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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended DECEMBER 31, 1993
Commission File Number 0-15568
MICHAEL FOODS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-1579532
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 324, Park National Bank Building
5353 Wayzata Boulevard
MINNEAPOLIS, MN 55416
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612)546-1500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.01 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 15, 1994 was approximately $113,000,000 (based on the
last price of such stock as reported by the NASDAQ National Market System).
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of March 15, 1994, was 19,316,189 shares.
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Documents Incorporated by Reference
Pursuant to General Instruction G(2), the responses to Items 5,
6, 7 and 8 of Part II of this report are incorporated herein by
reference to the Company's Annual Report to Stockholders for
1993.
Pursuant to General Instruction G(3), the responses to Items 10,
11, 12 and 13 of Part III of this report are incorporated herein
by reference to the information contained in the Company's
definitive Proxy Statement for its 1994 Annual Meeting of
Stockholders to be held on April 28, 1994. The definitive Proxy
Statement was filed with the Securities and Exchange Commission
on March 25, 1994.
PART I
ITEM 1 - BUSINESS
GENERAL
Michael Foods, Inc. (the "Company") is a diversified producer and
distributor of food products operating in five basic areas - eggs
and egg products, distribution of refrigerated grocery products,
refrigerated and frozen potato products, dairy products and
prepared foods. The Company, through its eggs and egg products
division, is one of the largest producers, processors and
distributors of shell eggs, extended shelf-life liquid eggs and
dried, hard-cooked and frozen egg products in the United States.
The refrigerated distribution division distributes a broad line
of refrigerated grocery products directly to supermarkets,
including cheese, shell eggs, bagels, butter, margarine, muffins,
potato products, juice and ethnic foods. The potato products
division processes and distributes refrigerated and frozen potato
products for foodservice and retail markets throughout the United
States. The dairy products division processes and distributes
ice milk mix, ice cream mix, frozen yogurt mix and extended
shelf-life ultrapasteurized milk and specialty dairy products to
fast food businesses and other foodservice outlets, independent
retailers, ice cream manufacturers and others. The prepared
foods division processes and distributes refrigerated soups and
salads for foodservice and retail markets, primarily in the
eastern United States.
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The following table sets forth the percentage of net sales
accounted for by each of the Company's operating divisions for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Eggs and Egg Products 44% 43% 43%
Refrigerated Distribution 34 32 34
Potato Products 16 15 15
Dairy Products 13 14 14
Prepared Foods 2 3 2
Intercompany Sales ( 9) ( 7) ( 8)
---- ---- ----
TOTAL 100% 100% 100%
---- ---- ----
---- ---- ----
</TABLE>
The strategy of the Company is to enhance the value of its
businesses by employing capital and technology to achieve maximum
production efficiencies, to develop new products to address
specific market needs and to expand the geographic distribution
of its products. Decentralized management has been a key factor
in the growth of each of the Company's operating divisions. The
Company has grown, in part, through selective acquisition of
value-added food businesses and intends to continue to do so in
the future.
EGGS AND EGG PRODUCTS
M. G. Waldbaum Company ("Waldbaum") is a producer, processor and
distributor of numerous egg products and shell eggs. Principal
value-added egg products are ultrapasteurized "Easy Eggs-R-",
which is a proprietary extended shelf-life and salmonella-
negative (pursuant to United States Department of Agriculture
("USDA") regulations) liquid egg product, hard-cooked eggs, and
Simply Eggs-R- Brand Liquid Scrambled Egg Mix. Other egg products
include frozen and dried egg whites, yolks and whole eggs, pre-
cooked frozen egg patties and omelets, and frozen breakfast
entrees.
Management believes that Waldbaum is the second largest egg
producer in the United States. Waldbaum is the largest supplier
of ultrapasteurized whole eggs and hard-cooked eggs in the United
States and is a leading supplier of dried, frozen and liquid
refrigerated whole eggs, whites and yolks. Waldbaum distributes
its egg products to food processors and foodservice customers
throughout the United States and has international sales in
Europe and Japan. Easy Eggs-R- and other egg products are
marketed nationally to a wide variety of foodservice and
industrial customers. Most of Waldbaum's shell eggs are sold to
the Company's refrigerated distribution division, Crystal Farms
Refrigerated Distribution Company, which, in turn, distributes
them throughout its 23 state territory.
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Shell eggs are essentially a commodity and are sold based upon
reported egg prices. Egg prices, in turn, are significantly
influenced by shifts in supply and demand. Pricing of shell eggs
is also typically affected by seasonal demand related to
increased consumption during holiday periods. In general, egg
market pricing in the United States reflects levels reported by
Urner Barry Spot Egg Market Quotations ("Urner Barry"), a
recognized publication. Prices for certain of the Company's
products are affected by these factors, particularly shell eggs.
The Company has endeavored to moderate these effects primarily
through a continuing emphasis on value-added products and
internal production of shell eggs. In 1993, the Company's egg
operations derived approximately 20% of net sales from shell eggs
with the remaining 80% derived from the sales of value-added egg
products. This compares with sales of shell eggs representing
over 90% of egg sales in 1987. In 1993, approximately 90% of the
Company's egg needs were satisfied by production from Company-
owned hens, with the balance purchased on the spot market.
The Company's shell egg and egg products businesses are fully
integrated from the production and maintenance of laying flocks
through processing of shell eggs and further processed egg
products. The Company maintains facilities with approximately
2,500,000 pullets located in Nebraska, Minnesota and Wisconsin.
Fully automated laying barns, housing approximately 12,000,000
producing hens, are located in Nebraska, Colorado, Minnesota and
Wisconsin. In addition, approximately 750,000 Company-owned
producing hens are housed in contract facilities. Major laying
facilities also maintain their own grain and feed storage
facilities. Principal egg processing plants are located in
Nebraska, Minnesota and Colorado.
During 1993, the Company was a partner in a joint venture with an
unrelated company for the purpose of producing reduced
cholesterol liquid egg yolk used in the Company's reduced
cholesterol liquid whole eggs product. The Company owned 50% of
the joint venture, with the balance owned by a German company.
Under the terms of the joint venture agreement, the Company paid
a processing toll to the joint venture covering the processing of
cholesterol reduced liquid egg yolks. This toll was calculated
to cover the costs of production, less revenue from the sale of
by-products, plus an amount to provide a return on each partner's
investment in the joint venture. The Company was obligated to
pay the joint venture a minimum annual processing toll. The
Company and its partner shared equally in the net operating
results of the joint venture. Due to significant continuing
losses and lack of adequate market acceptance, the Company
decided in December 1993 to cause the early termination of the
joint venture and cease production and sale of the reduced
cholesterol liquid whole eggs product.
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In March 1994, the Company acquired the interest of its joint
venture partner and the joint venture was terminated. See
Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's 1993 Annual Report to
Stockholders for discussion of charges recorded in 1993's fourth
quarter relating to this termination.
REFRIGERATED DISTRIBUTION
Over the past 20 years Crystal Farms Refrigerated Distribution
Company ("Crystal Farms") has augmented its shell egg
distribution business by delivering a wide range of refrigerated
grocery products directly to retailers. The Company believes
that its strategy of offering quality branded products, many of
which are sold under the Crystal Farms name, as a lower-priced
alternative to national brands, on a direct to store basis, has
contributed to the growth of Crystal Farms. These distributed
refrigerated products, which consist principally of cheese,
bagels, butter, margarine, muffins, potato products, juice and
ethnic foods, are supplied by vendors, or other divisions of the
Company, to Crystal Farms' specifications. Cheese accounts for
approximately 45% of Crystal Farms' annual sales. Crystal Farms
operates a cheese packaging facility in Lake Mills, Wisconsin,
which allows for the cutting and wrapping of various cheese
products for its Crystal Farms brand cheese business and for
private label customers.
Crystal Farms has expanded its market area both directly and
through the use of independent egg producers as distributors.
Whereas Crystal Farms' market area covered only seven states in
1987, it now includes 23 states primarily in the Midwest,
Southeast and Southwest. Retail locations served by Crystal
Farms number over 1,500. In 1993, sales to the warehouse
operations of Super Valu Stores, Inc. and Cub Food Stores, which
are owned or franchised by Super Valu Stores, aggregated
approximately 30% of Crystal Farms' net sales. Crystal Farms
maintains a fleet of refrigerated tractor-trailers to deliver
products daily to its retail customers from eleven distribution
centers located centrally in its key trade areas.
POTATO PRODUCTS
Potato products are produced and sold by Northern Star Co.
("Northern Star"), Drallos Potato Co., Inc. ("Drallos") and Farm
Fresh Foods, Inc. ("Farm Fresh"). The Company's potato products
division processes and sells frozen potato products, primarily
french fries, and refrigerated potato products to both
foodservice and retail markets. The retail refrigerated business
of this division did not exist before 1989. Refrigerated
products consist of a line of hash brown, mashed, au gratin and
scalloped potato products. In 1993, approximately 20% of the
potato division's net sales were to the retail trade, with the
balance to foodservice. Refrigerated potato products accounted
for approximately 45% of divisional net sales in 1993.
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The Company typically purchases approximately 80%-90% of its
annual potato requirements from contract producers, of which a
large majority are grown on irrigated land. The balance of the
Company's potato requirements are purchased on the spot market.
The Company maintains storage facilities in North Dakota,
Wisconsin and Minnesota. Processing and refrigerated/frozen
warehouse facilities are located principally in Minnesota, with
smaller plants in California and Michigan. The Company maintains
a high percentage of its contracted supply from irrigated fields,
as well as maintaining geographic diversification of its sources.
However, weather remains an important factor in determining raw
potato prices and small variations in the purchase price of
potatoes can have a significant effect on the potato products
division's operating results.
DAIRY PRODUCTS
Through Kohler Mix Specialties, Inc. ("Kohler"), the Company
processes and sells ice milk mix, ice cream mix, frozen yogurt
mix, milk and specialty dairy products, many of which are ultra-
high temperature ("UHT") pasteurized products. The Company
believes that Kohler supplies the majority of the ice milk mix,
and is a major supplier of ice cream mix, sold in Minnesota,
Wisconsin and South Dakota. Kohler also sells its products
throughout much of the balance of the United States. In
February 1993 Kohler began leasing a UHT dairy plant in Texas,
which is allowing for a greater emphasis on supplying customers
in the southern United States.
UHT processing is designed to produce bacteria-free milk, ice
milk mix and specialty dairy products such as whipping cream,
half and half and cordials. Many of Kohler's products have an
extended shelf life of up to eight weeks, thus extending the
trade territory which can be effectively served by Kohler to
include much of the United States.
Kohler ice milk, frozen yogurt and ice cream mixes are made to
customer's specifications. Currently, Kohler produces
approximately 65 different formulations. Kohler believes that
the customization of high quality products and high customer
service levels are critical to their business.
Kohler has approximately 600 customers, including branded ice
cream manufacturers, distributors to fast food businesses, other
foodservice outlets and independent ice milk and ice cream
retailers. In 1993, approximately 90% of Kohler's net sales were
generated from customers who purchased products on a cost-plus
basis. This includes sales to most of the large fast food chains
operating in its market area. Sales of ice milk mix, frozen
yogurt mix and ice cream mix are more seasonal than the Company's
other products, with higher sales volume occurring between May
and September. The addition of fluid milk and specialty dairy
products in recent years has somewhat offset this seasonality.
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PREPARED FOODS
In May 1991, the Company acquired all of the common stock of
Sunnyside Vegetable Packing, Inc. ("Sunnyside"). Sunnyside is a
processor and distributor of refrigerated soups and salads for
the foodservice and retail markets, primarily in the eastern
United States. See discussion regarding Sunnyside in Management's
Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1993 Annual Report to Stockholders.
MARKETING AND CUSTOMER SERVICE
Each of the Company's five divisions has developed a marketing
strategy which emphasizes high quality products and customer
service. In June 1992 a new group (Michael Foods Sales) was
formed to sell egg products and potato products nationally to,
primarily, foodservice and industrial customers. Waldbaum and
Northern Star joined their sales staffs and now each salesperson
handles egg products, principally Easy Eggs-R-, hard-cooked eggs,
frozen egg patties, and Simply Eggs-R- Brand Liquid Scrambled Egg
Mix, as well as refrigerated and frozen potato products. This
sales group is supported by a centralized order entry and customer
service staff. Additionally, the Waldbaum division maintains a small
sales group in Wakefield, Nebraska, which handles shell egg sales and
certain egg product sales. Shell eggs are sold mainly to Crystal Farms.
Customers for egg products include food manufacturers and foodservice
businesses. Crystal Farms sales personnel obtain orders from retail
stores which are usually placed no more than one day ahead of the
requested delivery date. This sales force assists retail grocers in
displaying and stocking Crystal Farms products. In-store and co-op
advertising programs are utilized with grocers on a market-by-market
basis. The dairy products division employs customer service
representatives to service individual customer accounts. The
prepared foods division employs customer service representatives
to service individual customer accounts.
ACQUISITIONS
Acquisitions have played a significant role in the Company's
growth. In 1988, the Company acquired one-half of the Milton G.
Waldbaum Company for $24,100,000. Acquisition of the remaining
one-half was completed in early 1990 for $49,250,000. This was
the largest acquisition made by the Company and contributed to
the substantial growth of its egg and egg products business
between 1988 and 1990. In 1990 and 1991, the Company acquired
two separate businesses for an aggregate purchase price of
approximately $5,494,000. One of these acquisitions was of
Sunnyside, the beginning of the Company's prepared foods
division. Hard-cooked egg operations were benefited by the
acquisition of Hale's Hardy Eggs, Inc. Both of these
acquisitions were accounted for as purchases. While there were
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no acquisitions in 1992 or 1993, the Company anticipates that it
will continue to make acquisitions as part of its strategic plan.
In March 1994, the Company acquired the 50% of a joint venture it
did not own from its joint venture partner (see "Eggs and Egg
Products").
PROPRIETARY TECHNOLOGIES
In 1988, the Company acquired an exclusive license to use a
patented process, developed at North Carolina State University,
for the ultrapasteurization of liquid eggs. The patent expires
in 2006. The process results in liquid eggs that are salmonella
and listeria negative, pursuant to USDA regulations. Salmonella
and listeria are bacteria which can contaminate shell eggs. The
process also extends the shelf life of liquid eggs from less than
two weeks to ten weeks or more. In 1989, the Company completed
construction of an aseptic plant in Gaylord, Minnesota which
processes all of the ultrapasteurized liquid egg needs of the
Company.
The Company and the patent holder have initiated litigation
against several processors of competing liquid egg products,
claiming infringement of the original and subsequent related
process patents with respect to ultrapasteurized liquid egg
production. In 1992, a jury for the United States District Court
for the middle district of Florida found the original patent to
be valid and that a processor, Bartow Food Co., willfully and
deliberately infringed the patent. In another action, against
Papetti's Hygrade Egg Products, Inc., the United States District
Court for the District of New Jersey found in 1992 and 1993 that
the defendant had infringed the patents and that the licensed
patents are valid and enforceable. Pending the defendant's
appeal of the latter summary judgment, the issue of damages
remains for trial. See Item 3 "Legal Proceedings."
During 1993 the Company produced and marketed reduced cholesterol
liquid whole eggs made via an extraction technology which removes
at least 80% of the cholesterol from egg yolks. The yolks are
combined with egg whites, resulting in reduced cholesterol liquid
whole eggs. The Company has a non-exclusive license to the
technology in North America, but discontinued production of the
reduced cholesterol liquid whole eggs product in early 1994 (see
"Eggs and Egg Products").
TRADENAMES
Waldbaum markets its products using several tradenames including
"Logan Valley", "Wakefield", "Sunny Side Up-R-" and "MGW".
Ultrapasteurized liquid eggs are marketed using the "Easy Eggs-R-"
tradename. The Company's liquid scrambled egg mix is marketed
under the tradename "Simply Eggs-R- Brand".
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Crystal Farms products are marketed principally under the
"Crystal Farms-R-" tradename. In addition, Crystal Farms is the
principal distributor of "Bongards" cheese in Minnesota. Crystal
Farms also distributes eggs, butter, cheese and margarine under a
number of other customer-owned tradenames.
Within the potato products division, Northern Star markets its
frozen potatoes to foodservice customers under a variety of
labels, including "Northern Star". The "Simply Potatoes-TM-" label
is used for retail refrigerated products, with "Farmer Select"
used on retail frozen products. Drallos and Farm Fresh also
maintain various tradenames for certain of their products.
Within the dairy products division, there are two main
tradenames-"Kohler" and "Midwest Mix, Inc."
Sunnyside markets its products under the tradenames, "Sunnyside
Soups & Salads", "Simply Soups" and "Griddle Fresh".
COMPETITION
All aspects of the Company's businesses are extremely
competitive. In general, food products are price sensitive and
affected by many factors beyond the control of the Company,
including changes in consumer tastes, fluctuating commodity
prices, and changes in supply due to weather, production and feed
costs.
The Company's egg and egg products division is considered the
second largest egg producer and the second largest egg products
supplier in the United States, and competes with other suppliers
of shell eggs and egg products. While the shell egg and egg
products industry is highly fragmented, there has been a trend
toward consolidation in recent years and further consolidation in
the industry is expected. Other major egg producers include Cal-
Maine Foods, Inc. and Rose Acre Farms, Inc. A major egg products
producer is Papetti's Hygrade Egg Products, Inc. The Company
believes that Waldbaum is among the lowest cost egg producers in
the United States. The Company also believes that Easy Eggs'-R-
salmonella-negative aspect, extended shelf-life and ease of use
are significant competitive advantages in the foodservice and
industrial food markets for eggs.
The Company's refrigerated distribution division competes with
the refrigerated products of other suppliers such as Beatrice
Companies, Inc., Kraft, Inc., Land O' Lakes, Inc., and Sargento
Cheese Company, Incorporated. Crystal Farms believes that its
emphasis on a high level of direct service and lower-priced
branded products has enabled it to compete in its market area
with larger distributors of nationally branded products.
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Within the potato products division, Northern Star's frozen
potato products compete with larger producers such as Carnation
Co., J. R. Simplot Co., Lamb-Weston, Inc., McCain Foods, Inc. and
Universal Foods Corporation. Within the retail frozen market,
Ore-Ida Foods, Inc. is a major competitor. Competition in
refrigerated potato products, where all three of the Company's
potato subsidiaries compete, is generally limited to smaller
local or regional companies.
Within the dairy products division, management believes that
Kohler provides the majority of the ice milk mix, and a
significant percentage of ice cream mix, sold in Minnesota,
Wisconsin and South Dakota. Kohler also has a large percentage
of the UHT ice milk mix and UHT fluid milk business with fast
food chains in the Upper Midwest. Competitors in areas outside
of its immediate region generally are local and regional dairies.
GOVERNMENT REGULATION
All of the Company's subsidiaries are subject to federal and
state regulations relating to grading, quality control, product
branding and labeling, waste disposal and other aspects of their
businesses. The subsidiaries are subject to USDA or FDA
regulation regarding grading, quality, labeling and sanitary
control. Waldbaum's egg breaking plants and Sunnyside's plant
are subject to continuous on-site USDA inspection. All other
subsidiaries are subject to periodic USDA inspections.
Crystal Farms' cheese and butter products and Kohler's ice milk
mix and ice cream mix are affected by milk price supports
established by the USDA. The support price serves as an
artificial minimum price for these products, which may not be
indicative of market conditions that would prevail if such
supports were abolished.
All of the Company's subsidiaries must also comply with state and
local waste disposal requirements. Waldbaum disposes of chicken
waste to farmers for use as fertilizer. Northern Star disposes
of solid waste from potato processing by selling the solid waste
to a processor who converts it to animal feed and disposes of
effluent under a waste discharge permit issued by the
Minneapolis-St. Paul Metropolitan Waste Control Commission. Farm
Fresh holds a permit with the Los Angeles County Sanitation
District to discharge industrial waste into the Sanitation
District's sewage system. Crystal Foods and Waldbaum have
permits to discharge waste products into available sewer systems
and maintain discharge ponds for certain wastes. Sunnyside is
licensed by the State of New Jersey Department of Environmental
Protection to spray, as irrigation, its waste water on property
it leases.
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EMPLOYEES
The Company employed approximately 2,550 employees at December
31, 1993. Of this total, Waldbaum employed approximately 1,300
full-time and 250 part-time employees, none of whom are
represented by a union. Crystal Farms employed approximately 300
employees, none of whom are represented by a union. Northern
Star employed approximately 350 employees of whom 289 are
represented by the Bakery, Laundry, Allied Sales Drivers and
Warehousemen Union affiliated with the Teamsters. Farm Fresh had
26 employees and Drallos had 4 employees at December 31, 1993
with none being represented by a union. Kohler employed 127
people at December 31, 1993. Historically, Kohler increases its
number of employees by approximately 10 to 20 percent during the
summer season. Its production personnel and drivers are
represented by the Milk Drivers and Dairy Employees Union.
Sunnyside employed 93 employees, none of whom are represented by
a union. The Michael Foods Sales and Customer Service groups
employed approximately 100 people at December 31, 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Age Position Since
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Gregg A. Ostrander 41 President and Chief Executive 1993
Officer (1); previously Chief
Operating Officer of the
Company and held various
executive positions with
Armour Swift-Eckrich, Inc.,
a subsidiary of ConAgra, Inc.
Jeffrey M. Shapiro 46 Executive Vice President 1987
and Secretary
John D. Reedy 48 Vice President - Finance, 1988
Chief Financial Officer
and Treasurer
William L. Goucher 47 President - Waldbaum; 1993
previously Senior Vice
President of Armour
Swift-Eckrich, Inc.
Food Service Division
James J. Kohler 40 President - Kohler 1988
Kevin S. Murphy 40 Chief Executive 1988
Officer - Northern Star;
previously Secretary/
Treasurer of the Company
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Officer
Name Age Position Since
- ---- --- -------- -------
Norman A. Rodriguez 51 President - Crystal 1989
Farms; previously held
various executive positions
with United Foods, Inc.,
including President and
Chief Operating Officer
Kevin O. Kelly 36 President - Michael Foods 1993
Sales; previously President -
Crystal Farms Midwest and
Vice President - Sales and
Marketing of Kohler
(1) Mr. Ostrander was named President and Chief Executive Officer
as of January 1, 1994 and was Chief Operating Officer from
February 1993 through December 1993. Richard G. Olson was
President and Chief Executive Officer in 1993.
ITEM 2 - PROPERTIES
FACILITIES
The Company maintains leased space for the executive headquarters
of its operations in Minneapolis, Minnesota.
The egg and egg products division owns and operates 27 pullet
growing houses, each containing approximately 14,600 square feet
in Wakefield, Nebraska; two grain elevators in Wayne, Nebraska;
80 laying houses each containing approximately 19,500 square feet
in Wakefield, Nebraska, Bloomfield, Nebraska and Hudson,
Colorado; two feed mills in Wakefield, Nebraska, one in
Bloomfield, Nebraska and one in Hudson, Colorado; processing
facilities in Wakefield, Nebraska (approximately 323,000 square
feet), Hudson, Colorado (approximately 49,000 square feet),
Bloomfield, Nebraska (approximately 80,000 square feet); and
warehouse, office and distribution facilities aggregating
approximately 40,000 square feet located in Wakefield, Nebraska,
Hudson, Colorado, Daytona Beach, Florida, and Bloomfield,
Nebraska. Waldbaum owns in the aggregate approximately 950 acres
of land in Nebraska, Colorado and Minnesota and leases the land
in Bloomfield.
The egg and egg products division also operates facilities under
the Crystal Foods subsidiary, including a facility in Gaylord,
Minnesota consisting of an 164,000 square foot egg products
processing plant. A section of this plant was converted into the
joint venture's cholesterol extraction plant in 1992 which was
repurchased by the Company in early 1994. A facility in LeSueur,
Minnesota consists of a 29,000 square foot egg processing plant.
A facility in Palmyra, Wisconsin consists of a 12,000 square foot
egg processing plant.
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In addition, 326,000 square feet of laying houses are maintained
in Gaylord, 326,000 square feet of laying houses are maintained
in LeSueur and 103,000 square feet of laying houses are
maintained in Palmyra, Wisconsin. Each of the facilities at
Gaylord, LeSueur and Palmyra operate their own feedmills.
Crystal Foods also operates 12 pullet growing houses totaling
160,000 square feet. The Gaylord facility includes a centralized
warehouse for the distribution of the Company's refrigerated
foodservice egg and potato products. All of these facilities are
owned by Crystal Foods. Waldbaum owns an unused facility located
on eight acres of land near Richfield, North Carolina. This
facility contains approximately 53,000 square feet and is being
leased.
The refrigerated distribution division leases administrative and
sales offices in Minneapolis and several small warehouses across
the United States. In January 1994, a new 33,000 square foot
distribution center was opened in LeSueur, Minnesota. Wisco Farm
Cooperative owns and operates a 48,200 square foot refrigerated
warehouse on a 19 acre site in Lake Mills, Wisconsin. A 19,000
square foot cheese packaging facility is also located in Lake
Mills.
Within the potato products division, Northern Star owns its
processing plant and five raw potato storage facilities in
Minnesota, Wisconsin and North Dakota totaling over 290,000
square feet. Four of these facilities are located on land owned
by Northern Star. The East Grand Forks, Minnesota facility is
located on leased land. These facilities have an aggregate
storage capacity of approximately 170 million pounds of raw
potatoes. The processing plant contains approximately 175,000
square feet of production area and an automated frozen storage
area with a capacity of over 20 million pounds of finished
product. Farm Fresh leases three buildings in Bell Gardens,
California, comprising approximately 22,000 square feet, from the
former owner of Farm Fresh. Drallos owns a building in Detroit,
Michigan comprising approximately 65,000 square feet.
In the dairy products division, Kohler's facilities in White Bear
Lake, Minnesota consist of three company-owned buildings, with
the main plant containing approximately 104,000 square feet.
Kohler also leases a UHT dairy plant in Sulphur Springs, Texas
comprising approximately 20,000 square feet.
The prepared foods division operates a facility in Millville, New
Jersey of approximately 50,000 square feet for the processing of
soups and salads. A new facility of approximately 35,000 square
feet is under construction in Lake Mills, Wisconsin.
Management believes that the facilities of the Company, together
with budgeted capital improvements in each of its five operating
divisions, are adequate to meet the Company's anticipated
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requirements for its current lines of business over the
foreseeable future.
NEBRASKA CONSTITUTIONAL PROVISION
A substantial portion of the egg production and processing
operations of Waldbaum is located in the state of Nebraska. With
certain exceptions, a provision of the Nebraska constitution
generally prohibits corporations from engaging in farming or
ranching in Nebraska. Although the constitutional provision
contains an exemption for agricultural land operated by a
corporation for the purpose of raising poultry, the Nebraska
Attorney General has, in written opinions, taken the position
that facilities devoted primarily to the production of eggs do
not fall within such exemption and therefore are subject to the
restrictions contained in the constitutional provision. The
Company believes that the egg production facilities of Waldbaum
are part of Waldbaum's integrated facilities for the production,
processing and distribution of eggs and egg products, and
therefore, that any agricultural land presently owned by Waldbaum
is being used for non-farming and non-ranching purposes.
The constitution empowers the Nebraska Attorney General, or if
the Attorney General fails to act, a Nebraska citizen, to obtain
a court order to, among other things, force divestiture of land
held in violation of the constitutional provision. If land
subject to such a court order is not divested within a two-year
period, the constitutional provision directs the court to declare
the land escheated to the State of Nebraska. The Company is not
aware of any proceedings under such constitutional provision
pending or threatened against either Waldbaum or the Company.
Until the scope of such provision has been clarified by further
judicial, legislative, or executive action, there can be no
assurance as to the effect, if any, that it may have on the
business of Waldbaum or the Company.
ITEM 3 - LEGAL PROCEEDINGS
The Company and the owner of the patents for ultrapasteurizing
liquid eggs initiated litigation on November 8, 1989 against a
processor of liquid egg products, Papetti's Hygrade Egg Products,
Inc. ("Papetti's"), claiming infringement of the process patents
with respect to ultrapasteurized liquid egg production. The
action was brought in the United States District Court for the
District of New Jersey. In November 1992 the Company was granted
summary judgment that Papetti's had infringed the claims in the
patents. In July 1993 the Court granted summary judgment that
the patents were valid and enforceable. The relief sought by the
plaintiffs included damages and costs and disbursements,
including attorneys' fees.
The defendant in this action contended that their process did not
infringe the patents and that the patents are invalid. The
defendant has filed an appeal of the 1993 summary judgment with
the Federal Circuit Court of Appeals. Discovery on the question
14
<PAGE>
of damages has been suspended during the pendency of the appeal,
which is expected to be heard in the Spring of 1994.
On July 2, 1992 Sunny Fresh Foods, Inc. commenced an action in
the U. S. District Court for the District of Minnesota against
the Company and the owner of the patents for ultrapasteurizing
liquid eggs seeking declaratory judgment that the patents
licensed by the Company are invalid. The Company and the patent
holder have counterclaimed for infringement of the patents by the
plaintiff. The relief sought by the Company includes damages and
costs and disbursements, including attorneys' fees. Discovery is
presently underway and is expected to continue through 1994.
On August 12, 1993 Nulaid Foods, Inc. commenced an action in the
U. S. District Court for the Eastern District of California
against the Company seeking declaratory judgment that the patents
licensed by the Company for the ultrapasteurization of liquid
eggs are invalid. The Company and the patent holder have
counterclaimed for infringement of the patents by the plaintiff.
The relief sought by the Company includes damages and costs and
disbursements, including attorneys' fees. Discovery is presently
underway.
The action brought in 1992 in the U. S. District Court for the
District of Minnesota by the Company's Northern Star Company
("Northern Star") subsidiary against Archer Daniels Midland, Inc.
("ADM") and Burlington Northern, Inc. ("BN"), seeking a
determination that the defendants are responsible for all costs
associated with the investigation and remediation of a
contaminated site purchased by Northern Star. The parties
reached a settlement in the fourth quarter of 1993. Under the
separate settlement agreements, ADM and BN agreed to remediate
the contaminated site subject to approval by the Minnesota
Pollution Control Agency. In addition, ADM has agreed to lease
to Northern Star certain property for the construction of a waste
water treatment facility and a parking lot. Separately, Northern
Star asserted a crossclaim against the Port Authority of the City
of St. Paul, Minnesota (the "Port Authority") for the recovery of
certain remediation costs relating to the property acquired from
the Port Authority. An agreement in principal has been reached
with the Port Authority in settlement of this crossclaim.
The Company is also engaged in routine litigation incidental to
its business, which management believes will not have a material
adverse effect upon its business or consolidated financial
position.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Pursuant to General Instruction G(2), information is incorporated
by reference to "Market Price Ranges" on the inside back cover of
the Company's Annual Report to Stockholders for 1993.
ITEM 6 - SELECTED FINANCIAL DATA
Pursuant to General Instruction G(2), information is incorporated
by reference to "Summary Consolidated Financial Data" on page 19
of the Company's Annual Report to Stockholders for 1993.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instruction G(2), information is incorporated
by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 8 and 9
of the Company's Annual Report to Stockholders for 1993.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instruction G(2), information is incorporated
by reference to "Report of Independent Certified Public
Accountants" and "Consolidated Financial Statements of Michael
Foods, Inc. and Subsidiaries" on pages 10-18 , and "Quarterly
Financial Data" on page 20, of the Company's Annual Report to
Stockholders for 1993.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information is incorporated
by reference to "Election of Directors" on pages 1-3 of the
Company's definitive Proxy Statement for its 1994 Annual Meeting
of Stockholders filed with the Securities and Exchange Commission
on March 25, 1994.
