................... 49
INDEX TO FINANCIAL STATEMENTS................................................F-1
Appendix A -- Merger Agreement
Appendix B -- Section 262 of the Delaware General Corporation Law
Appendix C -- Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
<PAGE> 10
THE SPECIAL MEETING
A committee of all of the independent directors of the Board of Directors
of the Company (the "Special Committee") and the Board of Directors of the
Company unanimously approved the Merger Agreement. The Board of Directors of the
Company recommends that the stockholders of the Company vote FOR approval and
adoption of the Merger Agreement and the Merger. See "The Merger--Background of
the Merger."
Record Date, Proxies, Voting and Revocation
Stockholders of the Company of record at the close of business on November
7, 1997 (the "Record Date") will be entitled to notice of the Special Meeting
and any adjournment or postponement thereof. Only holders of Common Stock of
record on the Record Date will be entitled to vote at the Special Meeting and
any adjournment or postponement thereof. As of the Record Date, there were
5,121,057 shares of Common Stock issued and outstanding which were held by
approximately 190 holders of record. Each share of Common Stock is entitled to
one vote. See "The Merger--Interests of Certain Persons in the Merger." This
Proxy Statement, Notice of Special Meeting and the enclosed proxy card were
first mailed to stockholders of the Company on or about November 10, 1997.
Holders of Common Stock are requested to complete, sign, date and return
the enclosed proxy card in order to ensure that their shares of Common Stock are
voted. Any stockholder may revoke the stockholder's proxy at any time before it
is voted by delivering a written notice to the Company stating that the proxy is
revoked, by executing a later dated proxy and presenting it to the Company or by
attending the Special Meeting and voting in person. Any stockholder who desires
to revoke the stockholder's proxy by written notice or a later dated proxy
should direct such written notice or later dated proxy to the Company in care of
its Secretary at the address set forth on the first page of this Proxy
Statement. Each valid proxy returned will be voted as directed and not voted if
authority to vote is withheld. IF NO DIRECTION IS INDICATED, THE PROXY WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Holders of Preferred Stock are being sent a copy of this Proxy Statement
in order to notify such holders of the Special Meeting and of their statutory
right to dissent from the Merger; provided however, holders of Preferred Stock
have no right to vote on the Merger, the Merger Agreement or the transactions
contemplated thereby.
Solicitation
In addition to the solicitation of proxies by use of the mails, certain
directors, officers and regular employees of the Company may solicit the return
of proxies by telephone, telegram or personal interview. These directors,
officers and employees will not be additionally compensated, but will be
reimbursed for any out-of-pocket expenses incurred. The expense of soliciting
proxies (including reimbursement, upon request, of banks, brokerage houses and
others of their expenses in forwarding soliciting material to beneficial owners)
will be borne by the Company. In addition, Shareholder Communication Corporation
has been engaged by the Company to act as proxy solicitors and will receive fees
of $4,000.00 plus expenses.
<PAGE> 11
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum at the Special Meeting.
Votes Required
The approval and adoption of the Merger Agreement and the approval of the
Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock that are entitled to vote thereon. Mr. Carl
T. Wolf, President and Chief Executive Officer of the Company, and Mrs. Marion
F. Wolf, a Vice President of the Company, owned of record, as of the Record
Date, 1,476,600 and 5,000 shares of Common Stock, respectively, representing
28.8% and .1%, respectively, of the shares of Common Stock then outstanding. In
addition, Mr. and Mrs. Wolf jointly owned of record, as of the Record Date,
75,000 shares of Common Stock, representing 1.46% of the shares of Common Stock
then outstanding. Mr. and Mrs. Wolf have agreed to vote all of such shares of
Common Stock in favor of the approval and adoption of the Merger Agreement and
approval of the Merger and have granted proxies therefor to representatives of
Land O'Lakes. See "The Merger--Interests of Certain Persons in the Merger."
Votes cast by proxy or in person at the Special Meeting will be counted by
an inspector of election appointed for the meeting. The election inspector will
treat share abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum with respect to any matter
submitted to the stockholders for a vote. Abstentions, however, do not
constitute a vote "for" or "against" any matter. Since the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock entitled to
vote on the Merger is required to approve and adopt the Merger Agreement and the
Merger, such abstentions will have the effect of a negative vote.
The election inspector will treat shares referred to as "broker non-votes"
(i.e., shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote that the broker
or nominee does not have the discretionary power to vote on a particular matter)
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has physically indicated on the proxy that it does
not have discretionary authority to vote, those shares will be treated as not
present and not entitled to vote with respect to that matter (even though those
shares are considered present and entitled to vote for quorum purposes and may
be entitled to vote on other matters). Therefore, the failure of beneficial
owners to provide specific instructions to their brokers with respect to their
shares of Common Stock will have the effect of a negative vote on the Merger
Agreement and the Merger.
Appraisal Rights
Stockholders have the right to demand appraisal rights for their shares of
Common Stock and Preferred Stock and, subject to certain conditions provided
under Section 262 of the Delaware General Corporation Law (the "DGCL"), to
receive payment for the fair value of their shares of Common Stock and Preferred
Stock. See "Appraisal Rights." A copy of Section 262 of the DGCL is attached
hereto as Appendix B and is incorporated herein by reference.
-2-
<PAGE> 12
THE MERGER
Purpose, Structure and Effect of the Merger
The purpose of the Merger is for Land O'Lakes to acquire the entire equity
interest in the Company. In connection with the Merger, (i) the Company will
become a wholly-owned subsidiary of Land O'Lakes, (ii) the holders of Common
Stock (other than holders of Common Stock who properly perfect appraisal rights
in accordance with Section 262 of the DGCL) will receive $9.125 per share, in
cash (the "Common Stock Merger Consideration") and (iii) holders of Preferred
Stock (other than holders of Preferred Stock who properly perfect appraisal
rights in accordance with Section 262 of the DGCL) will receive an amount per
share, in cash, equal to the product of (x) $9.125 multiplied by (y) an amount
which is equal to the quotient of (A) $50 plus all accrued dividends on one
share of Preferred Stock that remain unpaid as of the effectiveness of the
Merger, divided by (B) $7.375 (the "Preferred Stock Merger Consideration," and
collectively with the Common Stock Merger Consideration, the "Merger
Consideration"). See "--Interests of Certain Persons in the Merger."
This transaction is structured as a cash merger. The Company's purpose in
submitting the Merger to the vote of its stockholders with a favorable
recommendation at this time is to allow the Company's stockholders an
opportunity to receive a cash payment at a price that has been determined by the
Special Committee and the Board of Directors of the Company to be fair to the
stockholders of the Company. The Merger has been structured as a cash merger in
order to provide a prompt and orderly transfer of ownership of the Company to
Land O'Lakes and to provide the stockholders of the Company with cash for all of
their shares of Common Stock and Preferred Stock. See "--Reasons for the Merger"
and "--Opinion of Financial Advisor."
If the Merger is consummated, the stockholders of the Company will no
longer have any equity interest in the Company, and therefore will not share in
its future earnings and growth. Instead, each such stockholder (other than such
stockholders who properly perfect appraisal rights in accordance with Section
262 of the DGCL) will receive, upon surrender of the certificate or certificates
evidencing Common Stock or Preferred Stock, as applicable, the Common Stock
Merger Consideration or Preferred Stock Merger Consideration, in exchange for
each share of Common Stock or Preferred Stock owned immediately prior to the
Effective Time.
Background of the Merger
The Company has been interested in expanding its product line and
increasing its revenue, particularly from sales of its branded products, but
believes that the volatility of its historical earnings, the cost and
availability of capital and the risks inherent in such expansion have
constrained it from pursuing such expansion. Between 1992 and 1994, the Company
and Land O'Lakes had informal discussions concerning the possibility of an
acquisition and then in the spring of 1996, Carl T. Wolf, President and Chief
Executive Officer of the Company, approached Richard Anderson, Marketing
Director, Delicatessen Products, and Thomas Verdoorn, Vice President, Finance
and Administration, Dairy Foods Group, of Land O'Lakes to discuss possible
strategic alliances and joint ventures. Several informal discussions were held
among Mr. Wolf, Marion F. Wolf, Vice President - Food Service of the Company,
and Kenneth Meyers, Secretary of the Company and President and Chief Executive
Officer of MCT Dairies, Inc., a wholly-owned subsidiary of the Company, on
behalf of the Company, and Messrs. Anderson and Verdoorn, on behalf of Land
O'Lakes. These discussions did not lead to any arrangements between the Company
and Land O'Lakes.
-3-
<PAGE> 13
In December 1996, Mr. Anderson called Mr. Wolf to request a meeting, and,
on December 23, 1996, Messrs. Anderson and Verdoorn and Angela Busch, Director
of Planning and Business Development of Land O'Lakes, met with Mr. and Mrs. Wolf
and Arthur Karmel, Vice President-Finance of the Company, in Newark, New Jersey.
Also present at the meeting were representatives of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), on behalf of the Company, and
Janney Montgomery Scott Inc. ("Janney Montgomery"), on behalf of Land O'Lakes.
At that meeting, representatives of Land O'Lakes stated an interest in Land
O'Lakes acquiring the Company, but they did not specify any price and requested
the opportunity to conduct a due diligence review of the Company.
Land O'Lakes entered into a Confidentiality Agreement with the Company on
December 23, 1996 and the Company provided Land O'Lakes with the financial
information Land O'Lakes requested in January 1997. On January 23, 1997,
representatives of Janney Montgomery met with Messrs. Wolf and Karmel to obtain
more information about the Company. On February 4, 1997, Mr. and Mrs. Wolf, Mr.
Karmel and representatives of Merrill Lynch met with Messrs. Anderson and
Verdoorn, Ms. Busch and representatives of Janney Montgomery in Newark, New
Jersey. At that meeting, Land O'Lakes indicated that the range of values for the
purchase of the Company it was considering was between $6.75 and $8.00 per share
for all of the Company's outstanding Common Stock and Preferred Stock on a
converted basis. Representatives of the Company indicated that they thought the
range was too low and, on February 10, 1997, Mr. Wolf called Mr. Anderson to
discuss further Land O'Lakes' proposed value range.
On February 13, 1997, the Board of Directors of the Company held a regular
meeting. At the meeting, Mr. Wolf summarized the discussions with Land O'Lakes
and the Board of Directors discussed several alternatives to increase value for
the Company's stockholders.
During the week of March 17, 1997 several telephone conversations took
place between Mr. Wolf and Mr. Anderson and Mr. John Gherty, President and Chief
Executive Officer of Land O'Lakes. During these conversations, Land O'Lakes'
possible range of values was discussed and Land O'Lakes and Mr. and Mrs. Wolf
discussed entering into consulting and non-compete agreements in connection with
any transaction that might be agreed upon. On March 25, 1997, Land O'Lakes sent
a letter to Mr. Wolf in which it proposed to acquire the Company for $8.00 per
share, payable in cash, the buy out of the Company's existing employment
agreements with management, including Mr. and Mrs. Wolf, and 10-year consulting
and non-compete agreements with Mr. and Mrs. Wolf under which they would be paid
$600,000 per year, in the aggregate, for their agreements to consult with Land
O'Lakes and not to compete with Land O'Lakes and also for their agreement to
terminate their existing employment agreements with the Company.
On March 27, 1997, the Board of Directors of the Company held a special
meeting at which there was a full discussion of the Land O'Lakes proposal and
the alternatives available to the Company. It was the consensus of the meeting
to continue discussions with Land O'Lakes to determine whether an agreement
could be reached that would maximize value for the Company's stockholders and
would provide appropriate arrangements for the Company's employees.
From March 27 through April 3, 1997, Land O'Lakes conducted additional due
diligence and, on April 3, 1997, the Board of Directors of the Company held a
special meeting at which Mr. Wolf summarized the status of the discussions with
Land O'Lakes and indicated that the structure of the transaction was uncertain
and that, in addition to price, issues relating to the Company's and Land
O'Lakes' right to terminate the transaction and termination fees, as well as
severance arrangements for the Company's employees, remained unresolved. At the
meeting, the Board of Directors appointed a Special Committee, consisting of all
of the Company's directors other than Mr. and Mrs. Wolf, to evaluate the
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proposed business combination with Land O'Lakes and to retain counsel and
investment bankers in connection with its evaluation. Mr. Joseph R. Rosetti was
appointed chairman of the Special Committee. On April 7, 1997, the Company and
Land O'Lakes entered into a new confidentiality agreement. The Special Committee
retained Kramer, Levin, Naftalis & Frankel ("Kramer, Levin"), New York, New
York, as special counsel to the Company and Mr. Rosetti met with representatives
of Merrill Lynch on April 9, 1997 to discuss their possible retention as
investment bankers and the scope of a fairness opinion that Merrill Lynch would
be able to present to the Company.
On April 9, 1997, counsel for Land O'Lakes delivered a first draft of a
proposed merger agreement to Kramer, Levin. On April 11, 1997, the Special
Committee held a meeting. At the meeting, the Special Committee (1) approved the
retention of Merrill Lynch as the Company's investment bankers and authorized
the officers of the Company to enter into the form of engagement letter with
Merrill Lynch that had been presented to and reviewed by the Special Committee,
(2) discussed in full the alternatives available to the Company, (3) reviewed in
detail the terms proposed by Land O'Lakes, including significant provisions of
the draft merger agreement that had been received by Kramer, Levin, the
severance arrangements proposed for employees and the consulting and non-compete
arrangements Land O'Lakes requested each of Mr. and Mrs. Wolf to enter into, and
(4) received, and discussed, a detailed presentation by Merrill Lynch as to the
fairness to the Company's stockholders, from a financial point of view, of the
Land O'Lakes offer to purchase the Company for $8.00 per share, in cash.
Between April 4, and April 18, 1997, the Company prepared schedules and
provided significant due diligence materials requested by Land O'Lakes and
counsel for Land O'Lakes. Kramer, Levin, on behalf of the Company, held numerous
negotiations with counsel for Land O'Lakes concerning the terms of the proposed
merger agreement, which was redrafted several times and was substantially
completed on April 18, 1997.
On April 19, 1997, the Company requested that Land O'Lakes increase the
merger consideration to be paid to stockholders of the Company and Land O'Lakes
declined such request. Thereafter, on April 19, 1997, the Company terminated
discussions with Land O'Lakes because it believed that the Company's results of
operations would improve during 1997 and that, if results in fact improved, a
more organized effort to sell the Company later in the year would result in a
higher value to stockholders.
On June 20, 1997, the Board of Directors of the Company held a regular
meeting. Mr. Wolf reported that he asked Merrill Lynch to prepare a descriptive
memorandum to solicit offers for the Company in case the Board determined to
authorize an effort to sell the Company in the summer of 1997, and the Board of
Directors discussed the appropriate strategy to employ if a decision was made to
attempt to sell the Company. On July 17, 1997, the Board of Directors held a
special meeting at which Merrill Lynch was authorized to assist the Company in
pursuing strategic alternatives, including the possible sale of the Company.
Merrill Lynch described in general terms that it proposed to canvass a wide
range of potential acquirors of the Company. On July 17, 1997, the Company
issued a press release announcing that it had retained Merrill Lynch to assist
the Company in exploring strategic initiatives to enhance stockholder value and
that it was exploring several alternatives, including the possible sale of the
Company. Subsequent to July 17, 1997, Merrill Lynch began to make contact with
more than 150 companies to ascertain whether they had an interest in a
transaction with the Company and conducted an auction process. On July 31, 1997,
the Board of Directors of the Company held a special meeting. At the meeting,
Merrill Lynch reported on the status of its efforts on behalf of the Company and
the actions it would take. The Board engaged in a discussion about the
appropriate strategy to maximize value for the Company's stockholders.
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On September 10, 1997, Land O'Lakes submitted a bid to Merrill Lynch to
purchase the Company for $9.125 per share of Common Stock and Preferred Stock
(on an as converted basis), in cash. As part of such bid, Land O'Lakes would
require each of Mr. and Mrs. Wolf to enter into non-compete agreements extending
the term of their non-competition with the Company from two years to five years
for which Land O'Lakes would pay an aggregate of $500,000. The bid did not
address the existing employment agreements of Mr. and Mrs. Wolf which provided
for their continued employment by the Company for three years and one year,
respectively, in the event of a Change of Control (as defined in such employment
agreements) which, at their current compensation levels, would have resulted in
payments to them of $975,000 and $140,000, respectively, in addition to employee
benefits during the respective terms of their employment. On September 12, 1997,
Merrill Lynch requested that Land O'Lakes increase its proposed merger
consideration and Janney Montgomery responded on September 15, 1997 that Land
O'Lakes would not do so. Thereafter, on September 15, 1997, Mr. Wolf called Mr.
Anderson to request that Land O'Lakes raise its offer and in that conversation
they further discussed the proposed non-compete arrangements between Land
O'Lakes and Mr. and Mrs. Wolf. On September 16, 1997, Mr. Anderson called Mr.
Wolf and said that Land O'Lakes would not increase its offer for the Company.
During such discussions, Land O'Lakes requested that Mr. and Mrs. Wolf enter
into non-compete agreements for five years and terminate their existing
employment agreements with the Company in exchange for which Land O'Lakes would
pay Mr. and Mrs. Wolf $500,000 per year for an aggregate of $2.5 million. See
"--Interests of Certain Persons in the Merger." On September 18, 1997, Mr. Wolf
called Mr. Anderson and said he would present Land O'Lakes' proposal to the
Company's Board of Directors.
On September 19, 1997, the Board of Directors held a special meeting. At
the meeting, Merrill Lynch reviewed the procedures it had followed with respect
to its assignment and indicated that it had contacted more than 150 companies to
ascertain whether they had an interest in a transaction with the Company and
that it had received four positive proposals, of which it believed two merited
further discussion. Of these two proposals, it believed that the Land O'Lakes
proposal was superior. Merrill Lynch also indicated that it did not believe that
Land O'Lakes would increase its offer. The Board of Directors then discussed the
Land O'Lakes proposal, including the severance arrangements for employees and
the non-compete agreements for Mr. and Mrs. Wolf, and agreed that the Special
Committee would have to reconvene to evaluate the new Land O'Lakes proposal.
During September 1997, the Company provided information and documents
requested by Land O'Lakes to update the schedules and due diligence information
that had been furnished to Land O'Lakes in April 1997. On September 24, 1997,
counsel for Land O'Lakes submitted to Kramer, Levin a draft of the merger
agreement that was substantially the same as the last draft of the merger
agreement delivered before discussions with Land O'Lakes terminated on April 19,
1997, revised principally to update information that had changed since April
1997 as a result of the passage of time and to reflect the increased Merger
Consideration. Certain modifications in the draft merger agreement were agreed
to between September 24, 1997 and September 30, 1997, including a modification
that provides the Company with more flexibility to terminate the Merger
Agreement in the event the Company receives an unsolicited offer to consummate a
Superior Acquisition (as defined in the Merger Agreement). See "The Merger
Agreement--Conduct of Business Pending the Merger--No Solicitation" and "The
Merger Agreement--Termination." Also between September 18, 1997 and September
30, 1997, Mr. Wolf had several conversations with Mr. Anderson to discuss the
severance arrangements for the Company's officers (not including Mr. and Mrs.
Wolf) and other employees.
On September 30, 1997, the Special Committee met to discuss the Land
O'Lakes proposal. At the meeting, representatives of Kramer, Levin reviewed the
significant provisions of the Merger Agreement that had been distributed to each
member of the Board of Directors, and Merrill Lynch presented a detailed
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<PAGE> 16
assessment of its conclusion that the consideration Land O'Lakes proposed to pay
in the Merger was fair to the stockholders of the Company from a financial point
of view and delivered its written opinion to the Board of Directors to that
effect. See "--Opinion of Financial Advisor." The members of the Special
Committee discussed the Land O'Lakes proposal in full and unanimously
recommended to the entire Board of Directors of the Company that it approve and
adopt the Merger Agreement and the transactions contemplated thereby (including
the voting agreement discussed below) and that the Merger Agreement and the
transactions contemplated thereby be recommended for approval and adoption by
the stockholders of the Company.
The entire Board of Directors then immediately convened and, after further
discussion, unanimously determined that the Merger is advisable, fair to and in
the best interest of the stockholders of the Company and unanimously approved
the Merger Agreement and the transactions contemplated thereby (including the
voting agreement discussed below) and recommended that the stockholders of the
Company vote for the approval and adoption of the Merger Agreement and the
Merger. See "--Reasons for the Merger." On October 1, 1997, the Merger Agreement
was executed by the Company, AVV Inc. and Land O'Lakes, and Mr. and Mrs. Wolf,
as required by the Merger Agreement, entered into voting agreements whereby they
each agreed to vote their shares of Common Stock of the Company in favor of the
Merger Agreement and the Merger and granted proxies to representatives of Land
O'Lakes to do so. See "--Interests of Certain Persons in the Merger." On October
1, 1997, the Company and Land O'Lakes issued a joint press release announcing
the Merger.
Reasons for the Merger
The Special Committee has unanimously recommended that the Board of
Directors approve and adopt the Merger Agreement and the transactions
contemplated thereby and recommend the same to the stockholders of the Company,
and the Board of Directors has unanimously determined that the Merger is
advisable, fair to and in the best interest of the stockholders of the Company,
approved the Merger Agreement and the transactions contemplated thereby and
unanimously recommended that the stockholders of the Company vote for the
approval and adoption of the Merger Agreement and the Merger.
In reaching their determinations, the Special Committee and the Board of
Directors considered a number of factors including: (i) their knowledge of the
business, operations, assets, financial condition, operating results and
prospects of the Company, including the difficulty of expanding the Company's
business significantly without substantial additional capital and risk; (ii) the
advantages to the Company of being part of a larger, diversified and better
capitalized enterprise; (iii) the extensive efforts of Merrill Lynch to assist
the Company in exploring strategic initiatives to enhance stockholder value;
(iv) the presentation by and written opinion of Merrill Lynch that the Merger
Consideration to be received by the stockholders of the Company is fair to such
stockholders from a financial point of view; (v) the fact that the terms of the
Merger Agreement were determined through arms-length negotiation; (vi) the terms
of the Merger Agreement as summarized by special counsel to the Company,
including the right of the Board of Directors of the Company to terminate the
Merger Agreement in the exercise of its fiduciary duty in connection with a
Superior Acquisition; (vii) the severance arrangements and non-compete
agreements to be provided to certain officers and employees of the Company; and
(viii) the assessment that Land O'Lakes has the financial capability to acquire
the Company for the Merger Consideration and therefore is likely to consummate
the Merger.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee and the Company's Board of Directors is
not intended to be exhaustive. In view of the variety of factors considered in
connection with each of their evaluations, the Special Committee and the
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<PAGE> 17
Company's Board of Directors did not find it practicable to and did not quantify
or otherwise assign relative weights to the specific factors considered in
reaching their respective determinations. In addition, individual members of the
Special Committee and the Company's Board of Directors may have given different
weight to different factors. For a discussion of the interests of certain
members of the Company's management and the members of the Special Committee and
the Company's Board of Directors, see "--Interests of Certain Persons in the
Merger."
Opinion of Financial Advisor
Merrill Lynch has acted as exclusive financial advisor to the Company in
connection with the Merger and has assisted the Special Committee and the Board
of Directors of the Company in their examinations of the fairness, from a
financial point of view, of the Merger Consideration to be received by the
stockholders of the Company in the Merger. As described herein, Merrill Lynch's
opinion, dated September 30, 1997, together with the related presentations to
the Special Committee and Board of Directors, was only one of many factors taken
into consideration by the Board of Directors in making its determination to
approve the Merger Agreement.
On September 30, 1997, Merrill Lynch delivered its oral opinion to the
Special Committee and Board of Directors to the effect that as of such date and
based upon and subject to certain matters stated therein, the Merger
Consideration to be received by the stockholders pursuant to the Merger was fair
to the stockholders from a financial point of view.
THE FULL TEXT OF MERRILL LYNCH'S WRITTEN OPINION, DATED SEPTEMBER 30,
1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON REVIEW UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX C AND IS
INCORPORATED HEREIN BY REFERENCE. MERRILL LYNCH'S OPINION IS DIRECTED TO THE
BOARD OF DIRECTORS OF THE COMPANY AND ADDRESSES THE FAIRNESS OF THE MERGER
CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY PURSUANT TO THE
MERGER FROM A FINANCIAL POINT OF VIEW. MERRILL LYNCH'S OPINION DOES NOT ADDRESS
THE UNDERLYING DECISION OF THE COMPANY TO ENGAGE IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE OR AS TO ANY OTHER ACTION SUCH STOCKHOLDER SHOULD TAKE IN CONNECTION WITH
THE PROPOSED MERGER. THE SUMMARY OF THE OPINION OF MERRILL LYNCH SET FORTH IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In connection with its opinion, Merrill Lynch has, among other things, (1)
reviewed certain publicly available business and financial information relating
to the Company that it deemed to be relevant; (2) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of the Company; (3) conducted discussions with
members of senior management of the Company concerning the matters described in
clauses 1 and 2 above; (4) reviewed the market prices and valuation multiples
for the Common Stock and compared them with those of certain publicly traded
companies that it deemed to be relevant; (5) reviewed the results of operations
of the Company and compared them with those of certain publicly traded companies
that it deemed to be relevant; (6) compared the proposed financial terms of the
transactions contemplated by the Merger Agreement with the financial terms of
certain other transactions that it deemed to be relevant; (7) participated in
certain discussions and negotiations among representatives of the Company and
Land O'Lakes and their financial advisors; (8) reviewed a draft dated September
25, 1997 of the Merger Agreement; and (9) reviewed such
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other financial studies and analyses and took into account such other matters as
it deemed necessary, including its assessment of general economic, market and
monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and Merrill
Lynch has not assumed any responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Company or been furnished with any such evaluation
or appraisal. In addition, Merrill Lynch has not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company.
With respect to the financial forecast information furnished to or discussed
with it by the Company, it has assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company.
Merrill Lynch assumed that the final form of the Merger Agreement would be
substantially similar to the last draft reviewed by it. Merrill Lynch's opinion
is necessarily based upon market, economic and other conditions as they exist
and can be evaluated on, and on the information made available to it as of,
September 30, 1997. Although Merrill Lynch evaluated the Merger Consideration
from a financial point of view, Merrill Lynch was not requested to, and did not,
recommend the specific consideration payable in the Merger.
In preparing its opinion for the Board of Directors, Merrill Lynch
performed a variety of financial and comparative analyses, including those
described below. The summary of analyses performed by Merrill Lynch as set forth
below does not purport to be a complete description of the analyses underlying
Merrill Lynch's opinion. The presentation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial or summary description. No company or transaction used in
such analyses as a comparison is identical to the Company, or the Merger, nor is
an evaluation of the results of such analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies or transaction being analyzed. The
estimates contained in such analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of the business or securities do not purport to be appraisals or to
reflect the prices at which businesses, companies or securities actually may be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
In arriving at its opinion, Merrill Lynch made qualitative judgments as to
the significance and relevance of each analysis and factor considered by it.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create an incomplete view of the
processes underlying such analyses and its opinion. In its analyses, Merrill
Lynch made numerous assumptions with respect to general business, economic,
market and financial conditions, as well as other matters, many of which are
beyond the control of the Company, and involve the application of complex
methodologies and educated judgment.
The following is a summary of the material analyses performed by Merrill
Lynch and presented to the Special Committee and Board of Directors of the
Company at meetings on September 30, 1997. All analyses and factors considered
by Merrill Lynch that were material and were presented to the Special Committee
and Board of Directors are set forth herein.
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Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of the future unleveraged free cash flows that the Company's
operations could be expected to generate during various periods utilizing
projections provided to Merrill Lynch by the Company and certain other
assumptions.
In conjunction with the Company, Merrill Lynch utilized the information
provided and various assumptions concerning results of operations, capital
expenditures, depreciation, and changes in working capital to project
unleveraged free cash flow through the year 2002. A terminal value was
calculated utilizing an exit multiple between 5.0 and 7.0 times the earnings
before interest, taxes, depreciation, and amortization ("EBITDA") in the year
2002. The estimated future unleveraged free cash flows and the multiple value
generated in the analysis of the Company's operations were discounted at
after-tax rates of between 10.0% and 14.0%. Based on a midpoint exit multiple of
6.0 times EBITDA in the year 2002, this analysis produced a reference enterprise
valuation for the Company of approximately $53.4 million to $62.4 million.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, Merrill Lynch compared selected historical stock,
financial and operating ratios for the Company with respective corresponding
data and ratios of certain similar publicly traded companies. These companies
were selected by Merrill Lynch from the universe of possible companies based
upon Merrill Lynch's views as to the comparability of financial and operating
characteristics of these companies to the Company. With respect to each such
analysis, Merrill Lynch made such comparisons among the following companies:
Dean Foods Company, Lucille Farms, Inc., Michael Foods, Inc., Morningstar Group,
Inc., Suiza Foods Corp. and Suprema Specialties, Inc. (the "Comparable
Companies").
With respect to the Comparable Companies and the derivation of an
enterprise valuation range, the EBITDA Multiple (as defined herein) was
calculated based on the last twelve months ("LTM") EBITDA results for each of
the Comparable Companies. Merrill Lynch determined that the appropriate EBITDA
Multiple range was 7.0x to 10.0x. Such multiples were applied to the Company's
LTM EBITDA of $5.7 million to produce an enterprise valuation range of $39.6
million to $56.6 million.
Because of the inherent differences among the operations of the Company
and the selected Comparable Companies, Merrill Lynch believes that a purely
quantitative comparable company analysis would not be dispositive in the context
of the Merger. Merrill Lynch further believes that an appropriate use of a
comparable company analysis in this instance involves qualitative judgments
concerning differences among the financial and operating characteristics of the
Company and the Comparable Companies.
Analysis of Selected Comparable Acquisitions. Merrill Lynch also reviewed
publicly available information relating to certain merger and acquisition
transactions in respect of companies primarily in the packaged food industry
("Comparable Transactions"). With respect to the Company, Merrill Lynch examined
multiples of the value of common equity and indebtedness assumed in each of the
transactions to, among other measures, such acquired companies' respective
EBITDA and earnings before interest and taxes ("EBIT"), and examined multiples
of the value of the common equity in each of the transactions to net income. For
each measure, EBITDA, EBIT and net income consisted of the latest twelve months
of available financial information on the respective date of each transaction.
Merrill Lynch examined 28 transactions in the packaged food industry since
August 1994. For each of the Comparable Transactions, the most relevant
transaction multiple analyzed for purposes of determining an enterprise
valuation was the transaction value, as defined by the value of the common
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equity plus the liquidation value of any preferred stock plus the principal
amount of any debt less cash, including proceeds of any options, divided by the
LTM EBITDA (the "EBITDA Multiple"). The EBITDA Multiple range generated by the
analysis described above was 5.7x to 18.6x. Such multiples were applied to the
Company's LTM EBITDA to produce an enterprise valuation range of $32.1 million
to $105.2 million.
However, due to the differences between the operations, financial
condition and/or transaction sizes of the selected Comparable Transactions and
the limited number of EBITDA Multiples available for the selected Comparable
Transactions, Merrill Lynch determined this review to be of limited value and it
was not included in Merrill Lynch's developed ranges of enterprise value, Equity
Value or per share value for the Company as set forth below in "Valuation
Summary."
Leveraged Buyout Analysis. Merrill Lynch performed a leveraged buyout
analysis utilizing projections provided to Merrill Lynch by the Company and made
certain other assumptions. Merrill Lynch utilized the information provided and
various assumptions concerning capital expenditures, depreciation and changes in
working capital to project financial statements through the year 2002. Merrill
Lynch examined the projected cash flows under a leveraged capital structure
which assumed certain estimated interest rates on senior bank debt and certain
estimated required rates of return on common equity. An exit multiple of between
5.0x and 7.0x EBITDA was also assumed as part of the calculation of common
equity returns. The leveraged buyout analysis produced enterprise valuation
ranges for the Company of approximately $40.0 million to $50.0 million.
Valuation Summary. Based on the above discussed analyses, and other
factors considered, Merrill Lynch developed ranges of enterprise values for the
Company of $39.6 million to $62.4 million. From these enterprise valuation
ranges, Merrill Lynch deducted total debt (net of cash and cash equivalents),
payments for in-the-money stock options and warrants, and certain debt
obligations that would be triggered in the event of a change of control of the
Company, to arrive at equity value ("Equity Value") ranges of $27.1 million to
$49.8 million. The range of Equity Value was divided by the number of shares of
the Common Stock and Preferred Stock (on an as converted basis) to be purchased
and resulted in a range of per share value of $5.01 to $9.21.
Other Factors and Analyses. In the course of preparing its opinion,
Merrill Lynch performed certain other analyses and reviewed certain other
matters, including, among other things, the trading characteristics of the
Common Stock.
Merrill Lynch is an internationally recognized investment banking firm
and, as part of its investment banking business, is regularly engaged in the
valuation of business and securities in connection with mergers and
acquisitions. The Special Committee selected Merrill Lynch as its exclusive
financial advisor because of Merrill Lynch's experience and expertise.
Pursuant to the terms of Merrill Lynch's engagement, the Company has
agreed to pay Merrill Lynch for its financial advisory services in connection
with the Merger as follows: (i) a financial advisory fee of $25,000 payable on
the date of the engagement; (ii) a fee of $175,000 payable on the signature of a
definitive agreement; and (iii) a fee of approximately $728,500 (equal to 1.5%
of the aggregate purchase price (as defined in the engagement letter) to be paid
on closing of the Merger, less the payments referred to in (i) and (ii) above).
As of the date hereof, the Company has paid Merrill Lynch $25,000 of such fees.
In addition, the Company has agreed to reimburse Merrill Lynch for its
out-of-pocket expenses, including the fees and expenses of its legal counsel,
and to indemnify Merrill Lynch against certain liabilities, or to contribute to
payments Merrill Lynch may be required to make in respect thereof.
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In the ordinary course of business Merrill Lynch and its affiliates may
actively trade debt and/or equity securities of the Company and its affiliates
for their own account and the accounts of customers and, accordingly, may at any
time hold a long or a short position in such securities.
Interests of Certain Persons in the Merger
In considering the recommendation of the Company's Board of Directors that
the stockholders of the Company approve and adopt the Merger Agreement,
stockholders should be aware that certain directors and officers of the Company
have interests in the Merger in addition to their interest solely as
stockholders. The Special Committee was aware of these interests when it
considered and recommended that the Company's Board of Directors approve and
adopt the Merger Agreement and the transactions contemplated thereby. The
Company's Board of Directors was aware of these interests when it approved the
Merger Agreement and the transactions contemplated thereby and recommended that
the stockholders of the Company approve and adopt the Merger Agreement and the
transactions contemplated thereby.
Severance and Employment Arrangements. Pursuant to existing employment
arrangements, certain officers of the Company and its subsidiaries, including
Arthur Karmel, George S. Wenger, Dominick Gonnella, David Horowitz, Marysusan
Fitzsimmons, Michael Kelly and Kenneth Meyers will be entitled to severance
payments in amounts equal to their current annual salary and certain other
benefits if the Merger is consummated and such individuals are terminated after
the Effective Time. Also, the Merger Agreement provides that one of the
conditions to the obligations of Land O'Lakes to consummate the Merger is that
each of Messrs. Karmel, Wenger, Gonnella, Horowitz and Kelly and Ms. Fitzsimmons
enter into an agreement whereby such employee acknowledges that the Company has
the right to terminate such individual, without cause, during the first six
months after the Effective Time and that Mr. Meyers enter into an agreement with
MCT Dairies, Inc. terminating the existing employment agreement between MCT
Dairies, Inc. and Mr. Meyers. In addition, other employees of the Company may be
entitled to severance payments based on existing agreements, severance plans and
policies of the Company should such individuals be terminated.
Options and Warrants. Certain of the Company's officers and directors hold
Options (as defined herein) and Warrants (as defined herein). Such officers and
directors who hold Options or Warrants will receive payments in connection with
the cancellation of such Options or Warrants. See "The Merger Agreement--Options
or Warrants" and "Security Ownership of Certain Beneficial Owners and Management
of the Company."
Subsidiary Option and Put Right. The Merger Agreement provides that as a
condition to Land O'Lakes' obligation to complete the Merger, effective as of
the Effective Time, the Stock Option Agreement, Put Option Agreement and
Shareholders Agreement, each dated as of January 1, 1995 (as amended to the date
of the Merger Agreement, collectively referred to as the "Meyers Agreements"),
between MCT Dairies, Inc. and Kenneth E. Meyers (and, in the case of certain of
the Meyers Agreements, the Company) will be terminated in exchange for a cash
payment to Kenneth E. Meyers in an amount not to exceed the amount calculated
pursuant to the formula set forth in the Put Option Agreement (approximately
$241,000 as of September 30, 1997).
Non-Compete Agreements. Upon the consummation of the Merger, each of Mr.
and Mrs. Wolf will enter into a Non-Compete Agreement with Land O'Lakes (in
substantially the forms set forth as Exhibits B and C to the Merger Agreement
which is attached hereto as Appendix A), pursuant to which Mr. and Mrs. Wolf
will agree to terminate their existing employment agreements with the Company,
including the benefits either Mr. or Mrs. Wolf would receive upon a Change of
Control (as defined
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<PAGE> 22
therein). The existing employment agreements would have entitled Mr. and Mrs.
Wolf to employment as executives of the Company and to employee benefits for
three years and one year, respectively, following a Change of Control and
thereafter would have limited their rights to compete with the Company for a
period of two years. Subject to certain exceptions set forth in the Non-Compete
Agreements, each of Mr. and Mrs. Wolf will be prohibited from competing with the
Company or with Land O'Lakes or any of its affiliates within the United States
in the ownership, management, operation or control of any business which
involves: producing, importing, distributing or marketing deli cheese or meat,
dairy case cheese, foodservice cheese or meat; cheese trading; or producing,
importing, distributing or marketing any other product or product group which is
part of the business of Land O'Lakes or any of its affiliates (including the
Company) at any time during the term of the Non-Compete Agreement or was a part
of the business of Land O'Lakes or any of its affiliates (including the Company)
during the two year period immediately preceding the effective time of the
Non-Compete Agreements. Neither Mr. nor Mrs. Wolf will continue as an officer,
director or employee of the Surviving Corporation. The Non-Compete Agreements
also provide for the return of confidential information by each of Mr. and Mrs.
Wolf, the return of certain property of the Company by each of Mr. and Mrs.
Wolf, as well as certain other customary provisions. As payment for the
Non-Compete Agreements and for the termination of the existing employment
agreements of Mr. and Mrs. Wolf, Land O'Lakes will pay Mr. and Mrs. Wolf
$350,000 and $150,000, respectively, each year for a period of five years,
subject to certain conditions. Neither the Merger Agreement nor the Company's
severance plans provide for any other severance payments to Mr. or Mrs. Wolf.
Indemnification Arrangements. The Merger Agreement provides that all
rights to indemnification and exculpation existing in favor of any present or
former director, officer or employee of the Company or any of its subsidiaries,
as provided in the Company's Certificate of Incorporation or bylaws or the
certificate or articles of incorporation, bylaws or similar organizational
documents of any of the Company's subsidiaries, as in effect on the date of the
Merger Agreement, shall survive for a period of three years with respect to
matters occurring at or prior to the Effective Time.
The Merger Agreement also provides that for a period of three years after
the Effective Time, the Surviving Corporation shall maintain in effect either
(i) the current policy of director's and officers' liability insurance
maintained by the Company (provided that Land O'Lakes may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in any material respect to the parties
indemnified thereunder) with respect to claims arising from facts or events
which occurred before the Effective Time, except that the Surviving Corporation
shall not be required to expend more than the amount per year equal to 100% of
the current annual premium paid by the Company, and provided that if equivalent
coverage cannot be obtained, or can be obtained only by paying any annual
premium in excess of the annual premium for the existing coverage, the Surviving
Corporation shall only be required to obtain as much coverage as can be obtained
by paying an annual premium equal to the current annual premium, or (ii) a
run-off policy or endorsement with respect to the current policy of directors'
and officers' liability insurance covering claims asserted within three years
after the Effective Time arising from facts or events which occurred before the
Effective Time.
