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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(x) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1993, or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 0-19075
THE MORNINGSTAR GROUP INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 75-2217488
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5956 SHERRY LANE, SUITE 1100
DALLAS, TEXAS 75225-6522
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (214) 360-4777
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 ______.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of Common Stock held by non-affiliates of the
Registrant on January 31, 1994 was approximately $62,514,445.
As of February 28, 1994, the number of shares outstanding of common stock
was:
Common Stock, $.01 par value: 14,322,062 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Form 10-K incorporates information from the Registrant's
Annual Report to Stockholders for the year ended December 31, 1993. Part III
of this Form 10-K incorporates information from the Registrant's definitive
Proxy Statement relating to the Registrant's annual meeting of stockholders to
be held on May 19, 1994.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
The Morningstar Group Inc. ("Morningstar" or the "Company") is a national
manufacturer and marketer of refrigerated specialty food products that include:
(i) branded products and (ii) other specialty, dairy-based ultra-pasteurized
("UHT") and cultured products. In addition, the Company operates Velda Farms
Inc. ("Velda"), a Florida-based regional dairy supplying of dairy products to a
broad range of customers.
The Company was formed in 1988 to acquire several regional dairies,
novelty/ice cream operations and specialty food operations. Shortly after these
acquisitions, significant increases in bulk milk prices adversely affected the
Company's operating performance and ability to service its highly leveraged
capital structure. In 1989, Morningstar shifted its emphasis to refrigerated
specialty food products by reorganizing its operations, introducing its branded
product lines and commencing the divestiture of its regional dairy and
novelty/ice cream operations. In March 1991, Hicks, Muse & Co. Incorporated,
now Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), together with
certain other investors, recapitalized the Company through a transaction that
reduced the Company's leverage (the "Financial Restructuring"). Prior to this
transaction, the Company is referred to as "Predecessor"; after this
transaction, the Company is referred to as "Successor". In April 1992, the
Company completed a public offering of 6,215,000 shares of common stock,
consisting of 5,000,000 newly issued shares and 1,215,000 shares from existing
stockholders. The net proceeds to the Company from this offering of
approximately $50 million, together with the proceeds from new senior loans,
were used to redeem all of the Company's outstanding 15% preferred stock and
purchase $34 million in principal amount of its 13% senior subordinated
debentures at a premium, reducing the Company's interest expense and
eliminating the future payment of preferred stock dividends.
The Company sold its Texas novelty/ice cream operation in July 1991 and
closed its Missouri novelty/ice cream operation in October 1991. The Company
completed the sales of its Maryland regional dairy and ice cream operations in
July 1992. The Company acquired Favorite Foods Inc. ("Favorite") on March 31,
1993. Favorite is a cultured products and ultrapasteurized processor
headquartered in Fullerton, California which recorded sales of approximately
$31 million during the nine months ended December 31, 1993. The results of
operations for each respective period presented includes such operations only
for the periods that such operations were owned or open for business, as the
case may be.
On January 6, 1994, the Company announced a restructuring plan designed
to sharpen its focus on the faster-growing segments of its core specialty food
products business, while reorganizing its operations to increase efficiency.
The plan, which resulted in a $9 million charge in the fourth quarter of 1993,
includes provisions for reductions in workforce, relocation of the
manufacturing for certain product lines to gain operating efficiencies, the
abandonment of other product lines, and the retention of C. Dean Metropoulos to
provide advisory and related services to the Company. The charge also included
$1.9 million representing the excess of the book value of operating assets sold
in 1991 and 1992 over their estimated realizable value. The $9 million charge
includes noncash expenses of $4.4 million and future cash expenses of $4.6
million. Most of the cash expenditures will occur during 1994. Management
believes this plan, which is already being implemented, will result in cost
reductions in 1994 of approximately $5 million.
The Company has suspended the payment of dividends on its common stock
immediately following the $.0375 per share payment to holders of record as of
December 31, 1993.
The Company also announced that on January 5, 1994, it had signed a
letter of intent to sell the stock of Velda for $48 million, of which $45
million is expected to be paid in cash at closing. A gain is expected on the
sale. When the sale of Velda is consummated, the Company will have completed
its divestiture of regional dairies and these operations will be treated as
discontinued operations. There can be no assurance that this sale will be
consummated or that the net proceeds will be realized.
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PRODUCTS
The following table sets forth sales percentage information by product
and business category.
Percent of Net Sales
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Year Ended Combined Year Ended December 31,
December 31, Period -------------------------
Product Category/Business 1990 1991(a) 1992 1993
------------------------- ------------ ------------ ------------- ------------
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Refrigerated specialty food products:
Branded . . . . . . . . . . . . . . . . . 3.9% 9.3% 16.4% 20.8%
------------ ------------ ------------- ------------
Other specialty products:
UHT . . . . . . . . . . . . . . . . . 11.9% 15.8% 16.9% 17.3%
Cultured & other . . . . . . . . . . . . 12.8% 17.7% 22.8% 31.1%
------------ ------------ ------------- ------------
Total other specialty . . . . . . . 24.7% 33.5% 39.7% 48.4%
Velda & other:
Fluid milk . . . . . . . . . . . . . . . 12.5% 18.5% 22.2% 23.1%
Ice cream & novelties . . . . . . . . . . 2.5% 3.6% 4.6% 4.9%
Cultured & other . . . . . . . . . . . . 1.9% 1.8% 2.7% 2.8%
------------ ------------ ------------- ------------
Total Velda & other . . . . . . . . 16.9% 23.9% 29.5% 30.8%
Divested:
Fluid milk . . . . . . . . . . . . . . . 35.0% 14.0% 6.3% - %
Ice cream & novelties . . . . . . . . . . 17.2% 19.0% 8.0% - %
Cultured & other . . . . . . . . . . . . 2.3% .3% .1% - %
------------ ------------ ------------- ------------
Total divested . . . . . . . . . . . 54.5% 33.3% 14.4% - %
------------ ------------ ------------- ------------
Total . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
============ ============ ============= ============
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(a) Combines the two months ended February 28, 1991 and the ten
months ended December 31, 1991. A change of control occurred on
March 1, 1991. Operations prior to that date are referred to as
Predecessor and after that date are referred to as Successor.
REFRIGERATED SPECIALTY FOOD PRODUCTS
BRANDED SPECIALTY PRODUCTS
The Company's branded product business consists of four product lines:
International Delight(R), Second Nature(R), Naturally Yours(TM) and Lactaid(R).
In the development of its branded product lines, the Company has targeted
growing market niches and developed products to meet the specific consumer
demands.
International Delight. International Delight is a gourmet flavored
coffee creamer that is marketed in several flavors. Beginning in 1994,
International Delight will be made available in a new no fat format.
International Delight was originally introduced on a regional basis in 1973 and
was repackaged, reformulated and marketed as a national brand in 1989. The
product is sold in half-ounce single serving, pint and quart sizes to
supermarkets, foodservice outlets and convenience stores. International Delight
is a non-dairy product that is manufactured using the UHT process and, as a
result, has an extended shelf life. The Company encounters competition in this
product line from various regional and national competitors.
Second Nature. Second Nature is a pasteurized, no fat, no cholesterol
egg product. The primary ingredient of Second Nature is egg whites. The
product was the first refrigerated alternative to whole eggs to provide the
equivalent nutritional
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value of whole eggs. Second Nature is another product that was first marketed
by the Company as a national brand in 1989. Second Nature was reformulated in
a no fat variety and introduced nationally during 1993 in a twin pack
containing two eight-ounce containers. Second Nature is typically sold in the
fresh egg section of supermarkets, encountering competition from several other
national and regional competitors both in the refrigerated format and in a
frozen format.
Naturally Yours. Naturally Yours no fat sour cream is the Company's
newest branded product. It was introduced nationally during 1993 following a
test market in the last half of 1992. Naturally Yours contains 67% less
calories than full fat sour cream while delivering similar taste and texture
characteristics. Naturally Yours competes with numerous national and regional
competitors in the no fat sour cream category.
Lactaid. Lactaid is a line of lactose reduced and lactose free UHT
fluid milks produced by the Company under a license arrangement with McNeil
Consumer Products Company ("McNeil"), an affiliate of Johnson & Johnson. See
"-- Intellectual Property". Lactose intolerance afflicts millions of
individuals and Lactaid products bring such individuals back into the market
for dairy products. Lactaid has been sold by the Company in the western
two-thirds of the United States since September 1991.
OTHER SPECIALTY PRODUCTS
The Company manufactures and distributes other dairy based specialty
food products, including (i) UHT products, such as whipping cream, aerosol
toppings, half & half and coffee creamers, and (ii) cultured products, such as
cottage cheese, sour cream, snack dips and yogurt. These products are sold
under customers' brand names, and in a wide variety of food service packages as
well as under the Company's own regional brand names such as Avoset(R)
(creams), Bancroft(R) (cottage cheese and sour cream), Naturally Yours(R)
(yogurt), Quip(R) (aerosol toppings) and Trimline(R) (cottage cheese and other
low fat products). The Company sells its UHT and cultured products to food
service distributors, regional dairies and retail grocery warehouses. The
Company also processes several products for other national marketers including
Dole(R), Carnation(R), Pepsi-Lipton(R) and Procter & Gamble(R). The Company
encounters competition from several other regional UHT and cultured product
manufacturers.
UHT. Certain of the Company's branded products and a number of its
other specialty products are produced using the UHT process. The UHT process
involves heating products to extremely high temperatures to eliminate all
living organisms and then rapidly cooling the products. This process results in
product shelf lives in excess of 45 days allowing these products to be shipped
relatively long distances and to be distributed through warehouses.
The UHT product category includes several products such as whipping
cream, half & half, heavy whipping cream, bavarian style cream, light cream,
pastry topping, baker's cream, coffee cream, flavored milks and various
non-dairy formulas of creams and creamers. The Company packages its UHT
products in a wide variety of sizes and packages to facilitate serving the
various needs of its diverse customer base. These packages include: 1/2
ounce and 3/8 ounce portion control creamers; half pint, pint, quart pure-pak
containers; aerosol cans; glass bottles; metal cans; and various multi-gallon
containers.
Cultured. Cultured products are derived from milk that is pasteurized,
inoculated with beneficial bacterial cultures, cooled and then, in some
instances, mixed with other ingredients to provide flavor. The culturing
process provides unique flavor and texture characteristics and extends shelf
life. The Company's cultured products carry shelf lives from 30 to 60 days
allowing distribution through warehouse systems.
The cultured products category includes: cottage cheese, sour cream,
snack dips and yogurt. Each of these basic products has numerous formula
variations primarily related to varying levels of fat content and flavoring
options. These products are generally packaged in plastic containers ranging
in size from four ounces to 35 pounds.
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PRODUCTION AND DISTRIBUTION
Refrigerated specialty food products are manufactured at six plants
located in California (3), Wisconsin (1), Texas (1) and Maryland (1). UHT
products are manufactured in each of the six plants and cultured products are
manufactured in each of the plants other than Gustine, California.
The Company distributes products from its six plants to over 1,300
customers in 49 states and 16 foreign countries, principally using a dedicated
fleet of leased refrigerated vehicles. The Company also uses common carriers
for product distribution and certain customers pick up products at the
Company's manufacturing facilities.
MARKETING AND CUSTOMERS
Branded Specialty Products. The Company develops consumer awareness of
its branded products through media advertising of such products, primarily
through cooperative advertising with the stores in which its branded specialty
products are sold and with manufacturers of products that complement the
Company's branded specialty products. The Company also utilizes coupon
redemption and in-store demonstrations to develop consumer awareness.
Branded specialty products are primarily sold to grocery warehouses
serving the major supermarket chains and are primarily sold through the
Company's network of independent food brokers and nationwide sales force. The
typical broker used by the Company generally works exclusively on commission.
The broker is responsible for placing the sale of the Company's branded
products, and for ensuring that the product is appropriately stocked and
positioned in supermarkets.
The Company also ships its branded products internationally, currently
serving Canada and test marketing branded products in several countries in the
Pacific Rim.
Other Specialty Products. The Company markets its other specialty
products directly to dairy companies, private label supermarket wholesalers,
grocery warehouses, foodservice outlets and food manufacturers. The primary
market for the Company's other specialty products is the United States. The
Company also markets certain UHT products in the Pacific Rim, primarily in Hong
Kong, Taiwan and Singapore.
VELDA AND OTHER
VELDA FARMS
Velda has been a leading supplier of dairy products in Florida for over
40 years. The Company estimates that, within its marketing area, Velda
distributes approximately one-half of all dairy and dairy related products sold
to foodservice accounts as well as serving significant shares of the
convenience store market.
Velda operates two processing plants located in Miami and Winter Haven,
Florida that process fluid milk, juices and ice cream. Velda's refrigerated
and frozen product distribution network reaches customers throughout Florida,
with the exception of the northern panhandle. With approximately 145 routes,
this delivery system allows Velda to serve customers as diverse as theme parks,
first class hotels, restaurants, convenience stores, supermarkets, warehouses
and school systems. The Company believes that Velda's extensive distribution
capabilities also are attractive to major national and regional suppliers who
wish to reach a wide range of Florida consumers.
Velda's product line includes a wide assortment of refrigerated and
frozen dairy products. Velda's principal product category, fluid milk,
represented approximately 79% of 1993 sales. This category includes Velda's
own brand of milk, Nestles' Quik(R) flavored milks and ice cream mixes for
Dairy Queen(R), virtually all of which are manufactured in Velda's own
facilities.
Velda has utilized its distribution strength to expand further its
product line beyond fluid milk. These items include a wide variety of ice
creams, cultured products, juices, butter, hard cheeses and ultra-pasteurized
creams, most of which are purchased from other dairy companies. These products
include Yoplait(R) yogurt, Eskimo Pie(R) novelties, Edy's(R) ice cream,
Haagen-Dazs(R) ice cream and numerous other readily identifiable branded
products.
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DIVESTED OPERATIONS
During 1990, the Company divested Oak Farms Inc. ("Oak Farms") and
Cabell's Dairy Inc. ("Cabell's") regional dairy operations located in Texas,
and Adohr Farms Inc. ("Adohr") in California. During 1991, the Company
divested a novelty/ice cream operation in Texas and a milk distribution
location in Pennsylvania. The Company also closed a novelty operation located
in Kansas City, Missouri in October 1991. During 1992, the Company divested
Embassy Dairy Inc., a regional dairy in Waldorf, Maryland and East Coast Ice
Cream, a novelty/ice cream operation located in Laurel, Maryland. These
divested and closed operations comprise the Divested Operations referred to in
the Company's disclosures.
RESEARCH AND DEVELOPMENT
The development of new products and the processes under which they are
manufactured has been an important part of the Company's growing emphasis on
branded specialty products. In addition to the Company's full-time research
technicians, all employees, both at the operating and management levels, are
encouraged to play an active role in the development of products and their
manufacturing processes. The Company's senior management is closely involved
in the identification and development of branded products. The Company
utilizes consumer research to test new products prior to market introduction.
One of the achievements of this research and development effort was the
reformulation of Second Nature to deliver the equivalent nutritional value of
whole eggs and more recently reformulated to be a no fat product. In addition,
the Company was the first to develop techniques that preserve the taste,
quality and nutritional constitution of vegetables during pasteurization. This
research effort also developed Naturally Yours(TM) no fat sour cream, a unique
product that uses all dairy ingredients. The Company has recently developed a
no fat version of International Delight which is currently being introduced to
the market place.