16
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information is incorporated
by reference to "Executive Compensation" on pages 4-11 of the
Company's definitive Proxy Statement for its 1994 Annual Meeting
of Stockholders filed with the Securities and Exchange Commission
on March 25, 1994. In addition, James J. Kohler, President of
Kohler Mix Specialties, Inc., Norman A. Rodriguez, President of
Crystal Farms Refrigerated Distribution Company, Kevin O. Kelly,
President of Michael Foods Sales, and John D. Reedy, Vice
President -- Finance are participants in the Severance Plan for
Eligible Employees of Michael Foods, Inc. and its Subsidiaries
(the "Plan"). Under the Plan, certain identified employees of
Michael Foods, Inc. are entitled to severance pay upon
termination of employment if such termination of employment
occurs within two years following a change in control, as defined
in the Plan, and such termination is due to reasons other than
death, permanent disability, retirement, cause, or resignation by
the employee other than for Good Reason. Good Reason is a
defined term which includes, among other things, a termination by
the employee due to a significant change in his responsibilities,
titles or offices, a requirement that he or she move outside of
his or her geographic location, a reduction in the employee's
base salary or the failure of the employer to increase
compensation proportionate to other similarly situated employees;
the failure of the employer to maintain any benefit plan or a
substantial modification in such plan which would reduce the
employee's benefits, and any purported termination of employment
by the Company which is not effected pursuant to a notice of
termination as required under the Plan. The amount of
compensation to which Messrs. Kohler, Rodriguez, Kelly and Reedy
would become entitled equals two times their Annual Compensation,
as defined, which generally means base compensation excluding
bonuses, benefits and allowances. The Plan automatically
terminates unless it is renewed by action of the Board of
Directors of the Company prior to July 1, 1994 and annually
thereafter, except that the Plan will remain in effect after a
change in control for at least 24 months unless otherwise
terminated by the Board of Directors of the Company with the
consent of 80% of the Plan participants who were Plan
participants at the time of the change in control.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction G(3), information is incorporated
by reference to "Security Ownership" on pages 12 and 13 of the
Company's definitive Proxy Statement for its 1994 Annual Meeting
of Stockholders filed with the Securities and Exchange Commission
on March 25, 1994.
17
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information is
incorporated by reference to "Related Party Transactions" on page
3 of the Company's definitive Proxy Statement for its 1994 Annual
Meeting of Stockholders filed with the Securities and Exchange
Commission on March 25, 1994.
Part IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
EXHIBITS
3.1 Certificate of Incorporation of Michael Foods, Inc. (1)
3.2 Certificate of Amendment to Certificate of
Incorporation dated April 29, 1988 (2)
3.3 Certificate of Amendment to Certificate of
Incorporation dated April 30, 1990 (3)
3.4 Bylaws of Michael Foods, Inc. (1)
3.5 Amendment of the Company's Bylaws dated February 23,
1988 (7)
4.1 Form of Common Stock Certificate (9)
10.10 *Employment Agreement between Michael Foods, Inc. and
Richard G. Olson dated November 29, 1989 (6)
10.11 *Employment Agreement between Michael Foods, Inc. and
Jeffrey M. Shapiro dated March 1, 1990 (6)
10.15 *Michael Foods, Inc. 1987 Incentive Stock Option Plan
and Incentive Stock Option Agreement (1)
10.16 *Michael Foods, Inc. 1987 Non-Qualified Stock Option
Plan and Non-Qualified Stock Option Agreement (1)
10.25 *Form of Michael Foods, Inc. Director Stock Option
Agreement (1)
10.34 Agreement for the Purchase of Capital Stock of Milton
G. Waldbaum Company, dated as of April 29, 1988, and
Amendment No. 1 and 2, with Exhibits (4)
10.40 *Retirement Compensation Agreement between Milton G.
Waldbaum Company and Daniel W. Gardner dated September
24, 1987 (6)
10.41 *Employment Agreement between Milton G. Waldbaum Company
and Daniel W. Gardner dated May 31, 1988 (6)
10.42 *Consulting and Non-Competition Agreement between Milton
G. Waldbaum Company and Daniel W. Gardner dated May 31,
1988 (6)
10.43 Loan Agreement and Promissory Note between Metropolitan
Life Insurance Company and Michael Foods, Inc., dated
December 1, 1989 (6)
10.44 Amendment No. 1 to Put and Call Agreement between
Michael Foods, Inc. and the Gardner Family (6)
18
<PAGE>
10.45 *Addendum No. 1 to Employment Agreement between Michael
Foods, Inc. and Richard G. Olson dated March 1, 1990
(6)
10.46 Revolving Loan Agreement between Continental Bank,
N.A., as Agent, and Michael Foods, Inc. dated March 30,
1990 (10)
10.47 *Consulting Agreement between Michael Foods, Inc. and
John M. Stafford dated January 7, 1991 (10)
10.48 First Amendment to Revolving Loan Agreement between
Continental Bank, N.A., as Agent, and Michael Foods,
Inc., dated March 7, 1991 (10)
10.49 Note Purchase Agreement between Michael Foods, Inc. and
The Principal Mutual Life Insurance Company and
Washington Square Capital, as Agent, dated July 15,
1990 (10)
10.50 Note Purchase Agreement between Michael Foods, Inc. and
The Principal Mutual Life Insurance Company and
Washington Square Capital, as Agent, dated September
15, 1990 (10)
10.54 *Employment Agreement between Milton G. Waldbaum Company
and David Gardner dated March 15, 1990 (10)
10.55 *Amendment to Michael Foods, Inc. Incentive and Non-
Qualified Stock Option Plans, dated November 21, 1989
(8)
10.56 License Agreement between Michael Foods, Inc. and North
Carolina State University dated November 28, 1989 (10)
10.57 *Severance Plan for Eligible Employees of Michael Foods,
Inc. and its Subsidiaries (5)
10.58 Partnership Agreement between SKW Nature's Products,
Inc. and MIKL, Inc. (11)
10.59 *Addendum No. 2 to Employment Agreement between Michael
Foods, Inc. and Richard G. Olson dated June 28, 1991
(12)
10.60 Second Amendment to Revolving Loan Agreement between
Continental Bank, N.A., as Agent, and Michael Foods,
Inc., dated February 25, 1992 (12)
10.61 Note Purchase Agreement between Michael Foods, Inc. and
The Principal Mutual Life Insurance Company dated
February 24, 1992 (12)
10.62 Third Amendment to Revolving Loan Agreement between
Continental Bank , N.A., as Agent, and Michael Foods,
Inc., dated April 24, 1992 (13)
10.63 Fourth Amendment to Revolving Loan Agreement between
Continental Bank , N.A., as Agent, and Michael Foods,
Inc., dated October 16, 1992 (14)
10.64 First Amendment to July 15, 1990 Note Purchase
Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company and Washington Square
Capital, as Agent, dated October 7, 1992 (14)
10.65 First Amendment to September 15, 1990 Note Purchase
Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company and Washington Square
Capital, as Agent, dated October 7, 1992 (14)
19
<PAGE>
10.66 First Amendment to February 24, 1992 Note Purchase
Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company dated October 7, 1992
(14)
10.67 First Amendment to December 1, 1989 Loan Agreement and
Promissory Note between Michael Foods, Inc. and
Metropolitan Life Insurance Company dated October 14,
1992 (14)
10.68 *Amended and Restated Annual Incentive Compensation Plan
(14)
10.69 *Amendment to the Non-Qualified Stock Option Plan (15)
10.70 *Stock Option Plan for Non-Employee Directors (16)
10.71 Memorandum of Agreement effective as of January 1, 1993
amending Partnership Agreement between SKW Nature's
Products, Inc. and MIKL, Inc. (17)
10.72 *Amendment to Severance Plan for Eligible Employees of
Michael Foods, Inc. and its Subsidiaries adopted by
resolution of the Board of Directors on July 29, 1993
(17)
10.73 *Resolution adopted by the Board of Directors on April
27, 1993 extending the termination date of the
Severance Plan for Eligible Employees of Michael Foods,
Inc. and its Subsidiaries for one additional year (17)
10.74 Assignment Agreement between Westpac Banking
Corporation and Toronto Dominion (Texas), Inc. (17)
10.75 Revolving Note between Michael Foods, Inc. and Toronto
Dominion (Texas), Inc. (17)
10.76 *Michael Foods, Inc. 1994 Executive Incentive Plan
10.77 *Michael Foods, Inc. 1994 Executive Performance Stock
Award Plan
10.78 Fifth Amendment to Revolving Loan Agreement between
Continental Bank, N. A., as Agent, and Michael Foods,
Inc., dated February 4, 1994
10.79 *Employment Agreement between Michael Foods, Inc. and
Gregg A. Ostrander dated January 31, 1994
10.80 *Retirement and Consulting Agreement between Michael
Foods, Inc. and Richard G. Olson dated December 23,
1993
10.81 Second Amendment to December 1, 1989 Loan Agreement and
Promissory Note between Michael Foods, Inc. and
Metropolitan Life Insurance Company dated February 23,
1994
10.82 Second Amendment to July 15, 1990 Note Purchase
Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company and Washington Square
Capital, as Agent, dated February 15, 1994
10.83 Second Amendment to September 15, 1990 Note Purchase
Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company and Washington Square
Capital, as Agent, dated February 15, 1994
10.84 Second Amendment to February 24, 1992 Note Purchase
Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company dated February 15, 1994
20
<PAGE>
10.85 **Purchase and Sale Agreement by and between SKW Nature's
Products, Inc. and Michael Foods, Inc. dated March 11,
1994
10.86 **Technology License Agreement by and between SKW
Trostberg AG and Michael Foods, Inc. dated March 11,
1994
13.1 1993 Annual Report to Stockholders
21.1 Schedule of Michael Foods, Inc. Subsidiaries
23.1 Auditors' Consent - Grant Thornton
* Management Contract or Compensation Plan Arrangement
** Request for confidential treatment has been filed with the Commission for
the redacted portions of these Exhibits
- ----------------------------
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 Registration No. 33-12949.
(2) Incorporated by reference from the Company's Report on Form
10-Q for the Quarter ended March 31, 1988.
(3) Incorporated by reference from the Company's Report on Form
10-Q for the Quarter ended June 30, 1990.
(4) Incorporated by reference from Exhibit 2.1 of the Company's
Report on Form 8-K dated June 6, 1988.
(5) Incorporated by reference from the Company's Form 8,
Amendment No. 1 to Report on Form 10-K for the year ended
December 31, 1990.
(6) Incorporated by reference from the Company's Report on Form
10-K for the year ended December 31, 1989.
(7) Incorporated by reference from the Company's Report on Form
10-K for the year ended December 31, 1987.
(8) Incorporated by reference to Exhibit 4.6 of the Company's
Registration Statement on Form S-8 effective November 21,
1989 Registration No. 33-31914.
(9) Incorporated by reference from the Company's Registration
Statement on Form S-3 Registration No. 33-40071.
(10) Incorporated by reference from the Company's Report on Form
10-K for the year ended December 31, 1990.
(11) Incorporated by reference to Exhibit 10.58 of the Company's
Form 8, Amendment No. 1 to Report on Form 10-K for the year
ended December 31, 1991.
(12) Incorporated by reference from the Company's Report on Form
10-K for the year ended December 31, 1991.
(13) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended March 31, 1992.
(14) Incorporated by reference from the Company's Report on Form
10-K for the year ended December 31, 1992.
(15) Incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-8 effective June 9, 1993
Registration No. 33-64078.
(16) Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 effective June 9, 1993
Registration No. 33-64076.
(17) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended June 30, 1993.
21
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Michael Foods, Inc. and
Subsidiaries as of December 31, 1993 and 1992 and for the 3 years
ended December 31, 1993 are incorporated by reference to the
Company's Annual Report to Stockholders for 1993, which includes
the following:
Page Number
(in the Company's Annual
Report to Stockholders
for 1993)
------------------------
Report of Independent Certified Public
Accountants 18
Consolidated Balance Sheets 10
Consolidated Statements of Operations 11
Consolidated Statements of Stockholders'
Equity 12
Consolidated Statements of Cash Flows 13
Notes to Consolidated Financial
Statements 14-17
FINANCIAL STATEMENT SCHEDULES
Michael Foods, Inc. and Subsidiaries
Report of Independent Certified Public Accountants on Schedules
Schedule II - Amounts Receivable from Related Parties
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and
Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short Term Borrowings
Schedule X - Supplementary Income Statement
Information
OTHER FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included
in the consolidated financial statements or notes thereto.
REPORTS ON FORM 8-K
A report on Form 8-K was filed on December 21, 1993 regarding the
announcement of a fourth quarter 1993 restructuring charge.
22
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MICHAEL FOODS, INC.
Date: March 31, 1994 By: /s/ Gregg A. Ostrander
-----------------------
Gregg A. Ostrander
(President and Chief
Executive Officer)
Date: March 31, 1994 By: /s/ John D. Reedy
------------------
John D. Reedy
(Vice-President-Finance, Treasurer,
Chief Financial Officer and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
/s/ James H. Michael March 31, 1994
- ---------------------
James H. Michael
(Chairman of the Board)
/s/ Gregg A. Ostrander March 31, 1994
- -----------------------
Gregg A. Ostrander (Director,
President & Chief Executive Officer)
/s/ Miles E. Efron March 31, 1994
- -------------------
Miles E. Efron (Director)
/s/ Richard A. Coonrod March 31, 1994
- -----------------------
Richard A. Coonrod (Director)
/s/ Orville L. Freeman March 31, 1994
- -----------------------
Orville L. Freeman (Director)
/s/ Arvid C. Knudtson March 31, 1994
- ----------------------
Arvid C. Knudtson (Director)
/s/ Joseph D. Marshburn March 31, 1994
- ------------------------
Joseph D. Marshburn (Director)
/s/ Jeffrey J. Michael March 31, 1994
- -----------------------
Jeffrey J. Michael (Director)
/s/ Richard G. Olson March 31, 1994
- ---------------------
Richard G. Olson (Director)
23
<PAGE>
Report of Independent Certified Public Accountants on Schedules
Board of Directors
Michael Foods, Inc.
In connection with our audits of the consolidated financial
statements of Michael Foods, Inc. and Subsidiaries referred to in
our report dated February 16, 1994, which is included in the
Annual Report to Stockholders and incorporated by reference in
Part II of this form, we have also audited Schedules II, V, VI,
VIII, IX and X for each of the three years in the period ended
December 31, 1993. In our opinion, these schedules present
fairly, in all material respects, the information required to be
set forth therein.
/s/ GRANT THORNTON
Minneapolis, Minnesota
February 16, 1994
24
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
MICHAEL FOODS, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
- ------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------------
Deductions
----------------------------
Balance at (1) (2)
Beginning of Amounts Amounts Balance at End of
Name of Debtor Period Additions Collected Written Off Period-Current
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1991:
Cholorex Company $0 $2,959,000 $2,009,000 $0 $950,000
For the Year Ended
December 31, 1992:
Cholorex Company $950,000 $2,033,000 $2,969,000 $0 $14,000
For the Year Ended
December 31, 1993:
Cholorex Company $14,000 $1,874,000 $1,840,000 $0 $48,000
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
MICHAEL FOODS, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------------------------
Other
Balance at Changes Add
Beginning of Additions at (Deduct) Balance at
Classification Period Cost Retirements Describe End of Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1991
Land $ 4,030,000 $ 429,000 $ 10,000 $ 0 $ 4,449,000
Buildings and Improvements 69,935,000 12,598,000 1,495,000 243,000 81,281,000
Machinery and Equipment 118,711,000 35,389,000 846,000 1,912,000 155,166,000
------------ ----------- ---------- ----------- ------------
$192,676,000 $48,416,000 $2,351,000 $ 2,155,000 $240,896,000
------------ ----------- ---------- ----------- ------------
------------ ----------- ---------- ----------- ------------
(a)
For the Year Ended
December 31, 1992:
Land $ 4,449,000 $ 458,000 $ 2,000 $ 0 $ 4,905,000
Buildings and Improvements 81,281,000 10,970,000 1,008,000 0 91,243,000
Machinery and Equipment 155,166,000 20,185,000 3,711,000 0 171,640,000
------------ ----------- ---------- ----------- ------------
$240,896,000 $31,613,000 $4,721,000 $ 0 $267,788,000
------------ ----------- ---------- ----------- ------------
------------ ----------- ---------- ----------- ------------
For the Year Ended
December 31, 1993:
Land $ 4,905,000 $ 0 $ 4,000 $( 700,000) $ 4,201,000
Buildings and Improvements 91,243,000 3,327,000 3,694,000 ( 896,000) 89,980,000
Machinery and Equipment 171,640,000 8,344,000 5,710,000 (7,619,000) 166,655,000
------------ ----------- ---------- ----------- ------------
$267,788,000 $11,671,000 $9,408,000 $(9,215,000) $260,836,000
------------ ----------- ---------- ----------- ------------
------------ ----------- ---------- ----------- ------------
(b)
<FN>
- ------------------------
(a) Property, plant and equipment acquired - business acquisitions
(b) Reclassification to Net Assets Held for Sale
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI
MICHAEL FOODS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------------------------------------------------------------
Additions Other
Balance at Charged to Changes Add Balance at
Beginning of Costs and (Deduct) End of
Classification Period Expenses Retirements Describe Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1991:
Buildings and Improvements $ 6,974,000 $ 3,826,000 $ 414,000 $ 0 $10,386,000
Machinery and Equipment 21,173,000 13,777,000 404,000 0 34,546,000
------------ ------------ ------------ ------------ -----------
$ 28,147,000 $ 17,603,000 $ 818,000 $ 0 $44,932,000
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
For the Year Ended
December 31, 1992:
Buildings and Improvements $ 10,386,000 $ 4,459,000 $ 119,000 $ 0 $14,726,000
Machinery and Equipment 34,546,000 16,995,000 1,712,000 0 49,829,000
------------ ------------ ------------ ------------ -----------
$ 44,932,000 $ 21,454,000 $ 1,831,000 $ 0 $64,555,000
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
For the Year Ended
December 31, 1993:
Buildings and Improvements $ 14,726,000 $ 4,671,000 $ 217,000 $ (519,000) $18,661,000
Machinery and Equipment 49,829,000 17,775,000 3,110,000 (2,757,000) 61,737,000
------------ ------------ ----------- ------------ -----------
$ 64,555,000 $ 22,446,000 $ 3,327,000 $(3,276,000) $80,398,000
------------ ------------ ----------- ------------ -----------
------------ ------------ ----------- ------------ -----------
(a)
<FN>
- ------------------------
(a) Reclassification to Net Assets Held for Sale
Lives used in computing depreciation, principally on a straight line basis:
Buildings and Improvements...........10-40 years
Machinery and Equipment...............3-10 years
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
MICHAEL FOODS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- -------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------------
(2)
(1) Charges to
Balance at Charged to Other
Beginning of Costs and Accounts- Deductions- Balance at End
Description Period Expenses Describe Describe (a) of Period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1991:
Allowance for
Doubtful Accounts $233,000 $712,000 $0 $547,000 $398,000
For the Year Ended
December 31, 1992:
Allowance for
Doubtful Accounts $398,000 $380,000 $0 $332,000 $446,000
For the Year Ended
December 31, 1993:
Allowance for
Doubtful Accounts $446,000 $756,000 $0 $319,000 $883,000
<FN>
- ------------------------
(a) Write-offs of accounts deemed uncollectible.
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
MICHAEL FOODS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
- ---------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------------------------------------------
Maximum Average Weighted
Amount Amount Average
Weighted Outstanding Outstanding Interest Rate
Category of Aggregate Balance at End Average During the During the During the
Short-term Borrowings of Period Interest Rate Period Period (b) Period (c)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1991:
Bank Demand Notes (a) $27,840,000 5.83% $37,437,000 $4,823,000 7.70%
For the Year Ended
December 31, 1992:
Bank Demand Notes (d) NONE
For the Year Ended
December 31, 1993:
Bank Demand Notes (d) NONE
<FN>
- ------------------------
(a) Bank lines of credit payable on demand with an interest rate floating with
the bank's reference rate or other variable rates.
(b) The average amount outstanding during the period was computed by dividing
the total of daily outstanding principal balances by 365 days.
(c) The weighted average interest rate during the period was computed by
dividing the total of daily average interest rates by the total number of
days debt was outstanding during the year.
(d) The Company's revolving line of credit was refinanced into a long-term
facility in February 1992.
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X
MICHAEL FOODS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
- --------------------------------------------------------------------------------
Column A - Column B -
Item Charged to Costs and Expenses
- --------------------------------------------------------------------------------
<S> <C>
For the Year Ended
December 31, 1991:
1. Maintenance and Repairs...........................................$6,333,000
For the Year Ended
December 31, 1992:
1. Maintenance and Repairs...........................................$7,111,000
5. Advertising costs.................................................$4,940,000
For the Year Ended
December 31, 1993:
1. Maintenance and Repairs...........................................$6,688,000
</TABLE>
-30-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBITS PAGE
NUMBER NUMBER
- ------ ------
10.76 *Michael Foods, Inc. 1994 Executive Incentive
Plan
10.77 *Michael Foods, Inc. 1994 Executive
Performance Stock Award Plan
10.78 Fifth Amendment to Revolving Loan Agreement
between Continental Bank, N. A., as Agent,
and Michael Foods, Inc., dated February 4,
1994
10.79 *Employment Agreement between Michael Foods,
Inc. and Gregg A. Ostrander dated January 31,
1994
10.80 *Retirement and Consulting Agreement between
Michael Foods, Inc. and Richard G. Olson
dated December 23, 1993
10.81 Second Amendment to December 1, 1989 Loan
Agreement and Promissory Note between Michael
Foods, Inc. and Metropolitan Life Insurance
Company dated February 23, 1994
10.82 Second Amendment to July 15, 1990 Note
Purchase Agreement between Michael Foods,
Inc. and The Principal Mutual Life Insurance
Company and Washington Square Capital, as
Agent, dated February 15, 1994
10.83 Second Amendment to September 15, 1990 Note
Purchase Agreement between Michael Foods,
Inc. and The Principal Mutual Life Insurance
Company and Washington Square Capital, as
Agent, dated February 15, 1994
10.84 Second Amendment to February 24, 1992 Note
Purchase Agreement between Michael Foods,
Inc. and The Principal Mutual Life Insurance
Company dated February 15, 1994
10.85 **Purchase and Sale Agreement by and between
SKW Nature's Products, Inc. and Michael
Foods, Inc. dated March 11, 1994
10.86 **Technology License Agreement by and between
SKW Trostberg AG and Michael Foods, Inc.
dated March 11, 1994
13.1 1993 Annual Report to Stockholders
21.1 Schedule of Michael Foods, Inc. Subsidiaries
23.1 Auditors' Consent - Grant Thornton
* Management Contract or Compensation Plan Arrangement
** Request for confidential treatment has been filed with the Commission for
the redacted portions of these Exhibits
31
<PAGE>
EXHIBIT 10.76
MICHAEL FOODS, INC.
1994 EXECUTIVE INCENTIVE PLAN
(EFFECTIVE JANUARY 1, 1994)
I.
PURPOSE
A. The purpose of the Michael Foods, Inc. Executive Incentive Plan (the
"Plan") is to incent and reward the senior management of Michael Foods,
Inc. (the "Company") for delivering or exceeding their annual operating
plan and to motivate those executives to be planning and focusing on
year-over-year trendline earnings growth. Corporate executives will be
rewarded based upon attainment of the Company's EPS growth targets.
Operating company executives will be rewarded based upon individual
operating company growth in profit before taxes ("PBT"), as well as overall
corporate EPS performance.
B. The Plan will be effective January 1, 1994, will remain in effect until
amended or terminated, and supersedes the Michael Foods, Inc. Amended and
Restated Annual Incentive Compensation Plan, which has been terminated.
II.
ADMINISTRATION
A. The Plan will be administered by the Chief Executive Officer ("CEO") and
the Chief Financial Officer of the Company under the direction of the
Compensation Committee of the Board of Directors.
B. The Board of Directors will have sole authority to establish the Plan's
terms and conditions.
III.
ELIGIBILITY
A. Participation in the Plan will be restricted to those positions which have
a clear impact on the Company's financial and operating performance.
B. Eligible participants will include principal officers and select key
employees of the Company and the Company's operating companies.
C. Generally, key employees will be defined as those executive positions which
report to the President of an operating subsidiary or, in the case of
corporate level employees, to the CEO of the Company.
D. Key employees will be recommended by the CEO of the Company and will be
approved by the Compensation Committee of the Board of Directors.
E. Participation will also be limited to executives who are not covered under
another approved incentive plan.
IV.
INCENTIVE OPPORTUNITY
A. The size of the maximum incentive award opportunity level will vary by the
position's responsibility level, as outlined below:
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM INCENTIVE
OPPORTUNITY AS A
LEVEL POSITION(S) PERCENT OF BASE SALARY
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<C> <S> <C>
I Corporate CEO, President, Chief Operating 100%
Officer, Executive Vice President, Chief
Financial Officer and Operating Company
Presidents
II Other Officers 75%
III Non-Officer Key Employees 50%
</TABLE>
V.
PLAN COMPONENTS
COMPONENT A: CASH AWARD
3/4 of the incentive opportunity for both corporate and operating company
participants will be paid based upon PBT or EPS achievement against target
objectives, in accordance with the following table:
INCENTIVE AWARD OPPORTUNITY
AS A PERCENT OF BASE SALARY:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III
- --------------------------------------------------------------------------------
ACHIEVEMENT OF TARGET
---------------------
<S> <C> <C> <C>
Below 94% 0.0% 0.0% 0.0%
94% - 94.99% 6.0% 4.5% 3.0%
95% - 95.99% 11.3% 8.5% 5.6%
96% - 96.99% 16.5% 12.4% 8.3%
97% - 97.99% 21.8% 16.4% 10.9%
98% - 98.99% 27.0% 20.3% 13.5%
99% - 99.99% 32.3% 24.2% 16.1%
100% - 100.99% 37.5% 28.1% 18.8%
101% - 101.99% 41.3% 31.0% 20.6%
102% - 102.99% 45.0% 33.8% 22.5%
103% - 103.99% 48.8% 36.6% 24.4%
104% - 104.99% 52.5% 39.4% 26.3%
105% - 105.99% 56.3% 42.2% 28.1%
106% - 106.99% 60.0% 45.0% 30.0%
107% - 107.99% 63.8% 47.9% 31.9%
108% - 108.99% 67.5% 50.6% 33.8%
109% - 109.99% 71.3% 53.5% 35.6%
110% or Greater 75.0% 56.3% 37.5%
</TABLE>
2
<PAGE>
COMPONENT B: STOCK AWARD
1/4 of the incentive opportunity for both corporate and operating company
participants will be paid based upon year-over-year trendline earnings growth.
For the 1994 Plan year trendline EPS must increase 15% over 1993's level to
trigger participation in this component of the Plan. This segment of the Plan is
earned over a period of three years and is paid in the Company's common stock.
- -- Year I earns 50%, Year II earns 30% assuming EPS growth of at least 15% in
Year II, and Year III earns the balance (20%) assuming EPS growth of at
least 15% in Year III. (If at least 15% year-over-year EPS growth is not
achieved, that yearly portion of the stock award incentive is forfeited.)
The number of shares of common stock that would be awarded to an individual
participant is determined by multiplying the appropriate earned percentage
by the 25% of the maximum incentive opportunity for each individual at the
appropriate level covered by Component B. That amount is then divided by
the closing price of the Company's common stock on the third business day
following the announcement of year-end financial results to determine the
number of shares of common stock to be issued to each participant.
Certificates will be issued as soon as practical following the March Board
of Directors meeting. Further aspects of Component B are covered in the
Michael Foods, Inc. 1994 Executive Performance Stock Award Plan.
COMPONENT C: OPTION AWARD
Stock options will be awarded to the operating company presidents and executive
corporate officers for achieving EPS growth in excess of 20% annually.
- -- Initial qualified individuals:
<TABLE>
<S> <C>
Gregg Ostrander Norman Rodriguez
Jeffrey Shapiro Kevin Murphy
John Reedy James Kohler
William Goucher Kevin Kelly
</TABLE>
- -- Stock option awards will be for a specific number of shares of common stock
based upon a rising scale which is triggered with a year-over-year increase
in EPS of at least 20% as follows:
<TABLE>
<CAPTION>
PRESIDENT/CEO
OF MICHAEL ALL OTHER
FOODS, INC. PARTICIPANTS
MAXIMUM STOCK OPTION OPPORTUNITY ----------- ------------
(COMMON STOCK SHARES) 31,500/YR 21,000/YR
----------------------------------------------------------------------
<S> <C> <C>
Below 20% Earnings Per Share Growth 0 0
20% - 24.99% Earnings Per Share Growth 4,500 3,000
25% - 29.99% Earnings Per Share Growth 9,000 6,000
30% - 34.99% Earnings Per Share Growth 13,500 9,000
35% - 39.99% Earnings Per Share Growth 18,000 12,000
40% - 44.99% Earnings Per Share Growth 22,500 15,000
45% - 49.99% Earniings Per Share Growth 27,000 18,000
50% or Greater 31,500 21,000
</TABLE>
3
<PAGE>
Options will be priced based upon the closing price of the Company's common
stock on the third business day following the announcement of year-end financial
results each year and will be issued following the March Board of Directors
meeting. The fully diluted earnings per share for each year will be computed in
accordance with GAAP, but before accrual of bonuses and stock option awards
under this plan.
VI.
ORGANIZATION AND INDIVIDUAL PERFORMANCE MEASURES
The following measures of organization performance will be used to determine
actual incentive awards:
MICHAEL FOODS, INC. Fully diluted net earnings per share. Measured by
actual fully diluted earnings per share for current year as compared to the
target level. Calculated in accordance with GAAP, but before accrual of
bonuses and stock option awards under this Plan.
OPERATING COMPANIES. Profit before taxes (PBT). Measured by actual pre-tax
profits for the Plan year as compared to the target level. For the purposes
of the Plan, PBT will be defined as operating profits, calculated in
accordance with GAAP, before federal and state taxes, any interest charges
associated with acquisition debt, and before accrual of bonuses and stock
option awards under this Plan.
VII.
ADMINISTRATIVE PROCEDURES
A. ADDITIONS OF INDIVIDUALS. All eligible participants must be designated by
the CEO of the Company as of the beginning of the Plan year.
B. ESTABLISHMENT OF "TARGET OR MAXIMUM" GOALS. The CEO retains the right to
set or adjust the operating company and corporate "target or maximum"
incentive goals based upon an assessment of overall business conditions at
the beginning of the Plan year.
C. ADJUSTMENTS TO TARGETS AND/OR GOALS. The CEO retains the right to adjust
the targets and/or goals of the Plan based upon his/her assessment of
business conditions at the end of the second quarter of the Plan year.
D. DOWN EARNINGS YEAR. No incentive shall be paid to a participant if their
operating company or, in the case of corporate level participants, the
Company has a decline in earnings for the Plan year, except at the
discretion of the CEO with the approval of the Compensation Committee.
E. TERMINATIONS/DEATH/DISABILITY. Plan participants must be in the employ of
the Company on the last day of the year to which the incentive award
relates in order to be eligible for incentive award payments. However,
should a participant die or become disabled, the incentive award for the
year in which such death or disability occurs shall be prorated by the
number of months of service during the applicable Plan year and shall be
paid to the participant or the participant's estate, as the case may be.
F. CHANGE IN POSITION. Eligible employees under the Plan who have a change in
position during a Plan year will have their incentive award calculated
under the Plan award levels for both positions, prorating the incentive
award by the months of service at each level.
G. INTERPOLATION. When the actual performance figure does not result in a
whole number, the individual calculating the formula should interpolate to
the closest whole percent.
4
<PAGE>
H. EXCEPTIONS. In each instance, exceptions must be approved in advance by the
appropriate officer and the CEO of the Company, and must be submitted to
the Compensation Committee of the Board of Directors for their concurrence.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend the Plan for the purposes of
satisfying the requirements of any changes in applicable laws or for any purpose
that may be permitted by law. The Board of Directors may also terminate the Plan
at any time. No such amendment or termination shall, however, adversely affect
the rights of any participant (without his/her prior consent) with regard to any
award previously made.
IX.
RIGHT TO CONTINUED EMPLOYMENT
No participant shall have any claim or right to be granted an incentive (bonus)
award under this Plan and the granting of an incentive (bonus) award shall not
be construed as giving the participant the right of continued employment with
the Company. The Company further reserves the right to dismiss a participant at
any time, with or without cause, free from any claim or liability other than
provided under this Plan document.