Voting Agreement. Each of Mr. and Mrs. Wolf, as required by the Merger
Agreement, has agreed with Land O'Lakes to vote the Common Stock owned of record
by each of them in favor of the approval and adoption of the Merger Agreement.
In connection with such Voting Agreement, each of Mr. and Mrs. Wolf have granted
certain officers of Land O'Lakes an irrevocable proxy to vote all shares of
Common Stock over which Mr. or Mrs. Wolf have voting control, other than those
shares over which Mr. Wolf's voting power results from him having been named as
a proxy pursuant to this Proxy Statement. As of the Record Date, Mr. and Mrs.
Wolf owned of record 1,476,600 and 5,000 shares of Common
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Stock, respectively, representing 28.8% and .1%, respectively, of the shares of
Common Stock then outstanding. In addition, Mr. and Mrs. Wolf jointly owned of
record, as of the Record Date, 75,000 shares of Common Stock, representing 1.46%
of the shares of Common Stock then outstanding.
Accounting Treatment of the Merger
The Merger will be accounted for under the purchase method of accounting.
A final determination of required purchase accounting adjustments of the fair
value of the assets and liabilities of the Company has not yet been made.
Certain Effects of the Merger
Upon consummation of the Merger, AVV Inc. will be merged with and into the
Company, the separate corporate existence of AVV Inc. will cease, and the
Company will continue as the Surviving Corporation. Land O'Lakes will own all of
the outstanding shares of common stock of the Surviving Corporation and will be
entitled to all of the benefits and detriments resulting from that interest,
including all income or losses generated by the Surviving Corporation's
operations and any future increase or decrease in the Surviving Corporation's
value. After the Effective Time, the present holders of the Common Stock and the
Preferred Stock will no longer have any equity interest in the Company, will not
share in the results of operations of the Surviving Corporation and will no
longer have rights to vote on corporate matters. The Company is currently
subject to the information filing requirements of the Exchange Act, and in
accordance therewith, is required to file reports and other information with the
Commission relating to its business, financial statements and other matters. As
a result of the Merger, the Company will become a wholly-owned subsidiary of
Land O'Lakes and there will cease to be any public market for the Common Stock,
and after the Effective Time, the Common Stock will be delisted from the Nasdaq
National Market tier of the Nasdaq Stock Market. Upon such event, the Surviving
Corporation will apply to the Commission for the deregistration of the Common
Stock under the Exchange Act. The termination of the registration of the Common
Stock under the Exchange Act would make certain provisions of the Exchange Act
(including the proxy solicitation provisions of Section 14(a), and the short
swing trading provisions of Section 16(b)), no longer applicable to the
Surviving Corporation. Additionally, upon the termination of the registration of
the Common Stock under the Exchange Act, the Common Stock will no longer
constitute "margin securities" under the regulations of the Board of Governors
of the federal Reserve System.
Regulatory Approvals
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
provides that certain transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied. The consummation of
the Merger is subject to such requirements. The regulations promulgated by the
FTC under the HSR Act required Notification and Report Forms (the "Forms") to be
filed by Land O'Lakes and the Company with the Antitrust Division and the FTC
with respect to the Merger and prevent the Merger from being consummated until
30 days after receipt of the Forms by the Antitrust Division and the FTC, unless
such 30-day waiting period is earlier terminated by the FTC or the Antitrust
Division.
On October 23, 1997, Land O'Lakes and the Company filed the Forms with the
FTC and the Antitrust Division relating to the Merger and requested early
termination of the 30-day waiting period.
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Early termination of the waiting period with regard to the Merger was granted by
the FTC on November 5, 1997.
A certificate of merger must be filed on behalf of the Company and AVV
Inc. with the Secretary of State of the State of Delaware in order to effectuate
the Merger.
Except as described above, the Company is not aware of any licenses or
regulatory permits that are material to its business that might be adversely
affected by the Merger, nor of any approval or other action by any governmental,
administrative or regulatory agency or authority which would be required prior
to the Effective Time.
Certain Federal Income Tax Consequences
Upon consummation of the Merger, each outstanding share of Common Stock
and Preferred Stock will be converted into the right to receive the Common Stock
Merger Consideration or the Preferred Stock Merger Consideration, as applicable.
The following discussion is a summary of the principal federal income tax
consequences of the Merger to stockholders of the Company whose shares of Common
Stock or Preferred Stock are surrendered pursuant to the Merger (including any
cash amounts received by dissenting stockholders pursuant to the exercise of
appraisal rights). The discussion applies only to stockholders in whose hands
shares of Common Stock or Preferred Stock, as applicable, are capital assets,
and may not apply to shares of Common Stock received pursuant to the exercise of
employee stock options or otherwise as compensation or to stockholders who are
not citizens or residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash pursuant to the Merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of appraisal
rights) will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). In general, for federal
income tax purposes, a stockholder will recognize gain or loss equal to the
difference between the cash received by the stockholder pursuant to the Merger
Agreement and the stockholder's adjusted tax basis in the shares of Common Stock
or Preferred Stock, as applicable, surrendered pursuant to the Merger Agreement.
Such gain or loss will be capital gain or loss and will be long-term gain or
loss if, at the Effective Time of the Merger, the shares of Common Stock or
Preferred Stock, as applicable, were held for more than one year. Long-term
capital gain recognized by an individual stockholder will be taxed at the lowest
rates applicable to capital gains if the stockholder has held the shares of
Common Stock or Preferred Stock, as applicable, for more than 18 months. Certain
limitations apply with respect to the deductibility of capital losses.
Payments in connection with the Merger may be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the
stockholder fails to furnish such stockholder's social security number or other
taxpayer identification number ("TIN"), or furnishes an incorrect TIN. Backup
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<PAGE> 25
withholding is not an additional tax but merely a creditable advance payment,
which may be refunded to the extent it results in an overpayment of tax. Certain
persons generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information and for failure to include the reportable payments in income.
Stockholders should consult with their own tax advisors as to the qualifications
and procedures for exemption from backup withholding.
THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Proxy Statement as Appendix A and
is incorporated herein by reference.
The Merger Agreement among the Company, AVV Inc., a wholly-owned
subsidiary of Land O'Lakes, and Land O'Lakes was executed on October 1, 1997.
Terms of the Merger
The Merger. At the Effective Time, and subject to and upon the terms and
conditions of the Merger Agreement and the DGCL, AVV Inc. will be merged with
and into the Company, the separate corporate existence of AVV Inc. will cease,
and the Company will continue as the Surviving Corporation.
Effective Time. Subject to and immediately following the receipt of the
vote of stockholders of the Company and the satisfaction or waiver of the
conditions to the consummation of the Merger set forth in the Merger Agreement,
the parties shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the DGCL (the "Certificate of Merger"). The Merger
shall be effective at the time the Certificate of Merger is filed with the
Delaware Secretary of State or such other time as specified in the Certificate
of Merger.
Certificate of Incorporation and ByLaws. The Merger Agreement provides
that the Certificate of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation. The Merger Agreement provides that the bylaws of AVV
Inc., as in effect immediately prior to the Effective Time, shall be the bylaws
of the Surviving Corporation.
Directors and Officers. The directors of AVV Inc. immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, and
the officers of AVV Inc. immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation.
Conversion of Common Stock, Preferred Stock and the Stock of AVV Inc. in
the Merger. At the Effective Time, each share of Common Stock which is issued
and outstanding immediately prior to the Effective Time (other than (i) shares
of Common Stock as to which dissenters' rights are exercised and (ii) shares of
Common Stock held of record by Land O'Lakes or AVV Inc. or any other direct or
indirect subsidiary of Land O'Lakes or the Company immediately prior to the
Effective Time) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to
receive, in cash, the Common Stock Merger Consideration, pro-rated for
fractional shares of Common Stock outstanding immediately prior to the Effective
Time, if any.
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At the Effective Time, each share of Preferred Stock which is issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Preferred Stock as to which dissenters' rights are exercised and (ii) shares of
Preferred Stock held of record by Land O'Lakes or AVV Inc. or any other direct
or indirect subsidiary of Land O'Lakes or the Company immediately prior to the
Effective Time) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to
receive, in cash, the Preferred Stock Merger Consideration, pro-rated for
fractional shares of Preferred Stock outstanding immediately prior to the
Effective Time, if any.
At the Effective Time, each share of common stock of AVV Inc., par value
$1.00 per share (the "AVV Common Stock"), which is issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchanged for 6,000 shares of common stock of the Surviving Corporation, which
shall constitute the only issued and outstanding shares of capital stock of the
Surviving Corporation immediately after the Effective Time.
At the Effective Time, each share of Common Stock and Preferred Stock (the
Common Stock and Preferred Stock being herein sometimes referred to collectively
as the "Company Stock") held of record by Land O'Lakes or AVV Inc. or any other
direct or indirect subsidiary of Land O'Lakes or the Company immediately prior
to the Effective Time and each share of Company Stock held in the treasury of
the Company immediately prior to the Effective Time shall be canceled and cease
to exist at and after the Effective Time, and no payment shall be made with
respect thereto.
Appraisal Rights. Notwithstanding any provision of the Merger Agreement to
the contrary, any shares of Company Stock outstanding immediately prior to the
Effective Time held by a holder who has demanded and perfected the right for
appraisal of those shares in accordance with the provisions of Section 262 of
the DGCL and as of the Effective Time has not withdrawn or lost such right to
such appraisal ("Dissenting Shares") shall not be converted into or represent a
right to receive a cash payment pursuant to the Merger Agreement, but the holder
shall only be entitled to such rights as are granted by the DGCL. See "Appraisal
Rights." If a holder of shares of Company Stock who demands appraisal of those
shares under the DGCL shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the Effective Time or
the occurrence of such event, whichever last occurs, those shares shall be
converted into and represent only the right to receive the Common Stock Merger
Consideration or the Preferred Stock Merger Consideration, as the case may be,
as provided in the Merger Agreement, without interest, upon compliance with the
provisions, and subject to the limitations, of the Merger Agreement. The Merger
Agreement requires that the Company shall give Land O'Lakes (a) prompt notice of
any written demands for appraisal of any shares of Company Stock, attempted
withdrawals of such demands, and any other instrument served pursuant to the
DGCL and received by the Company relating to stockholders' rights of appraisal,
and (b) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Land O'Lakes, voluntarily make any payment with respect
to any demands for appraisal of Company Stock, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
Options or Warrants
At or immediately prior to the Effective Time, each holder of a then
outstanding option (an "Option") or warrant (a "Warrant") to purchase shares of
Common Stock theretofore granted under any employee stock option or compensation
plan, warrant agreement or other arrangement with the Company shall be entitled
(whether or not such Option or Warrant is then exercisable) upon the execution
of a
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<PAGE> 27
cancellation agreement with the Company to receive in cancellation of such
Option or Warrant a cash payment from the Company in an amount equal to the
amount, if any, by which the Common Stock Merger Consideration exceeds the per
share exercise price of such Option or Warrant, multiplied by the number of
shares of Common Stock then subject to such Option or Warrant (the "Purchase
Right Settlement Amount") but subject to all required tax withholdings by the
Company. Each Option or Warrant that is subject to a cancellation agreement
shall be canceled upon payment of the Purchase Right Settlement Amount for such
Option or Warrant.
Payment of Shares
At or before the Effective Time, Land O'Lakes or AVV Inc. shall deposit,
in immediately available funds, with Norwest Bank Minnesota, N.A., or any other
qualified disbursing agent selected by Land O'Lakes (the "Disbursing Agent"), an
amount equal to the sum of (A) the product of (i) the number of shares of Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares then held of record by Land O'Lakes or AVV Inc. or any other direct or
indirect subsidiary of Land O'Lakes or the Company), pro-rated for fractional
shares, times (ii) the Common Stock Merger Consideration and (B) the product of
(i) the number of shares of Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than shares then held of record by Land
O'Lakes or AVV Inc. or any other direct or indirect subsidiary of Land O'Lakes
or the Company), pro-rated for fractional shares, times (ii) the Preferred Stock
Merger Consideration (such sum being hereinafter referred to as the "Fund"). Out
of the Fund, the Disbursing Agent shall, pursuant to irrevocable instructions
from the holders of Company Stock, make the payments of the Merger Consideration
referred to in the Merger Agreement. At the request of the Surviving
Corporation, in its sole discretion at any time, but without any obligation to
make any such request, the Disbursing Agent also may make payments, in discharge
of any obligations of the Surviving Corporation pursuant to Section 262 of the
DGCL, to holders of Company Stock who have exercised appraisal rights pursuant
to Section 262 of the DGCL and have not subsequently withdrawn or lost such
rights as long as the payment from the Fund with respect to any Dissenting Share
does not exceed the Common Stock Merger Consideration or the Preferred Stock
Merger Consideration, as the case may be. Any amount remaining in the Fund nine
months or more after the Effective Time may be refunded to the Surviving
Corporation at its option, but the Surviving Corporation shall remain liable for
payment of the Merger Consideration.
Lost, Stolen or Destroyed Certificates. In the event any certificate or
certificates representing Company Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate or certificates representing Company Stock to have been lost,
stolen or destroyed, the amount to which such person would have been entitled
pursuant to the Merger Agreement but for failure to deliver such certificate or
certificates representing Company Stock to the Disbursing Agent shall
nevertheless be paid to such person, provided that the Surviving Corporation
may, in its sole discretion and as a condition precedent to such payment,
require such person to give the Surviving Corporation a written indemnity
agreement in form and substance reasonably satisfactory to the Surviving
Corporation and, if reasonably deemed advisable by the Surviving Corporation, a
bond in such sum as the Surviving Corporation may direct as indemnity against
any claim that may be had against Land O'Lakes or the Surviving Corporation with
respect to the certificate or certificates of Company Stock alleged to have been
lost, stolen or destroyed.
No Further Rights or Transfers. At and after the Effective Time, all
shares of Company Stock issued and outstanding immediately prior to the
Effective Time (including, without limitation, fractional shares) shall be
canceled and cease to exist, and each holder of a certificate or certificates
that represented shares of Company Stock issued and outstanding immediately
prior to the Effective Time shall cease to
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<PAGE> 28
have any rights as a stockholder of the Company with respect to the shares of
Company Stock represented by such certificate or certificates, except for the
right to surrender such holder's certificate or certificates in exchange for the
payment provided pursuant to the Merger Agreement or to perfect such holder's
right to receive payment for such holder's shares pursuant to Section 262 of the
DGCL if such holder has validly exercised and not withdrawn or lost such
holder's right to receive payment for such holder's shares pursuant to Section
262 of the DGCL, and no transfer of shares of Company Stock issued and
outstanding immediately prior to the Effective Time shall be made on the stock
transfer books of the Surviving Corporation.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF COMPANY STOCK FOR THE
MERGER CONSIDERATION. STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING
THEIR SHARES OF COMPANY STOCK TO THE DISBURSING AGENT PRIOR TO RECEIPT OF THE
TRANSMITTAL LETTER.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
the Company, in respect of itself and its subsidiaries, relating, among other
things, to the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions): (i) corporate organization
and qualification; (ii) capitalization; (iii) the authorization, execution,
delivery and enforceability of the Merger Agreement; (iv) the execution and
delivery of the Merger Agreement does not conflict with or result in a breach of
the Company's Certificate of Incorporation or bylaws or require governmental
consents (except filing under the HSR Act); (v) the execution and delivery of
the Merger Agreement is not being challenged and is not the subject of any
pending, or to the knowledge of the Company, threatened governmental proceeding
and does not violate any order, writ, injunction, decree, statute, rule or
regulation; (vi) reports and other documents filed with the Commission
(including this Proxy Statement); (vii) the absence of material misstatements in
the information contained in any reports filed with the Commission; (viii)
taxes; (ix) absence of certain changes; (x) properties; (xi) Contracts (as
defined in the Merger Agreement); (xii) intellectual property; (xiii) absence of
undisclosed liabilities which might have a Material Adverse Effect (as defined
in the Merger Agreement); (xiv) litigation; (xv) compliance with laws; (xvi)
licenses and permits; (xvii) brokers and finders; (xviii) employee benefit
matters; (xix) labor matters; (xx) environmental matters; (xxi) suppliers and
customers; (xxii) insurance; (xxiii) bank accounts; (xxiv) voting requirements;
(xxv) transactions with certain related persons; (xxvi) accounts receivables;
and (xxvii) recalls of products.
The Merger Agreement contains various representations and warranties of
Land O'Lakes and AVV Inc. in respect of themselves and Land O'Lakes' other
subsidiaries, relating, among other things, to the following matters (which
representations and warranties are subject, in certain cases, to specific
exceptions): (i) corporate organization and qualification; (ii) capitalization;
(iii) the authorization, execution, delivery and enforceability of the Merger
Agreement; (iv) the execution and delivery of the Merger Agreement will not
conflict with or result in a breach of Land O'Lakes' or AVV Inc.'s, as
applicable, Articles or Certificate of Incorporation or bylaws or require any
governmental approval (except filing under the HSR Act); (v) the execution and
delivery of the Merger Agreement is not being challenged and is not the subject
of any pending, or to the knowledge of Land O'Lakes or AVV Inc., threatened
governmental proceeding and does not violate any order, writ, injunction,
decree, statute, rule or regulation; (vi) brokers or finders; (vii) financial
ability to perform the requirements set forth in the Merger Agreement; and
(viii) information supplied for inclusion in the Proxy Statement.
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None of the representations or warranties of any of the Company, Land
O'Lakes or AVV Inc. survives the consummation of the Merger.
Conduct of Business Pending the Merger
Conduct of Business by the Company. The Merger Agreement provides that,
from the date of the Merger Agreement through the Effective Time:
(i) the Company will use its best efforts to preserve intact, in all
material respects, its business organization, the business organization of its
subsidiaries, keep available to itself and the Surviving Corporation the
services of certain of its present officers and key employees and preserve the
present relationships of the Company and its subsidiaries with entities and
persons having significant business dealings with the Company or its
subsidiaries;
(ii) the Company shall, and shall cause its subsidiaries to, except as
otherwise consented to in writing by Land O'Lakes, conduct its business and
operations in the ordinary course of business;
(iii) except as required in connection with the Merger or as otherwise
consented to in writing by Land O'Lakes, the Company shall not (a) amend its
Certificate of Incorporation or bylaws, (b) increase or decrease the number of
authorized shares of its capital stock, (c) split, combine or reclassify any
shares of its capital stock or make any other changes in its equity capital
structure (other than the issuance of shares of Common Stock upon exercise of
Options or Warrants granted prior to the date of the Merger Agreement by the
Company in accordance with their terms or the conversion of outstanding
Preferred Stock in accordance with the terms thereof), (d) purchase, redeem or
cancel for value, directly or indirectly, any shares of its capital stock or any
Options, Warrants or other rights to purchase any such capital stock or any
capital stock of its subsidiaries or any securities convertible into or
exchangeable for any such capital stock, except as contemplated by the Merger
Agreement, or (e) declare, set aside or pay any dividend or other distribution
or payment in cash, stock or property in respect of shares of its capital stock,
except that it may declare, set aside and pay in the ordinary course of business
a regular quarterly cash dividend on the Preferred Stock in an amount of $.9375
per share of Preferred Stock payable on December 15, 1997, if the Effective Time
does not occur prior to December 15, 1997;
(iv) the Company shall not and shall not permit its subsidiaries to,
except as otherwise consented to in writing by Land O'Lakes, (a) issue, grant,
sell or pledge, or agree or propose to issue, grant, sell or pledge, any shares
of capital stock of the Company or its subsidiaries (other than the issuance of
shares of Common Stock upon exercise of Options or Warrants granted prior to the
date of the Merger Agreement by the Company in accordance with their terms or
the conversion of outstanding Preferred Stock in accordance with the terms
thereof) or any options, rights or warrants to purchase any such capital stock
or any securities convertible into or exchangeable for such capital stock, or
any stock appreciation rights, performance shares or other phantom stock based
upon the value of any such capital stock or designate any class or series of
shares of Preferred Stock, (b) purchase, lease or otherwise acquire (including,
without limitation, acquisitions by merger, consolidation or stock or asset
purchase) any assets or properties, other than those that do not individually
exceed $2,000, provided that the aggregate amount of such purchases, leases and
other acquisitions does not exceed $25,000, and other than inventory (including
supplies) acquired in the ordinary course of business, (c) sell, lease,
encumber, mortgage or otherwise dispose of any material assets or properties,
except that the Company and its subsidiaries may sell, lease, encumber, mortgage
or otherwise dispose of assets or properties in the ordinary course of business
that are not material to the Company and its subsidiaries, taken as a whole, and
except for the continuing security interest of the lender under the Company's
existing revolving line of credit agreement,
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(d) waive, release, grant or transfer any rights of value or modify or change in
any material respect any existing license, contract or other document or
agreement, other than in the ordinary course of business and in a manner that
does not have a Material Adverse Effect (as defined in the Merger Agreement),
(e) subject to certain exceptions specified in the Merger Agreement, incur any
indebtedness for money borrowed other than indebtedness of the Company to its
wholly-owned subsidiaries or of a wholly-owned subsidiary to the Company or its
other wholly-owned subsidiary and other than indebtedness incurred in the
ordinary course of business for working capital purposes (including, without
limitation, as permitted indebtedness, borrowings in the ordinary course of
business for working capital purposes under the Company's existing revolving
line of credit) that is prepayable at any time without penalty or premium or
incur any purchase money indebtedness for fixed assets or enter into any
capitalized lease, (f) incur any other liability or obligation (except of the
Company to its wholly-owned subsidiaries or of a wholly-owned subsidiary to the
Company or its other wholly-owned subsidiary), other than in the ordinary course
of business, or assume, guarantee, endorse (other than endorsements of checks in
the ordinary course of business) or otherwise as an accommodation become
responsible for the obligations of any other individual or entity (except of the
Company with respect to obligations of its wholly-owned subsidiaries or of a
wholly-owned subsidiary with respect to obligations of the Company or its other
wholly-owned subsidiary), (g) except as otherwise required by the Merger
Agreement, enter into any new employee benefit plan, program or arrangement, or
any new employment, severance or consulting agreement, amend any existing
employee benefit plan, program or arrangement, or any existing employment,
severance or consulting agreement, or, subject to certain exceptions specified
in the Merger Agreement, grant any increases in compensation or benefits, (h)
adopt any collective bargaining agreement, (i) enter into any other transaction,
other than in the ordinary course of business and consistent with past
practices, (j) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability, (k) change any accounting
principles used by the Company, unless required by generally accepted accounting
principles, (l) settle any litigation or proceedings other than those arising in
the ordinary course of business, the settlement of which would not have a
Material Adverse Effect or (m) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
No Solicitation. From the date of the Merger Agreement until the
termination of the Merger Agreement, the Company will not, and will not permit
any officer, director, employee, investment banker or other agent or any
subsidiary of the Company to, directly or indirectly (i) take any action to
seek, initiate or solicit any offer from any person, entity or group to acquire
any shares of capital stock of the Company or its subsidiaries, to merge or
consolidate with the Company or its subsidiaries, or to otherwise acquire any
significant portion of the assets of the Company and its subsidiaries, taken as
a whole, except for acquisitions solely of inventory in the ordinary course of
business (a "Third Party Acquisition Offer"), or (ii) except to the extent
otherwise required by their fiduciary obligations under applicable law, based
upon the advice of outside counsel to the Company, engage in negotiations or
discussions concerning a Third Party Acquisition Offer or the business or assets
of the Company or its subsidiaries with, or disclose financial information
relating to the Company or its subsidiaries to, or any confidential or
proprietary trade or business information relating to the business of the
Company or its subsidiaries to, or afford access to the properties, books or
records of the Company or its subsidiaries to, any third party that may be
considering a Third Party Acquisition Offer; provided, however, that if the
officers or directors of the Company shall be required by their fiduciary
obligations under applicable law, based upon the advice of outside counsel to
the Company, to enter into any such negotiations or discussions, disclose any
such information or afford any such access to any third party, the Company may
do so only if (A) the Board of Directors of the Company is advised by one or
more of its financial advisors that the third party has the financial resources
to consummate a Superior Acquisition (as defined in the Merger Agreement), and
the Board of Directors of the Company determines that the third party is likely
to submit a bona fide Third Party Acquisition Offer to consummate a Superior
Acquisition; (B) the Company has provided Land
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O'Lakes, as soon as reasonably practicable and in any event prior to such
discussions, negotiations, disclosure or access, notice of the Company's intent
to enter into such discussions or negotiations, to supply information and/or to
provide access, the identity of such third party and, as soon as reasonably
practicable after such terms are known by the Company, the terms of the Third
Party Acquisition Offer; and (C) such third party has signed and delivered to
the Company a confidentiality agreement substantially in the form of the
Confidentiality Agreement between the Company and Land O'Lakes.
Pursuant to the Merger Agreement, the Company must orally notify Land
O'Lakes immediately, followed by prompt written notice, of the receipt and the
terms of any Third Party Acquisition Offer from any person, entity or group
(other than from Land O'Lakes or AVV Inc.), or of any request for information or
access, with respect to any Third Party Acquisition Offer, or any indication
from any person, entity or group that it or another person, entity or group is
considering making a Third Party Acquisition Offer or such a request, which
notice shall include the identity of the third party.
Additional Agreements
Access to Information. The Merger Agreement provides that the Company will
give Land O'Lakes and AVV Inc., and their respective counsel, financial
advisors, auditors and other authorized representatives, full access to the
offices, properties, employees, books and records of the Company and its
subsidiaries at all reasonable times upon reasonable notice, and will instruct
the employees, counsel, financial advisors and auditors of the Company and its
subsidiaries to cooperate in all reasonable respects with Land O'Lakes, AVV Inc.
and each such representative in its investigation of the business of the Company
and its subsidiaries.
Stock Options and Warrants. The Merger Agreement provides that at or
immediately prior to the Effective Time, the Company shall use its best efforts
to cause each then outstanding Option and Warrant (whether or not such Option or
Warrant is then exercisable) to be canceled in respect of a cash payment by the
Company equal to the Purchase Right Settlement Amount for such Option or
Warrant, subject to all applicable tax withholding.
Employee Plans. The Merger Agreement provides that, at Land O'Lakes'
reasonable request, the Company will, effective at or immediately prior to the
Effective Time, cause any Employee Plans (as defined in the Merger Agreement) to
be amended for the purpose of permitting the Employee Plans to continue to
operate in conformity with the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations adopted pursuant thereto, and the
Code, and the rules and regulations adopted pursuant thereto, subsequent to the
Merger.
Best Efforts. The Merger Agreement provides that, subject to the terms and
conditions provided therein, each of the parties thereto agrees to use its best
efforts consistent with applicable legal requirements to take, or cause to be
taken, all action, and to do, or cause to be done, all things reasonably
necessary or proper and advisable under applicable laws and regulations to
ensure that the conditions set forth in the Merger Agreement are satisfied and
to consummate and make effective, in the most expeditious manner reasonably
practicable, the Merger and the other transactions contemplated by the Merger
Agreement.
Consents To Merger. The Merger Agreement provides that each of Land
O'Lakes and the Company shall use their respective best efforts to obtain all
material consents of third parties and governmental authorities, and to make all
governmental filings, necessary for the consummation of the transactions
contemplated by the Merger Agreement. The Merger Agreement provides that Land
O'Lakes
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and the Company each shall, as soon as practicable, file the Forms under the HSR
Act with the FTC and the Antitrust Division and shall use their respective best
efforts to respond as promptly as reasonably practicable to all inquiries
received from the FTC or the Antitrust Division for additional information or
documentation.
Public Announcements. The Merger Agreement provides that, except as
provided therein, Land O'Lakes and the Company will consult with each other
before issuing any press release or otherwise making any public statements prior
to the Effective Time with respect to the Merger or the other transactions
contemplated by the Merger Agreement and shall not issue any such press release
or make any such public statement prior to receiving the consent of the other
party, which consent will not be unreasonably withheld or delayed.
Notification of Certain Matters. The Merger Agreement provides that the
Company will give prompt notice, as soon as reasonably practicable, to Land
O'Lakes and AVV Inc. of the occurrence or non-occurrence of any event (i) which
has had or is reasonably likely to have a Material Adverse Effect, (ii) which
has caused any representation or warranty of the Company contained in the Merger
Agreement to be untrue or inaccurate in any material respect or (iii) which has
caused any failure of the Company to comply in all material respects with or
satisfy in all material respects any covenant, condition or agreement to be
complied with or satisfied under the Merger Agreement.
Certain Resignations. The Merger Agreement provides that the Company will
use all reasonable efforts to assist Land O'Lakes in procuring the resignation,
effective as of the Effective Time, of all of the members of the Boards of
Directors of the Company and the Company's subsidiaries and of all officers of
the Company and the Company's subsidiaries as such officers; provided, however,
that those persons resigning as officers of the Company and the Company's
subsidiaries shall continue as employees thereof until such employment is
terminated.
Write-Off of Note Receivable. The Merger Agreement provides that prior to
the Effective Time, the Company will write off, in its entirety, on the books
and the most recent balance sheet of the Company the principal amount of, and
any accrued interest on, the promissory note of Mountain Farms, Inc. to the
Company.
Conditions to the Merger
Conditions to the Obligation of Land O'Lakes and AVV Inc. to Effect the
Merger. The Merger Agreement provides that the obligations of Land O'Lakes and
AVV Inc. to effect the Merger are subject to the satisfaction at or prior to the
Effective Time of the following conditions, any one or more of which may be
waived by Land O'Lakes (except for the condition set forth in clause (iii) below
which may not be waived):
(i) Accuracy of Representations and Warranties. The representations and
warranties of the Company contained in the Merger Agreement shall be true and
correct in all material respects (a) as of the date of the Merger Agreement, and
(b) immediately prior to the Effective Time with the same effect as if such
representations and warranties had been made immediately prior to the Effective
Time, except to the extent that any and all inaccuracies in any representations
and warranties, other than certain specified representations and warranties,
that were true and correct on the date of the Merger Agreement but were
inaccurate immediately prior to the Effective Time have not had, and are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect or impair the consummation of the transactions contemplated by the Merger
Agreement;
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(ii) Performance or Compliance with Covenants. The Company shall have
performed and complied in all material respects with the agreements and
obligations contained in the Merger Agreement required to be performed and
complied with by it at or prior to the Effective Time;
(iii) Stockholder Approval of Agreement and Merger. The Merger Agreement
and the Merger shall have been approved and adopted at a meeting of the
stockholders of the Company by the vote required by the DGCL and the Company's
Certificate of Incorporation and bylaws;
(iv) Other Corporate Action. All other corporate action on the part of the
Company necessary to authorize the execution, delivery and consummation of the
Merger Agreement or any agreement or instrument contemplated by the Merger
Agreement to which the Company is or is to be a party or the transactions
contemplated thereby shall have been duly and validly taken;
(v) Absence of Litigation, Injunctions. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which Land O'Lakes or AVV Inc. is a plaintiff directly or
derivatively) which, in the reasonable judgment of Land O'Lakes would, if
issued, be reasonably likely to restrain or prohibit the consummation of the
transactions contemplated by the Merger Agreement or require rescission of the
Merger Agreement or such transactions or result in material damages to Land
O'Lakes, AVV Inc. or the Surviving Corporation if the transactions contemplated
by the Merger Agreement are consummated, and there shall not be in effect any
injunction, writ, preliminary restraining order or any order of any nature
issued by a court or governmental agency of competent jurisdiction directing
that the transactions contemplated by the Merger Agreement not be consummated as
so provided or any statute, rule or regulation enacted or promulgated that makes
consummation of the transactions contemplated by the Merger Agreement illegal;
(vi) Absence of Material Adverse Effect. Since December 31, 1996 there
shall not have been (i) any damage, destruction or loss, whether covered by
insurance or not, that has had, or is reasonably likely to have, a Material
Adverse Effect; (ii) any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which Land O'Lakes or AVV Inc. is a plaintiff directly or
derivatively) which, in the reasonable judgment of Land O'Lakes, would be
reasonably likely, if issued, to have a Material Adverse Effect; or (iii) any
other event or condition (financial or otherwise) of any character or any
operations or results of operations that has had, or is reasonably likely to
have, a Material Adverse Effect;
(vii) Opinion. Land O'Lakes and AVV Inc. shall have received from local
counsel to the Company (which counsel shall be satisfactory to Land O'Lakes),
and Kramer, Levin, special counsel to the Company, their opinion letters, dated
the date of the Effective Time;
(viii) Consents. The Company, Land O'Lakes and AVV Inc. shall have
received all federal, state, local and foreign governmental consents, if any,
and all material consents of any private persons, necessary to execute and
deliver the Merger Agreement, to consummate the transactions contemplated
therein and to conduct the business of the Company after the Effective Time in
essentially the same manner as it was conducted prior to the Effective Time, and
all waiting periods specified by law shall have expired or been terminated,
including those under the HSR Act;
(ix) Dissenting Shares. The holders of not more than 5% of the issued and
outstanding Company Stock (which percentage shall be calculated by determining
(a) the sum of the number of
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dissenting shares constituting Common Stock and the number of shares of Common
Stock into which the dissenting shares constituting Preferred Stock are
convertible immediately prior to the Effective Time as a percentage of (b) the
sum of the number of issued and outstanding shares of Common Stock and the
number of shares of Common Stock into which the issued and outstanding Preferred
Stock is convertible immediately prior to the Effective Time) shall have taken
such action prior to or at the time of the stockholders' vote as is necessary as
of that time to entitle them to the statutory dissenters' rights.
(x) Cancellation of Options and Warrants. Except for Options and Warrants
entitling the holders thereof to purchase, in the aggregate, up to a maximum of
10,000 shares of Common Stock, the Company shall have obtained the written
cancellation of all Options and Warrants from the holders thereof and shall have
paid the Purchase Right Settlement Amount for each such Option and Warrant
entitled to such payment;
(xi) Title Insurance. The Company shall have provided to Land O'Lakes and
AVV Inc. standard owner's policies of title insurance in amounts reasonably
acceptable to Land O'Lakes and AVV Inc. covering each parcel of real property
owned by the Company or its subsidiaries;
(xii) Non-Compete Agreements. Land O'Lakes and each of Mr. and Mrs. Wolf
shall have entered into a non-compete agreement. See "The Merger--Interests of
Certain Persons in the Merger--Non-Compete Agreements";
(xiii) Cancellation of Subsidiary Option and Put Right. The Company shall
have obtained the termination, effective as of the Effective Time, of the Meyers
Agreements in exchange for a cash payment to Kenneth E. Meyers in an amount not
to exceed the amount calculated pursuant to the formula set forth in the Put
Option Agreement; and
(xiv) Employment Agreements. The Company and each of Messrs. Dominick
Gonnella, Arthur Karmel, George S. Wenger, David Horowitz, Michael Kelly and
Marysusan Fitzsimmons shall have entered into an agreement, effective as of the
Effective Time, acknowledging the Company's right to terminate such employee
without cause during the first six months after the Effective Time. MCT Dairies,
Inc. and Kenneth E. Meyers shall have entered into an agreement, effective as of
the Effective Time, terminating the existing employment agreement between MCT
Dairies, Inc. and Mr. Meyers.
Conditions to the Obligations of the Company to Effect the Merger. The
Merger Agreement provides that the obligation of the Company to effect the
Merger is subject to the satisfaction at or prior to the Effective Time of the
following conditions, any one or more of which may be waived by the Company
(except for the condition set forth in (iii) below which may not be waived):
(i) Accuracy of Representations and Warranties. The representations and
warranties of Land O'Lakes and AVV Inc. contained in the Merger Agreement shall
be true and correct in all material respects immediately prior to the Effective
Time with the same effect as if such representations and warranties had been
made immediately prior to the Effective Time;
(ii) Performance or Compliance with Covenants. Land O'Lakes and AVV Inc.
each shall have performed and complied in all material respects with the
agreements and obligations contained in the Merger Agreement required to be
performed and complied with by them at or prior to the Effective Time;
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(iii) Stockholder Approval of Agreement and Merger. The Merger Agreement
and the Merger shall have been adopted at a meeting of the stockholders of the
Company by the vote required by the DGCL and the Company's Certificate of
Incorporation and bylaws;
(iv) Corporate Action. All corporate action on the part of Land O'Lakes
and AVV Inc. necessary to authorize the execution, delivery and consummation of
the Merger Agreement or any agreement or instrument contemplated by the Merger
Agreement to which Land O'Lakes or AVV Inc. is or is to be a party or the
transactions contemplated thereby shall have been duly and validly taken;
(v) Absence of Litigation, Injunction. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which the Company is a plaintiff directly or derivatively)
which, in the reasonable judgment of the Company, would, if issued, be
reasonably likely to restrain or prohibit the consummation of the transactions
contemplated by the Merger Agreement or require rescission of the Merger
Agreement or such transactions or result in material damages to the Company, and
there shall not be in effect any injunction, writ, preliminary restraining order
or any order of any nature issued by a court or governmental agency of competent
jurisdiction directing that the transactions contemplated by the Merger
Agreement not be consummated as so provided or any statute, rule or regulation
enacted or promulgated that makes consummation of the transactions contemplated
by the Merger Agreement illegal;
(vi) Opinion. The Company shall have received from Thuy-Nga T. Vo, counsel
to Land O'Lakes and AVV Inc., and Faegre & Benson LLP, special counsel to Land
O'Lakes and AVV Inc., their opinion letters, dated the date of the Effective
Time; and
(vii) HSR Act. All filings required prior to the Merger under the HSR Act
shall have been made and all applicable waiting periods under the HSR Act shall
have expired or been terminated.
Termination
The Merger Agreement provides that the Merger Agreement may be terminated
at any time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or AVV Inc.:
(i) by mutual written consent of Land O'Lakes, AVV Inc. and the Company;
(ii) by Land O'Lakes, AVV Inc. or the Company, if the Merger shall not
have been consummated on or before March 1, 1998 (which date may be extended by
mutual agreement of Land O'Lakes, AVV Inc. and the Company) unless such failure
of consummation shall be due to failure by the party seeking to terminate the
Merger Agreement to comply in all material respects with the terms, covenants
and agreements contained in the Merger Agreement;
(iii) by Land O'Lakes or AVV Inc., if (a) any of the conditions set forth
in the Merger Agreement required to be satisfied by the Company (see
"--Conditions to the Merger--Conditions to the Obligation of Land O'Lakes and
AVV Inc. to Effect the Merger") shall become impossible to fulfill other than
for reasons totally within the control of Land O'Lakes or AVV Inc., and shall
not have been waived, or (b) the stockholders of the Company shall fail to
approve and adopt the Merger Agreement and the Merger by the vote required by
the DGCL and the Company's Certificate of Incorporation and bylaws at the first
meeting of stockholders called for that purpose or any adjournment thereof;
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(iv) by the Company, if any of the conditions set forth in the Merger
Agreement required to be satisfied by Land O'Lakes or AVV Inc. (see
"--Conditions to the Merger--Conditions to the Obligations of the Company to
Effect the Merger") shall become impossible to fulfill other than for reasons
totally within the control of the Company, and shall not have been waived;
(v) by the Company, if the Company receives a bona fide Third Party
Acquisition Offer which constitutes a Superior Acquisition and which Third Party
Acquisition Offer the Board of Directors of the Company or the Special Committee
accepts, approves or recommends; or
(vi) by Land O'Lakes or AVV Inc., if the Board of Directors of the Company
fails to call or hold a special meeting of stockholders or to conduct the vote
to approve and adopt the Merger Agreement and the Merger at the special meeting
or any adjournment thereof or if the Board of Directors of the Company or the
Special Committee fails to recommend the Merger to the stockholders, withdraws
or qualifies such recommendation or its approval of the Merger Agreement or the
Merger once given or takes any position or action that is inconsistent with such
recommendation or accepts, recommends or approves a Third Party Acquisition
Offer, whether or not as a result of the Board of Directors' or the Special
Committee's exercise of its fiduciary duties.