INTELLECTUAL PROPERTY
General
The Company's business involves the use of patents, trademarks and trade
secrets and licenses granted both to and by the Company. The Company's most
important trademarks include International Delight, Second Nature, Naturally
Yours, Velda Farms, Trimline, Avoset, Bancroft and the Company's star logo.
The Company has also permitted third parties to use trademarks pursuant to
licenses granted by the Company, typically in connection with divestitures.
Lactaid License Arrangement
Lactaid is produced under two Lactaid License Agreements (collectively
the "Lactaid License") with McNeil. Under the terms of the Lactaid License,
McNeil granted the Company the exclusive right to manufacture, produce and
package Lactaid modified milk products in the western two-thirds of the United
States and certain countries around the Pacific Rim. The Lactaid License
provides for payment of a license fee to McNeil based on the volume of Lactaid
modified milk products sold by the Company.
DIVESTITURES
Southern Foods Group, Inc. ("Southern Foods"), the purchaser of Oak
Farms and Cabell's, entered into Supply Agreements (herein so called) with the
Company in connection with such purchase. Pursuant to the terms of the Supply
Agreements, Southern Foods agreed to purchase substantially all of its juice,
yogurt and aerosol topping requirements from the Company for a period of four
years ending in 1994. Southern Foods also agreed to purchase plastic bottling
supplies from Morningstar for a three year period.
The purchasers of Adohr Farms entered into a Requirements and
Distribution Agreement (herein so called) pursuant to which they agreed to
purchase a minimum of 75% of their UHT and cultured products requirements from
the Company for a period of seven years ending in 1997.
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The purchasers of Embassy Dairy Inc. entered into an agreement pursuant
to which they agreed to purchase their requirements of UHT and cultured
products for a period of three years ending in 1995.
The Company has agreed to indemnify the purchasers of its divested
operations with regard to certain potential liabilities arising out of the
acquisition of such operations. In connection therewith, the Company has
indemnified Southern Foods, the purchaser of the Oak Farms and Cabell's dairy
subsidiaries, against claims related to compliance with environmental
regulations and fair trade practices arising out of the prior operation of Oak
Farms and Cabell's through March 2000. See Item 3 of this Form 10-K.
SUPPLIERS AND RAW MATERIALS
The Company purchases its primary raw material, bulk milk, from farm
marketing cooperatives, individual farmers and other dairy companies. The
supply and cost of bulk milk are influenced by many factors, including consumer
demand, government regulation and seasonality. The Company has not experienced
any supply shortages and expects that bulk milk will continue to be available
in sufficient quantities to supply its processing requirements.
Certain other raw materials, such as juice concentrates, sweeteners,
flavorings and various packaging supplies, are generally available from a wide
variety of sources.
CUSTOMERS
The Company markets products to a broad range of customers including
convenience stores, supermarkets, grocery warehouses, independent distributors,
other dairies, and food service customers such as hotels, restaurants, nursing
homes, schools, cruise ships and theme parks. The Company sells to customers
nationwide and a small percentage of its products is distributed in foreign
countries, primarily in Canada and the Pacific basin. No customer of the
Company accounts for more than 10% of the Company's sales as of December 31,
1993.
SEASONALITY
Sales of the Company's refrigerated specialty food products exhibit
modest seasonality with products such as whipping cream, aerosol toppings, sour
cream and International Delight experiencing higher sales in the late fall and
winter seasons. Velda's sales exhibit slightly greater seasonality with peak
sales from Thanksgiving through Easter, coinciding with Florida's tourist
season.
EMPLOYEES
As of December 31, 1993, the Company employed approximately 1,432
personnel of whom approximately 482 were represented by unions under collective
bargaining agreements. These agreements cover employees at the following
locations: Fullerton, Gustine and Tulare, California; and Madison, Wisconsin.
Two of the collective bargaining agreements are due to expire within the next
12 months. The Company will from time to time be negotiating new agreements
with the various unions representing these employees and it expects that it
will enter into agreements with such unions which are satisfactory to the
Company. The Company has had no recent work stoppages and considers its
relations with its employees to be satisfactory.
GOVERNMENT REGULATION
PUBLIC HEALTH
As a manufacturer and distributor of food products, the Company is
subject to the Federal Food, Drug, and Cosmetic Act and regulations promulgated
thereunder by the FDA. This comprehensive regulatory scheme governs, among
other things, the manufacturing, composition and ingredients, labeling,
packaging, and safety of food. For example, the FDA regulates manufacturing
practices for foods through its current good manufacturing practices
regulations, specifies the "recipes," called standards of identity, for certain
foods, including many of the kinds of products marketed by the Company (e.g .,
ice cream,
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sour cream, half & half, and yogurt), and prescribes the format and content of
certain information required to appear on the labels of food products.
Additionally, the FDA is responsible for enforcement of the Public
Health Service Act and regulations issued thereunder, which authorize
regulatory activity necessary to prevent the introduction, transmission or
spread of communicable diseases. These regulations require, for example,
pasteurization of milk and milk products.
The FDA has recently proposed extensive regulations pursuant to the
Nutrition Labeling and Education Act of 1990. Such regulations are expected to
take effect in May, 1994. Nutritional labeling will be required on all foods
that are a meaningful source of nutrition, including the Company's products,
and limitations will be placed on the use of certain terms while requiring the
use of other terms. The Company is currently revising labeling of its products
to conform to the final regulations. The Company does not expect the cost of
complying with these regulations to be material.
In addition to FDA regulation of the Company's products, the Company's
advertising is subject to regulation by the Federal Trade Commission pursuant
to the Federal Trade Commission Act and regulations issued thereunder.
The Company and its products are also subject to state regulation
through such measures as licensing of the Company's dairy plants, enforcement
by state health agencies of state standards for the Company's products,
inspection of the Company's facilities, and regulation of the Company's trade
practices in connection with the sale of the dairy products.
Enforcement actions for violations of federal and state regulations may
include seizure and condemnation of violative products, cease and desist
orders, injunctions and/or monetary penalties.
The Company maintains quality control laboratories at each of its food
processing facilities to test bulk milk and other ingredients as well as
finished products. In addition, the Company has developed and administers
Hazard Analysis of Critical Control Point programs designed to detect hazardous
levels of bacteria and other contamination that may have occurred during
manufacturing. The Company believes that its facilities and practices are
sufficient to maintain its compliance with applicable government regulations,
although there can be no assurances in this regard.
INTERSTATE COMMERCE COMMISSION
The Company's interstate trucking services to the public in connection
with its backhaul operations are subject to regulation by the Interstate
Commerce Commission (the "ICC"). In order to provide backhaul services, the
Company obtained a license from the ICC and must comply with certain safety and
insurance requirements promulgated by the ICC on a continuing basis.
EMPLOYEE SAFETY REGULATIONS
The Company is subject to certain health and safety regulations
including regulations issued pursuant to the Occupational Safety and Health
Act. These regulations require the Company to comply with certain
manufacturing, health and safety standards to protect its employees from
accidents.
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local environmental
regulations. Certain of the Company's facilities discharge biodegradable
wastewater into municipal waste treatment facilities in excess of levels
permitted under local regulations. In such circumstances, the Company
generally pays wastewater surcharges to municipal water treatment authorities.
However, such authorities may require the Company to comply with such
regulations and construct pre-treatment facilities or take other action to
reduce effluent discharge.
The Company maintains underground fuel storage tanks to service its
vehicles. All such tanks are periodically inspected to determine compliance
with applicable regulations. In connection with these inspections, the Company
may, at times, need to make certain expenditures in order to maintain
compliance.
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Environmental compliance with federal, state or local authorities is not
expected to have a material impact on the Company's capital expenditures,
earnings or competitive position.
DAIRY SUPPORT PROGRAM
The minimum prices paid for grade-A bulk milk in the United States are
controlled in most areas by Federal Milk Marketing Orders or state regulatory
agencies. In most areas, the prices paid for bulk milk by processors are higher
than these minimums due to premiums charged by suppliers and shippers. The
Company has long established relationships with bulk milk suppliers, primarily
milk cooperatives in each of its markets and has not experienced any shortages
in its supply of fresh bulk milk.
THE PUBLIC EQUITY OFFERING
On April 24, 1992, the Company issued 5,000,000 shares of new common
stock in a public offering at an issue price of $11 per share. Simultaneously
1,215,000 shares were sold to the public by certain selling stockholders. The
offering provided net cash proceeds to the Company of approximately $50 million
which, combined with approximately $104 million in new senior bank borrowings,
was used to purchase approximately $34 million in face amount of Debentures at
a cash premium of approximately $4 million, to redeem all the Company's
Preferred Stock for approximately $18 million and to refinance approximately
$98 million in senior debt.
ITEM 2. PROPERTIES.
The Company currently operates processing facilities in the following
locations:
<TABLE>
<CAPTION>
Aproximate
Square
Location Products Footage
-------- -------- -------
<S> <C> <C>
Fullerton, California Cultured Products, UHT 83,995
Frederick, Maryland Cultured Products, UHT 68,958
Gustine, California UHT, Juices 114,000
Madison, Wisconsin Cultured Products, UHT, Buttermilk 83,558
Sulphur Springs, Texas Cultured Products, UHT, Juices 70,333
Tulare, California Cultured Products, UHT 39,415
Miami, Florida Fluid Milk, Juices, Ice Cream 83,030
Winter Haven, Florida Fluid Milk, Juices 67,700
</TABLE>
_______________________________
The Company also has eight distribution facilities in Florida related to
the Velda operations.
The Company's executive offices are located in approximately 17,604
square feet of leased office space located at 5956 Sherry Lane, Suite 1100,
Dallas, Texas 75225-6522. The lease for this property expires on October 31,
2000 with a five year extension available.
The Company believes that its facilities are well maintained and adequate
to meet its current needs. The Company does expect to expand the capacity of
its existing facilities in order to service future growth expectations.
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ITEM 3. LEGAL PROCEEDINGS.
FEDERAL INVESTIGATION
The Company received a target letter dated December 31, 1991, from the
United States Department of Justice informing it that Morningstar is a target
of a federal grand jury investigation of suspected bid-rigging and market
allocation in the dairy industry in the State of Texas. The investigation
relates to activities conducted in the fluid milk industry in Texas. Oak Farms
and Cabell's (collectively the "Texas Dairy Subsidiaries") were formed by the
Company in March 1988 in connection with the acquisition of substantially all
of the assets of Southland's dairy operations. The Texas Dairy Subsidiaries
conducted fluid milk operations in Texas and were sold to Southern Foods in
September 1990, which merged them into its subsidiary, Schepps-Foremost, Inc.
The investigation by the Department of Justice is continuing, and the
scope and time of the conspiracies that may be alleged by the government is
uncertain. Based on the Company's internal investigation to date and the
advice of special counsel with respect to such matters, the Company believes
Morningstar should not be, and that Morningstar should ultimately be removed
as, a target given that (i) all of Morningstar's Texas fluid milk operations
were conducted through the Texas Dairy Subsidiaries and (ii) the Company is not
aware of any evidence that any officers of Morningstar had any knowledge of or
participated in such alleged wrongdoings.
The Company has agreed to indemnify purchasers of its divested operations
with regard to certain potential liabilities arising out of the acquisition of
such operations. In connection therewith, the Company has indemnified Southern
Foods, the purchaser of the Oak Farms and Cabell's dairy subsidiaries, against
claims related to compliance with environmental regulations and fair trade
practices arising out of the prior operaiton of Oak Farms and Cabell's through
March 2000. The Company is aware that Southern Foods may claim that the
Company is obligated to indemnify Southern Foods with respect to any illegal
activities which are found to occur prior to the sale of the Texas Dairy
Subsidiaries to Southern Foods.
The Company cannot accurately predict the outcome of the government's
investigation. However, based upon the information available to the Company at
this time, the Company believes that this matter should not have a material
impact on the Company's financial position or future results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the fourth
quarter of the fiscal year.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1993 on page 31
under the caption "Quarterly Financial Information" and is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1993 on page 32
under the caption "Selected Financial Data" and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1993 on pages 9
through 12, under the caption "Management's Discussion and Analysis of Results
of Operations and Financial Condition," and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1993 on pages 14
through 31, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included in the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on May 19, 1994 under the caption "Directors and Officers".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held May 19, 1994 under the caption "Executive Management Compensation" and is
incorporated herein by reference. The foregoing incorporation by reference
specifically excludes the discussion under "Executive Management Compensation
- -- Compensation Committee Report" and "The Morningstar Group Inc. Stock Price
Performance".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included in the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on May 19, 1994 under the caption "Voting Securities Outstanding, Security
Ownership of Management and Principal Stockholders" and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included in the Registrant's
definitive Proxy Statement under the captions "Executive Management
Compensation -- Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions" and is incorporated herein by reference.
11
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report. The page
number, if any, listed opposite a document indicates the page number in
the sequential number system in the manually signed original of this
Report where such document can be found.
Page Number
(1) Financial Statements
See Item 8 on page 10.
(2) Index to Financial Statement Schedules
Report of independent public accountants on financial
statement schedules . . . . . . . . . . . . . . . . . . .20
Schedule V - Property, plant and equipment . . . . . . . .21
Schedule VI - Accumulated depreciation of property, plant
and equipment . . . . . . . . . . . . . . . . . . . . . .22
Schedule VIII - Allowance for doubtful accounts . . . . . .23
Schedule X - Supplementary statement of operations
information . . . . . . . . . . . . . . . . . . . . . . .24
All other schedules have been omitted because they are not
applicable, not required, or because the required information
is shown in the consolidated financial statements or notes
thereto.
(3) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number Description
3(a) -- Restated Certificate of Incorporation of the
Company. (Incorporated by reference to
Exhibit 3(a) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1992.)*
3(b) -- Amended and Restated By-laws of the Company.
(Incorporated by reference to Exhibit 3(b) to
the Registrant's Annual Report on Form 10-K
of the Registrant for the fiscal year ended
December 31, 1992.)*
4(a) -- Third Amended and Restated Stockholders'
Agreement dated as of March 1, 1991, among
the Company and certain stockholders of the
Company. (Incorporated by reference to
Exhibit 4(d) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1990.)*
____________________________
* Incorporated by reference as indicated.
12
<PAGE> 14
Exhibit
Number Description
4(b) -- Stockholders' Agreement dated as of March 1,
1991, among LTCB, NMB, HMCM, the Company and
certain stockholders of the Company.
(Incorporated by reference to Exhibit 4(e) to
the Registrant's Annual Report on Form 10-K
of the Registrant for the fiscal year ended
December 31, 1990.)*
4(c) -- Stockholders' Agreement dated February 5,
1992 among the Company and certain
stockholders. (Incorporated by reference to
Exhibit 4(d) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1992.)*
10(a) -- Dairy Products Purchase Agreement dated April
1, 1988, between Company and Southland
(without exhibits). (Incorporated by
reference to Exhibit 10(a) to the
Registrant's Registration Statement on Form
S-1, as amended, registration No. 33-21790.)*
10(b) -- Stock Purchase Agreement dated as of March
16, 1990, between the Company and Southern
Foods Group, Inc. (Incorporated by reference
to Exhibit (c)(1) to the Registrant's Current
Report on Form 8-K dated September 6, 1990.)*
10(c) -- First Amendment to Stock Purchase Agreement
dated September 6, 1990, among Southern Foods
Group, Inc., the Company and
Schepps-Foremost, Inc. (Incorporated by
reference to Exhibit (c)(2) to the
Registrant's Current Report on Form 8-K dated
September 6, 1990.)*
10(d) -- Securities Purchase Agreement dated as of
February 22, 1991, between the Company and
HMCM. (Incorporated by reference to Exhibit
(c)(2) to the Registrant's Current Report on
Form 8-K dated March 1, 1991.)*
10(e) -- Stock Purchase Agreement dated as of March 1,
1991, among the Company, NMB U.S. Finance
Corporation and The Long-Term Credit Bank of
Japan, Ltd. (Incorporated by reference to
Exhibit 10(g) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1990.)*
10(f) -- Financial Advisory Agreement dated as of
March 1, 1991, between the Company and Hicks,
Muse & Co. Incorporated. (Incorporated by
reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1990.)*
10(g) -- Employees' Savings and Profit Sharing Plan
dated April 1, 1988. (Incorporated by
reference to Exhibit 10(g) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1988.)*
10(h) -- Employment Agreement dated March 1, 1991,
between the Company and James A. Bach.