5
<PAGE>
EXHIBIT 10.77
MICHAEL FOODS, INC. 1994 EXECUTIVE PERFORMANCE
STOCK AWARD PLAN
1. PURPOSE OF THE PLAN
The purpose of this Plan is to enable the Company to attract, retain and
reward key executives of the Company and its subsidiaries and affiliates and
strengthen the mutuality of interest between such key executives and the
Company's stockholders by awarding such key executives shares of Common Stock as
earned in accordance with the Michael Foods' 1994 Executive Incentive Plan.
2. DEFINITIONS
In addition to other capitalized terms defined elsewhere in this Plan, the
following terms shall have the respective meanings set forth below:
2.01 "Act" means the Securities Exchange Act of 1934, as amended from time
to time.
2.02 "Affiliate" means any entity in which the Company has a substantial
direct or indirect equity interest, as determined by the Committee in its sole
discretion.
2.03 "Board" means the Board of Directors of the Company.
2.04 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.05 "Commission" means the United States Securities and Exchange
Commission.
2.06 "Committee" means the Committee appointed by the Board in accordance
with Section 4, if a Committee is appointed. If no Committee has been appointed,
any reference to the Committee shall be deemed a reference to the Board.
2.07 "Common Stock" means the Common Stock, par value $.01 per share, of
the Company or such other class of equity securities or other securities as may
be applicable under Section 7.
2.08 "Company" means Michael Foods, Inc., a Delaware corporation or any
successor to substantially all of its business.
2.09 "Executive" means any officer of the Company or any Subsidiary or
Affiliate that participates in the Company's 1994 Executive Incentive Plan. The
Committee is empowered to determine whether any person qualifies as an
"Executive" for purposes of the Plan.
2.10 "Plan" means this Michael Foods, Inc. 1994 Executive Performance Stock
Award Plan.
2.11 "Rule 16b-3" means Rule 16b-3 promulgated by the Commission under the
Act or any successor regulation exempting certain transactions involving
stock-based compensation arrangements from the liability provisions of Section
16 of the Act, as adopted and amended from time to time and as interpreted by
formal or informal opinions of, and releases published or other interpretive
advice provided by, the staff of the Commission.
2.12 "Section 16 Person" means an Executive who at the time an award of
shares is made pursuant to this Plan is subject to Section 16 of the Act, as
interpreted by the rules and regulations promulgated by the Commission
thereunder, as adopted and amended from time to time, and by formal or informal
opinions of, and releases published or other interpretive advice provided by,
the staff of the Commission.
2.13 "Securities Law Requirements" means the Act and the rules and
regulations promulgated by the Commission thereunder, as adopted and amended
from time to time, including but not limited to Rule 16b-3, and as interpreted
by formal or informal opinions of, and releases published or other interpretive
1
<PAGE>
advice provided by, the staff of the Commission; other applicable Federal and
State securities laws and regulations promulgated thereunder, as adopted and
amended from time to time; and the requirements of any stock exchange, automated
inter-dealer quotation system or other recognized securities market on which the
Common Stock is listed or traded or in which the Common Stock is included, as
adopted and amended from time to time and as interpreted by formal or informal
opinions of, and other interpretive advice, provided by the representatives of
such stock exchange, quotation system or other securities market.
2.14 "Shares" means shares of Common Stock of the Company.
2.15 "Subsidiary" means any business association (including a corporation,
partnership or a joint venture, other than the Company) in an unbroken chain of
such associations beginning with the Company if each of the associations other
than the last association in the unbroken chain owns equity interests (including
stock or partnership or joint venture interests) possessing fifty percent (50%)
or more of the total combined voting power of all classes of equity interests in
one of the other associations in such chain.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7, the total number of Shares
available for issuance under the Plan shall be 300,000 Shares.
4. ADMINISTRATION OF THE PLAN
4.01 PROCEDURE. The Plan shall be administered by the Board or the Board
may, in its discretion, appoint a Committee to administer the Plan subject to
such terms and conditions of the Company's 1994 Executive Incentive Plan or, as
the Board may prescribe; provided that neither the Board nor any such Committee
shall make any decision concerning the Plan with respect to any Section 16
Person unless the Board or such Committee making such decision is constituted so
that such decision complies with the then applicable requirements of Rule 16b-3.
Once appointed, the Committee shall continue to serve until otherwise directed
by the Board. From time to time the Board may increase the size of the Committee
and may appoint additional members thereof, remove members (with or without
cause), fill vacancies however caused and remove all members of the Committee
and thereafter directly administer the Plan. As to the selection of and grants
of Shares to Executives who are not Section 16 Persons, the Committee may
delegate any or all of its responsibilities to members of the Company's
management.
4.02 POWERS OF THE COMMITTEE. To the extent not inconsistent with this
Plan, the Company's 1994 Executive Incentive Plan and the then applicable
requirements of Rule 16b-3, the Committee shall have the authority, in its sole
discretion:
(a) To determine the eligibility of Executives to be issued Shares;
(b) To determine whether and to what extent Shares are to be issued to
eligible Executives;
(c) To determine the number of Shares to be issued under the Plan;
(d) To determine the terms and conditions of any Shares, if any;
(e) To determine whether, to what extent and under what circumstances
issuances of Shares are to be made and operate on a tandem basis with
respect to other awards made outside of the Plan, or on a cumulative basis;
and
(f) To adopt, alter and repeal such rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to
interpret the terms and provisions of the Plan; and otherwise supervise the
administration of the Plan.
4.03 EFFECT OF BOARD AND COMMITTEE DECISIONS. In the absence of contrary
action by the Board, any decision, determination or action taken by the
Committee or by the Board in connection with the construction, interpretation,
administration, application, operation and implementation of the Plan shall be
final,
2
<PAGE>
conclusive and binding on the Company, its stockholders and Subsidiaries, all
Executives and the respective legal representatives, heirs, successors and
assigns of all of the foregoing and all other persons claiming under or through
any of them.
4.04 EXCULPATION AND INDEMNIFICATION. No member of the Board or the
Committee, and no Executive or other agent acting on behalf of the Board or the
Committee, shall be personally liable for any decision, determination or action
made or taken, or failed to be made or taken, with respect to this Plan or the
issuance of Shares hereunder, and the Company shall fully protect each such
person in respect of any such decision, determination or action and shall
indemnify each such person against any and all claims, losses, damages, expenses
and liabilities arising from or in connection with any such decision,
determination or action.
5. ELIGIBILITY
Shares may be issued under this Plan to any Executive that participates in
the Company's 1994 Executive Incentive Plan.
6. ISSUANCE OF SHARES
Within five business days following the date that the Company's financial
statements for the prior fiscal year are first publicly released, the Committee
shall determine the number of Shares of Common Stock to be granted to an
Executive under the Company's 1994 Executive Incentive Plan and, subject to any
requirements, rules and procedures established under Section 13 hereof, the
Committee shall direct that a certificate representing the number of Shares of
Common Stock be issued to the Executive with the Executive as the registered
owner. Unless action has been taken to register the Shares of Common Stock
subject to the Plan with the Commission, the certificate representing such
Shares shall be legended so as to provide notice of the restrictions on the
subsequent transfer thereof in order to comply with applicable Securities Law
Requirements.
The date of issuance of Shares hereunder shall, for all purposes, be the
date on which the Committee makes the determination granting such Shares. Notice
of such determination shall be given to each Executive to whom Shares are
granted as soon as practicable after the date of such grant.
7. ADJUSTMENTS
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation or any other change in
the corporate structure of the Company affecting the Common Stock, the Board
shall make appropriate adjustment in the number and kind of Shares authorized by
the Plan, as it determines appropriate in the circumstances, in its sole
discretion.
8. AGREEMENTS
As a condition to the issuance of Shares awarded under this Plan, the
Executive shall enter into an agreement in such form as may be prescribed by the
Committee from time to time. Each such agreement shall contain such provisions
as are required to conform to the terms of the Plan and may contain such
additional provisions not inconsistent with the terms of the Plan as the
Committee may from time to time authorize. Each agreement evidencing the
issuance of Shares to a Section 16 Person shall also provide for such minimum
holding period from the date of the grant of the award to the disposition of any
Shares acquired pursuant to the award as may be required by Rule 16b-3.
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued unless the issuance and delivery of such Shares
pursuant thereto shall comply with all applicable Securities Law Requirements
and all other applicable provisions of law, including,
3
<PAGE>
without limitation, any applicable state "blue sky" laws, securities laws and
the rules and regulations promulgated under any of such laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the issuance of Shares, the Company may require the
Executive to whom such Shares are to be issued to make such representations and
warranties to the Company as may be required, in the opinion of counsel for the
Company, by any of the aforementioned Securities Law Requirements and other
laws, which may include, without limitation, representations and warranties that
the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares.
The Company shall not have any liability to any Executive in respect of any
delay in the issuance of Shares hereunder.
10. RESERVATION OF SHARES
The Company, during the term of this Plan, shall at all times reserve and
keep available for issuance such number of shares of Common Stock as shall be
sufficient to satisfy the requirements of the Plan.
11. EFFECTIVENESS OF PLAN
This Plan was adopted by the Board effective as of January 1, 1994;
provided, however, that no Shares shall be issued hereunder unless and until,
the Plan is approved, by the holders of the outstanding shares of Common Stock
of the Company present and voting, in person or by proxy, at a duly held meeting
of the Company's stockholders or any adjournment thereof and by such percentage
of such quorum of such stockholders as may be required by applicable Securities
Law Requirements. If this Plan is not approved by the Company's stockholders
within one (1) year of the date of adoption of the Plan, this Plan shall
automatically terminate and any issuances of Shares hereunder shall be invalid.
Once so approved by the stockholders of the Company, the Plan shall continue in
full force and effect until: (i) terminated by resolution of the Board; or (ii)
no Shares remain available for the issuance hereunder.
12. AMENDMENT OF PLAN
The Board, may in its sole discretion, amend the Plan from time to time,
provided that any amendment which Rule 16b-3 or any other Securities Law
Requirement requires be approved by the stockholders of the Company and shall be
made only with the approval of such stockholders. Amendments to the Plan shall
apply prospectively.
13. WITHHOLDING OF TAX
The Board may permit an Executive to elect to satisfy social security and
federal and state income tax withholding obligations relating to the issuance of
Shares hereunder by having the Company deliver to the Executive cash in lieu of
shares in an amount up to forty percent (40%) of the value of Shares awarded
under the Plan. The use and availability of the election to receive cash in lieu
of Shares to satisfy social security and federal and state income tax
withholding requirements is subject in general, and in particular instances, to
the then applicable requirements of Rule 16b-3, the Board's complete discretion
and such rules and procedures as the Board may adopt.
14. GENERAL PROVISIONS
14.01 NATURE OF BENEFITS. Benefits realized by an Executive under this
Plan shall not be deemed a part of such Executive's regular, recurring
compensation for any purpose and shall not be included in, nor have any effect
on, the determination of benefits under any other employee benefit plan or
similar arrangement provided by the Company or a Subsidiary or Affiliate unless
expressly so provided by such other plan or arrangement, or except where the
Committee expressly determines in its sole discretion that a grant of
4
<PAGE>
Shares or portion thereof should be so included in order to accurately reflect
competitive compensation practices or to recognize that a grant of Shares has
been granted in lieu of a portion of competitive annual cash compensation.
The existence of this Plan shall not create in any Executive any right to
the issuance of Shares hereunder or under the 1994 Executive Incentive Plan, and
neither the existence of this Plan nor the issuance of Shares to any Executive
hereunder shall confer upon such Executive any right with respect to
continuation of the employment of such Executive by the Company or any
Subsidiary or Affiliate or shall in any way interfere with or limit the right
which such Executive, the Company or any Subsidiary or Affiliate may otherwise
have to terminate such employment at any time with or without cause. Upon the
termination of any Executive's employment with the Company or any Subsidiary or
Affiliate, neither the Company nor any Subsidiary nor Affiliate shall have any
liability or obligation to such Executive under this Plan or any Shares issued
to such Executive hereunder.
14.02 GOVERNING LAWS. To the extent that federal laws (such as the Act or
the Code) or the Delaware General Corporation Law do not otherwise control, this
Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Minnesota and construed accordingly.
14.03 GENDER AND NUMBER. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
14.04 CAPTIONS. The captions contained in this Plan are for convenience of
reference only and do not affect the meaning of any term or provisions hereof.
5
<PAGE>
EXHIBIT 10.78
FIFTH AMENDMENT
Dated as of February 4, 1994
THIS FIFTH AMENDMENT, dated as of February 4, 1994, amends the Revolving
Loan Agreement, dated as of March 30, 1990 (herein, as previously amended,
called the "Credit Agreement"), among MICHAEL FOODS, INC. (herein called the
"Company"), the banks listed therein (the "Banks") and CONTINENTAL BANK N.A.
("Continental"), as Agent (herein, in such capacity, called the "Agent"). Terms
defined in the Credit Agreement are, unless otherwise defined herein or the
context otherwise requires, used herein as defined therein.
WHEREAS, the Company, the Banks and the Agent have entered into the Credit
Agreement which provides for the Banks to make Advances to the Company from time
to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in certain
respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of) the
Fifth Amendment Effective Date (as defined below), the Credit Agreement shall be
amended in accordance with SECTIONS 1.1 through 1.6 below:
SECTION 1.1 TERMINATION DATE. The definition of "Termination Date"
contained in Section 1.1 of the Credit Agreement is hereby amended by deleting
the date "January 31, 1995" therein and substituting the date "January 31, 1996"
therefor.
SECTION 1.2 DISCONTINUATION LOSSES. The definition of "Consolidated Net
Earnings Available for Fixed Charges" contained in Section 1.1 of the Credit
Agreement is hereby amended by adding at the end thereof (but before the period)
the following proviso:
; provided, however, that any operating and disposition losses
associated with the discontinuation of the Company's Reduced
Cholesterol Liquid Whole Egg business shall be characterized as losses
from discontinued operations for purposes of this definition.
SECTION 1.3 EBITDA. Section 1.1 of the Credit Agreement is amended by
adding the following definition:
-1-
<PAGE>
"EBITDA" means, for any period of determination, the consolidated
Net Income of the Company and its Subsidiaries for such period before
deducting interest expense, tax expense, depreciation and
amortization, all as determined in accordance with generally accepted
accounting principles; provided, however, that any operating and
disposition losses associated with the discontinuation of the Reduced
Cholesterol Liquid Whole Egg business for such period of determination
shall be added back to consolidated Net Income.
SECTION 1.4 MARGIN. Section 1.1 of the Credit Agreement is amended by
adding the following definition:
"Margin" means (i) prior to the effectiveness of the Fifth
Amendment to this Agreement, 0.50%, (ii) commencing on the date of the
effectiveness of the Fifth Amendment to this Agreement and continuing
until the Margin is adjusted pursuant to the following provisions of
this definition, 0.75%, and (iii) thereafter, the rate per annum set
forth in the schedule below opposite the applicable ratio of (a) total
consolidated Indebtedness of the Borrower and its Subsidiaries to (b)
EBITDA for the period of four fiscal quarters ending on the date as of
which such calculation is made (the "Total Debt to EBITDA Ratio"):
<TABLE>
<CAPTION>
TOTAL DEBT TO
EBITDA RATIO MARGIN
<S> <C>
Less than or equal to
1.50 to 1 0.50%
Greater than
1.50 to 1 but less
than or equal to
2.25 to 1 0.625%
Greater than
2.25 to 1 but less
than or equal to
2.75 to 1 0.75%
Greater than
2.75 to 1 1.00%
</TABLE>
The Margin shall be adjusted 60 days or, in the case of the last fiscal
quarter of any fiscal year 90 days, after the end of each fiscal quarter
beginning with the fiscal quarter ended December 31, 1993 based on the Total
Debt to EBITDA Ratio as of the last day of such fiscal quarter; IT BEING
UNDERSTOOD that (a) if
-2-
<PAGE>
the Company fails to deliver the financial statements required by SECTION 8.1(a)
or (b) by the 60th (or, if applicable, the 90th) day after any fiscal quarter,
the Margin shall be 1.00% until such financial statements are delivered; and (b)
no decrease in the Margin shall be effected on any date on which an Event of
Default exists (but shall be delayed until the first date on which no Event of
Default exists). Any change in the Margin shall be immediately effective for
all outstanding Eurodollar Advances.
SECTION 1.5 INTEREST RATE. Section 4.1(b) of the Credit Agreement is
amended by replacing the language "one-half of one percent (1/2%)" with the
words "the Margin".
SECTION 1.6 NON-USE FEE. Section 4.2(b) of the Credit Agreement is
amended by replacing the words "one-tenth of one percent (1/10%)" with the words
"fifteen basis points (0.15%)".
SECTION 2 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Banks that (a) each warranty set forth in Section 7 of the
Credit Agreement is true and correct as of the date of the execution and
delivery of this Fifth Amendment by the Company, with the same effect as if made
on such date, except for such changes that do not constitute an Event of Default
or an Unmatured Event of Default under the Credit Agreement, (b) the execution
and delivery by the Company of this Fifth Amendment and the performance by the
Company of its obligations under the Credit Agreement, as amended hereby
(herein, as so amended, called the "Amended Credit Agreement"), (i) are within
the corporate powers of the Company, (ii) have been duly authorized by all
necessary corporate action, (iii) have received all necessary governmental
approval and (iv) do not and will not contravene or conflict with any provision
of law or of the charter or by-laws of the Company or of any indenture, loan
agreement or other contract, order or decree which is binding upon the Company
and (c) the Amended Credit Agreement is the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies.
SECTION 3 EFFECTIVENESS. The amendments set forth in SECTION 1 above
shall become effective on such date (herein called the "Fifth Amendment
Effective Date") when the Agent shall have received (i) an extension fee in the
amount $27,500, to be shared pro rata among the Banks according to their
commitments under the Credit Agreement, and (ii) each of the following
documents, each in form and substance satisfactory to the Agent: (a)
counterparts of this Fifth Amendment executed by the parties hereto; (b)
certified copies of resolutions of the Board of Directors of the Company
authorizing the execution and delivery of this Fifth Amendment and
-3-
<PAGE>
the performance by the Company of its obligations under the Amended Credit
Agreement; (c) the opinion of Maun & Simon, counsel to the Company; and (d) such
other documents as the Agent or any Bank may reasonably request in connection
with the Company's authorization, execution and delivery of this Fifth
Amendment.
SECTION 4 MISCELLANEOUS.
SECTION 4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the Fifth Amendment Effective Date, all
references in the Credit Agreement and the Notes to "Revolving Loan Agreement",
"Agreement" or similar terms shall refer to the Amended Credit Agreement.
SECTION 4.2 COUNTERPARTS. This Fifth Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Fifth Amendment.
SECTION 4.3 GOVERNING LAW. This Fifth Amendment shall be a contract made
under and governed by the internal laws of the State of Illinois.
SECTION 4.4 SUCCESSORS AND ASSIGNS. This Fifth Amendment shall be binding
upon the Company, the Banks and the Agent and their respective successors and
assigns, and shall inure to the benefit of the Company, the Banks and the Agent
and the respective successors and assigns of the Banks and the Agent.
-5-
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
MICHAEL FOODS, INC.
By s/ John Reedy
-------------------------
Title Vice President, Finance
-------------------------
CONTINENTAL BANK N.A.,
individually and as Agent
By s/ Catherine Drake
--------------------------
Title Vice President
-------------------------
TORONTO DOMINION (TEXAS), INC.
By s/ Warren Finlay
-------------------------
Title Vice President
-------------------------
FIRSTIER BANK, N.A., LINCOLN
By s/ James M. Williams
--------------------------
Title Vice President
-------------------------
THE FIRST NATIONAL BANK OF BOSTON
By s/ Beth R. Halligan
-------------------------
Title Director
-------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND"
By s/ Stephen W. Phillips
-------------------------
Title Vice President
-------------------------
By s/ Robert B. Benoit
-------------------------
Title Senior Vice President
-------------------------
-6-
<PAGE>
EXHIBIT 10.81
February 23, 1994
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
Gentlemen:
We are the holder of your 9.50% Senior Promissory Note due December 1, 1999
(the "Notes") issued pursuant to the Loan Agreement dated December 1, 1989
between you and us (the "Loan Agreement"). As holder of the Notes and party to
the Loan Agreement, we hereby consent and agree that the definition of
"Consolidated Net Earnings Available for Fixed Charges" contained in Section 6
of the Notes shall be amended by adding at the end thereof (but before the
period) the following proviso:
; provided, however, that any operating and disposition losses
associated with the discontinuation of the company's Reduced
Cholesterol Liquid Whole Egg business shall be characterized as losses
from discontinued operations for purposes of this definition, but only
to the extent that any such operating and disposition losses do not
exceed $33,000,000 pre-tax in the aggregate for the year ended
December 31, 1993.
If you are in agreement with the foregoing, kindly so indicate by signing
the enclosed copy of this letter agreement and returning the same to the
undersigned.
This consent shall not be effective unless (a) a similar consent amending
the Company's Note Purchase Agreement dated September 15, 1990 is executed by
two-thirds or more of the lenders thereunder prior to or simultaneously with
this consent, and (b) such other lenders have not received any fee or other
compensation without an equivalent amount having been paid to us.
Very truly yours,
METROPOLITAN LIFE
INSURANCE COMPANY
By:/s/ Michael Kroeger
------------------
Vice President
Accepted and agreed to:
MICHAEL FOODS, INC.
By: /s/John D. Reedy
-------------------
Vice President-Finance
Chief Financial Officer
Treasurer
<PAGE>
EXHIBIT 10.82
Amendment to Note Purchase Agreement
Dated as of July 15, 1990
Dated as of
February 15, 1994
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-0800
Northwestern National Life Insurance Company
c/o Washington Square Capital, Inc.
Private Placement Servicing
Jim Wittich
100 Washington Square, Suite 800
Route 3052
Minneapolis, MN 55401-2147
Commercial Union Life Insurance Company of America
c/o Washington Square Capital, Inc.
Private Placement Servicing
Jim Wittich
100 Washington Square, Suite 800
Route 3052
Minneapolis, MN 55401-2147
The North Atlantic Life Insurance Company of America
2 Robbins Lane
Jericho, NY 11753
Var & Co.
First Trust N.A. Income Collections
180 East 5th Street
St. Paul, MN 55101
<PAGE>
Gentlemen:
Reference is made to the Note Purchase Agreement (the "Original Agreement")
dated as of July 15, 1990 by and between Michael Foods, Inc. (the "Company"),
Ministers Life-A Mutual Life Insurance Company, American Investors Life
Insurance Company, Commercial Union Life Insurance Company of America, The North
Atlantic Life Insurance Company of America and Mutual Benefit Life Insurance
Company, (Principal Mutual Life Insurance Company, Northwestern National Life
Insurance Company and Var & Co. having purchased Original Notes subsequent to
the closing from one or more of the above described original purchasers) under
and pursuant to which $10,000,000 in aggregate principal amount of the Company's
10.40% Senior Notes due December 15, 1999 (the "Original Notes") were issued.
Words and phrases not otherwise defined herein shall have the meanings assigned
thereto in the Original Agreement. In connection therewith, the Company hereby
agrees with you as follows:
WHEREAS, the Company has requested that the Purchasers agree to amend Section
5.1 of the Original Agreement in the manner described below;
WHEREAS, the Purchasers are willing to amend Section 5.1 of the Original
Agreement in the manner described below;
THEREFORE, the Company and the Purchasers agree as follows:
The definition of "Consolidated Net Earnings Available for Fixed Charges"
contained in Section 5.1 of the Original Agreement is hereby amended by adding
at the end of (but before the period) the following proviso:
; provided, however, that any operating and disposition losses
associated with the discontinuation of the company's Reduced
Cholesterol Liquid Whole Egg business shall be characterized as losses
from discontinued operations for purposes of this definition, but only
to the extent that any such operating and disposition losses do not
exceed $33,000,000 pre-tax in the aggregate.
This amendment may be executed in any number of counterparts, each executed
counterpart constituting an original but all together one and the same
instrument. All of the parties may sign the same counterpart or any one or more
of the parties may sign separate counterparts.
If the foregoing is acceptable to you, kindly note your acceptance in the space
provided below and thereupon it shall become a binding Amendment between us.
All other terms and provisions of said Original Agreement and the Notes related
thereto shall remain unchanged and are in all respects ratified, confirmed and
approved.
MICHAEL FOODS, INC.
By: /s/John D. Reedy
----------------
Vice President-Finance
Chief Financial Officer
Treasurer
<PAGE>
Agreed and accepted to by:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/Jon M. Davidson
---------------------
Assistant Director-Securities Investment
By: /s/David Seevers
-------------------
Director-Securities
Research and Portfolio Management
THE NORTH ATLANTIC LIFE INSURANCE COMPANY
By: /s/Mark S. Jordahl
---------------------
Assistant Treasurer
COMMERCIAL UNION LIFE INSURANCE COMPANY OF AMERICA
By: /s/Richard C. Zawalich
-------------------------
Assistant Vice President
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
By: /s/Mark S. Jordahl
---------------------
Authorized Representative
VAR & CO.
By: /s/Gary G. Elsesser
----------------------
General Partner
<PAGE>
EXHIBIT 10.83
Amendment to Note Purchase Agreement
Dated as of September 15, 1990
Dated as of
February 15, 1994
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-0800
Texas Life Insurance Company
c/o Washington Square Capital, Inc.
Private Placement Servicing
Jim Wittich
100 Washington Square, Suite 800
Route 3052
Minneapolis, MN 55401-2147
Farm Bureau Mutual Insurance Company of Michigan
Attn: Steven R. Harkness, Sr. Portfolio Manager
P.O. Box 30400
7373 W. Saginaw Highway
Lansing, MI 48909
FB Annuity Company
Attn: Steven R. Harkness, Sr. Portfolio Manager
P.O. Box 30400
7373 W. Saginaw Highway
Lansing, MI 48909
Farm Bureau Life Insurance Company of Michigan
Attn: Steven R. Harkness, Sr. Portfolio Manager
P.O. Box 30400
7373 W. Saginaw Highway
Lansing, MI 48909
Northern Life Insurance Company
c/o Washington Square Capital, Inc.
Private Placement Servicing
Jim Wittich
100 Washington Square, Suite 800
Route 3052
Minneapolis, MN 55401-2147
<PAGE>
Gentlemen:
Reference is made to the Note Purchase Agreement (the "Original Agreement")
dated as of September 15, 1990 by and between Michael Foods, Inc. (the
"Company"), Mutual Benefit Life Insurance Company, Northwestern National Life
Insurance Company, Northern Life Insurance Company, Farm Bureau Life Insurance
Company of Michigan, FB Annuity Company, Farm Bureau Mutual Insurance Company of
Michigan and Texas Life Insurance Company (Principal Mutual Life Insurance
Company, having purchased Original Notes subsequent to the closing from one or
more of the above described original purchasers) under and pursuant to which
$20,000,000 in aggregate principal amount of the Company's 9.85% Senior Notes
due October 1, 2000 (the "Original Notes") were issued. Words and phrases not
otherwise defined herein shall have the meanings assigned thereto in the
Original Agreement. In connection therewith, the Company hereby agrees with you
as follows:
WHEREAS, the Company has requested that the Purchasers agree to amend Section
5.1 of the Original Agreement in the manner described below;
WHEREAS, the Purchasers are willing to amend Section 5.1 of the Original
Agreement in the manner described below;
THEREFORE, the Company and the Purchasers agree as follows:
The definition of "Consolidated Net Earnings Available for Fixed Charges"
contained in Section 5.1 of the Original Agreement is hereby amended by adding
at the end of (but before the period) the following proviso:
; provided, however, that any operating and disposition losses
associated with the discontinuation of the company's Reduced
Cholesterol Liquid Whole Egg business shall be characterized as losses
from discontinued operations for purposes of this definition, but only
to the extent that any such operating and disposition losses do not
exceed $33,000,000 pre-tax in the aggregate.
This amendment may be executed in any number of counterparts, each executed
counterpart constituting an original but all together one and the same
instrument. All of the parties may sign the same counterpart or any one or more
of the parties may sign separate counterparts.
If the foregoing is acceptable to you, kindly note your acceptance in the space
provided below and thereupon it shall become a binding Amendment between us. All
other terms and provisions of said Original Agreement and the Notes related
thereto shall remain unchanged and are in all respects ratified, confirmed and
approved.
MICHAEL FOODS, INC.
By: /s/ John D. Reedy
-----------------
Vice President-Finance
Chief Financial Officer
Treasurer
<PAGE>
Agreed and accepted to by:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/Jon M. Davidson
---------------------
Assistant Director-Securities Investment
By: /s/David Seevers
-------------------
Director-Securities
Research and Portfolio Management
NORTHERN LIFE INSURANCE COMPANY
By: /s/Mark S. Jordahl
---------------------
Assistant Treasurer
FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN
By: /s/Steven R. Harkness
------------------------
Portfolio Manager
FB ANNUITY COMPANY
By: /s/Steven R. Harkness
------------------------
Portfolio Manager
FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN
By: /s/Steven R. Harkness
------------------------
Portfolio Manager
TEXAS LIFE INSURANCE COMPANY
By:
---------------------
<PAGE>
EXHIBIT 10.84
Amendment to Note Purchase Agreement
Dated as of February 24, 1992
Dated as of
February 15, 1994
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392
Gentlemen:
Reference is made to the Note Purchase Agreement dated as of February 24, 1992
by and between Michael Foods, Inc. (the "Company"), and Principal Mutual Life
Insurance Company (the "Original Agreement") under and pursuant to which
$10,000,000 in aggregate principal amount of the Company's 10.40% Senior Notes
due December 15, 1999 (the "Original Notes") were issued. Words and phrases not
otherwise defined herein shall have the meanings assigned thereto in the
Original Agreement. In connection therewith, the Company hereby agrees with you
as follows:
WHEREAS, the Company has requested that the Purchasers agree to amend Section
5.1 of the Original Agreement in the manner described below;
WHEREAS, the Purchasers are willing to amend Section 5.1 of the Original
Agreement in the manner described below;
THEREFORE, the Company and the Purchasers agree as follows:
The definition of "Consolidated Net Earnings Available for Fixed Charges"
contained in Section 5.1 of the Original Agreement is hereby amended by adding
at the end of (but before the period) the following proviso:
; provided, however, that any operating and disposition losses
associated with the discontinuation of the company's Reduced
Cholesterol Liquid Whole Egg business shall be characterized as losses
from discontinued operations for purposes of this definition, but only
to the extent that any such operating and disposition losses do not
exceed $33,000,000 pre-tax in the aggregate.
This amendment may be executed in any number of counterparts, each executed
counterpart constituting an original but all together one and the same
instrument. All of the parties may sign the same counterpart or any one or more
of the parties may sign separate counterparts.
<PAGE>
If the foregoing is acceptable to you, kindly note your acceptance in the space
provided below and thereupon it shall become a binding Amendment between us. All
other terms and provisions of said Original Agreement and the Notes related
thereto shall remain unchanged and are in all respects ratified, confirmed and
approved.
MICHAEL FOODS, INC.
By: /s/ John D. Reedy
-----------------------
Vice President-Finance
Chief Financial Officer
Treasurer
Agreed and accepted to by:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/Jon M. Davidson
---------------------
Assistant Director-Securities Investment
By: /s/David Seevers
-------------------
Director-Securities
Research and Portfolio Management
<PAGE>
EXHIBIT 10.85
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is made as of the llth day of
March, 1994, by and between SKW NATURE'S PRODUCTS, INC., a Delaware
Corporation with offices located at 7711 Computer Avenue, Minneapolis,
Minnesota 55435 ("SKW"); and MICHAEL FOODS, INC., a Delaware corporation with
offices located at 324 Park National Bank Building, 5353 Wayzata Boulevard,
Minneapolis, Minnesota 55416 ("MFI").