Fees and Expenses
The Merger Agreement provides that, except as set forth below, all fees
and expenses incurred in connection with the Merger Agreement and the Merger
will be paid by the party incurring such expenses, whether or not the Merger is
consummated.
(i) If the Merger Agreement is terminated as described above under
"--Termination," and provided Land O'Lakes is entitled to a Termination Fee (as
defined below) as set forth in the Merger Agreement, the Company shall, at the
same time as payment of the Termination Fee is required to be paid pursuant to
the Merger Agreement, pay Land O'Lakes an amount equal to all reasonable
out-of-pocket expenses incurred by or on behalf of Land O'Lakes or AVV Inc. in
connection with the negotiation, preparation, financing, execution or
consummation of the Merger Agreement and the transactions contemplated thereby,
including without limitation legal, accounting, travel, filing, printing,
financing commitment and other reasonable fees and expenses; provided that the
aggregate fees and expenses payable by the Company to Land O'Lakes pursuant to
the Merger Agreement (other than the Termination Fee) shall not exceed $500,000.
(ii) If the Merger Agreement is terminated pursuant to paragraphs (v) or
(vi) under "--Termination," then the Company shall, within five business days
after such termination, pay Land O'Lakes a fee (a "Termination Fee") of
$2,000,000 in addition to the expenses set forth in paragraph (i) above.
(iii) If (a) the Merger Agreement is terminated by Land O'Lakes or AVV
Inc. pursuant to paragraphs (ii) or (iii)(a) under "--Termination" as a result
of a material breach by the Company of any representations, warranties or
covenants contained in the Merger Agreement or as a result of the failure of the
satisfaction of the conditions set forth in paragraphs (iv), (xii) or (xiv)
under "--Conditions to the Merger --Conditions to the Obligation of Land O'Lakes
and AVV Inc. to Effect the Merger," or is terminated by Land O'Lakes or AVV Inc.
pursuant to paragraph (iii)(b) under "--Termination" and (b) prior to such
termination (A) any person or group shall have informed the Company (or the
Board or the Special Committee or any executive officer of the Company) that
such person or group proposes, intends to propose, is considering proposing, or
will or may, if the Merger is delayed, abandoned or not approved
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by the Company's stockholders, propose, a Third Party Transaction (as defined in
the Merger Agreement), or (B) any such person or group or the Company publicly
announces (including without limitation any filing with any federal or state
office or agency) that such person or group has proposed, intends to propose, is
considering proposing, or will or may, if the Merger is delayed, abandoned or
not approved by the Company's stockholders, propose, a Third Party Transaction,
and (c) within one year after such termination a Third Party Transaction
(whether or not involving such person or group) is consummated, then the Company
shall, within five business days after such consummation, pay to Land O'Lakes
the Termination Fee in addition to the expenses set forth in (i) above.
(iv) In no event shall more than one Termination Fee be payable by the
Company.
Amendment
The Merger Agreement provides that to the extent permitted by applicable
law, the Merger Agreement may be amended, modified or supplemented only by
written agreement of the Company, Land O'Lakes and AVV Inc. at any time prior to
the Effective Time with respect to any of the terms contained therein, except
that after the meeting of stockholders contemplated by the Merger Agreement, the
price per share to be paid pursuant to the Merger Agreement to the holders of
Company Stock shall in no event be decreased and the form of consideration to be
received by the holders of Company Stock in the Merger shall in no event be
altered without the approval of such holders.
Waiver of Compliance; Consents
The Merger Agreement provides that any failure of Land O'Lakes or AVV
Inc., on the one hand, or the Company, on the other hand, to comply with any
obligation, covenant, agreement or condition therein (except the conditions
described in paragraph (iii) under "--Conditions to the Merger--Conditions to
the Obligation of Land O'Lakes and AVV Inc. to Effect the Merger" and the
conditions described in paragraph (iii) under "--Conditions to the
Merger--Conditions to the Obligations of the Company to Effect the Merger") may
be waived in writing by the Company or by Land O'Lakes and AVV Inc.,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. The Merger
Agreement provides that whenever the Merger Agreement requires or permits
consent by or on behalf of any party thereto, such consent shall be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in the Merger Agreement.
APPRAISAL RIGHTS
Stockholders who have not voted in favor of the Merger or consented
thereto in writing have the right to demand an appraisal of the fair value of
their Company Stock in accordance with the provisions of Section 262 of the DGCL
("Section 262"), which sets forth the rights and obligations of stockholders
demanding an appraisal and the procedures to be followed. Stockholders who
perfect such rights will not be entitled to surrender their Company Stock for
payment of the Merger Consideration in the manner otherwise described in this
Proxy Statement. Stockholders should assume that the Surviving Corporation will
take no action to perfect any appraisal rights of any stockholder. Therefore, to
exercise his or her appraisal rights, a stockholder should strictly comply with
the procedures set forth in Section 262 and is urged to consult his or her legal
advisor before electing or attempting to exercise such appraisal rights.
Stockholders who vote in favor of the Merger or consent thereto in writing
cannot demand appraisal rights, but stockholders are not required to vote their
shares of Common Stock against the Merger in order to obtain such appraisal
rights. Stockholders who sign and return the proxy card included with this Proxy
Statement with instructions to vote in favor of the Merger or, since proxy cards
returned without
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instructions will be voted in favor of the Merger, with no instruction to vote
against or abstain from voting with respect to the Merger, will not be entitled
to appraisal rights.
The following is a summary of the procedures to be followed under Section
262, the text of which is attached to this Proxy Statement as Appendix B. The
summary does not purport to be a complete statement of, and is qualified in its
entirety by reference to, Section 262 and to any amendments to Section 262 after
the date of this Proxy Statement. Failure to follow any Section 262 procedure
may result in termination or waiver of appraisal rights under Section 262. Any
stockholder who desires to exercise his or her appraisal rights should review
carefully Section 262 and is urged to consult his or her legal advisor before
electing or attempting to exercise such rights.
Only a stockholder of record is entitled to seek appraisal. The demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the holder's stock
certificates. If the stock is owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, the demand should be made in that capacity,
and if the stock is owned of record by more than one person, as in a joint
tenancy in common, the demand should be made by or for all owners of record. An
authorized agent, including one or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, such agent must identify the
record owner or owners and expressly disclose in such demand that the agent is
acting as agent for the record owner or owners of such shares of Company Stock.
A record stockholder, such as a broker, who holds shares of Company Stock
as a nominee for beneficial owners, some of whom desire to demand appraisal,
must exercise appraisal rights on behalf of such beneficial owners with respect
to the shares of Company Stock held for such beneficial owners. In such case,
the written demand for appraisal must set forth the number of shares of Company
Stock covered by such demand. Unless a demand for appraisal specifies a number
of shares of Company Stock, such demand will be presumed to cover all shares of
Company Stock held in the name of such record owner.
The Company is mailing to each stockholder of record as of the Record Date
this Proxy Statement, which constitutes the notice required under Section 262.
Included with this Proxy Statement is a copy of Section 262. Any stockholder
entitled to appraisal rights may demand, in writing, from the Company, prior to
the vote on the Merger, an appraisal of his or her shares of Company Stock. Such
demand will be sufficient if it reasonably informs the Company of the identity
of the stockholder and that the stockholder intends to demand an appraisal of
the fair value of his or her shares of Company Stock. Failure to make such a
demand will foreclose a stockholder's right to appraisal. A proxy or vote
against the Merger shall not constitute a demand. In addition, any stockholder
voting in favor of the Merger or consenting thereto in writing is not entitled
to appraisal rights under Section 262. Stockholders who sign and return the
proxy card included with this Proxy Statement with instructions to vote in favor
of the Merger or, since proxy cards returned without instructions will be voted
in favor of the Merger, with no instruction to vote against or abstain from
voting with respect to the Merger, will not be entitled to appraisal rights.
A stockholder may withdraw his or her demand for appraisal by written
request within 60 days after the Effective Time of the Merger, but thereafter
the approval of the Surviving Corporation is needed for such a withdrawal. Upon
withdrawal of an appraisal demand, a stockholder will be entitled to receive the
Merger Consideration, without interest.
Within 10 days after the Effective Time of the Merger, the Surviving
Corporation shall notify each stockholder who has complied with the provisions
of Section 262. Within 120 days after the Effective Time (the "120-Day Period"),
in compliance with Section 262, any stockholder who has properly
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demanded an appraisal and who has not withdrawn his or her demand as provided
above (such stockholders being referred to collectively as the "Dissenting
Stockholders") and the Surviving Corporation each has the right to file in the
Delaware Court of Chancery (the "Delaware Court") a petition (the "Petition")
demanding a determination of the value of the Company Stock held by all of the
Dissenting Stockholders. If, within the 120-Day Period, no Petition shall have
been filed as provided above, all rights to appraisal will cease and all of the
Dissenting Stockholders who owned Company Stock will become entitled to receive
the Merger Consideration. The Surviving Corporation is not obligated and does
not intend to file a Petition. Any Dissenting Stockholder is entitled, within
the 120-Day Period and upon written request to the Surviving Corporation, to
receive from the Surviving Corporation a statement setting forth the aggregate
number of shares of Common Stock not voted in favor of the Merger and the
aggregate number of shares of Company Stock with respect to which demands for
appraisal have been received and the aggregate number of Dissenting
Stockholders.
Upon the filing of the Petition by a Dissenting Stockholder, the Delaware
Court may order that notice of the time and place fixed for the hearing on the
Petition be mailed to the Surviving Corporation and all of the Dissenting
Stockholders and be published at least one week before the day of the hearing in
a newspaper of general circulation published in the City of Wilmington, Delaware
or in another publication determined by the Delaware Court. The costs relating
to these notices will be borne by the Surviving Corporation. If a hearing on the
Petition is held, the Delaware Court is empowered to determine which Dissenting
Stockholders have complied with the provisions of Section 262 and are entitled
to an appraisal of their Common Stock. The Delaware Court may require that
Dissenting Stockholders submit their certificates for notation thereon of the
pendency of the appraisal proceedings. The Delaware Court is empowered to
dismiss the proceedings as to any Dissenting Stockholder who does not comply
with such requirement. Accordingly, Dissenting Stockholders are cautioned to
retain their certificates pending resolution of the appraisal proceedings.
Stockholders considering seeking appraisal should have in mind that the
fair value of their shares of Company Stock determined under Section 262 could
be more, the same, or less than the Merger Consideration and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. The Delaware Court has
discretion to require the Surviving Corporation to pay interest on the fair
value of the shares determined pursuant to Section 262.
Dissenting Stockholders are generally permitted to participate in the
appraisal proceedings. No appraisal proceeding in the Delaware Court shall be
dismissed as to any Dissenting Stockholder without the approval of the Delaware
Court, and this approval may be conditioned upon terms which the Delaware Court
deems just.
From and after the Effective Time, Dissenting Stockholders will not be
entitled to vote their Common Stock for any purpose and will not be entitled to
receive payment of dividends or other distributions in respect of such Common
Stock or Preferred Stock, as applicable, payable to stockholders of record
thereafter.
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<PAGE> 40
BUSINESS OF THE COMPANY
The Company has two principal businesses. The Company's branded business
develops, markets and distributes nutritionally oriented cheeses and deli meats
under its own label and operates a converting and packaging facility through a
wholly-owned subsidiary, Dakota Farms Cheese, Inc. ("DFC"), formerly known as
Marolf Dakota Farms Cheese, Inc., a Delaware corporation, located in Sturgis,
South Dakota. Through February 17, 1994, the Company packaged and converted
cheese under private labels through the Company's wholly-owned subsidiary,
Mountain Farms, Inc. ("MFI"), a Utah corporation, in which a 65% interest was
sold on that date. The Company's other principal business is its cheese and
dairy products trading business which is operated through MCT Dairies, Inc.
("MCT"), a New Jersey corporation and a wholly-owned subsidiary of the Company.
The Company was incorporated in Delaware on February 14, 1986. The
principal office of the Company is located at 111 Dunnell Road, Maplewood, New
Jersey 07040. The telephone number is (973) 378-8600.
Branded Business
The principal branded cheeses currently marketed by the Company are the
Alpine Lace(R) brand line of cheeses, which are generally lower in sodium and
lower in fat and cholesterol than cheeses made from whole milk, and the Alpine
Lace(R) fat free brand line of fat free cheese products. The Company also
develops and markets deli meats, which are also generally lower in sodium and
fat and cholesterol than other deli meats. The Company generally purchases these
products from independent manufacturers who utilize the Company's proprietary
recipes and markets them throughout the United States under its own trademark.
DFC converts and packages Alpine Lace(R) brand dairy case sliced cheeses for
retail and club store sales and does private-label packaging. As a result of a
restructuring of the Company's operations in December of 1994, DFC ceased
producing skim milk cheese, including skim milk cheese used by the Company, and
terminated its DFC product line of DFC brand Colby, Cheddar, and Monterey Jack
cheeses marketed by the Company.
The Company's branded cheese and deli meat business (excluding DFC) had
revenues before intercompany eliminations in the six months ended June 30, 1997
and for the years ended 1996, 1995, and 1994 of $62,887,061, $130,869,866,
$124,933,243, and $117,258,595, respectively. In the six months ended June 30,
1997 and for the years ended 1996, 1995, and 1994, DFC had revenues before
intercompany eliminations of $8,833,298, $15,319,946, $14,353,026, and
$14,152,399, respectively.
Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese, a pasteurized
part-skim milk cheese, is the Company's largest selling product constituting
approximately 50% of its branded cheese sales. The product is offered for sale
to consumers in supermarkets, delicatessens, club stores and specialty food
stores, with most sales made in the delicatessen sections of supermarkets. It is
primarily sold in bulk quantities by the Company and is sliced or cut into
chunks for consumers at the retail store, and in retail packages sold in the
dairy case section of supermarkets, warehouse club stores and grocery stores.
Sales of this product commenced in January, 1984, and the Company
currently sells Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese to
approximately 1,000 customers, primarily supermarket chains, supermarket food
distributors, warehouse club stores and specialty food store distributors.
Alpine Lace(R) Reduced Fat and Reduced Sodium American and Hot Pepper
Flavor Pasteurized Process Cheese Product and Reduced Sodium Muenster Cheese,
Reduced Fat Mozzarella Cheese, Reduced
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<PAGE> 41
Fat Cheddar Cheese, Reduced Fat and Reduced Sodium Provolone Cheese, and Reduced
Fat and Reduced Sodium Colby Cheese are other cheeses made by the Company. These
products (aside from the American and Hot Pepper Flavor Pasteurized Process
Cheese Product) are natural cheese products. Except for Reduced Fat Mozzarella
Cheese, all have up to 50% less sodium than their typical cheese counterparts.
Aside from the Reduced Sodium Muenster Cheese, all of these products are lower
in cholesterol and lower in fat and calories than their typical counterparts.
Other products introduced in late 1995 include Alpine Lace(R) Reduced Fat Feta
Cheese, which contains 50% less fat than regular Feta, and Alpine Lace(R) Fat
Free Shredded Parmesan, which features 60% less calories, 88% less cholesterol
and 25% less sodium than regular Parmesan cheese. In the spring of 1997, the
Company introduced a line of 50% Reduced Fat cheeses including Goat Cheese, Feta
with Sundried Tomato & Basil, Cream Cheese with Garlic & Herbs and Cream Cheese
with Sundried Tomato & Basil.
The Company introduced Alpine Lace(R) fat free cheese products for the
retail dairy case in the summer of 1990 and currently sells these products to
about 75% of all major supermarket chains in the United States and to a lesser
extent into other trade channels. In late 1996, the Company redesigned the
packaging for its fat free line using much brighter colors and upscaled graphics
in order to emphasize the high quality of the product.
Alpine Lace(R) Fat Free Turkey Breast was introduced in May, 1995 and is
now available in about 25% of the United States' supermarkets. Besides the fat
free benefit, this product also contains 56% less sodium than regular turkey
breast.
Alpine Lace(R) 97% Fat Free Roast Beef was introduced to the marketplace
in late third quarter 1997, and is currently being rolled out in select test
markets across the country. Aside from being 97% fat free this product has been
approved by the United States Department of Agriculture to bear the claim "an
excellent source of protein."
The Company now offers three ham products via supermarket delis across the
country: Alpine Lace(R) 97% Fat Free Boneless Cooked Ham, Alpine Lace(R) 97% Fat
Free Honey Ham, and a brand new Alpine Lace(R) 100% Fat Free Boneless Cooked
Ham, which is being test marketed in select markets across the country. The fat
free and honey ham products have a 60% and 33%, respectively, reduction in
sodium and the 97% boneless cooked ham has a 45% reduction in sodium.
The Company is also in the process of launching a full line of prepared
foods for distribution in test markets across the country. These items address
the most popular trend in the supermarket industry today, home meal replacement.
Found in the refrigerated case of supermarkets' deli sections, this line
includes four different varieties of refrigerated pizzas, and wrapped
sandwiches, all designed to take home, heat and eat. Their goal is to afford
consumers convenience and nutritional superiority in this growing meal
replacement category. All products have 50% less fat than their traditional
counterparts.
Manufacturing
In 1995, the Company ceased manufacturing any of its branded cheeses. The
Company either owns or has significant rights to the respective recipes or
manufacturing processes for most of its products, including Alpine Lace(R)
Reduced Fat and Reduced Sodium Swiss Cheese, which are now manufactured by
independent manufacturers.
Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese is manufactured
in a privately owned facility under a contract granting the Company the
exclusive right to purchase the product (with a
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minor exception). The agreement requires the manufacturer to supply the
Company's requirements of the cheese through December, 2000, with successive
five year renewal periods thereafter, unless terminated by either party. The
Company may purchase, with the reasonable consent of the manufacturer, up to 10%
of its requirements for the product from another source. As part of the
agreement with the primary manufacturer, entered into in July, 1988, the Company
obtained an exclusive license to use such manufacturer's Reduced Fat and Reduced
Sodium Swiss Cheese recipe for the production of this cheese (subject to paying
license fees based on volume produced) if the manufacturer elects not to renew
the agreement, breaches the agreement, or undergoes a change in control. The
Company also has a limited exclusive license to produce this cheese to cover
certain shortfalls in the manufacturer's production.
At present, there are adequate supplies of raw materials, primarily milk,
used by the Company's suppliers in manufacturing the Company's products. The
average relevant commodity market prices were at record high levels in 1996. The
average relevant commodity market prices returned to more historical levels in
the six month period ended June 30, 1997.
In May, 1990, the Company acquired all patents pending and technology for
fat free and low fat cheese and cultured dairy products as well as certain
assets, rights and technologies from Gamay Foods, Inc. ("Gamay") for
approximately $1.85 million in cash and the issuance of restricted special stock
warrants to purchase 75,000 shares of Common Stock at the stock market price at
the time of the warrants' issuance; provided however, the price of such warrants
is decreased by $2.00 upon a change of control (as defined in such warrant
agreement). The exercise price of the warrant, giving effect to the Merger, is
now $7.63. Additionally, the Company has agreed to pay a royalty to Gamay on
future sales of products associated with the acquisition. On February 24, 1995,
the Company and Gamay modified their royalty agreement. The Company and Gamay
also entered into other agreements, including a supply agreement and consulting
agreement, some of the terms of which have been modified since May 1990. The
Company has applied this technology to create its Alpine Lace(R) fat free line
of cheeses.
Marketing and Advertising
Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese was sold in all
70 United States geographic markets as of June 30, 1997 and was available,
according to the Company's estimates, in approximately 45,000 retail stores in
those markets. Other Alpine Lace(R) brand cheeses and deli meats were sold in
approximately 30,000 stores nationwide. The Company's marketing program places
substantial emphasis upon advertising and promotion, primarily television
advertising, as well as point of sale merchandising and cooperative retailer
promotions and advertisements.
The Company received Kosher certification for its Reduced Fat and Reduced
Sodium Swiss Cheese, which represents over 50% of the Company's delicatessen
business.
The Company has been actively selling its products to the food service and
club store industries. Where appropriate, special sized packs of Alpine Lace(R)
brand cheese products have been developed.
Distribution
The largest single customer of the Company's branded cheese and deli meat
business accounted for approximately 5% of the 1996 branded cheese and deli meat
sales revenues, and the eight largest customers accounted for approximately 27%
of such sales revenues. Sales, whether to supermarket chains, distributors, or
others, are typically made through independent sales agency firms (food
brokers), which may also deal with cheeses and deli meats manufactured or
distributed by other companies. These sales
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<PAGE> 43
agency firms also participate in local promotional activities and in-store
merchandising for the Company's products.
Cheese Converting, Packaging and Manufacturing Operations
On February 17, 1994, the Company sold 65% of the outstanding shares of
common stock of its then wholly-owned cheese converting and packaging
subsidiary, MFI. At December 31, 1994, the Company recorded a charge of
$1,517,757 to write-down to zero the carrying value of its investment and
related assets and expenses in MFI. In addition, the Company recorded a charge
of $1,070,700 relating to the cancellation of its supply agreement with MFI
which was payable in twenty-six monthly installments ending February, 1997.
Beginning in February 1995, the Company moved its converting and packaging
requirements from MFI to an outside supplier.
In connection with the Company's restructuring plan approved in December
1994, the Company closed its skim milk cheese production facility at DFC in
January 1995. In addition, DFC cheese products were discontinued in December
1994. DFC continues to convert and package the Company's warehouse club store
and dairy case sliced cheeses sold under the Alpine Lace(R) brand and does
private-label packaging.
Cheese and Dairy Products Trading Business
The Company's cheese and dairy products trading activities are performed
by MCT. MCT purchases, almost always as principal, bulk packaged quantities of
domestic and imported cheese and dairy products. The size of purchases ranges
generally from 3,000 to 42,000 pounds. Substantially all of the products
purchased and then sold are bulk cheese, butter, whey, nonfat dry milk powder,
animal feed, dairy flavorings, casein and caseinates, and buttermilk. MCT
generally purchases cheese and dairy products to fill purchase orders received
from its customers, although it will buy limited amounts of product without
specific sales commitments, to be held in inventory for future sale (and stored
in public warehouses, if necessary).
MCT also exports cheese and dairy products either directly or under the
auspices of various U.S. government assisted programs. In 1992, MCT became
active in world market trading of non-cheese dairy products. From time to time,
MCT will act as a broker and receive a commission, although to date commissions
have not been significant.
In 1996, MCT sold to approximately 32 manufacturers/processors, 78
distributors, and approximately 31 cheese and dairy products trading firms. The
largest two customers each accounted for approximately 20% of the Company's
cheese and dairy products trading revenues in 1996.
Government Regulation
The Company and its suppliers are subject to extensive regulation by
various government agencies which, pursuant to statutes, rules and regulations,
prescribe quality, purity, manufacturing, advertising and labeling requirements.
Food products are often subject to "standard of identity" requirements, which
are promulgated at both the federal and state level, that set forth the
permissible qualitative and quantitative ingredient content of foods, and
information that must be provided on food product labels. The Federal Food and
Drug Administration ("FDA"), United States Department of Agriculture ("USDA"),
FTC and many states review product labels and advertising.
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<PAGE> 44
The Company's branded cheese products and deli meats meet the current
applicable FDA, USDA, and state requirements and its advertising and labels
accurately describe its products. The Company has made changes in its
advertising and labeling in response to the new labeling laws.
Food manufacturing, processing and packaging facilities of the Company and
its suppliers are subject to inspection by various federal and state regulatory
authorities and must comply with various health and safety regulations.
Trademarks and Patents
Product identification is important in marketing the Company's products,
and the Company seeks to protect the brand identification it has developed. The
Company and its subsidiaries own a number of registered trademarks including the
Company's primary trademark, ALPINE LACE(R).
Since 1992, the Company has been issued five U.S. patents for the
manufacture of fat free and low fat cheese and cheese products. The Company has
also obtained similar patent protection in New Zealand. Additionally, the
Company either owns or has significant rights to the recipes and manufacturing
processes of substantially all of its Alpine Lace(R) reduced fat and fat free
products.
Competition
The Company's Alpine Lace branded products compete intensively with many
established domestic and foreign brands which are, in many cases, less expensive
than the Company's products. Many of these products are marketed by companies
with greater financial and other resources than those of the Company. The
Company believes that the Alpine Lace(R) brand is currently one of the five
largest advertised brands of cheese in measured media in the United States. The
Company's primary cheese products have certain health-related characteristics
that the Company believes differentiate them from many other cheeses; however,
the Company faces significant competition from cheese products with similar
characteristics. The principal competitors with the Company's products in the
reduced sodium, fat free and/or reduced fat cheese fields are Lorraine(R)
cheese, a cheese which the Company believes resembles Swiss cheese in some
respects, which is produced by Stella Cheese Co., Inc., Kraft Free(R) and other
reduced fat cheese products marketed by Kraft Foods, Inc. and Healthy Choice(R)
marketed by Beatrice Cheese Co., Inc., a division of Con Agra.
The Company's cheese and dairy products trading business is subject to
intense competition from cheese and dairy products importers, distributors and
manufacturers, as well as from other cheese trading companies. In addition,
potential purchasers' internal buyers can serve many of the functions for which
a cheese and dairy products purchaser might otherwise use a cheese and dairy
products trading company. However, cheese and dairy products trading companies
like the Company's offer the advantage of specialization, with its resulting
efficiencies.
Employees
The Company and its subsidiaries currently have 161 employees.
Business Segment Information
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<PAGE> 45
The Company's operations consist of two segments: (1) the branded cheese
business which develops, markets, distributes, packages and converts branded
cheeses, deli meats and other specialty food products; and (2) the cheese and
dairy products trading business.
Properties
The Company's 7,575 gross square foot administrative offices, located in a
modern office building in Maplewood, New Jersey, are under two leases providing
for annual rentals of $44,460 and $100,048, respectively, and both expiring
April 30, 2000. The Company believes that this present space is sufficient for
its present business operations (excluding DFC) for the foreseeable future.
DFC's facilities are located within the incorporated limits of Sturgis,
South Dakota. DFC owns 2.25 acres of land and two buildings. The buildings
consist of a 1,440 square foot truck garage and a 16,940 square foot packaging
and warehousing building where cheese is cut into consumer packaged products. An
administrative office was built atop of the packaging and warehousing building
due to the sale of the 2,812 square foot administrative office building in 1995.
The 9,370 square foot production building was also sold during 1995 due to the
closing of the skim milk cheese operation.
Legal Proceedings
In an action brought by the Company on March 7, 1995 in the United States
District Court for the District of New Jersey against Kraft Foods, Inc.
("Kraft"), Borden, Inc. ("Borden"), Beatrice Cheese, Inc. ("Beatrice") and
Schreiber Foods, Inc. ("Schreiber") alleging infringement of the Company's
patent for the manufacture of low fat cheese, summary judgment was granted in
favor of Kraft in March 1996; partial summary judgments were granted in favor of
Borden and Schreiber in September 1996 and April 1997; and partial summary
judgment was granted in favor of Beatrice Cheese, Inc. on July 11, 1997. The
Company's motion for reconsideration by the District Court of the grant of
partial summary judgment in favor of Beatrice was denied on September 23, 1997.
The grants of summary judgment in favor of Kraft, Borden and Schreiber
have been appealed to the United States Court of Appeals for the Federal Circuit
(the "Federal Circuit") and the appeals have been consolidated. It is
anticipated that briefing will be completed at the end of October, argument will
occur in approximately February 1998 and a decision may be available in the
spring of 1998. The Company filed a Notice of Appeal in the Federal Circuit in
relation to the grant of partial summary judgment in favor of Beatrice on
October 17, 1997. Proceedings in relation to the claims remaining before the
United States District Court for the District of New Jersey have been stayed
until May 1998.
During 1996, the Company was joined as a defendant in two separate class
actions pending in the United States District Court for the Eastern District of
Wisconsin. The complaints in these two actions are nearly identical, were filed
by the same plaintiffs' lawyers, and were brought on behalf of the same class.
Both complaints allege conspiracy among the Company, Kraft, Borden and the
National Cheese Exchange, Inc. (the "NCE") to, among other things, manipulate
cheese prices and unreasonably restrain trade in violation of the Sherman Act.
Both cases also assert state law claims for fraud and misrepresentation and
breach of contract. Both complaints seek unspecified actual and punitive damages
and injunctive relief.
Following the denial of a motion for class certification in one of the
cases in December 1996, one of the cases was dismissed without prejudice, but
with costs, on May 2, 1997 and the other case was dismissed without prejudice or
costs on September 3, 1997.
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<PAGE> 46
On July 15, 1997, the Company was served with a complaint in a class
action pending in the Wisconsin Circuit Court for Dane County. The complaint in
this action, which was brought by five individual Wisconsin dairy farmers on
behalf of a nationwide class of milk producers, contains three counts. In the
second count, which is the only count containing allegations against the
Company, the plaintiffs allege a conspiracy among the Company and co-defendants,
the NCE, Kraft and Borden, to manipulate, through their trading practices,
prices of bulk cheese on the Cheese Exchange in violation of the Wisconsin
antitrust laws. This manipulation is alleged to have artificially depressed the
price at which cheese was sold on the Cheese Exchange and, in turn, the price at
which plaintiffs allege they were able to sell their milk. The other two counts
of the complaint contain allegations against only Kraft and the NCE. The
complaint seeks treble damages in an unspecified amount.
On September 23, 1997, a First Amended and Consolidated Class Action
Complaint was filed in the Circuit Court for Dane County whereby the above
referenced case was consolidated with two other similar cases pending against
Kraft and the NCE. Two of the 7 counts in the Consolidated Complaints contain
allegations against the Company. These are: Count III in which Plaintiffs allege
that the Company, Kraft and defendant Borden exercised power to control prices
in the relevant markets and that Kraft had acquired and exercised monopoly power
in violation of the Wisconsin anti-trust laws and Count IV in which Plaintiffs
allege a conspiracy among the Company, Kraft, Borden and the NCE to manipulate
prices of bulk natural cheese on the NCE in violation of Wisconsin anti-trust
laws. As with the first complaint, the consolidated complaint seeks treble
damages in an unspecified amount. On October 13, 1997, the defendants filed a
motion to dismiss the Consolidated Complaint.
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<PAGE> 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY
The following table sets forth information, as of October 17, 1997, for
all holders of 5% or more of the Company's Common Stock, for each of the
Company's Directors, for the Company's Chief Executive Officer and its other
four most highly compensated executive officers, and for all executive officers
and directors of the Company as a group. Information with respect to beneficial
ownership is based upon information furnished to the Company by each security
holder. The warrants and options referred to in the footnotes to the table are
presently exercisable or will become exercisable at the Effective Time, except
as otherwise noted.
<TABLE>
<CAPTION>
Amount Percentage
and Nature of Outstanding
of Beneficial Common
Name and Address(1) Ownership(2) Stock
------------------- ------------- ------
<S> <C> <C>
Carl T. Wolf............................................. 1,703,800(3)(4) 32.3%
Goldman, Sachs & Co. .................................... 471,400 9.2%
86 Broad Street
New York, NY 10004
Kenneth E. Meyers........................................ 136,917(5) 2.6%
George S. Wenger......................................... 106,398(6) 2.1%
Marion F. Wolf........................................... 110,500(3)(7) 2.1%
Arthur Karmel............................................ 56,500(9) 1.1%
Richard Cheney........................................... 33,800(10) (8)
Richard S. Hickok........................................ 41,301(11) (8)
Howard M. Lorber......................................... 31,800(12) (8)
Joseph R. Rosetti........................................ 36,900(13) (8)
Marvin Schiller.......................................... 32,800(10) (8)
John M. Small............................................ 6,600(14) (8)
All executive officers and Directors as
a group................................................ 2,238,317(15) 39.4%
</TABLE>
- ----------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Alpine Lace Brands, Inc., 111 Dunnell Road, Maplewood, New Jersey 07040.
(2) Unless otherwise indicated, the persons shown have sole voting and
investment power with respect to the shares listed.
(3) Includes 75,000 shares of Common Stock jointly owned by Carl T. Wolf and
Marion F. Wolf. Each of Mr. and Mrs. Wolf disclaim beneficial ownership of
the other's shares of Common Stock.
(4) Includes options to purchase 100,000 shares of Common Stock granted
pursuant to the Company's 1987 Stock Option Plan (the "1987 Plan") and
52,200 shares of Common Stock granted pursuant to the Company's 1997 Stock
Option Plan (the "1997 Plan").
(5) Includes options to purchase 75,250 shares of Common Stock granted
pursuant to the 1987 Plan and 10,150 shares of Common Stock granted
pursuant to the 1997 Plan.
(6) Includes options to purchase 65,250 shares of Common Stock granted
pursuant to the 1987 Plan and 10,150 shares of Common Stock granted
pursuant to the 1997 Plan.
(7) Includes options to purchase 25,500 shares of Common Stock granted
pursuant to the 1987 Plan and 5,000 shares of Common Stock granted
pursuant to the 1997 Plan.
(8) Less than one percent.
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<PAGE> 48
(9) Includes options to purchase 33,000 shares of Common Stock granted
pursuant to the 1987 Plan and 3,500 shares of Common Stock granted
pursuant to the 1997 Plan.
(10) Includes options to purchase 22,200 shares of Common Stock granted
pursuant to the 1987 Plan and 6,600 shares of Common Stock granted
pursuant to the 1997 Plan.
(11) Includes 7,750 restricted special warrants to purchase 7,750 shares of
Common Stock and options to purchase 22,200 shares of Common Stock granted
pursuant to the 1987 Plan and 6,600 shares of Common Stock granted
pursuant to the 1997 Plan and includes 667 restricted special warrants to
purchase 2,001 shares of Common Stock and 667 warrants, with such 667
warrants exercisable to purchase an additional 1,000 shares of Common
Stock.
(12) Consists of options to purchase 25,200 shares of Common Stock granted
pursuant to the 1987 Plan and 6,600 shares of Common Stock granted
pursuant to the 1997 Plan.
(13) Includes 5,500 restricted special warrants to purchase 5,500 shares of
Common Stock and options to purchase 22,200 shares of Common Stock granted
pursuant to the 1987 Plan and 6,600 shares of Common Stock granted
pursuant to the 1997 Plan.
(14) Consists of options to purchase 6,600 shares of Common Stock granted
pursuant to the 1987 Plan.
(15) Includes (i) 667 restricted special warrants to purchase 2,001 shares of
Common Stock and 667 warrants, with such 667 warrants exercisable to
purchase an additional 1,000 shares of Common Stock, (ii) 13,250
restricted special warrants to purchase 13,250 shares of Common Stock, and
(iii) options to purchase 431,100 shares of Common Stock granted pursuant
to the 1987 Plan and 117,500 shares of Common Stock granted pursuant to
the 1997 Plan.
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CERTAIN TRANSACTIONS
Market Finders Brokerage, Inc.
Market Finders Brokerage, Inc. ("Market Finders") is a food brokerage
company organized in 1977 by Mr. and Mrs. Wolf. Mr. Wolf served as the President
and was sole stockholder of Market Finders from 1977 until December 1985, at
which time he resigned his position and transferred his stock in Market Finders
to Mrs. Wolf, who succeeded him as President. In May, 1990, Market Finders sold
the commission brokerage portion of its business to an unrelated party, but the
sale provided for Mrs. Wolf to receive a percentage royalty (subject to a
specified minimum and maximum) based on commissions generated by Market Finders.
Effective April 1, 1993 and again in 1995, the commission brokerage business was
resold to new owners, and Mrs. Wolf's percentage royalty arrangements were
renegotiated, including a new provision for reduction of Mrs. Wolf's royalty in
the event the Company ceases doing business with the new purchaser.
The Company continues to use the services of the purchasers of Market
Finders' commission brokerage business. During 1996 and the six months ended
June 30, 1997, sales agency fees and commissions paid by the Company to the
purchaser aggregated $215,951 and $93,592, respectively.
Market Finders, which is still owned by Mrs. Wolf, continues to engage in
certain import quota transactions with the Company. During 1996 and the six
months ended June 30, 1997, purchases by the Company from Market Finders
aggregated $539,181 and $176,834, respectively.
Herbloc, Inc.
In December, 1991, MCT Dairies, Inc., a wholly-owned subsidiary of the
Company, made an unsecured loan to Kenneth E. Meyers, the President of MCT, in
the amount of $65,000 in order to finance the purchase by Mr. Meyers of all of
the outstanding stock of Herbloc, Inc. ("Herbloc"), a California corporation.
The loan bore interest at the rate of 11% per annum, compounded quarterly, and
was repayable over five years in 20 equal installments of principal, plus
accrued interest. The loan was repaid in full on December 31, 1996.
At the time of Mr. Meyers' purchase of the stock of Herbloc in December,
1991, the Company entered into a five-year supply agreement with Herbloc,
renewable at the Company's option for an additional five years, pursuant to
which Herbloc has agreed to sell to the Company all cheese and cheese products
imported by Herbloc pursuant to its import quotas. The Company has agreed to pay
Herbloc (a) the cost of the imported cheese and cheese products plus all direct
costs related to the importation of quota cheese, (b) a mark-up during the
initial term of $0.0984 per pound of quota cheese imported under Herbloc's
historical and non-historical import quotas, plus $0.015 per pound of quota
cheese imported by Herbloc under any supplementary import quotas, but not less
than $18,000 per year of mark-ups during the initial term, and during the
renewal term (if any) a mark-up of $0.035 per pound of quota cheese imported by
Herbloc under any quotas, and (c) the amount paid by Herbloc to the U.S.
Department of Agriculture each year for license fees. The supply agreement
guarantees that each year the Company will either purchase at least 86% of
Herbloc's "quota share" for cheese and cheese products, or the Company will
notify Herbloc by September 15 of such year of the amount of each "quota share"
which the Company does not plan to purchase during the remainder of such year.
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<PAGE> 50
During 1996 and the six months ended June 30, 1997, the Company had
aggregate purchases from Herbloc of $716,415 and $231,334, respectively, and the
Company had aggregate sales to Herbloc of $43,723 and $71,333, respectively.
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Common Stock trades on the Nasdaq National Market tier of The Nasdaq
Stock Market under the symbol: LACE.
The Nasdaq Stock Market quotations set forth in the table reflect
inter-dealer prices, without retail mark-up, mark-down or commission, which may
not necessarily represent actual transactions.
COMMON
HIGH LOW
First Quarter, 1995 $ 7.63 $ 3.50
Second Quarter, 1995 9.31 6.50
Third Quarter, 1995 11.50 7.63
Fourth Quarter, 1995 12.13 9.50
First Quarter, 1996 10.63 6.50
Second Quarter, 1996 6.75 5.13
Third Quarter, 1996 6.25 4.50
Fourth Quarter, 1996 6.47 5.13
First Quarter, 1997 6.50 5.00
Second Quarter, 1997 7.38 4.81
Third Quarter, 1997 10.00 5.38
Fourth Quarter, 1997 8.88 8.63
(Through November 7, 1997)
As of the close of business on November 7, 1997, there were 190 registered
holders of record of the Common Stock. The Company estimates that there are over
2,100 beneficial owners of its Common Stock. As of September 30, 1997, the last
trading day prior to announcement of the execution of the Merger Agreement, the
closing price per share of Common Stock was $10.00. On November 7, 1997, the
most recent date for which prices were available prior to printing this Proxy
Statement, the closing price per share of Common Stock was $8.75. Stockholders
are urged to obtain current market quotations for their shares of Common Stock.
THE COMPANY'S DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. Cash dividends are restricted by the Company's bank credit facility
agreement.