(Incorporated by reference to Exhibit 10(k)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1990.)*
10(i) -- Employment Agreement dated March 1, 1991,
between the Company and Clifford L. Marquart.
(Incorporated by reference to Exhibit 10(l)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1990.)*
____________________________
* Incorporated by reference as indicated.
13
<PAGE> 15
Exhibit
Number Description
10(j) -- Employment Agreement dated March 1, 1991,
between the Company and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(m)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1990.)*
10(k) -- Amendment No. 1 to Employment Agreement,
entered into as of September 17, 1991, by and
among The Morningstar Group Inc. and James A.
Bach.**
10(l) -- Amendment No. 1 to Employment Agreement,
entered into as of September 17, 1991, by and
among The Morningstar Group Inc. and Clifford
L. Marquart.**
10(m) -- Amendment No. 1 to Employment Agreement,
entered into as of September 17, 1991, by and
among The Morningstar Group Inc. and Tracy L.
Noll.**
10(n) -- Purchase Agreement dated as of September 13,
1991, among HMCM, certain sellers (as
defined), certain buyers (as defined) and the
Company.**
10(o) -- MorningStar Foods, Inc. 1991 Incentive and
Nonstatutory Stock Option Plan.**
10(p) -- The Morningstar Group Inc. 1992 Incentive and
Nonstatutory Option Plan.**
10(q) -- Second Amended and Restated Credit Agreement
dated as of May 4, 1992, among the Company,
the financial institutions named therein,
LTCB, as Agent, and Banque Paribas as
Co-Agent. (Incorporated by reference to
Exhibit 10(t) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1992.)*
10(r) -- Licensing Agreement to produce Lactaid Brand
Lactose Reduced Milk (Confidential treatment
has been requested for this exhibit).**
10(s) -- Stock Purchase Agreement dated as of January
10, 1992, among Protein Capital Corporation
and the Company.***
10(t) -- First Amendment to Stock Purchase Agreement,
dated as of March 31, 1992 to Stock Purchase
Agreement dated as of January 10, 1992, among
Protein Capital Corporation and the
Company.***
10(u) -- Stock Purchase Agreement dated as of March
31, 1992, among Protein Capital Corporation
and the Company.***
10(v) -- Amendment No. 2 to Employment Agreement,
entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and James A.
Bach. (Incorporated by reference to Exhibit
10(dd) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.)*
____________________________
* Incorporated by reference as indicated.
** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33- 45805)
filed by the Registrant on February 19, 1992.
*** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33- 45805), as
amended by the Registrant on April 8, 1992.
14
<PAGE> 16
Exhibit
Number Description
10(w) -- Amendment No. 2 to Employment Agreement,
entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Clifford
L. Marquart. (Incorporated by reference to
Exhibit 10(ee) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1992.)*
10(x) -- Amendment No. 2 to Employment Agreement,
entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Tracy L.
Noll. (Incorporated by reference to Exhibit
10(ff) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.)*
10(y) -- Amendment No. 1 to Financial Advisory
Agreement entered into as of April 30, 1992
between the Company and Hicks, Muse & Co.
Incorporated. (Incorporated by reference to
Exhibit 10(gg) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1992.)*
10(z) -- Incentive Stock Option Agreement (Tenure
Option) entered into as of March 1, 1991,
between MorningStar Foods Inc. and James A.
Bach.****
10(aa) -- Incentive Stock Option Agreement (EBITDA
Option) entered into as of March 1, 1991,
between MorningStar Foods Inc. and James A.
Bach.****
10(bb) -- Incentive Stock Option Agreement (Tenure
Option) entered into as of March 1, 1991,
between MorningStar Foods Inc. and Clifford
L. Marquart.****
10(cc) -- Incentive Stock Option Agreement (EBITDA
Option) entered into as of March 1, 1991,
between MorningStar Foods Inc. and Clifford
L. Marquart.****
10(dd) -- Incentive Stock Option Agreement (Tenure
Option) entered into as of March 1, 1991,
between MorningStar Foods Inc. and Tracy L.
Noll.****
10(ee) -- Incentive Stock Option Agreement (EBITDA
Option) entered into as of March 1, 1991,
between MorningStar Foods Inc. and Tracy L.
Noll.****
10(ff) -- Amendment No. 1 to Incentive Stock Option
Agreement (EBITDA Option) entered into as of
September 12, 1991, by and among The
Morningstar Group Inc. and James A. Bach.****
10(gg) -- Amendment No. 1 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
September 12, 1991, by and among The
Morningstar Group Inc. and James A. Bach.****
10(hh) -- Amendment No. 1 to Incentive Stock Option
Agreement (EBITDA Option) entered into as of
September 12, 1991, by and among The
Morningstar Group Inc. and Clifford L.
Marquart.****
____________________________
* Incorporated by reference as indicated.
**** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No 33- 45805), as
amended by the Registrant on April 22, 1992.
15
<PAGE> 17
Exhibit
Number Description
10(ii) -- Amendment No. 1 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
September 12, 1991, by and among The
Morningstar Group Inc. and Clifford L.
Marquart.****
10(jj) -- Amendment No. 1 to Incentive Stock Option
Agreement (EBITDA Option) entered into as of
September 12, 1991, by and among The
Morningstar Group Inc. and Tracy L. Noll.****
10(kk) -- Amendment No. 1 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
September 12, 1991, by and among The
Morningstar Group Inc. and Tracy L. Noll.****
10(ll) -- Amendment No. 2 to Incentive Stock Option
Agreement (EBITDA Option) entered into as of
April 30, 1992 by and among The Morningstar
Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(tt)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1992.)*
10(mm) -- Amendment No. 2 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
April 30, 1992 by and among The Morningstar
Group Inc. and James A. Bach. (Incorporated
by reference to Exhibit 10(uu) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1992.)*
10(nn) -- Amendment No. 2 to Incentive Stock Option
Agreement (EBITDA Option) entered into as of
April 30, 1992 by and among The Morningstar
Group Inc. and Clifford L. Marquart.
(Incorporated by reference to Exhibit 10(vv)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1992.)*
10(oo) -- Amendment No. 2 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
April 30, 1992 by and among The Morningstar
Group Inc. and Clifford L. Marquart.
(Incorporated by reference to Exhibit 10(ww)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1992.)*
10(pp) -- Amendment No. 2 to Incentive Stock Option
Agreement (EBITDA Option) entered into as of
April 30, 1992 by and among The Morningstar
Group Inc. and Tracy L. Noll. (Incorporated
by reference to Exhibit 10(xx) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1992.)*
10(qq) -- Amendment No. 2 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
April 30, 1992 by and among The Morningstar
Group Inc. and Tracy L. Noll. (Incorporated
by reference to Exhibit 10(yy) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1992.)*
10(rr) -- Amendment to No. 2 to Lactaid Licensing
Agreement and to Distribution Agreement
(confidential treatment has been requested
for this exhibit).****
____________________________
* Incorporated by reference as indicated.
**** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No 33- 45805), as
amended by the Registrant on April 22, 1992.
16
<PAGE> 18
Exhibit
Number Description
10(ss) -- Amendment No. 3 to Employment Agreement,
entered into as of July 30, 1992 by and among
The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(aaa)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1992.)*
10(tt) -- Amendment No. 3 to Employment Agreement,
entered into as of July 30, 1992 by and among
The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to
Exhibit 10(bbb) to the Registrant's Annual
Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1992.)*
10(uu) -- Amendment No. 3 to Employment Agreement,
entered into as of July 30, 1992 by and among
The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(ccc)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1992.)*
10(vv) -- Amendment No. 3 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
October 1, 1992, by and among The Morningstar
Group Inc. and James A. Bach. (Incorporated
by reference to Exhibit 10(ddd) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1992.)*
10(ww) -- Amendment No. 3 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
October 1, 1992, by and among The Morningstar
Group Inc. and Clifford L. Marquart.
(Incorporated by reference to Exhibit 10(eee)
to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year
ended December 31, 1992.)*
10(xx) -- Amendment No. 3 to Incentive Stock Option
Agreement (Tenure Option) entered into as of
October 1, 1992, by and among The Morningstar
Group Inc. and Tracy L. Noll. (Incorporated
by reference to Exhibit 10(fff) to the
Registrant's Annual Report on Form 10-K of
the Registrant for the fiscal year ended
December 31, 1992.)*
10(yy) -- Letter agreement dated December 15, 1993
between The Morningstar Group and Hicks, Muse
& Company, Inc.
10(zz) -- Agreement dated June 1, 1993 between McNeil
Consumer Products Company, a division of
McNeil - PPC, Inc. and The Morningstar Group
Inc. (Confidential treatment has been
requested for this exhibit). (Incorporated
by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993.)*
10(aaa) -- Letter Agreement dated June 1, 1993 between
McNeil Consumer Products Company, a division
of McNeil - PPC, Inc. and The Morningstar
Group Inc. and Avoset Food Corporation
(Confidential treatment has been requested
for this exhibit). (Incorporated by
reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993.)*
10(bbb) -- First Amendment and Waiver to the Second
Amended and Restated Credit Agreement dated
March 5, 1993 among The Morningstar Group
Inc. and The Long-Term Credit Bank of Japan,
Limited, New York Branch, Agent and Banque
Paribas, Houston Agency as Co-Agent.
____________________________
* Incorporated by reference as indicated.
17
<PAGE> 19
Exhibit
Number Description
10(ccc) -- Second Amendment to the Second Amended and
Restated Credit Agreement dated October 28,
1993 among The Morningstar Group Inc. and The
Long-Term Credit Bank of Japan, Limited, New
York Branch, Agent and Banque Paribas,
Houston Agency as Co-Agent.
10(ddd) -- Waiver to the Second Amended and Restated
Credit Agreement dated March 4, 1993 among
The Morningstar Group Inc. and The Long-Term
Credit Bank of Japan, Limited, New York
Branch, Agent and Banque Paribas, Houston
Agency as Co-Agent.
10(eee) -- Agreement and Plan of Merger dated February
17, 1994 by and among Engles Dairy
Acquisition, Inc., Velda Farms Inc. and The
Morningstar Group.
10(fff) -- Form of Dairy Products Supply Agreement by
and among The Morningstar Group Inc., its
named subsidiaries and Velda Farms Inc.
10(ggg) -- Letter of Resignation dated March 17, 1994
from James A. Bach, accepted and agreed to by
The Morningstar Group Inc.
10(hhh) -- Waiver No. 1 to Employment Agreement entered
into as of December 15, 1993 by and among The
Morningstar Group Inc. and James A. Bach.
10(iii) -- Waiver No. 1 to Employment Agreement entered
into as of December 15, 1993 by and among The
Morningstar Group Inc. and Tracy L. Noll.
10(jjj) -- Advisory Agreement entered into as of October
1, 1993 by and among The Morningstar Group
Inc. and C. Dean Metropoulos.
10(kkk) -- Stock Purchase Agreement entered into as of
February 5, 1993 by and among TSC Holdings,
Inc. and The Morningstar Group Inc.
10(lll) -- The Morningstar Group Inc. Employees Savings
and Profit Sharing Plan, revised effective
April 1, 1988.
13 -- The Morningstar Group Inc. Annual Report to
Stockholders for the year ended December 31,
1993 (except for the pages and information
thereof expressly incorporated by reference
in this Form 10- K, the annual report is
provided solely for the information of the
Securities and Exchange Commission and is not
to be deemed "filed" as part of the Form
10-K).
22 -- Subsidiaries. Avoset Food Corporation,
Avoset International Ltd., Bancroft Dairy
Inc., Bancroft Dairy Maryland Inc., Favorite
Foods Inc., MSF Subsidiary Corporation, MStar
Inc., Star Specialty Foods Inc., Velda Farms
Inc.
(b) Reports on form 8-K
None
18
<PAGE> 20
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.
THE MORNINGSTAR GROUP INC.
By /s/ C. DEAN METROPOULOS
C. Dean Metropoulos
(President, Chief Executive Officer and
Director)
Date: March 17, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ C. DEAN METROPOULOS Director, President and Chief Executive Officer March 17, 1994
- -------------------------------
C. Dean Metropoulos
/s/ CLIFFORD L. MARQUART Director and Executive Vice President March 17, 1994
- -------------------------------
Clifford L. Marquart
/s/ ARNOLD L. CHAVKIN Director March 17, 1994
- -------------------------------
Arnold L. Chavkin
/s/ JACK W. EVANS Director March 17, 1994
- -------------------------------
Jack W. Evans
/s/ JOHN R. MUSE Director March 17, 1994
- -------------------------------
John R. Muse
/s/ CHARLES W. TATE Director March 17, 1994
- -------------------------------
Charles W. Tate
/s/ JIM L. TURNER Director March 17, 1994
- -------------------------------
Jim L. Turner
/s/ TRACY L. NOLL Vice President and Chief Financial March 17, 1994
- ------------------------------- Officer and Principal Accounting Officer
Tracy L. Noll
</TABLE>
19
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
The Morningstar Group Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The Morningstar Group Inc., and
subsidiaries and the Predecessor Company included in the Annual Report to
Stockholders incorporated by reference in this Form 10-K and have issued our
report thereon dated February 11, 1994. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedules listed
in the Index to Financial Statement Schedules are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
Dallas, Texas,
February 11, 1994
20
<PAGE> 22
SCHEDULE V
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Successor Balance at
- --------- Beginning End of
Year Ended December 31, 1993 of Period Additions Retirements Other Period
- ---------------------------- ---------- --------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Land . . . . . . . . . . . . . . . . . . . $ 6,435 $ 3,100 $ (108) $ 338 $ 9,765
Buildings and improvements . . . . . . . . 17,925 3,760 (5) 877 22,557
Machinery and equipment . . . . . . . . . . 29,682 10,915 (929) (1,861) 37,807
---------- -------- --------- --------- ----------
$ 54,042 $17,775 $ (1,042) $ (646) $ 70,129
========== ======== ========= ========= ==========
Year Ended December 31, 1992
- ----------------------------
Land . . . . . . . . . . . . . . . . . . . $ 7,419 $ - $ (564) $ (420) (a) $ 6,435
Buildings and improvements . . . . . . . . 18,313 587 (704) (271) (a) 17,925
Machinery and equipment . . . . . . . . . . 27,122 4,943 (1,431) (952) (a) 29,682
---------- -------- --------- --------- ----------
$ 52,854 $ 5,530 $ (2,699) $ (1,643) (a) $ 54,042
========== ======== ========= ========= ==========
Ten Months Ended December 31, 1991
- ----------------------------------
Land . . . . . . . . . . . . . . . . . . . $ 9,067 (b) $ - $ (1,056) $ (592) (c) $ 7,419
Buildings and improvements . . . . . . . . 20,477 (b) 137 (406) (1,895) (c) 18,313
Machinery and equipment . . . . . . . . . . 28,474 (b) 2,991 (1,246) (3,097) (c) 27,122
---------- -------- --------- --------- ----------
$ 58,018 (b) $ 3,128 $ (2,708) $ (5,584) (c) $ 52,854
========== ======== ========= ========= ==========
Predecessor
- -----------
Two Months Ended February 28, 1991
- ----------------------------------
Land . . . . . . . . . . . . . . . . . . . $ 11,543 $ - $ - $ - $ 11,543
Buildings and improvements . . . . . . . . 29,205 84 - - 29,289
Machinery and equipment . . . . . . . . . . 55,706 172 (96) 8 55,790
---------- -------- --------- --------- ----------
$ 96,454 $ 256 $ (96) $ 8 $ 96,622
========== ======== ========= ========= ==========
</TABLE>
___________________________________
(a) Assets held for sale were segregated and reclassified on the Company's
balance sheet.