W I T N E S S E T H:
WHEREAS, SKW and an Affiliate of MFI established a partnership
under the name "Cholorex Company" which processes, produces, manufactures,
distributes and sells cholesterol reduced eggs in the manner set forth in and
subject to the terms of the Partnership Agreement (as hereafter defined); and
WHEREAS, SKW desires to sell, and MFI desires to purchase SKW's
Partnership Interest in the Partnership and the SKW Loans (as hereafter
defined) to the Partnership.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.
--------------
For the purposes of this Agreement, the terms defined in this
Article I shall have the following meanings:
(a) "Affiliate" shall mean, as to any Person, any other Person
that, directly or indirectly, controls, is under common control with or is
controlled by that Person. For purposes of this definition, "control"
(including the terms "controlled by" and "under common control with") as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise except that with respect to any
corporation the voting securities of which are traded on any securities
<PAGE>
exchange or established trading market, the term "control" shall mean the
possession, directly or indirectly, of the power to elect a majority of that
corporation's board of directors or similar governing body through beneficial
ownership of a majority of the voting securities of such corporation.
(b) "Capital Account" shall have the meaning ascribed thereto in
the Partnership Agreement.
(c) "Cholesterol Marketing Agreement" shall mean the
Cholesterol Marketing Agreement dated as of January 31, 1991 between the
Partnership and SKW Trostberg AG.
(d) "Cholesterol Marketing Termination Agreement" shall mean the
Cholesterol Marketing Termination Agreement in the form of Exhibit A hereto
between the Partnership and SKW Trostberg AG.
(e) "Closing" shall have the meaning ascribed thereto in Section
2.4 of this Agreement.
(f) "Closing Date" shall have the meaning ascribed thereto in
Section 2.4 of this Agreement.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
(h) "Damages" shall mean all claims, liabilities, obligations,
losses, damages, assessments, judgments, costs and expenses (including
without limitation reasonable attorneys fees).
(i) "Distributable Income" shall have the meaning ascribed thereto
in Section 4.7 of the Partnership Agreement as modified by the MOA.
(j) "Field" shall have the meaning ascribed thereto in Section 3.1
of the Partnership Agreement.
(k) "GAAP" shall mean United States generally accepted accounting
principles.
(l) "Guaranty" shall mean the Guaranty made by SKW Alloys, Inc.
(now SKW Holdings, Inc.) in favor of MFI guarantying SKW's performance under
the Partnership Agreement.
(m) "Guaranty Termination Agreement" shall mean the Guaranty
Termination Agreement in the form of Exhibit B hereto between SKW Holdings,
Inc. (formerly SKW Alloys, Inc.) and MFI.
(n) "License Agreement" means the Technology License Agreement in
the form of Exhibit C hereto between SKW Trostberg AG and MFI.
-2-
<PAGE>
(o) "Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien, restriction on use or transfer, voting agreement, adverse
claim or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement), any
lease in the nature thereof, and the filing of or any agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction or
similar law.
(p) "MOA" shall mean the Memorandum of Agreement effective as of
January 1, 1993 between SKW, MFI, MIKL, Inc. and the Partnership.
(q) "Option Agreement" shall mean the Option Agreement dated as of
January 31, 1991 between Crystal Foods, Inc. and SKW.
(r) "Option Termination Agreement" shall mean the Option
Termination Agreement in the form of Exhibit D hereto between Crystal Foods,
Inc. and SKW.
(s) "Other Agreements" shall mean the Guaranty Termination
Agreement, the Option Termination Agreement, the Sublicense Termination
Agreement, the Cholesterol Marketing Termination Agreement, the
Pasteurization Termination Agreement and the License Agreement.
(t) "Partner" shall mean SKW or MFI or any subsequent transferee
of the Partnership Interest of SKW or MFI in accordance with the provisions
of the Partnership Agreement. Reference herein to any Partner by name shall
not be construed to refer to any other Partner but shall be deemed to include
the successor of such named Partner.
(u) "Partnership" shall mean Cholorex Company, the Minnesota
general partnership formed in accordance with the provisions of the
Partnership Agreement.
(v) "Partnership Agreement" shall mean the Partnership Agreement
dated as of January 31, 1991 between SKW and MFI.
(w) "Partnership Fiscal Year" shall mean the fiscal year of the
Partnership as provided in Section 7.1 of the Partnership Agreement.
(x) "Partnership Interest" shall mean, as to any Partner, such
Partner's Capital Account, right to distributions under the Partnership
Agreement and any other rights which such Partner has in the Partnership.
(y) "Pasteurization Agreement" shall mean the Pasteurization
Agreement dated as of January 31, 1991 between SKW and MFI.
-3-
<PAGE>
(z) "Pasteurization Termination Agreement" shall mean the
Pasteurization Termination Agreement in the form of EXHIBIT E hereto between
SKW and MFI.
(aa) "Permitted Encumbrance" shall mean liens imposed by law in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers and materialmen or any lien imposed by the Partnership
Agreement or the Other Agreements (in this case as defined in the Partnership
Agreement) and such Liens as are created by the mutual consent of the
Partners.
(ab) "Person" shall mean an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a
government and any department or agency thereof.
(ac) "Product" shall mean cholesterol reduced eggs intended for
human consumption regardless of: (i) the physical state thereof at the time
of production, manufacture, distribution, or sale; (ii) the patents, know-how
or technology utilized in connection therewith and whether or not the same
now exists or is hereafter developed; (iii) the biological, chemical,
physical, nutritional or other identity thereof with a natural biologically
produced egg (whether or not containing cholesterol). The term "Product"
shall not, however, include any eggs, substitutes therefor or the like, which
contain substantially the same cholesterol content as a natural biologically
produced egg.
(ad) "S-E Plant" shall mean the facility for the production of the
Product constructed by S-E Constructors Inc. pursuant to an agreement
effective as of August 6, 1991 with the Partnership and located in Gaylord,
Minnesota.
(ae) "SKW Loans" shall mean the loans in the principal amount of
Ten Million Five Hundred Thirty Four Thousand Four Hundred Sixty-Two Dollars
and Eleven Cents ($10,534,462.11) made by SKW to the Partnership and
evidenced by a Promissory Note dated December 31, 1992 and One Million
Dollars ($1,000,000) as noted on the books of the Partnership, respectively.
(af) "Sublicense Agreement" shall mean the Technology Sublicense
Agreement dated as of January 31, 1991 between SKW and the Partnership.
(ag) "Sublicense Termination Agreement" shall mean the Sublicense
Termination Agreement in the form of Exhibit F hereto between SKW and the
Partnership.
-4-
<PAGE>
ARTICLE II
PURCHASE AND SALE OF PARTNERSHIP INTEREST; CLOSING
Section 2.1 PURCHASE AND SALE OF PARTNERSHIP
INTEREST; SKW LOANS.
On the terms and subject to the conditions set forth in this
Agreement, SKW hereby agrees to sell, assign and transfer to MFI, and MFI
agrees to purchase from SKW on the Closing Date SKW's Partnership Interest in
the Partnership, the SKW Loans and any and all claims which SKW may now have
against the Partnership, whether known or unknown, except for claims which
may hereafter arise under this Agreement or the other agreements executed in
connection herewith.
Section 2.2 TRANSFER OF TITLE; ASSUMPTION OF LIABILITIES.
(a) At the Closing, SKW shall deliver to MFI such deeds, bills of
sale, endorsements, assignments and other instruments of transfer reasonably
satisfactory in form and substance to MFI and its counsel, which shall be
effective to vest in MFI all of SKW's right, title and interest in and to
SKW's Partnership Interest to be sold hereby.
(b) At the Closing, MFI shall assume all liabilities and
obligations of SKW relating to SKW's Partnership Interest reflected on the
financial statements of the Partnership for the year ended December 31, 1993,
and all obligations and liabilities of the Partnership accruing on and after
January 1, 1994.
(c) At the Closing, SKW shall assign the SKW Loans to MFI.
Section 2.3 PURCHASE PRICE FOR PARTNERSHIP INTEREST;
REPAYMENT OF SKW LOANS.
At the Closing, and upon compliance by SKW of its obligations under
this Agreement,
(a) MFI shall pay to SKW a purchase price for SKW's Partnership
Interest in the amount of Ten Dollars ($10.00).
(b) MFI shall pay to SKW Eleven Million Four Hundred Ninety Nine
Thousand Nine Hundred Ninety Dollars ($11,499,990) for the SKW Loans.
-5-
<PAGE>
(c) All sums payable to SKW pursuant to this Agreement shall be
paid at the Closing in lawful money of the United States of America in
immediately available funds by wire transfer to an account, which account
will be specified by SKW no later than two (2) days prior to the Closing
Date.
Section 2.4 TIME, PLACE OF CLOSING; TERMINATION.
The Closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00AM at the office of Walter, Conston,
Alexander & Green, P.C., 90 Park Avenue, New York, New York 10016 on March
15, 1994, or at such other date, place and time or in such other manner as
mutually agreed, in writing, by MFI and SKW (the "Closing Date").
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.1 REPRESENTATIONS AND WARRANTIES OF SKW.
(a) ORGANIZATION. SKW is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has the full corporate power and authority to enter into
this Agreement and the Other Agreements to which it is a party and to perform
its obligations hereunder and thereunder and is duly qualified to transact
business in all jurisdictions in which such qualification is necessary by
virtue of its ownership or leasing of properties or the conduct of its
business. This Agreement is and the Other Agreements to which it is a
party will be the legal, valid and binding obligations of SKW enforceable
against SKW in accordance with their respective terms.
(b) AUTHORIZATION. The execution, delivery and performance of
this Agreement have been duly authorized by the Board of Directors of SKW and
the execution, delivery and performance of the Other Agreements will have
been duly authorized prior to the execution thereof, by the Board of
Directors of SKW and its Affiliates respectively, to the extent each is a
party thereto or their authorization is necessary. No other corporate action
is required in connection herewith or therewith or in connection with any
right, remedy or obligation which may be imposed upon SKW or its Affiliates
in the future by reason of this Agreement or the Other Agreements other than
the approval of the Supervisory Board of SKW Trostberg AG. The execution,
delivery and performance of this Agreement and the Other Agreements will not
violate (or result in the acceleration of a default under) the charter
documents or other constituent documents of SKW or any Affiliate of SKW, any
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other agreement to which SKW or its Affiliates are parties or by which they
are bound, or result in the creation of any Lien (other than a Permitted
Encumbrance), with or without the passage of time, on or in any asset of SKW
or its Affiliates and no consent, approval, order, authorization, report,
registration, declaration of or filing with any governmental authority or
other Person is required in connection with the execution, delivery or
performance of this Agreement or the Other Agreements.
(c) OWNERSHIP OF PARTNERSHIP INTEREST. SKW has and on the Closing
Date will have, good and marketable title, free and clear of all Liens, to
the SKW Partnership Interest.
(d) TECHNOLOGY TRANSFER. SKW has not, prior to the establishment
of the Partnership or during the duration thereof through December 31, 1993,
failed to disclose or make available to the Partnership any know-how in its
possession which would have minimized the cost of producing the Product to
the Partnership.
(e) NO IMPLIED REPRESENTATION. Except as set forth in this
Article III, there are no understandings, agreements, representations or
warranties, express or implied, given by SKW to MFI or in connection with
this transaction.
(f) BROKER, FINDER, ADVISOR. SKW has not engaged any broker,
finder or advisor in regard to the sale of the SKW Partnership Interest and
shall indemnify Purchaser against claims by any Person claiming to be any
such broker, finder or advisor.
(g) ACCURACY OF REPRESENTATIONS. The representations and
warranties of SKW in this Agreement do not and will not contain any untrue
statement of material fact and do not and will not omit to state any fact
necessary to make the statements contained herein not false or misleading.
Section 3.2 REPRESENTATIONS AND WARRANTIES OF MFI.
(a) ORGANIZATION. MFI is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has the full corporate power and authority to enter into
this Agreement and the Other Agreements to which it is a party and to
perform its obligations hereunder and thereunder and is duly qualified to
transact business in all jurisdiction in which such qualification is
necessary by virtue of its ownership or leasing of properties or, the
conduct of its business. This Agreement is and the Other Agreements to which
it is a party will be the legal, valid and binding obligation of MFI
enforceable against MFI in accordance with their respective terms.
(b) AUTHORIZATION. The execution, delivery and performance of
this Agreement have been duly authorized by the Board
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of Directors of MFI and the execution, delivery and performance of the Other
Agreements will have been duly authorized prior to the execution thereof by
the Board of Directors of MFI and its Affiliates, respectively, to the extent
each is a party thereto or their authorization is necessary. No other
corporate action is required in connection herewith or therewith or in
connection with any right, remedy or obligation which may be imposed upon MFI
or its Affiliates in the future by reason of this Agreement or the Other
Agreements. The execution, delivery and performance of this Agreement and
the Other Agreements will not violate (or result in the acceleration of a
default under) the charter documents or other constituent documents of MFI or
any Affiliate of MFI, any other agreement to which MFI or its Affiliates are
parties or by which they are bound, or result in the creation of any Lien
(other than a Permitted Encumbrance), with or without the passage of time, on
or in any asset of MFI or its Affiliates and no consent, approval, order,
authorization, report, registration, declaration of or filing with any
governmental authority or other Person is required in connection with the
execution, delivery or performance of this Agreement or the Other Agreements.
(c) CURRENT ACTIVITY. As of December 31, 1993, MFI had not
entered into any agreement or understanding with any other entity, or
undertaken active negotiations with respect to the commercial development or
marketing of any Product, except on behalf of the Partnership or as
previously disclosed to SKW.
(d) BROKER, FINDER, ADVISOR. MFI has not engaged any broker,
finder, or advisor in regard to the purchase of the SKW Partnership Interest
and MFI shall indemnify SKW against claims by any Person claiming to be any
such broker, finder or advisor.
(e) NO IMPLIED REPRESENTATION. Except as set forth in this
Article III, there are no understandings, agreements, representations or
warranties, express or implied, given by MFI to SKW or in connection with
this transaction.
(f) ACCURACY OF REPRESENTATIONS. The representations and
warranties of MFI in this Agreement do not and will not contain any untrue
statement of material fact and do not and will not omit to state any fact
necessary to make the statements contained herein not false or misleading.
(g) SALE OF S-E PLANT. MFI shall, or shall cause its Affiliates,
to inform SKW promptly of the sale of the S-E Plant to any Person which is
not an Affiliate of MFI.
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Section 3.3 COVENANTS OF MFI.
(a) PAYMENT OF 1993 DISTRIBUTABLE INCOME. MFI shall cause the
Partnership to distribute to SKW on the Closing Date fifty percent (50%) of
the Distributable Income of the Partnership for Partnership Fiscal Year 1993.
The Distributable Income for the Partnership Fiscal Year 1993 is equal to One
Million Four Hundred Twenty Seven Thousand Five Hundred Fifty Six Dollars
($1,427,556) (after deduction of interest costs to the Partnership).
(b) PAYMENT OF INTEREST ON SKW LOANS. MFI shall cause the
Partnership to pay to SKW on the Closing Date the accrued and unpaid
interest on the SKW Loans through December 31, 1993 in the sum of one
Hundred Seventy Six Thousand Eight Hundred Sixty One Dollars Seventy-Five
Cents ($176,861.75).
(c) PAYMENT OF INVOICES. MFI shall cause the Partnership to pay
to SKW Trostberg AG on the Closing Date the following invoices of SKW
Trostberg AG: (i) invoice dated November 13, 1993, in the amount of Seventy
Eight Thousand Eight Hundred Ninety-Nine and 44/100 Deutsche Marks (DM
78.899,44); (ii) invoice dated December 8, 1993 in the amount of Two Hundred
Sixteen Thousand Five Hundred Forty Three Deutsch Marks (DM 216.543); and
(iii) invoice dated January 5, 1994, in the amount of Fifty Thousand, Seven
Hundred Seventy Six Deutsch Marks (DM 50.776,00). There are no other claims
by SKW Trostberg AG for services rendered to the Partnership.
(d) ACCESS TO GRAS PETITION. MFI shall permit SKW during normal
business hours, and upon reasonable notice, to inspect and copy any or all
portions of the GRAS petition regarding the Product submitted by MFI to the
United States Food and Drug Administration ("FDA") and all correspondence
between MFI and the FDA with respect to said petition.
(e) 1993 FINANCIAL STATEMENTS. MFI shall cause the Partnership
promptly to prepare its financial statements for the fiscal year ending
December 31, 1993. Notwithstanding any provision in the Partnership
Agreement to the contrary, the Partnership may deliver unaudited financial
statements for the Partnership fiscal year ending December 31, 1993. Such
financial statements shall be prepared as otherwise provided in the
Partnership Agreement as in effect on the date hereof. Copies of such
financial statements shall be delivered to SKW promptly after they have been
approved by the Partnership (or its successor in interest) and in any event
no later than June 30, 1994.
(f) ASTEROL LICENSE AGREEMENT. MFI will not, and will cause its
Affiliates and the Partnership not to, make any claims against SKW for
license, royalty or other fees or charges payable
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pursuant to the License Agreement dated March 31, 1992 between Asterol
International S.A. and MFI.
ARTICLE IV
CONDITIONS PRECEDENT TO SKW OBLIGATIONS
All of the following shall be conditions precedent to SKW's
obligations to consummate the transactions contemplated by this Agreement:
Section 4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by MFI in this Agreement and in the
Exhibits referred to herein shall be accurate, complete and correct in all
material respects on and as of the Closing Date as if made on and as of that
date.
Section 4.2 PAYMENTS. On the Closing Date, MFI shall (i) pay
the purchase price for SKW's Partnership Interest as specified in Section
2.3(a) of this Agreement; (ii) pay the purchase price for the SKW Loans as
specified in Section 2.3(b) of this Agreement; (iii) cause the payment to SKW
of fifty percent (50%) of the Distributable Income as specified in Section
3.3(a) of this Agreement; (iv) cause the Partnership to pay to SKW the
interest on the SKW Loans as specified in Section 3.3(b) of this Agreement;
and (v) cause the payment to SKW Trostberg AG of its invoices as specified in
Section 3.3(c) of this Agreement.
Section 4.3 DELIVERY OF OTHER AGREEMENTS. The following
agreements shall have been duly authorized, executed and delivered to SKW by
the respective parties thereto: (i) Guaranty Termination Agreement; (ii)
Sublicense Termination Agreement; (iii) Cholesterol Marketing Termination
Agreement; (iv) Pasteurization Termination Agreement; (v) Option Termination
Agreement; (vi) the License Agreement and (vii) a release in favor of SKW in
the form of EXHIBIT G hereto.
Section 4.4 SUPERVISORY BOARD APPROVAL. SKW shall have received
the approval of the Supervisory Board of SKW Trostberg AG to this Agreement
and the transactions contemplated hereby.
Section 4.5 NO RESTRAINING ORDER. There shall be no outstanding
order or decree of a court of competent jurisdiction or of any other
governmental agency restraining, prohibiting or
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declaring unlawful any of the transactions provided for by this Agreement,
nor shall any action for such an order or decree be pending or threatened.
Section 4.6 SECRETARY'S CERTIFICATE. MFI shall deliver to SKW a
certificate of the Secretary or Assistant Secretary of MFI certifying to the
due authorization, execution and delivery of this Agreement and the
incumbency of the officers signatory hereto.
Section 4.7 OTHER DOCUMENTS. At the Closing, MFI shall deliver
to SKW all such other documents and instruments required or relating to the
transactions contemplated by this Agreement as SKW may reasonably request.
Section 4.8 MFI CERTIFICATION. SKW shall have received a
certificate dated the Closing Date signed by MFI to the effect that the
conditions specified in Sections 4.1 through 4.7 have been satisfied.
ARTICLE V
CONDITIONS PRECEDENT TO MFI OBLIGATIONS
All of the following shall be conditions precedent to MFI's
obligations to consummate the transactions contemplated by this Agreement:
Section 5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by SKW in this Agreement, and in the
Exhibits referred to herein shall be accurate, complete and correct in all
material respects on and as of the Closing Date with the same effect as if
made on and as of that date.
Section 5.2 DELIVERY OF SKW PARTNERSHIP INTEREST. SKW shall
deliver to MFI such documents as MFI shall reasonably request to evidence the
transfer of SKW's Partnership Interest to MFI as provided in Section 2.2(a)
of this Agreement.
Section 5.3 ASSIGNMENT OF SKW LOANS. SKW shall deliver to MFI
the Promissory Note dated December 31, 1992 made by
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the Partnership in favor of SKW and such other documents as MFI may request
to evidence the assignment by SKW of the SKW Loans to MFI.
Section 5.4 DELIVERY OF OTHER AGREEMENTS. The following
agreements shall have been duly authorized, executed and delivered to MFI by
the respective parties thereto: (i) Guaranty Termination Agreement; (ii)
Sublicense Termination Agreement; (iii) Cholesterol Marketing Termination
Agreement; (iv) Pasteurization Termination Agreement; (v) Option Termination
Agreement; (vi) the License Agreement and (vii) a release in favor of MFI in
the form of EXHIBIT H hereto.
Section 5.5 NO RESTRAINING ORDER. There shall be no outstanding
order or decree of a court of competent jurisdiction or of any other
governmental agency restraining, prohibiting or declaring unlawful any of the
transactions provided for by this Agreement, nor shall any action for such an
order or decree be pending or threatened.
Section 5.6 SECRETARY'S CERTIFICATE. SKW shall deliver to MFI a
certificate of the Secretary or Assistant Secretary of SKW certifying to the
due authorization, execution and delivery of this Agreement and the
incumbency of the officers signatory hereto.
Section 5.7 OTHER DOCUMENTS. At the Closing, SKW shall deliver
to MFI all such other documents and instruments required or relating to the
transactions contemplated by this Agreement as MFI may reasonably request.
Section 5.8 SKW'S CERTIFICATION. MFI shall have received a
certificate dated the Closing Date signed by SKW to the effect that the
conditions specified in Sections 5.1 through 5.7 have been satisfied.
ARTICLE VI
INDEMNIFICATION
Section 6.1 INDEMNIFICATION BY SKW. SKW shall indemnify, defend
and hold harmless MFI and its Affiliates, and their respective officers,
directors and employees from, against and with respect to any Damages of any
kind or character, arising out of or in any manner incident, relating or
attributable to any
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misrepresentation, or breach of warranty, covenant or agreement made or to be
performed by SKW pursuant to this Agreement or in any certificate, Exhibit or
other document or agreement executed by SKW in connection with this
Agreement.
Section 6.2 INDEMNIFICATION BY MFI. MFI shall indemnify, defend
and hold harmless SKW and its Affiliates, and their respective officers,
directors and employees from, against and with respect to any Damages of any
kind or character arising out of or in any manner incident, relating or
attributable to (i) any misrepresentation, or breach of warranty, covenant or
agreement made or to be performed by MFI pursuant to this Agreement or in any
certificate, Exhibit or other document or agreement executed by MFI in
connection with this Agreement; and (ii) Partnership activities occurring
after December 31, 1993, or the subsequent dissolution of the Partnership, or
any liability of the Partnership reflected on the financial statements of the
Partnership for the year ended December 31, 1993.
Section 6.3 INDEMNIFICATION CLAIMS; SURVIVAL.
--------------------------------
(a) MFI or SKW, if claiming indemnity hereunder ("Indemnified
Party") agree to give prompt written notice to the other party from whom
indemnity may be sought ("Indemnifying Party") of the assertion of any claim
in respect of which indemnity may be sought hereunder ("Claim").
(b) In the event of any Claim by a third party, the Indemnifying
Party may elect to take exclusive control of the defense of such Claim,
including its compromise or settlement, through counsel of its own choice,
upon written notice of such election to the Indemnified Party, and the
Indemnifying Party shall pay all costs and expenses thereof and shall be
fully responsible for the outcome thereof. The Indemnifying Party may not
compromise or settle any Claim by a third party without the Indemnified
Party's consent which shall not be unreasonably withheld.
(c) The representations, warranties and covenants contained in
this Agreement shall survive the Closing for a period of three (3) years
after the Closing; PROVIDED, however that (i) the covenants and agreements
contained in Articles VI and VII (other than Section 7.1) shall survive
indefinitely; (ii) the covenants and agreements contained in Section 7.1
shall survive as provided therein; and (iii) the parties' obligations set
forth in the agreements executed in connection herewith shall survive as
specifically provided in such agreements.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 CONFIDENTIAL INFORMATION.
------------------------
For a period of ten (10) years from the date of this Agreement,
each party shall keep strictly confidential and not disclose, use, divulge,
publish or otherwise reveal, directly or through another Person, any matters
or affairs or the business of the other party, its Affiliates or the
Partnership including, but not limited to, documents and/or information
regarding customers, costs, profits, markets, sales, products, product
development, key personnel, pricing policies, operational methods,
technology, know-how, technical processes, (including, but not limited to,
the parameters regarding centrifuge separation, electrodialysis and product
evaporation described in the Simmon's Performance Guarantee dated September
17, 1991 attached hereto as EXHIBIT I); formulae, or plans for future
development of or concerning the other party or its Affiliates (collectively
"Confidential Information") except as may be necessary for the directors,
employees or agents of it and its Affiliates to perform their respective
obligations under this Agreement or in connection with filings with
governmental agencies or courts or otherwise required under applicable law
and except as permitted under the License Agreement. To the extent that
such Confidential Information is revealed as permitted hereunder, each party
shall use its best efforts to have the Persons receiving such information
retain it in confidence.
Section 7.2 ENTIRE AGREEMENT; WAIVER; MODIFICATIONS.
---------------------------------------
This Agreement and the Other Agreements constitute the complete
statement of all of the arrangements among the parties as of the date hereof
with respect to the transactions contemplated hereby, and all other prior or
contemporaneous agreements of the parties with respect to such subject matter
are hereby merged into this Agreement. No modification, discharge or waiver
in whole or in part, of any of the provisions hereof shall be valid unless in
writing and signed by the party against whom the same is sought to be
enforced. The failure or omission of either party hereto to insist, in
any instance, upon strict performance by the other party of any term or
provision of this Agreement or to exercise any of its rights hereunder shall
not be deemed to be a modification of any term or provision hereof or a
waiver or relinquishment of the future performance of any such term or
provision by such party nor shall such failure or omission constitute a
waiver of the right of such party to insist upon future performance by the
other party of any such term or provision or any other term or provision of
this Agreement.
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Section 7.3 ASSIGNMENT; SUCCESSORS.
----------------------
This Agreement shall inure to the benefit of, and be binding upon,
the parties hereto, their permitted successors and assigns. This Agreement
may be assigned by SKW to VIAG AG or any of VIAG AG's Affiliates.
Section 7.4 NOTICE.
------
All notices and other communications hereunder shall be in writing
and shall be given, transmitted and delivered by telecopy, messenger, telex,
or telegram, and a copy thereof shall be mailed (by Certified Mail (Airmail)
if to a destination in a foreign country from the point of mailing), postage
prepaid, return receipt requested, to the parties at the following addresses
(or such other address as shall be specified by such party by like notice),
and such notice shall be deemed given on the date on which so delivered by
messenger, or on the next business day following the date on which so
transmitted by telex, telecopy, or telegram from the date of transmission:
If to SKW:
SKW NATURE'S PRODUCTS, INC.
c/o ChemRex Inc.
7711 Computer Avenue
Minneapolis, Minnesota 55435
Attn.: Secretary
Telephone: (612) 835-3434
Telecopy: (612) 835-2498
with a copy to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attention: Aydin S. Caginalp, Esq.
Telephone: 212-210-9400
Telex: 234436
Telecopy: 212-210-9444
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If to MFI:
MICHAEL FOODS, INC.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
Attention: Corporate Secretary
Telephone: 612-546-1500
Telecopy: 612-546-3711
with a copy to:
Maun & Simon
2900 Norwest Center
90 South 7th Street
Minneapolis, Minn. 55402
Attention: Albert A. Woodward, Esq.
Telephone: 612 - 338 - 1113
Telecopy: 612 - 338 - 2271
Section 7.5 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
Section 7.6 INTERPRETATION.
Titles of articles and sections are for convenience only and shall
be given no effect in the construction or interpretation of this Agreement.
Unless the context otherwise requires the singular includes the plural, and
the plural includes the singular.
Section 7.7 SEVERABILITY.
In the event that any provision of this Agreement is declared by a
court of competent jurisdiction to be void or unenforceable, the remainder
of this Agreement shall not be affected thereby and shall remain in full
force and effect to the extent feasible in the absence of the void and
unenforceable provision. The parties furthermore agree to execute and
deliver such amendatory contractual provisions to accomplish lawfully as
nearly as possible the goals and purposes of the provision so held to be void
or unenforceable.
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Section 7.8 EQUITABLE REMEDIES.
The rights and remedies of the parties under this Agreement shall
not be mutually exclusive I.E., the exercise of one or more of the rights
under this Agreement shall not preclude the exercise of rights under any
other provision. Each party acknowledges that no adequate remedy at
law would be available for a breach of this Agreement, and that a breach of
this Agreement by one party would irreparably injure the other and
accordingly agrees that in the event of a breach of any provision, the
respective rights and obligations of the parties hereunder shall be enforce-
able by specific performance, injunction or other equitable remedy (without
bond or security being required), and each party waives the defense in any
action and/or proceeding brought to enforce this Agreement that there exists
an adequate remedy at law or that the other party is not irreparably injured.
Nothing herein contained, however, is intended to, nor shall it, limit or
affect any rights at law or by statute or otherwise of any party as against
the other for a breach of any provision, it being the intention of this
Section 7.8 to make clear the agreement of the parties that the respective
rights and obligations of the parties shall be enforceable in equity as well
as at law or otherwise.
Section 7.9 EXPENSES.
The parties agree that MFI shall pay all of the fees and expenses
relating to the filing of certificates and registration fees or otherwise
incurred in connection with the transfer of SKW's Partnership Interest (other
than legal fees). Each party shall pay all of its own fees and expenses
incurred in connection with this Agreement, the transactions contemplated
hereby, the negotiations leading to the same, the preparations made for
carrying the same into effect.
Section 7.10 ARBITRATION.
Without prejudice to the rights of the parties to seek injunctive
or equitable relief in any appropriate court of law having jurisdiction over
the matter and the Persons involved, all claims, disputes or disagreements
arising under or in connection with this Agreement shall be finally settled
under the then applicable Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three (3) arbitrators (appointed in
accordance with Article 2(4) of the said Rules) as follows:
(a) The arbitration and all communications (written or oral)
including, without limitation thereof, any evidence submitted to the
arbitrators shall be in the English language or shall be accompanied by an
English translation;
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(b) The arbitrators shall apply the law (including the procedural
law) specified in Section 7.11 of this Agreement;
(c) The arbitration shall be held in Zurich, Switzerland; and
(d) The arbitrators shall award legal fees and costs (including
administrative expenses and arbitrators' fees and legal fees incurred in
connection with the arbitration) to each party in the proportion lost by each
party in the proceeding.
Section 7.11 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance
with the internal law of the State of Minnesota without regard to its
conflict of law principles.
Section 7.12 FURTHER ASSURANCES.
Each party shall perform all other acts and execute and deliver all
other documents as may be necessary or appropriate to carry out the purposes
and intent of this Agreement.
Section 7.13 ACCESS TO ACCOUNTS.
MFI shall afford to SKW and its counsel, accountants and other
representatives, access to books, records and other documents of the
Partnership and shall furnish to SKW such information concerning the
Partnership and copies of such documents as SKW in its reasonable judgment
may request with respect to the time during which SKW was a Partner.
SKW shall be entitled, at its own expense, to have a firm of independent
certified public accountants designated by it, or its own internal auditors,
review all properties, books, records and other documents of the Partnership
as well as all accountant's work papers with respect to any audit of the
Partnership which may relate to such period.
Section 7.14 EMPLOYEES. Neither party shall solicit or cause
any of its Affiliates to solicit the employment of or employ any employee,
officer or director of the other party or any of such party's Affiliates for
a period of one (1) year after the Closing Date; provided, however, that MFI
or any of its Affiliates may employ Robert Freemore.