-41-
<PAGE> 51
SELECTED CONSOLIDATED
FINANCIAL DATA(1)
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Selected Data from Statement
of Operations:
Net sales $ 161,896,522 $ 145,043,395 $ 132,354,808 $ 180,745,614 $ 167,306,297
Earnings (Loss) before
cumulative effect of an accounting
change & extraordinary item 1,902,004 3,912,028 (3,122,989) (4,040,254) 8,723
Extraordinary item2 -- 103,760 -- -- --
Cumulative effect of an
accounting change3 -- -- -- -- (49,000)
Net earnings (loss) 1,902,004 4,015,788 (3,122,989) (4,040,254) (40,277)
Preferred stock dividends 168,750 121,513 -- -- --
MCT Dairies, Inc. option 107,751 -- -- -- --
Net earnings (loss)
applicable to common shareholders 1,625,503 3,894,275 (3,122,989) (4,040,254) (40,277)
Net earnings (loss) per share
of common stock:
Earnings (Loss) before cumulative
effect of an accounting change &
extraordinary item .31 .72 (.62) (.81) (4)
Extraordinary item -- .02 -- -- --
Cumulative effect of an
accounting change3 -- -- -- -- (.01)
Net earnings (loss) per share .31 .74 (.62) (.81) (.01)
Selected Balance Sheet Data5:
Current assets 23,045,979 20,422,667 22,916,704 28,619,853 24,008,873
Current liabilities 13,368,157 15,363,586 18,751,765 18,949,907 13,401,972
Working capital 9,677,822 5,059,081 4,164,939 9,669,946 10,606,901
Total assets 28,571,335 26,276,701 28,936,515 38,056,602 35,896,521
Long-term liabilities
(less current maturities) 7,903,878 5,817,868 10,716,233 16,515,189 15,843,190
Stockholders' equity (deficiency) 7,299,300 5,095,247 (531,483) 2,591,506 6,651,359
</TABLE>
Six Months Ended June 30,
1997 1996
---- ----
Selected Data from Statement
of Operations:
Net sales $ 73,786,601 $ 70,118,168
Earnings (Loss) before
cumulative effect of an accounting
change & extraordinary item 1,620,080 894,093
Extraordinary item2 -- --
Cumulative effect of an
accounting change3 -- --
Net earnings (loss) 1,620,080 894,093
Preferred stock dividends 84,375 84,375
MCT Dairies, Inc. option 6,289 1,800
Net earnings (loss)
applicable to common shareholders 1,529,416 807,918
Net earnings (loss) per share
of common stock:
Earnings (Loss) before cumulative
effect of an accounting change &
extraordinary item .30 .15
Extraordinary item -- --
Cumulative effect of an
accounting change3 -- --
Net earnings (loss) per share .30 .15
Selected Balance Sheet Data5:
Current assets 25,272,697 19,984,539
Current liabilities 11,403,445 11,156,913
Working capital 13,869,252 8,827,626
Total assets 30,708,912 25,767,689
Long-term liabilities
(less current maturities) 10,596,439 8,321,819
Stockholders' equity (deficiency) 8,709,028 6,288,957
(1) The comparability of the selected financial data is affected by the
Company's sale of 65% of MFI on February 17, 1994. The operations of MFI
were consolidated with that of the Company through December 31, 1993.
(2) On March 27, 1995, the Company redeemed its $3,000,000 subordinated note
payable and common stock purchase warrants for $3,000,150 plus accrued
interest of $42,750. The redemption resulted in a net extraordinary gain
of $103,760 to the Company.
(3) Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
See Note H to the Consolidated Financial Statements.
(4) Rounds to less than one cent earnings per share.
(5) The comparability of the selected balance sheet data is affected by the
reclassification of net assets of MFI to Investment in and advances to MFI
as of December 31,1993. See "Business - Cheese Converting, Packaging and
Manufacturing Operations."
-42-
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended June 30, 1997 versus Six Months Ended June 30, 1996
Net sales for the six months ended June 30, 1997 were $73,786,601 as
compared to $70,118,168 in the same period of 1996. The Company's Branded
division had decreased sales of $498,535 for the first six months ended June 30,
1997 going from $55,751,596 in 1996 to $55,253,061 in 1997 primarily due to the
decrease in sales of commodity cheddar cheese, partially offset by an increase
in selling prices and an increase in unit volume. The Company's Branded division
sales excluding commodity sales increased $3,838,221 or 7.5% from $51,076,768 in
1996 to $54,914,989 in 1997 primarily as a result of a 5.7% increase in sales
price per unit. Sales for the Company's cheese and dairy products trading
business increased by 29% or $4,166,968 to $18,533,540 in 1997 from $14,366,572
in 1996 due to greater unit volume sales partially offset by lower sales price
per unit.
As a percentage of sales, gross profit increased to 28.9% in the first six
months of 1997 from 23.4% in 1996. Gross profit increased by $4,883,869 in the
six months ended June 30, 1997 going from $16,436,538 in 1996 to $21,320,407 in
1997. The increase in both gross profit as a percent of sales and total gross
profit are primarily the result of the lower cost to purchase cheese resulting
from lower commodity prices.
As a percentage of sales, selling and administrative expenses increased
from 20.8% in the first six months of 1996 to 24.9% in 1997. Selling and
administrative expenses increased from $14,612,697 in the first six months of
1996 to $18,344,472 in 1997. The major contributors to this increase were from
promotion, advertising and coupon expenses.
The Company's operating profit increased by $1,152,094 from $1,823,841 in
the first six months of 1996 to $2,975,935 in 1997. Operating profit as a
percent of net sales increased to 4.0% in the first six months of 1997 compared
to 2.6% in 1996 due to the higher gross profit, partially offset by the higher
selling and administrative expenses previously discussed.
Net interest expense in the first six months of 1997 was $475,804, an
increase of $94,049 from the comparable period of 1996, as a result of the
Company's increased use of its working capital credit line, partially offset by
lower interest rates.
The Company's income tax provision for the first six months of 1997 was
35.2% or $880,051 due to a tax benefit carry-over from 1996. The Company's
effective tax rate for the first six months of 1996 was 38.0% or $547,993.
The Company's net earnings for the six months ended June 30, 1997 was
$1,620,080 compared to $894,093 for 1996 for the reasons discussed above.
-43-
<PAGE> 53
Year Ended December 31, 1996 versus Year Ended December 31, 1995
The Company's sales increased by $16,853,127 or 11.6% from $145,043,395 in
1995 to $161,896,522 in 1996. Sales in the Branded cheese segment increased
$4,910,476 or 4.5% from $108,752,854 in 1995 to $113,663,330 in 1996. The
increase in Branded business resulted from increased selling prices partially
offset by a 2.2% volume decrease. The Company's cheese and dairy products
trading business sales for 1996 were $48,233,192, an increase of $11,942,651 or
32.9% from $36,290,541 in 1995 primarily due to increased sales unit volume and
higher average selling prices.
As a percentage of sales, gross profit decreased from 24.7% in 1995 to
21.8% in 1996. This decrease was the result of the increased sales at the
Company's cheese and dairy products trading business, where gross profit as a
percent of sales is lower, and the higher cost to purchase cheese resulting from
higher commodity prices. Gross profit decreased by $599,960 or 1.7% from
$35,823,401 in 1995 to $35,223,441 in 1996 primarily due to the higher cost to
purchase cheese resulting from higher commodity prices and decreased volume in
the Branded division.
Operating expenses increased by $860,401 from $30,470,848 in 1995 to
$31,331,249 in 1996 representing an increase of 2.8%. The major contributors to
the selling expense increase of $893,074 were from promotion and commission
expenses. Administrative expenses decreased $32,673 from $4,854,554 in 1995 to
$4,821,881 in 1996.
Interest expense (net) decreased by $155,077 or 15.6% from $995,649 in
1995 to $840,572 in 1996, as a result of the Company's decreased use of its
working capital credit line and lower interest rates.
The provision for income taxes increased $704,740 from $444,876 in 1995 to
$1,149,616 in 1996. The 1995 effective tax rate of 10.1% is included the net
operating loss carry-forwards generated in prior years. The 1996 effective tax
rate was 37.7%
Year Ended December 31, 1995 versus Year Ended December 31, 1994
The Company's sales increased by $12,688,587 or 9.6% from $132,354,808 in
1994 to $145,043,395 in 1995. Sales in the branded cheese segment increased
$4,748,681 or 4.6% from $104,004,173 in 1994 to $108,752,854 in 1995. The
increase in Branded business resulted from increased sales in the Alpine Lace
Branded Division offset by a slight decrease in sales from DFC. The Company's
cheese and dairy products trading business sales for 1995 were $36,290,541, an
increase of $7,939,906 or 28.0% from $28,350,635 in 1994 primarily due to
increased sales of commodity cheddar cheese.
As a percentage of sales, gross profit decreased from 24.8% in 1994 to
24.7% in 1995. Gross profit as a percent of sales decreased principally as a
result of the 28% sales increase in the cheese and dairy products trading
business, which has lower gross profit margins than the Branded division. Gross
profit increased by $2,988,544 or 9.1% from $32,834,857 in 1994 to $35,823,401
in 1995 primarily due to the 9.6% increase in sales, along with the lower cost
to purchase cheese resulting from lower commodity prices and continuing
manufacturing efficiencies.
Operating expenses decreased by $3,850,358 from $34,321,206 in 1994 to
$30,470,848 in 1995 representing a decrease of 11.2%. The operating expense
decrease is due to the 1994 restructuring charge of $2,640,238 associated with a
plan to cease production of skim milk cheese at its DFC subsidiary and the
termination of its supply agreement with MFI. In addition, in 1994, the Company
recorded a charge of $1,517,757 to write down the carrying value of its
investment and related assets in MFI and related
-44-
<PAGE> 54
expenses (See Note E to the Consolidated Financial Statements). Selling expenses
remained the same in 1995 and 1994 at $25,600,000.
Administrative expenses increased by $308,049 or 6.8% from $4,546,505 in
1994 to $4,854,554 in 1995.
Net interest expense decreased by $587,391 or 37.1% from $1,583,040 in
1994 to $995,649 in 1995, as a result of the Company's decreased use of its
working capital credit line and the redemption of the Company's subordinated
note payable, partially offset by higher interest rates.
On March 27, 1995, the Company redeemed its $3,000,000 subordinated note
payable and common stock purchase warrants for $3,000,150 plus accrued interest
of $42,750. The redemption resulted in a net extraordinary gain of $103,760 to
the Company.
The provision for income taxes increased $391,276 from $53,600 in 1994 to
$444,876 in 1995. The 1994 tax provision included minimal state taxes for MCT
Dairies, Inc. due to the pre-tax loss of $3,069,389. The 1995 tax provision is
due to federal net operating loss carry-forwards utilized in 1995.
Recent Developments
The Company's net sales for the third quarter ended September 30, 1997
decreased 14% to $45,780,529 from $53,116,255 in the third quarter ended
September 30, 1996. The Company's Branded segment had increased sales of
$3,137,014 due to a 6.8% increase in unit volume. The Company's cheese and dairy
products trading business had decreased sales of $10,472,740 primarily due to a
35% decrease in sales unit volume. The Company reported a loss of $868,010, or
$(.17) per share, for the third quarter ended September 30, 1997 compared to net
earnings of $656,471, or $.10 per share, in the third quarter ended September
30, 1996. In the third quarter ended September 30, 1997, the Company reserved
$1,675,948 for a note receivable from Mountain Farms, Inc. The Company's
earnings without the reserve for the note receivable would have been $807,938 or
$.14 per share.
The Company's net sales for the nine months ended September 30, 1997
decreased 3% to $119,567,132 from $123,234,423 for the nine months ended
September 30, 1996. The Company's Branded segment had increased sales of
$2,638,481 due to an increase in selling prices and unit volume. The Company's
cheese and dairy products trading business had decreased sales of $6,305,772
primarily due to a decrease in selling prices. The Company reported net earnings
of $752,070, or $.11 per share, for the nine months ended September 30, 1997
compared to $1,550,564 or $.26 per share for the nine months ended September 30,
1996. The Company's earnings without the reserve for the note receivable from
Mountain Farms, Inc. would have been $2,428,018, or $.43 per share, for the nine
months ended September 30, 1997.
Inflation
The Company believes that in 1997 it will be able to pass raw material
cost increases of approximately up to 10% on to its customers, as will its
competitors. However, the Company believes that substantial price increases of
over 10% might have a negative impact on demand for all cheese purchases by
consumers and may be borne in part by the Company, thereby reducing earnings.
Liquidity; Capital Resources
-45-
<PAGE> 55
On October 1, 1997 the Company entered into the Merger Agreement pursuant
to which each outstanding share of Common Stock will be converted into the right
to receive the Common Stock Merger Consideration and each outstanding share of
Preferred Stock will be converted into the right to receive the Preferred Stock
Merger Consideration.
The major source of cash for the six months ended June 30, 1997 came from
net earnings. The major uses of cash for the six months ended June 30, 1997 were
to fund decreases in accounts payable and increases in inventory and accounts
receivable.
The major uses of cash for 1996 were to fund increased inventory,
decreased accounts payable, increased accounts receivable, and treasury stock
purchases. These expenditures were financed by increased drawings under the
Company's revolving credit facility, net earnings, and proceeds from stock
option exercises.
In October 1996, the Company reduced its revolving credit and equipment
credit facility by a total of $4 million to $13,500,000 for the revolving credit
facility and $1,500,000 for the equipment facility. The term of the agreement
was also extended from March 1998 to March 2000. This amendment resulted in
reduced interest and service charges to the Company. While the Company expects
that this facility will be sufficient to finance currently anticipated working
capital and equipment requirements generally, a temporary increase of $2,000,000
was provided by the lender in early 1997 in order to purchase excess inventory
and will be repaid as the inventory is sold. As of August 1, 1997, the Company
had approximately $3,800,000 available on its $15,500,000 revolving credit
facility.
The major providers of cash for 1995 came from net earnings and the
decrease in accounts receivable. On March 27, 1995, the Company redeemed its
subordinated note payable and common stock purchase warrants for $3,000,150 and
accrued interest of $42,750. The majority of the funds for the redemption came
from the issuance of $2,250,000 of Preferred Stock on March 22, 1995, which
resulted in net proceeds of approximately $2,000,000. The securities are
convertible into Common Stock at a conversion price of $7.375 for five years, at
which time the Company must either force a conversion at market price of the
Common Stock or redeem the Preferred Stock. On March 27, 1995, the Company used
the proceeds (along with cash made available through the Company's revolving
credit facility) to repurchase $3 million in subordinated debt and 353,895
warrants.
Fixed asset acquisitions for 1995 were $995,196 mainly due to the purchase
of a high-speed slicer at the Company's DFC facility. Proceeds from the sale of
fixed assets were $452,812 due to the sale of equipment and buildings at the DFC
facility in connection with the closing of the skim milk cheese operation.
As a result of the Company's restructuring announced in December, 1994,
the Company was in default under the revolving credit facility. The lender
waived the default as of December 31, 1994, and modified those covenants as of
January 1, 1995. The Company has been in compliance since January 1, 1995.
The major providers of cash for 1994 were from the sale of MFI, decreased
inventory, and income tax refunds. On February 17, 1994, the Company sold common
stock representing 65% of the outstanding shares of MFI resulting in net cash
received of $3,530,013. The Company's inventory decreased by $2,105,000
primarily due to tighter control of inventory levels. The Company received
income tax refunds of approximately $1,015,000 due to the federal and state
carry-back claims associated with the 1993 pre-tax
-46-
<PAGE> 56
loss of $5,163,148. Cash provided during 1994 decreased the borrowings of the
Company by approximately $9,000,000 in 1994.
LAND O'LAKES, INC.
Land O'Lakes is a national food and agricultural company. It is a
processor and a marketer of dairy products--particularly cheese and
butter--throughout the United States and serves international customers with a
variety of food and animal feed ingredients. It is a cooperative owned by, and
providing agricultural supplies to, family farmers and community cooperatives.
AVV Inc. is a corporation recently organized by Land O'Lakes for the purpose of
effecting the Merger. It has no material assets and is not engaged in any
material activities except in connection with the Merger and the transactions
contemplated thereby. The principal executive offices of Land O'Lakes and AVV
Inc. are located at 4001 Lexington Avenue N., Arden Hills, Minnesota 55126-2998
and the telephone number for both companies is (612) 481-2222.
FINANCIAL INFORMATION
The Company's consolidated audited financial statements for the years
ended December 31, 1996, 1995 and 1994 and the unaudited financial statements
for the six month periods ended June 30, 1997 and 1996 are included as part of
this Proxy Statement.
FEES AND EXPENSES
The Merger Agreement provides, subject to certain specified exceptions,
that Land O'Lakes on the one hand, and the Company, on the other hand, will bear
their respective expenses and costs in connection with the Merger Agreement and
the transactions contemplated thereby. See "The Merger Agreement--Fees and
Expenses."
OTHER MATTERS
At the time of preparation of this Proxy Statement the Board of Directors
knows of no other matters that will be acted upon at the Special Meeting other
than the approval and adoption of the Merger Agreement and the Merger. If any
other matters are presented for action at the Special Meeting or at any
adjournment or postponement thereof, it is intended that the proxies will be
voted with respect thereto in accordance with the best judgment and in the
discretion of the persons named as proxies in the accompanying proxy card.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
A representative of Grant Thornton LLP, independent certified public
accountants, is expected to be present at the Special Meeting, will have an
opportunity to make a statement if he or she desires to do so and will be
available to respond to questions raised at the Special Meeting.
-47-
<PAGE> 57
1998 ANNUAL MEETING OF STOCKHOLDERS
The Company does not plan to hold an annual meeting of stockholders during
1998 unless the Merger is not consummated. If the Merger is not consummated,
stockholder proposals received by the Secretary of the Company on or before
December 12, 1997, will be considered for inclusion in the proxy materials for
the Company's 1998 Annual Meeting of Stockholders.
KENNETH E. MEYERS
Secretary
November 10, 1997
STOCKHOLDERS WHO DO NOT EXPECT TO BE PERSONALLY PRESENT AT THE MEETING AND WHO
WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY, THE COMPANY'S
TRANSFER AGENT.
-48-
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants.......................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996,
1995 and (unaudited) June 30, 1997....................................... F-3
Consolidated Statements of Operations for the Three Years Ended
December 31, 1996, 1995 and 1994 and (unaudited) the Six Months
Ended June 30, 1997 and 1996............................................. F-5
Consolidated Statements of Stockholders' Equity (Deficiency) for the
Three Years Ended December 31, 1996, 1995 and 1994....................... F-6
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1996, 1995 and 1994 and (unaudited) the Six
Months Ended June 30, 1997 and 1996...................................... F-7
Notes to Consolidated Financial Statements............................... F-9
F-1
<PAGE> 59
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Alpine Lace Brands, Inc.
We have audited the accompanying consolidated balance sheets of Alpine Lace
Brands, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alpine Lace
Brands, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 7, 1997
F-2
<PAGE> 60
Alpine Lace Brands, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 51,943 $ 393,173 $ 459,610
Accounts receivable - net 14,084,542 13,431,641 13,068,356
Inventories 10,360,600 8,502,197 6,213,256
Prepaid expenses and other current assets 746,029 689,385 681,445
Deferred tax asset 29,583 29,583
----------- ----------- -----------
Total current assets 25,272,697 23,045,979 20,422,667
PROPERTY, PLANT AND EQUIPMENT - AT
COST, less accumulated depreciation and
amortization 2,149,892 2,250,086 2,335,654
OTHER ASSETS
Note receivable - Mountain Farms, Inc. 1,675,948 1,675,948 1,675,948
Trademarks, tradenames and technology, less
accumulated amortization of $1,097,532,
$1,019,739, and $865,061 in 1997, 1996
and 1995, respectively 1,348,082 1,421,882 1,556,240
Other 262,293 177,440 286,192
----------- ----------- -----------
3,286,323 3,275,270 3,518,380
----------- ----------- -----------
$30,708,912 $28,571,335 $26,276,701
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 61
Alpine Lace Brands, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 1995
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of obligations under capital leases $ 146,572 $ 147,519 $ 143,083
Accounts payable 9,447,386 11,685,587 12,844,895
Accrued expenses and other 1,311,708 1,328,328 1,995,784
Income taxes payable 497,779 206,723 379,824
----------- ----------- -----------
Total current liabilities 11,403,445 13,368,157 15,363,586
LONG-TERM LIABILITIES, less current maturities
Long-term debt 10,284,979 7,521,566 5,325,945
Obligations under capital leases 210,995 281,847 409,561
Deferred tax liability 100,465 100,465
Other long-term liability 82,362
----------- ----------- -----------
10,596,439 7,903,878 5,817,868
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized
1,000,000 shares; 45,000 shares issued and outstanding;
at liquidation amount of $50 per share 2,250,000 2,250,000 2,250,000
Common stock, par value $.01 per share authorized
10,000,000 shares; issued and outstanding, 5,198,772
shares at June 30, 1997, 5,176,636 shares in 1996
and 5,050,136 shares in 1995 51,988 51,767 50,501
Additional paid-in-capital 3,647,871 3,602,141 2,611,966
Retained earnings 3,451,739 1,916,034 182,780
----------- ----------- -----------
9,401,598 7,819,942 5,095,247
Less
Common stock in treasury - at cost 595,807 387,290
Unearned compensation 96,763 133,352
----------- ----------- -----------
8,709,028 7,299,300 5,095,247
----------- ----------- -----------
$30,708,912 $28,571,335 $26,276,701
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 62
Alpine Lace Brands, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended
June 30,
1996 1995 1994 1997 1996
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 161,896,522 $ 145,043,395 $ 132,354,808 $ 73,786,601 $ 70,118,168
Cost of goods sold 126,673,081 109,219,994 99,519,951 52,466,194 53,681,630
------------- ------------- ------------- ------------- -------------
Gross profit 35,223,441 35,823,401 32,834,857 21,320,407 16,436,538
------------- ------------- ------------- ------------- -------------
Operating expenses
Selling 26,509,368 25,616,294 25,616,706 15,670,425 12,311,785
Administrative 4,821,881 4,854,554 4,546,505 2,674,047 2,300,912
Restructuring charge 2,640,238
Write-down of Mountain Farms, Inc. 1,517,757
------------- ------------- ------------- ------------- -------------
31,331,249 30,470,848 34,321,206 18,344,472 14,612,697
------------- ------------- ------------- ------------- -------------
Operating profit (loss) 3,892,192 5,352,553 (1,486,349) 2,975,935 1,823,841
Interest expense - net 840,572 995,649 1,583,040 475,804 381,755
------------- ------------- ------------- ------------- -------------
Earnings (loss) before income tax provision
and extraordinary item 3,051,620 4,356,904 (3,069,389) 2,500,131 1,442,086
Income tax provision 1,149,616 444,876 53,600 880,051 547,993
------------- ------------- ------------- ------------- -------------
Earnings (loss) before extraordinary item 1,902,004 3,912,028 (3,122,989) 1,620,080 894,093
Extraordinary item
Gain from extinguishment of debt, net of income
taxes of $7,451 103,760
------------- ------------- ------------- ------------- -------------
Net earnings (loss) 1,902,004 4,015,788 (3,122,989) 1,620,080 894,093
Preferred stock dividends 168,750 121,513 84,375 84,375
MCT Dairies, Inc. option 107,751 6,289 1,800
------------- ------------- ------------- ------------- -------------
Net earnings (loss) applicable to common
shareholders $ 1,625,503 $ 3,894,275 $ (3,122,989) $ 1,529,416 $ 807,918
============= ============= ============= ============= =============
Earnings (loss) per share of common stock
Earnings (loss) before extraordinary item $ .31 $ .72 $ (.62) $ .30 $ .15
Extraordinary item .02 --
------------- ------------- ------------- ------------- -------------
Net earnings (loss) per share $ .31 $ .74 $ (.62) $ .30 $ .15
============= ============= ============= ============= =============
Weighted average number of common and
common equivalent shares outstanding 5,239,417 5,289,275 5,012,419 5,184,421 5,271,888
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 63
Alpine Lace Brands, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common stock Additional Retained
Preferred ---------------------- paid-in earnings
Stock Shares Amount capital (deficit)
----- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 5,012,419 $50,124 $3,129,888 $ (588,506)
Net loss for the year ended December 31, 1994 (3,122,989)
--------- ------- ---------- -----------
Balance at December 31, 1994 5,012,419 50,124 3,129,888 (3,711,495)
Proceeds from preferred stock offering, net
of offering costs of $234,768 $2,250,000 (234,768)
Warrants received on debt repurchase (212,337)
Reduction in nonemployee stock option (275,386)
Exercise of stock options, including income
tax benefit of $29,000 37,717 377 204,569
Preferred stock dividends (121,513)
Net earnings for the year ended December 31,
1995 4,015,788
---------- --------- ------- ---------- -----------
Balance at December 31, 1995 2,250,000 5,050,136 50,501 2,611,966 182,780
Purchase of treasury stock
Unearned compensation
Exercise of stock options, including income
tax benefit of $236,359 126,500 1,266 990,175
Preferred stock dividends (168,750)
Net earnings for the year ended December 31,
1996 1,902,004
---------- --------- ------- ---------- -----------
Balance at December 31, 1996 $2,250,000 5,176,636 $51,767 $3,602,141 $ 1,916,034
========== ========= ======= ========== ===========
<CAPTION>
Unearned Treasury
compen- stock -
sation at cost Total
------ ------- -----
<S> <C> <C> <C>
Balance at December 31, 1993 $ 2,591,506
Net loss for the year ended December 31, 1994 (3,122,989)
-----------
Balance at December 31, 1994 (531,483)
Proceeds from preferred stock offering, net
of offering costs of $234,768 2,015,232
Warrants received on debt repurchase (212,337)
Reduction in nonemployee stock option (275,386)
Exercise of stock options, including income
tax benefit of $29,000 204,946
Preferred stock dividends (121,513)
Net earnings for the year ended December 31,
1995 4,015,788
-----------
Balance at December 31, 1995 5,095,247
Purchase of treasury stock $(387,290) (387,290)
Unearned compensation $(133,352) (133,352)
Exercise of stock options, including income
tax benefit of $236,359 991,441
Preferred stock dividends (168,750)
Net earnings for the year ended December 31,
1996 1,902,004
--------- --------- -----------
Balance at December 31, 1996 $(133,352) $(387,290) $ 7,299,300
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 64
Alpine Lace Brands, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 1,902,004 $ 4,015,788 $(3,122,989) $ 1,620,080 $ 894,093
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities
Write-down of Marolf Dakota Farms fixed 1,251,618
assets
Write-down of investment in Mountain Farms, 1,333,696
Inc
Write-down of Marolf Dakota Farms trademark 243,680
Extraordinary item (103,760)
Depreciation and amortization 625,133 566,251 824,369 305,206 304,185
Provision for losses on accounts receivable 66,194 200,884 150,956 19,654 13,296
Other 105,455 36,589
(Gain) loss on sale of fixed assets 24,233 (3,718)
Changes in operating assets and liabilities
Accounts receivable (429,479) 2,959,544 (1,107,663) (672,555) 949,592
Inventories (2,288,941) (765,754) 2,104,792 (1,858,403) (898,631)
Prepaid expenses and other current assets (7,940) 120,559 112,546 (56,644) (19,937)
Notes receivable 7,800
Refundable income taxes 1,014,795
Other assets 92,717 139,452 184,425 (84,853) 20,835
Accounts payable (1,159,308) (1,765,957) 1,519,095 (2,238,201) (3,517,496)
Accrued expenses and other (667,456) (570,018) 1,139,589 (16,620) (771,939)
Income taxes payable 63,258 369,374 30,430 291,056 61,138
Other long-term liability (82,362) (494,169) 576,531 (82,362)
----------- ----------- ----------- ----------- -----------
(3,682,729) 680,639 9,375,141 (4,274,771) (3,933,519)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (1,780,725) 4,696,427 6,252,152 (2,654,691) (3,039,426)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities
Proceeds from notes receivable 16,035 14,385 12,907
Proceeds from sale of Mountain Farms, Inc. 3,530,013
Purchase of property, plant and equipment (384,887) (995,196) (275,701) (127,220) (261,936)
Payments for trademarks, trade names
and technology (20,320) (2,047) (56,281) (3,992)
Proceeds from sale of fixed assets 452,812
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by investing activities (389,172) (530,046) 3,210,938 (131,212) (261,936)
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 65
Alpine Lace Brands, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Years ended December 31, Six Months Ended June 30,
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities
Payment of obligations under capital leases - net $ (123,278) $ (218,292) $ (191,943) $ (71,799) $ (49,709)
Net proceeds under long-term obligations 2,763,413 2,657,646
Costs from issuance or reduction of common stock,
options and warrants (275,386)
Preferred stock dividends (168,750) (121,513) (84,375) (84,375)
Purchase of treasury stock (387,290) (208,517) (201,378)
Net proceeds (payments) of notes payable 2,195,621 (5,721,172) (9,071,670)
Proceeds from exercise of stock options 587,157 175,946 45,951 585,370
Net proceeds from issuance of preferred stock 2,015,232
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 2,103,460 (4,145,185) (9,263,613) 2,444,673 2,907,554
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (66,437) 21,196 199,477 (341,230) (393,808)
Cash and cash equivalents at beginning of year 459,610 438,414 238,937 393,173 459,610
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year $ 393,173 $ 459,610 $ 438,414 $ 51,943 $ 65,802
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 842,619 $ 1,177,079 $ 1,602,511 $ 466,043 $ 390,776
=========== =========== =========== =========== ===========
Income taxes $ 1,056,321 $ 59,549 $ 103,246 $ 506,795 $ 486,856
=========== =========== =========== =========== ===========
</TABLE>
In connection with the sale of 65% of the outstanding shares of Mountain Farms,
Inc. in February 1994, the Company has a note receivable in the amount of
$1,675,948 (Note E).
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 66
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. Business and Principles of Consolidation
The consolidated financial statements include the accounts of Alpine Lace
Brands, Inc. (the "Company") and its wholly-owned subsidiaries, MCT Dairies,
Inc. ("MCT") and Dakota Farms Cheese, Inc. ("DFC"), formerly Marolf Dakota Farms
Cheese, Inc. All material intercompany accounts and transactions have been
eliminated.
The Company is engaged in the development, marketing and distribution of branded
cheeses and deli meats and other specialty food products. Sales of these
products are primarily to supermarket chains, food distributors and
delicatessens located throughout the United States. MCT is engaged in cheese and
dairy products commodity trading. DFC currently converts and packages Alpine
Lace(R) brand dairy case sliced cheeses. Prior to 1995, DFC produced skim milk
cheese used by the Company in its product line. In addition, DFC converted and
packaged DFC brand Colby, Cheddar, and Monterey Jack cheeses marketed by the
Company.
2. Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products.
Promotional allowances are charged to selling expense.
3. Inventories
Inventories consisting primarily of bulk cheese, cheese products held for
resale, raw materials and packaging supplies are stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
4. Property, Plant and Equipment
Property, plant and equipment are depreciated over periods sufficient to relate
the cost of such assets to operations over the following estimated service
lives:
Building and improvements 25-31 years
Leasehold improvements 3-20 years
Furniture, fixtures and equipment 3-10 years
F-9
<PAGE> 67
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A (continued)
The straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes; but accelerated methods are generally
used for tax purposes.
5. Earnings Per Share of Common Stock
Earnings per share of common stock was computed by dividing net earnings
after deducting preferred dividend requirements and earnings applicable to
MCT option (see Note M) by the weighted average number of shares of common
stock and common equivalent shares outstanding during the period,
including the dilutive effect of warrants and stock options outstanding,
if applicable.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and if applicable diluted earnings per share. Basic earnings per
share is computed by dividing income available to common shareholders by
the weighted-average common shares outstanding for the period. Diluted
earnings per share reflects the weighted-average common shares outstanding
and dilutive potential common shares such as stock options. The adoption
of this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
6. Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated Federal
income tax return. Deferred income taxes are recognized in the
accompanying financial statements due to differences between financial and
tax reporting.
7. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
8. Other Assets
The costs of patents, trademarks, trade names and technology acquired are
amortized by the straight-line method over their estimated useful lives,
up to 20 years. On an ongoing basis, management reviews the valuation and
amortization of intangibles to determine possible impairment by comparing
the carrying value to the undiscounted cash flows of the related assets.
Should the Company determine that the intangibles are impaired, it would
adjust the intangibles to reflect the fair value at that time.
F-10
<PAGE> 68
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A (continued)
9. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10. Interim Financial Statements
The accompanying consolidated balance sheet as of June 30, 1997 and the
consolidated statements of operations and cash flows for the six months
ended June 30, 1997 and 1996 of the Company are unaudited but, in the
opinion of management contain all adjustments necessary to present fairly
the financial position of the Company for these interim periods. With
respect to such interim periods, certain information and footnote
disclosures required under generally accepted accounting principles have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
11. Fair Value of Financial Instruments
Based on rates currently available to the Company for bank loans and
deposits with similar terms and maturities, the fair value of the
Company's long-term debt and notes receivable approximate the carrying
value. Furthermore, the carrying value of all other financial instruments
potentially subject to valuation risk (principally consisting of cash and
cash equivalents, accounts receivable, and accounts payable) also
approximate fair value.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
1996 1995
----------- -----------
Leasehold improvements $ 121,115 $ 106,176
Furniture, fixtures and equipment 2,731,754 2,389,337
Equipment under capital lease 973,795 973,795
Land, building and improvements 314,418 289,314
----------- -----------
4,141,082 3,758,622
Less accumulated depreciation and amortization (1,890,996) (1,422,968)
----------- -----------
$ 2,250,086 $ 2,335,654
=========== ===========
F-11
<PAGE> 69
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C - INVENTORIES
Inventories are summarized as follows:
June 30, 1997 December 31, December 31,
(unaudited) 1996 1995
----------- ---------- ----------
Cheese $ 9,828,766 $7,997,847 $5,880,513
Packaging supplies 531,834 524,350 332,743
----------- ---------- ----------
$10,360,600 $8,502,197 $6,213,256
=========== ========== ==========
In connection with the purchase of cheese for anticipated manufacturing
requirements, the Company purchases cheese futures and options as deemed
appropriate to reduce the risk of future cheese price increases. These
futures and options are accounted for as hedges. Under hedge accounting,
gains and losses are deferred and recognized in the cost of goods sold as
part of the product cost. The Company can be exposed to losses in the
event of nonperformance by the other parties to the futures or options.
However, the Company does not anticipate nonperformance by the parties. At
December 31, 1996, the Company did not own any futures and options
contracts.
NOTE D - CAPITALIZED LEASES
The following is a schedule by years of future minimum lease payments
under capital leases, together with the present value of the net minimum
lease payments as of December 31, 1996:
Year ended December 31,
1997 $177,498
1998 171,875
1999 122,583
2000 9,165
--------
Net minimum lease payments 481,121
Less amount representing interest 51,755
Present value of net minimum lease payments $429,366
=======
Current portion $147,519
Noncurrent portion 281,847
--------
$429,366
=======
Equipment under capitalized leases at December 31, 1996 and 1995 of $974,000 is
presented net of accumulated amortization of $544,000 and $421,000,
respectively.
F-12
<PAGE> 70
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - MOUNTAIN FARMS, INC.
On February 17, 1994, the Company sold common stock representing 65% of
the outstanding shares of MFI. After the sale, MFI owed the Company
$1,675,948, which is evidenced by an unsecured note payable, due ten years
from closing with accrued interest at LIBOR plus 1/4%. The sales proceeds,
net of expenses, approximated the Company's proportionate investment in
MFI at December 31, 1993. In addition, the Company entered into a
three-year supply agreement with MFI whereby MFI was to convert products
for the Company in an amount not less than 3,000,000 pounds annually. In
December 1994, in connection with a restructuring of the Company's
operations (Note F), the Company terminated the supply agreement with MFI.
In addition, based on an evaluation of the recoverability of its
investment in MFI, the Company recorded a charge of $1,517,757 in 1994 to
write down to zero the carrying value of its investment and certain
related assets in MFI and related expenses.
During 1996 and 1995, MFI continued to incur operating losses and the
Company was notified that MFI was closing its production facility and
restructuring its business (including converting cheese at an affiliate of
MFI) in an attempt to improve operations. Although MFI has taken steps
that it believes will improve operations, there can be no assurance that
they will be successful and it is reasonably possible that, in the near
term, the Company may incur a loss on the MFI note of $1,675,948. The
Company has not accrued any interest receivable on this note. As of
September 30, 1997, the Company reevaluated the collectability of the MFI
note and has fully reserved for such note. See Note P.
NOTE F - RESTRUCTURING CHARGE
In December 1994, the Company approved a restructuring plan in connection
with the Company's cheese production, conversion and packaging operations
relating to its Alpine Lace products. In addition, DFC cheese products
converted and packaged at DFC were discontinued in December 1994. In
connection with the restructuring, the Company, in January 1995, closed
its skim milk cheese production facility at DFC and terminated its supply
agreement with MFI, and has utilized other manufacturers to perform these
functions. As a result of the restructuring, all cheese production is
performed at outside suppliers. Included in the restructuring charge for
the year ended December 31, 1994 is a write-down of the DFC plant and
equipment of $1,252,000, the write-down of the DFC trademark of $244,000,
termination pay obligations of $55,000, an accrual of $1,070,700 relating
to the cancellation of the supply agreement with MFI which is payable in
26 monthly installments ending February 1997 and other items of $18,000.
In 1995, the Company sold the assets of DFC not used at their carrying
value.
F-13
<PAGE> 71
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G - LONG-TERM DEBT
The Company has a long-term bank credit facility that provides for
revolving credit loans of up to $13,500,000 through March 2000 subject to
availability of eligible accounts receivable and inventory; and the
availability of up to $1,500,000 to purchase equipment subject to certain
limitations through March 2000. The credit facility contains certain
covenants and restrictions on capital expenditures, indebtedness, the
declaration of future dividends and maintenance of certain financial
ratios, including, adjusted tangible net worth, current ratio and cash
flow. Interest on the revolving credit loan is payable monthly at the
Company's option of either LIBOR plus 3% or the bank's base rate (8.25% at
December 31, 1996) plus 1/2%, and a facility fee of 3/16% is payable on
the unused balance. The borrowings are collateralized by all assets of the
Company and its subsidiaries. At December 31, 1996 and 1995, the
outstanding balance of the facility was $7,521,566 and $5,325,945,
respectively.
On March 27, 1995, the Company redeemed its $3,000,000 subordinated note
payable and common stock purchase warrants for $3,000,150 plus accrued
interest of $42,750. The redemption resulted in a net extraordinary gain
of $103,760 to the Company. A portion of the funds for the redemption came
from the issuance of $2,250,000 of convertible preferred stock (Note M) on
March 22, 1995.
NOTE H - INCOME TAXES
Income tax expense for the years ended December 31, 1996, 1995 and 1994
consists of:
1996 1995 1994
---- ---- ----
Current
Federal $ 843,438 $405,654 $10,000
State 235,296 46,673 43,600
---------- -------- -------
1,078,734 452,327 53,600
---------- -------- -------
Deferred income taxes
Federal 82,332
State (11,450)
---------- -------- -------
70,882 - -
---------- -------- -------
$1,149,616 $452,327 (a) $53,600
========== ======== =======
(a) Includes $7,451 net in extraordinary item.
F-14
<PAGE> 72
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H (continued)
During the year ended December 31, 1995, income tax expense was reduced by
approximately $414,000 resulting from the benefit of utilizing net
operating loss carryforwards.