(b) The Company adopted a new basis of accounting on March 1, 1991, as the
result of a change in ownership.
(c) Certain Company assets targeted for divestiture were revalued as a result
of subsequent transactions.
21
<PAGE> 23
SCHEDULE VI
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Successor Current Balance at
- --------- Beginning Year End of
Year Ended December 31, 1993 of Period Provision Retirements Other Period
- ---------------------------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Buildings and improvements . . . . . . . . $ 1,534 $ 921 $ - $ - $ 2,455
Machinery and equipment . . . . . . . . . . 7,445 4,372 (523) 133 11,427
---------- -------- --------- -------- ----------
$ 8,979 $ 5,293 $ (523) $ 133 $ 13,882
========== ======== ========= ======== ==========
Year Ended December 31, 1992
- ----------------------------
Buildings and improvements . . . . . . . . $ 724 $ 810 $ - $ - $ 1,534
Machinery and equipment . . . . . . . . . . 3,380 4,188 (164) 41 7,445
---------- -------- --------- -------- ----------
$ 4,104 $ 4,998 $ (164) $ 41 $ 8,979
========== ======== ========= ======== ==========
Ten Months Ended December 31, 1991
- ----------------------------------
Buildings and improvements . . . . . . . . $ - (a) $ 867 $ (9) $ (134) $ 724
Machinery and equipment . . . . . . . . . . - (a) 3,795 (45) (370) 3,380
---------- -------- --------- -------- ----------
$ - (a) $ 4,662 $ (54) $ (504) $ 4,104
========== ======== ========= ======== ==========
Predecessor
- -----------
Two Months Ended February 28, 1991
- ----------------------------------
Buildings and improvements . . . . . . . . $ 2,990 $ 213 $ - $ 3 $ 3,206
Machinery and equipment . . . . . . . . . . 16,635 1,067 (10) (104) 17,588
---------- -------- --------- -------- ----------
$ 19,625 $ 1,280 $ (10) $ (101) $ 20,794
========== ======== ========= ======== ==========
</TABLE>
_____________________________________________
(a) The Company adopted a new basis of accounting on March 1, 1991 as the
result of a change in ownership.
22
<PAGE> 24
SCHEDULE VIII
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Deductions Balance at
Beginning Charged to From Acquisitions End of
Period Of Period Expense Reserves (Divestitures) Period
------ ---------- ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Successor
- ---------
Year Ended December 31, 1993 . . . . . . . . . . $ 419 $ 811 $ (242) $ 159 $ 1,147
Year Ended December 31, 1992 . . . . . . . . . . 1,457 185 (551) (672) 419
Ten Months Ended December 31, 1991 . . . . . . . 1,231 645 (419) - 1,457
Predecessor
- -----------
Two Months Ended February 28, 1991 . . . . . . . 1,197 67 (33) - 1,231
</TABLE>
23
<PAGE> 25
SCHEDULE X
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(Dollars in Thousands)
<TABLE>
<CAPTION>
Predecessor Successor
------------- -----------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Maintenance and repairs expense . . . . . . . . . . . $ 2,136 $ 10,195 $ 8,914 $ 7,949
Advertising . . . . . . . . . . . . . . . . . . . . . 836 2,356 6,274 8,717
</TABLE>
24
<PAGE> 1
10(yy)
December 15, 1993
Mr. Tom Hicks
Hicks, Muse & Co. Incorporated
200 Crescent Court, Suite 1600
Dallas, TX 75201
Dear Tom:
By way of this letter I am confirming our conversation of December 14,
1993 where we discussed and agreed to the reduction of the Hicks, Muse
management fee by an amount of $86,000 (43%).
This reduction will commence January 1, 1994 and be effective solely
for the 1994 calendar year. It will continue to be paid in equal quarterly
installments as we have done in the past.
Thank you very much for your consideration of this issue and the quick
and appropriate resolution.
Sincerely yours,
James A. Bach
President
Chief Executive Officer
JB/mm
cc: C. Dean Metropoulos
Tracy Noll
<PAGE> 1
EXHIBIT 10(bbb)
EXECUTION COPY
FIRST AMENDMENT AND WAIVER
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT AND WAIVER dated as of March 5, 1993
(this "Amendment"), is to the Second Amended and Restated Credit Agreement,
dated as of May 4, 1992 (as amended, supplemented or otherwise modified from
time to time, the "Second Restated Agreement"), among THE MORNINGSTAR GROUP
INC., a Delaware corporation (the "Company"), the financial institutions from
time to time parties to the Second Restated Agreement (the "Lenders"), THE
LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH, as agent for the
Lenders (in such capacity, the "Agent"), and BANQUE PARIBAS, HOUSTON AGENCY, as
co-agent for the Lenders (in such capacity, the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Lenders, the Agent and the Co-Agent
are parties to the Second Restated Agreement pursuant to which the Lenders have
agreed to make, and have made, extensions of credit to the Company;
WHEREAS, the Company has notified the Agent, Co-Agent and the
Lenders that it intends to (i) acquire Favorite Foods, Inc. ("Favorite Foods")
from TSC Holdings, Inc. (the "Acquisition") and (ii) purchase the remaining
aggregate outstanding amount of its Debentures (the "Debenture Purchases");
WHEREAS, in order to finance and facilitate the Acquisition
and the Debenture Purchases, the Company has asked the Lenders to amend the
Second Restated Agreement to (i) increase the amount of the Commitments, (ii)
amend the Term Loan Amortization schedule, (iii) amend the provisions of the
Second Restated Agreement for mandatory prepayment out of Net Cash Flow under
certain circumstances and (iv) amend the provisions of the Second Restated
Agreement restricting use of proceeds, and the Lenders are willing to amend the
Second Restated Agreement in the manner provided for herein; and
WHEREAS, the Company has asked the Lenders to waive certain
provisions of the Second Restated Agreement to permit the Acquisition, and the
Lenders are willing to waive such provisions of the Second Restated Agreement
in the manner provided for herein;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and mutual
covenants provided for herein, it is hereby agreed as follows:
1. DEFINED TERMS. Unless otherwise defined herein,
capitalized terms used herein have the meanings assigned to them in the Second
Restated Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT.
a. Amendments to Section 1.01.
(1) The definition of "Revolving Credit
Commitment" is hereby amended by deleting the reference to
"$40,000,000" contained therein and substituting "$30,000,000"
therefor.
(2) The definition of "Term Loan
Commitment" is hereby amended by deleting the reference to
"$84,000,000" contained therein and substituting
"$111,000,000" therefor.
(3) The following definition is hereby
added to Section 1.01 after the preamble of such section and
before the definition of "Action":
"Acquisition shall mean the Company's acquisition of the stock
of Favorite Foods, Inc., a California corporation, a
subsidiary of TSC Holdings, Inc., pursuant to that certain
Stock Purchase Agreement dated as of February 5, 1993 between
TSC Holdings, Inc. and the Company."
b. Amendment to Section 1.04. The references to
definitions "Initial Step Down Date" and "Revolving Commitment
Reduction Date" are hereby deleted.
c. Amendment to Section 2.07(a). Section
2.07(a) is hereby amended by deleting the amortization table included
therein and substituting the following amortization table therefor:
<TABLE>
<CAPTION>
"Amortization Date Reduction Amount
----------------- ----------------
<S> <C>
June 20, 1993 3,500,000
September 20, 1993 3,500,000
December 20, 1993 3,500,000
March 20, 1994 3,500,000
June 20, 1994 3,750,000
September 20, 1994 3,750,000
December 20, 1994 3,750,000
March 20, 1995 3,750,000
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
June 20, 1995 4,625,000
September 20, 1995 4,625,000
December 20, 1995 4,625,000
March 20, 1996 4,625,000
June 20, 1996 4,625,000
September 20, 1996 4,625,000
December 20, 1996 4,625,000
March 20, 1997 4,625,000
June 20, 1997 5,625,000
September 20, 1997 5,625,000
December 20, 1997 5,625,000
March 20, 1998 5,625,000
June 20, 1998 5,625,000
September 20, 1998 5,625,000
December 20, 1998 5,625,000
March 20, 1999 5,625,000";
</TABLE>
d. Amendment to Section 2.07(c). Section
2.07(c) is hereby amended by deleting the section in its entirety and
substituting the following new Section 2.07(c) therefor:
"(c) If on September 30, 1993 any of the Debentures
are outstanding, the Revolving Credit Commitment of each Lender shall
be automatically and permanently reduced to an amount equal to such
Lender's Pro Rata Revolving Share of $25,000,000 as of such date. If
no Debentures are outstanding on September 30, 1993, the Revolving
Credit Commitment of each Lender shall be automatically and
permanently reduced to an amount equal to such Lender's Pro Rata
Revolving Share of $25,000,000 as of June 20, 1994."
e. Amendments to Section 2.08.
(1) Section 2.08(b) is hereby amended by
adding the following proviso at the end
of the section:
"provided, however, that if as of the last day of any fiscal
year the Company's ratio of Funded Indebtedness to EBITDA
exceeds 3.50 to 1.0, the percentage set forth in clause (A) of
this sentence shall be 50% instead of 25%."
(2) Section 2.08(d) is hereby amended by
adding the following sentence after the first sentence
thereof:
"If the Company or any of its Subsidiaries shall sell,
transfer or otherwise dispose of the parcel of real property
presently owned by Favorite Foods Inc. and
3
<PAGE> 4
located at 201 Union Avenue, Bakersfield, California, one
hundred percent (100%) of the Net Cash Proceeds therefrom
shall be immediately paid to the Agent to be applied to repay
the outstanding Term Loans, such amount to be applied pro-rata
to all remaining scheduled repayments of Term Loans."
(3) Section 2.08(f) and 2.08(g) shall be
redesignated as Section 2.08(g) and Section 2.08(h),
respectively, and all references to Sections 2.08(f) and
2.08(g) in the Second Restated Agreement shall be substituted
by references to Sections 2.08(g) and 2.08(h), respectively.
(4) The following paragraph is added to
Section 2.08 as new Section 2.08(f):
"(f) Acquisition Adjustments. If the aggregate
amount of all payments received by the Company from the seller
in the Acquisition as adjustments to the purchase price paid
by the Company to such seller exceeds $500,000, the aggregate
amount of such payments received by the Company shall be
immediately applied to repayment of the Loans in the manner
set forth in Section 2.08(g)."
f. Amendment to Section 4.07(a). Section
4.07(a) is hereby amended by deleting the third and fourth sentences
thereof and substituting the following therefor:
"The Term Loans may also be used (i) to finance the Acquisition, (ii)
to pay fees and expenses incurred in connection with the Acquisition,
the purchase of the Company's Debentures and the transactions
contemplated thereby and (iii) to repay the outstanding amount of the
Revolving Loans in the amount of $5,000,000."
g. Amendment to Section 4.07(b). Section
4.07(b) is hereby amended by deleting the reference to "$4,000,000"
contained therein and substituting "$5,625,000" therefor and by
deleting the reference to "$6,000,000" in clause (v) and substituting
"$5,080,000" therefor.
h. Amendment to Section 5.04(e). Section
5.04(e)(i) is hereby amended by deleting the subsection in its
entirety and substituting the following:
"(i) Investments in Subsidiaries of the Company which are
Subsidiaries on the Effective Date and Investments in After- Acquired
Subsidiaries;provided, that any stock or note evidencing any such
Investment shall be pledged to the Agent in accordance with the terms
of the Company Security
4
<PAGE> 5
Agreement, and such Subsidiaries shall comply with Sections 5.01(n)
and 5.01(q) hereof;"
i. Amendment to Annex I. Annex I is hereby
amended by deleting such Annex in its entirety and substituting
therefor the new Annex I attached hereto.
j. Amendments to Disclosure Schedules. The
Disclosure Schedule attached as Exhibit C to the Second Restated
Agreement shall be amended and supplemented as provided in the
Disclosure Schedule Amendment and Supplement attached hereto as
Exhibit A.
3. Amendment Fee. The Company agrees to pay to the
Agent for the account of the Lenders an aggregate amendment fee of .25% on the
incremental increase in the Commitments ($25,000,000), due and payable on the
Amendment Effective Date.
4. Waiver. By their execution hereof, in order to
permit the Acquisition, each of the Lenders hereby waives the provision of
Section 5.04(c)(x) limiting the aggregate purchase price for acquisitions of or
Investments in After-Acquired Subsidiaries to $15,000,000. Such limit is
waived by the Lenders solely and only for the purpose of permitting the
Acquisition and shall remain in full force and effect with respect to any and
all other acquisitions of or Investments in After-Acquired Subsidiaries.
Notwithstanding such waiver, for all purposes under the Second Restated
Agreement the Acquisition shall be treated as an acquisition permitted under
Section 5.04(c)(x).
5. Ratio/Margin Calculations. For purposes of the
recalculations of the ratio of Funded Indebtedness to EBITDA under Section
2.05(c)(iii)(D) of the Second Restated Agreement required subsequent to the
Acquisition, the Company shall include the additional indebtedness incurred as
a result of the Acquisition and shall also include the EBITDA of Favorite Foods
on a pro forma basis for the immediately preceding four fiscal quarters based
on the unaudited consolidated balance sheets and statements of operations and
cash flow of Favorite Foods for the fiscal year ended December 31, 1992. If it
is subsequently determined as a result of audit adjustments that the ratio
calculated pursuant to Section 2.05(c)(iii)(D) based on the unaudited financial
statements resulted in different Margins than those based on the audited
financial statements, then the Company shall pay to the Agent, for the benefit
of the Lenders, or the Lenders shall repay to the Company, as applicable, any
retroactive interest adjustment amount due as a result of such subsequent
redetermination of the applicable Margins.