Section 7.15 ACTIVITIES IN THE FIELD. Notwithstanding any
provision of the Partnership Agreement or any other agreement between the
parties or their Affiliates to the contrary, MFI on
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behalf of itself and its Affiliates agrees that (i) subject to the provisions
of Section 7.1 hereof SKW and/or its Affiliates may enter into an agreement
or agreements with Nutra Sweet with respect to the manufacture, sale,
marketing and distribution of the Product and any other form of cholesterol
reduced eggs (ii) the proposed cooperation with Nutra Sweet as previously
disclosed to MFI and the Partnership did not constitute an activity in the
Field (as defined in the Partnership Agreement); and (iii) the provisions of
Section 3.2(b) of the Partnership Agreement shall not apply to SKW and its
Affiliates.
Section 7.16 TRADEMARKS. SKW acknowledges that MFI is the owner
of the Simply Eggs-TM- trademark and disclaims any interest therein or in any
other mark now used by MFI with respect to the Products; PROVIDED, HOWEVER,
that this provision shall not constitute a license or consent by SKW to the
use of any of its or its affiliates present or future trademarks to MFI.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have caused this Agreement to be duly executed as of the day and year
first hereinabove written.
SKW NATURE'S PRODUCTS, INC.
By: /s/ R. VOLLBRECHT
---------------------------------------
Dr. Rudiger Vollbrecht
President
MICHAEL FOODS, INC.
By: /s/ JEFFREY M. SHAPIRO
----------------------------------------
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EXHIBIT A
---------
CHOLESTEROL MARKETING TERMINATION AGREEMENT
This Cholesterol Marketing Termination Agreement is made as of the____ day
of March, 1994, by and between Cholorex Company, a Minnesota partnership
(Cholorex") and SKW Trostberg AG, a German Company ("SKW").
W I T N E S S E T H:
WHEREAS Cholorex and SKW entered into a Cholesterol Marketing Agreement
dated as of January 31, 1991 (the "Marketing Agreement"); and
WHEREAS Cholorex and SKW have mutually agreed that it is in the best
interests of the parties to terminate the Marketing Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. SKW acknowledges that as of the date hereof there are no
outstanding amounts due to SKW from Cholorex under the Marketing
Agreement.
2. SKW shall not be required to deliver the promotional materials to
Cholorex as provided in Section 8.1 of the Marketing Agreement.
3. Cholorex shall not be required to pay the continuing commission to
SKW as provided in Section 7.5 of the Marketing Agreement.
4. Section 7.4 and Articles X and XI of the Marketing Agreement shall
survive the termination of the Marketing Agreement.
5 . Except as otherwise specifically provided herein, the Marketing
Agreement shall be deemed terminated effective as of January 1,
1994.
IN WITNESS WHEREOF the parties hereto intending to be legally bound,
have caused this Cholesterol Marketing Termination Agreement to be executed
by a duly authorized officer (or partner in the case of Cholorex) as of the
date first above written.
CHOLOREX COMPANY
MIKL, INC., a general partner
By: ____________________________________
SKW TROSTBERG AG
By:_____________________________________
<PAGE>
EXHIBIT B
---------
GUARANTY TERMINATION AGREEMENT
This Guaranty Termination Agreement is made as of the ______ day of March,
1994, by and between MIKL, Inc., a Minnesota corporation ("MFI") and SKW
Holdings, Inc. (formerly SKW Alloys, Inc.) ("SKW Holdings").
W I T N E S S E T H:
WHEREAS MFI and SKW Nature's Products, Inc. ("SKWN") entered into a
Partnership Agreement dated as of January 31, 1991 (the "Partnership
Agreement") forming Cholorex Company ("Cholorex");
WHEREAS SKW Holdings executed a Guaranty in favor of MFI, guarantying
SKWN's performance under the Partnership Agreement (the "Guaranty"); and
WHEREAS MFI will purchase SKWN's partnership interest in Cholorex.
NOW, THEREFORE, in consideration of the premises, the parties hereto
hereby agree as follows:
MFI and SKW Holdings hereby agree that the Guaranty and SKW Holdings'
obligations thereunder are hereby terminated and of no further force and
effect, effective as of January 1, 1994.
IN WITNESS WHEREBY, the parties hereto intending to be legally bound,
have caused this Guaranty Termination Agreement to be duly executed by a duly
authorized officer as of the date first above written.
MIKL, INC.
By:_____________________________________
SKW HOLDINGS, INC.
By:_____________________________________
<PAGE>
EXHIBIT C
---------
TECHNOLOGY LICENSE AGREEMENT
----------------------------
THIS Technology License Agreement is made as of the _______ day of
March, 1994, by and between SKW TROSTBERG AG, a German corporation with
offices located at Dr. Albert-Frank-Str. 32, 8223 Trostberg, Germany, (the
"Licensor"); and MICHAEL FOODS, INC., a Delaware corporation, with offices
located at 324 Park National Bank Building, 5353 Wayzata Boulevard,
Minneapolis, Minnesota 55416, (the "Licensee") on the following terms and
conditions:
RECITALS
WHEREAS, the Licensor is the owner of Technology (as hereafter
defined) used in the processing, production, manufacture, distribution, use
and sale of CRE (as hereafter defined); and
WHEREAS, the Licensee wishes to be engaged in the processing,
production, manufacture, distribution, use and sale of CRE; and
WHEREAS, the Licensor wishes to grant, and the Licensee wishes to
obtain, a license to use certain know-how relating to the processing,
production, manufacture, distribution, use and sale of the CRE in order to
process, produce, manufacture, distribute, use and sell the CRE in the
Territory (as hereafter defined) subject to the terms of this Technology
License Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
SECTION 1
DEFINITIONS
In this Technology License Agreement:
1.1 "Affiliate" shall mean, as to any Person, any other Person
that, directly or indirectly, controls, is under common control with or is
controlled by that Person. For purposes of this definition, "control"
(including the terms "controlled by" and "under common control with") as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise except that with respect to any
corporation, the voting securities of which are traded on any securities
exchange or established trading market, the term "control" shall mean the
possession, directly or indirectly, of the
<PAGE>
power to elect a majority of that corporation's board of directors or
similar governing body through beneficial ownership of a majority of the
voting securities of such corporation.
1.2 "CRE" shall mean cholesterol reduced eggs produced through the
utilization of the Technology.
1.3 "Improvement" shall mean any extension, new application,
adaptation or further development of the Technology which is made or acquired
by either party hereto or any of their respective Affiliates, licensees, or
sublicensees.
1.4 "Know-How" shall mean any information, including, without
limitation, product designs, processes and processing methods, apparatus
specifications, production specifications and techniques, raw material
specifications and sources, test methods and standards, manuals, quality
control reports, invention records, formulae, calculations, research records
and reports, and marketing surveys and reports, which are possessed and known
in any form whatsoever, whether communicated orally or embodied in plans,
drawings, photographs, tapes, discs, memoranda, notes, reports, studies, or
samples, and which relate to the development, design, modification,
construction, formulation, production, manufacture, use, distribution or sale
of the CRE, and whether such information is patentable or unpatentable and
whether now existing or hereafter developed. A list of Know-How now existing
is attached hereto as SCHEDULE A.
1.5 "License" shall mean the license of the Technology by the
Licensor to Licensee pursuant to Section 3 hereof.
1.6 "Patent" shall mean any U.S. or Canadian patent, application
therefore, or continuation or renewal thereof obtained by Licensor or any of
its Affiliates with respect to a process for the reduction or elimination of
cholesterol from eggs in the United States, including U.S. patent no.
5,063,077 (granted November 5, 1991), U.S. patent no. 4,980,180 (granted
December 25, 1990). ____________________*_______________________________
_________________________________________________.
1.7 "Person" shall mean an individual, a partnership, a joint
venture, a corporation, a trust an unincorporated organization or a
government and any department or agency thereof.
1.8 "Pilot Plant" shall mean the test facility located in Gaylord,
Minnesota, used by the Cholorex Company for testing the CRE process prior to
the construction of the S-E Plant.
1.9 "Purchase Agreement" shall mean that Purchase and Sale
Agreement between Licensor and Licensee of even date herewith.
* Request for confidential treatment has been filed with
the Commission for the redacted portions of this Exhibit.
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1.10 "Sales Price" shall mean the sales price of CRE sold by
Licensee to the first party not related to or affiliated with Licensee in the
chain of distribution and/or the equivalent sales price of CRE which is
incorporated into other egg products.
1.11 "S-E" Plant" shall mean the facility located in Gaylord,
Minnesota for the production of CRE constructed by S-E Constructors, Inc.
pursuant to an agreement effective as of August 6, 1991 with Cholorex
Company.
1.12 "Technology" shall mean any and all Patents, Know-How and
Improvements.
1.13 "Term" shall mean the period beginning on the date first
written above and ending twenty (20) years from said date or earlier upon
termination of this Technology License Agreement in accordance with the
provisions of Section 14.
1.14 "Territory" shall mean the United States of America,
including the District of Columbia, the U.S. Virgin Islands, and the
Commonwealth of Puerto Rico (excluding, however, any territories or
possessions of the United States) and Canada.
1.15 "Trade Secret" shall mean: (i) the contents of any pending
patent application unless and until published by the patent office where such
patent application is pending; and (ii) any Know-How disclosed by the Licensor
to the Licensee which, at the time of its communication, was not already
rightfully in the Licensee's possession and was not in the public domain,
including patent applications which have been denied or withdrawn; PROVIDED,
HOWEVER, that any Know How in the possession of Licensee as a result of (i)
its Affiliate's participation as a partner in the Cholorex Company or (ii)
its purchase of SKW Nature's Products, Inc. partnership interest in Cholorex
Company pursuant to the Purchase Agreement shall nonetheless be deemed Trade
Secrets subject to the terms and conditions of this License Agreement,
including but not limited to the confidentiality provisions hereof.
SECTION 2
REPRESENTATIONS
Licensor warrants and represents to Licensee that:
2.1 AUTHORITY. Licensor is the owner of the Technology described
herein with full corporate power and authority to enter into this Technology
License Agreement with Licensee.
2.2 LICENSE AGREEMENT. Upon execution of this Technology License
Agreement, this Technology License Agreement
3
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shall be the valid and binding obligation of Licensor enforceable in
accordance with its terms, subject as to enforcement only to applicable
bankruptcy and insolvency laws and the equitable powers of any court of
competent jurisdiction.
2.3 KNOWLEDGE OF ADVERSE CLAIMS. To the best of its knowledge and
except with respect to the CSIRO patent and the Monserbio/Asterol patent
situation described in the Agreement between Licensor and Asterol
International S.A. dated August 30, 1993 both of which have been previously
disclosed to Licensee and the License Agreement dated March 31, 1992 between
Asterol International S.A. and Licensee, Licensor has not received any
written notice of any adverse claims with respect to the Technology from any
third party.
SECTION 3
LICENSE
Subject to the limitations set forth in Section 4, the Licensor
hereby grants to the Licensee the following licenses:
3.1 PATENTS. A non-exclusive license under each Patent to
process, produce, manufacture, use, distribute and sell the CRE covered by
such Patent in the Territory for a period equal to the shorter of the life of
such Patent or the Term.
3.2 KNOW-HOW. A non-exclusive license to use the Know-How in
connection with the processing, production, manufacture, use, distribution
and sale of the CRE in the Territory for a period equal to the Term.
3.3 TRADE SECRETS. A non-exclusive license to use the Trade
Secrets in connection with the processing, production, manufacture, use,
distribution and sale of the CRE in the Territory for a period equal to the
Term.
SECTION 4
RESTRICTIONS
4.1 NO ASSIGNMENT. None of the licenses granted pursuant to this
Technology License Agreement shall constitute an assignment of the matter
licensed, nor grant to the Licensee any ownership right or title therein.
The Licensor retains exclusive title to the licensed Technology.
4.2 NO FURTHER LICENSE. The Licensee may not sublicense or assign
to any Person any of its rights under this Technology License Agreement
except with the prior written approval
4
<PAGE>
of the Licensor PROVIDED, HOWEVER, that Licensee may sublicense or assign its
rights under this Technology License Agreement to an Affiliate of Licensee.
Licensee shall give Licensor prompt written notice of any such license or
assignment. Licensee shall require all sublicensees or assignees to agree in
writing to be bound by the provisions of this Technology License Agreement.
Notwithstanding any permitted sublicense or assignment of Licensee's rights,
Licensee shall remain fully liable for the fulfillment of all obligations of
Licensee under this Technology License Agreement.
4.3 SALE OF S-E PLANT. In the event of the sale of the S-E Plant,
the Pilot Plant or any other such facility to a non-Affiliate of Licensee (a
"Third Party Purchaser"), Licensee shall obtain the prior written consent of
Licensor to disclose the Trade Secrets and unpatented Improvements to the
Third Party Purchaser. If Licensor gives its consent, the Third Party
Purchaser shall be required to sign a written confidentiality agreement in
form and substance acceptable to Licensor. In the event of the sale of the
S-E Plant and if requested by Licensee, Licensor will negotiate in good faith
a license agreement with such Third Party Purchaser substantially on the same
terms as this License Agreement, PROVIDED, HOWEVER, that the royalty and
license fee may be on such terms as Licensor shall require.
SECTION 5
TECHNICAL ASSISTANCE
5.1 INITIAL ASSISTANCE. The Licensor will provide the Licensee
with up to three hundred fifty (350) hours of technical assistance from one
or more of Licensor's or its Affiliates' employees, if available, selected by
the Licensor, to assist the Licensee in the manufacture of the CRE.
These services will be provided at the Licensee's premises as may be
reasonably requested by the Licensee.
5.2 COST OF ASSISTANCE. The Licensee will pay all subsistence,
travel and accommodation costs of its own employees and those of the Licensor
or its Affiliates incurred in connection with the assistance to be provided
under Section 5.1. In addition, Licensee shall reimburse Licensor or its
Affiliates, as the case may be, for its wage and benefits costs incurred by
Licensor or its Affiliates in providing each such employee to perform such
technical assistance by paying to Licensor an amount equal to
5
<PAGE>
(a) 150% multiplied by
(b) the hourly rate of each such employee made available
to Licensee multiplied by
(c) the number of work hours such employee was not at his
regular work station (including those hours traveling to and from the
location where the technical assistance was given).
5.3 ADDITIONAL ASSISTANCE. If the Licensee requests, and the
Licensor agrees to provide additional technical assistance from employees of
the Licensor or its Affiliates, then the Licensee shall reimburse the
Licensor or its Affiliates for such additional technical assistance on the
terms provided in Section 5.2 above. Such additional technical assistance
shall not be unreasonably withheld, but the Licensor may give due
consideration to the needs of its or its Affiliates' operations from
employees capable of giving such assistance when receiving such a request and
the request shall be granted only when mutually acceptable to the Licensor
and the Licensee.
SECTION 6
ROYALTY
6.1 ROYALTY. The Licensee shall pay to the Licensor a royalty
equal to__________________*_______________________. The Sales Price shall be
_________________*____________________. Such royalty shall be payable by
the Licensee quarterly, by the accounting date following the calendar quarter
in which such royalty accrued. "ACCOUNTING DATE" means the forty-fifth
(45th) day (or if a weekend or holiday, on the next following business day)
following the end of each calendar quarter. All payments shall be made in
U.S. Dollars, regardless of the currency of accrual. Where royalties accrue
in a currency other than U.S. Dollars, conversion shall be made in accordance
with the exchange rate published in the WALL STREET JOURNAL (East Coast
Edition) on the last day of the calendar quarter in which they accrued.
Payments not timely made shall accrue interest at an annualized rate of
interest equal to two (2) percentage points above the prime rate of interest
published in the WALL STREET JOURNAL on the last day of each month in which
such amounts are outstanding. In the event that the WALL STREET JOURNAL
shall not have been published on a given applicable date, the applicable
exchange or prime rate shall be that published on the next business day; if
the WALL STREET JOURNAL shall not publish such information or shall cease
publication, then the parties agree to select a comparable U.S. daily
newspaper which does publish such information.
* Confidential treatment requested
6
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6.2 ROYALTY REPORTS. Licensee shall provide quarterly reports
of royalties due an the Accounting Date following the end of each calendar
quarter. Such reports shall separately report the following for each country
within the Territory: the number of units of CRE sold in each market; the
sales price of each type of CRE sold; and the royalty due. All royalties
shall be paid at the time such report is rendered. If no royalties are due,
the report shall so state.
6.3 AUDITORS. Licensee shall keep records regarding the
processing, production, manufacture, use, distribution and sale of the CRE
during the term of this Technology License Agreement and for a period of
seven (7) years thereafter. The Licensor shall have the right to conduct at
any time, but not more than once per year, through an auditor or other
representative of its choice obligated to maintain confidentiality, an audit
of the accounting of the Licensee and its Affiliates with regard to the Sales
Price subject to the royalty obligation. The cost of such audit shall be
borne by the Licensee if the audit is made by Licensee's regular accountant
or by Licensor if otherwise, unless, in the final determination, the audit
shall disclose that Licensee owes Licensor additional royalties in excess of
the greater of the sum of Ten Thousand Dollars ($10,000) or five percent (5%)
more than the royalties actually paid to Licensee, in which event such audit
cost shall be borne solely by Licensee.
SECTION 7
EXERCISE OF LICENSES
7.1 BEST EFFORTS. The Licensee shall use its best efforts to
promote, develop and extend the sale of the CRE throughout the Territory.
SECTION 8
INDEMNIFICATION
8.1 INDEMNIFICATION. The Licensee agrees to indemnify the
Licensor and hold it harmless against any claim by any third party against
the Licensor arising from any defect in design, formulation, workmanship or
materials of the CRE processed, produced, manufactured, distributed, used or
sold by the Licensee.
7
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SECTION 9
IMPROVEMENTS
9.1 NOTIFICATION. The Licensor and the Licensee shall promptly
advise each other if and when they develop or acquire any Improvements.
9.2 LICENSOR IMPROVEMENTS. The Licensor shall make all of its
Improvements available to the Licensee and such Improvements shall be
included in the scope of the Licenses granted in Section 3 unless the
Licensor is prohibited by contract or law from doing so, in which case the
Licensor shall advise the Licensee of the basis for such prohibition.
9.3 LICENSEE IMPROVEMENTS. The Licensee shall not incorporate any
of its Improvements into the CRE manufactured by it without the Licensor's
consent, which consent shall not be unreasonably withheld. The Licensor and
any of its licensees shall be entitled both during and after the Term and
free of any fee or royalty payment to use any such Improvement in any country
of the world to the extent Licensor is not precluded from using the
Improvements under any other agreement.
9.4 REGISTRATIONS. The party giving notice of any Improvements
hereunder shall determine whether to apply for patent protection for such
Improvements. If the other party disputes the ownership of such Improvement,
it shall so advise the notifying party within ten (10) days. If the parties
are unable to resolve the dispute within an additional thirty (30) days,
either party may refer the matter to arbitration pursuant to Section 15.
(a) If the party licensing such Improvements from the owner
thereof desires to use them within the Territory in which such patent
protection has been secured, it shall reimburse the owner thereof for the
reasonable cost of the preparation, filing and prosecution of patent
applications and the maintenance of the resulting patents for so long as the
license of such Improvements remains in effect.
(b) If the party licensing such Improvements desires to use
them within the Territory in which the owner thereof has not secured patent
protection, it shall be entitled, in the owner's name, to file for and
prosecute patent applications and maintain the resulting patents for such
Improvements at its own expense. The owner agrees to provide the licensing
party, at its request, with all signatures and documents necessary for the
filing of such patent applications.
8
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SECTION 10
INFRINGEMENT OF THIRD-PARTY RIGHTS
10.1 NOTICE. Licensee shall report to Licensor in writing
promptly after Licensee or any of its Affiliates learns of any claim asserted
against Licensee or its Affiliates that the Technology or any part thereof
infringes the proprietary rights of any third party.
10.2 PROCEDURE. In the event of an action brought against Licensee
based on a claim that the CRE or any part thereof constitutes an
infringement of any patent, know-how or trade secret of a third party:
(a) The Licensee shall promptly notify the Licensor of any
such action and Licensor may participate in such action subject to the right
of control granted to Licensor herein below.
(b) The Licensor shall defend against and pay any attorneys'
costs and expenses resulting from any such action at its own expense,
provided that the Licensor shall have the sole control of the defense of any
action on such claim and all negotiations for settlement or compromise and
the Licensee shall allow its name to be used in proceedings if necessary and
shall provide all reasonable assistance at its expense in defending any
action.
10.3 REMEDIES. In the event that any CRE or any part thereof is
held to constitute an infringement, the Licensor may, at its option or as
part of a settlement or compromise, either procure for the Licensee the right
to continue manufacturing and selling the CRE, modify the CRE so that it does
not infringe, or subject to the next sentence, terminate this Technology
License Agreement. Before termination of this Technology License Agreement,
Licensor shall endeavor (but shall not be obligated) to procure a license to
permit Licensee to continue manufacturing and selling CRE provided that, if
any royalty or fee is to be paid therefor, Licensor shall procure such
license only if the Licensee agrees to be solely liable therefor. If
Licensee is not willing to be liable for such royalty, Licensor may terminate
this Technology License Agreement. In the event of termination of this
Technology License Agreement for such a cause, the Licensee shall pay all
sums due, if any, under this Technology License Agreement up to the date on
which the Technology License Agreement is terminated and neither party shall
thereafter have any claim against the other.
10.4 LIMITATION. Except as otherwise provided in Subsection
10.2(b), in no event shall the Licensor have any liability to the Licensee
under this Section 10 with respect to any infringement which is based upon
the processing, production, use, manufacture, distribution or sale of any
CRE.
9
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10.5 ENTIRE OBLIGATION. The foregoing Sections 10.1 through
10.4 state the entire obligation and liability of the Licensor with respect
to infringement of patents, technology and other rights by the processing,
production, manufacture, distribution, use or sale of the CRE or any part
thereof.
10.6 ASSISTANCE. The Licensee shall, at its cost, give the
Licensor all reasonable assistance in regard to any claims, actions or
proceedings which are defended by the Licensor, and the Licensee will so far
as possible make its employees and other representatives available to testify
as to the facts within their knowledge when requested by the Licensor, and
will make available to the Licensor all relevant records, information,
samples, specimens and papers. The parties agree that the provisions of
this Section 10.6 shall not be construed to require the Licensee to
contribute towards the payment of any costs incurred by the Licensor in
regard to its defense of any such claims, actions or proceedings.
SECTION 11
INFRINGEMENT OF LICENSOR'S RIGHTS
In the event that either party shall acquire information which
leads it to believe that infringement of any Technology rights of the
Licensor is taking place anywhere in the Territory it shall immediately
inform the other party and the parties shall consult together to determine
what action if any shall be taken in respect of such alleged infringement.
Within six (6) weeks of the time when both parties shall have been informed
of such infringement they shall determine whether by mutual agreement they
will jointly prosecute the infringement action, in which event the costs
thereof and any damages awarded as a result thereof shall be shared between
the parties as they shall agree. If within that period the parties shall
not have agreed to a joint prosecution of the action then the Licensor
shall have an option exercisable within the next following six (6) weeks to
prosecute such action at its own cost and to retain for its own benefit any
damages awarded thereon. If within that further period the Licensor shall
not exercise its option then the Licensee may itself prosecute an
infringement action at its own cost and retain for its own benefit any
damages awarded as a result thereof. The Licensor shall permit the Licensee
to prosecute in the Licensor's name any action prosecuted by the Licensee in
accordance with this Section.
10
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SECTION 12
NO WARRANTIES
Nothing contained in this Technology License Agreement shall be
construed as:
12.1 VALIDITY AND SCOPE. A warranty or representation by the
Licensor as to the validity or scope of the Technology;
12.2 INFRINGEMENTS. A warranty or representation by the Licensor
that any processing, production, manufacture, distribution, use or sale of
the CRE hereunder will be free from infringement of patents, trade secrets,
trademarks, service marks, copyrights or know-how owned by parties other than
the Licensor;
12.3 NO ESTOPPEL. Conferring by implication, estoppel or otherwise
upon the Licensee any license or other rights under any patent except rights
expressly granted hereunder to the Licensee; or
12.4 NO RELEASE. A release for any infringement prior to the
effective date of this Technology License Agreement.
SECTION 13
CONFIDENTIALITY
13.1 OBLIGATION. The Licensee shall keep strictly secret and not
disclose, divulge, or communicate the Trade Secrets and unpatented
Improvements in any manner, directly or indirectly, to any other Person
(except as provided in Section 13.3) and shall itself use the Trade Secrets
and unpatented Improvements solely for the purposes permitted by this
Technology License Agreement. Notwithstanding the foregoing, the Licensee
shall not be liable for disclosure of Trade Secrets which:
(a) Are or later become publicly known under circumstances
involving no breach of this Technology License Agreement by the Licensee;
(b) Were already known to the Licensee at the time it
received the Trade Secrets or unpatented Improvements; PROVIDED, HOWEVER,
that any Know How in the possession of Licensee as a result of (i) its
Affiliate's participation as a partner in Cholorex Company or (ii) its
purchase of SKW Nature's Products, Inc.'s partnership interest in Cholorex
Company pursuant to the Purchase Agreement shall nonetheless be deemed Trade
Secrets subject to the confidentiality restrictions of this License
Agreement; or
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(c) Are made available to the Licensee by a third
party without secrecy obligation and without breach of an
obligation to the Licensor.
If the Licensee claims that it is not bound under this
Technology License Agreement by reason of Subsections (a), (b),
or (c) of this Section 13.1, it shall give the Licensor written
notice to that effect, together with documentary evidence to
substantiate the Licensee's claims, not more than thirty (30)
days after receipt by the Licensee of the Trade Secrets or
unpatented Improvements, or not more than thirty (30) days after
the date of discovery by the Licensee that it is not bound under
this Technology License Agreement by reason of Subsections (a),
(b) or (c) of this Section 13.1. The burden of proof in regard
to the existence of any of the three foregoing exceptions shall
be upon the Licensee.
13.2 SAFEGUARDING. The Licensee shall initiate a
system acceptable to the Licensor for the safe custody of all
Trade Secrets and unpatented Improvements and for the control of
any copies made thereof, which is known to and exercised by the
minimum practicable number of its directors, officers and
employees, and shall submit full details of such system in
writing for prior approval by the Licensor within thirty (30)
days of the date hereof.
13.3 EMPLOYEE UNDERTAKINGS. The Licensee may disclose
the Trade Secrets and unpatented Improvements only to those of
its directors, officers, and employees who require it for the
purposes permitted by this Technology License Agreement and shall
use its best efforts to prevent any unauthorized disclosure of
Trade Secrets and unpatented Improvements by them. In this
connection, each of such directors, officers, and employees to
whom any Trade Secret is to be disclosed shall first enter into a
written agreement of secrecy in favor of the Licensor, whereby he
agrees to keep the Trade Secrets and unpatented Improvements
strictly secret in accordance with the terms of this Technology
License Agreement, and the Licensee agrees to take all reasonable
steps to enforce such undertakings. The undertaking by such
directors, officers, and employees shall be in the form set out
in the EXHIBIT B, attached hereto.
13.4 NO CONVERSION. The Licensee shall not either
during or after the Term use or attempt to use or permit the use
of any of the Trade Secrets or unpatented Improvements for its
own purposes or to convert the same to its own account or to its
advantage otherwise than for the purpose of producing,
manufacturing, distributing, using or selling the CRE in
accordance with this Technology License Agreement.
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SECTION 14
TERMINATION
14.1 TERMINATION BY LICENSOR. This Technology License
Agreement shall terminate upon the occurrence of any of the
following events after notice of termination is given by
Licensor:
(a) Breach of the terms of this Technology
License Agreement by Licensee which is not cured within forty
(40) days after notice by Licensor;
(b) If Licensee applies for or consents to the
appointment of a receiver, custodian, trustee or liquidator for
all or a substantial part of its assets; admits in writing its
inability to pay its debts generally as they mature; makes a
general assignment for the benefit of creditors; is adjudicated a
bankrupt; submits a petition or an answer seeking an arrangement
with creditors; takes advantage of any insolvency law; submits an
answer admitting the material allegations of a petition in
bankruptcy or insolvency proceeding; has an order, judgment or
decree entered by any court of competent jurisdiction approving a
petition seeking organization of Licensee or appointing a
receiver, custodian, trustee or liquidator for Licensee, or for
all or a substantial part of any of its assets and such order,
judgment or decree shall continue unstayed and in effect for any
period of sixty (60) consecutive days; or fails to remove an
involuntary petition for bankruptcy filed against it within sixty
(60) consecutive days of the filing thereof;
(c) Any attempt by Licensee to assign or to grant
a security interest in or otherwise encumber this Technology
License Agreement without the prior written consent of the
Licensor; or
(d) Any attempt by Licensee to challenge the
validity of the Technology or the ownership thereof, or
cooperation with any effort to do so, other than at the express
written request of Licensor.
14.2 EFFECT OF TERMINATION. In the event of
termination of this Technology License Agreement for any reason,
the Licensee shall:
(a) Not use, or disclose to others the Trade
Secrets and unpatented Improvements received from the Licensor
under this Technology License Agreement;
(b) Return to the Licensor within thirty (30)
days from the date of termination all tangible embodiments of
Trade Secrets and unpatented Improvements, retaining no copies or
extracts thereof or any part thereof; and
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(c) Immediately cease the processing, production,
manufacture, distribution, use and sale of the CRE using the
Technology.
14.3 SURVIVAL. Notwithstanding termination Of this
Technology License Agreement, the obligations of the Licensee
under Sections 8.1 and Section 13 of this Technology License
Agreement shall continue unabated.
SECTION 15
MISCELLANEOUS
15.1 ENTIRE AGREEMENT; WAIVER; MODIFICATIONS. This
Technology License Agreement constitutes the complete statement
of all of the arrangements among the parties as of the date
hereof with respect to the transactions contemplated hereby, and
all other prior or contemporaneous agreements of the parties with
respect to such subject matter are hereby merged into this
Technology License Agreement. No modification, discharge or
waiver in whole or in part, of any of the provisions hereof shall
be valid unless in writing and signed by the party against whom
the same is sought to be enforced. The failure or omission of
either party hereto to insist, in any instance, upon strict
performance by the other party of any term or provision of this
Technology License Agreement or to exercise any of its rights
hereunder shall not be deemed to be a modification of any term or
provision hereof or a waiver or relinquishment of the future
performance of any such term or provision by such party nor shall
such failure or omission constitute a waiver of the right of such
party to insist upon future performance by the other party of any
such term or provision or any other term or provision of this
Technology License Agreement.
15.2 ASSIGNMENT; SUCCESSORS. This Technology License
Agreement shall inure to the benefit of, and be binding upon, the
parties hereto, and their respective successors and assigns.
This Technology License Agreement is not assignable by the
Licensee. The Licensor may assign this Technology License
Agreement provided that such assignment shall not relieve
Licensor of its obligations.
15.3 NOTICE. All notices and other communications
hereunder shall be in writing and shall be given, transmitted and
delivered by telecopy, messenger, telex, or telegram, and a copy
thereof shall be mailed by Certified Mail (Airmail if to a
destination in a foreign country from the point of mailing),
postage prepaid, return receipt requested, to the parties at the
following addresses (or such other address as shall be specified
by such party by like notice), and such notice shall be deemed
given on the date on which so delivered by messenger, or on the
next
14
<PAGE>
business day following the date on which so transmitted by telex,
telecopy, or telegram from the date of transmission:
If to Licensor:
SKW TROSTBERG AG
P.O. Box 12 62
83303 Trostberg
Germany
Attn: Rechtsabteilung
Telephone: 011-49-8621-86-2413
Telecopy: 011-49-8621-86-2011
with a copy to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attn.: Aydin S. Caginalp, Esq.
Telephone: 212-210-9400
Telecopy: 212-210-9444
If to Licensee:
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
Attn.: Corporate Secretary
Telephone: 612-546-1500
Telecopy: 612-546-3711
15.4 COUNTERPARTS. This Technology License Agreement
may be executed in two or more counterparts, each of which when
so executed shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
15.5 INTERPRETATION. Titles of articles and sections
are for convenience only and shall be given no effect in the
construction or interpretation of this Technology License
Agreement. Unless the context otherwise requires, the singular
includes the plural, and the plural includes the singular.