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Deferred tax assets and liabilities at December 31, 1996 and 1995 consist
of the following:
1996 1995
-------- --------
Current
Deferred tax assets
Allowance for doubtful accounts $ 9,850 $ 17,210
Inventory -- 82,663
Capitalized package design costs 63,865 72,328
Alternative minimum tax credit carryforward -- 27,828
Charitable contributions -- 12,768
Cancellation of contract -- 10,063
-------- --------
Total current deferred tax assets 73,715 222,860
-------- --------
Deferred tax liabilities
Inventory (41,238) --
Charitable contributions (2,894) --
-------- --------
Total current deferred tax liabilities (44,132) --
-------- --------
Net current deferred tax asset 29,583 222,860
-------- --------
F-15
<PAGE> 73
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H (continued)
1996 1995
--------- ---------
Noncurrent
Deferred tax assets
Patent amortization $ 96,058 $ 88,484
State net operating loss carryforwards 1,038 26,602
--------- ---------
Total noncurrent deferred tax assets 97,096 115,086
--------- ---------
Deferred tax liabilities
Depreciation of property, plant and equipment (197,561) (149,156)
--------- ---------
Total noncurrent deferred tax liabilities (197,561) (149,156)
--------- ---------
Net noncurrent deferred tax liability (100,465) (34,070)
--------- ---------
Less valuation allowance -- (188,790)
--------- ---------
Net deferred tax liabilities $ (70,882) $ --
========= =========
During the year ended December 31, 1996, the change in the valuation
allowance was approximately $189,000.
The differences (expressed as a percentage of pretax income) between the
statutory Federal income tax rate and the effective income tax rate as
reflected in the accompanying consolidated statements of earnings are as
follows:
1996 1995 1994
---- ---- ----
Statutory Federal income tax rate 34.0% 34.0% (34.0)%
State income taxes, net of Federal benefit 4.8 .7 .9
Permanent differences 1.0 .6 (1.1)
Write-down of investment in MFI -- -- 16.5
Alternative minimum tax credit -- (1.1) .3
Change in deferred tax valuation allowance (6.2) (22.9) 19.3
Other 4.1 (1.2) (.2)
---- ---- ---
Effective tax rate 37.7% 10.1% 1.7%
==== ==== ===
F-16
<PAGE> 74
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RELATED PARTY TRANSACTIONS
Market Finders Brokerage, Inc. ("MFBI") is a company 100%-owned by a
Director and Vice President of the Company, who is also the wife of the
President and principal stockholder of the Company. MFBI and the Director
introduced the Company to a broker and receives a percentage commission
from the broker (subject to a specified minimum and maximum) based on
commissions generated by this business.
During the years ended December 31, 1996, 1995 and 1994, the Company made
purchases of $539,181, $126,729 and $181,742, respectively, from MFBI. In
addition, during the years ended December 31, 1995 and 1994, the Company
had sales of, $115,632 and $155,210, respectively, to MFBI. Commissions
paid to the purchaser of MFBI's commission brokerage business amounted to
$215,951, $231,370 and $215,258, respectively, during the years ended
December 31, 1996, 1995 and 1994.
In December 1991, MCT loaned its current president $65,000 which was
repaid over five years at an interest rate of 11%. As a condition of the
loan the president purchased all the outstanding common stock of Herbloc
Inc. ("Herbloc") for $60,000, and entered into a five-year supply
agreement through December 31, 1996 with MCT, which is automatically
renewed for an additional five years unless MCT elects to terminate. MCT
did not elect to terminate the agreement at December 31, 1996. The supply
agreement guarantees that each year MCT will either purchase at least 86%
of Herbloc's "quota share" for cheese and cheese products, or notify
Herbloc by September 15 of such year of the amount of each "quota share"
which MCT does not yet plan to purchase during such year imported by
Herbloc. MCT has guaranteed Herbloc an aggregate mark-up of $18,000 per
year during the initial five-year term. The Company estimates its purchase
commitment for 1997 amounts to approximately $550,000.
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company leases administrative offices for annual rentals totalling
approximately $144,508 and expiring on April 30, 2000. The lease provides
for escalation charges for operating expenses and real estate property
taxes.
The Company has a two-year agreement with a public warehouse to provide
refrigerated warehouse space for a minimum monthly fee of $30,000 which
expires on March 31, 1998.
F-17
<PAGE> 75
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J (continued)
The Company is a party to an agreement for the manufacture of Alpine
Lace(R) reduced fat swiss cheese. The initial term of the agreement
continues to December 31, 2000, with five-year renewal periods thereafter
unless terminated by either party. The price to be paid by the Company is
based on a specified commodity block market price on the date the product
is manufactured plus a fixed premium (subject to periodic adjustment by
mutual agreement). The manufacturer is to be the primary source of supply
of this product. As part of the cheese manufacture agreement, the Company
made a $300,000 advance to the manufacturer, which the manufacturer may
use at any time to credit the Company's current obligation. The $300,000
advance must be maintained at all times during the duration of this
agreement.
The Company has an employment agreement with its President providing for a
minimum annual base salary of $325,000. The term of the agreement is
through January 3, 2000. The Company has one agreement with an officer
that expires in April 1997 and three agreements with officers that expire
in December 1997 and three agreements with officers that expire in January
1998. The terms of the agreements provide for minimum salaries totalling
$870,800. The agreements automatically renew at the end of the period, in
the absence of specified advance notice of intention not to renew and
automatically renew upon a change in control of the Company.
The Company is a party to a consulting agreement expiring on November 7,
1999. The consulting fee is based upon varying rates per pound produced,
by or for the Company or any of its affiliates, of certain of the
Company's cheese products up to a maximum of $375,000 per year. The
minimum payment required in the agreement is $132,000 per year.
In connection with the acquisition of certain rights and technology from
Gamay Foods, Inc. ("Gamay"), the Company entered into a consulting
agreement with the principal shareholder of Gamay for an initial term of
ten years expiring on May 21, 2000. The consulting fee is $200,000 per
year. The Company also pays Gamay a royalty based on pounds sold of its
Fat Free and Low-Fat cheese products. On February 24, 1995, the Company
and Gamay modified this agreement as follows: (i) the consulting agreement
was extended for another four-year term expiring on May 20, 2004 at a fee
of $100,000 per year; (ii) the royalty payments were extended for a
four-year term from the original fifteen-year period; (iii) in the event
the Company receives any licensing revenues, the Company shall pay to
Gamay a licensing royalty of 25% of the Company's net licensing revenue;
and (iv) the Company has a call option whereby, upon the sale of the
Company's branded division, the Company can cancel all agreements with
Gamay and the Company shall pay to Gamay the greater of either 7% of the
sales proceeds or a minimum of $5,000,000 to a maximum of $6,000,000.
F-18
<PAGE> 76
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J (continued)
During 1996, the Company was joined as a defendant in two separate class
actions pending in the United States District Court for the Eastern
District of Wisconsin. The complaints in these two actions are nearly
identical, were filed by the same plaintiffs' lawyers, and were brought on
behalf of the same class. Both complaints allege conspiracy among the
Company, Kraft Foods, Inc., ("Kraft"), Borden, Inc. ("Borden") and the
National Cheese Exchange, Inc. ("NCE") to, among other things, manipulate
cheese prices and unreasonably restrain trade in violation of the Sherman
Act. Both cases also assert state law claims for fraud and
misrepresentation, and breach of contract. Both complaints seek
unspecified actual and punitive damages and injunctive relief.
In December 1996, a motion for class certification was denied in the first
of these cases, and that case is currently proceeding on behalf of the
named plaintiffs only. In the second case, plaintiffs have filed a motion
to dismiss without prejudice; defendants have opposed dismissal on those
terms. The motion is still pending. The Company intends to continue to
vigorously defend these actions.
In 1995, the Company commenced litigation against Kraft, Borden, Beatrice
Cheese, Inc. ("Beatrice") and Schreiber Foods, Inc. ("Schreiber") alleging
infringement of its patent for the manufacture of low fat cheese. Summary
judgment was granted in favor of Kraft in March 1996 and partial summary
judgment regarding one production facility was granted in favor of Borden
and Schreiber in September 1996. Both summary judgment decisions have been
appealed to the United States Court of Appeals for the Federal Circuit and
the appeals have been consolidated. A motion for partial summary judgment
by the fourth defendant, Beatrice, was denied in September 1996.
In addition, in this litigation, motions have been filed by Kraft to have
the case declared exceptional under Section 285 of the Patent Statute and
by Borden and Schreiber to have the case declared exceptional in part. If
the motions are granted, it is anticipated that the Company would appeal.
If the case is ultimately declared exceptional, the Company may be liable
to those parties for some portion of their reasonable attorneys' fees and
expenses.
F-19
<PAGE> 77
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE K - RETIREMENT PLAN
The Company has a defined contribution 401(k) plan. Eligible participants
may contribute a fixed weekly dollar amount or a percentage of their basic
annual salary as contributions. The Company may contribute to the Plan at
the discretion of the Board of Directors. The Company has not made any
contributions to the Plan.
NOTE L - STOCK OPTIONS
The Company has a stock option plan (the "Plan") for its employees and
directors. Under the Plan, 1,000,000 shares of the Company's common stock
are reserved for issuance. The options granted to date generally become
exercisable over three years commencing one year after the date of grant
and upon the occurrence of certain corporate transactions the options
become immediately exercisable. The following table summarizes the options
granted under the plan:
Weighted
average
Shares price
------ -----
Outstanding at December 31, 1993 296,650 $5.02
Options granted 121,000 3.72
Options expired (53,632) 4.74
------- -----
Outstanding at December 31, 1994 364,018 4.63
Options granted 179,700 9.94
Options expired (3,200) 3.88
Option exercised (36,717) 4.68
-------
Outstanding at December 31, 1995 503,801 6.53
Options granted 166,500 6.03
Options expired (7,166) 7.51
Options exercised (6,500) 4.29
------- -----
Outstanding at December 31, 1996 656,635 $6.41
======= =====
Exercisable at December 31, 1996 341,031 $5.67
======= =====
F-20
<PAGE> 78
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L (continued)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for its option plan under APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations and, accordingly, no compensation cost has been recognized
for the stock option plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date for
awards in 1995 and 1996 consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below:
1996 1995
---- ----
Net earnings
As reported $ 1,902,004 $ 4,015,788
Pro forma 1,584,457 3,740,400
Earnings per share
As reported $ .31 $ .74
Pro forma .25 .71
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1995. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions for grants in 1995
and 1996: expected volatility of 40%; weighted average risk-free rate of
6.1%; and weighted average expected life of 7.09 years.
The weighted average grant date fair value of options granted during 1996
and 1995 was $3.43 and $5.17, respectively.
The following table summarizes information about the stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- -------------------
Number Weighted Number
outstanding average Weighted exercisable Weighted
at remaining average at average
December 31, contractual exercise December 31, exercise
Range of exercise prices 1996 life price 1996 price
- ------------------------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$0.00 - $ 4.00 127,001 6.57 $ 3.30 91,516 $ 3.21
$4.01 - $ 8.00 359,934 7.44 5.75 192,934 5.53
$8.01 - $12.00 169,700 8.90 10.14 56,581 10.14
------- -------
656,635 341,031
======= =======
</TABLE>
F-21
<PAGE> 79
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE M - STOCKHOLDERS' EQUITY
During the years ended December 31, 1996, 1995 and 1994, warrants and
nonemployee stock options to purchase 102,500 shares, 30,500 shares, and
5,000 shares of common stock at an average of $5.25, $7.47 and $4.50 per
share, respectively, were issued, subject to customary terms and
conditions. The 102,500 stock options issued in 1996 were in connection
with certain purchase arrangements for inventory and as sales incentives
to food brokers.
The options generally become exercisable over three years commencing one
year after the date of grant and have a term of ten years. The fair value
of each option is estimated on the date of grant using the Black-Scholes
option pricing model. The Company recorded an increase in additional
paid-in capital and unearned compensation of $167,925 which will be
amortized over three years. The Company recorded expense in 1996 of
$34,573 in connection with these options. During 1995, the 160,000
nonemployee stock options were reduced by 40,000, and the Company made a
payment of $240,000 which was recorded as a reduction of additional
paid-in capital.
The following table summarizes shares of common stock reserved for
issuance in connection with the warrants and nonemployee options at
December 31, 1996:
Number of shares issuable 228,152
=======
Weighted average price $6.97
=====
Exercisable 178,152
=======
The warrants have varying expiration dates through August 1, 2006.
On January 1, 1995, the President of MCT obtained an option to purchase
20% of MCT for approximately $97,000. Thirty percent of the option vested
immediately and the remaining seventy percent vests over three and
one-half years. Upon a change in control (as defined), the President of
MCT will have the option to put the shares back to the Company at a
premium of approximately $257,644 at December 31, 1996.
On March 22, 1995, the Company completed a private placement of $2,250,000
of 7.5% cumulative convertible preferred stock, resulting in net proceeds
to the Company of approximately $2 million. The securities are convertible
into common stock of the Company at a conversion price of $7-3/8 for five
years, at which time the Company must either force a conversion at market
price of the common stock or redeem the preferred stock. In the event of a
change in control (as defined), the Company is required to make an offer
to purchase the convertible preferred stock.
F-22
<PAGE> 80
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N - BUSINESS SEGMENT INFORMATION
The Company's operations consist of two segments: (1) the marketing,
distributing, packaging, and converting of branded cheeses and other
specialty food products and (2) cheese and dairy products trading.
Operating profit is total revenue less operating costs and expenses
related to each segment net of certain unallocated corporate expenses.
Identifiable assets are those used in each segment. For consolidated
purchases, two suppliers accounted for 40%, 52% and 37% of total purchases
in 1996, 1995 and 1994, respectively.
During 1996, 1995 and 1994, cheese and dairy products trading had
inter-segment sales of $2,761,782, $5,640,794 and $6,483,344 to cheese
marketing, distributing, packaging and converting of branded cheeses and
other specialty food products. During 1996, 1995 and 1994, cheese
marketing, distributing, packaging and converting of branded cheese and
other specialty food products had intersegment sales of $251,831, $108,729
and $ 172,131 to cheese and dairy products trading, respectively.
Information about the Company's operations in different business segments
for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales
Marketing, distributing, packaging
and converting of branded cheeses
and other specialty food products $ 113,915,161 $ 108,861,583 $ 104,145,329
Cheese and dairy products
trading 50,994,974 41,931,335 34,864,953
Elimination of intersegment
sales (3,013,613) (5,749,523) (6,655,474)
------------- ------------- -------------
Total net sales $ 161,896,522 $ 145,043,395 $ 132,354,808
============= ============= =============
</TABLE>
F-23
<PAGE> 81
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N (continued)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating profit (loss)
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products $ 3,508,068 $ 5,805,840 $ (1,195,974)
Cheese and dairy products
trading 1,182,163 275,615 359,350
------------ ------------ ------------
Operating profit (loss) 4,690,231 6,081,455 (836,624)
Corporate expenses (798,039) (728,902) (649,725)
Interest income 1,117 2,122 8,406
Interest expense (841,689) (997,771) (1,591,446)
------------ ------------ ------------
Earnings (loss) before income
taxes and extraordinary item $ 3,051,620 $ 4,356,904 $ (3,069,389)
============ ============ ============
Identifiable assets
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products $ 22,109,642 $ 21,828,300 $ 21,783,851
Cheese and dairy products
trading 6,461,693 4,448,401 7,152,664
------------ ------------ ------------
Total assets $ 28,571,335 $ 26,276,701 $ 28,936,515
============ ============ ============
</TABLE>
F-24
<PAGE> 82
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N (continued)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Depreciation and amortization
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products $ 625,133 $ 66,251 $ 824,369
=========== =========== ===========
Capital expenditures
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products $ 384,887 $ 995,196 $ 317,917
=========== =========== ===========
NOTE O - INTEREST EXPENSE - NET
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest expense - net
Interest expense $ 841,689 $ 997,771 $ 1,591,446
Interest income (1,117) (2,122) (8,406)
----------- ----------- -----------
$ 840,572 $ 995,649 $ 1,583,040
=========== =========== ===========
</TABLE>
NOTE P - SUBSEQUENT EVENTS TO DECEMBER 31, 1996 (unaudited)
Significant New Accounting Pronouncements
The Financial Accounting Standards Board released Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No.
130), governing the reporting and display of comprehensive income and its
components, and Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information"
(SFAS No. 131), requiring that all public businesses report financial and
descriptive information about their reportable operating segments. The
impact of adopting SFAS No. 130 is not expected to be material to the
consolidated financial statements or notes to consolidated financial
statements. Management is currently evaluating the effect of SFAS No. 131
on consolidated financial statement disclosures.
F-25
<PAGE> 83
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Merger Agreement
On October 1, 1997 the Company entered into a merger agreement (the
"Merger Agreement") among the Company, Land O'Lakes, Inc. and AVV Inc., a
wholly owned subsidiary of Land O'Lakes. Under the terms of the Merger
Agreement each outstanding share of the Company's common stock will be
converted into the right to receive $9.125 in cash and each outstanding
share of preferred stock will be converted into the right to receive an
amount in cash equal to the product of (x) $9.125 multiplied by (y) an
amount, in cash which is equal to the quotient of (A) $50 plus all accrued
dividends on one share of preferred stock that remain unpaid as of the
effectiveness of the Merger, divided by (B) $7.375. In addition, the
Company's President and principal shareholder and his wife, who is also a
director and vice president, will enter into a five year non-compete
agreement (which also provides for the termination of their existing
employment agreements) for an aggregate of $500,000 per year and certain
officers and directors of the Company will be entitled to severance
payments.
Mountain Farms, Inc.
As of September 30, 1997, the Company reevaluated the collectability of
the MFI note and has fully reserved for such note.
Legal Proceedings
In the Company's patent litigation, motions filed in the District Court to
have the case declared exceptional under Section 285 of the Patent Statute
were denied in April 1997. An additional partial summary judgement was
granted in favor of Borden and Schreiber in April 1997 and has been
consolidated with the pending appeal to the United States Court of Appeals
for the Federal Circuit ("Federal Circuit"). Partial summary judgment was
granted in favor of Beatrice on July 11, 1997. The Company filed a Notice
of Appeal in the Federal Circuit in relation to this grant of partial
summary judgment on October 17, 1997. Proceedings in relation to the
claims remaining before the United States District Court for the District
of New Jersey have been stayed until May 1998. See Note J.
The Company has been joined as a defendant in two suits in the United
States District for the Eastern District of Wisconsin. Following the
denial of a motion for class certification in one of the cases in December
1996, one of the cases was dismissed without prejudice, but with costs, on
May 2, 1997 and the other case was dismissed without prejudice or costs on
September 3, 1997
On July 15, 1997, the Company was served with a complaint in a class
action pending in the Wisconsin Circuit Court for Dane County. The
complaint in this action, which was brought by five individual Wisconsin
dairy farmers on behalf of a nationwide class of milk producers, contains
three counts. In the second count, which is the only count containing
allegations against the Company, the plaintiffs allege a conspiracy among
the Company and co-defendants NCE, Kraft and Borden to manipulate, through
their trading practices, prices of bulk cheese on the Cheese Exchange in
violation of the Wisconsin antitrust laws. This manipulation is alleged to
have artificially depressed the price at which cheese was sold on the
Cheese Exchange and, in turn, the price at which plaintiffs
F-26
<PAGE> 84
Alpine Lace Brands, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
allege they were able to sell their milk. The other two counts of the
complaint contain allegations against only Kraft and the NCE. The
complaint seeks treble damages in an unspecified amount.
On September 23, 1997, a First Amended and Consolidated Class Action
Complaint was filed in the Circuit Court for Dane County whereby the above
referenced case was consolidated with two other similar cases pending
against Kraft and the NCE. Two of the 7 counts in the Consolidated
Complaint contain allegations against the Company. These are: Count III in
which Plaintiffs allege that the Company, Kraft and defendant Borden
exercised power to control prices in the relevant markets and that Kraft
had acquired and exercised monopoly power in violation of the Wisconsin
anti-trust laws and Count IV in which Plaintiffs allege a conspiracy among
the Company, Kraft, Borden and the NCE to manipulate prices of bulk
natural cheese on the NCE in violation of Wisconsin anti-trust laws. As
with the first complaint, the consolidated complaint seeks treble damages
in an unspecified amount. On October 13, 1997 the defendants filed a
motion to dismiss the Consolidated Complaint.
Stock Options and Warrants
During 1997, the Company implemented the "1997 Stock Option Plan" (the
"Plan") for employees and directors. The Company has authorized 1,500,000
shares to be issued under the Plan. As of June 30, 1997, 177,000 options
have been issued. The Merger Agreement also provides that at or
immediately prior to the Effective Time, the Company shall use its best
efforts to cause each then outstanding Option and Warrant (as defined in
the Merger Agreement) (whether or not such Option or Warrant is then
exercisable) to be canceled in respect of a cash payment by the Company
equal to the Purchase Right Settlement Amount (as defined in the Merger
Agreement) of such Option or Warrant, subject to all applicable tax
withholding.
The Merger Agreement provides that as a condition to Land O'Lakes'
obligation to complete the Merger, effective as of the Effective Time, the
Stock Option Agreement, Put Option Agreement and Shareholders Agreement,
each dated as of January 1, 1995 (as amended to the date of the Merger
Agreement, collectively referred to as the "Meyers Agreements"), between
MCT Dairies, Inc. and Kenneth E. Meyers (and, in the case of certain of
the Meyers Agreements, the Company) will be terminated in exchange for a
cash payment to Kenneth E. Meyers in an amount not to exceed the amount
calculated pursuant to the formula set forth in the Put Option Agreement.
F-27
<PAGE> 85
AGREEMENT AND PLAN OF MERGER
among
ALPINE LACE BRANDS, INC.
and
LAND O'LAKES, INC.
and
AVV INC.
Dated as of October 1, 1997
<PAGE> 86
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER........................................................ 1
1.01 The Merger........................................................... 1
1.02 Surviving Corporation................................................ 1
1.03 Effective Time of the Merger......................................... 2
1.04 Certificate of Incorporation and By-Laws of the Surviving
Corporation .............................................................. 2
1.05 Board of Directors and Officers of the Surviving Corporation......... 2
1.06 Conversion of Shares................................................. 2
1.07 Dissenters' Rights................................................... 3
1.08 Stock Options and Warrants........................................... 4
1.09 Payment for Shares................................................... 4
1.10 No Further Rights or Transfers....................................... 6
ARTICLE II COVENANTS, CONDUCT AND TRANSACTIONS PRIOR TO THE EFFECTIVE
TIME......................................................................... 6
2.01 Operation of Business of the Company Between the Date of this
Agreement and the Effective Time.......................................... 6
2.02 Stockholders' Meeting; Proxy Material............................... 8
2.03 No Shopping.......................................................... 9
2.04 Access to Information............................................... 10
2.05 Amendment of Company's Employee Plans............................... 10
2.06 Stock Options and Warrants.......................................... 10
2.07 Best Efforts........................................................ 10
2.08 Consents............................................................ 10
2.09 Public Announcements................................................ 11
2.10 Notification of Certain Matters..................................... 11
2.11 Certain Resignations................................................ 11
2.12 Confidentiality Agreement........................................... 11
2.13 Write-Off of Note Receivable........................................ 11
ARTICLE III CONDITIONS OF MERGER........................................... 12
3.01 Conditions to the Obligations of Buyer and Acquisition to
Effect the Merger ....................................................... 12
3.02 Conditions to the Obligations of the Company to Effect the Merger... 14
ARTICLE IV CLOSING......................................................... 15
4.01 Time and Place...................................................... 15
4.02 Deliveries at the Closing........................................... 15
<PAGE> 87
ARTICLE V TERMINATION AND ABANDONMENT...................................... 16
5.01 Termination......................................................... 16
5.02 Procedure and Effect of Termination................................. 17
ARTICLE VI REPRESENTATIONS AND WARRANTIES.................................. 17
6.01 Representations and Warranties of the Company....................... 17
6.02 Representations and Warranties of Buyer and Acquisition............. 27
ARTICLE VII OFFICERS' AND DIRECTORS' INDEMNIFICATION, DIRECTORS AND OFFICERS
LIABILITY INSURANCE, EMPLOYEE CONTRACTS..................................... 29
7.01 Indemnification..................................................... 29
7.02 Directors and Officers Liability Insurance.......................... 29
7.03 Employee Contracts.................................................. 29
ARTICLE VIII MISCELLANEOUS PROVISIONS...................................... 30
8.01 Termination of Obligations, Covenants and Agreements................ 30
8.02 Amendment and Modification.......................................... 30
8.03 Waiver of Compliance; Consents...................................... 30
8.04 Expenses; Termination Fee.......................................... 30
8.05 Additional Agreements............................................... 31
8.06 Notices............................................................. 31
8.07 Assignment.......................................................... 33
8.08 Interpretation...................................................... 33
8.09 Governing Law....................................................... 33
8.10 Counterparts ....................................................... 33
8.11 Headings ........................................................... 33
8.12 Entire Agreement.................................................... 33
Exhibit A-1 -- Opinion of local counsel to the Company
Exhibit A-2 -- Opinion of Kramer, Levin, Naftalis & Frankel, Special Counsel to
the Company
Exhibit B -- Non-Compete Agreement between Buyer and Carl T. Wolf
Exhibit C -- Non-Compete Agreement between Buyer and Marion F. Wolf.
Exhibit D -- Opinion of Thuy-Nga T. Vo, Counsel to Buyer and Acquisition
Exhibit D-2 -- Opinion of Faegre & Benson LLP, Special Counsel to Buyer and
Acquisition
<PAGE> 88
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of October 1, 1997, by and
among Alpine Lace Brands, Inc., a Delaware corporation (the "Company"), Land
O'Lakes, Inc., a Minnesota cooperative corporation ("Buyer"), and AVV Inc., a
Delaware corporation and a wholly-owned subsidiary of Buyer ("Acquisition") (the
Company and Acquisition being sometimes hereinafter collectively referred to as
the "Constituent Corporations").
WITNESSETH:
WHEREAS, the Boards of Directors of the Company, Acquisition and
Buyer and the special committee of independent directors of the Board of
Directors of the Company (the "Special Committee") deem a merger of the Company
and Acquisition pursuant to the terms hereof (the "Merger") desirable and in the
best interests of their respective corporations and their stockholders; the
Boards of Directors of the Company, Acquisition and Buyer and the Special
Committee have, by resolutions duly adopted, approved this Agreement and the
Boards of Directors of the Company and Acquisition have directed that it be
submitted to a vote of the stockholders of their respective Constituent
Corporations in accordance with the laws of the State of Delaware; and Buyer,
being the sole stockholder of Acquisition, has, by written action, duly approved
this Agreement in accordance with such laws; and
WHEREAS, the Company, Acquisition and Buyer desire to effect the
Merger and the other transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained and for
the purpose of prescribing the terms and conditions of the Merger, the manner
and basis of converting shares of capital stock of the Company into cash, and
such other provisions as are deemed necessary or desirable, the parties agree
that the Merger shall be effected on the terms and subject to the conditions set
forth below and in accordance with the applicable laws of the State of Delaware.
ARTICLE I
THE MERGER
1.01 The Merger. At the Effective Time, as defined in Section 1.03,
and in accordance with the terms of this Agreement and the General Corporation
Law of the State of Delaware (the "Delaware Law"), Acquisition shall be merged
with and into the Company, the separate corporate existence of Acquisition shall
thereupon cease, and the Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation"), the
name of which shall continue to be "Alpine Lace Brands, Inc."
1.02 Surviving Corporation. At the Effective Time, the Surviving
Corporation shall thereupon and thereafter possess all the rights, privileges,
powers and franchises, of a public as well as of a private nature, of each of
the Constituent Corporations, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all and
singular, the rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, and all
debts due to each of the Constituent Corporations on whatever account, as well
for stock subscriptions as all other things in action or belonging to each of
the Constituent Corporations, shall be vested in the Surviving
<PAGE> 89
Corporation; and all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually the property of
the Surviving Corporation as they were of the several and respective Constituent
Corporations; and the title to any real estate or any interest therein vested by
deed or otherwise, under the laws of Delaware or any other jurisdiction, in
either of the Constituent Corporations shall not revert or be in any way
impaired by reason of the Merger; but all rights of creditors and all liens upon
any property of either of the Constituent Corporations shall be preserved
unimpaired; and all debts, duties and liabilities of either of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, duties and liabilities
had been incurred or contracted by it.
1.03 Effective Time of the Merger. Subject to and immediately
following the receipt of the vote of the stockholders of the Company approving
and adopting this Agreement and the Merger and the satisfaction or waiver of all
conditions to the consummation of the Merger set forth in this Agreement, the
Company and Acquisition shall execute in the manner required by the Delaware Law
and deliver for filing to the Secretary of State of the State of Delaware a
certificate of merger with respect to the Merger as required by Delaware Law
(the "Certificate of Merger"). The Merger shall become effective at the time the
Certificate of Merger is accepted for filing with the Secretary of State of the
State of Delaware, and the term "Effective Time" shall mean the date and time
when the Merger shall become effective.
1.04 Certificate of Incorporation and By-Laws of the Surviving
Corporation. The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until amended in accordance with the
laws of the State of Delaware.
The By-Laws of Acquisition in effect immediately prior to the
Effective Time shall be deemed, by virtue of the Merger and without further
action by the stockholders or directors of the Surviving Corporation or
Acquisition, to be the By-Laws of the Surviving Corporation, until further
amended in accordance with the laws of the State of Delaware.
1.05 Board of Directors and Officers of the Surviving Corporation.
The directors of Acquisition immediately prior to the Effective Time shall be
the directors of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the By-Laws of the Surviving
Corporation, until the expiration of the term for which such director was
elected and until his or her successor is elected and has qualified or as
otherwise provided in the By-Laws of the Surviving Corporation. The officers of
Acquisition immediately prior to the Effective Time shall be the officers of the
Surviving Corporation until their respective successors are chosen and have
qualified or as otherwise provided in the By-Laws of the Surviving Corporation.
1.06 Conversion of Shares.
The manner and basis of converting the shares of each of the Constituent
Corporations shall be as follows:
(a) At the Effective Time, each share of common stock of the
Company, par value $.01 per share (the "Company Common Stock"), which is issued
and outstanding immediately prior to the Effective Time (other than (i) shares
of Company Common Stock as to which dissenters' rights are
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exercised under Section 262 of the Delaware Law and Section 1.07 hereof and (ii)
shares of Company Common Stock held of record by Buyer or Acquisition or any
other direct or indirect subsidiary of Buyer or the Company immediately prior to
the Effective Time) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to receive
(as provided in Section 1.09(a) hereof) $9.125 in cash (the "Common Stock Merger
Consideration"), pro-rated for fractional shares of Company Common Stock
outstanding immediately prior to the Effective Time, if any.
(b) At the Effective Time, each share of preferred stock of the
Company, par value $.01 per share (the "Company Preferred Stock"), which is
issued and outstanding immediately prior to the Effective Time (other than (i)
shares of Company Preferred Stock as to which dissenters' rights are exercised
under Section 262 of the Delaware Law and Section 1.07 hereof and (ii) shares of
Company Preferred Stock held of record by Buyer or Acquisition or any other
direct or indirect subsidiary of Buyer or the Company immediately prior to the
Effective Time) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to receive
(as provided in Section 1.09(a) hereof) cash in an amount equal to the product
of (x) $9.125 multiplied by (y) an amount which is equal to the quotient of (A)
$50 plus all accrued dividends on one share of Company Preferred Stock that
remain unpaid as of the Effective Time (which unpaid dividends shall accrue
until the Effective Time at the rate of $.010274 per share per day), divided by
(B) $7.375 (the "Preferred Stock Merger Consideration"), pro-rated for
fractional shares of Company Preferred Stock outstanding immediately prior to
the Effective Time, if any.
(c) At the Effective Time, each share of common stock of
Acquisition, par value $1.00 per share (the "Acquisition Common Stock"), which
is issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and exchanged for 6,000 shares of common stock of the
Surviving Corporation, which shall constitute the only issued and outstanding
shares of capital stock of the Surviving Corporation immediately after the
Effective Time.
(d) At the Effective Time, each share of Company Common Stock and
Company Preferred Stock (the Company Common Stock and Company Preferred Stock
being herein sometimes referred to collectively as the "Company Stock") held of
record by Buyer or Acquisition or any other direct or indirect subsidiary of
Buyer or the Company immediately prior to the Effective Time and each share of
Company Stock held in the treasury of the Company immediately prior to the
Effective Time shall be canceled and cease to exist at and after the Effective
Time, and no payment shall be made with respect thereto.
1.07 Dissenters' Rights. Nothwithstanding any provision of this
Agreement to the contrary, any shares of Company Stock outstanding immediately
prior to the Effective Time held by a holder who has demanded and perfected
the right, if any, for appraisal of those shares in accordance with the
provisions of Section 262 of the Delaware Law and as of the Effective Time has
not withdrawn or lost such right to such appraisal ("Dissenting Shares") shall
not be converted into or represent a right to receive a cash payment pursuant
to Section 1.06, but the holder shall only be entitled to such rights as are
granted by the Delaware Law. If a holder of shares of Company Stock who demands
appraisal of those shares under the Delaware Law shall effectively withdraw or
lose (through failure to perfect or otherwise) the right to appraisal, then,
as of the Effective Time or the occurrence of such event, whichever last occurs,
those shares shall be converted into and represent only the right to receive
the Common Stock Merger Consideration or the Preferred Stock Merger
Consideration, as the case may be, as provided in Section 1.06, without
interest, upon compliance with the provisions, and subject to the limitations,
of Section 1.09 hereof. The Company shall give Buyer (a) prompt notice of any
written demands for appraisal of any shares of Company Stock, attempted
withdrawals of such demands, and any other instruments served pursuant to the
Delaware Law and received by the Company relating to stockholders' rights of
appraisal, and (b) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Delaware Law. The Company
shall not, except with the prior written consent of Buyer, voluntarily make any
payment with respect to any demands for appraisal of Company Stock, offer to
settle or settle any such demands or approve any withdrawal of any such
demands.
1.08 Stock Options and Warrants. At or immediately prior to the
Effective Time, each holder of a then outstanding option (an "Option") or
warrant (a "Warrant") to purchase shares of Company Common Stock heretofore
granted under any employee stock option or compensation plan, warrant agreement
or other arrangement with the Company shall be entitled (whether or not such
Option or Warrant is then exercisable) upon execution of a cancellation
agreement with the Company to receive in cancellation of such Option or Warrant
a cash payment from the Company in an amount equal to the amount, if any, by
which the Common Stock Merger Consideration exceeds the per share exercise price
of such Option or
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Warrant, multiplied by the number of shares of Company Common Stock then subject
to such Option or Warrant (the "Purchase Right Settlement Amount") but subject
to all required tax withholdings by the Company. Each Option or Warrant that is
subject to a cancellation agreement shall be canceled upon payment of the
Purchase Right Settlement Amount for such Option or Warrant.
1.09 Payment for Shares.
(a) At or before the Effective Time, Buyer or Acquisition shall
deposit in immediately available funds with Norwest Bank Minnesota, N.A., or any
other disbursing agent selected by Buyer that is organized under the laws of the
United States or any state of the United States with capital, surplus and
undivided profits of at least $500,000,000 (the "Disbursing Agent"), an amount
equal to the sum (rounded up or down to the nearest whole $.01, with $.005
rounded up to the nearest whole $.01) of (A) the product of (i) the number of
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares then held of record by Buyer or Acquisition or
any other direct or indirect subsidiary of Buyer or the Company), pro-rated for
fractional shares, times (ii) the Common Stock Merger Consideration and (B) the
product of (i) the number of shares of Company Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than shares then held
of record by Buyer or Acquisition or any other direct or indirect subsidiary of
Buyer or the Company), pro-rated for fractional shares, times (ii) the Preferred
Stock Merger Consideration (such sum being hereinafter referred to as the
"Fund"). Out of the Fund, the Disbursing Agent shall, pursuant to irrevocable
instructions from the holders of Company Stock, make the payments referred to in
Sections 1.06 (a) and (b) hereof, subject to the requirements of paragraph (b)
of this Section 1.09. At the request of the Surviving Corporation, in its sole
discretion at any time, but without any obligation to make any such request, the
Disbursing Agent also may make payments, in discharge of any obligations of the
Surviving Corporation pursuant to Section 262 of the Delaware Law, to holders of
Company Stock who have exercised dissenters' rights pursuant to Section 262 of
the Delaware Law and have not subsequently withdrawn or lost such rights as long
as the payment from the Fund with respect to any Dissenting Share does not
exceed the Common Stock Merger Consideration or the Preferred Stock Merger
Consideration, as the case may be. The Disbursing Agent may invest portions of
the Fund as Buyer or the Surviving Corporation directs, provided that all such
investments shall be held as cash or in obligations of or guaranteed by the
United States of America, in commercial paper obligations receiving the highest
rating from either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or in certificates of deposit, bank repurchase agreements or
bankers' acceptances of commercial banks with capital, surplus and undivided
profits exceeding $500,000,000 (collectively, "Permitted Investments"), or in
money market funds which are invested solely in Permitted Investments. Any net
profit resulting from, or interest or income produced by, such investments shall
be payable to the Surviving Corporation, and shall be remitted from time to time
by the Disbursing Agent upon the request of Buyer or the Surviving Corporation.
Any amount remaining in the Fund after nine months after the Effective Time may
be refunded to the Surviving Corporation at its option; provided, however, that
the Surviving Corporation shall be liable for any cash payments required to be
made thereafter pursuant to Sections 1.06(a) and 106(b) hereof and Section 262
of the Delaware Law.
(b) As soon as practicable after the Effective Time, the Disbursing
Agent shall mail to each holder of record (other than Buyer or Acquisition or
any direct or indirect subsidiary of Buyer or the Company) of a certificate or
certificates (a "Certificate" or "Certificates") which immediately prior to the
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Effective Time represented issued and outstanding shares of Company Stock (other
than those holders who have exercised dissenters' rights pursuant to Section 262
of the Delaware Law and have not subsequently withdrawn or lost such rights), a
form letter of transmittal (the "Letter of Transmittal") for return to the
Disbursing Agent, and instructions for use in effecting the surrender of
Certificates and to receive cash for each of such holder's shares of Company
Stock pursuant to Sections 1.06(a) and 1.06(b) hereof. The Letter of Transmittal
shall specify that delivery shall be effected, and risk of loss shall pass, only
upon proper delivery of such Certificate or Certificates to the Disbursing
Agent. The Disbursing Agent, as soon as practicable following receipt of any
such Certificate or Certificates together with the Letter of Transmittal, duly
executed, and any other items specified by the Letter of Transmittal, shall pay,
by check or draft, to the persons entitled thereto, the sum (rounded up or down
to the nearest whole $.01, with $.005 rounded up to the nearest whole $.01) of
the amounts determined by (A) multiplying (i) the number of shares of Company
Common Stock represented by the Certificate or Certificates so surrendered
(pro-rated for fractional shares) by (ii) the Common Stock Merger Consideration
and (B) multiplying (i) the number of shares of Company Preferred Stock
represented by the Certificate or Certificates so surrendered (pro-rated for
fractional shares) by (ii) the Preferred Stock Merger Consideration. All of the
foregoing payments shall be subject to any required withholding of taxes by the
Surviving Corporation. No interest will be paid or accrued on the cash payable
upon the surrender of the Certificate or Certificates. If payment is to be made
to a person other than the person in whose name the Certificates surrendered are
registered, it shall be a condition of payment that the Certificates so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting the payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the Certificates surrendered or establish to the satisfaction of the
Surviving Corporation that the tax has been paid or is not applicable.
(c) In the event any such Certificate or Certificates shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate or Certificates to have been lost, stolen
or destroyed, the amount to which such person would have been entitled under
Section 1.09(b) hereof but for failure to deliver such Certificate or
Certificates to the Disbursing Agent shall nevertheless be paid to such person,
provided that the Surviving Corporation may, in its sole discretion and as a
condition precedent to such payment, require such person to give the Surviving
Corporation a written indemnity agreement in form and substance reasonably
satisfactory to the Surviving Corporation and, if reasonably deemed advisable by
the Surviving Corporation, a bond in such sum as the Surviving Corporation may
direct as indemnity against any claim that may be had against Buyer or the
Surviving Corporation with respect to the Certificate or Certificates alleged to
have been lost, stolen or destroyed.