6. Conditions to Effectiveness. This Amendment shall
become effective (the date of such effectiveness being referred to herein as
the "Amendment Effective Date") upon the
5
<PAGE> 6
satisfaction on or about March 31, 1993, but in no event later than April 30,
1993, of the following conditions precedent:
a. Agreements. The Agent shall have received
(i) counterparts of this Amendment, duly executed and delivered by an
authorized officer of the Company and each of the Lenders, (ii) a
Subsidiary Security Agreement and Subsidiary Guaranty duly executed
and delivered by an authorized officer of Favorite Foods, (iii) an
amended Subrogation and Contribution Agreement adding Favorite Foods
as a party thereto, duly executed and delivered by an authorized
officer of each of the Subsidiaries party thereto, (iv) an amended
Company Security Agreement effecting the pledge of the stock of
Favorite Foods by the Company to the Agent on behalf of the Lenders,
duly executed and delivered by an authorized officer of the Company,
(v) UCC-1 Financing Statements duly executed and delivered by an
authorized officer of Favorite Foods in favor of the Agent on behalf
of the Lenders, (vi) Mortgages on each parcel of real property owned
by Favorite Foods pledged as security for the Obligations, each duly
executed and delivered by an authorized officer of Favorite Foods in
favor of the Agent on behalf of the Lenders and (vii) all other
Security Documents or other closing documents identified in the
closing documents schedule attached hereto as Exhibit B.
b. Acquisition. The Company and Favorite Foods
shall have executed and delivered all of the agreements necessary to
consummate the Acquisition on terms and conditions and in form and
substance satisfactory to the Agent, with all material amendments
approved by the Agent, and prior or contemporaneous consummation of
the transactions contemplated in connection therewith.
c. Corporate Proceedings. The Agent shall have
received (with a copy for each of the other Lenders) certified copies
of (i) the resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Amendment,
(ii) the resolutions of the Board of Directors of Favorite Foods
authorizing the execution, delivery and performance of each Credit
Document to which it is a party and (iii) all other documents
evidencing other necessary corporate or other action of Favorite Foods
with respect to the Credit Documents to which it is a party, in each
case in form and substance satisfactory to the Agent.
d. Officers' Certificates. The Agent shall have
received (with a copy for each of the other Lenders) (i) a certificate
of the Secretary or an Assistant Secretary of the Company and Favorite
Foods, in each case in form and substance satisfactory to the Agent,
certifying (x) the
6
<PAGE> 7
names and true signatures of the officers of such Credit Party
authorized to sign this Amendment and the Credit Documents to which it
is a party and (y) a copy of the Governing Documents of Favorite Foods
as in effect on the Amendment Effective Date, and (ii) a certificate
of the chief executive officer or chief financial officer of the
Company, in form and substance satisfactory to the Agent, certifying
that the conditions set forth in this Section 6 are satisfied as of
the Amendment Effective Date.
e. Good Standing Certificates. The Agent shall
have received (with a copy for each of the other Lenders) copies of
certificates dated as of a recent date (together if practicable, in
the opinion of the Agent or the Co- Agent, with date-down telegrams
dated as of or one day prior to the Amendment Effective Date) from the
Secretary of State or other appropriate authority of such jurisdiction
evidencing the good standing of Favorite Foods in the state of its
organization and if practicable, in the opinion of the Agent or the
Co-Agent, in each other state where the ownership, lease or operation
of property by Favorite Foods or the conduct of the business of
Favorite Foods requires it to qualify to do business.
f. Legal Opinions. The Agent shall have
received (with a copy for each of the other Lenders) (i) the opinion
of Weil, Gotshal & Manges, special counsel for the Company and
Favorite Foods, in form and substance satisfactory to the Agent, (ii)
the opinion of John P. Clarson, general counsel of the Company and
Favorite Foods, in form and substance satisfactory to the Agent, (iii)
the opinions of special local counsel for the Company and Favorite
Foods set forth in the Closing Documents Schedule, each in form and
substance satisfactory to the Agent, and (iv) the opinion of Weil,
Gotshal & Manges, special trademark and patent counsel for the Company
and Favorite Foods, in form and substance satisfactory to the Agent.
g. Material Contracts and Leases. The Agent
shall have received copies of all of the Material Contracts of
Favorite Foods pursuant to Section 4.15(d) of the Second Restated
Agreement, all of the material Leases and the material Equipment
Leases and all agreements (including all stockholders' agreements)
relating to the structure, ownership, governance or management of
Favorite Foods, together with a certification of a senior officer of
the Company that all such copies are true, correct and complete.
h. UCC Searches. UCC searches of the offices or
other registers for Uniform Commercial Code filings, fixture filings
and filings in respect of Intellectual Property shall have revealed
that no filings or recordings with
7
<PAGE> 8
respect to any of the Collateral of Favorite Foods in favor of any
Person other than the Agent, except for Permitted Liens, Liens being
satisfied or released in connection with the Acquisition on the
Amendment Effective Date and UCC-1 protective filings with respect to
personal property leased by Favorite Foods. The Agent shall have
received a copy of the search reports resulting from such searches.
i. Insurance; Title. The Agent shall have
received (i) all insurance policies or certificates of insurance which
Favorite Foods is required to maintain pursuant to the Second Restated
Agreement or any of the Security Documents, together with an
endorsement substantially in the form attached to the Second Restated
Agreement as Exhibit G for each, each of which policies and
certificates shall be in form and substance reasonably acceptable to
the Agent and the Co-Agent and (ii) such evidence of the condition of
title to each of the real properties of Favorite Foods as shall be
reasonably acceptable to the Agent and the Co-Agent, including,
without limitation, title insurance with respect to each of the real
properties of Favorite Foods.
j. Valuation; Solvency. The Company shall have
delivered to the Agent the report or reports of a valuation firm
approved by the Agent in form, substance, scope and result
satisfactory to the Agent. The Agent shall have received a
certificate of the Chief Financial Officer of the Company regarding
solvency and other matters of the Company and Favorite Foods
substantially in the form attached hereto as Exhibit C.
k. Forecasts; Financial Information; Pro Formas.
The Agent, the Co-Agent and the Lenders shall have received new
forecasts compiled by the Company reasonably satisfactory in form and
substance to the Agent setting forth the Company's projections with
respect to the financial information referred to in Section 5.03 of
the Second Restated Agreement, projected Capital Expenditures and
projected consolidated statements of results of operations and cash
flow and consolidated balance sheets of the Company and its
Subsidiaries on a pro forma basis after giving effect to the
Acquisition, this Amendment, the purchase of all of the Debentures and
the transactions contemplated by this Amendment and the Credit
Documents, such forecasts to cover the period from the Amendment
Effective Date through December 31, 1999, to include any assumptions
made in connection with the preparation thereof and to be in
reasonable detail. The Agent, the Co- Agent and the Lenders shall
have received (i) the unaudited consolidated balance sheets and
statements of operations and cash flow of Favorite Foods for the
fiscal year ended
8
<PAGE> 9
December 31, 1992 and (ii) the unaudited consolidated balance sheets
and statements of operations and cash flow of the Company for each
fiscal month of 1993 ending twenty (20) days prior to the Amendment
Effective Date. The Agent, the Co- Agent and the Lenders shall have
received a satisfactory pro forma closing and opening balance sheet of
the Company and its subsidiaries as of December 31, 1992, after giving
effect to the Acquisition and this Amendment.
l. Governmental and Third Party Approvals. The
Agent and the Co-Agent each shall have received, on or prior to the
Amendment Effective Date, copies of all Governmental Approvals or
approvals of any other Person, or group of Persons, which are required
to authorize, or are otherwise required in connection with (i) the
execution, delivery or performance of this Amendment or any Credit
Document by the Company or Favorite Foods, (ii) the consummation of
any of the transactions contemplated by this Amendment or (iii) the
legality, validity, binding effect or enforceability of this Amendment
or any Credit Document. The Agent shall have received evidence
reasonably satisfactory to it that all applicable waiting periods have
expired without any action being taken by any Governmental Authority
which restrains, prevents, or imposes materially adverse conditions
upon any aspect of the Acquisition or the consummation thereof.
m. Funds-Flow Statement. The Company shall have
delivered to each of the Agent and the Co-Agent a funds-flow statement
(the "Funds-Flow Statement") certifying the sources and uses of funds
in connection with the Acquisition and this Amendment (including
repayments of existing Loans and new Borrowings to occur on the
Amendment Effective Date) and the payment of all related fees and
expenses.
n. Fees and Expenses. The Agent shall have
received for the account of the relevant Lenders payment in full of
the Amendment Fee and all other fees and expenses payable to any of
the Agent, the Co-Agent or any Lender, in each case, in their capacity
as such, in connection with the Acquisition or this Amendment.
o. No Litigation. No Action shall exist or, to
the best knowledge of the Company, be threatened with respect to the
Acquisition or any transaction contemplated by this Amendment or which
could have a Material Adverse Effect.
p. Environmental Matters. The Company shall
have delivered environmental information with respect to each of the
owned and leased properties of Favorite Foods, in form, substance,
scope and result reasonably satisfactory to the Agent.
9
<PAGE> 10
q. Due Diligence. The Agent shall have
completed its due diligence investigation, and shall be satisfied with
the results thereof, including without limitation the results of
investigation with respect to environmental liability.
r. Conditions to Funding. The conditions to making
Loans set forth in Section 3.02 of the Second Restated Agreement shall
be satisfied before and after giving effect to the Acquisition, this
Amendment and the transactions contemplated thereby.
s. Other Documents; Information. The Agent
shall have received all other statements, certificates, documents and
other information with respect to the matters contemplated by this
Amendment or any Credit Document as the Agent may reasonably request.
7. Representations and Warranties. The Company hereby
confirms that the representations and warranties contained in the Second
Restated Agreement are true and correct as of the date hereof and will be true
and correct on and as of the Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true and correct on as of such earlier date.
8. Continuing Effect of the Second Restated Agreement.
This Amendment shall not constitute an amendment or waiver of any provision not
expressly referred to herein and shall not be construed as a waiver or consent
to any action on the part of the Company that would require a waiver or consent
of the Lenders or of the Agent or Co-Agent except as expressly stated herein.
Except as expressly amended or modified hereby, the provisions of the Second
Restated Agreement are and shall remain in full force and effect.
9. Counterparts. This Amendment may be executed by all
parties hereto in any number of separate counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. Headings Descriptive. The headings of the several
sections and subsections of this Amendment are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision of
this Amendment.
11. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered in New York, New York by their proper
and duly authorized officers as of the date and year first above written.
THE MORNINGSTAR GROUP INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
LENDERS:
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:________________________________
Name:___________________________
Title:__________________________
BANQUE PARIBAS, HOUSTON AGENCY
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________
Name:___________________________
Title:__________________________
CITICORP USA, INC.
By:________________________________
Name:___________________________
Title:__________________________
11
<PAGE> 12
THE DAIWA BANK, LTD.
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
NATIONSBANK OF TEXAS, N.A.
By:________________________________
Name:___________________________
Title:__________________________
CONTINENTAL BANK N.A.
By:________________________________
Name:___________________________
Title:__________________________
12
<PAGE> 1
10(ccc)
EXECUTION COPY
SECOND AMENDMENT TO THE SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT dated as of October 28, 1993 (this
"Amendment"), is to the Second Amended and Restated Credit Agreement, dated as
of May 4, 1992 (as amended, supplemented or otherwise modified from time to
time, the "Second Restated Agreement"), among THE MORNINGSTAR GROUP INC., a
Delaware corporation (the "Company"), the financial institutions from time to
time parties to the Second Restated Agreement (the "Lenders"), THE LONG-TERM
CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH, as agent for the Lenders (in
such capacity, the "Agent"), and BANQUE PARIBAS, HOUSTON AGENCY, as co-agent
for the Lenders (in such capacity, the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Lenders, the Agent and the Co-Agent
are parties to the Second Restated Agreement pursuant to which the Lenders have
agreed to make, and have made, extensions of credit to the Company; and
WHEREAS, the Company has asked the Lenders to amend the Second
Restated Agreement to revise certain of the financial covenants contained
therein, and the Lenders are willing to amend the Second Restated Agreement in
the manner provided for herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants provided for herein, it is hereby agreed as follows:
1. DEFINED TERMS. Unless otherwise defined herein,
capitalized terms used herein have the meanings assigned to them in the Second
Restated Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT.
a. Amendment to Section 5.03(a). Section
5.03(a) is hereby amended by deleting the subsection in its entirety
and substituting the following:
"(a) Net Worth. As of the end of each fiscal year
specified below, the Company will have a Consolidated Net Worth of not
less than (i) the Consolidated Net Worth as of the end of the first
fiscal month following the Effective
<PAGE> 2
Date plus (ii) the amount set forth opposite such fiscal year below:
Fiscal Year Ending in Amount
1993 $11,000,000
1994 $23,000,000
1995 $35,000,000
1996, and thereafter $47,000,000"
b. Amendment to Section 5.03(c). Section 5.03(c) is hereby
amended by deleting the subsection in its entirety and substituting the
following:
"(c) Fixed Charge Coverage Ratio. The Company will maintain on
a consolidated basis a Fixed Charge Coverage Ratio of not less than (i)
1.10 for the Rolling Period ending on each of September 30, 1993, December
31, 1993 and March 31, 1994 and (ii) 1.30 to 1.0 for the Rolling Period
ending on the last day of each subsequent fiscal quarter."
3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective upon the prior or current satisfaction of each of the following
conditions:
a. The Agent shall have received counterparts of this
Amendment, duly executed and delivered by an authorized officer of the
Company and the Required Lenders; and
b. The Company shall have paid to the Agent for the account of
the Lenders an aggregate amendment fee in the amount of $75,000.
4. REPRESENTATIONS AND WARRANTIES. The Company hereby confirms
that the representations and warranties contained in the Second Restated
Agreement are true and correct as of the date hereof, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true and correct on as of such earlier date.
5. CONTINUING EFFECT OF THE SECOND RESTATED AGREEMENT. This
Amendment shall not constitute an amendment or waiver of any provision not
expressly referred to herein and shall not be construed as a waiver or consent
to any action on the part of the Company that would require a waiver or consent
of the Lenders or of the Agent or Co-Agent except as expressly stated herein.
Except as expressly amended or modified hereby, the provisions of the Second
Restated Agreement are and shall remain in full force and effect.
6. COUNTERPARTS. This Amendment may be executed by all parties
hereto in any number of separate counterparts and all of
2
<PAGE> 3
such counterparts taken together shall be deemed to constitute one and the same
instrument.
7. HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Amendment are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Amendment.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SIGNATURE PAGE FOLLOWS
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered in New York, New York by their proper and duly
authorized officers as of the date and year first above written.
THE MORNINGSTAR GROUP INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
LENDERS:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By:________________________________
Name:___________________________
Title:__________________________
BANQUE PARIBAS, HOUSTON AGENCY
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________
Name:___________________________
Title:__________________________
CITICORP USA, INC.
By:________________________________
Name:___________________________
Title:__________________________
4
<PAGE> 5
THE DAIWA BANK, LTD.
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
NATIONSBANK OF TEXAS, N.A.
By:________________________________
Name:___________________________
Title:__________________________
CONTINENTAL BANK N.A.
By:________________________________
Name:___________________________
Title:__________________________
CAISSE NATIONALE DE CREDIT AGRICOLE
By:________________________________
Name:___________________________
Title:__________________________
5
<PAGE> 1
EXHIBIT 10(ddd)
EXECUTION COPY
WAIVER TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This WAIVER dated as of March 4, 1994 (this "Waiver"), is to
the Second Amended and Restated Credit Agreement, dated as of May 4, 1992 (as
amended, supplemented or otherwise modified from time to time, the "Second
Restated Agreement"), among THE MORNINGSTAR GROUP INC., a Delaware corporation
(the "Company"), the financial institutions from time to time parties to the
Second Restated Agreement (the "Lenders"), THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH, as agent for the Lenders (in such capacity, the
"Agent"), and BANQUE PARIBAS, HOUSTON AGENCY, as co-agent for the Lenders (in
such capacity, the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Lenders, the Agent and the Co-Agent
are parties to the Second Restated Agreement pursuant to which the Lenders have
agreed to make, and have made, extensions of credit to the Company; and
WHEREAS, the Company has asked the Lenders to waive a certain
financial covenant contained in the Second Restated Agreement, and the Lenders
are willing to waive the covenant in the manner provided for herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants provided for herein, it is hereby agreed as follows:
1. DEFINED TERMS. Unless otherwise defined herein,
capitalized terms used herein have the meanings assigned to them in the Second
Restated Agreement.