15.6 SEVERABILITY. In the event that any provision of
this Technology License Agreement is declared by a court of
competent jurisdiction to be void or unenforceable, the remainder
of this Technology License Agreement shall not be affected
thereby
15
<PAGE>
and shall remain in full force and effect to the extent feasible
in the absence of the void and unenforceable provision. The
parties furthermore agree to execute and deliver such amendatory
contractual provisions to accomplish lawfully as nearly as
possible the goals and purposes of the provision so held to be
void or unenforceable.
15.7 EQUITABLE REMEDIES. The rights and remedies of
the parties under this Technology License Agreement shall not be
mutually exclusive i.e., the exercise of one or more of the
rights under this Technology License Agreement shall not preclude
the exercise of rights under any other provision. Each party
acknowledges that no adequate remedy of law would be available
for a breach of this Technology License Agreement, and that a
breach of this Technology License Agreement by one party would
irreparably injure the other and accordingly agrees that in the
event of a breach of any provision, the respective rights and
obligations of the parties hereunder shall be enforceable by
specific performance, injunction or other equitable remedy
(without bond or security being required), and each party waives
the defense in any action and/or proceeding brought to enforce
this Technology License Agreement that there exists an adequate
remedy or that the other party is not irreparably injured.
Nothing herein contained, however, is intended to, nor shall it,
limit or affect any rights at law or by statute or otherwise of
any party as against the other for a breach of any provision, it
being the intention of this Section 15.7 to make clear the
agreement of the parties that the respective rights and
obligations of the parties shall be enforceable in equity as well
as at law or otherwise.
15.8 ARBITRATION. Without prejudice to the rights of
the parties to seek injunctive or equitable relief in any
appropriate court of law having jurisdiction over the matter and
parties involved, all claims, disputes or disagreements arising
under or in connection with this Technology License Agreement
shall be finally settled under the then applicable Rules of
Conciliation and Arbitration of the International Chamber of
Commerce by three (3) arbitrators (appointed in accordance with
Article 2(4) of the said Rules) as follows:
(a) The arbitration and all communications
(written or oral) including, without limitation thereof, any
evidence submitted to the arbitrators shall be in the English
language or shall be accompanied by an English translation;
(b) The arbitrators shall apply the law
(including the procedural law) specified in Section 15.9 of this
Technology License Agreement;
(c) The arbitration shall be held in Zurich,
Switzerland; and
16
<PAGE>
(d) The arbitrators shall award legal fees and
costs (including administrative expenses and arbitrators' fees
and legal fees incurred in connection with the arbitration) to
each party in the proportion lost by each party in the
proceeding.
15.9 GOVERNING LAW. This Technology License Agreement
shall be governed by and construed in accordance with the
internal law of the State of New York without regard to its
conflict of law principles.
15.10 FURTHER ASSURANCES. Each party shall perform
all other acts and execute and deliver all other documents as may
be necessary or appropriate to carry out the purposes and intent
of this Technology License Agreement.
IN WITNESS WHEREOF, this Technology License Agreement has
been entered into as of the day and year first above written.
SKW TROSTBERG AG
By: _______________________________
MICHAEL FOODS, INC.
By: _______________________________
17
<PAGE>
EXHIBIT D
---------
OPTION TERMINATION AGREEMENT
This Option Termination Agreement is made as of the ________
day of March, 1994, by and between Crystal Foods, Inc., a
Minnesota corporation ("Owner"), and SKW Nature's Products, Inc.,
a Delaware corporation ("SKW").
W I T N E S S E T H:
WHEREAS, Owner and SKW have entered into an Option Agreement
dated as of January 31, 1991 (the "Option Agreement") pursuant to
which SKWN has the option to purchase the Michael Foods Facility
(as defined in the Option Agreement);
WHEREAS, Owner and SKWN have mutually agreed that it is in
the best interests of the parties to terminate the Option
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby
agree as follows:
Owner and SKWN hereby agree that the Option
Agreement is hereby terminated and of no
further force and effect, effective as of
January 1, 1994.
IN WITNESS WHEREBY, the parties hereto intending to be
legally bound, have caused this Option Termination Agreement to
be duly executed by a duly authorized officer as of the date
first above written.
CRYSTAL FOODS, INC.
By: ___________________________
SKW NATURE'S PRODUCTS, INC.
By: ___________________________
<PAGE>
EXHIBIT E
---------
PASTEURIZATION TERMINATION AGREEMENT
This Pasteurization Termination Agreement as made of the
_______ day of March, 1994, by and between SKW Nature's Products,
Inc., a Delaware corporation ("SKWN") and Michael Foods, Inc., a
Delaware corporation ("Michael Foods").
W I T N E S S E T H:
WHEREAS Michael Foods and SKWN entered into a Pasteurization
Agreement dated as of January 31, 1991 (the "Pasteurization
Agreement"); and
WHEREAS Michael Foods and SKWN have mutually agreed that it
is in the best interests of the parties to terminate the
Pasteurization Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby
agree as follows:
Michael Foods and SKWN hereby agree
that the Pasteurization Agreement is hereby
terminated and of no further force and
effect, effective as of January 1, 1994.
IN WITNESS WHEREOF, the parties hereto intending to be
legally bound, have caused this Pasteurization Agreement to be
executed by a duly authorized officer as of the date first above
written.
MICHAEL FOODS, INC.
By:_____________________________
SKW NATURE'S PRODUCTS, INC.
By:______________________________
<PAGE>
EXHIBIT F
---------
SUBLICENSE TERMINATION AGREEMENT
This Sublicense Termination Agreement is made as of the
_______ day of March, 1994, by and between SKW Nature's Products,
Inc., a Delaware corporation ("SKWN") and Cholorex Company, a
Minnesota general partnership ("Cholorex").
W I T N E S S E T H:
WHEREAS SKWN and Cholorex entered into a Technology
Sublicense Agreement dated as of January 31, 1991 (the
"Sublicense Agreement"); and
WHEREAS SKWN and Cholorex have mutually agreed that it is in
the best interest of the parties to terminate the Sublicense
Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby
agree as follows:
1. The rights and obligations of the parties described in
Section 6.7 shall survive the termination of the
Sublicense Agreement with respect to the period up to
and including December 31, 1993.
2. Sections 8.3 and 13.2 shall survive the termination of
the Sublicense Agreement.
3 . Except as otherwise specifically provided herein, the
Sublicense Agreement is hereby terminated, effective as
of January 1, 1994.
IN WITNESS WHEREOF, the parties hereto intending to be
legally bound, have caused this Sublicense Termination Agreement
to be executed by a duly authorized officer (or partner in case
of Cholorex) as of the date first above written.
SKW NATURE'S PRODUCTS, INC.
By: __________________________
CHOLOREX COMPANY
MIKL, INC., a general partner
By: __________________________
<PAGE>
EXHIBIT G
GENERAL RELEASE
--------------
To all to whom these Presents shall come or may Concern,
Know That MIKL, INC., individually, and as a general partner of
CHOLOREX COMPANY and MICHAEL FOODS, INC.
as RELEASOR,
in consideration of the General Release executed by SKW AG; and
SKW NATURE'S PRODUCTS, on the 11th day of March, 1994,
received from SKW AG and SKW NATURE'S PRODUCTS INC.,
as RELEASEE,
receipt whereof is hereby acknowledged, releases and discharges
the RELEASEE, RELEASEE'S administrators, successors and assigns
from all actions, causes of action, suits, debts, dues, sums of
money,, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions,
claims, and demands whatsoever, in law, admiralty or equity,
which against the RELEASEE, the RELEASOR, RELEASOR'S
administrators, successors and assigns ever had, now have or
hereafter can, shall or may, have for, upon, or by reason of any
matter, cause or thing whatsoever from the beginning of the world
to January 1, 1994, except as to Releasee's obligations under:
1. A certain Purchase and Sale Agreement dated March 11,
1994, between SKW Nature's Products Inc. and Michael
Foods, Inc.;
2. A certain Technology License Agreement, dated, March
11, 1994, between SKW Trosberg AG, as licensor, and
Michael Foods Inc., as licensee; and
3. Any other agreement or document executed in connection
therewith.
The words "RELEASOR" and "RELEASEE" include all releasors
and all releasees under this RELEASE.
<PAGE>
This RELEASE may not be changed orally.
In Witness Whereof, the RELEASOR has hereunto set
RELEASOR'S hand and seal on the 11th day of March, 1994.
MIKL, INC. individually and as a
general partner of CHOLOREX COMPANY
By: /s/ JEFFREY M. SHAPIRO L.S.
-----------------------------------
Name: JEFFREY M. SHAPIRO
Title: Secretary
MICHAEL FOODS, INC.
By: /s/ JEFFREY M. SHAPIRO L.S.
------------------------------------
Name: JEFFREY M. SHAPIRO
Title: Executive Vice President
In presence of
/s/ ALBERT A. WOODWARD
- ----------------------------
2
<PAGE>
EXHIBIT H
GENERAL RELEASE
---------------
To all to whom these Presents shall come or may Concern,
Know That SKW AG and SKW NATURE'S PRODUCTS INC.
as RELEASOR,
in consideration of the General Release executed by MIKL, INC.,
individually, and as a general partner of CHOLOREX COMPANY; and
MICHAEL FOODS, INC., on the 11th day of March, 1994,
received from MIKL, INC., individually, and as a general partner
of CHOLOREX COMPANY and MICHAEL FOODS, INC.,
as RELEASEE,
receipt whereof is hereby acknowledged, releases and discharges
the RELEASEE, RELEASEE'S administrators, successors and assigns
from all actions, causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions,
claims, and demands whatsoever, in law, admiralty or equity,
which against the RELEASEE, the RELEASOR, RELEASOR'S
administrators, successors and assigns ever had, now have or
hereafter can, shall or may, have for, upon, or by reason of any
matter, cause or thing whatsoever from the beginning of the world
to January 1, 1994,
EXCEPT as to RELEASEE'S obligations under:
1. A certain Purchase and Sale Agreement dated March 11, 1994,
between SKW Nature's Products Inc. and Michael Foods, Inc.;
2. A certain Technology License Agreement, dated March 1994,
between SKW Trosberg AG, as licensor, and Michael Foods
Inc., as licensee; and
3. Any other agreement or document executed in connection
therewith.
The words "RELEASOR" and "RELEASEE" include all releasors
and all releasees under this RELEASE.
<PAGE>
This RELEASE may not be changed orally.
In Witness Whereof, the RELEASOR has hereunto set RELEASOR'S
hand and seal on the 11th day of March, 1994.
SKW AG
By:_____________________L.S. By________________________L.S.
Name: Name:
Title: Title:
SKW NATURE'S PRODUCTS INC.
By: ____________________________
Name:
Title:
In presence of
_________________________________
2
<PAGE>
APPENDIX "B"
EXHIBIT I
CHOLOREX Comm. No. 0104
Gaylord, Minnesota September 17, 1991
(CONFIDENTIAL TREATMENT REQUESTED)
<PAGE>
EXHIBIT 10.86
TECHNOLOGY LICENSE AGREEMENT
---------------------------
THIS Technology License Agreement is made as of the
11th day of March, 1994, by and between SKW TROSTBERG AG, a
German corporation with offices located at Dr. Albert-Frank-Str.
32, 8223 Trostberg, Germany, (the"Licensor"); and MICHAEL FOODS,
INC., a Delaware corporation, with offices located at 324 Park
National Bank Building, 5353 Wayzata Boulevard, Minneapolis,
Minnesota 55416, (the "Licensee") on the following terms and
conditions:
RECITALS
WHEREAS, the Licensor is the owner of Technology (as
hereafter defined) used in the processing, production,
manufacture, distribution, use and sale of CRE (as hereafter
defined); and
WHEREAS, the Licensee wishes to be engaged in the
processing, production, manufacture, distribution, use and sale
of CRE; and
WHEREAS, the Licensor wishes to grant, and the Licensee
wishes to obtain, a license to use certain know-how relating to
the processing, production, manufacture, distribution, use and
sale of the CRE in order to process, produce, manufacture,
distribute, use and sell the CRE in the Territory (as hereafter
defined) subject to the terms of this Technology License
Agreement;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants herein contained, the parties agree as
follows:
SECTION 1
DEFINITIONS
In this Technology License Agreement:
1.1 "Affiliate" shall mean, as to any Person, any
other Person that, directly or indirectly, controls, is under
common control with or is controlled by that Person. For
purposes of this definition, "control" (including the terms
"controlled by" and "under common control with") as used with
respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise except
that with respect to any corporation, the voting securities of
which are traded on any securities exchange or established
trading market, the term "control" shall mean the possession,
directly or indirectly, of the
<PAGE>
power to elect a majority of that corporation's board of
directors or similar governing body through beneficial ownership
of a majority of the voting securities of such corporation.
1.2 "CRE" shall mean cholesterol reduced eggs produced
through the utilization of the Technology.
1.3 "Improvement" shall mean any extension, new
application, adaptation or further development of the Technology
which is made or acquired by either party hereto or any of their
respective Affiliates, licensees, or sublicensees.
1.4 "Know-How" shall mean any information, including,
without limitation, product designs, processes and processing
methods, apparatus specifications, production specifications and
techniques, raw material specifications and sources, test methods
and standards, manuals, quality control reports, invention
records, formulae, calculations, research records and reports,
and marketing surveys and reports, which are possessed and known
in any form whatsoever, whether communicated orally or embodied
in plans, drawings, photographs, tapes, discs, memoranda, notes,
reports, studies, or samples, and which relate to the
development, design, modification, construction, formulation,
production, manufacture, use, distribution or sale of the CRE,
and whether such information is patentable or unpatentable and
whether now existing or hereafter developed. A list of Know-How
now existing is attached hereto as SCHEDULE A.
1.5 "License" shall mean the license of the Technology
by the Licensor to Licensee pursuant to Section 3 hereof.
1.6 "Patent" shall mean any U.S. or Canadian patent,
application therefore, or continuation or renewal thereof
obtained by Licensor or any of its Affiliates with respect to a
process for the reduction or elimination of cholesterol from eggs
in the United States, including U.S. patent no. 5,063,077
(granted November 5, 1991), U.S. patent no. 4,980,180 (granted
December 25, 1990). _______________________*____________________
________________________________________.
1.7 "Person" shall mean an individual, a partnership,
a joint venture, a corporation, a trust, an unincorporated
organization or a government and any department or agency
thereof.
1.8 "Pilot Plant" shall mean the test facility located
in Gaylord, Minnesota, used by the Cholorex Company for testing
the CRE process prior to the construction of the S-E Plant.
1.9 "Purchase Agreement" shall mean that Purchase and
Sale Agreement between Licensor and Licensee of even date
herewith.
* Request for confidential treatment has been
filed with the Commission for the redacted portions of this Exhibit.
2
<PAGE>
1.10 "Sales Price" shall mean the sales price of
CRE sold by Licensee to the first party not related to or
affiliated with Licensee in the chain of distribution and/or the
equivalent sales price of CRE which is incorporated into other
egg products.
1.11 "S-E" Plant shall mean the facility located in
Gaylord, Minnesota for the production of CRE constructed by S-E
Constructors, Inc. pursuant to an agreement effective as of
August 6, 1991 with Cholorex Company.
1.12 "Technology" shall mean any and all Patents, Know-
How and Improvements.
1.13 "Term" shall mean the period beginning on the
date first written above and ending twenty (20) years from said
date or earlier upon termination of this Technology License
Agreement in accordance with the provisions of Section 14.
1.14 "Territory" shall mean the United States of
America, including the District of Columbia, the U.S. Virgin
Islands, and the Commonwealth of Puerto Rico (excluding, however,
any territories or possessions of the United States) and Canada.
1.15 "Trade Secret" shall mean: (i) the contents of
any pending patent application unless and until published by the
patent office where such patent application is pending; and (ii)
any Know-How disclosed by the Licensor to the Licensee which, at
the time of its communication, was not already rightfully in the
Licensee's possession and was not in the public domain, including
patent applications which have been denied or withdrawn;
PROVIDED, HOWEVER, that any Know How in the possession of
Licensee as a result of (i) its Affiliate's participation as a
partner in the Cholorex Company or (ii) its purchase of SKW
Nature's Products, Inc. partnership interest in Cholorex Company
pursuant to the Purchase Agreement shall nonetheless be deemed
Trade Secrets subject to the terms and conditions of this License
Agreement, including but not limited to the confidentiality
provisions hereof.
SECTION 2
REPRESENTATIONS
Licensor warrants and represents to Licensee that:
2.1 AUTHORITY. Licensor is the owner of the
Technology described herein with full corporate power and
authority to enter into this Technology License Agreement with
Licensee.
2.2 LICENSE AGREEMENT. Upon execution of this
Technology License Agreement, this Technology License Agreement
3
<PAGE>
shall be the valid and binding obligation of Licensor enforceable
in accordance with its terms, subject as to enforcement only to
applicable bankruptcy and insolvency laws and the equitable
powers of any court of competent jurisdiction.
2.3 KNOWLEDGE OF ADVERSE CLAIMS. To the best of its
knowledge and except with respect to the CSIRO patent and the
Monserbio/Asterol patent situation described in the Agreement
between Licensor and Asterol International S.A. dated August 30,
1993 both of which have been previously disclosed to Licensee and
the License Agreement dated March 31, 1992 between Asterol
International S.A. and Licensee, Licensor has not received any
written notice of any adverse claims with respect to the
Technology from any third party.
SECTION 3
LICENSE
Subject to the limitations set forth in Section 4, the
Licensor hereby grants to the Licensee the following licenses:
3.1 PATENTS. A non-exclusive license under each
Patent to process, produce, manufacture, use, distribute and sell
the CRE covered by such Patent in the Territory for a period
equal to the shorter of the life of such Patent or the Term.
3.2 KNOW-HOW. A non-exclusive license to use the
Know-How in connection with the processing, production,
manufacture, use, distribution and sale of the CRE in the
Territory for a period equal to the Term.
3.3 TRADE SECRETS. A non-exclusive license to use the
Trade Secrets in connection with the processing, production,
manufacture, use, distribution and sale of the CRE in the
Territory for a period equal to the Term.
3.4 CROSS LICENSE. Certain of the SKW Know-How,
described on SCHEDULE A-1 (the "Joint Know-How"), is jointly
owned by the Licensor and the Licensee. Each of the Licensor and
the Licensee hereby grants to the other a perpetual, non-
exclusive, non-transferable, royalty-free, worldwide license to
the Joint Know-How, with the right of sublicense. Each party
shall promptly notify the other of any sublicenses granted under
this cross-license, including a complete description of the Joint
Know-How being licensed. The Licensee's right to use and
sublicense Joint Know-How shall not be construed to expand the
scope or Territory of the Licensee's license of SKW Know-How
which does not include Joint Know-How.
SECTION 4
RESTRICTIONS
4.1 NO ASSIGNMENT. None of the licenses granted
pursuant to this Technology License Agreement shall constitute an
assignment of the matter licensed, nor grant to the Licensee any
ownership right or title therein. The Licensor retains exclusive
title to the licensed Technology.
4.2 NO FURTHER LICENSE. The Licensee may not
sublicense or assign to any Person any of its rights under this
Technology License Agreement except with the prior written
approval
4
<PAGE>
of the Licensor PROVIDED, HOWEVER, that Licensee may sublicense
or assign its rights under this Technology License Agreement to
an Affiliate of Licensee. Licensee shall give Licensor prompt
written notice of any such license or assignment. Licensee shall
require all sublicensees or assignees to agree in writing to be
bound by the provisions of this Technology License Agreement.
Notwithstanding any permitted sublicense or assignment of
Licensee's rights, Licensee shall remain fully liable for the
fulfillment of all obligations of Licensee under this Technology
License Agreement.
4.3 SALE OF S-E PLANT. In the event of the sale of
the S-E Plant, the Pilot Plant or any other such facility to a
non-Affiliate of Licensee (a "Third Party Purchaser"), Licensee
shall obtain the prior written consent of Licensor to disclose
the Trade Secrets and unpatented Improvements to the Third Party
Purchaser. If Licensor gives its consent, the Third Party Pur-
chaser shall be required to sign a written confidentiality
agreement in form and substance acceptable to Licensor. In the
event of the sale of the S-E Plant and if requested by Licensee,
Licensor will negotiate in good faith a license agreement with
such Third Party Purchaser substantially on the same terms as
this License Agreement, PROVIDED, HOWEVER, that the royalty and
license fee may be on such terms as Licensor shall require.
SECTION 5
TECHNICAL ASSISTANCE
5.1 INITIAL ASSISTANCE. The Licensor will provide the
Licensee with up to three hundred fifty (350) hours of technical
assistance from one or more of Licensor's or its Affiliates'
employees, if available, selected by the Licensor, to assist the
Licensee in the manufacture of the CRE. These services will be
provided at the Licensee's premises as may be reasonably
requested by the Licensee.
5.2 COST OF ASSISTANCE. The Licensee will pay all
subsistence, travel and accommodation costs of its own employees
and those of the Licensor or its Affiliates incurred in
connection with the assistance to be provided under Section 5. 1.
In addition, Licensee shall reimburse Licensor or its Affiliates,
as the case may be, for its wage and benefits costs incurred by
Licensor or its Affiliates in providing each such employee to
perform such technical assistance by paying to Licensor an amount
equal to
5
<PAGE>
(a) 150% multiplied by
(b) the hourly rate of each such employee made
available to Licensee multiplied by
(c) the number of work hours such employee was
not at his regular work station (including those hours
traveling to and from the location where the technical
assistance was given).
5.3 ADDITIONAL ASSISTANCE. If the Licensee requests,
and the Licensor agrees to provide additional technical
assistance from employees of the Licensor or its Affiliates, then
the Licensee shall reimburse the Licensor or its Affiliates for
such additional technical assistance on the terms provided in
Section 5.2 above. Such additional technical assistance shall
not be unreasonably withheld, but the Licensor may give due
consideration to the needs of its or its Affiliates' operations
from employees capable of giving such assistance when receiving
such a request and the request shall be granted only when
mutually acceptable to the Licensor and the Licensee.
SECTION 6
ROYALTY
6.1 Royalty. The Licensee shall pay to the Licensor a
royalty equal to _______________________*________________________.
Such royalty shall be payable by the Licensee quarterly, by the
accounting date following the calendar quarter in which such
royalty accrued. "ACCOUNTING DATE" means the forty-fifth (45th)
day (or if a weekend or holiday, on the next following business
day) following the end of each calendar quarter. All payments
shall be made in U.S. Dollars, regardless of the currency of
accrual. Where royalties accrue in a currency other than U.S.
Dollars, conversion shall be made in accordance with the exchange
rate published in the WALL STREET JOURNAL (East Coast Edition) on
the last day of the calendar quarter in which they accrued.
Payments not timely made shall accrue interest at an annualized
rate of interest equal to two (2) percentage points above the
prime rate of interest published in the WALL STREET JOURNAL on
the last day of each month in which such amounts are outstanding.
In the event that the WALL STREET JOURNAL shall not have been
published on a given applicable date, the applicable exchange or
prime rate shall be that published on the next business day; if
the WALL STREET JOURNAL shall not publish such information or
shall cease publication, than the parties agree to select a
comparable U.S. daily newspaper which does publish such
information.
* Confidential treatment requested
6
<PAGE>
6.2 ROYALTY REPORTS. Licensee shall provide quarterly
reports of royalties due on the Accounting Date following the end
of each calendar quarter. Such reports shall separately report
the following for each country within the Territory: the number
of units of CRE sold in each market; the sales price of each type
of CRE sold; and the royalty due. All royalties shall be paid at
the time such report is rendered. If no royalties are due, the
report shall so state.
6.3 AUDITORS. Licensee shall keep records regarding
the processing, production, manufacture, use, distribution and
sale of the CRE during the term of this Technology License
Agreement and for a period of seven (7) years thereafter.
The Licensor shall have the right to conduct at any time, but not
more than once per year, through an auditor or other
representative of its choice obligated to maintain
confidentiality, an audit of the accounting of the Licensee and
its Affiliates with regard to the Sales Price subject to the
royalty obligation. The cost of such audit shall be borne by the
Licensee if the audit is made by Licensee's regular accountant or
by Licensor if otherwise, unless, in the final determination, the
audit shall disclose that Licensee owes Licensor additional
royalties in excess of the greater of the sum of Ten Thousand
Dollars ($10,000) or five percent (5%) more than the royalties
actually paid to Licensee, in which event such audit cost shall
be borne solely by Licensee.
SECTION 7
EXERCISE OF LICENSES
7.1 BEST EFFORTS. The Licensee shall use its best
efforts to promote, develop and extend the sale of the CRE
throughout the Territory.
SECTION 8
INDEMNIFICATION
8.1 INDEMNIFICATION. The Licensee agrees to indemnify
the Licensor and hold it harmless against any claim by any third
party against the Licensor arising from any defect in design,
formulation, workmanship or materials of the CRE processed,
produced, manufactured, distributed, used or sold by the
Licensee.
7
<PAGE>
SECTION 9
IMPROVEMENTS
9.1 NOTIFICATION. The Licensor and the Licensee shall
promptly advise each other if and when they develop or acquire
any Improvements.
9.2 LICENSOR IMPROVEMENTS. The Licensor shall make
all of its Improvements available to the Licensee and such
Improvements shall be included in the scope of the Licenses
granted in Section 3 unless the Licensor is prohibited by
contract or law from doing so, in which case the Licensor shall
advise the Licensee of the basis for such prohibition.
9.3 LICENSEE IMPROVEMENTS. The Licensee shall not
incorporate any of its Improvements into the CRE manufactured by
it without the Licensor's consent, which consent shall not be
unreasonably withheld. The Licensor and any of its licensees
shall be entitled both during and after the Term and free of any
fee or royalty payment to use any such Improvement in any country
of the world to the extent Licensor is not precluded from using
the Improvements under any other agreement.
9.4 REGISTRATIONS. The party giving notice of any
Improvements hereunder shall determine whether to apply for
patent protection for such Improvements. If the other party
disputes the ownership of such Improvement, it shall so advise
the notifying party within ten (10) days. If the parties are
unable to resolve the dispute within an additional thirty (30)
days, either party may refer the matter to arbitration pursuant
to Section 15.
(a) If the party licensing such Improvements from
the owner thereof desires to use them within the Territory in
which such patent protection has been secured, it shall reimburse
the owner thereof for the reasonable cost of the preparation,
filing and prosecution of patent applications and the maintenance
of the resulting patents for so long as the license of such
Improvements remains in effect.
(b) If the party licensing such Improvements
desires to use them within the Territory in which the owner
thereof has not secured patent protection, it shall be entitled,
in the owner's name, to file for and prosecute patent
applications and maintain the resulting patents for such
Improvements at its own expense. The owner agrees to provide the
licensing party, at its request, with all signatures and
documents necessary for the filing of such patent applications.
8
<PAGE>
SECTION 10
INFRINGEMENT OF THIRD-PARTY RIGHTS
10.1 NOTICE. Licensee shall report to Licensor in
writing promptly after Licensee or any of its Affiliates learns
of any claim asserted against Licensee or its Affiliates that the
Technology or any part thereof infringes the proprietary rights
of any third party.
10.2 PROCEDURE. In the event of an action brought
against Licensee based on a claim that the CRE or any part
thereof constitutes an infringement of any patent, know-how or
trade secret of a third party:
(a) The Licensee shall promptly notify the
Licensor of any such action and Licensor may participate in such
action subject to the right of control granted to Licensor herein
below.
(b) The Licensor shall defend against and pay any
attorneys' costs and expenses resulting from any such action at
its own expense, provided that the Licensor shall have the sole
control of the defense of any action on such claim and all
negotiations for settlement or compromise and the Licensee shall
allow its name to be used in proceedings if necessary and shall
provide all reasonable assistance at its expense in defending any
action.
10.3 REMEDIES. In the event that any CRE or any part
thereof is held to constitute an infringement, the Licensor may,
at its option or as part of a settlement or compromise, either
procure for the Licensee the right to continue manufacturing and
selling the CRE, modify the CRE so that it does not infringe, or
subject to the next sentence, terminate this Technology License
Agreement. Before termination of this Technology License
Agreement, Licensor shall endeavor (but shall not be obligated)
to procure a license to permit Licensee to continue manufacturing
and selling CRE provided that, if any royalty or fee is to be
paid therefor, Licensor shall procure such license only if the
Licensee agrees to be solely liable therefor. If Licensee is not
willing to be liable for such royalty, Licensor may terminate
this Technology License Agreement. In the event of termination
of this Technology License Agreement for such a cause, the
Licensee shall pay all sums due, if any, under this Technology
License Agreement up to the date on which the Technology License
Agreement is terminated and neither party shall thereafter have
any claim against the other.
10.4 LIMITATION. Except as otherwise provided in
Subsection 10.2(b), in no event shall the Licensor have any
liability to the Licensee under this Section 10 with respect to
any infringement which is based upon the processing, production,
use, manufacture, distribution or sale of any CRE.
9
<PAGE>
10.5 ENTIRE OBLIGATION. The foregoing Sections
10.1 through 10.4 state the entire obligation and liability of
the Licensor with respect to infringement of patents, technology
and other rights by the processing, production, manufacture,
distribution, use or sale of the CRE or any part thereof.
10.6 ASSISTANCE. The Licensee shall, at its cost,
give the Licensor all reasonable assistance in regard to any
claims, actions or proceedings which are defended by the
Licensor, and the Licensee will so far as possible make its
employees and other representatives available to testify as to
the facts within their knowledge when requested by the Licensor,
and will make available to the Licensor all relevant records,
information, samples, specimens and papers. The parties agree
that the provisions of this Section 10.6 shall not be construed
to require the Licensee to contribute towards the payment of any
costs incurred by the Licensor in regard to its defense of any
such claims, actions or proceedings.
SECTION 11
INFRINGEMENT OF LICENSOR'S RIGHTS
In the event that either party shall acquire
information which leads it to believe that infringement of any
Technology rights of the Licensor is taking place anywhere in the
Territory it shall immediately inform the other party and the
parties shall consult together to determine what action if any
shall be taken in respect of such alleged infringement. Within
six (6) weeks of the time when both parties shall have been
informed of such infringement they shall determine whether by
mutual agreement they will jointly prosecute the infringement
action, in which event the costs thereof and any damages awarded
as a result thereof shall be shared between the parties as they
shall agree. If within that period the parties shall not have
agreed to a joint prosecution of the action then the Licensor
shall have an option exercisable within the next following six
(6) weeks to prosecute such action at its own cost and to retain
for its own benefit any damages awarded thereon. If within that
further period the Licensor shall not exercise its option then
the Licensee may itself prosecute an infringement action at its
own cost and retain for its own benefit any damages awarded as a
result thereof. The Licensor shall permit the Licensee to
prosecute in the Licensor's name any action prosecuted by the
Licensee in accordance with this Section.
10
<PAGE>
SECTION 12
NO WARRANTIES
Nothing contained in this Technology License Agreement
shall be construed as:
12.1 VALIDITY AND SCOPE. A warranty or representation
by the Licensor as to the validity or scope of the Technology;
12.2 INFRINGEMENTS. A warranty or representation by
the Licensor that any processing, production, manufacture,
distribution, use or sale of the CRE hereunder will be free from
infringement of patents, trade secrets, trademarks, service
marks, copyrights or know-how owned by parties other than the
Licensor;
12.3 NO ESTOPPEL. Conferring by implication, estoppel
or otherwise upon the Licensee any license or other rights under
any patent except rights expressly granted hereunder to the
Licensee; or
12.4 NO RELEASE. A release for any infringement prior
to the effective date of this Technology License Agreement.