1.10 No Further Rights or Transfers. At and after the Effective
Time, all shares of Company Stock issued and outstanding immediately prior to
the Effective Time (including without limitation fractional shares) shall be
canceled and cease to exist, and each holder of a Certificate or Certificates
that represented shares of Company Stock issued and outstanding immediately
prior to the Effective Time shall cease to have any rights as a stockholder of
the Company with respect to the shares of Company Stock represented by such
Certificate or Certificates, except for the right to surrender such holder's
Certificate or Certificates in exchange for the payment provided pursuant to
Sections 1.06(a) and 1.06(b) hereof or to perfect such holder's right to receive
payment for such holder's shares pursuant to Section 262 of the Delaware Law and
Section 1.07 hereof if such holder has validly exercised and not withdrawn or
lost such holder's right to receive payment for such holder's shares pursuant to
Section 262 of the Delaware Law,
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and no transfer of shares of Company Stock issued and outstanding immediately
prior to the Effective Time shall be made on the stock transfer books of the
Surviving Corporation.
ARTICLE II
COVENANTS, CONDUCT AND TRANSACTIONS PRIOR
TO THE EFFECTIVE TIME
2.01 Operation of Business of the Company Between the Date of this
Agreement and the Effective Time. From the date of this Agreement through the
Effective Time:
(a) The Company will use its best efforts to preserve intact in all
material respects its business organization and that of its subsidiaries, keep
available to itself and to the Surviving Corporation the services of the present
officers and key employees of the Company and its subsidiaries set forth in
Section 2.01(a) of the Disclosure Schedule of the Company dated the date hereof
(the "Disclosure Schedule"), a copy of which has been delivered to Buyer and
Acquisition, and preserve for itself and for the Surviving Corporation the
present relationships of the Company and its subsidiaries with entities and
persons having significant business dealings with the Company or its
subsidiaries.
(b) The Company shall, and shall cause its subsidiaries to, except
as otherwise consented to in writing by Buyer, conduct its business and
operations in the ordinary course of business.
(c) Except as required in connection with the Merger or as otherwise
consented to in writing by Buyer, the Company shall not (i) amend its
Certificate of Incorporation or By-Laws, (ii) increase or decrease the number of
authorized shares of its capital stock, as set forth in Section 6.01(b) hereof,
(iii) split, combine or reclassify any shares of its capital stock or make any
other changes in its equity capital structure (other than the issuance of shares
of Company Common Stock upon exercise of Options or Warrants heretofore granted
by the Company in accordance with their terms or the conversion of outstanding
Company Preferred Stock in accordance with the terms thereof), (iv) purchase,
redeem or cancel for value, directly or indirectly, any shares of its capital
stock or any Options, Warrants or other rights to purchase any such capital
stock or any capital stock of its subsidiaries or any securities convertible
into or exchangeable for any such capital stock, except as contemplated by
Section 1.08 hereof, or (v) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of shares of its
capital stock, except that it may declare, set aside and pay in the ordinary
course of business a regular quarterly cash dividend on Company Preferred Stock
in an amount of $.9375 per share of Company Preferred Stock payable on December
15, 1997 if the Effective Time does not occur prior to December 15, 1997.
(d) The Company shall not and shall not permit its subsidiaries to,
except as otherwise consented to in writing by Buyer, (i) issue, grant, sell or
pledge, or agree or propose to issue, grant, sell or pledge, any shares of
capital stock of the Company or its subsidiaries (other than the issuance of
shares of Company Common Stock upon exercise of Options or Warrants heretofore
granted by the Company in accordance with their terms or the conversion of
outstanding Company Preferred Stock in accordance with the terms thereof) or any
options, rights or warrants to purchase any such capital stock or any securities
convertible into or exchangeable for such capital stock, or any stock
appreciation rights, performance shares
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or other phantom stock based upon the value of any such capital stock or
designate any class or series of shares of Company Preferred Stock, (ii)
purchase, lease or otherwise acquire (including without limitation acquisitions
by merger, consolidation or stock or asset purchase) any assets or properties,
other than those that do not individually exceed $2,000, provided that the
aggregate amount of such purchases, leases and other acquisitions does not
exceed $25,000, and other than inventory (including supplies) acquired in the
ordinary course of business, (iii) sell, lease, encumber, mortgage or otherwise
dispose of any material assets or properties, except that the Company and its
subsidiaries may sell, lease, encumber, mortgage or otherwise dispose of assets
or properties in the ordinary course of business that are not material to the
Company and its subsidiaries, taken as a whole, and except for the continuing
security interest of the lender under the Company's existing revolving line of
credit agreement, (iv) waive, release, grant or transfer any rights of value or
modify or change in any material respect any existing license, contract or other
document or agreement, other than in the ordinary course of business and in a
manner that does not have a material adverse effect on the business, operations,
results of operations, properties, assets, prospects or condition, financial or
otherwise, of the Company and its subsidiaries, taken as a whole (a "Material
Adverse Effect"), (v) incur any indebtedness for money borrowed other than
indebtedness of the Company to its wholly-owned subsidiaries or of a
wholly-owned subsidiary to the Company or its other wholly-owned subsidiary and
other than indebtedness incurred in the ordinary course of business for working
capital purposes (including, without limitation, as permitted indebtedness,
borrowings in the ordinary course of business for working capital purposes under
the Company's existing revolving line of credit) that, except as disclosed in
Section 2.01(d) of the Disclosure Schedule, is prepayable at any time without
penalty or premium or incur any purchase money indebtedness for fixed assets or
enter into any capitalized lease, (vi) incur any other liability or obligation
(except of the Company to its wholly-owned subsidiaries or of a wholly-owned
subsidiary to the Company or its other wholly-owned subsidiary), other than in
the ordinary course of business, or assume, guarantee, endorse (other than
endorsements of checks in the ordinary course of business) or otherwise as an
accommodation become responsible for the obligations of any other individual or
entity (except of the Company with respect to obligations of its wholly-owned
subsidiaries or of a wholly-owned subsidiary with respect to obligations of the
Company or its other wholly-owned subsidiary), (vii) except as otherwise
required by this Agreement, enter into any new employee benefit plan, program or
arrangement, or any new employment, severance or consulting agreement, amend any
existing employee benefit plan, program or arrangement, or any existing
employment, severance or consulting agreement, or, except as disclosed in
Section 2.01(d) of the Disclosure Schedule, grant any increases in compensation
or benefits, (viii) adopt any collective bargaining agreement, (ix) enter into
any other transaction, other than in the ordinary course of business and
consistent with past practices, (x) make any tax election or settle or
compromise any material federal, state, local or foreign income tax liability,
(xi) change any accounting principles used by it, unless required by generally
accepted accounting principles, (xii) settle any litigation or proceedings other
than those arising in the ordinary course of business, the settlement of which
would not have a Material Adverse Effect or (xiii) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing.
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2.02 Stockholders' Meeting; Proxy Material.
(a) The Company shall cause a meeting of its stockholders to be duly
called and held as soon as reasonably practicable after the execution of this
Agreement for the purpose of voting on the adoption of this Agreement. The Board
of Directors of the Company shall recommend approval and adoption of this
Agreement by the Company's stockholders. The Company shall use its best efforts
consistent with applicable legal requirements to solicit proxies in connection
with a meeting of stockholders called pursuant to this Section 2.02(a) and shall
solicit such proxies in favor of such approval and adoption and take all other
action necessary to attempt to secure the stockholder approval required to
effect the Merger under applicable law. Simultaneously with the execution of
this Agreement, each of Carl T. Wolf and Marion F. Wolf have entered into a
Voting Agreement dated the date hereof with Buyer, pursuant to which they have
granted to Ronald O. Ostby and Thomas A. Verdoorn, with full power of
substitution, an irrevocable proxy (collectively the "Irrevocable Proxies") to
vote all shares of Company Common Stock held of record by such stockholder (or
over which such stockholder has voting power, by contract or otherwise) to
approve and adopt this Agreement and the Merger.
(b) The Company will prepare, and file with the Securities and
Exchange Commission (the "SEC"), a proxy statement, together with a form of
proxy, with respect to the stockholders meeting described in Section 2.02(a)
(such proxy statement, together with any amendments thereof or supplements
thereto, being herein called the "Proxy Statement"). The Company (i) will use
its best efforts to have the Proxy Statement cleared by the SEC as soon as
reasonably practicable, if such clearance is required, (ii) will as soon as
reasonably practicable thereafter mail the Proxy Statement to stockholders of
the Company and (iii) will otherwise comply in all material respects with all
applicable legal requirements in respect of such meeting. The Company shall
notify Buyer promptly of the receipt of any comments from the SEC or its staff
and any request by the SEC or its staff for amendments or supplements to the
Proxy Statement or for additional information and will supply Buyer with copies
of all correspondence between the Company and its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement or the Merger. Prior to filing the Proxy Statement with the SEC, the
Company shall provide reasonable opportunity for Buyer to review and comment
upon the contents of the Proxy Statement and shall not include therein any
information to which counsel to Buyer shall reasonably object (unless counsel to
the Company shall reasonably determine that such information should be included
consistent with applicable legal principles) or omit therefrom any information
which counsel to Buyer shall reasonably request. If at any time prior to the
meeting of the stockholders of the Company contemplated by this Section 2.02,
any event relating to the Company or any of its subsidiaries, officers or
directors is discovered by the Company which should be set forth in an amendment
or supplement to the Proxy Statement, the Company shall promptly so inform
Buyer. The Proxy Statement shall contain the recommendation of the Board of
Directors of the Company and the Special Committee in favor of the Merger and
that the stockholders vote for and adopt the Merger and this Agreement.
2.03 No Shopping.
(a) From the date hereof until the termination of this Agreement,
the Company will not, and will not permit any officer, director, employee,
investment banker or other agent or any subsidiary of the Company to, directly
or indirectly (i) take any action to seek, initiate or solicit any offer from
any person,
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entity or group to acquire any shares of capital stock of the Company or its
subsidiaries, to merge or consolidate with the Company or its subsidiaries, or
to otherwise acquire any significant portion of the assets of the Company and
its subsidiaries, taken as a whole, except for acquisitions solely of inventory
in the ordinary course of business (a "Third Party Acquisition Offer"), or (ii)
except to the extent otherwise required by their fiduciary obligations under
applicable law, based upon the advice of outside counsel to the Company, engage
in negotiations or discussions concerning a Third Party Acquisition Offer or the
business or assets of the Company or its subsidiaries with, or disclose
financial information relating to the Company or its subsidiaries, or any
confidential or proprietary trade or business information relating to the
business of the Company or its subsidiaries to, or afford access to the
properties, books or records of the Company or its subsidiaries to, any third
party that may be considering a Third Party Acquisition Offer; provided,
however, that if the officers or directors of the Company shall be required by
their fiduciary obligations under applicable law, based upon the advice of
outside counsel to the Company, to enter into any such negotiations or
discussions, disclose any such information or afford any such access to any
third party, the Company may do so only if (A) the Board of Directors of the
Company is advised by one or more of its financial advisors that the third party
has the financial resources to consummate a Superior Acquisition, as defined in
paragraph (c) below, and the Board of Directors of the Company determines that
the third party is likely to submit a bona fide Third Party Acquisition Offer to
consummate a Superior Acquisition; (B) the Company has provided Buyer, as soon
as reasonably practicable and in any event prior to such discussions,
negotiations, disclosure or access, notice of the Company's intent to enter into
such discussions or negotiations, to supply information and/or to provide
access, the identity of such third party and, as soon as reasonably practicable
after such terms are known by the Company, the terms of the Third Party
Acquisition Offer; and (C) such third party has signed and delivered to the
Company a confidentiality agreement substantially in the form of the
Confidentiality Agreement referred to in Section 2.12. The Company will
immediately cease or cause to be terminated any existing activities, discussions
or negotiations with any parties conducted with respect to any of the foregoing.
(b) The Company will orally notify Buyer immediately, followed by
prompt written notice, of the receipt and the terms of any Third Party
Acquisition Offer from any person, entity or group (other than from Buyer or
Acquisition), or of any request for information or access, with respect to any
Third Party Acquisition Offer, or any indication from any person, entity or
group that it or another person, entity or group is considering making a Third
Party Acquisition Offer or such a request, which notice shall include the
identity of the third party.
(c) For purposes of this Agreement, a "Superior Acquisition" is a
transaction pursuant to which a tender offer is made to acquire all of the
outstanding Company Stock, or a merger, consolidation or a sale of substantially
all of the assets of the Company (to be followed by a complete liquidation of
the Company) occurs, pursuant to which the per share tender offer price or the
per share merger or consolidation price or the per share price that would be
received by the stockholders in the liquidation (i) for the Company Common Stock
is higher than the Common Stock Merger Consideration and (ii) for the Company
Preferred Stock is higher than the Preferred Stock Merger Consideration.
2.04 Access to Information. The Company will give Buyer and
Acquisition, and their respective counsel, financial advisors, auditors and
other authorized representatives, full access to the offices (including a work
area for the use of Buyer, Acquisition and their authorized representatives),
properties,
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employees, books and records of the Company and its subsidiaries at all
reasonable times upon reasonable notice, and will instruct the employees,
counsel, financial advisors and auditors of the Company and its subsidiaries to
cooperate in all reasonable respects with Buyer, Acquisition and each such
representative in its investigation of the business of the Company and its
subsidiaries, provided that no investigation pursuant to this Section 2.04 shall
affect any representation or warranty given by the Company to Buyer and
Acquisition hereunder. The Company will confer from time to time with Buyer at
Buyer's request to discuss the status of the operations of the Company and its
subsidiaries.
2.05 Amendment of Company's Employee Plans. The Company will,
effective at or immediately prior to the Effective Time, cause any Employee
Plans (as hereinafter defined) which it may have to be amended, to the extent,
if any, reasonably requested by Buyer, for the purpose of permitting the
Employee Plans to continue to operate in conformity with the Employee Retirement
Income Security Act of 1974, as amended, and the regulations adopted pursuant
thereto ("ERISA"), and the Internal Revenue Code of 1986 and the rules and
regulations adopted pursuant thereto (the "Code"), subsequent to the Merger.
2.06 Stock Options and Warrants. At or immediately prior to the
Effective Time, the Company shall use its best efforts to cause each then
outstanding Option and Warrant (whether or not such Option or Warrant is then
exercisable) to be canceled in respect of a cash payment by the Company equal to
the Purchase Price Settlement Amount for such Option or Warrant, subject to all
applicable tax withholding. The Company shall, prior to the Effective Time, take
such action as may be necessary to effect the foregoing and shall comply with
all requirements regarding income tax withholding in connection with the
foregoing.
2.07 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts consistent
with applicable legal requirements to take, or cause to be taken, all action,
and to do, or cause to be done, all things reasonably necessary or proper and
advisable under applicable laws and regulations to ensure that the conditions
set forth in Article III hereof are satisfied and to consummate and make
effective, in the most expeditious manner reasonably practicable, the Merger and
the other transactions contemplated by this Agreement.
2.08 Consents. Buyer and the Company each shall use their respective
best efforts to obtain all material consents of third parties and governmental
authorities, and to make all governmental filings, necessary for the
consummation of the transactions contemplated by this Agreement. Buyer and the
Company each shall as soon as practicable file a Pre-Merger Notification and
Report Form under the Hart Scott Rodino Antitrusts Improvements Act (the "HSR
Act") with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "Antitrust Division") and shall use their
respective best efforts to respond as promptly as reasonably practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
2.09 Public Announcements. Except as hereinafter provided in this
Section 2.09, Buyer and the Company will consult with each other before issuing
any press release or otherwise making any public statements prior to the
Effective Time with respect to the Merger or the other transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to receiving the consent of the other party, which consent will
not be unreasonably withheld or delayed.
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Nothing stated herein shall prohibit any party from making a press release or
other statement required by law or by obligations pursuant to any listing
agreement with any automated interdealer quotation system if the party making
the disclosure has first consulted with the other parties hereto, and nothing
stated herein shall prohibit Buyer, after or concurrently with the first public
disclosure by the parties regarding this Agreement, from mailing information to
its members regarding the Merger or the other transactions contemplated hereby
after prior consultation with the Company.
2.10 Notification of Certain Matters. The Company will give prompt
notice, as soon as reasonably practicable, to Buyer and Acquisition of the
occurrence or non-occurrence of any event (i) which has had or is reasonably
likely to have a Material Adverse Effect, (ii) which has caused any
representation or warranty of the Company contained in this Agreement to be
untrue or inaccurate in any material respect or (iii) which has caused any
failure of the Company to comply in all material respects with or satisfy in all
material respects any covenant, condition or agreement to be complied with or
satisfied under this Agreement; provided, however, that the delivery of any
notice pursuant to this Section 2.10 will not limit or otherwise affect the
remedies available under this Agreement to Buyer or limit the rights of the
Company under this Agreement.
2.11 Certain Resignations. The Company will use all reasonable
efforts to assist Buyer in procuring the resignation, effective as of the
Effective Time, of all of the members of the Boards of Directors of the Company
and the Company's subsidiaries and of all officers of the Company and the
Company's subsidiaries as such officers; provided, however, that those persons
resigning as officers of the Company and the Company's subsidiaries shall
continue as employees thereof until such employment is terminated.
2.12 Confidentiality Agreement. The Confidentiality Agreement
between the Company and Buyer dated April 17, 1997, shall remain in full force
and effect until the Effective Time. Until the Effective Time, the Company and
Buyer agree to comply with the terms of such Confidentiality Agreement.
2.13 Write-Off of Note Receivable. Prior to the Effective Time, the
Company will write-off in its entirety on the books and the most recent balance
sheet of the Company the principal amount of, and any accrued interest on, the
promissory note of Mountain Farms, Inc. to the Company in the principal amount
of $1,675,948.
ARTICLE III
CONDITIONS OF MERGER
3.01 Conditions to the Obligations of Buyer and Acquisition to
Effect the Merger. The obligations of Buyer and Acquisition to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions, any one or more of which (except for the condition set
forth in Section 3.01(b)) may be waived by Buyer and Acquisition:
(a) Accuracy of Representations and Warranties; Compliance with
Covenants. The representations and warranties of the Company contained in
Section 6.01 of this Agreement shall be true and
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correct in all material respects (i) as of the date of this Agreement, and (ii)
immediately prior to the Effective Time with the same effect as if such
representations and warranties had been made immediately prior to the Effective
Time, except to the extent that any and all inaccuracies in any representations
and warranties, other than those in the first sentence of Section 6.01(a) and
those in Section 6.01(b) and Section 6.01(c), that were true and correct on the
date of this Agreement but were inaccurate immediately prior to the Effective
Time have not had, and are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect (provided that, for purposes of this clause
(ii), any representation or warranty in Section 6.01 that is qualified by
Material Adverse Effect language shall be read solely for purposes of this
Section 3.01(a)(ii) as if such language (other than the last sentence of Section
6.01(c)) were not present) or impair the consummation of the transactions
contemplated hereby. The Company shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement required to be performed and complied with by it at or prior to the
Effective Time. Buyer and Acquisition shall have received a certificate signed
on behalf of the Company by an appropriate executive officer of the Company to
the effects set forth in this paragraph (a).
(b) Stockholder Approval of Agreement and Merger. This Agreement and
the Merger shall have been approved and adopted at the meeting of the
stockholders of the Company referred to in Section 2.02 hereof by the vote
required by the Delaware Law and the Company's Certificate of Incorporation and
By-Laws.
(c) Other Corporate Action. All other corporate action on the part
of the Company necessary to authorize the execution, delivery and consummation
of this Agreement or any agreement or instrument contemplated hereby to which
the Company is or is to be a party or the transactions contemplated hereby or
thereby shall have been duly and validly taken.
(d) Absence of Litigation, Injunctions. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which Buyer or Acquisition is a plaintiff directly or
derivatively) which, in the reasonable judgment of Buyer would, if issued, be
reasonably likely to restrain or prohibit the consummation of the transactions
contemplated hereby or require rescission of this Agreement or such transactions
or result in material damages to Buyer, Acquisition or the Surviving Corporation
if the transactions contemplated hereby are consummated, and there shall not be
in effect any injunction, writ, preliminary restraining order or any order of
any nature issued by a court or governmental agency of competent jurisdiction
directing that the transactions contemplated hereby not be consummated as so
provided or any statute, rule or regulation enacted or promulgated that makes
consummation of the transactions contemplated hereby illegal.
(e) Absence of Material Adverse Effect. There shall not have been,
since December 31, 1996 (i) any damage, destruction or loss, whether covered by
insurance or not, that has had, or is reasonably likely to have, a Material
Adverse Effect; (ii) any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which Buyer or Acquisition is a plaintiff directly or
derivatively) which, in the reasonable judgment of Buyer, would be reasonably
likely, if issued, to have a Material Adverse Effect; or (iii) any other event
or condition (financial or otherwise) of any character or any
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operations or results of operations that has had, or is reasonably likely to
have, a Material Adverse Effect.
(f) Opinion. Buyer and Acquisition shall have received from local
counsel to the Company (which counsel shall be satisfactory to Buyer), and
Kramer, Levin, Naftalis & Frankel, special counsel to the Company, their opinion
letters, dated the date of the Effective Time, containing the opinions in
substantially the forms of Exhibit A-1 and A-2 hereto, respectively.
(g) Consents. The Company, Buyer and Acquisition shall have received
all federal, state, local and foreign governmental consents, if any, and all
material consents of any private persons, necessary to execute and deliver this
Agreement, to consummate the transactions contemplated herein and to conduct the
business of the Company after the Effective Time in essentially the same manner
as it was conducted prior to the Effective Time, and all waiting periods
specified by law shall have expired or terminated. Without limiting the
generality of the foregoing, all filings required prior to the Merger under the
HSR Act shall have been made and all applicable waiting periods under the HSR
Act shall have expired or been terminated.
(h) Dissenting Shares. The holders of not more than 5% of the issued
and outstanding Company Stock (which percentage shall be calculated by
determining (i) the sum of the number of Dissenting Shares constituting Company
Common Stock and the number of shares of Company Common Stock into which the
Dissenting Shares constituting Company Preferred Stock are convertible
immediately prior to the Effective Time as a percentage of (ii) the sum of the
number of issued and outstanding shares of Company Common Stock and the number
of shares of Company Common Stock into which the issued and outstanding Company
Preferred Stock is convertible immediately prior to the Effective Time) shall
have taken such action prior to or at the time of the stockholders' vote as is
necessary as of that time to entitle them to the statutory dissenters' rights
referred to in Section 1.07 hereof.
(i) Cancellation of Options and Warrants. Except for Options and
Warrants, entitling the holders thereof to purchase, in the aggregate, up to a
maximum of 10,000 shares of Company Common Stock, the Company shall have
obtained the written cancellation of all Options and Warrants from the holders
thereof and shall have paid the Purchase Right Settlement Amount for each such
Option and Warrant entitled to such payment as provided in Section 1.08 of this
Agreement.
(j) Title Insurance. The Company shall have provided to Buyer and
Acquisition standard owner's policies of title insurance in amounts reasonably
acceptable to Buyer and Acquisition covering each parcel of real property owned
by the Company or its subsidiaries. Such policies or the latest endorsements
thereof shall show, as of a date no more than five days prior to the Closing (as
hereinafter defined), that the Company or one of its subsidiaries has title in
fee simple to all such real property, shall delete all standard exceptions and
shall not show any material inaccuracy in any representation made with respect
to such real property in Section 6.01(h) hereof.
(k) Non-Compete Agreements. Buyer and Carl T. Wolf shall have
entered into a non-compete agreement substantially in the form of Exhibit B
hereto, and Buyer and Marion F. Wolf shall have entered into a non-compete
agreement substantially in the form of Exhibit C hereto.
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(l) Cancellation of Subsidiary Option and Put Right. The Company
shall have obtained the termination, effective as of the Effective Time, of the
Stock Option Agreement, Put Option Agreement and Shareholders Agreement, each
dated as of January 1, 1995 (as amended to the date hereof, collectively
referred to as the "Meyers Agreements"), between MCT Dairies, Inc. and Kenneth
E. Meyers (and, in the case of certain of the Meyers Agreements, the Company) in
exchange for a cash payment to Kenneth E. Meyers in an amount not to exceed the
amount calculated pursuant to the formula set forth in Section 3 of the Put
Option Agreement, assuming that all shares subject to the Stock Option Agreement
had been purchased, less an amount equal to the purchase price per share under
the Stock Option Agreement multiplied by such number of shares.
(m) Employment Agreements. The Company and each of Messrs. Dominick
Gonella, Arthur Karmel, George S. Wenger, David Horowitz, Michael Kelly and
Marysusan Fitzsimmons shall have entered into an agreement, in form satisfactory
to Buyer and effective as of the Effective Time, acknowledging the Company's
right to terminate such employee without cause during the first six months after
the Effective Time. MCT Dairies, Inc. and Kenneth E. Meyers shall have entered
into an agreement, in form reasonably satisfactory to Buyer and effective as of
the Effective Time, terminating the existing employment agreement between MCT
Dairies, Inc. and Mr. Meyers.
3.02 Conditions to the Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions,
any one or more of which (except for the condition set forth in Section 3.02(b))
may be waived by the Company:
(a) Accuracy of Representations and Warranties, Compliance with
Covenants. The representations and warranties of Buyer and Acquisition contained
in Section 6.02 of this Agreement shall be true and correct in all material
respects immediately prior to the Effective Time with the same effect as if such
representations and warranties had been made immediately prior to the Effective
Time; Buyer and Acquisition each shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement required to be performed and complied with by them at or prior to the
Effective Time; and the Company shall have received a certificate signed on
behalf of Buyer by an appropriate executive officer of Buyer to the effects set
forth in this paragraph (a).
(b) Stockholder Approval of Agreement and Merger. This Agreement and
the Merger shall have been adopted at the meeting of the stockholders of the
Company referred to in Section 2.02 hereof by the vote required by the Delaware
Law and the Company's Certificate of Incorporation and By-Laws.
(c) Corporate Action. All corporate action on the part of Buyer and
Acquisition necessary to authorize the execution, delivery and consummation of
this Agreement or any agreement or instrument contemplated hereby to which Buyer
or Acquisition is or is to be a party or the transactions contemplated hereby or
thereby shall have been duly and validly taken.
(d) Absence of Litigation, Injunction. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except
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those in which the Company is a plaintiff directly or derivatively) which, in
the reasonable judgment of the Company, would, if issued, be reasonably likely
to restrain or prohibit the consummation of the transactions contemplated hereby
or require rescission of this Agreement or such transactions or result in
material damages to the Company, and there shall not be in effect any
injunction, writ, preliminary restraining order or any order of any nature
issued by a court or governmental agency of competent jurisdiction directing
that the transactions contemplated hereby not be consummated as so provided or
any statute, rule or regulation enacted or promulgated that makes consummation
of the transactions contemplated hereby illegal.
(e) Opinion. The Company shall have received from Thuy-Nga T. Vo,
counsel to Buyer and Acquisition, and Faegre & Benson LLP, special counsel to
Buyer and Acquisition, their opinion letters, dated the date of the Effective
Time, containing the opinions in substantially the forms of Exhibit D-1 and D-2
hereto, respectively.
(f) HSR Act. All filings required prior to the Merger under the HSR
Act shall have been made and all applicable waiting periods under the HSR Act
shall have expired or been terminated.
ARTICLE IV
CLOSING
4.01 Time and Place. Subject to the provisions of Articles III and V
hereof, the closing (the "Closing") of the transactions contemplated hereby
shall take place at the offices of Faegre & Benson LLP on the same business day
as, and promptly following, the meeting of stockholders referred to in Section
2.02 hereof or at such other place or at such other time as Buyer and the
Company may mutually agree upon for the Closing to take place.
4.02 Deliveries at the Closing. Subject to the provisions of
Articles III and V hereof, at the Closing:
(a) There shall be delivered to Buyer, Acquisition and the Company
the opinions, certificates, and other documents and instruments the delivery of
which is contemplated under Article III hereof;
(b) Acquisition and the Company shall cause the Certificate of
Merger to be filed as provided in Section 1.03 hereof and shall take any and all
other lawful actions and do any and all other lawful things necessary to cause
the Merger to become effective; and
(c) Subject to the rights of the Surviving Corporation to receive a
refund of amounts remaining in the Fund nine months after the Effective Time
under Section 1.09 hereof, Buyer or Acquisition shall irrevocably deposit with
the Disbursing Agent the amount designated as the Fund in Section 1.09 hereof.
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ARTICLE V
TERMINATION AND ABANDONMENT
5.01 Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated herein may be abandoned at any time
prior to the Effective Time whether before or after approval of the Merger by
the stockholders of the Company and Acquisition:
(a) by mutual written consent of Buyer, Acquisition and the Company;
(b) by Buyer, Acquisition or the Company, if the Merger shall not
have been consummated on or before March 1, 1998, which date may be extended by
mutual agreement of Buyer, Acquisition and the Company, unless such failure of
consummation shall be due to failure by the party seeking to terminate this
Agreement to comply in all material respects with the terms, covenants and
agreements contained in this Agreement;
(c) by Buyer or Acquisition, if (i) any of the conditions set forth
in Section 3.01 hereof shall become impossible to fulfill other than for reasons
totally within the control of Buyer or Acquisition, and shall not have been
waived pursuant to Section 8.03 hereof, or (ii) the stockholders of the Company
shall fail to approve and adopt this Agreement and the Merger by the vote
required by the Delaware Law and the Company's Certificate of Incorporation and
By-Laws at the first meeting of stockholders called for that purpose or any
adjournment thereof;
(d) by the Company, if any of the conditions set forth in Section
3.02 hereof shall become impossible to fulfill other than for reasons totally
within the control of the Company, and shall not have been waived pursuant to
Section 8.03 hereof;
(e) by the Company, if the Company receives a bona fide Third Party
Acquisition Offer which constitutes a Superior Acquisition and which Third Party
Acquisition Offer the Board of Directors of the Company or the Special Committee
accepts, approves or recommends; or
(f) by Buyer or Acquisition, if the Board of Directors of the
Company fails to call or hold a special meeting of stockholders or to conduct
the vote to approve and adopt this Agreement and the Merger at the special
meeting or any adjournment thereof or if the Board of Directors of the Company
or the Special Committee fails to recommend the Merger to the Company's
stockholders, withdraws or qualifies such recommendation or its approval of this
Agreement or the Merger once given or takes any position or action that is
inconsistent with such recommendation or accepts, recommends or approves a Third
Party Acquisition Offer, whether or not as a result of the Board's or the
Special Committee's exercise of its fiduciary duties.
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5.02 Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger by one or more of the Company, Buyer
or Acquisition pursuant to Section 5.01 hereof, written notice thereof shall
forthwith be given to the other parties hereto and this Agreement shall
terminate and the Merger shall be abandoned without further action by any of the
parties hereto. If this Agreement is terminated as provided herein, no party
hereto shall have any liability or further obligation to any other party to this
Agreement except as stated in Section 8.04 hereof or except with respect to a
material breach by a party to this Agreement of any representation, warranty or
covenant contained in this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties of the Company. The Company
warrants and represents to Buyer and Acquisition, and their respective
successors and assigns, as follows:
(a) Corporate Organization and Qualification. Each of the Company
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to own, lease and operate all of its
properties and assets and to carry on its business as it is now being conducted.
Each of the Company and its subsidiaries is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased, or the nature of its
activities, makes such qualification necessary, except such jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. The Company has delivered to Buyer and Acquisition a
certified copy of its Certificate of Incorporation and its By-Laws and copies of
all similar organizational documents and By-Laws of its subsidiaries. Each such
copy is complete and correct.
(b) Capitalization. The authorized capital stock of the Company at
the date hereof consists of 10,000,000 shares of Company Common Stock and
1,000,000 shares of Company Preferred Stock. On the date hereof, 5,227,657
shares of Company Common Stock were issued and outstanding and 106,606 shares of
Company Common Stock were held in the treasury of the Company. Of the 1,000,000
shares of authorized Company Preferred Stock, the Board of Directors of the
Company has designated 60,000 shares as Series A 7.50% Cumulative Convertible
Preferred Stock, of which, on the date hereof, 45,000 shares were issued and
outstanding and no shares were held in the treasury of the Company. The Board of
Directors of the Company has made no other designations of any series of Company
Preferred Stock. Except as set forth above in this Section 6.01(b), the Company
has no other issued or outstanding shares of capital stock. There are no
outstanding subscriptions, options, warrants, or other rights to purchase
Company Stock or any other capital stock or other equity securities of the
Company or its subsidiaries or any calls or other agreements or commitments by
which the Company or its subsidiaries are bound in respect of the Company Stock
or other capital stock or other equity securities of the Company or its
subsidiaries, whether issued or unissued, and no outstanding securities are
convertible into or exchangeable for any such capital stock or other equity
securities, except (i) Options to purchase up to an aggregate of 898,932 shares
of Company Common Stock granted to the officers and employees of the Company and
its subsidiaries and others listed in Section 6.01(b) of the Disclosure Schedule
for the respective number of shares at the respective exercise prices listed
therein beside their names, (ii) Warrants to purchase up to an aggregate of
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125,003 shares of Company Common Stock granted to the persons listed in Section
6.01(b) of the Disclosure Schedule for the respective number of shares at the
respective exercise prices listed therein beside ther names, (iii) the 45,000
shares of Company Preferred Stock which are convertible into Company Common
Stock pursuant to a formula under which each share of Company Preferred Stock
can be converted into a number of shares of Company Common Stock equal to (A)
$50.00 plus an amount equal to all accrued and unpaid dividends on a share of
Company Preferred Stock to the date fixed for conversion, divided by (B) $7.375
per share and (iv) the option and put rights of Kenneth E. Meyers contained in
the Meyers Agreements to purchase and sell shares of common stock of MCT
Dairies, Inc. There are no stock appreciation rights or phantom stock rights or
performance shares outstanding with respect to the Company or any of its
subsidiaries. All of the outstanding shares of capital stock of the Company and
its subsidiaries are validly issued, fully paid and nonassessable. Except as set
forth in Section 6.01(b) of the Disclosure Schedule, the Company has no
subsidiaries except MCT Dairies, Inc. and Dakota Farms Cheese, Inc., 100% of the
outstanding capital stock of each of which is owned by the Company, and Alpine
Lace Fresh Deli- Express, Inc., 75% of the outstanding capital stock of which is
owned by the Company, and in each case such capital stock is owned free and
clear of all restrictions and encumbrances other than restrictions on transfer
imposed by federal and state securities laws, and the Company owns no other
equity securities of or equity interest in any other entity. None of the
outstanding shares of capital stock of the Company or any of its subsidiaries or
the Options or the Warrants were granted in violation of preemptive or similar
rights. No Preferential Dividend Non-Payment, as defined in the certificate of
designation establishing the Series A 7.50% Cumulative Convertible Preferred
Stock of the Company, has occurred and no accrued or cumulative dividends on
such Company Preferred Stock remain unpaid other than dividends that first
accrued after September 15, 1997. There are no voting trusts or other agreements
or understandings to which the Company or any of its subsidiaries is a party or
of which the Company otherwise has knowledge with respect to the voting of
capital stock of the Company.
(c) Authority. The Company has the corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company have been duly and effectively authorized by the Special
Committee and the Board of Directors of the Company, and, except for approval of
this Agreement by the stockholders of the Company as provided in Section 3.01(b)
hereof, no further corporate action is necessary on the part of the Company to
authorize the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes the valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms. Notwithstanding anything stated
herein, the consummation of the Merger is subject to the satisfaction of the
conditions set forth in Section 3.02 hereof. Except as disclosed in Section
6.01(c) of the Disclosure Schedule, neither the execution and delivery of this
Agreement by the Company, nor the consummation by the Company or its
subsidiaries of the transactions contemplated hereby, (i) will conflict with or
result in a breach of the Certificate of Incorporation or By-Laws, as currently
in effect, of the Company or any of its subsidiaries, or (ii) require the
consent or approval of any governmental authority having jurisdiction over any
of the business or assets of the Company or any of its subsidiaries, or result
in a breach of, or constitute a default or an event which, with the passage of
time or the giving of notice or both would constitute a default, give rise to a
right of termination, cancellation or acceleration, create any entitlement to
any payment or benefit (except as expressly contemplated by this Agreement), or
require notice to or the consent of any third party (except the filing and
expiration or termination of the applicable waiting periods under the HSR
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Act) or result in the creation of any lien on the assets of the Company or its
subsidiaries under, any other instrument, contract or agreement to which the
Company or any of its subsidiaries is a party or by which any of them or any of
their properties or assets may be bound, excluding from the foregoing clause
(ii) any consents, approvals, breaches, defaults or rights of termination,
cancellation or acceleration or entitlements or notices or liens which, either
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect or to impair the Company's ability to consummate the Merger or
the other transactions contemplated hereby.
(d) No Proceedings. Neither the execution and delivery of this
Agreement by the Company, nor the consummation by the Company or its
subsidiaries of the transactions contemplated hereby, are being challenged by or
are the subject of any pending or, to the knowledge of the Company, threatened
litigation or governmental investigation or proceeding as of the date of this
Agreement, or will violate any order, writ, injunction, decree, statute, rule or
regulation presently applicable to the Company or any subsidiaries or any of
their material properties or assets.
(e) Securities Reports. (i) The Company has heretofore delivered to
the Buyer and Acquisition, in the form filed with the SEC, its (x) Annual Report
on Form 10-K for each of the fiscal years ended December 31, 1993 through 1996,
inclusive, (y) all proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since May 1, 1993, and (z) all
other reports or registration statements and all other filings (including
amendments to previously filed documents) made by the Company with the SEC since
January 1, 1993 (collectively, the "SEC Reports"), provided, however, that the
Company has not delivered to the Buyer and Acquisition any Form 10-Q Reports for
periods ended on or prior to December 31, 1996. No SEC Report (including any
document incorporated by reference therein) contained, as of its filing date,
any untrue statement of a material fact or omitted to state any fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading and each SEC Report at the time of
its filing complied as to form in all material respects with the applicable laws
and rules and regulations of the SEC. Since January 1, 1993, the Company has
filed in a timely manner all reports that it was required to file with the SEC
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the SEC. Each of the consolidated
financial statements contained in the SEC Reports and the consolidated balance
sheet of the Company and its subsidiaries at August 31, 1997 (a copy of which
has been delivered to Buyer) was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presented in all material respects the consolidated assets, liabilities and
financial position of the Company and its subsidiaries as at the respective
dates thereof and, except for the period ended August 31, 1997, the consolidated
results of operations and changes in financial position and changes in
stockholders' equity of the Company and its subsidiaries for the periods
indicated, subject in the case of interim financial statements to normal
year-end adjustments and except that the interim financial statements do not
contain all of the footnote disclosures required by generally accepted
accounting principles and except that the Company does not accrue vacation pay.
(ii) The Proxy Statement will not, at the time the Proxy
Statement is mailed, contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
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made, not misleading and will not, at the time of the meeting of stockholders to
which the Proxy Statement relates or at the Effective Time omit to state any
material fact necessary to correct any statement which has become false or
misleading in any earlier communication with respect to the solicitation of any
proxy for such meeting; except that no representation is made by the Company
with respect to statements made or incorporated by reference into the Proxy
Statement based on information furnished in writing to the Company by Buyer
specifically for use in the Proxy Statement. The Proxy Statement will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC thereunder.