2. WAIVER. By their execution hereof, each of the
Lenders hereby waives the provision of Section 5.03(a) requiring that the
Company have a Consolidated Net Worth as of the end of the fiscal year ending
December 31, 1993 of not less than (i) the Consolidated Net Worth as of the end
of the first fiscal month following the Effective Date plus (ii) $11,000,000.
Compliance with such covenant is waived by the Lenders solely for the fiscal
year ending December 31, 1993, and such covenant shall remain in full force and
effect with respect to all other fiscal years.
<PAGE> 2
3. CONDITIONS TO EFFECTIVENESS. This Waiver shall
become effective upon the receipt by the Agent of counterparts of this Waiver,
duly executed and delivered by an authorized officer of the Company and the
Required Lenders.
4. REPRESENTATIONS AND WARRANTIES. The Company hereby
confirms that the representations and warranties contained in the Second
Restated Agreement are true and correct as of the date hereof, except to the
extent such representations and warranties specifically relate to an earlier
date, in which case they were true and correct on as of such earlier date.
5. CONTINUING EFFECT OF THE SECOND RESTATED AGREEMENT.
This Waiver shall not constitute a waiver of any provision not expressly
referred to herein and shall not be construed as a waiver or consent to any
action on the part of the Company that would require a waiver or consent of the
Lenders or of the Agent or Co-Agent except as expressly stated herein. Except
as expressly modified hereby, the provisions of the Second Restated Agreement
are and shall remain in full force and effect.
6. COUNTERPARTS. This Waiver may be executed by all
parties hereto in any number of separate counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. HEADINGS DESCRIPTIVE. The headings of the several
sections and subsections of this Waiver are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of
this Waiver.
8. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SIGNATURE PAGE FOLLOWS
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be executed and delivered in New York, New York by their proper and duly
authorized officers as of the date and year first above written.
THE MORNINGSTAR GROUP INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
LENDERS:
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:________________________________
Name:___________________________
Title:__________________________
BANQUE PARIBAS, HOUSTON AGENCY
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________
Name:___________________________
Title:__________________________
CITICORP USA, INC.
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 4
THE DAIWA BANK, LTD.
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
NATIONSBANK OF TEXAS, N.A.
By:________________________________
Name:___________________________
Title:__________________________
CONTINENTAL BANK N.A.
By:________________________________
Name:___________________________
Title:__________________________
CAISSE NATIONALE DE CREDIT AGRICOLE
By:________________________________
Name:___________________________
Title:__________________________
4
<PAGE> 1
10(eee)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated February 17, 1994 (this
"Agreement"), by and among The Morningstar Group Inc., a Delaware corporation
(the "Seller"), Velda Farms Inc., a Delaware corporation and wholly-owned
subsidiary of the Seller (the "Company"), and Engles Dairy Acquisition, Inc., a
Delaware corporation (the "Purchaser"). The Company and the Purchaser are
sometimes herein collectively referred to as the "Constituent Corporations."
WHEREAS, Purchaser desires to acquire all of the issued and
outstanding shares of the Company's common stock, $1.00 par value per share
(the "Shares"), by means of a merger ("Merger") of the Company into the
Purchaser, pursuant to which (i) the Seller shall receive consideration in the
amounts set forth below, and (ii) the Purchaser will be the surviving
corporation (the "Surviving Corporation") of the Merger; and
WHEREAS, the Board of Directors and stockholders of the
Purchaser and the Board of Directors and stockholder of the Company have
approved the Agreement and the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
Definitions
Capitalized terms used herein shall have the meanings ascribed
to them in Article I unless such terms are defined elsewhere in this Agreement.
Administrative Services Agreement: an administrative services
agreement in form and substance satisfactory to the Purchaser and the Seller,
such Administrative Services Agreement to be entered into among the Seller, the
Purchaser and the Company at the Closing.
Affiliate: with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person,
<PAGE> 2
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
Agreement: this Agreement and Plan of Merger and all
schedules and exhibits attached hereto.
Base Cash Amount: $45,000,000 in cash, subject to certain
adjustments set forth in Section 2.9 hereof.
Business Day: any day that commercial banks are open for
business in Dallas, Texas.
Closing: as defined in Section 2.1.
Closing Date: as defined in Section 2.1.
Code: the Internal Revenue Code of 1986, as amended.
Commitment: any (i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement; (iii) guarantee or suretyship,
indemnification or contribution agreement or performance bond except for
guarantees and indemnities given to the Company's customers in the ordinary
course of business with respect to products sold or distributed by the Company
the form of which is set forth on Schedule 4.29; (iv) employment, consulting or
compensation agreement or arrangement, including the election or retention in
office of any director or officer; (v) labor or collective bargaining
agreement; (vi) debt instrument, loan agreement or other obligation relating to
indebtedness for borrowed money or money lent to another; (vii) lease or series
of related leases of real property or lease or series of related leases of
personal property providing for annual lease payments in excess of $25,000,
whether as lessor, lessee, sublessor or sublessee; (viii) any agreement or
series of related agreements for the acquisition of services, supplies,
equipment or other personal property involving more than $25,000 in the
aggregate; (ix) contracts containing noncompetition or similar covenants; (x)
any other contract or arrangement or series of related contracts or
arrangements that involves either an unperformed commitment in excess of
$25,000 or that terminates more than one year from the date hereof; (xi) any
other material written agreement or commitment not made in the ordinary course
of business; or (xii) any planned, budgeted or proposed capital expenditure in
excess of $50,000.
Company: Velda Farms Inc., a Delaware corporation.
2
<PAGE> 3
Confidential Information: as defined in Sections 6.5 and 7.4.
Current Financial Statements: as defined in Section 2.9(a).
Delaware GCL: as defined in Section 2.1.
Effective Time: as defined in Section 2.6.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended.
Estimated Cash Amount: the Base Cash Amount as adjusted as
set forth in Section 2.9(a) hereof.
Estimated Long-Term Liabilities: as defined in Section 2.9(a).
Estimated Net Working Capital: as defined in Section 2.9(a).
Facilities: the manufacturing plants, distribution centers
and offices and other installations and establishments used in the business of
the Company.
Final Balance Sheet: as defined in Section 2.9(b).
Final Cash Amount: as defined in Section 2.9(d).
Final Long-Term Liabilities: as defined in Section 2.9(b).
Final Net Working Capital: as defined in Section 2.9(b).
Financial Statements: the Company's balance sheets at each of
December 31, 1989, 1990, 1991, 1992 and 1993 and the Company's related
statements of income for each of the years ended December 31, 1989, 1990, 1991,
1992 and 1993, including the notes thereto.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
Indemnifiable Loss: as defined in Section 10.2(a).
Indemnifying Party: as defined in Section 10.2(a).
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<PAGE> 4
Indemnitee: as defined in Section 10.2(a).
Indemnity Payment: as defined in Section 10.2(a).
Independent Accountant: Coopers & Lybrand.
Initial Net Working Capital: as defined in Section 2.9(a).
Inventory: all parts, supplies, products, fluid milk and
other raw materials, ingredients, work in process, finished goods, packaging
materials and other items of inventory.
Legal Requirements: any and all currently effective
applicable (a) federal, state and local laws (statutory and administrative),
ordinances and regulations and (b) judgments, orders, writs, injunctions and
decrees.
Liens: any and all liens, claims, assessments, levies,
charges, adverse claims, security interests, pledges, deeds of trust, mortgages
or other encumbrances, whether imposed by operation of law or pursuant to a
written or oral agreement or other understanding or otherwise asserted.
Long-Term Liabilities: as of a particular date, will be the
sum of the Company's liabilities that are not current liabilities, determined
in accordance with generally accepted accounting principles, consistently
applied but including other post-employment benefit liabilities in the agreed
amount of $250,000 and excluding any such liabilities to be released or paid at
or prior to the Closing by the Seller or the Company.
March 31, 1993 Balance Sheet: as defined in Section 2.9(a).
Material Adverse Effect: as to any Person, any condition,
event or circumstance that has, produces or results in an adverse effect that
is material to the business, financial condition or results of operations of
any Person or Persons and its wholly-owned subsidiaries, taken as a whole.
Merger: as defined in the preamble to this Agreement.
Net Working Capital: the Net Working Capital, as of a
particular date, will be the sum of the Company's current assets minus the sum
of the Company's current liabilities, in accordance with general accepted
accounting principles consistently applied excluding any prepaid expenses or
other assets which will have no
4
<PAGE> 5
tangible benefit to the Company after the Closing Date. Schedule 2.9 reflects
the Net Working Capital calculation as of March 31, 1993.
Non-Competition Agreement: a non-competition agreement for
the benefit of the Purchaser in form and substance satisfactory to the
Purchaser and the Seller, such Non-Competition Agreement to be entered into
between the Seller, the Company and the Purchaser at the Closing.
Person: an individual, partnership, joint venture,
corporation, bank, trust, unincorporated organization and/or a government or
any department or agency thereof.
Preferred Stock: shares representing $3,000,000 original
stated value of 9% Series A Preferred Stock containing the provisions set forth
in Exhibit A hereto, such Preferred Stock to be delivered by Purchaser to the
Seller as provided in Section 2.1. The Preferred Stock shall be issued by the
Purchaser, or if the Purchaser is a wholly-owned subsidiary of a corporation
organized under the laws of the State of Delaware, by such holding company (as
applicable, the "Issuer").
Properties: all real estate owned or leased by the Seller or
the Company for use in the business of the Company.
Proprietary Rights: as defined in Section 4.23.
Purchaser: Engles Dairy Acquisition, Inc., a Delaware
corporation.
Reasonable Efforts: the diligent pursuit by a party, in good
faith, of all such acts as may be commercially reasonable.
Returns: all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, including any
schedule or attachment thereto, and including any amendments thereto.
Securities Act: the Securities Act of 1933, as amended.
Seller: The Morningstar Group Inc., a Delaware corporation.
Shares: 1,000 shares of common stock, par value $1.00 per
share, of the Company.
5
<PAGE> 6
Supply Agreement: the Supply Agreement in substantially the
form set forth as Exhibit B hereto.
Surviving Corporation: as defined in the preamble to this
Agreement.
Tax Matters Agreement: the Tax Matters Agreement in
substantially the form as set forth as Exhibit C hereto, among the Seller, the
Purchaser and the Company, such Tax Matters Agreement to be entered into at the
Closing.
Taxes: all federal, state, local, foreign and other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, intangibles, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties, or other taxes, fees, assessments or charges of any kind
whatever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "Tax" means any of the
foregoing Taxes.
Third Party Claim: as defined in Section 10.2(a).
Trademark Assignment: the Trademark Assignment in
substantially the form set forth as Exhibit D hereto, such Trademark Assignment
to be granted by the Seller to the Company.
Trademark Licenses: the Trademark Licenses in substantially
the form set forth as Exhibits E-1, E-2 and E-3 hereto, such Trademark Licenses
to be granted by the Seller to the Company.
ARTICLE II
The Merger
Section 2.1 The Merger. Upon the terms and subject to
the conditions hereof, and in accordance with the provisions of the Delaware
General Corporation Law, as amended (the "Delaware GCL"), the Company shall be
merged with and into the Purchaser. Following the Merger, the separate
existence of the Company shall cease, and the Purchaser shall continue as the
Surviving Corporation in the Merger. The closing of the transactions
contemplated hereby (the "Closing") shall occur commencing at 10:00 a.m.,
Dallas, Texas time, on the first Monday at least two Business Days following
the satisfaction or waiver of the conditions to the Closing set forth in
Articles VIII and
6
<PAGE> 7
IX of this Agreement (the "Closing Date"), in the offices of Weil, Gotshal &
Manges, 100 Crescent Court, Suite 1300, Dallas, Texas 75201, or at such other
time and place as shall be mutually agreed to in writing by the parties hereto.
At the Closing, (i) the Seller shall deliver to the Purchaser for cancellation
in good delivery form all certificates representing the Shares and (ii) the
Purchaser shall deliver to the Seller a certificate or certificates
representing the Preferred Stock and the Estimated Cash Amount in immediately
available funds.
Section 2.2 Effect of the Merger. The Merger shall have
the effects set forth in Delaware GCL Section 259.
Section 2.3 Certificate of Incorporation of the Surviving
Corporation. At the Effective Time (as defined below) and without any further
action on the part of the Constituent Corporations, the Certificate of
Incorporation of the Purchaser shall be the Certificate of Incorporation of the
Surviving Corporation.
Section 2.4 Bylaws of the Surviving Corporation. At the
Effective Time and without any further action on the part of the Constituent
Corporations, the Bylaws of Purchaser shall be the Bylaws of the Surviving
Corporation.
Section 2.5 Board of Directors and Officers of the
Surviving Corporation. At the Effective Time, the directors of Purchaser and
the officers of Purchaser immediately prior to the Effective Time shall be the
respective initial directors and officers of the Surviving Corporation, each of
such directors and officers to hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
Section 2.6 Effective Time of the Merger. The
Constituent Corporations will cause a certificate of merger and such other
documents as are required by the Delaware GCL to be duly filed with the
Secretary of State of the State of Delaware prior to 10:00 a.m. Dallas, Texas
time on the Closing Date. The Merger shall become effective upon the filing of
the certificate of merger and such other documents as are required by the
Delaware GCL to be filed (the time of such filing being the "Effective Time").
Section 2.7 Conversion of Capital Stock. As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of the capital stock of the Constituent Corporations:
7
<PAGE> 8
(a) Purchaser Common Stock. The issued and
outstanding shares of common stock, $.01 par value per share, of
Purchaser shall remain outstanding after the consummation of the
Merger and shall constitute the issued and outstanding common stock of
the Surviving Corporation.
(b) Conversion of Common Stock. The issued and
outstanding Shares shall be converted into the right to receive (i)
the Base Cash Amount and (ii) the Preferred Stock.
Section 2.8 No Further Ownership Rights in Company. At
and after the Effective Time, the Seller shall cease to have any rights as a
stockholder of the Company.
Section 2.9 Adjustments. The Base Cash Amount will be
adjusted as follows:
(a) Preliminary Adjustment. The Net Working
Capital, as of March 31, 1993, as set forth on Schedule 2.9 hereto
(the "March 31, 1993 Balance Sheet"), is referred to as the "Initial
Net Working Capital". On or before the day that is the second
Business Day preceding the Closing Date, the Seller will provide the
Purchaser with a good faith estimate of the Company's Net Working
Capital (the "Estimated Net Working Capital") as of the Closing Date
and Long-Term Liabilities at such date (the "Estimated Long-Term
Liabilities") calculated from the most recently available financial
statements (the "Current Financial Statements") plus such adjustments
as are mutually acceptable to the Purchaser and the Seller. The
Seller will provide the Purchaser with a copy of the Current Financial
Statements as soon as such statements are available. The Base Cash
Amount will be reduced (or increased) by the amount, if any, by which
the Estimated Net Working Capital is less (or greater) than the
Initial Net Working Capital and will be reduced by the amount of the
Estimated Long-Term Liabilities.