SECTION 13
CONFIDENTIALITY
13.1 OBLIGATION. The Licensee shall keep strictly
secret and not disclose, divulge, or communicate the Trade
Secrets and unpatented Improvements in any manner, directly or
indirectly, to any other Person (except as provided in Section
13.3) and shall itself use the Trade Secrets and unpatented
Improvements solely for the purposes permitted by this Technology
License Agreement. Notwithstanding the foregoing, the Licensee
shall not be liable for disclosure of Trade Secrets which:
(a) Are or later become publicly known under
circumstances involving no breach of this Technology License
Agreement by the Licensee;
(b) Were already known to the Licensee at the
time it received the Trade Secrets or unpatented Improvements;
PROVIDED, HOWEVER, that any Know How in the possession of
Licensee as a result of (i) its Affiliate' participation as a
partner in Cholorex Company or (ii) its purchase of SKW Nature's
Products, Inc.'s partnership interest in Cholorex Company
pursuant to the Purchase Agreement shall nonetheless be deemed
Trade Secrets subject to the confidentiality restrictions of this
License Agreement; or
11
<PAGE>
(c) Are made available to the Licensee by a third
party without secrecy obligation and without breach of an
obligation to the Licensor.
If the Licensee claims that it is not bound under this
Technology License Agreement by reason of Subsections (a), (b),
or (c) of this Section 13.1, it shall give the Licensor written
notice to that effect, together with documentary evidence to
substantiate the Licensee's claims, not more than thirty (30)
days after receipt by the Licensee of the Trade Secrets or
unpatented Improvements, or not more than thirty (30) days after
the date of discovery by the Licensee that it is not bound under
this Technology License Agreement by reason of Subsections (a),
(b) or (c) of this Section 13. 1. The burden of proof in regard
to the existence of any of the three foregoing exceptions shall
be upon the Licensee.
13.2 SAFEGUARDING. The Licensee shall initiate a
system acceptable to the Licensor for the safe custody of all
Trade Secrets and unpatented Improvements and for the control of
any copies made thereof, which is known to and exercised by the
minimum practicable number of its directors, officers and
employees, and shall submit full details of such system in
writing for prior approval by the Licensor within thirty (30)
days of the date hereof.
13.3 EMPLOYEE UNDERTAKINGS. The Licensee may disclose
the Trade Secrets and unpatented Improvements only to those of
its directors, officers, and employees who require it for the
purposes permitted by this Technology License Agreement and shall
use its best efforts to prevent any unauthorized disclosure of
Trade Secrets and unpatented Improvements by them. In this
connection, each of such directors, officers, and employees to
whom any Trade Secret is to be disclosed shall first enter into a
written agreement of secrecy in favor of the Licensor, whereby he
agrees to keep the Trade Secrets and unpatented Improvements
strictly secret in accordance with the terms of this Technology
License Agreement, and the Licensee agrees to take all reasonable
steps to enforce such undertakings. The undertaking by such
directors, officers, and employees shall be in the form set out
in the EXHIBIT B, attached hereto.
13.4 NO CONVERSION. The Licensee shall not either
during or after the Term use or attempt to use or permit the use
of any of the Trade Secrets or unpatented Improvements for its
own purposes or to convert the same to its own account or to its
advantage otherwise than for the purpose of producing,
manufacturing, distributing, using or selling the CRE in
accordance with this Technology License Agreement.
12
<PAGE>
SECTION 14
TERMINATION
14.1 TERMINATION BY LICENSOR. This Technology License
Agreement shall terminate upon the occurrence of any of the
following events after notice of termination is given by
Licensor:
(a) Breach of the terms of this Technology
License Agreement by Licensee which is not cured within forty
(40) days after notice by Licensor;
(b) If Licensee applies for or consents to the
appointment of a receiver, custodian, trustee or liquidator for
all or a substantial part of its assets; admits in writing its
inability to pay its debts generally as they mature; makes a
general assignment for the benefit of creditors; is adjudicated a
bankrupt; submits a petition or an answer seeking an arrangement
with creditors; takes advantage of any insolvency law; submits an
answer admitting the material allegations of a petition in
bankruptcy or insolvency proceeding; has an order, judgment or
decree entered by any court of competent jurisdiction approving a
petition seeking organization of Licensee or appointing a
receiver, custodian, trustee or liquidator for Licensee, or for
all or a substantial part of any of its assets and such order,
judgment or decree shall continue unstayed and in effect for any
period of sixty (60) consecutive days; or fails to remove an
involuntary petition for bankruptcy filed against it within sixty
(60) consecutive days of the filing thereof;
(c) Any attempt by Licensee to assign or to grant
a security interest in or otherwise encumber this Technology
License Agreement without the prior written consent of the
Licensor; or
(d) Any attempt by Licensee to challenge the
validity of the Technology or the ownership thereof, or
cooperation with any effort to do so, other than at the express
written request of Licensor.
14.2 EFFECT OF TERMINATION. In the event of
termination of this Technology License Agreement for any reason,
the Licensee shall:
(a) Not use, or disclose to others the Trade
Secrets and unpatented Improvements received from the Licensor
under this Technology License Agreement;
(b) Return to the Licensor within thirty (30)
days from the date of termination all tangible embodiments of
Trade Secrets and unpatented Improvements, retaining no copies or
extracts thereof or any part thereof; and
13
<PAGE>
(c) Immediately cease the processing, production,
manufacture, distribution, use and sale of the CRE using the
Technology.
14.3 SURVIVAL. Notwithstanding termination of this
Technology License Agreement, the obligations of the Licensee
under Sections 8.1 and Section 13 of this Technology License
Agreement shall continue unabated.
SECTION 15
MISCELLANEOUS
15.1 ENTIRE AGREEMENT; WAIVER; MODIFICATIONS. This
Technology License Agreement constitutes the complete statement
of all of the arrangements among the parties as of the date
hereof with respect to the transactions contemplated hereby, and
all other prior or contemporaneous agreements of the parties with
respect to such subject matter are hereby merged into this
Technology License Agreement. No modification, discharge or
waiver in whole or in part, of any of the provisions hereof shall
be valid unless in writing and signed by the party against whom
the same is sought to be enforced. The failure or omission of
either party hereto to insist, in any instance, upon strict
performance by the other party of any term or provision of this
Technology License Agreement or to exercise any of its rights
hereunder shall not be deemed to be a modification of any term or
provision hereof or a waiver or relinquishment of the future
performance of any such term or provision by such party nor shall
such failure or omission constitute a waiver of the right of such
party to insist upon future performance by the other party of any
such term or provision or any other term or provision of this
Technology License Agreement.
15.2 ASSIGNMENT; SUCCESSORS. This Technology License
Agreement shall inure to the benefit of, and be binding upon, the
parties hereto, and their respective successors and assigns.
This Technology License Agreement is not assignable by the
Licensee. The Licensor may assign this Technology License
Agreement provided that such assignment shall not relieve
Licensor of its obligations.
15.3 NOTICE. All notices and other communications
hereunder shall be in writing and shall be given, transmitted and
delivered by telecopy, messenger, telex, or telegram, and a copy
thereof shall be mailed by Certified Mail (Airmail if to a
destination in a foreign country from the point of mailing),
postage prepaid, return receipt requested, to the parties at the
following addresses (or such other address as shall be specified
by such party by like notice), and such notice shall be deemed
given on the date on which so delivered by messenger, or on the
next
14
<PAGE>
business day following the date on which so transmitted by telex,
telecopy, or telegram from the date of transmission:
If to Licensor:
SKW TROSTBERG AG
P.O. Box 12 62
83303 Trostberg
Germany
Attn: Rechtsabteilung
Telephone: 011-49-8621-86-2413
Telecopy: 011-49-8621-86-2011
with a copy to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attn.: Aydin S. Caginalp, Esq.
Telephone: 212-210-9400
Telecopy: 212-210-9444
If to Licensee:
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
Attn.: Corporate Secretary
Telephone: 612-546-1500
Telecopy: 612-546-3711
15.4 COUNTERPARTS. This Technology License Agreement
may be executed in two or more counterparts, each of which when
so executed shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
15.5 INTERPRETATION. Titles of articles and sections
are for convenience only and shall be given no effect in the
construction or interpretation of this Technology License
Agreement. Unless the context otherwise requires, the singular
includes the plural, and the plural includes the singular.
15.6 SEVERABILITY. In the event that any provision of
this Technology License Agreement is declared by a court of
competent jurisdiction to be void or unenforceable, the remainder
of this Technology License Agreement shall not be affected
thereby
15
<PAGE>
and shall remain in full force and effect to the extent feasible
in the absence of the void and unenforceable provision. The
parties furthermore agree to execute and deliver such amendatory
contractual provisions to accomplish lawfully as nearly as
possible the goals and purposes of the provision so held to be
void or unenforceable.
15.7 EQUITABLE REMEDIES. The rights and remedies of
the parties under this Technology License Agreement shall not be
mutually exclusive I.E., the exercise of one or more of the
rights under this Technology License Agreement shall not preclude
the exercise of rights under any other provision. Each party
acknowledges that no adequate remedy of law would be available
for a breach of this Technology License Agreement, and that a
breach of this Technology License Agreement by one party would
irreparably injure the other and accordingly agrees that in the
event of a breach of any provision, the respective rights and
obligations of the parties hereunder shall be enforceable by
specific performance, injunction or other equitable remedy
(without bond or security being required), and each party waives
the defense in any action and/or proceeding brought to enforce
this Technology License Agreement that there exists an adequate
remedy or that the other party is not irreparably injured.
Nothing herein contained, however, is intended to, nor shall it,
limit or affect any rights at law or by statute or otherwise of
any party as against the other for a breach of any provision, it
being the intention of this Section 15.7 to make clear the
agreement of the parties that the respective rights and
obligations of the parties shall be enforceable in equity as well
as at law or otherwise.
15.8 ARBITRATION. Without prejudice to the rights of
the parties to seek injunctive or equitable relief in any
appropriate court of law having jurisdiction over the matter and
parties involved, all claims, disputes or disagreements arising
under or in connection with this Technology License Agreement
shall be finally settled under the then applicable Rules of
Conciliation and Arbitration of the International Chamber of
Commerce by three (3) arbitrators (appointed in accordance with
Article 2(4) of the said Rules) as follows:
(a) The arbitration and all communications
(written or oral) including, without limitation thereof, any
evidence submitted to the arbitrators shall be in the English
language or shall be accompanied by an English translation;
(b) The arbitrators shall apply the law
(including the procedural law) specified in Section 15.9 of this
Technology License Agreement;
(c) The arbitration shall be held in Zurich,
Switzerland; and
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<PAGE>
(d) The arbitrators shall award legal fees and
costs (including administrative expenses and arbitrators' fees
and legal fees incurred in connection with the arbitration) to
each party in the proportion lost by each party in the
proceeding.
15.9 GOVERNING LAW. This Technology License
Agreement shall be governed by and construed in accordance with
the internal law of the State of New York without regard to its
conflict of law principles.
15.10 FURTHER ASSURANCES. Each party shall perform
all other acts and execute and deliver all other documents as may
be necessary or appropriate to carry out the purposes and intent
of this Technology License Agreement.
IN WITNESS WHEREOF, this Technology License Agreement has
been entered into as of the day and year first above written.
SKW TROSTBERG AG
By: /s/ Dr. Rudiger Vollbrech /s/ Dr. Jan Cully
-----------------------------------------------
Dr. Rudiger Vollbrecht Dr. Jan Cully
Member of the Board Authorized Officer
MICHAEL FOODS, INC.
By: /s/ Jeffrey M. Shapiro EVP
---------------------------------
17
<PAGE>
-1-
Schedule A
----------
Cholorex: SKW Know-How TKA-Dr.Buh, March 10, 1994
The following outlines the specific SKW Know-How which is
incorporated in the design and construction of the Cholorex
facility.
(CONFIDENTIAL TREATMENT REQUESTED)
<PAGE>
-2-
(CONFIDENTIAL TREATMENT REQUESTED)
<PAGE>
-3-
(CONFIDENTIAL TREATMENT REQUESTED)
<PAGE>
-4-
(CONFIDENTIAL TREATMENT REQUESTED)
<PAGE>
Schedule A-1
JOINT KNOW-HOW
(CONFIDENTIAL TREATMENT REQUESTED)
<PAGE>
EXHIBIT B
---------
Date: __________
SECRECY AGREEMENT
-----------------
Re: Technology License Agreement Recipient:
Telephone: (___)_____________ Security Officer:_____________
Nature of Confidential Information:
Certain Know-How, Trade Secrets and unpatented Improvements (as
defined in the Technology License Agreement) relating to the
processing, production, manufacture, distribution, use and sale
of Cholesterol Reduced Eggs.
Reason for Disclosure: To enable the above named director,
officer or employee to use such confidential information for the
purposes permitted by this Technology License Agreement.
In consideration of the disclosure of Confidential
Information to Recipient by________________________________
__________________________________________ (the "Discloser") ,
which Confidential Information is the subject of that certain
Technology License Agreement between Discloser and SKW Trostberg
AG (the "Licensor"), the undersigned Recipient hereby certifies
and agrees as follows:
1. Recipient has read the terms of Section 13, the
Confidentiality Provision to the Technology License
Agreement and, by the execution hereof, agrees to be bound
by the terms thereof as if Recipient had been an original
signatory thereto.
2. Recipient acknowledges that the Confidential Information to
be disclosed to him by Discloser is licensed by SKW
Trostberg AG and that Recipient has the full power and
authority to enter into this Secrecy Agreement.
3. Recipient acknowledges that such Confidential Information to
be disclosed to Recipient is held in confidence and trust by
Discloser for Licensor, and, upon disclosure thereof to
Recipient, such confidential and trust relationship extends
to Recipient.
<PAGE>
4. Recipient hereby agrees that in case of any breach of
his/her obligations hereunder, the remedies of Licensor as
set forth in the Technology License Agreement shall be
applicable to Recipient for the benefit of both Licensor and
Discloser, severally. Recipient further acknowledges that
Discloser shall take all reasonable steps to ensure that the
Confidential Information entrusted to it is secure.
RECIPIENT
________________________________________
By:_____________________________________
2
<PAGE>
EXHIBIT 13.1
MICHAEL FOODS, INC. AND SUBSIDIARIES
THE COMPANY
Michael Foods is a diversified food processor and distributor with particular
interests in egg products, refrigerated grocery products, frozen and
refrigerated potato products, specialty dairy products and refrigerated soups
and salads. The Company has a strong commitment to entrepreneurial management
and expects to be the low-cost producer in each of its product areas.
Acquisitions have played an important role in Michael Foods' growth and continue
to be a part of the Company's long-term strategy. Principal subsidiaries include
M.G. Waldbaum Company and its related egg businesses, Crystal Farms Refrigerated
Distribution Company, Northern Star Co. and its related potato businesses,
Kohler Mix Specialties, Inc. and Sunnyside Vegetable Packing, Inc.
Financial Highlights
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Years ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Net sales $474,783 $442,734 $454,735
Net earnings (loss) (16,320) 3,850 19,667
Net earnings (loss) per share $ (.84) $ .20 $ 1.07
Cash dividends per share $ .20 $ .20 $ .20
Weighted average common shares outstanding 19,416 19,516 18,400
At December 31,
Cash and cash equivalents $ 223 $ 6,064 $ 4,555
Working capital 22,267 54,826 58,988
Total assets 329,087 370,218 357,171
Long-term debt 94,194 128,855 115,429
Stockholders' equity 155,003 177,037 176,321
</TABLE>
<PAGE>
To Our Stockholders
1993 was a year of transition and change for Michael Foods. Late in the year
Dick Olson announced his retirement as President and Chief Executive Officer
effective December 31, 1993. Dick agreed to stay on our Board of Directors and
entered into a consulting agreement with us. On behalf of our stockholders and
our management team, I thank Dick for his many contributions to Michael Foods
over the past seven years - a period which saw our sales grow from $157 million
to $475 million. We look forward to working closely with him in his new role.
We also booked one-time restructuring charges in the fourth quarter of
1993. With these charges, we exited the reduced cholesterol liquid whole egg
business and ended a related joint venture. Additionally, we recorded a
write-off of goodwill, adjusted the values of certain assets and made other
smaller adjustments. While this charge resulted in a loss for the year, we felt
we needed to get these issues behind us so we can focus on our growth
opportunities. We thought it was especially important to eliminate the
significant on-going losses from reduced cholesterol liquid whole eggs. We were
unable to resolve the problem of overly high production costs for the product,
despite two years of considerable effort.
The losses on reduced cholesterol liquid whole eggs largely offset a
significant improvement in earnings from core operations last year. Unit sales
gains, production efficiencies and tight expense controls resulted in
significant earnings growth for most product lines and divisions. Excluding the
effects of the abandoned reduced cholesterol liquid whole egg business and other
restructuring charges from 1992 and 1993 results, operating profits increased
nearly 40% last year. While the comparison is against weak 1992 earnings, due to
low pricing on commodity-sensitive products, we were pleased to see a
significant improvement in both sales and core profits in 1993.
Much of the improvement in core operations last year relates to efforts
begun in 1992 to consolidate our foodservice sales, refrigerated distribution
and customer service functions. Each of these areas matured greatly last year,
giving us an efficient operating base to better serve our customers. These
consolidation efforts should continue to pay dividends into the future.
As we move into 1994, and beyond, our primary focus will be on improving
our trendline sales and earnings growth. We will work toward this goal with a
three-pronged strategy of increasing the volume and asset utilization of our
core value-added refrigerated product lines, taking meaningful steps to reduce
earnings volatility associated with commodity price swings, and targeting
strategic acquisitions to enhance our presence in the marketplace.
We continued to make progress in our patent infringement suit with a New
Jersey-based egg products competitor last year. In July 1993, we were granted
summary judgment that the patents we license pertaining to the
ultrapasteurization of liquid eggs (Easy Eggs-R-) are valid and enforceable.
Last Fall the defendant filed an appeal of this judgment, which should be heard
in 1994. Should the appeal prove unsuccessful, the federal court would then
consider the issue of damages due Michael Foods and the patent holder from this
illegal activity. We will continue to aggressively pursue legal action against
all competitors who infringe our patent rights.
We thank you, our owners, for your continuing support. We remain committed
to delivering to each of you an outstanding return on your investment in Michael
Foods.
Sincerely,
/s/ Gregg A. Ostrander
- -------------------------------
Gregg A. Ostrander
President and Chief Executive Officer
<PAGE>
Meeting Our Customers' Needs
In 1992 Michael Foods began a series of strategic moves aimed at moving
closer to its customers by meeting their needs more directly and efficiently.
Last year saw many of these efforts come together and mature into productive
work groups. While our efforts to better meet our customers' needs is a constant
process, the following is a report of the progress we have made to date and our
plans for the future.
Consolidated Foodservice Sales Force
In mid-1993 the hiring and training of a nearly 90 person foodservice sales
force was completed. This process took approximately twelve months and resulted
in the replacement of most of the Company's foodservice brokers with a direct
sales force to serve the North American foodservice and industrial markets. We
recognized the need to develop a highly trained sales force that is capable of
selling the benefits of our value-added product lines. This group compliments a
previously existing, but much smaller, sales group that is dedicated to national
customers.
The new consolidated sales force handles a broad range of Michael Foods
products, such as Easy Eggs-R-, hardcooked egg products, frozen specialty
omelets and patties, refrigerated potato products and frozen french fries. This
group is making 5,000-6,000 end-user calls per month. These are visits to
individual foodservice/industrial locations, as well as to small groups of
restaurants, hospitals, nursing homes, colleges, bakeries, etc.
Late in 1993 we started to see volume increases as a result of the efforts
of this new sales force. We expect to see on-going benefits as the consolidated
sales force matures and becomes more efficient in presenting the core
foodservice product line. As we move into 1994, efforts are underway to train
this group to present the Kohler Mix and Sunnyside Vegetable product lines. Each
of those subsidiaries have significantly increased their internal sales efforts
in the past year, adding direct sales personnel that are familiar with the
specialty refrigerated products produced by each firm. However, we see
additional opportunities for growth by adding items such as dairy mixes and
soups and salads to the product offerings presented by the national foodservice
sales force.
New Customer Service Office
As we moved toward "one-stop shopping" with our foodservice sales
activities last year, we saw a need to pull the customer service areas of M. G.
Waldbaum (egg products) and Northern Star Co. (potato products) into a single
office. Now a cross-trained group of customer service specialists works out of a
central office adjacent to the Michael Foods Sales Office in Minneapolis. These
professionals support foodservice and industrial sales activities.
A new order processing system has been developed which combines all
customer order receipt and pricing information in one location. Customers can
place orders for all refrigerated and frozen egg and potato products with a
single call or fax. In turn, customers receive confirmation of their order
quantity, pricing and scheduled delivery times via computerized auto-faxing.
Through the centralization of order processing, detailed information has
been captured for each customer. This data base contains specific customer
information regarding contacts, telephone and fax numbers, products purchased,
ship-to and bill-to addresses and special billing and shipping instructions.
This data, along with current order status information, allows us to deliver
timely and proactive customer service.
During 1994 we will be working on making current customer service systems
more efficient. Additionally, new products, such as foodservice dairy products,
will begin to be folded into the network of centralized order consolidation, as
we work to broaden the "one call does it all" orientation that our customers
find beneficial.
<PAGE>
Combined Foodservice Distribution
The efficient and timely delivery of temperature sensitive refrigerated
products is a critical component of Michael Foods' foodservice operations. Over
the past two years we have made significant strides in centralizing and
streamlining our foodservice distribution operations. We believe that if we
offer customers one-stop shopping in the sales and customer service areas, they
deserve the same when it comes to taking delivery of their orders. To that end,
we have installed a new freight consolidation system that allows us to "marry"
less-than-truckload quantities of egg, potato and, in some cases, dairy products
into truckload quantities bound for the same customer location. Whereas in the
past many foodservice customers received three deliveries from three different
Michael Foods divisions, now they receive only a single delivery containing all
refrigerated items ordered from Michael Foods. This is a much more efficient
system for both parties.
Because the consolidation of freight from the various divisions results in
more full trucks on the road, and fewer trucks in total, it has helped lower our
distribution costs. Additionally, we have been able to move away from in-house
trucking fleets and now make extensive use of common carriers. This saves on the
significant capital costs of owning and maintaining a large fleet of trucks, as
well as the related labor expense.
The freight consolidation system and support staff are located in
Minneapolis as part of the Customer Service Office. This group communicates
on-line with the central distribution center for refrigerated foodservice
products located in Gaylord, Minnesota. Orders for multiple products are picked,
consolidated and shipped from Gaylord, typically within 24 hours of receipt of
order. A series of regional refrigerated "cross-dock" centers are also utilized
as "spokes" working in conjunction with the central "hub" in Gaylord. These
distribution centers are located in California, Oregon, Nebraska, Michigan, New
Jersey, North Carolina and Florida.
Beyond the central foodservice distribution network, the Kohler Mix
subsidiary has extensive refrigerated distribution across much of the U. S.
During 1993, Kohler opened a plant in Texas and now has production and
distribution out of that facility that allows it to more efficiently serve its
southern-based customers.
Servicing The Retail Customer
Michael Foods serves the retail grocery market in two ways. The Crystal
Farms Refrigerated Distribution Company subsidiary serves retail grocery
customers in 23 states in the central U. S. Through a network of 11 distribution
centers, Crystal Farms offers a broad line of dairy case items through,
primarily, a direct-to-store refrigerated delivery system. By offering an
attractive combination of product and distribution services, Crystal Farms
continues to generate significant growth in customers served and sales.
In early 1994, Crystal Farms relocated its main distribution center in
Minnesota. The new warehouse is located at the source of many of the shell eggs
distributed by Crystal Farms in Minnesota, resulting in transportation cost
savings. The new center is also larger and more efficient. This enables Crystal
to handle increasing volume levels in a timely manner, turning orders into
shipments as quickly as possible.
Products with national retail distribution, such as Simply Potatoes-TM-,
Simply Eggs-R- Brand egg substitute and certain frozen potato products, are
handled via a sales effort that combines regional sales managers with retail
food brokers. During 1993, we expanded the directly-employed regional sales
management of our national retail sales group to provide better coordination of
broker activities as we work on expanding the number of retail items offered
nationally. Additionally, we added a Vice President of Special Segments last
year. This person is responsible for developing the warehouse club retail
segment for Michael Foods. Warehouse clubs are taking an increasingly large
share of the U. S. retail grocery market. We see an opportunity to participate
in this segment with specially packaged bulk items that are popular in this
trade channel.
<PAGE>
Refrigerated mashed potatoes have become a fast-growing part of Michael
Foods' foodservice product line.
The recently formed Michael Foods Sales Group is making five to six
thousand end-user calls each month.
Refrigerated foods sold to the foodservice market are the cornerstone of
Michael Foods' value-added strategy.
The new Customer Service Office coordinates the Company's foodservice
activities.
One-third of Michael Foods' sales are through Crystal Farms to the retail
grocery market.
The new distribution center in LeSueur, MN is one of the largest in Crystal
Farms' multi-state network.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following table sets forth, for the periods indicated, information derived
from the Consolidated Statements of Operations of the Company expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0%
Cost of sales...................................... 87.4 88.1 83.6
-------------------------
Gross profit....................................... 12.6 11.9 16.4
Selling, general and administrative expenses....... 8.2 8.3 7.5
Disposal of product line........................... 4.8 - -
Restructuring charges.............................. 2.4 - -
-------------------------
Operating profit (loss)............................ (2.8) 3.6 8.9
Interest expense................................... 1.9 2.3 2.2
Interest income.................................... (0.1) (0.1) -
-------------------------
Earnings (loss) before income taxes................ (4.6) 1.4 6.7
Income tax expense (benefit)....................... (1.1) 0.5 2.4
-------------------------
Net earnings (loss)................................ (3.5)% 0.9% 4.3%
-------------------------
-------------------------
</TABLE>
RESULTS OF OPERATIONS
Net loss for 1993 was $16,320,000, a decrease of $20,170,000 from 1992 net
earnings of $3,850,000. Net earnings for 1992 decreased 80.4 percent from 1991
net earnings of $19,667,000. Net earnings (loss) per share were $(.84) in 1993,
compared with $.20 in 1992 and $1.07 in 1991.
Net sales were $474,783,000 in 1993, an increase of 7.2 percent from 1992
net sales of $442,734,000. Unit sales gains for most product categories
accounted for approximately three-fourths of the sales increase, with improved
pricing for certain commodity-sensitive products accounting for most of the
balance. Net sales in 1992 decreased 2.6 percent from net sales of $454,735,000
in 1991 due to significantly lower selling prices for certain commodity-
sensitive products, even though unit sales were higher for most product
categories. Net sales include $4,664,000 and $2,397,000 in 1993 and 1992,
respectively, directly attributable to the discontinued reduced cholesterol
liquid whole eggs product line.
Gross profit amounted to 12.6 percent of net sales in 1993, compared with
11.9 percent in 1992 and 16.4 percent in 1991. Volume related production
efficiencies for most product lines accounted for the majority of the increase
in gross profit margin in 1993. These efficiencies were offset by a gross loss
from the discontinued reduced cholesterol liquid whole eggs product line of
$5,881,000 or 1.2 percent. Deflation in selling prices of three product lines--
french fries, cheese and certain egg products--caused the majority of the gross
profit margin decline in 1992. Contributing to the decline was a gross loss
from the discontinued reduced cholesterol liquid whole eggs product line of
$1,529,000 or .3 percent.
Selling, general and administrative expenses amounted to 8.2 percent of
net sales in 1993, compared with 8.3 percent of net sales in 1992 and 7.5
percent in 1991. Total selling, general and administrative expenses increased
in 1993, but at a lesser rate than net sales due to improved productivity of
the corporate sales group. Selling expenses increased in 1992 due to the
formation of a corporate sales group and related additions to the sales staff.
Selling, general and administrative expenses include $2,505,000 and $3,722,000
in 1993 and 1992, respectively, directly attributable to the discontinued
reduced cholesterol liquid whole eggs product line.
Disposal of product line costs in 1993 relate to the elimination of the
reduced cholesterol liquid whole eggs product line. The high cost of production
for this product along with the lack of market acceptance necessitated the
elimination of this product in 1993.
Restructuring charges in 1993 relate to the write-off of goodwill at a
subsidiary along with other anticipated relocation and site abandonment costs
and other costs totaling $7,237,000 at this subsidiary. Also, included in the
restructuring charges for 1993 were charges of $3,927,000, primarily related to
certain small egg production facilities held for sale to reflect their current
net realizable value.
Interest expense was $9,094,000 in 1993, compared with $9,986,000 in 1992
and $9,788,000 in 1991. The decrease in 1993 reflected reduced average
borrowings due to continued principal payments on long-term debt and lower
average borrowings under the Company's unsecured line of credit. The slight
increase in 1992 reflected higher borrowings under the Company's unsecured line
of credit, in part to fund capital expenditures. Generally, interest rates on
the Company's credit line borrowings were lower, on average, in 1993 than in
1992, and also lower in 1992 than in 1991.
Interest income in 1993 was $731,000 compared with $398,000 in 1992 and
$277,000 in 1991. Interest income in 1993 and 1992 consists of $697,000 and
$349,000, respectively, related to interest received on notes receivable from
the joint venture to produce the reduced cholesterol liquid whole eggs product.
This interest income will not continue after 1993. Interest income in 1991
consists of interest generated from funds invested after the May 1991 public
offering of common stock.
<PAGE>
The Company invested in a joint venture for the purpose of producing
reduced cholesterol liquid whole eggs. The Company owns 50% of the joint
venture and recognizes one half of the profit or loss which results from the
joint venture. Under the terms of the joint venture agreement, the Company paid
a processing toll to the joint venture equal to the costs of production plus an
amount to provide a return on each partner's investment. Due to the costs to
market the product and to refine the production process, the Company recorded a
loss in 1992. These losses continued into 1993. The Company has recorded pre-
tax losses directly attributable to the discontinued product line of
approximately $7,689,000 and $4,902,000 in 1993 and 1992, respectively.
Due to the significant continuing losses and lack of adequate market
acceptance, the Company decided in December 1993 to cause the early termination
of its joint venture for the reduced cholesterol liquid whole eggs product. As
a result of the disposal of this product line and the decision to terminate the
joint venture, the Company has accrued $11,500,000 to acquire the interest of
its joint venture partner and $1,202,000 to cover other costs associated with
the termination. The Company expects to spend the $12,702,000 of accrued
product line disposal costs in early 1994. The Company is also acquiring a
building from the joint venture for $1,000,000. The Company has reduced its
investment in and advances to the joint venture to the expected proceeds from
the sale of the remaining partnership assets based on their appraised value
of $6,000,000, which it expects to recover later in 1994. Consequently, the
Company has recorded a one-time charge of approximately $22,769,000 and a
related income tax benefit of $8,485,000 which the Company expects to realize
in 1994 and future years.
The Company recorded certain restructuring charges during the fourth
quarter of 1993. Sunnyside Vegetable Packing, Inc. ("Sunnyside") has sustained
significant losses since its acquisition in May 1991. In the fourth quarter
management concluded that the operations of Sunnyside require significant
restructuring and modification, including the physical relocation of its
production facility. Because of these factors, management has determined that
the related goodwill has been permanently impaired and should be eliminated.
This goodwill write-off of $5,129,000 and the anticipated site abandonment,
relocation and other costs of $2,108,000 were charged to operations in 1993,
since these amounts were not expected to be recovered from Sunnyside's
undiscounted future cash flows. In addition, the Company recorded other
restructuring charges of $3,927,000 in 1993, primarily related to the write-
down of certain small egg production facilities held for sale to reflect their
current net realizable value in conjunction with restructuring within its egg
operations. Nearly all of the restructuring charges reflect the non-cash write-
offs of recorded asset amounts. Neither the restructuring of Sunnyside's
operations nor the sale of the egg facilities are expected to have a material
effect on the Company's future results of operations.
Future periods will benefit from the elimination of on-going losses
attributed to the disposed product line, as well as from the elimination of
depreciation and amortization related to the restructuring charges.