(f) Taxes. (i) The Company has duly filed or caused to be filed all
material federal, state, local, foreign and other tax returns, reports and
declarations of estimated tax required to be filed by it or its subsidiaries
before such filings became delinquent and has paid or established adequate
reserves for the payment of all federal, state, local and foreign taxes and all
other taxes, assessments, deficiencies, levies, imposts, duties, license fees,
registration fees, withholdings or other similar governmental charges of every
kind, character or description, and any interest, penalties or additions to tax
imposed thereon (collectively, the "Taxes"), (x) shown on such returns which are
due or (y) claimed by any taxing authority to be due. All such tax returns,
reports and declarations of estimated tax are complete and accurate in all
material respects.
(ii) All material amounts required to be withheld or collected
by the Company or its subsidiaries for income taxes, social security taxes,
unemployment insurance taxes and other employee withholding taxes have been so
withheld or collected and either paid to the respective governmental authority
or accrued and reserved against and entered upon the consolidated books of the
Company and its subsidiaries as of the date of the most recent consolidated
financial statements of the Company and its subsidiaries that have been
delivered to Buyer.
(iii) For federal income tax purposes, all tax years ending on
or before December 31, 1992 are closed or the statute of limitations has expired
with respect thereto. Except as disclosed in Section 6.01(f) of the Disclosure
Schedule, there is no action, suit, proceeding, audit, investigation or claim
pending or, to the knowledge of the Company, threatened in respect of any Taxes
for which the Company or any of its subsidiaries may become liable. No presently
effective waiver of any statute of limitations with respect to any taxable year
has been executed by the Company or its subsidiaries. There is no presently
effective agreement, waiver or consent providing for an extension of time with
respect to the assessment of any Taxes against the Company or its subsidiaries,
and no presently effective power of attorney granted by the Company or any of
its subsidiaries with respect to any tax matters is currently in force.
(iv) No property of the Company or its subsidiaries is "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(v) Except as set forth in Section 6.01(f)(v) of the
Disclosure Schedule, none of the Company or any of its subsidiaries has made any
payment, or is a party to any contract, agreement or arrangement which could
obligate it to make any payment that would, but for the provisions of clause
(ii) of Section 280G(b)(2)(A) of the Code, constitute a "parachute payment"
within the meaning of Section 280G of the Code.
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(vi) Except as set forth in Section 6.01(f)(vi) of the
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any tax sharing agreement.
(g) Absence of Changes. Except as set forth in Section 6.01(g) of
the Disclosure Schedule, since December 31, 1996, the Company and its
subsidiaries have conducted their businesses and operations in the ordinary
course of business, and no transaction or event of the type restricted or
prohibited by Section 2.01(c) or (d) hereof has occurred. Since December 31,
1996 through the date of this Agreement, the amount spent or committed by the
Company and its subsidiaries, in the aggregate, for the purchase, lease or other
acquisition of any assets or properties, including capital assets but excluding
inventory (including supplies) acquired in the ordinary course of business and
excluding those items disclosed in Section 6.01(g) of the Disclosure Schedule,
did not exceed $25,000.
(h) Properties. The Company and its subsidiaries have good and
marketable title to all real and personal properties reflected in the Company's
consolidated balance sheet dated as of December 31, 1996 or acquired by the
Company and its subsidiaries after December 31, 1996 (except for inventory and
obsolete equipment sold or otherwise disposed of or the collection of accounts
receivable since such date in the ordinary course of business), free and clear
of all mortgages, liens, pledges, charges, restrictions, encroachments, rights
of third parties or other encumbrances of any kind or character, except (i)
liens for current taxes not yet due and payable, (ii) inchoate mechanic"s,
warehousemen"s, materialmen's or similar liens arising in the ordinary course of
business, (iii) liens, encumbrances, restrictions, encroachments and easements,
all with respect to tangible properties which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit and which do
not materially detract from the value of or materially interfere with the
present use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such properties, and (iv)
existing mortgages, liens and encumbrances disclosed in the Company's
consolidated balance sheet dated December 31, 1996. All real property owned by
the Company and its subsidiaries is listed by address in Section 6.01(h) of the
Disclosure Schedule. All leases of real or material personal property to which
the Company or any of its subsidiaries is a party are valid, binding and
enforceable in accordance with their respective terms, subject to any
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and except that the remedies
of specific performance, injunctive and other forms of equitable relief are
subject to certain tests of equity jurisdiction, equitable defenses and the
discretion of the court before which any proceeding therefor may be brought, and
those in effect on the date hereof have been delivered to Buyer and are listed
in Section 6.01(h) of the Disclosure Schedule, and neither the Company nor its
subsidiaries nor, to the knowledge of the Company, any other party thereto is in
material default under or in respect of any such lease, the result of which
default could have, individually or in the aggregate, together with all other
such defaults, a Material Adverse Effect. The real property described in Section
6.01(h) of the Disclosure Schedule as being owned by the Company and its
subsidiaries and the real property subject to the leases listed in Section
6.01(h) of the Disclosure Schedule constitute the only real property used by the
Company and its subsidiaries in the conduct of their businesses. The buildings,
plants, structures and equipment of the Company and its subsidiaries that are
used in the operation of their respective businesses are in good operating
condition and repair (ordinary wear and tear excepted) and do not encroach upon
any property not owned or leased by the Company or its subsidiaries. Except as
set forth in Section 6.01(h) of the Disclosure Schedule all the inventory owned
by the Company and its subsidiaries, to the extent not covered by adequate
reserves, is in good condition, and the finished goods inventory of the
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Company and its subsidiaries is salable in the ordinary course of business.
(i) Contracts. All Contracts (as hereinafter defined) in effect on
the date hereof are valid and binding agreements of the Company or its
subsidiaries in full force and effect, and neither the Company nor its
subsidiaries nor, to the knowledge of the Company, any other party thereto is in
default under or in respect of any such Contract, the result of which default
could have, individually or in the aggregate, together with all other such
defaults, a Material Adverse Effect. All such Contracts in effect on the date
hereof have been delivered to Buyer and Acquisition and are listed in Section
6.01(i) of the Disclosure Schedule.
As used herein, "Contract" shall mean any of the following
agreements or contracts to which the Company or any of its subsidiaries is a
party or by which any of them or their assets are bound: (i) non-compete
agreements, (ii) royalty agreements and licenses (as licensor or licensee) of
any material patents, trademarks, trade names, service marks, copyrights or
software (other than non-negotiated licenses of generally available commercial
software), (iii) agreements for the purchase or sale of products or services
under which the undelivered balance of such products or services has a price in
excess of $25,000, (v) agreements evidencing, securing or guaranteeing
indebtedness for borrowed money, (vi) agreements with distributors, sales
representatives and brokers, (vii) agreements for capital expenditures the
unpaid obligations of the Company or its subsidiaries under which exceed
$25,000, (viii) agreements for the purchase or sale of any business, division or
subsidiary by or to the Company or its subsidiaries, (ix) agreements with
officers, directors, beneficial owners of 5% or more of the outstanding Company
Stock (or any ascendant, descendent, sibling or spouse of any such person) or
any trust, partnership, corporation or other entity in which any of such persons
has at least a 5% equity interest ("Associates"), (x) agreements entered into
other than in the ordinary course of business and (xi) agreements in which the
aggregate amount to be paid or received by the Company and its subsidiaries
exceeds $25,000.
(j) Intellectual Property. Section 6.01(j) of the Disclosure
Schedule sets forth a true and correct list of all material patents, trademarks,
trade names, service marks and copyrights, and applications therefor, which are
held by any of the Company or its subsidiaries, and a listing of all recipes
constituting trade secrets of the Company or its subsidiaries (the "Intellectual
Property"). No patents, trademarks, trade names, service marks, copyrights or
recipes are used by the Company or its subsidiaries in the conduct of their
businesses except the Intellectual Property or those licensed pursuant to
licenses listed in Section 6.01(i) of the Disclosure Schedule or non-negotiated
licenses of generally available commercial software. The operation by the
Company and its subsidiaries of their respective businesses has not infringed on
any patent, trademark, trade name, service mark, copyright or recipe of any
other person or entity, and none of the Company or its subsidiaries has made use
of any invention, process, technique, confidential information or trade secret
in violation of the rights of any other person or entity, and the Company has no
knowledge of any allegations by any other person or entity to the contrary. The
Company has no knowledge of any pending patent, trademark, trade name, service
mark or copyright application of any other person or entity which, if issued or
registered, would be infringed upon by the operations of the Company or any of
its subsidiaries, in each case in a way which is reasonably likely to have a
Material Adverse Effect. To the knowledge of the Company, except as set forth in
Section 6.01(j) of the Disclosure Schedule, no other person or entity is
infringing in any material respect upon the Intellectual Property or is making
use of any material invention, process, technique, confidential information or
trade secret in violation of the rights of any of the
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Company or its subsidiaries, nor would any other person or entity be infringing
in any material respect upon any pending patent, trademark, trade name, service
mark, copyright application or recipe of the Company or any of its subsidiaries
in the event that any of the foregoing becomes registered or issued. The Company
and its subsidiaries have taken all steps reasonably required to maintain the
Intellectual Property, including timely payment of all fees and timely filing of
all documents required under intellectual property laws and regulations, except
where the failure to timely pay such fees or timely file such documents is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. None of the Company or its subsidiaries has used or enforced, or failed
o use or enforce, any of the Intellectual Property in any manner which is
reasonably likely to limit its validity or result in its invalidity, or has
received any notice that any of the Intellectual Property has been declared
unenforceable or otherwise invalid by any governmental entity, except where such
invalidity or unenforceability is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect. Except as set forth in Section
6.01(j) of the Disclosure Schedule, no employees of the Company or any of its
subsidiaries have any rights with respect to the Intellectual Property.
(k) Undisclosed Liabilities. There are no material liabilities of
the Company or its subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than (i)
liabilities disclosed or set forth in the Company's consolidated balance sheet
dated December 31, 1996, (ii) liabilities incurred in the ordinary course of
business since December 31, 1996 or that individually or in the aggregate are
not reasonably likely to have a Material Adverse Effect, provided that the
existence of any such liability does not otherwise constitute a material
misrepresentation under this Agreement, (iii) liabilities under, or required to
be incurred under, this Agreement, (iv) liabilities under contracts and
agreements (other than those in default) set forth in Section 6.01(i) of the
Disclosure Schedule or the non-disclosure of which therein does not constitute a
misrepresentation under Section 6.01(i) of this Agreement, and (v) tax
liabilities disclosed in Section 6.01(f) of the Disclosure Schedule or the non-
disclosure of which therein does not constitute a misrepresentation under
Section 6.01(f) of this Agreement.
(l) Litigation. Except as disclosed in Section 6.01(l) of the
Disclosure Schedule, there are no claims (including product liability claims),
litigation, arbitrations, administrative proceedings, abatement orders or
investigations of any kind pending or, to the knowledge of the Company,
threatened against the Company or its subsidiaries or any of their officers,
employees or directors in connection with the business or affairs of the Company
or its subsidiaries, which, if decided adversely to the Company, its
subsidiaries, or such officer, employee or director, are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect.
(m) Compliance with Laws. The Company and its subsidiaries have
substantially complied with, and are not in material default under or in
violation of, any laws, ordinances and regulations or other governmental
restrictions, orders, judgments or decrees applicable to their respective
businesses, including individual products marketed by them, which default or
violation is reasonably likely to have, individually or in the aggregate
together with all other such defaults or violations, a Material Adverse Effect.
(n) Licenses and Permits. All licenses, franchises, permits and
other governmental authorizations of the Company and its subsidiaries are valid
and sufficient for all businesses presently carried on by the Company and its
subsidiaries, and the Company and its subsidiaries are not in violation of any
such license, franchise, permit or other governmental authorization the result
of which would be reasonably likely
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to have, individually or in the aggregate, together with all other such
violations, a Material Adverse Effect. All such material licenses, franchises,
permits and other governmental authorizations in effect on the date hereof are
listed in Section 6.01(n) of the Disclosure Schedule.
(o) Brokers; Finders. Except for the fees of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, which the Company agrees to pay, there are no
claims for brokerage commissions, finders' fees, investment advisory fees or
similar compensation in connection with this Agreement or the transactions
contemplated by this Agreement, based on any arrangement, understanding,
commitment or agreement made by or on behalf of the Company or its subsidiaries,
obligating the Company, Buyer or Acquisition to pay such claim.
(p) Employee Plans. (i) Each employee pension benefit plan ("Pension
Plan"), as such term is defined in Section 3 of ERISA, each employee welfare
benefit plan ("Welfare Plan"), as such term is defined in Section 3 of ERISA,
and each deferred compensation, bonus, incentive, stock incentive, option, stock
purchase or other employee benefit plan, agreement, commitment or arrangement
("Benefit Plan") which is maintained by the Company or any of its Affiliates (as
hereinafter defined) or to which the Company or any of its Affiliates
contributes or is under any obligation to contribute (collectively, the
"Employee Plans") has been delivered to Buyer and Acquisition and is listed in
Section 6.01(p) of the Disclosure Schedule. In addition, copies of the most
recent determination letter issued by the Internal Revenue Service with respect
to each Pension Plan and copies of the annual reports (Form 5500 Series)
required to be filed with any governmental agency for each Pension Plan and each
Welfare Plan for the three most recent plan years of each such plan have been
delivered to Buyer and Acquisition.
(ii)The Company and each of its Affiliates have made on a
timely basis all contributions or payments required to be made by them pursuant
to the terms of the Employee Plans, ERISA, the Code or other applicable laws,
unless such contributions or payments that have not been made are immaterial in
amount and the failure to make such payments or contributions will not
materially affect the Employee Plans. With respect to each Pension Plan which is
subject to Title I, Subtitle B, Part 3 of ERISA (concerning "Funding"), the
funding method used in connection with such Pension Plan is acceptable under
ERISA and the actuarial assumptions used in connection with funding such Pension
Plan, in the aggregate, are reasonable (taking into account the experience of
such Pension Plan and reasonable expectations). The actuarial present value
(based upon the same actuarial assumptions as those heretofore used for funding
purposes) of all vested and nonvested accrued benefits (whether on account of
retirement, termination, death or disability) under each such Pension Plan does
not exceed the net fair market value of the assets held to fund each such
Pension Plan.
(iii) Each Employee Plan (and any related trust or other
funding instrument) has been administered in all material respects in compliance
with its terms and in both form and operation is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other applicable
laws and regulations, and all reports required to be filed with any government
agency with respect to each Pension Plan and each Welfare Plan have been timely
filed. The Company has no knowledge of facts that would cause the Internal
Revenue Service to disqualify any Pension Plan which is intended to be a
tax-qualified plan under Section 401(a) of the Code.
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(iv) There are no inquiries or proceedings pending or, to the
knowledge of the Company, threatened by the Internal Revenue Service, the U.S.
Department of Labor, the Pension Benefit Guaranty Corporation (the "PBGC"), or
any participant or beneficiary with respect to any Employee Plan or any other
plan in the past maintained by the Company or any of its Affiliates or to which
the Company or any of its Affiliates have ever been under an obligation to
contribute. Neither the Company nor, to the knowledge of the Company, any plan
fiduciary of any Pension Plan or Welfare Plan has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA (for which no exemption exists under
Section 408 of ERISA) or any "prohibited transaction" (as defined in Section
4975(c)(1) of the Code) for which no exemption exists under Section 4975(c)(2)
or 4975(d) of the Code, or is subject to any excise tax imposed by the Code or
ERISA with respect to any Employee Plan.
(v) Neither the Company nor any of its Affiliates has ever
been a sponsor of, contributed to, or been under an obligation to contribute to
any "multi-employer plan", as such term is defined in Section 3(37) of ERISA.
(vi) Neither the Company nor any of its Affiliates has any
unpaid liability to the PBGC. The Company has paid all premiums (and interest
and penalties for late payments, if applicable) due the PBGC with respect to
each Pension Plan for each plan year thereof for which such premiums are
required. In addition, no "reportable event" (as defined in Section 4043(b) of
ERISA) has taken place with respect to any Employee Plan and no filing has been
made by the Company or any Affiliate with the PBGC or the Internal Revenue
Service to terminate any Employee Plan.
(vii) For purposes of this Section 6.01(p), the term
"Affiliate" includes (A) any trade or business with which the Company is under
common control within the meaning of Section 4001(b) of ERISA, (B) any
corporation with which the Company is a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code, (C) any entity
with which the Company is under common control within the meaning of Section
414(c) of the Code, (D) any entity with which the Company is a member of an
affiliated service group within the meaning of Section 414(m) of the Code, and
(E) any entity with which the Company is aggregated under Section 414(o) of the
Code.
(q) Labor Matters. There are no existing labor disputes or
disturbances which are reasonably likely to have a Material Adverse Effect. The
employees of the Company and its subsidiaries are not represented by any union
or association, and there are no pending or, to the Company's knowledge,
threatened representational questions concerning the employees of the Company or
its subsidiaries. Neither the Company nor any of its subsidiaries is subject to
any collective bargaining agreement with any union or other association for
employees.
(r) Environmental. Except as set forth in Section 6.01(r) of the
Disclosure Schedule:
(i) Neither the Company nor any of its subsidiaries has
received written notice of, or to the knowledge of the Company is subject to,
any pending or threatened action, cause of action, claim or investigation
alleging liability under or non-compliance with any applicable federal, state or
local laws or regulations relating to pollution or the protection of human
health or the environment ("Environmental Laws"), except for such actions,
causes of action, claims or investigations which, individually or in the
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aggregate, are not reasonably likely to have a Material Adverse Effect.
(ii)To the knowledge of the Company, there has been no spill,
discharge, leak, emission, injection, disposal, escape, dumping or release of
any kind (collectively, "Release") on, beneath, above or into any of the real
property currently owned, leased or operated by the Company or any of its
subsidiaries (collectively, the "Current Property"), or any of the real property
formerly owned, leased or operated by the Company or any of its subsidiaries
(collectively, the "Former Property"), of any pollutants, contaminants,
hazardous substances, hazardous chemicals, toxic substances, hazardous wastes,
infectious wastes, radioactive materials, materials, petroleum (including
without limitation crude oil or any fraction thereof) or solid wastes, including
without limitation those defined in any Environmental Law ("Hazardous
Materials"), except for any Releases which have been investigated and cleaned up
and which, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect.
(iii) Neither of the Company nor any of its subsidiaries has
been identified as a potentially responsible party at a site listed in the
National Priorities List.
(iv) To the knowledge of the Company, no Current Property is
or ever has been used by the Company, and no Former Property was used by the
Company during the Company's or any of its subsidiaries' period of ownership or
operation thereof, or by any other person or entity under the Company's control
for the storage, disposal, generation, manufacture, refinement, transportation,
production or treatment of any Hazardous Materials in such a manner as to
require a permit under the Resource Conservation and Recovery Act, 42 U.S.C. '
6901, et seq.
(v) To the knowledge of the Company, there are no underground
storage tanks, injection wells or landfills located on the Current Property, and
there are no asbestos-containing materials or polychlorinated biphenyls (PCBs)
located on the Current Property in such form, quantities or condition which
create any material unpaid liability or obligation of the Company or any of its
subsidiaries under any Environmental Laws.
(s) Suppliers and Customers. Section 6.01(s) of the Disclosure
Schedule lists the names of the ten largest branded customers, the ten largest
non-branded customers and the ten largest suppliers (by dollar volume,
indicating the same) of the Company and its subsidiaries, taken as a whole, for
each of (i) the 12-month period commencing January 1, 1996 and ending on
December 31, 1996 and (ii) the six-month period commencing January 1, 1997 and
ending on June 30, 1997. No such branded customer and no such supplier has
canceled, or otherwise so modified in a manner materially adverse to the Company
and its subsidiaries, taken as a whole, or given notice to the Company or any of
its subsidiaries of an intention to so cancel or otherwise so modify, its
business relationship with the Company or any of its subsidiaries and, to the
knowledge of the Company, the consummation of the transactions contemplated by
this Agreement and the Merger Agreement will not materially and adversely affect
any such business relationship.
(t) Recalls. Except as set forth in Section 6.01(t) of the
Disclosure Schedule, no products of any of the Company or its subsidiaries have
been recalled voluntarily or involuntarily since January 1, 1995. No such recall
is being considered by the Company or any of its subsidiaries or, to the
knowledge of the Company, has been requested or ordered by any governmental
entity or consumer group.
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(u) Insurance. Section 6.01(u) of the Disclosure Schedule contains a
list of all insurance policies maintained by the Company and its subsidiaries,
together with a brief description of the coverages afforded thereby. All of such
insurance policies are in full force and effect, and none of such insurance
policies will terminate or lapse as a result of the consummation of the
transactions contemplated by this Agreement.
(v) Bank Accounts. Section 6.01(v) of the Disclosure Schedule sets
forth a list of (i) each account or safe deposit box maintained by the Company
or any of its subsidiaries with any bank or other financial institution, and
(ii) the names of all persons authorized to draw thereon or have access thereto.
(w) Delaware Law Section 203. All necessary approvals have been
granted by the Special Committee and the Board of Directors of the Company under
Section 203 of the Delaware Law so that neither the granting of the Irrevocable
Proxies nor any acquisition of beneficial ownership of Company Stock by Buyer,
Acquisition or any of Buyer's other affiliates after the execution of this
Agreement will limit, delay or impair the consummation of the Merger or any
other transaction with the Company or any of its subsidiaries by Acquisition,
Buyer or any of Buyer's other affiliates pursuant to Section 203 of the Delaware
Law.
(x) Stockholder Voting Requirement. The only stockholder vote
necessary to consummate the Merger under Delaware Law and the Company's
Certificate of Incorporation and By-Laws is the affirmative vote of the holders
of a majority of the Company Common Stock.
(y) Associate Transactions. Except as set forth in Section 6.01(y)
of the Disclosure Schedule, no Associate (i) furnishes or sells services or
products that the Company or its subsidiaries furnishes or sells, or proposes to
furnish or sell, (ii) purchases from or sells or furnishes to, the Company or
its subsidiaries, any goods or services, or (iii) owns or leases property, real
or personal, that is used by the Company or its subsidiaries.
(z) Accounts Receivable. All accounts receivable of the Company and
its subsidiaries arose in the ordinary course of business out of bona fide
transactions at the aggregate amounts thereof. All accounts receivable shown on
the consolidated balance sheet of the Company as of June 30, 1997 are carried at
values determined in accordance with generally accepted accounting principles
consistently applied on a reasonable basis. As of June 30, 1997, none of the
accounts receivable of the Company or its subsidiaries is subject to any claim
of offset, recoupment, setoff or counter-claim except to the extent reserved
against and entered upon the books of the Company and its subsidiaries as of the
June 30, 1997 consolidated financial statements of the Company and its
subsidiaries. Since June 30, 1997, none of the accounts receivable of the
Company or its subsidiaries is subject to any claim of offset, recoupment,
setoff or counterclaim except to the extent reserved against and entered on the
books of the Company and its subsidiaries in accordance with the historical
practices of the Company. No accounts receivable are contingent upon the
performance by the Company of any obligation or contract.
6.02 Representations and Warranties of Buyer and Acquisition. Each
of Buyer and Acquisition warrants and represents to the Company, and its
successors and assigns, as follows:
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(a) Corporate Organization. Each of Buyer and Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. Buyer is incorporated in Minnesota and
Acquisition is incorporated in Delaware. Buyer and Acquisition each will, within
ten days after the date hereof, deliver to the Company a certified copy of their
respective Articles or Certificate of Incorporation and By-Laws. Each such copy
will be complete and correct.
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(b) Capitalization. The authorized capital stock of Acquisition as
of the date hereof consists of 1,000 shares of Acquisition Common Stock, of
which 1,000 shares are outstanding as of the date hereof. Acquisition has no
subsidiaries and was formed solely to facilitate the Merger.
(c) Authority. Buyer and Acquisition have the corporate power to
execute this Agreement and consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by each of Buyer and
Acquisition have been duly and effectively authorized by the respective Boards
of Directors of Buyer and Acquisition, and by Buyer as the sole stockholder of
Acquisition, and no further corporate action is necessary on the part of Buyer
or Acquisition to make this Agreement valid and binding on Buyer and
Acquisition. This Agreement has been duly and validly executed and delivered by
Buyer and Acquisition and constitutes a valid and binding agreement of Buyer and
Acquisition, enforceable against Buyer and Acquisition in accordance with its
terms. Notwithstanding anything stated herein, the consummation of the Merger is
subject to the satisfaction of the conditions set forth in Section 3.01 hereof.
Neither the execution and delivery of this Agreement by Buyer and Acquisition,
nor the consummation by Buyer or Acquisition of the transactions contemplated
hereby, (i) will conflict with or result in a breach of the Articles or
Certificate of Incorporation or By-Laws, as currently in effect, of Buyer or
Acquisition, or (ii) require the consent or approval of any governmental
authority having jurisdiction over any of the business or assets of Buyer or
Acquisition, or result in a breach of or constitute a default or an event which,
with the passage of time or the giving of notice, or both, would constitute a
default, give rise to a right of termination, cancellation or acceleration,
create any entitlement to any payment or benefit or require notice to or the
consent of any third party (except the filing required and the expiration or
termination of the applicable waiting periods under the HSR Act) under, any
other instrument, contract or agreement to which Buyer or Acquisition is a party
or by which either of them or any of the properties or assets of either of them
may be bound, excluding from the foregoing clause (ii) any consents, approvals,
breaches, defaults or rights of termination, cancellation or acceleration or
entitlements or notices which, either individually or in the aggregate, are not
reasonably likely to have a material adverse effect on the business, operations,
results of operations, properties, assets, prospects or condition, financial or
otherwise, of Buyer or impair Buyer's or Acquisition's ability to consummate the
Merger or the other transactions contemplated hereby.
(d) No Proceedings. Neither the execution and delivery of this
Agreement by Buyer or Acquisition, nor the consummation by Buyer or Acquisition
of the transactions contemplated hereby, are being challenged by or are the
subject of any pending or, to the knowledge of Buyer or Acquisition, threatened
litigation or governmental investigation or proceeding as of the date of this
Agreement, or will violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or Acquisition or any of their material
properties or assets.
(e) Finders; Brokers. Except for fees to Janney Montgomery Scott,
which Buyer agrees to pay, there are no claims for brokerage commissions,
finders' fees, investment advisory fees or similar compensation in connection
with this Agreement or the transactions contemplated by this Agreement, based on
any arrangement, understanding, commitment or agreement made by or on behalf of
Buyer or Acquisition, obligating the Company, Buyer or Acquisition to pay such
claim.
(f) Financial Ability to Perform. Buyer has cash funds available
sufficient to make all cash
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payments required to be made for Company Stock under this Agreement.
(g) Proxy Statement. None of the information supplied or to be
supplied in writing by Buyer or Acquisition specifically for inclusion in the
Proxy Statement will, at the time the Proxy Statement is mailed, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and will
not, at the time of the meeting of stockholders to which the Proxy Statement
relates or at the Effective Time omit to state any material fact necessary to
correct any statement which has become false or misleading in any earlier
communication with respect to the solicitation of any proxy for such meeting.
ARTICLE VII
OFFICERS' AND DIRECTORS' INDEMNIFICATION,
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE,
EMPLOYEE CONTRACTS
7.01 IndemnificationAll rights to indemnification and exculpation
existing in favor of any present or former director, officer or employee of the
Company or any of its subsidiaries (an "Indemnified Party") as provided in the
Company's Certificate of Incorporation or By-Laws or the certificate or articles
of incorporation, by-laws or similar organizational documents or by-laws of any
of its subsidiaries as in effect on the date hereof shall survive the Merger for
a period of three years with respect to matters occurring at or prior to the
Effective Time and no action taken during such three-year period shall be deemed
to diminish the obligations set forth in this Section 7.01.
7.02 Directors and Officers Liability For a period of three years
after the Effective Time, the Surviving Corporation shall cause to be maintained
in effect either (i) the current policy of directors" and officers" liability
insurance maintained by the Company (provided that Buyer or the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are no less advantageous in any
material respects to the indemnified parties thereunder) with respect to claims
arising from facts or events which occurred before the Effective Time; provided,
however, that in no event shall the Surviving Corporation be required to expend
pursuant to this Section 7.02 more than an amount per year equal to 100% of the
current annual premium (which current annual premium for the policy year ending
May 8, 1998 the Company represents and warrants to be approximately $58,500 in
the aggregate) paid by the Company for such existing insurance coverage (the
"Cap"); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of the Cap, the
Surviving Corporation shall only be required to obtain as much coverage as can
be obtained by paying an annual premium equal to the Cap, or (ii) a run-off
(i.e., "tail") policy or endorsement with respect to the current policy of
directors" and officers" liability insurance covering claims asserted within
three years after the Effective Time arising from facts or events which occurred
before the Effective Time.
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<PAGE> 118
7.03 Employee ContractsAt the Effective Time, the Company shall
terminate, and cause Carl T. Wolf and Marion F. Wolf to terminate, the existing
employment agreements of Carl T. Wolf and Marion F. Wolf with the Company, and
Buyer shall enter into the non-compete agreements with Carl T. Wolf and Marion
F. Wolf substantially in the forms of Exhibits B and C hereto, respectively.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 Termination of Obligations, Covenants and Agreements. The
respective obligations, covenants and agreements of the parties hereto, except
for the obligations of Buyer and Acquisition pursuant to Sections 1.06, 1.07 and
1.09, and the obligations pursuant to Article VII, shall not survive the
effectiveness of the Merger and shall terminate and be of no further force or
effect upon the effectiveness of the Merger.
8.02 Amendment and Modification. To the extent permitted by
applicable law, this Agreement may be amended, modified or supplemented only by
written agreement of the Company, Buyer and Acquisition at any time prior to the
Effective Time with respect to any of the terms contained herein, except that
after the meeting of stockholders contemplated by Section 2.02 hereof, the price
per share to be paid pursuant to this Agreement to the holders of Company Stock
shall in no event be decreased and the form of consideration to be received by
the holders of Company Stock in the Merger shall in no event be altered without
the approval of such holders.
8.03 Waiver of Compliance; Consents. Any failure of Buyer or
Acquisition, on the one hand, or the Company, on the other hand, to comply with
any obligation, covenant, agreement or condition herein (except the conditions
in Sections 3.01(b) and 3.02(b) of this Agreement) may be waived in writing by
the Company or by Buyer and Acquisition, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 8.03.
8.04 Expenses; Termination Fee.
(a) Except as otherwise provided below in this Section 8.04, all
expenses incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
(b) If this Agreement is terminated pursuant to Section 5.01 and
provided Buyer is entitled to a Termination Fee under paragraph (c) or paragraph
(d) of this Section 8.04, the Company shall, at the same time as payment of the
Termination Fee is required to be paid under paragraph (c) or paragraph (d) of
this Section 8.04, as applicable, pay Buyer an amount equal to all reasonable
out-of-pocket expenses incurred by or on behalf of Buyer or Acquisition in
connection with the negotiation, preparation, financing,
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<PAGE> 119
execution or consummation of this Agreement and the transactions contemplated
hereby, including without limitation legal, accounting, travel, filing,
printing, financing commitment and other reasonable fees and expenses; provided
that the aggregate fees and expenses payable by the Company to Buyer pursuant to
this Section 8.04(b) shall not exceed $500,000.
(c) If this Agreement is terminated pursuant to Section 5.01(e) or
5.01(f), then the Company shall, within five business days after such
termination, pay Buyer a fee (a "Termination Fee") of $2,000,000 in addition to
the expenses set forth in paragraph (b) of this Section 8.04.
(d) If (i) this Agreement is terminated by Buyer or Acquisition
pursuant to Section 5.01(b) or 5.01(c)(i) as a result of a material breach by
the Company of any representations, warranties or covenants contained in this
Agreement or the failure of the conditions set forth in Section 3.01(c) or
3.01(k) or 3.01(m) of this Agreement to be satisfied, or is terminated by Buyer
or Acquisition pursuant to Section 5.01(c)(ii), and (ii) prior to such
termination (A) any person or group shall have informed the Company (or the
Board or the Special Committee or any executive officer of the Company) that
such person or group proposes, intends to propose, is considering proposing, or
will or may, if the Merger is delayed, abandoned or not approved by the
Company's stockholders, propose, a Third Party Transaction (as hereinafter
defined), or (B) any such person or group or the Company publicly announces
(including without limitation any filing with any federal or state office or
agency) that such person or group has proposed, intends to propose, is
considering proposing, or will or may, if the Merger is delayed, abandoned or
not approved by the Company's stockholders, propose, a Third Party Transaction,
and (iii) within one year after such termination a Third Party Transaction
(whether or not involving such person or group) is consummated, then the Company
shall, within five business days after such consummation, pay to Buyer the
Termination Fee in addition to the expenses set forth in paragraph (b) of this
Section 8.04
(e) In no event shall more than one Termination Fee be payable under
this Section 8.04. As used herein, "Third Party Transaction" shall mean (i) an
acquisition pursuant to a Third Party Acquisition Offer other than an
acquisition of equity securities of the Company constituting less than 25% of
the total equity interests in, and less than 25% of the total voting power of
the then outstanding equity securities of, the Company, (ii) the adoption by the
Company of a plan of liquidation or dissolution or (iii) the repurchase of, or
recapitalization involving, more than 25% of the Company's outstanding equity
securities or (iv) the payment of an extraordinary dividend or other
distribution on Company Common Stock equal to at least 25% of the Company Common
Stock's then current market price.
8.05 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each corporation which is a party to this
Agreement shall take all such necessary action.
8.06 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, effective when
delivered, or by express delivery service,
A-32
<PAGE> 120
effective when delivered, or mailed by registered or certified mail (return
receipt requested), effective three business days after the mailing, to the
parties at the following addresses (or at such other address for a party or to
such other person's attention as shall be specified by like notice):
(a) If to Buyer or Acquisition, to it c/o:
(i) if by personal delivery:
Land O'Lakes, Inc.
4001 Lexington Avenue N.
Arden Hills, Minnesota 55126-2998
Attention: President
(ii) if by mail:
Land O'Lakes, Inc.
P.O. Box 64101
St. Paul, Minnesota 55164-0101
Attention: President
(iii) if by express delivery:
Land O'Lakes, Inc.
1200 County Road F West
Arden Hills, Minnesota 55112-2921
Attention: President
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Philip S. Garon
(b) If to the Company, to it at:
Alpine Lace Brands, Inc.
111 Dunnell Road
Maplewood, New Jersey 07040
Attention: President
with a copy to:
A-33
<PAGE> 121
Kramer, Levin, Naftalis & Frankel
913 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance
A-34
<PAGE> 122
8.07 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other parties (except
that Acquisition may assign to any other direct or indirect wholly-owned
subsidiary of Buyer any and all rights and obligations of Acquisition under this
Agreement, provided that any such assignment will not relieve Buyer from any of
its obligations under this Agreement), and except as expressly set forth in
Article I and Article VII, this Agreement is not intended to confer upon any
other person except the parties any rights or remedies hereunder.
8.08 Interpretation.As used in this Agreement, unless otherwise
expressly defined herein, (i) the term "person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
incorporated organization and a government or any department or agency thereof;
(ii) the term "affiliate" shall have the meaning set forth in Rule 12b-2 of the
General Rules and Regulations promulgated under the Exchange Act; (iii) the term
"subsidiary" of any specified corporation shall mean any corporation of which
the outstanding securities having ordinary voting power to elect a majority of
the board of directors are directly or indirectly owned by such specified
corporation; and (iv) the term "knowledge" or any similar term shall mean the
actual knowledge of any one or more of the directors of the Company or any of
its subsidiaries or any of the employees of the Company or any of its
subsidiaries listed in Section 8.08 of the Disclosure Schedule.
8.09 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware, without regard to its conflict of laws rules.
8.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.11 Headings. The article and section headings contained in this
Agreement are solely for the purpose of reference, and are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
8.12 Entire Agreement. This Agreement, including the exhibits hereto
and the documents and instruments referred to herein, together with the
Confidentiality Agreement described in Section 2.12, embody the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such subject matter except for
the Confidentiality Agreement described in Section 2.12.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers on the date first above
written.
A-35
<PAGE> 123
ALPINE LACE BRANDS, INC.
By /s/ Carl T. Wolf
---------------------------------------------
Its Chief Executive Officer
(the Company)
LAND O'LAKES, INC.
By /s/ John E. Gherty
---------------------------------------------
Its President and Chief Executive Officer
(Buyer)
AVV INC.
By /s/ Richard C. Anderson
---------------------------------------------
Its President
(Acquisition)
<PAGE> 124
Exhibit A-1
Substance of Opinion of Local Counsel to the Company
No consent, approval, authorization or order of, or any
registration, declaration or filing with, any New Jersey state
governmental department, commission, board, bureau, agency or
instrumentality is required for the execution or delivery by the
Company of, or the consummation by the Company and its subsidiaries
of the transactions contemplated by, the Agreement, or to enable the
Company to continue to operate the business of the Company and its
subsidiaries substantially in the manner now conducted, except such
consents, approvals, authorizations, orders, registrations,
declarations or filings as have been obtained or made and are in
full force and effect.
In rendering the foregoing opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, as to matters of fact,
upon certificates of government officials and of any officer or officers of the
Company or its subsidiaries. Counsel may also assume the authenticity of all
documents represented to such counsel to be originals, the conformity to
original documents of all copies of documents submitted to such counsel, the
accuracy and completeness of all corporate records made available to such
counsel by the Company and its subsidiaries and their agents and the genuineness
of all signatures not executed in such counsel's presence.
A: A-1-1
<PAGE> 125
Exhibit A-2
Substance of Opinion of Kramer, Levin, Naftalis & Frankel,
Special Counsel to the Company
(i) Each of the Company and its subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation and has the requisite corporate power and authority to own,
lease and operate all of its properties and to carry on its business as now
being conducted;
(ii) Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or leased, or
the nature of its activities, makes such qualification necessary, except such
jurisdictions where failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect upon the Company and its subsidiaries,
taken as a whole;
(iii) The Company has the corporate power and authority to execute and
deliver the Agreement, and to consummate the transactions contemplated thereby;
and the execution and delivery of the Agreement, the consummation of the
transactions contemplated hereby, and the execution and filing of the
Certificate of Merger have been duly authorized by all requisite corporate
action on the part of the Company and its stockholders;
(iv) The Agreement has been duly executed and delivered by the Company and
(assuming the valid authorization, execution and delivery of the Agreement by
Buyer and Acquisition) is the legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except (A) as such
enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights, and (B) that the remedies of
specific performance, injunction and other forms of equitable relief are subject
to certain tests of equity jurisdiction, equitable defenses and the discretion
of the court before which any proceeding therefor may be brought;
(v) Neither the execution and delivery of the Agreement by the Company,
nor the consummation by the Company or its subsidiaries of the transactions
contemplated thereby, will conflict with or result in a breach of the
Certificate of Incorporation or By-Laws, as currently in effect, of the Company
or its subsidiaries;
(vi) Neither the execution and delivery of the Agreement by the Company,
nor the consummation by the Company and its subsidiaries of the transactions
contemplated thereby, are being challenged by or are the subject of any pending
or, to the best of our knowledge after due inquiry, threatened litigation or
governmental investigation or proceeding (except those in which Buyer or
Acquisition is a plaintiff directly or derivatively) or, to the best of our
knowledge after due inquiry, will violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or its subsidiaries or any
of their material properties or assets;
<PAGE> 126
(vii) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock and 1,000,000 shares of Company Preferred Stock;
(viii)As of the date hereof, there are __________ shares of Company Common
Stock issued and outstanding; of the Company Preferred Stock, the Board of
Directors of the Company has designated 60,000 shares as Series A 7.50%
Cumulative Convertible Preferred Stock, of which 45,000 shares are issued and
outstanding; the Company has no other issued or outstanding shares of capital
stock; except as disclosed in Section 6.01(b) of the Disclosure Schedule, to the
best of our knowledge after due inquiry, there are no outstanding subscriptions,
options, warrants, calls or other agreements or commitments to which the Company
or its subsidiaries is bound in respect of the capital stock of the Company or
its subsidiaries, whether issued or unissued, and there are no outstanding
securities convertible into or exchangeable for any such capital stock; and all
of the outstanding shares of capital stock of the Company and its subsidiaries
are validly issued, fully paid and nonassessable; the Company owns of record
100% of the outstanding capital stock of MCT Dairies, Inc. and Dakota Farms
Cheese, Inc. and 75% of the outstanding capital stock of Alpine Lace Fresh
Deli-Express, Inc., and to the best of our knowledge after due inquiry, the
Company holds such shares free and clear of all claims, liens, charges and
encumbrances;
(ix) To the best of our knowledge after due inquiry neither the execution
and delivery of the Agreement by the Company, nor the consummation by the
Company or its subsidiaries of the transactions contemplated thereby, will
result in a breach of, or constitute a default or an event which, with the
passage of time or the giving of notice, or both, would constitute a default,
give rise to a right of termination, cancellation or acceleration, create any
entitlement to any payment or benefit (except as expressly contemplated by the
Agreement, pursuant to the terms of the employment agreements listed in Section
6.01(i) of the Disclosure Schedule or the severance obligations set forth in
Section 6.01(p) of the Disclosure Schedule, and for the prepayment penalty
discussed in Section 2.01(d) of the Disclosure Schedule), require the consent of
any third party or result in the creation of any lien on the assets of the
Company or its subsidiaries under, any material contact or agreement to which
the Company or its subsidiaries is a party or by which any of them or any of
their material properties or assets may be bound, except those that would not,
individually or in the aggregate, have a material adverse effect upon the
Company and its subsidiaries, taken as a whole;
(x) Assuming all applicable requirements of the HSR Act have been complied
with, no consent, approval, authorization or order of, or any registration,
declaration or filing with, any federal, New York or Delaware state governmental
department, commission, board, bureau, agency or instrumentality is required for
the execution or delivery by the Company of, or the consummation by the Company
and its subsidiaries of the transactions contemplated by, the Agreement, or to
enable the Company to continue to operate the business of the Company and its
subsidiaries substantially in the manner now conducted, except such consents,
approvals, authorizations, orders, registrations, declarations or filings as
have been obtained or made and are in full force and effect and the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware;
and
(xi) Upon the filing of the Certificate of Merger with the Secretary of
State of the State
A: A-2-2
<PAGE> 127
of Delaware, the Merger will be effective in accordance with the terms and
provisions of the Agreement, the Certificate of Merger and the laws of the
State of Delaware.