(b) Determination of Final Cash Amount. Within
60 Business Days after the Closing, the Purchaser shall prepare and
deliver to the Seller a balance sheet of the Company and a calculation
of the Net Working Capital and Long-Term Liabilities as of the Closing
Date. Such calculations shall be made in a manner consistent with the
respective calculations of the Initial Net Working Capital, the
Estimated Net Working Capital and the Estimated Long-Term Liabilities
under Section 2.9(a) above. The Purchaser will make available to the
Seller the work papers and other
8
<PAGE> 9
accounting records used in preparing such balance sheet and
calculations. Within 30 days following the delivery of the balance
sheet and Net Working Capital and Long-Term Liabilities calculations,
the Seller will deliver to the Purchaser a detailed written statement
describing its objections (if any) to the Purchaser's calculation of
the Net Working Capital and Long-Term Liabilities. If the Seller does
not deliver a detailed written statement describing any such
objections within such 30-day period, the calculations of the Net
Working Capital and Long-Term Liabilities shall be final and binding
on the parties hereto. If the Seller does deliver a detailed written
statement raising any such objections, the Purchaser and the Seller
will use reasonable efforts to resolve any disputes related thereto,
but if a final resolution is not obtained within 30 days after the
Seller has submitted its written objections to the Purchaser, any
remaining disputes regarding the calculations of the Net Working
Capital and Long-Term Liabilities will be submitted for resolution in
accordance with the provisions of this Agreement to the Independent
Accountant. The determination of the Independent Accountant will be
submitted in writing to each of the Purchaser and the Seller not later
than 30 days after the submission of such dispute to the Independent
Accountant, and the determinations contained in that report will be
conclusive and binding upon the parties. The Purchaser and the Seller
will each pay one-half of the fees and expenses of the Independent
Accountant. The Company's Net Working Capital and Long-Term
Liabilities, as finally determined pursuant to this subsection (b),
are referred to herein respectively as the "Final Net Working Capital"
and the "Final Long-Term Liabilities" and the balance sheet setting
forth the Final Net Working Capital and the Final Long-Term
Liabilities is referred to herein as the "Final Balance Sheet".
(c) Physical Inventory. In order to prepare the
Estimated Net Working Capital calculation and the Final Balance Sheet
and to determine the Estimated Net Working Capital and Final Net
Working Capital, a physical count of the Company's Inventory will be
completed as of the close of business on the Sunday immediately
preceding the Closing Date. The Purchaser and the Seller will follow
the procedures set forth in Schedule 2.9(c) hereto, and each of the
Purchaser and the Seller will be entitled to have its representatives
present at the taking of the physical count by the Company.
9
<PAGE> 10
(d) Final Adjustments. Within five Business Days
after the determination of the Final Net Working Capital, the
Estimated Cash Amount will be adjusted pursuant to this subsection
(d). The Final Cash Amount will be equal to the Estimated Cash Amount
reduced (or increased) by the amount, if any, by which the Final Net
Working Capital is less (or greater) than the Estimated Net Working
Capital and the amount, if any, by which the Final Long-Term
Liabilities are greater (or less) than the Estimated Long-Term
Liabilities. If the Estimated Cash Amount exceeds the Final Cash
Amount, such difference shall be paid by the Seller to the Purchaser
in immediately available funds within three Business Days after the
determination of the Final Cash Amount, together with interest thereon
from the Closing Date to the date of payment at the annual rate of 7%.
If the Final Cash Amount exceeds the Estimated Cash Amount, such
difference shall be paid by the Purchaser to the Seller in immediately
available fund within three Business Days after the determination of
the Final Cash Amount, together with interest thereon from the Closing
Date to the date of payment at the annual rate of 7%.
ARTICLE III
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants the following to
the Seller:
Section 3.1 Organization and Good Standing. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, with all requisite
power and authority to carry on the business in which it is engaged and to own
or lease the properties and assets it owns or leases. The Purchaser is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction other than its state of incorporation where the nature of its
business or the character of its property makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect on the Purchaser.
Section 3.2 Authorization and Validity. The Purchaser
has all requisite corporate power and authority to enter into this Agreement
and each other agreement and document contemplated hereby to be entered into by
it and to perform its obligations hereunder and thereunder and to consummate
the
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<PAGE> 11
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and each other agreement and document contemplated hereby, and
the consummation and performance of the transactions contemplated hereby and
thereby by the Purchaser, have been duly authorized and approved by all
requisite corporate action on the part of the Purchaser. This Agreement has
been duly executed and delivered by the Purchaser and constitutes the legal,
valid and binding obligation of the Purchaser, enforceable against it in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the application of general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
Each other agreement to be executed by the Purchaser in connection with this
Agreement at or prior to the Closing will be duly executed and delivered by the
Purchaser and will constitute the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with the respective
terms of each such agreement, except as such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the application of general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
Section 3.3 Capitalization. (a) As of the Closing Date
the Issuer shall have no outstanding capital stock having any preference as to
dividends or on liquidation other than the Preferred Stock nor shall the Issuer
have any outstanding securities convertible into or exchangeable or exercisable
for such capital stock or any commitment to issue any such capital stock.
(b) All shares of capital stock of the Issuer outstanding
at the Closing Date shall have been duly authorized, validly issued and shall
be fully paid and nonassessable.
(c) Upon delivery of the Preferred Stock as provided in
this Agreement, the Purchaser will convey to the Seller, and the Seller will
acquire, good and indefeasible title to the Preferred Stock, free and clear of
any Liens and preemptive or similar rights.
Section 3.4 No Violation. The execution and delivery by
the Purchaser of this Agreement and each other agreement and document
contemplated hereby to be executed and delivered by the Purchaser, and
consummation and performance of the transactions contemplated hereby or thereby
by the Purchaser,
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will not (a) violate or conflict with the articles or certificate of
incorporation or other constituting documents of the Purchaser or Bylaws of the
Purchaser, (b) violate, conflict with, or result in a breach of the terms,
conditions and provisions of, constitute a default under, or permit the
acceleration of any obligation under, or require the consent under, any
material agreement, indenture, mortgage, lease or other instrument under which
the Purchaser or any of its property is bound or subject or (c) violate or
conflict with any judgment, decree, order, statute, law, ordinance, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Purchaser or the properties or assets of the
Purchaser, except to the extent valid consents and approvals have been, or will
be, obtained prior to the Closing.
Section 3.5 Litigation. There are no actions, suits,
proceedings, orders or governmental investigations or inquiries pending, or, to
the best knowledge of the Purchaser, threatened, against the Purchaser or any
of its Affiliates or their respective properties, assets, operations or
businesses seeking to prevent, or which would adversely affect, the
consummation of the transactions contemplated hereby.
Section 3.6 Acquisition of Shares for Investment. The
Purchaser is acquiring the Shares for investment and not with a view toward, or
for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling the Shares within the meaning of the
Securities Act.
Section 3.7 Consents. No authorization, consent,
approval, order, permit or license of, or filing with, any court or other
governmental or public body or authority is required to be made or obtained by
the Purchaser in connection with the execution, delivery and performance of
this Agreement and each other agreement contemplated hereby to be executed and
delivered by the Purchaser or the consummation of the transactions contemplated
hereby or thereby by the Purchaser except for (i) such authorizations,
consents, approvals, orders, permits or licenses required for the operation of
the business of the Company after the Closing and (ii) any required filings
under the HSR Act.
Section 3.8 Brokers' or Finders' Fees. The Purchaser has
not incurred any liability to any broker, finder or agent for any brokerage
fees, finder's fees or commissions with respect to the transactions
contemplated by this Agreement for which the Seller or the Company would be
responsible.
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ARTICLE IV
Representations and Warranties of the Seller
The Seller represents and warrants the following to the
Purchaser:
Section 4.1 Organization and Good Standing. The Seller
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Company is a corporation duly
organized, validly existing and the good standing under the laws of the State
of Delaware, with all requisite power and authority to carry on the business in
which it is engaged and to own or lease the properties and assets it owns or
leases. The Company is duly qualified to do business as a foreign corporation
in good standing in each jurisdiction set forth in Schedule 4.1, which are all
of the jurisdictions where the nature of the Company's business or the
character of its property makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect on the
Company.
Section 4.2 Authorization and Validity of the Seller.
The Seller has all requisite corporate power and authority to enter into this
Agreement and each other agreement and document contemplated hereby to be
entered into by the Seller and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Seller and
each other agreement and document contemplated hereby to be entered into by the
Seller and the Seller's consummation and performance of the transactions
contemplated hereby and thereby, have been duly authorized and approved by all
requisite corporate action on the part of the Seller. This Agreement has been
duly executed and delivered by the Seller and constitutes the legal, valid and
binding obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the application of general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law). Each other
agreement to be executed by the Seller in connection with this Agreement at or
prior to the Closing will be duly executed and delivered by the Seller and will
constitute the legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with the respective terms of each such
agreement, except as such enforcement may be limited by applicable bankruptcy,
insolvency or similar laws affecting
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creditors' rights generally or the application of general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
Section 4.3 Authorization and Validity of the Company.
The Company has all requisite corporate power and authority to enter into this
Agreement and each other agreement and document contemplated hereby to be
entered into by the Company and to perform its obligations hereunder and
thereunder. The execution and delivery of each agreement and document to be
executed by the Company in connection with this Agreement at or prior to the
Closing and the Company's consummation and performance of the transactions
contemplated thereby have been duly authorized and approved by all requisite
corporate action on the part of the Company. Each such agreement and document
will be duly executed and delivered and will constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with the respective terms of each such agreement and document,
except as such enforcement may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the application of
general principles of equity (regardless whether such enforcement is considered
in a proceeding in equity or at law).
Section 4.4 No Violation. Except as described in
Schedule 4.4, the execution and delivery by the Seller or the Company, as the
case may be, of this Agreement and each other agreement and document
contemplated hereby to be executed and delivered by the Seller or the Company,
and the Seller's or the Company's, as the case may be, consummation and
performance of the transactions contemplated hereby or thereby, will not (a)
violate or conflict with the Certificate of Incorporation or Bylaws of the
Seller or the Company, (b) violate, conflict with, or result in a breach of the
terms, conditions and provisions of, or constitute a default under, or permit
the acceleration of any obligation under, or require the consent under, any
agreement, indenture, mortgage, lease or other instrument under which the
Seller or the Company or any of the property of either of them is bound or
subject, or (c) violate or conflict with any judgment, decree, order, statute,
law, ordinance, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Seller or the Company or
any of the properties or assets of the Seller or the Company.
Section 4.5 Litigation. There are no actions, suits,
proceedings, orders or governmental investigations or inquiries pending, or, to
the knowledge of the Seller, threatened, against the Seller or any of its
Affiliates or their
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respective properties, assets, operations or businesses seeking to prevent, or
which would adversely affect, the consummation of the transactions contemplated
hereby. Except as described in Schedule 4.5, (a) there are no actions, suits,
arbitrations, proceedings, orders or known investigations instituted, pending
or, to the knowledge of the Seller, threatened against or affecting the Company
or its properties, assets, operations or business, at law or in equity, or
before any federal, state or municipal court or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
(b) the Company is not subject to any continuing court or administrative order,
writ, judgment, injunction or decree applicable to the Company or its business,
operations, properties or assets or in default with respect to any such order,
writ, judgment, injunction or decree described in Schedule 4.5. There are no
arbitration proceedings pending under collective bargaining agreements or
otherwise to which the Company is a party.
Section 4.6 Acquisition of Preferred Stock for
Investment. The Seller is acquiring the Preferred Stock for investment and not
with a view toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the Preferred Stock
within the meaning of the Securities Act.
Section 4.7 Consents. Schedule 4.7 sets forth each
authorization, consent, approval, permit or license of, or filing with, any
governmental or public body or authority, any lender or lessor or any other
Person that is required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements and
documents contemplated hereby on the part of the Seller or the Company except
for any required filings under the HSR Act.
Section 4.8 Capitalization. Schedule 4.8 sets forth the
authorized, issued and outstanding capital stock of the Company. All the
Shares are issued and outstanding and are owned of record and beneficially by
the Seller, free and clear of all Liens. The Shares have been duly authorized,
validly issued and are fully paid and nonassessable. Except as contemplated by
the Merger, there are no rights, subscriptions, warrants, options, puts,
proxies, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire or otherwise affecting any shares of capital stock of the
Company or securities or obligations of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of the Company.
Upon delivery of payment for the Shares as provided
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in this Agreement, the Seller will convey to the Purchaser pursuant to the
Merger, and the Purchaser will acquire, good title to the Shares, free and
clear of any Liens. No shares of the capital stock of the Company are reserved
for any purpose and there are no preemptive or similar rights with respect to
the issuance, sale or other transfer of the capital stock of the Company.
Section 4.9 Subsidiaries. Except as set forth on
Schedule 4.9, the Company does not own, directly or indirectly, any stock,
partnership interests, joint venture interest or other security or interest in
any other Person.
Section 4.10 Corporate Records. True, correct and
complete copies of the certificate of incorporation and all amendments thereto,
and the Bylaws, as currently in effect, of the Company have been delivered to
the Purchaser. The minute books of the Company, copies of which have been made
available to the Purchaser, contain accurate minutes of all meetings of, and
accurate consents to all actions taken without meetings by, the Board of
Directors (and any committee thereof) and the stockholders of the Company since
its formation and reflect all actions taken by the Company required to be
reflected under the Delaware GCL. At the Closing, the Seller will tender to
the Purchaser all of such books and records.
Section 4.11 Financial Statements. The Seller has
furnished to the Purchaser the Financial Statements as set forth on Schedule
4.11 and the March 31, 1993 Balance Sheet and will furnish to the Purchaser the
Current Financial Statements. The Financial Statements, the March 31, 1993
Balance Sheet and the Current Financial Statements, as applicable (i) fairly
reflect (or in the case of the Current Financial Statements, will reflect) the
financial condition and results of operations of the Company as of the dates
and for the periods indicated and (ii) have been (or in the case of the Current
Financial Statements, will be) prepared in accordance with (a) generally
accepted accounting principles, consistently applied, except for those
differences from generally accepted accounting principles which are described
in Schedule 4.11 attached hereto, and (b) the Seller's internal accounting
principles, methods and procedures, consistently applied throughout the periods
indicated.
Section 4.12 Liabilities and Obligations. Except for
those ordinary course liabilities incurred since the date of the Financial
Statements, the Financial Statements reflect all liabilities of the Company
that are required to be included in the Financial Statements under generally
accepted accounting
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principles consistently applied by the Company throughout the periods indicated
and consistent with Schedule 4.11.
Section 4.13 Employee Benefit Matters. (a) Except as set
forth in Schedule 4.13(a), there are no Plans (as herein defined) in which (A)
any present or former directors, officers, agents or employees of the Company
participate or (B) with respect to which the Company has any liability. As
used herein, the term "Plan" shall include any of the following: (i) any
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) any profit
sharing, pension, deferred compensation, bonus, stock option, stock purchase,
severance, stock appreciation right, supplemental unemployment, layoff,
retirement, life insurance, disability, group insurance, retainer, consulting,
health, welfare or incentive plan or agreement; (iii) any plan or policy
providing for "fringe benefits" to its directors, officers, agents or
employees, including but not limited to vacation, paid holidays, personal
leave, employee discount, educational benefit or similar programs; (iv) any
employment agreement; or (v) any trust, escrow or other agreement or
arrangement related to any of the foregoing. For purposes of this Agreement,
"ERISA Affiliate Plan" is any "employee benefit plan" within the meaning of
Section 3(3) of ERISA which is (a) subject to Title IV of ERISA or Section 412
of the Internal Revenue Code of 1986, as amended (the "Code"), (b) a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
("Multiemployer Plan"), (c) a multiple employer plan within the meaning of
Section 4063(a) of ERISA or (d) a "group health plan" within the meaning of
Section 5000(b) of the Code which is subject to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), sponsored, maintained,
contributed to or obligated to be contributed to by Seller, the Company or any
trade or business (whether or not incorporated) which are under common control,
or are treated as a single employer, with the Company under Section 414(b),
(c), (m) or (o) of the Code ("ERISA Affiliate"). With respect to each
applicable Plan listed in Schedule 4.13(a), the Company has furnished to the
Purchaser true, correct and complete copies of: (i) the plan documents and
summary plan descriptions; (ii) the most recent determination letter received
from the Internal Revenue Service; (iii) the last Form 5500 Annual Report; and
(iv) all related trust agreements, insurance contracts or other funding
agreements which implement such Plans.