Certain of the Company's products are sensitive to changes in commodity
prices. Currently, the Company's egg operations derive approximately 20% of net
sales from shell eggs which are sensitive to commodity price changes. The
remainder of egg products division sales are derived from the sale of egg
products that are value-added to varying degrees. Gross profit from shell eggs
is primarily dependent upon the relationship between shell egg prices and feed
costs, both of which can fluctuate significantly. While certain egg products
exhibit commodity sensitivity, gross margins from egg products are generally
less sensitive to commodity price fluctuations than are shell eggs. The
Company's refrigerated distribution operations derive approximately 65% of net
sales from refrigerated products, with the balance from shell egg sales. As a
majority of these eggs are supplied by the egg products division and are, in-
turn, sold on a distribution or noncommodity basis by the refrigerated
distribution division, this division's sales are generally not sensitive to
pure commodity price fluctuations. The potato products division typically
purchases approximately 80%-90% of its estimated annual potato needs under
fixed price contracts. The remainder is purchased at market prices to satisfy
short-term production requirements or to take advantage of spot prices when
they are lower than contract prices. French fry pricing for both the industry
and the Company is significantly influenced by the size and quality of the
annual U.S. potato crop, as well as consumer demand. While small variations
in potato prices or selling prices of end products can have a significant
effect on the earnings of the potato products division, such impacts have
been lessened in recent years through significant increases in higher
value-added refrigerated potato product sales. The dairy products division
sells its products primarily on a cost-plus basis. Therefore, the earnings of
this division are not typically affected by raw ingredient price fluctuations.
Inflation is not expected to have a significant impact on the Company's
business. The Company generally has been able to offset the impact of inflation
through a combination of productivity gains and price increases.
CAPITAL RESOURCES AND LIQUIDITY
The Company's investments in acquisitions and capital expenditures have been a
significant use of capital. The Company plans to continue to invest in state-of-
the-art production facilities to enhance its competitive position. Historically,
the Company has financed its growth principally from internally-generated funds,
bank borrowings, issuance of senior debt and the sale of common stock. The
Company believes that these financing alternatives will continue to meet its
anticipated needs.
The Company invested $8,669,000 in capital expenditures in 1993,
$28,723,000 in 1992 and $46,883,000 in 1991. Additionally, the Company made
acquisitions totaling $5,494,000 in 1991. There were no acquisitions in 1993 and
1992.
In May 1991, the Company completed a public offering of common stock. Net
proceeds received by the Company of approximately $47,600,000 were used, in
part, to eliminate approximately $44,000,000 of bank debt and long-term debt.
The Company has an unsecured line of credit for $55,000,000 from its
principal banks. As of December 31, 1993, $23,100,000 was borrowed under this
line of credit.
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 223,000 $ 6,064,000
Accounts receivable, less allowances 33,087,000 33,684,000
Inventories 49,138,000 52,387,000
Prepaid expenses and other 1,279,000 1,157,000
----------------------------
Total current assets 83,727,000 93,292,000
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 4,201,000 4,905,000
Buildings and improvements 89,980,000 91,243,000
Machinery and equipment 166,655,000 171,640,000
----------------------------
260,836,000 267,788,000
Less accumulated depreciation 80,398,000 64,555,000
----------------------------
180,438,000 203,233,000
OTHER ASSETS
Goodwill, net 48,844,000 55,534,000
Net assets held for sale 11,939,000 -
Investment in and advances to joint venture and other 4,139,000 18,159,000
----------------------------
64,922,000 73,693,000
----------------------------
$329,087,000 $370,218,000
----------------------------
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 9,814,000 $ 6,943,000
Accounts payable 20,536,000 17,096,000
Accrued compensation 3,720,000 2,725,000
Accrued insurance 6,701,000 3,697,000
Accrued product line disposal costs 12,702,000 -
Other accrued expenses 7,987,000 7,775,000
Deferred income taxes - 230,000
----------------------------
Total current liabilities 61,460,000 38,466,000
LONG-TERM DEBT, less current maturities 94,194,000 128,855,000
DEFERRED INCOME TAXES 18,430,000 25,860,000
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 3,000,000 shares authorized, none issued - -
Common stock, $.01 par value, 25,000,000 shares authorized,
shares issued 19,915,489 in 1993 and 1992 199,000 199,000
Additional paid-in capital 117,640,000 117,640,000
Retained earnings 42,475,000 62,681,000
Treasury stock, shares held 599,350 in 1993 and 378,750 in 1992 - at cost (5,311,000) (3,483,000)
-----------------------------
Total stockholders' equity 155,003,000 177,037,000
----------------------------
$329,087,000 $370,218,000
----------------------------
----------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 474,783,000 $ 442,734,000 $ 454,735,000
Cost of sales 414,965,000 390,185,000 380,270,000
---------------------------------------------
Gross profit 59,818,000 52,549,000 74,465,000
Selling, general and administrative expenses 39,122,000 36,936,000 34,217,000
Disposal of product line 22,769,000 - -
Restructuring charges 11,164,000 - -
---------------------------------------------
73,055,000 36,936,000 34,217,000
---------------------------------------------
Operating profit (loss) (13,237,000) 15,613,000 40,248,000
Other (income) expense
Interest expense 9,210,000 10,247,000 10,744,000
Interest capitalized (116,000) (261,000) (956,000)
----------------------------------------------
9,094,000 9,986,000 9,788,000
Interest income (731,000) (398,000) (277,000)
----------------------------------------------
8,363,000 9,588,000 9,511,000
----------------------------------------------
Earnings (loss) before income taxes (21,600,000) 6,025,000 30,737,000
Income tax expense (benefit) (5,280,000) 2,175,000 11,070,000
---------------------------------------------
NET EARNINGS (LOSS) $ (16,320,000) $ 3,850,000 $ 19,667,000
---------------------------------------------
---------------------------------------------
NET EARNINGS (LOSS) PER SHARE $ (.84) $ .20 $ 1.07
---------------------------------------------
Weighted average shares outstanding 19,416,000 19,516,000 18,400,000
---------------------------------------------
---------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
------------------------
Additional
Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1991 17,121,246 $171,000 $67,459,000 $46,693,000 $(3,483,000) $110,840,00
Stock issued
for acquisition 13,543 - 311,000 - - 311,000
Exercise of non-qualified
stock options to acquire
common stock 121,700 1,000 1,503,000 - - 1,504,000
Public offering
proceeds, net 2,587,500 26,000 47,599,000 - - 47,625,000
Net earnings for the year - - - 19,667,000 - 19,667,000
Cash dividends
of $.20 per share - - - (3,626,000) - (3,626,000)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1991 19,843,989 198,000 116,872,000 62,734,000 (3,483,000) 176,321,000
Exercise of non-qualified
stock options to acquire
common stock 71,500 1,000 768,000 - - 769,000
Net earnings for the year - - - 3,850,000 - 3,850,000
Cash dividends
of $.20 per share - - - (3,903,000) - (3,903,000)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 19,915,489 199,000 117,640,000 62,681,000 (3,483,000) 177,037,000
Purchase of shares
for treasury - - - - (1,828,000) (1,828,000)
Net loss for the year - - - (16,320,000) - (16,320,000)
Cash dividends
of $.20 per share - - - (3,886,000) - (3,886,000)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 19,915,489 $199,000 $117,640,000 $42,475,000 $(5,311,000) $155,003,000
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (16,320,000) $ 3,850,000 $ 19,667,000
Adjustments to reconcile net earnings (loss) to
net cash provided from operating activities:
Depreciation 22,446,000 21,454,000 17,603,000
Amortization 1,741,000 1,596,000 1,522,000
Deferred income taxes (7,660,000) (640,000) 2,955,000
Disposal of product line 22,769,000 - -
Restructuring charges 11,164,000 - -
Cash provided from (used in) changes in working capital
employed, net of effect of disposal of product line,
restructuring charges and business acquisitions:
Accounts receivable 392,000 (595,000) 203,000
Inventories 2,968,000 8,011,000 (9,772,000)
Prepaid expenses and other (122,000) (320,000) (169,000)
Accounts payable 3,440,000 (3,625,000) (3,619,000)
Accrued expenses 2,708,000 1,443,000 (8,102,000)
----------------------------------------------
Total adjustments 59,846,000 27,324,000 621,000
----------------------------------------------
Net cash provided by operating activities 43,526,000 31,174,000 20,288,000
Cash flows from investing activities:
Capital expenditures (8,669,000) (28,723,000) (46,883,000)
Business acquisitions, net of cash acquired - - (5,149,000)
Joint venture and other assets (3,194,000) (12,961,000) (4,194,000)
----------------------------------------------
Net cash used in investing activities (11,863,000) (41,684,000) (56,226,000)
Cash flows from financing activities:
Proceeds from issuance of common stock - 769,000 49,129,000
Payments on long-term debt (109,713,000) (90,622,000) (304,304,000)
Proceeds from long-term debt 77,923,000 105,775,000 295,261,000
Purchase of shares for treasury (1,828,000) - -
Cash dividends (3,886,000) (3,903,000) (3,626,000)
----------------------------------------------
Net cash provided by (used in) financing activities (37,504,000) 12,019,000 36,460,000
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,841,000) 1,509,000 522,000
Cash and cash equivalents at beginning of year 6,064,000 4,555,000 4,033,000
---------------------------------------------
Cash and cash equivalents at end of year $ 223,000 $ 6,064,000 $ 4,555,000
---------------------------------------------
---------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 9,445,000 $ 9,972,000 $ 10,743,000
Income taxes 3,858,000 2,281,000 7,794,000
Liabilities assumed in business acquisitions - - 5,289,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the accounts of
Michael Foods, Inc. (the "Company") and its wholly-owned subsidiaries, Kohler
Mix Specialties, Inc., Crystal Foods, Inc., Northern Star Co., Morning Glory
Eggs, Inc., Wisco Farm Cooperative, Farm Fresh Foods, Inc., Drallos Potato Co.,
Inc., Crystal Farms Refrigerated Distribution Company, M.G. Waldbaum Company and
Sunnyside Vegetable Packing, Inc. ("Sunnyside").
At December 31, 1993, North Star Universal, Inc. ("NSU") held 7,354,950
shares of the issued and outstanding common stock of the Company or 38.1%.
Certain directors of the Company are also officers and directors of NSU.
NOTE B
SUMMARY OF ACCOUNTING POLICIES
The Company is a holding company which, through its operating subsidiaries, is
engaged in the food processing and distribution business primarily throughout
the United States. Principal products are eggs, egg products, refrigerated food
products, fresh and frozen potato products, ice milk mix, ice cream mix and
milk, and refrigerated soups and salads.
1. PRINCIPLES OF CONSOLIDATION
The Company consolidates the accounts of its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated.
2. CASH AND CASH EQUIVALENTS
The Company considers its highly liquid temporary investments with maturities of
three months or less to be cash equivalents.
3. INVENTORIES
Inventories other than raw potatoes and potato products are stated at the lower
of cost (determined on a first-in, first-out basis) or market. Raw potatoes and
potato products are stated at the lower of average cost for the year in which
produced or at market.
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C>
Work in process and
finished goods $ 14,386,000 $ 15,400,000
Raw materials and supplies 17,028,000 16,374,000
Flocks 17,724,000 20,613,000
----------------------------------
$ 49,138,000 $ 52,387,000
----------------------------------
----------------------------------
</TABLE>
4. DEPRECIATION
Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives, principally on the
straight-line basis.
5. GOODWILL AND AMORTIZATION
Goodwill has resulted from various acquisitions made by the Company. All
acquisitions were accounted for as purchases and the excess of the total
acquisition cost over the fair value of the net assets acquired was recorded as
goodwill. Currently, goodwill is being amortized on the straight-line basis over
40 years. Accumulated amortization was $5,925,000 and $5,393,000 at December 31,
1993 and 1992, respectively. The Company maintains separate financial records
for each of its acquired entities and performs periodic strategic and long-range
planning for each entity. The Company evaluates its goodwill annually to
determine potential impairment by comparing the carrying value to the
undiscounted future cash flows of the related assets. The Company modifies the
life or adjusts the value of a subsidiary's goodwill if an impairment is
identified. See Note D for an impairment identified during 1993.
6. RECLASSIFICATIONS
Certain reclassifications have been made to the 1992 and 1991 consolidated
financial statements to conform to the 1993 presentation.
NOTE C
DISPOSAL OF PRODUCT LINE
The Company invested in a joint venture with an unrelated company for the
purpose of producing reduced cholesterol liquid whole eggs. The Company owns 50%
of the joint venture and recognizes one half of the profit or loss which results
from the joint venture. Under the terms of the joint venture agreement, the
Company paid a processing toll to the joint venture equal to the costs of
production plus an amount to provide a return on each partner's investment.
In 1993, the revenues and expenses directly attributable to the
discontinued product line were net sales of $4,664,000, cost of sales of
$10,545,000, selling, general and administrative expenses of $2,505,000 and
interest income of $697,000. In 1992, the revenues and expenses directly
attributable to the discontinued product line were net sales of $2,397,000, cost
of sales of $3,926,000, selling, general and administrative expenses of
$3,722,000 and interest income of $349,000. The Company thus recorded pre-tax
losses directly attributable to the discontinued product line in 1993 and 1992
of approximately $7,689,000 and $4,902,000, respectively.
Due to the significant continuing losses and lack of adequate market
acceptance, the Company decided in December 1993 to cause the early termination
of its joint venture for the reduced cholesterol liquid whole eggs product.
As a result of the disposal of this product line and the decision to
terminate the joint venture, the Company has accrued $11,500,000 to acquire the
interest of its joint venture partner and $1,202,000 to cover other costs
associated with the termination. Management believes these accruals will be
adequate to complete the purchase and liquidate the joint venture in early 1994.
The Company is also acquiring a building from the joint venture for $1,000,000.
The Company has reduced its investment in and advances to the joint venture to
the expected proceeds from the sale of the remaining partnership assets based on
their appraised value of $6,000,000, which is included in net assets held for
sale in the consolidated balance sheet at December 31, 1993. Consequently, in
1993 the Company recorded a one-time charge of approximately $22,769,000 and a
related income tax benefit of $8,485,000.
NOTE D
RESTRUCTURING CHARGES
Sunnyside has sustained significant losses since its acquisition in May 1991.
Management has determined that Sunnyside's operations require significant
restructuring and modification, including the physical relocation of its
production facility. In the opinion of management, these factors are so
significant to the enterprise that the goodwill relating to Sunnyside at the
time of acquisition has been permanently impaired and should be eliminated. The
unamortized goodwill of approximately $5,129,000 and the anticipated site
abandonment, relocation and other costs of approximately $2,108,000 have been
included in the restructuring charge related to Sunnyside, since these amounts
were not expected to be recovered from its undiscounted future cash flows.
In addition, the Company has recorded other restructuring charges of
$3,927,000, primarily related to certain small egg production facilities held
for sale to reflect their current net realizable value at December 31, 1993, in
conjunction with restructuring within its egg operations.
The determination to record these restructuring charges was made during the
fourth quarter of 1993.
NOTE E
LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, 1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Revolving line of credit (a) $23,100,000 $ 48,550,000
9.5% senior promissory
notes (b) 42,000,000 46,000,000
9.85% senior promissory
notes (c) 20,000,000 20,000,000
10.4% senior promissory
notes (d) 15,000,000 17,500,000
Other 3,908,000 3,748,000
----------- -----------
104,008,000 135,798,000
Less current maturities 9,814,000 6,943,000
----------- -----------
$94,194,000 $128,855,000
----------- -----------
----------- -----------
</TABLE>
Under the discounted cash flow method, the fair value of total long-term
debt approximates $108,221,000 and $140,800,000 at December 31, 1993 and 1992,
respectively.
Aggregate minimum annual principal payments of long-term debt maturing in
years subsequent to December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
- -------------------------------------------
<S> <C>
1994 $ 9,814,000
1995 11,833,000
1996 34,958,000
1997 13,849,000
1998 13,682,000
1999 and subsequent 19,872,000
-------------
$ 104,008,000
-------------
-------------
<FN>
(a) The Company has an unsecured revolving line of credit with its principal
banks for $55,000,000 with interest at the principal banks' reference rate, or
alternative variable rates, at the Company's option. At December 31, 1993, the
Company had $6,100,000 outstanding at the reference rate of 6.0% and $17,000,000
outstanding at an average variable rate of 4.0%. This revolving line of credit,
which matures on January 31, 1996, contains certain restrictive covenants
similar to the covenants contained in the senior promissory notes. At
December 31, 1993, $31,900,000 of this line was unused.
(b) The 9.5% senior promissory notes are due in varying semi-annual
installments of $2,000,000 to $5,000,000 from June, 1994 through December, 1999.
Interest is payable semi-annually. The notes are unsecured and contain certain
restrictive covenants. The most significant covenants are: minimum net worth
requirements, limitations on additional indebtedness and liens, minimum interest
coverage and limitations on a change in control of the Company.
(c) The 9.85% senior promissory notes are due in annual installments of
$2,800,000 beginning October, 1994 to October, 1999, with the remaining
principal of $3,200,000 due in October, 2000. Interest is payable quarterly. The
notes are unsecured and contain certain restrictive covenants similar to the
covenants contained in the 9.5% senior promissory notes.
(d) The 10.4% senior promissory notes are due in annual installments of
$2,500,000 from December, 1994 through December, 1999, with interest payable
semi-annually. The notes are unsecured and contain certain restrictive covenants
similar to the 9.5% senior promissory notes.
</TABLE>
NOTE F
INCOME TAXES
The Company files a consolidated Federal income tax return. The Company's
Federal income tax returns through December 31, 1989 have been examined by the
IRS which resulted in no material changes. The Company's Federal income tax
returns for the years ended December 31, 1990 through December 31, 1992 are
currently under examination by the IRS. No significant adjustments are expected
from this examination.
<PAGE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years ended
December 31, 1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 1,968,000 $ 2,390,000 $ 6,929,000
State 412,000 425,000 1,186,000
------------ ------------ ------------
2,380,000 2,815,000 8,115,000
Deferred
Federal (6,746,000) (544,000) 2,524,000
State (914,000) (96,000) 431,000
------------ ------------ ------------
(7,660,000) (640,000) 2,955,000
------------ ------------ ------------
$(5,280,000) $ 2,175,000 $ 11,070,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Included in the 1993 provision for deferred income taxes is a $1,200,000
expense resulting from the increase in enacted Federal income tax rates.
For tax purposes, the Company has alternative minimum tax credit
carryforwards ("AMT") of $3,275,000. These amounts have been recognized for
financial reporting purposes.
Deferred income taxes arise from temporary differences between financial
and tax reporting. The tax effects of the cumulative temporary differences
resulting in the deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31, 1993 1992
- ---------------------------------------------------
<S> <C> <C>
Depreciation $ 31,609,000 $ 29,288,000
Farm inventory
accounting 2,349,000 2,583,000
AMT credit (3,275,000) (2,450,000)
Disposal of
product line (8,485,000) -
Other (3,768,000) (3,331,000)
------------ ------------
$ 18,430,000 $ 26,090,000
------------ ------------
------------ ------------
</TABLE>
The following is a reconciliation of the Federal statutory income tax rate
to the consolidated effective tax rate:
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (35.0)% 34.0% 34.0%
State tax effect (1.5) 3.6 3.5
Goodwill 10.8 7.4 4.8
Tax rate change 5.6 - -
Other (4.3) (9.0) (6.3)
----- ---- ----
(24.4)% 36.0% 36.0%
----- ---- ----
----- ---- ----
</TABLE>
NOTE G
EMPLOYEE RETIREMENT PLANS
Full-time employees of the Company who meet service requirements are eligible to
participate in the Michael Foods, Inc. Retirement Savings Plan. The Company will
match up to 4% of each participant's eligible compensation. Contributions of
$1,088,000, $1,204,000 and $818,000 were charged to operations for the years
ended December 31, 1993, 1992 and 1991, respectively.
NOTE H
STOCKHOLDERS' EQUITY
During 1993, the Company purchased 220,600 shares of its common stock for
$1,828,000 on the open market under a stock repurchase plan. These shares are
held as treasury stock.
On April 15, 1991, the Company declared a three-for-two stock split in the
form of a stock dividend. The financial statements, earnings per share,
dividends per share and information relating to stock options have been
retroactively restated to reflect the split.
The Company's Non-Qualified Stock Option Plan (the "Plan") was adopted by
the Board of Directors on March 20, 1987. The Plan provides for the grant of
options to officers and other key employees of the Company and its subsidiaries.
The ten-year options are generally not exercisable in the first year and vest
ratably over the first five years. The exercise price of the options granted is
the fair market value at the date of grant.
Option transactions under the Plan during each of the three years ended
December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
------------ -------------------
<S> <C> <C>
Outstanding at
January 1, 1991 1,498,476 $ 7.11- -- $13.33
Granted 152,942 13.08- -- 18.63
Exercised (110,450) 7.11- -- 12.42
Cancelled (22,507) 7.11- -- 12.25
---------
Outstanding at
December 31, 1991 1,518,461 7.11- -- 18.63
Granted 83,252 8.38- -- 18.88
Exercised (26,500) 7.11- -- 12.42
Cancelled (75,599) 8.58- -- 17.83
---------
Outstanding at
December 31, 1992 1,499,614 7.11- -- 18.88
Granted 226,847 8.00- -- 10.13
Cancelled (50,231) 9.33- -- 18.88
---------
Outstanding at
December 31, 1993 1,676,230 $ 7.11- -- $18.88
---------
---------
</TABLE>
Options to purchase 1,361,553 shares were exercisable at December 31, 1993.
The Company also has an Incentive Stock Option Plan (the "ISO Plan");
however, no shares have been granted under its provisions. The Company has
reserved 2,142,500 shares for the Plan and the ISO Plan.
During 1993, the stockholders approved a Stock Option Plan for Non-Employee
Directors (the "Director Plan"). Under the Director Plan 150,000 shares were
reserved for grant. All options are exercisable one year from the date of grant
and have a term of ten years. Stock options for 20,000 shares were granted
during 1993, options for 16,250 shares were cancelled and none were exercised.
Previous to adopting the Director Plan, the Company had a policy of granting
options to non-employee directors. During 1992, options for 45,000 shares of
common stock were exercised and options for 45,000 shares remained outstanding
at December 31, 1992, under the Company's old policy. At December 31, 1993
options for 48,750 shares with exercise prices ranging from $7.63 to $14.67 per
share were outstanding and options for 101,250 shares were available for grant.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Michael Foods, Inc.
We have audited the accompanying consolidated balance sheets of Michael
Foods, Inc. and Subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1993. 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 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 Michael Foods,
Inc. and Subsidiaries as of December 31, 1993 and 1992 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
Minneapolis, Minnesota /s/ Grant Thornton
February 16, 1994
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales.............................................. $474,783 $442,734 $454,735 $461,229 $255,336
Cost of sales.......................................... 414,965 390,185 380,270 376,170 220,825
-----------------------------------------------------------------
Gross profit........................................... 59,818 52,549 74,465 85,059 34,511
Selling, general and administrative expenses........... 39,122 36,936 34,217 44,240 21,868
Disposal of product line............................... 22,769 -- -- -- --
Restructuring charges.................................. 11,164 -- -- -- --
-----------------------------------------------------------------
73,055 36,936 34,217 44,240 21,868
-----------------------------------------------------------------
Operating profit (loss)............................... (13,237) 15,613 40,248 40,819 12,643
Interest expense, net................................. 8,363 9,588 9,511 9,830 843
-----------------------------------------------------------------
Earnings (loss) before income taxes, minority interest
and equity in earnings of unconsolidated subsidiary. (21,600) 6,025 30,737 30,989 11,800
Income tax expense (benefit).......................... (5,280) 2,175 11,070 11,350 4,250
-----------------------------------------------------------------
Earnings (loss) before minority interest and equity
in earnings of unconsolidated subsidiary.......... (16,320) 3,850 19,667 19,639 7,550
Minority interest..................................... -- -- -- (1,053) --
Equity in earnings of unconsolidated subsidiary....... -- -- -- -- 4,465
-----------------------------------------------------------------
Net earnings (loss)................................ $(16,320) $ 3,850 $ 19,667 $ 18,586 $ 12,015
-----------------------------------------------------------------
Net earnings (loss) per share (1)..................... $ (.84) $ .20 $ 1.07 $ 1.11 $ .71
-----------------------------------------------------------------
-----------------------------------------------------------------
Weighted average shares outstanding (1)............... 19,416 19,516 18,400 16,730 17,019
Dividends per common share (1)........................ $ .20 $ .20 $ .20 $ .15 $ .13
BALANCE SHEET DATA (end of period)
Working capital....................................... $ 22,267 $ 54,826 $ 58,988 $ 13,342 $ 29,144
Total assets.......................................... 329,087 370,218 357,171 304,210 186,896
Long-term debt, including current maturities.......... 104,008 135,798 120,645 105,643 56,406
Stockholders'equity................................... 155,003 177,037 176,321 110,840 94,534
-----------------------------------------------------------------
-----------------------------------------------------------------
<FN>
(1) All share and per share data have been adjusted for a three-for-two Common
Stock split effected in the form of a stock dividend paid on May 9, 1991.
</TABLE>
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------
FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Net sales...................................... $104,931 $119,447 $120,709 $129,696
Gross profit................................... 12,764 15,286 15,705 16,063
Net earnings (loss)............................ 511 2,134 1,347 (20,312)
Net earnings (loss) per share.................. $ .03 $ .11 $ .07 $ (1.05)
Weighted average shares outstanding............ 19,537 19,447 19,365 19,316
1992
Net sales...................................... $106,496 $109,940 $109,878 $116,420
Gross profit................................... 13,038 12,599 12,546 14,366
Net earnings................................... 1,346 629 733 1,142
Net earnings per share......................... $ .07 $ .03 $ .04 $ .06
Weighted average shares outstanding............ 19,496 19,518 19,518 19,530
</TABLE>
BOARD OF DIRECTORS
JAMES H. MICHAEL
CHAIRMAN OF THE BOARD OF DIRECTORS
OF THE COMPANY
CHAIRMAN OF THE EXECUTIVE COMMITTEE
OF THE BOARD OF DIRECTORS
NORTH STAR UNIVERSAL, INC.
RICHARD A. COONROD
PRESIDENT
COONROD AGRIPRODUCTION CORP.
MILES E. EFRON
(CHAIR, COMPENSATION COMMITTEE)
CHAIRMAN OF THE BOARD OF DIRECTORS
NORTH STAR UNIVERSAL, INC.
ORVILLE L. FREEMAN
SENIOR ATTORNEY
POPHAM, HAIK, SCHNOBRICH &
KAUFMAN, LTD.
ARVID C. KNUDTSON
(CHAIR, AUDIT COMMITTEE)
RETIRED CONSULTANT
JOSEPH D. MARSHBURN
SENIOR VICE PRESIDENT
CITRUS WORLD, INC.
JEFFREY J. MICHAEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NORTH STAR UNIVERSAL, INC.
RICHARD G. OLSON
RETIRED PRESIDENT AND CHIEF EXECUTIVE
OFFICER OF THE COMPANY
GREGG A. OSTRANDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
THE COMPANY
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING:
Stockholders and members of the investment community are cordially invited to
attend the Annual Meeting, which will be held at 4:00 p.m., local time, on
Thursday, April 28, 1994, in the auditorium of the Lutheran Brotherhood
Building, 625 Fourth Avenue South in Minneapolis, Minnesota.
INVESTOR INQUIRIES:
Requests for financial publications, including Form 10-K filed with the
Securities and Exchange Commission, should be addressed to:
MICHAEL FOODS, INC.
Attention: Mark D. Witmer
Director of Corporate Communications
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
CERTIFIED PUBLIC ACCOUNTANTS:
Grant Thornton
500 Pillsbury Center
Minneapolis, Minnesota 55402
CORPORATE COUNSEL:
Maun & Simon
2900 Norwest Center
Minneapolis, Minnesota 55402
TRANSFER AGENT AND REGISTRAR:
The First National Bank of Boston
Investor Relations
Mail Stop 45-02-09
P.O. Box 644
Boston, Massachusetts 02102-0644
Stockholder Inquiries:
(617) 575-2900
LISTING:
NASDAQ National Market System
Symbol: MIKL
MARKET PRICE RANGES:
The following table sets forth the
high and low daily sale prices for
each quarter of 1993 and 1992.
<TABLE>
<CAPTION>
1993 LOW HIGH
- ------------------------------------------------
<S> <C> <C>
First Quarter.......... 8-1/8 11-1/2
Second Quarter......... 6-1/2 9-3/8
Third Quarter.......... 8-5/8 10-3/4
Fourth Quarter......... 7-1/2 9-3/4
1992 LOW HIGH
- ------------------------------------------------
First Quarter........... 14-3/4 20-1/4
Second Quarter.......... 10-3/4 16-1/4
Third Quarter........... 7-3/4 12-7/8
Fourth Quarter.......... 7-3/4 12-5/8
</TABLE>
The following table sets forth the regular quarterly cash dividends paid per
share in 1993 and 1992.
<TABLE>
<CAPTION>
1993 1992
- ---------------------------------------------
<S> <C> <C>
First Quarter............. $.05 $.05
Second Quarter............ .05 .05
Third Quarter............. .05 .05
Fourth Quarter............ .05 .05
</TABLE>
At year end 1993 the Company had 809 common stockholders of record and an
estimated 9,000 beneficial owners whose shares were held by nominees or broker
dealers.
OTHER INFORMATION
CORPORATE HEADQUARTERS:
MICHAEL FOODS, INC.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
612-546-1500
CORPORATE EXECUTIVE OFFICERS:
GREGG A. OSTRANDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JEFFREY M. SHAPIRO
EXECUTIVE VICE PRESIDENT AND SECRETARY
JOHN D. REEDY
VICE PRESIDENT-FINANCE,
CHIEF FINANCIAL OFFICER AND TREASURER
SUBSIDIARY OFFICES:
CRYSTAL FARMS REFRIGERATED
DISTRIBUTION COMPANY
Park Place West, Suite 200
6465 Wayzata Boulevard
Minneapolis, Minnesota 55426
DRALLOS POTATO CO., INC.
6500 East Warren
Detroit, Michigan 48207
FARM FRESH FOODS, INC.
6602 Clara Street
Bell Gardens, California 90201
KOHLER MIX SPECIALITIES, INC.
4041 Highway 61
White Bear Lake, Minnesota 55110
M.G. WALDBAUM COMPANY
Wakefield, Nebraska 68784
MORNING GLORY EGGS, INC.
Highway 49 South
Richfield, North Carolina 28137
NORTHERN STAR CO.
3171 Fifth Street Southeast
Minneapolis, Minnesota 55414
SUNNYSIDE VEGETABLE PACKING, INC.
R.D. 1, Box 391-B
Millville, New Jersey 08332
WISCO FARM COOPERATIVE
450 North CP Avenue
Lake Mills, Wisconsin 53551
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MICHAEL FOODS, INC.
NAME STATE OF INCORPORATION
- ---- -----------------------
Crystal Foods, Inc. Minnesota
Crystal Farms Refrigerated
Distribution Company Minnesota
Northern Star Co. Minnesota
Kohler Mix Specialties, Inc. Minnesota
Morning Glory Eggs, Incorporated North Carolina
M. G. Waldbaum Company Nebraska
Wayne Grain & Feed, Inc. Nebraska
Wisco Farm Cooperative Wisconsin
WFC, Inc. Wisconsin
Farm Fresh Foods, Inc. California
Drallos Potato Co., Inc. Michigan
Reddi Egg America, Inc. Minnesota
M. G. Waldbaum Company
of Florida Florida
Midwest Mix, Inc. Minnesota
B.C.K. Company Minnesota
Minnesota Products, Inc. Minnesota
Sunnyside Vegetable Packing, Inc. New Jersey
MIKL, Inc. Minnesota
Cholorex Company (a general
partnership) 50% Interest Minnesota
Super Critical Venturers (a general
partnership) 50% Interest Minnesota
26
<PAGE>
EXHIBIT 23.1
Auditors' Consent
We have issued our reports dated February 16, 1994 accompanying
the consolidated financial statements and schedules incorporated
by reference or included in the Annual Report of Michael Foods,
Inc. on Form 10-K for the year ended December 31, 1993. We
hereby consent to the incorporation by reference of said reports
in the Registration Statements of Michael Foods, Inc. on Forms
S-8 (File No. 33-31914, effective November 21, 1989 and File No.
33-64076 and 33-64078, effective June 9, 1993).
/s/ GRANT THORNTON
Minneapolis, Minnesota
March 18, 1994
27