In rendering the foregoing opinion, such counsel may rely, to the
extent such counsel deems such reliance necessary or appropriate, as to matters
of fact, upon certificates of government officials and of any officer or
officers of the Company or its subsidiaries. Counsel may also assume the
authenticity of all documents represented to such counsel to be originals, the
conformity to original documents of all copies of documents submitted to such
counsel, the accuracy and completeness of all corporate records made available
to such counsel by the Company and its subsidiaries and their agents and the
genuineness of all signatures not executed in such counsel's presence.
A: A-2-3
<PAGE> 128
Exhibit B
NON-COMPETE AGREEMENT
THIS AGREEMENT is made and entered into this _____ day of _________,
199__ by and between Land O'Lakes, Inc., a Minnesota cooperative corporation
with its principal place of business at 4001 Lexington Avenue North, Arden
Hills, Minnesota 55126 (hereinafter referred to as "LOL"), and Carl Wolf, an
individual residing at 627 Inwood Land, South Orange, New Jersey 07079
(hereinafter referred to as "Carl").
WHEREAS, LOL, Alpine Lace Brands, Inc., a Delaware corporation
("Company"), and AVV Inc., a Delaware corporation and a wholly-owned subsidiary
of LOL ("Acquisition"), have entered into an Agreement and Plan of Merger dated
as of October 1, 1997 (the "Merger Agreement"), pursuant to which Acquisition
shall merge with and into the Company and the existing stockholders of Company
shall exchange their shares of capital stock of Company for cash; for purposes
of this Agreement, the transactions contemplated by the Merger Agreement shall
be referred to as "the Merger."
WHEREAS, pursuant to the Merger Agreement, the execution and
delivery of this Agreement is a condition precedent to LOL's obligation to
consummate the Merger;
WHEREAS, Carl co-founded Company and was actively involved in the
creation and implementation of Company's Branded Products and Company's
marketing strategies;
WHEREAS, Carl has served as President and Chairman of the Board of
Company; and
WHEREAS, Carl's efforts have been a significant factor in Company's
current name recognition and national prominence;
WHEREAS, LOL believes that Carl has the capability of using his
knowledge and skill to create a business enterprise which might be able to
effectively compete with LOL with respect to the business which LOL is acquiring
from Company;
WHEREAS, Carl and Company are parties to an employment agreement
dated January 4, 1993 ("Employment Agreement"), which LOL wishes to have
terminated;
WHEREAS, LOL is willing to provide the payments described herein in
consideration of Carl's non-compete covenant and the termination of Carl's
Employment Agreement and Carl's forfeiture of all compensation, benefits and
other rights thereunder;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and commitments of LOL and Carl set forth in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, LOL and Carl agree as follows:
<PAGE> 129
1. Term and Termination.
A. Term. This Agreement shall have a term of five (5) years commencing
on the effective date of the Merger (hereinafter referred to as the
"Term").
B. Termination. Except as otherwise specifically provided herein, this
Agreement and the rights and obligations of LOL and Carl hereunder
shall terminate immediately upon the occurrence of any of the
following events, provided, however, that the payment obligations of
LOL under paragraph 2A. (but not under 2B.) of this Agreement shall
continue notwithstanding the occurrence of an event set forth in
clause (i) or (ii) of this paragraph 1B:
i. In the event of Carl's death; or
ii. In the event of a material breach of Carl's obligations
hereunder, provided that such breach is not cured within
thirty (30) days after Carl receives written notice thereof
from LOL.
2. Payment.
A. As consideration for the termination of the Employment Agreement and
Carl's forfeiture of all compensation, benefits and other rights
thereunder, LOL shall make monthly payments in arrears to Carl in
the amount of eight thousand three hundred thirty-three dollars and
thirty-three cents ($8,333.33) per month during the Term of this
Agreement.
B. As consideration for the non-compete covenant set forth in paragraph
3, LOL shall make monthly payments in arrears to Carl in the amount
of twenty thousand eight hundred thirty-three dollars and
thirty-four cents ($20,833.34) per month during the Term of this
Agreement.
3. Non-Compete Covenant.
A. Carl agrees that he will not, anywhere within the United States,
directly or indirectly own, manage, operate, control, participate
in, or be connected in any manner with the ownership, management,
operation or control of any business which involves: producing,
importing, distributing or marketing deli cheese or meat, dairy case
cheese, foodservice cheese or meat; cheese trading; or producing,
importing, distributing or marketing any other product or product
group which is part of the business of LOL or any of its affiliates,
including Company and its subsidiaries (all of which entities
together with LOL shall be collectively referred to for purposes of
this Agreement as "LOL Affiliates") at any time during the Term of
this Agreement or was part of the business of LOL Affiliates during
the two (2) years immediately preceding the effective date of this
Agreement ("Effective Date"). Further, Carl agrees that he will not
induce or attempt to persuade any agent, employee, or customer of
one or more LOL Affiliates to terminate an existing employment,
agency, or business relationship with any of LOL Affiliates in order
to enter into any such relationship in competition with one or more
LOL Affiliates. The duration of this non-compete covenant
A: B-2
<PAGE> 130
shall be the five-year period commencing on the Effective Date. The
obligations of this paragraph 3 shall survive any termination of
this Agreement prior to the expiration of the Term. THE AGREED UPON
CONSIDERATION TO BE PAID TO CARL HEREUNDER HAS BEEN NEGOTIATED AND
BARGAINED FOR, AND IS TO BE RECEIVED IN FULL SATISFACTION OF CARL'S
OBLIGATIONS UNDER THIS AGREEMENT.
B. Carl acknowledges that the non-competition provisions of this
paragraph 3 constitute a material inducement to LOL to enter into
this Agreement, and LOL will be relying on the enforceability of the
non-competition provisions of this paragraph 3 in performing LOL's
obligations under this Agreement. Any reformation by any court of
the scope, duration or other terms of this non-compete covenant
shall result in an appropriate and equitable reformation of LOL's
payment obligations under this Agreement.
C. The foregoing non-competition provision shall not preclude Carl from
owning less than two percent (2%) of any company, the stock of which
is traded on any national or regional exchange or any established
over-the-counter trading market, nor shall it preclude Carl from
having any direct or indirect interest in any wholesale foodservice
business or retail grocery or foodservice business or any restaurant
to which LOL may consent in writing, which consent shall not be
unreasonably withheld.
4. Confidential Information. Carl shall carefully guard and keep secret all
trade secrets and confidential information concerning the business and
affairs of LOL Affiliates ("Confidential Information"). Further, Carl
shall not, at any time, whether during the Term of this Agreement or at a
later time, directly or indirectly, disclose such Confidential Information
to any person, firm, or corporation or other third party or use the same
in any way unless he first secures the prior written consent of LOL. Carl
acknowledges and agrees that the Confidential Information constitutes a
unique and valuable asset of LOL acquired at great time and expense by LOL
and its predecessors, and that any disclosure or use of the Confidential
Information by Carl would be wrongful and would cause irreparable harm to
LOL. During the term of this Agreement and at all times thereafter, Carl
shall refrain from any acts or omissions that would materially reduce the
value of the Confidential Information to LOL.
In the event Carl becomes legally compelled to disclose any Confidential
Information, Carl shall provide LOL with notice as soon as reasonably
practicable so that LOL may seek a protective order or other appropriate
remedy. If a protective order or other remedy is not obtained by LOL, Carl
shall only furnish that portion of the Confidential Information which is
legally required and shall exercise his best efforts to obtain a
protective order or other reasonable assurance that LOL's Confidential
Information shall be accorded confidential treatment. The foregoing
obligations of this paragraph 4 shall survive the termination of this
Agreement.
The provisions of this paragraph 4 shall not apply to the following
information:
A: B-3
<PAGE> 131
o Iinformation that was publicly available at the time Carl acquires it from
LOL Affiliates;
o Information that subsequently becomes publicly available other than by
Carl's breach of this Agreement;
o Information that was rightfully acquired by Carl from a source other than
LOL Affiliates, their directors, employees, agents, or representatives,
provided that such source is not, to the best of Carl's knowledge,
prohibited from transmitting such information to Carl pursuant to any
contractual, fiduciary, or legal obligation;
o Information that was independently developed by Carl without the use of
the Confidential Information, as evidenced by written documentation; or
o Information as generally disclosed by LOL to third parties without similar
obligations of confidentiality.
5. Return of Company Property. Carl represents and warrants that he has, as
of the date of this Agreement, returned to Company all of Company's
property, including, without limitation, all files, papers, and records of
every kind, and any and all copies thereof, in Carl's possession or used
by Carl in the performance of his employment by Company.
6. Indemnification and Release. Carl shall indemnify, defend, and hold
harmless all LOL Affiliates and their respective directors, officers,
members, employees, agents, representatives and consultants from and
against any and all claims, demands, actions, causes of action, penalties,
fines, damages, losses, liabilities, costs, and expenses (including,
without limitation, court costs and reasonable fees of attorneys and other
professionals) relating to, arising out of, or in any way connected with
the breach of any of the terms of this Agreement by Carl. LOL shall
indemnify, defend, and hold harmless Carl from and against any and all
claims, demands, actions, causes of action, penalties, fines, damages,
losses, liabilities, costs, and expenses (including, without limitation,
court costs and reasonable fees of attorneys and other professionals)
relating to, arising out of, or in any way connected with the breach of
any of the terms of this Agreement by LOL. Carl hereby releases all LOL
Affiliates, their officers, directors and members, from any and all claims
and causes of action now existing or hereinafter arising that result from
his being an officer, director, employee or shareholder of Company or any
of its subsidiaries, provided that nothing stated herein shall affect his
rights to indemnification as referenced in section 7.01 of the Merger
Agreement. The foregoing obligations of this paragraph 6 shall survive the
termination of this Agreement.
7. Notices. Any notices required hereunder shall be deemed to have been
properly given if a written notice has been delivered to the party to whom
notice is required to be given ("Addressee") by either (a) hand-delivering
such notice to Addressee; or (b) enclosing such notice in a sealed
envelope and sending it by certified mail, return receipt requested,
postage prepaid, to Addressee at Addressee's address shown below, or at
such other address as Addressee may hereafter designate in writing to the
other party:
A: B-4
<PAGE> 132
Carl Wolf Land O'Lakes, Inc.
627 Inwood Lane (i) if by personal delivery:
South Orange, NJ 07079 4001 Lexington Avenue N.
Arden Hills, MN 55126-2998
Attention: President
(ii) if by mail:
P.O. Box 64101
St. Paul, MN 55164-0101
Attention: President
With a copy to: Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Attention: Philip S. Garon
8. Construction. Whenever possible, each provision of this Agreement shall be
interpreted so that it is valid under applicable law. If any provision of
this Agreement is to any extent found to be invalid, illegal or
unenforceable in any respect under applicable law, that provision shall
still be effective to the extent it remains valid, and the remainder of
this Agreement also will continue to be valid. If any restriction
contained in this Agreement is found to be too broad to permit enforcement
of such restriction to its fullest extent, then such restriction shall be
construed or re-written so as to be enforceable to the maximum extent
permitted by law
9. Waiver. None of the provisions of this Agreement shall be considered
waived by either party hereto unless the waiver is given in writing to the
other party. A written waiver shall operate only as to the specific term
or condition waived, and no written waiver shall be deemed to be a
continuing waiver unless specifically stated to be continuing in effect.
10. Assignment. Carl may not assign, delegate, or transfer this Agreement or
any of his rights or obligations hereunder without the prior written
consent of LOL.
11. Headings. Titles and headings in this Agreement are for the convenience of
reference only and do not form a part of this Agreement and shall in no
way affect the interpretation hereof.
12. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect
to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of
Delaware.
13. Advice of Counsel. No party, representative, or counsel for either party
has acted as counsel for the other party with respect hereto. Each party
represents that such party has sought and obtained any legal advice deemed
necessary prior to entering into this Agreement. Each party hereto has had
the opportunity to fully negotiate the terms hereof and to modify the
draftsmanship of this Agreement. Therefore, the terms of this Agreement
shall be construed and interpreted without any presumption,
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inference, or rule requiring construction or interpretation against the
party causing this Agreement to be drafted. No party or representative for
such party shall act or be deemed to act as legal counsel or
representative for the other party.
14. Entire Agreement. This writing constitutes the entire understanding of LOL
and Carl and supersedes all previous agreements or negotiations with
respect to the subject matter hereof. No modification, alteration, or
change in the terms hereof shall be effective unless made in writing and
signed by both LOL and Carl.
15. No Adequate Remedy. Carl agrees and understands that a breach by him of
any provision of this Agreement may cause LOL irreparable injury and
damage which cannot be reasonably and adequately compensated by damages at
law. Carl therefore agrees that LOL shall be entitled, in addition to any
other remedies legally available, to injunctive and/or other equitable
relief to prevent a breach of this Agreement or any part hereof, and
reasonable attorneys' fees enforcing this Agreement.
16. Termination of Employment Agreement. The parties specifically and mutually
agree that the Employment Agreement is terminated effective immediately,
and that neither party hereto has any liability or obligation whatsoever
to the other under the terms of the Employment Agreement. In consideration
of the payments provided by LOL to Carl hereunder, Carl releases Company,
LOL and Acquisition from any and all claims or liabilities arising under
the Employment Agreement and forfeits all rights he may have, including
but not limited to rights to compensation and benefits, under the
Employment Agreement.
17. Authorization. LOL represents and warrants that the execution, delivery
and performance of this Agreement has been duly authorized.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
LAND O'LAKES, INC.
By
- --------------------------------- ---------------------------------
CARL WOLF
Its
---------------------------------
A: B-6
<PAGE> 134
Exhibit C
NON-COMPETE AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________,
199__ by and between Land O'Lakes, Inc., a Minnesota cooperative corporation
with its principal place of business at 4001 Lexington Avenue North, Arden
Hills, Minnesota 55126 (hereinafter referred to as "LOL"), and Marion Wolf, an
individual residing at 627 Inwood Land, South Orange, New Jersey 07079
(hereinafter referred to as "Marion").
WHEREAS, LOL, Alpine Lace Brands, Inc., a Delaware corporation
("Company"), and AVV Inc., a Delaware corporation and a wholly-owned subsidiary
of LOL ("Acquisition"), have entered into an Agreement and Plan of Merger dated
as of October 1, 1997 (the "Merger Agreement"), pursuant to which Acquisition
shall merge with and into the Company and the existing stockholders of Company
shall exchange their shares of capital stock of Company for cash; for purposes
of this Agreement, the transactions contemplated by the Merger Agreement shall
be referred to as "the Merger;"
WHEREAS, pursuant to the Merger Agreement, the execution and
delivery of this Agreement is a condition precedent to LOL's obligation to
consummate the Merger;
WHEREAS, Marion co-founded Company and was actively involved in the
creation and implementation of Company's Branded Products and Company's
marketing strategies;
WHEREAS, Marion has served as Vice-President, Food Service Division,
of Company; and
WHEREAS, Marion's efforts have been a significant factor in
Company's current name recognition and national prominence;
WHEREAS, LOL believes that Marion has the capability of using her
knowledge and skill to create a business enterprise which might be able to
effectively compete with LOL with respect to the business which LOL is acquiring
from Company;
WHEREAS, Marion and Company are parties to an employment agreement
dated January 4, 1993 ("Employment Agreement"), which LOL wishes to have
terminated;
WHEREAS, LOL is willing to provide the payments described herein in
consideration of Marion's non-compete covenant and the termination of Marion's
Employment Agreement and Marion's forfeiture of all compensation, benefits and
other rights thereunder;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and commitments of LOL and Marion set forth in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, LOL and Marion agree as follows:
<PAGE> 135
1. Term and Termination.
A. Term. This Agreement shall have a term of five (5) years commencing
on the effective date of the Merger (hereinafter referred to as the
"Term").
B. Termination. Except as otherwise specifically provided herein, this
Agreement and the rights and obligations of LOL and Marion hereunder
shall terminate immediately upon the occurrence of any of the
following events , provided, however, that the payment obligations
of LOL under paragraph 2A. (but not under 2B.) of this Agreement
shall continue notwithstanding the occurrence of an event set forth
in clause (i) or (ii) of this paragraph 1B:
i. In the event of Marion's death; or
ii. In the event of a material breach of Marion's obligations
hereunder, provided that such breach is not cured within
thirty (30) days after Marion receives written notice thereof
from LOL.
2. Payment.
A. As consideration for the termination of the Employment Agreement and
Marion's forfeiture of all compensation, benefits and other rights
thereunder, LOL shall make monthly payments in arrears to Marion in
the amount of two thousand five hundred dollars ($2,500) per month
during the Term of this Agreement.
B. As consideration for the non-compete covenant set forth in paragraph
3, LOL shall make monthly payments in arrears to Marion in the
amount of ten thousand dollars ($10,000) per month during the Term
of this Agreement.
3. Non-Compete Covenant.
A. Marion agrees that she will not, anywhere within the United States,
directly or indirectly own, manage, operate, control, participate
in, or be connected in any manner with the ownership, management,
operation or control of any business which involves: producing,
importing, distributing or marketing deli cheese or meat, dairy case
cheese, foodservice cheese or meat; cheese trading; or producing,
importing, distributing or marketing any other product or product
group which is part of the business of LOL or any of its affiliates,
including Company and its subsidiaries (all of which entities
together with LOL shall be collectively referred to for purposes of
this Agreement as "LOL Affiliates") at any time during the Term of
this Agreement or was part of the business of LOL Affiliates during
the two (2) years immediately preceding the effective date of this
Agreement ("Effective Date"). The parties specifically agree that
the business relationships described in Exhibit A do not constitute
a violation of this covenant. Further, Marion agrees that she will
not induce or attempt to persuade any agent, employee, or customer
of one or more LOL Affiliates to terminate an existing employment,
agency, or business relationship with any
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of LOL Affiliates in order to enter into any such relationship in
competition with one or more LOL Affiliates. The duration of this
non-compete covenant shall be the five-year period commencing on the
Effective Date. The obligations of this paragraph 3 shall survive
any termination of this Agreement prior to the expiration of the
Term. THE AGREED UPON CONSIDERATION TO BE PAID TO MARION HEREUNDER
HAS BEEN NEGOTIATED AND BARGAINED FOR, AND IS TO BE RECEIVED IN FULL
SATISFACTION OF MARION'S OBLIGATIONS UNDER THIS AGREEMENT.
B. Marion acknowledges that the non-competition provisions of this
paragraph 3 constitute a material inducement to LOL to enter into
this Agreement, and LOL will be relying on the enforceability of the
non-competition provisions of this paragraph 3 in performing LOL's
obligations under this Agreement. Any reformation by any court of
the scope, duration or other terms of this non-compete covenant
shall result in an appropriate and equitable reformation of LOL's
payment obligations under this Agreement.
C. The foregoing non-competition provision shall not preclude Marion
from owning less than two percent (2%) of any company, the stock of
which is traded on any national or regional exchange or any
established over-the-counter trading market, nor shall it preclude
Marion from having any direct or indirect interest in any wholesale
foodservice business or retail grocery or foodservice business to
which LOL may consent in writing.
4. Confidential Information. Marion shall carefully guard and keep secret all
trade secrets and confidential information concerning the business and
affairs of LOL Affiliates ("Confidential Information"). Further, Marion
shall not, at any time, whether during the Term of this Agreement or at a
later time, directly or indirectly, disclose such Confidential Information
to any person, firm, or corporation or other third party or use the same
in any way, unless she first secures the prior written consent of LOL.
Marion acknowledges and agrees that the Confidential Information
constitutes a unique and valuable asset of LOL acquired at great time and
expense by LOL and its predecessors, and that any disclosure or use of the
Confidential Information by Marion would be wrongful and would cause
irreparable harm to LOL. During the term of this Agreement and at all
times thereafter, Marion shall refrain from any acts or omissions that
would materially reduce the value of the Confidential Information to LOL.
In the event Marion becomes legally compelled to disclose any Confidential
Information, Marion shall provide LOL with notice as soon as reasonably
practicable so that LOL may seek a protective order or other appropriate
remedy. If a protective order or other remedy is not obtained by LOL,
Marion shall only furnish that portion of the Confidential Information
which is legally required and shall exercise her best efforts to obtain a
protective order or other reasonable assurance that Confidential
Information shall be accorded confidential treatment. The foregoing
obligations of this paragraph 4 shall survive the termination of this
Agreement.
The provisions of this paragraph 4 shall not apply to the following
information:
o Information that was publicly available at the time Marion acquires
it from LOL Affiliates;
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<PAGE> 137
o Information that subsequently becomes publicly available other than
by Marion's breach of this Agreement;
o Information that was rightfully acquired by Marion from a source
other than LOL Affiliates, their directors, employees, agents, or
representatives, provided that such source is not, to the best of
Marion's knowledge, prohibited from transmitting such information to
Marion pursuant to any contractual, fiduciary, or legal obligation;
o Information that was independently developed by Marion without the
use of the Confidential Information, as evidenced by written
documentation; or
o Information as generally disclosed by LOL to third parties without
similar obligations of confidentiality.
5. Return of Company Property. Marion represents and warrants that she has,
as of the date of this Agreement, returned to Company all of Company's
property, including, without limitation, all files, papers, and records of
every kind, and any and all copies thereof, in Marion's possession or used
by Marion in the performance of her employment by Company.
6. Indemnification and Release. Marion shall indemnify, defend, and hold
harmless all LOL Affiliates and their respective directors, officers,
members, employees, agents, representatives and consultants from and
against any and all claims, demands, actions, causes of action, penalties,
fines, damages, losses, liabilities, costs, and expenses (including,
without limitation, court costs and reasonable fees of attorneys and other
professionals) relating to, arising out of, or in any way connected with
the breach of any of the terms of this Agreement by Marion. LOL shall
indemnify, defend, and hold harmless Marion from and against any and all
claims, demands, actions, causes of action, penalties, fines, damages,
losses, liabilities, costs, and expenses (including, without limitation,
court costs and reasonable fees of attorneys and other professionals)
relating to, arising out of, or in any way connected with the breach of
any of the terms of this Agreement by LOL. Marion hereby releases all LOL
Affiliates, their officers, directors and members, from any and all claims
and causes of action now existing or hereinafter arising that result from
her being an officer, director, employee or shareholder of Company or any
of its subsidiaries, provided that nothing stated herein shall affect her
rights to indemnification as referenced in section 7.01 of the Merger
Agreement. The foregoing obligations of this paragraph 6 shall survive the
termination of this Agreement.
7. Notices. Any notices required hereunder shall be deemed to have been
properly given if a written notice has been delivered to the party to whom
notice is required to be given ("Addressee") by either (a) hand-delivering
such notice to Addressee; or (b) enclosing such notice in a sealed
envelope and sending it by certified mail, return receipt requested,
postage prepaid, to Addressee at Addressee's address shown below, or at
such other address as Addressee may hereafter designate in writing to the
other party:
A: C-4
<PAGE> 138
Marion Wolf Land O'Lakes, Inc.
627 Inwood Lane (i) if by personal delivery:
South Orange, NJ 07079 4001 Lexington Avenue N.
Arden Hills, MN 55126-2998
Attention: President
(ii) if by mail:
P.O. Box 64101
St. Paul, MN 55164-0101
Attention: President
With a copy to: Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Attention: Philip S. Garon
8. Construction. Whenever possible, each provision of this Agreement shall be
interpreted so that it is valid under applicable law. If any provision of
this Agreement is to any extent found to be invalid, illegal or
unenforceable in any respect under applicable law, that provision shall
still be effective to the extent it remains valid, and the remainder of
this Agreement also will continue to be valid. If any restriction
contained in this Agreement is found to be too broad to permit enforcement
of such restriction to its fullest extent, then such restriction shall be
construed or re-written so as to be enforceable to the maximum extent
permitted by law.
9. Waiver. None of the provisions of this Agreement shall be considered
waived by either party hereto unless the waiver is given in writing to the
other party. A written waiver shall operate only as to the specific term
or condition waived, and no written waiver shall be deemed to be a
continuing waiver unless specifically stated to be continuing in effect.
10. Assignment. Marion may not assign, delegate, or transfer this Agreement or
any of her rights or obligations hereunder without the prior written
consent of LOL.
11. Headings. Titles and headings in this Agreement are for the convenience of
reference only and do not form a part of this Agreement and shall in no
way affect the interpretation hereof.
12. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect
to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of
Delaware.
13. Advice of Counsel. No party, representative, or counsel for either party
has acted as counsel for the other party with respect hereto. Each party
represents that such party has sought and obtained any legal advice deemed
necessary prior to entering into this Agreement. Each party hereto has had
the opportunity to fully negotiate the terms hereof and to modify the
draftsmanship of this Agreement. Therefore, the terms of this Agreement
shall be construed and interpreted without any presumption,
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<PAGE> 139
inference, or rule requiring construction or interpretation against the
party causing this Agreement to be drafted. No party or representative for
such party shall act or be deemed to act as legal counsel or
representative for the other party.
14. Entire Agreement. This writing constitutes the entire understanding of LOL
and Marion and supersedes all previous agreements or negotiations with
respect to the subject matter hereof. No modification, alteration, or
change in the terms hereof shall be effective unless made in writing and
signed by both LOL and Marion.
15. No Adequate Remedy. Marion agrees and understands that a breach by her of
any provision of this Agreement may cause LOL irreparable injury and
damage which cannot be reasonably and adequately compensated by damages at
law. Marion therefore agrees that LOL shall be entitled, in addition to
any other remedies legally available, to injunctive and/or other equitable
relief to prevent a breach of this Agreement or any part hereof, and
reasonable attorneys' fees enforcing this Agreement.
16. Termination of Employment Agreement. The parties specifically and mutually
agree that the Employment Agreement is terminated effective immediately,
and that neither party hereto has any liability or obligation whatsoever
to the other under the terms of the Employment Agreement. In consideration
of the payments provided by LOL to Marion hereunder, Marion releases
Company, LOL and Acquisition from any and all claims or liabilities
arising under the Employment Agreement and forfeits all rights she may
have, including but not limited to rights to compensation and benefits,
under the Employment Agreement.
17. Authorization. LOL represents and warrants that the execution, delivery
and performance of this Agreement has been duly authorized.
A: C-6
<PAGE> 140
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
LAND O'LAKES, INC.
By
- ------------------------------------ ---------------------------------
MARION WOLF
Its
---------------------------------
A: C-7
<PAGE> 141
EXHIBIT A
Marion Wolf may continue the business of Market Finders Brokerage,
Inc. ("MFBI") only to the following extent:
1. MFBI may continue to receive commissions from Merkert
Enterprises based on the business it does with MFBI pursuant
to an existing agreement, as described in Schedule 6.01(y) to
the Merger Agreement, provided that nothing herein stated
shall limit the right of the Company to terminate its
relationship with such broker and thereby terminate the
commissions MFBI may otherwise receive from such broker.
2. MFBI may continue to purchase the products listed in Schedule
1 from the countries set forth beside the names of such
products in quantities per calendar year not to exceed those
set forth beside the lists of such products listed in Schedule
1 pursuant to the import licenses described in Schedule 1 or
any annual renewals of such import licenses.
A: C-8
<PAGE> 142
Schedule 1
Control Number: 13475
Date of Issue: March 11, 1997
IMPORTER NAME/ADDRESS
Marion Wolf
Market Finders Brokers, Inc.
637 Inwood Lane
South Orange, NJ 07079
The Firm named herein is responsible for the conditions set forth at the end of
this license.
The following licenses are valid beginning January 01, 1997 and will expire at
midnight on December 31, 1997 unless revoked prior thereto.
================================================================================
License Number HTS-Note Country Commodity License Fee
Number of Name Amount Paid
Origin Description Kilos
- --------------------------------------------------------------------------------
1-A-643-7 Note 19 N Zeal American-OT-CHD 4,535
- --------------------------------------------------------------------------------
1-C-105-7 Note 18 EEC Cheddar 4,764
- --------------------------------------------------------------------------------
1-6-297-7 Note 6 N Zeal Butter 542
- --------------------------------------------------------------------------------
1-SU-691-7 Note 25 EEC Swiss/Emmenthaler 4,574
- --------------------------------------------------------------------------------
2-OT-25A-7 Note 16 EEC Other Cheese-NSPF 38,000
- --------------------------------------------------------------------------------
2-OT-465-7 Note 16 Canada Other Cheese-NSPF 9,500
- --------------------------------------------------------------------------------
2-SU-509-7 Note 14 ANY Butter Substitutes 57,000
================================================================================
In accordance with Section 6.33 (7 CFR Part 6) of the import regulations, a fee
will be charged with each license issued to a person or firm by the Department
of Agriculture for costs incurred for administering the licensing system.
The fee for 1997 is $103.00 per license. Please remit the balance owed of
$721.00 no later than May 1. Fee payments should be made by certified check or
money order only, and made payable to the Treasurer of the United States.
Payments should be mailed to the Dairy Import Licensing Group.
A: C-9
<PAGE> 143
Exhibit D-1
Substance of Opinion of Thuy-Nga T. Vo Counsel to Buyer and Acquisition
To the best of my knowledge after due inquiry, neither the execution and
delivery of the Agreement by Buyer and Acquisition, nor the consummation by
Buyer and Acquisition of the transactions contemplated thereby, will result in a
breach of or constitute a default or an event which, with the passage of time or
the giving of notice, or both, would constitute a default, give rise to a right
of termination, cancellation or acceleration, create any entitlement to any
payment or benefit, require the consent of any third party (except the filing
required and the expiration or termination of the applicable waiting periods
under the HSR Act, which have occurred on or prior to the date of this
Agreement) or result in the creation of any lien on the assets of Buyer or
Acquisition under, any material contract or agreement to which Buyer or
Acquisition is a party or by which either of them or any of the material
properties or assets of either may be bound, except those that would not,
individually or in the aggregate, have a material adverse effect on Buyer and
its subsidiaries, taken as a whole.
In rendering the foregoing opinion, such counsel may rely, to the extent
such counsel deems such reliance necessary or appropriate, as to matters of
fact, upon certificates of government officials and of any officer or officers
of the Buyer and Acquisition. Counsel may also assume the authenticity of all
documents represented to such counsel to be originals, the conformity to
original documents of all copies of documents submitted to such counsel, the
accuracy and completeness of all corporate records made available to such
counsel by Buyer and Acquisition and their agents and the genuineness of all
signatures not executed in such counsel's presence.
A: D-1-1
<PAGE> 144
Exhibit D-2
Substance of Opinion of Faegre & Benson LLP, Special Counsel to Buyer and
Acquisition
(i) Each of Buyer and Acquisition is a corporation duly incorporated,
validly existing and in good standing under the laws of its state of
incorporation;
(ii) Each of Buyer and Acquisition has the corporate power and authority
to execute and deliver the Agreement and to consummate the transactions
contemplated thereby; and the execution and delivery of the Agreement, the
consummation of the transactions contemplated thereby, and the execution and
filing of the Certificate of Merger have been duly authorized by all requisite
corporate action on the part of Buyer and Acquisition, respectively;
(iii) The Agreement has been duly executed and delivered by each of Buyer
and Acquisition, and (assuming the valid authorization, execution and delivery
of the Agreement by the Company) is the legal, valid and binding agreement of
Buyer and Acquisition enforceable against Buyer and Acquisition in accordance
with its terms, except (A) as such enforcement may be limited by or subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights, and
(B) that the remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought;
(iv) Neither the execution and delivery of the Agreement by Buyer and
Acquisition, nor the consummation by Buyer and Acquisition of the transactions
contemplated thereby, will conflict with or result in a breach of the Articles
of Incorporation or By-Laws, as currently in effect, of Buyer or the Certificate
of Incorporation or By-Laws, as currently in effect, of Acquisition;
(v) Neither the execution and delivery of the Agreement by Buyer or
Acquisition, nor the consummation by Buyer or Acquisition of the transactions
contemplated thereby, are being challenged by or are the subject of any pending
or, to the best of our knowledge after due inquiry, threatened litigation or
governmental investigation or proceeding (except those in which the Company is a
plaintiff directly or derivatively) or, to the best of our knowledge after due
inquiry, will violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or Acquisition or any of their properties or
assets;
(vi) Assuming all applicable requirements of the HSR Act have been
complied with, no consent, approval, authorization or order of, or any
registration, declaration or filing with, any federal, Minnesota or Delaware
state governmental department, commission, board, bureau, agency or
instrumentality is required for the execution and delivery by Buyer or
Acquisition of, or the consummation by Buyer or Acquisition of the transactions
contemplated by, the Agreement, except such consents, approvals, authorizations,
orders, registrations, declarations or filings as have been obtained or made and
are in full force and effect and the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware; and
<PAGE> 145
(vii) Upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, the Merger will be effective in accordance with
the terms and provisions of the Agreement, the Certificate of Merger and the
laws of the State of Delaware.
In rendering the foregoing opinion, such counsel may rely, to the extent
such counsel deems such reliance necessary or appropriate, as to matters of
fact, upon certificates of government officials and of any officer or officers
of the Buyer and Acquisition. Counsel may also assume the authenticity of all
documents represented to such counsel to be originals, the conformity to
original documents of all copies of documents submitted to such counsel, the
accuracy and completeness of all corporate records made available to such
counsel by Buyer and Acquisition and their agents and the genuineness of all
signatures not executed in such counsel's presence.
A: D-2-2
<PAGE> 146
APPENDIX B
DELAWARE GENERAL CORPORATION LAW
TITLE 8
ss. 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss. 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss. 251 (other than a merger effected pursuant to ss.251(g) of this
title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
B-1
<PAGE> 147
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares of fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or ss.
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such holder's shares.
If such notice did not notify stockholders of the effective date of the merger
or consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation notifying
each of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date of the
merger or consolidation or (ii) the surviving or resulting corporation shall
send such a second
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notice to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given;
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the
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amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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<PAGE> 150
LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
September 30, 1997
Board of Directors
Alpine Lace Brands, Inc.
111 Dunnell Road
Maplewood, NJ 07040
Gentlemen:
Alpine Lace Brands, Inc. (the "Company"), Land O'Lakes, Inc. (the
"Acquiror") and AVV Inc. (the "Acquisition Subsidiary"), a wholly owned
subsidiary of the Acquiror, propose to enter into an agreement (the "Merger
Agreement") pursuant to which the Acquisition Subsidiary will be merged with and
into the Company in a transaction (the "Merger") in which (i) each outstanding
share of the Company's common stock, par value $.01 per share, (the "Common
Stock") will be converted into the right to receive $9.125 in cash and (ii) each
outstanding share of the Company's preferred stock, par value $.01 per share
(the "Preferred Stock"), will be converted into the right to receive cash in an
amount equal to the product of (a) $9.125 multiplied by (b) an amount which is
equal to the quotient of (x) $50.00 plus all accrued and unpaid dividends up to
the effective time of the Merger on one share of the Preferred Stock divided by
(y) $7.375 (the Common Stock and the Preferred Stock are collectively referred
to as the "Shares"). The Merger is subject to, among other things, the execution
and delivery of non-compete agreements by the Acquiror and certain individuals
specified in the Merger Agreement and the receipt of the requisite approval of
the Company's shareholders at a special meeting called for such purpose.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares in the Merger is fair from a
financial point of view to such holders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities
and prospects of the Company;
(3) Conducted discussions with members of senior management of the
Company concerning the matters described in clauses 1 and 2 above;
(4) Reviewed the market prices and valuation multiples for the Common
Stock and compared them with those of certain publicly traded
companies that we deemed to be relevant;
<PAGE> 151
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
(6) Compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the financial terms of
certain other transactions that we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial
and legal advisors;
(8) Reviewed a draft dated September 25, 1997 of the Merger Agreement;
and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With respect
to the financial forecast information furnished to or discussed with us by the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Company's management as
to the expected future financial performance of the Company. We have also
assumed that the final form of the Agreement will be substantially similar to
the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. In addition, in the ordinary course of our business, we may
actively trade the Common Stock for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote or as to any other action
such shareholder should take in connection with the proposed Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received by the holders of the
Shares pursuant to the Merger is fair from a financial point of view to the
holders of such Shares.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MERRILL LYNCH, PIERCE, FENNER
<PAGE> 152
ALPINE LACE BRANDS, INC.
111 Dunnell Road
Maplewood, New Jersey 07040
------------------
PROXY
------------------
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Carl T. Wolf and Kenneth E. Meyers as
Proxies, each with the power of substitution, and hereby authorizes each of them
to represent and to vote, as designated below, all the shares of common stock of
Alpine Lace Brands, Inc. held of record by the undersigned on November 7, 1997
at the Special Meeting of Stockholders to be held on December 5, 1997 or any
adjournment or postponement thereof.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER
1, 1997, AMONG ALPINE LACE BRANDS, INC., AVV INC. AND LAND O'LAKES, INC.
AND THE MERGER PROVIDED FOR THEREIN.
|_| FOR |_| AGAINST |_| ABSTAIN
2. TO CONSIDER AND ACT UPON ANY OTHER BUSINESS AS MAY COME BEFORE THE SPECIAL
MEETING OF STOCKHOLDERS OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY TO CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, THE COMPANY'S TRANSFER AGENT.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. (IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 and in the discretion of the named proxies with respect
to any other matter that may properly come before the meeting or any adjournment
or postponement thereof.)
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please provide the full
name of the corporation and the
signature of the authorized officer
signing on its behalf.
Dated , 1997
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Name of Corporation (if applicable)
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(By) ---------------------------------------------------------------------------
Signature
(By) ---------------------------------------------------------------------------
Signature