(b) Except as set forth in Schedule 4.13(b), the Company
has not contributed, or been obligated to contribute, to any Multiemployer
Plan.
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(c) Each Plan listed on Schedule 4.13(a), complies in all
material respects with all Legal Requirements currently in effect and
applicable to the Plan, including but not limited to ERISA and the Code; and
the employee pension benefit plans maintained by the Company meet the
requirements of "qualified plans" under Section 401(a) of the Code, and each
such employee pension benefit plan, and each trust (if any) forming a part
thereof, has received a favorable determination letter from the Internal
Revenue Service as to the qualification under the Code of such plan and the
tax-exempt status of such related trust.
All reports, forms and other documents required to be filed
with any government entity and/or to be distributed to participants with
respect to any Plan (including without limitation, summary plan descriptions,
Forms 5500 and summary annual reports) have been timely filed or distributed
and are accurate in all material respects.
(d) The Company has no liability nor is it threatened
with any liability nor is there any condition existing that presents a risk of
liability whether directly or as a result of joint and several liability among
the controlled group as determined under Sections 414(b), (c), (m) or (o) of
the Code or Section 4001(b) of ERISA (i) for the termination of any single
employer plan under Section 4062 or 4064 of ERISA or any multiple employer plan
under Section 4063 of ERISA, (ii) for any lien imposed under Section 302(f) of
ERISA or Section 412(n) of the Code, (iii) for any interest payments required
under Section 302(e) or any excise taxes imposed by Sections 4971, 4975, 4976,
4977 or 4979 of the Code, (iv) for a fine under Section 502 of ERISA, (v) for a
transaction within the meaning of Section 4069 of ERISA, or (vi) for any other
breaches or violations of applicable Legal Requirements with respect to any
Plan.
(e) The Seller, the Company and each ERISA Affiliate, to
the extent applicable, are in good faith material compliance with the
continuation of group health coverage provisions contained in Section 4980B of
the Code and Sections 601 through 608 of ERISA.
(f) The Company has not incurred any withdrawal liability
with respect to any Multiemployer Plan within the meaning of Sections 4201 and
4204 of ERISA, and no liabilities exist with respect to withdrawals from any
Multiemployer Plans which could subject the Company to any controlled group
liability under Section 4001(b) of ERISA. The Company is not subject to any
current liabilities with respect to withdrawals from any
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Multiemployer Plan as a member of Seller's controlled group under Section
4001(b) of ERISA.
(g) Except for those employees for whom there are
employment agreements listed on Schedule 4.13(a), all employees of the Company
are terminable at the will of the Company and neither the Seller, nor the
Company, nor any present or former director, officer, employee or agent of the
Seller or the Company has made any binding commitments of the Company to any
present or former director, officer, agent or employee concerning his term,
condition, benefits or employment, other than the description of rights under
instruments described in Schedule 4.13(a) hereof, including, without
limitation, the tenure of such employment, the conditions under which such
employment may be terminated by the Company or with respect to the continuation
of medical, dental, life or disability coverage for any period of time beyond
the end of the current Plan year, except to the extent of coverage required
under Section 4980B of the Code. The consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment or
vesting, or increase the amount, of compensation due to any present or former
director, officer, employee or agent of the Company.
Except as set forth in Schedule 4.13(a), the Company is not a
party to any agreement providing for severance or termination payments to, or
any employment agreement with, any current or former director, officer,
employee or agent of the Company. None of such agreements provides for
payments which would be "excess parachute payments" under Section 280G of the
Code.
(h) There are no unfunded liabilities existing under the
Plans listed on Schedule 4.13(a), and each such Plan could be terminated as of
the Closing Date with no liability to the Purchaser, the Company or any ERISA
Affiliate.
Section 4.14 Absence of Certain Changes. Except as set
forth in Schedule 4.14 or as contemplated by this Agreement, since December 31,
1993, the Company has not:
(a) suffered any Material Adverse Effect;
(b) contracted for any capital expenditures in excess of
$50,000;
(c) incurred any indebtedness for borrowed money or
incurred or become subject to any liability, except current
liabilities incurred in the ordinary course of business;
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(d) discharged or satisfied any lien or paid any
liability, other than in the ordinary course of business;
(e) mortgaged, pledged or subjected any property or
assets to any Lien, except Liens for property taxes or assessments not
yet due and payable or due but not yet delinquent and those mechanics'
and materialman's liens and statutory liens imposed on milk supplies
and other raw materials arising in the ordinary course of business;
(f) paid any amount on any indebtedness prior to the due
date, forgiven or cancelled any debts or claims or released or waived
any material rights or claims;
(g) acquired or disposed of any material assets or
incurred any material liabilities or obligations, except purchases and
sales of Inventory in the ordinary course of business and the transfer
of the Kinnett note to the Seller;
(h) changed any accounting or costing systems or methods
in any material respect;
(i) terminated, cancelled or modified or received notice
or a request for termination, cancellation or modification of an
existing material agreement, arrangement or understanding between the
Company and any of its customers, suppliers or distributors;
(j) made or granted any bonus or increased the
compensation payable or to become payable to any employee, except in
the ordinary course of business and consistent with past practice;
(k) made any payments to or loaned any money to any
Affiliate except to the Seller and its wholly-owned subsidiaries in
the ordinary course of business;
(l) breached, nor received in writing any claim or threat
that it has breached, any of the terms or conditions of any
Commitment;
(m) waived any material right under any Commitment;
(n) suffered any theft, casualty, loss or destruction of
any of its assets where the uninsured portion of the cost and expense
of the repair, replacement or reconstruction of such assets would be
equal to or greater than $300,000;
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(o) declared, set aside, made or paid any dividend or
other distribution in respect of its capital stock;
(p) redeemed, purchased or otherwise acquired, sold,
granted or otherwise disposed of, directly or indirectly, any of its
capital stock or securities or any rights to acquire such capital
stock or securities, or agreed to change terms and conditions of any
such rights; or
(q) entered into any agreement or commitment to do any of
the things described in any of the preceding subsections (a) through
(p).
Section 4.15 Title to Assets. (a) The Company has good
and indefeasible title to all of the assets and properties used in the business
of the Company, including, without limitation, the assets reflected on the
Financial Statements, other than (i) assets disposed of since the date of the
Financial Statements in the ordinary course of business, (ii) assets being
leased under capitalized or operating leases, (iii) the Properties (all
representations with respect to which appear in Sections 4.16 and 4.17), (iv)
the assets described in the second paragraph of Schedule 4.15, (v) the
Proprietary Rights to be assigned and licensed to the Purchaser pursuant to
Sections 9.9 and 9.10, and (vi) certain non-exclusive intangible property
rights of the Company. Except for Liens disclosed on Schedule 4.15, which
Liens will be removed prior to the Closing, all such assets and properties are
free of any Liens, except for mechanics' and materialman's liens and statutory
liens imposed on milk supplies and other raw materials arising in the ordinary
course of business.
(b) The assets and properties of the Company that will be
conveyed to the Purchaser as a consequence of the consummation of the Merger,
together with the Proprietary Rights that will be assigned and licensed to the
Purchaser pursuant to Sections 9.9 and 9.10, constitute all assets and
properties used in the operation of the business as presently conducted other
than those assets described in the second paragraph of Schedule 4.15.
Section 4.16 Real Property-Fee. (a) Schedule 4.16 sets
forth a summary description of the real property owned in fee by the Company,
including a list of agreements with respect to such real property to which the
Company is a party or by which such real property is bound. The Company has
good and indefeasible title to the real property set forth in Schedule 4.16,
subject only to: (i) Liens that will be removed prior to the Closing; and (ii)
any defects, exceptions or other matters
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acceptable to the Purchaser, Liens for property taxes not yet due and payable
and any recorded easements, covenants and other encumbrances or restrictions
(other than mortgages, deeds of trusts and security interests) that do not
materially impair the value or materially interfere with the use of the
property in the conduct of the business as it is currently conducted
(collectively, "Permitted Liens"). The Company owns no real property not
listed on Schedule 4.16 and does not lease any real property not listed on
Schedule 4.17.
(b) The real properties described in Schedule 4.16 each
have sufficient access to public roads and are supplied with utilities,
including electricity, sanitary and storm sewers, potable water, natural gas
and other utilities to the extent used in the operation of the business
conducted thereon to permit the operation of the business as it is currently
conducted. The Company has received no notice of termination of such access or
utilities.
(c) Except as set forth in Schedule 4.16, each of the
real properties (including buildings and improvements located thereon)
described in Schedule 4.16 and the Company's occupancy, operation and use
thereof conform in all material respects to all applicable subdivisions,
building codes, health, safety, setback and zoning ordinances, and other laws,
regulations and requirements applicable to the current occupancy, use and
operation thereof, except where the failure to so comply would not interfere
with the present use of any such real property.
(d) Neither the Seller nor the Company has received any
notice of any violation of any law, ordinance, rule or regulation referred to
in (c) above, or any notice of the existence of any condemnation or eminent
domain proceeding with respect to any real property described in Schedule 4.16.
(e) Except as set forth on Schedule 4.16 hereto, there
are no leases, subleases, licenses, concessions or other agreements, written or
oral, granting to any party or parties the right of use or occupancy of any
portion of the real property described in Schedule 4.16. There are no options
or rights of first refusal to purchase any of such real properties, or any
portion thereof or interest therein. There are no parties other than the
Company in possession of any such real properties.
Section 4.17 Real Property-Leased. Schedule 4.17 contains
a complete list and a brief description of all the real property leased by the
Company. With respect to each written or oral real property lease listed in
Schedule 4.17: (i) each has
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been executed (in the case of written leases) and is in full force and effect;
(ii) the Company is not in material breach or default and no event has occurred
which, with notice or lapse of time, would constitute such a material breach or
default or permit termination, modification or acceleration under such lease;
(iii) subject to the obtaining of any necessary consents, each such lease will
continue to be binding against the landlord in accordance with the terms
following the Closing, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies; and (iv) no party to any such lease has
repudiated any provision thereof. The Company's occupancy, operation and use
of each such leased property conform in all material respects to all applicable
subdivisions, building codes, health, safety, setback and zoning ordinances,
and other laws, regulations and requirements applicable to the current
occupancy, operation and use thereof.
Section 4.18 Condition of Assets. The assets and
properties utilized by the Company, whether owned or leased, are in good
operating condition (reasonable wear and tear excepted), and are suitable for
the purposes for which they are presently being used.
Section 4.19 Accounts Receivable. The accounts receivable
of the Company reflected on the Financial Statements (i) have arisen in the
ordinary course of business, and (ii) represent or will represent valid and
bona fide obligations due to the Company.
Section 4.20 Commitments. Except as set forth in Schedule
4.20, the Company is not a party to, nor are its properties, assets or business
bound by, any Commitment. There is no existing default, event of default or
event, occurrence or act that, with the giving of notice or lapse of time or
both, would constitute a default, or result in a remedial or penalty provision
being invoked, with respect to the Commitments identified on Schedule 4.20.
The Commitments are in full force and effect and are valid and enforceable
obligations of the parties thereto in accordance with their terms except (i) as
set forth on Schedule 4.20, and (ii) as such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the application of general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
Except as described in Schedule 4.20, the Company has not received or given
notice of any plan or intention of any party to
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any Commitment to exercise any right to cancel, terminate or amend any
Commitment in any respect.
Section 4.21 Relationship with Customers and Suppliers.
Schedule 4.21 lists the ten (10) largest customers of the Company as determined
by the dollar volume of sales for the year ended December 31, 1993 together
with such sales volumes. Schedule 4.21 lists the six (6) largest suppliers of
the Company as determined by the dollar volume of purchases for the year ended
December 31, 1993 together with such purchase volumes. In the last twelve (12)
months no such supplier or customer of the Company has notified the Company in
writing or otherwise that it has cancelled or otherwise terminated, or
threatened in writing or otherwise to cancel or otherwise terminate, its
relationship with the Company nor, to the Seller's knowledge, has there been
any material dispute with any such customer or supplier.
Section 4.22 Insurance. Schedule 4.22 attached hereto
lists and briefly describes each insurance policy maintained by the Seller or
the Company which relates to the properties, assets or businesses of the
Company. All such insurance policies are in full force and effect, and neither
the Seller nor the Company is in default with respect to its obligations under
any of such insurance policies and neither the Seller nor the Company has ever
received any notice of cancellation of any insurance policy maintained by it or
been denied insurance coverage.
Section 4.23 Patents, Trademarks and Copyrights. (a) Set
forth in Schedule 4.23 hereto is a list of the following (collectively referred
to as the "Proprietary Rights"):
(i) Each trademark, trade name, brand name, service mark
or other trade designation owned or licensed by or to the Company and
each patent, copyright and similar intellectual property owned or
licensed to or by the Company and each license, royalty, assignment or
other similar agreement and all registrations and applications
relating to the foregoing; and
(ii) Each agreement relating to technology, know-how or
processes that the Company is licensed or authorized to use by others,
or which it licenses or authorizes others to use.
(b) Except as described in Schedule 4.23, the Company
owns, or has or will have at the Closing the right to use the Proprietary
Rights without infringing or violating the rights of any third parties. None
of the registrations and applications
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set forth in Schedule 4.23 are in the Company's name. Except as set forth in
Schedule 4.23, no consent of third parties will be required for the use thereof
by the Purchaser upon consummation of the transactions contemplated by this
Agreement. No claim has been asserted by any person against the Seller or the
Company to the ownership of or right to use any Proprietary Right or other such
intellectual property or challenging the validity or effectiveness of any such
license or agreement. None of the Proprietary Rights has been cancelled or
otherwise terminated and, if applicable, each has been duly issued or filed.
(c) Except as described in Schedule 4.23, the Seller has
no knowledge of any claim that any product, activity or operation of the
Company infringes upon or involves, or has resulted in the infringement of, any
proprietary right of any other person, corporation or other entity; and no
proceedings have been instituted, are pending or, to the knowledge of the
Seller, are threatened which challenge the rights of the Company with respect
thereto.
Section 4.24 Taxes. (a) The Seller and the Company have
timely filed all Returns required to be filed by or with respect to the Company
on or prior to the date hereof. Such Returns are true and complete in all
material respects. Schedule 4.24 attached hereto sets forth all material
Returns currently under extension.
(b) The Company has (i) timely paid (or there has been
paid on its behalf) all Taxes that are due, or claimed or asserted by any
taxing authority to be due, from or with respect to the Company for the periods
prior to the date hereof or (ii) provided for all material Taxes in its
Financial Statements in accordance with generally accepted accounting
principles, including any Taxes that may be owing under any tax sharing
agreements.
(c) Neither the Seller nor the Company is a party to any
pending action, proceeding, or investigation for any alleged Tax deficiency for
which the Company or any of its assets would be liable, nor, to the best of the
Seller's knowledge, has any action, proceeding or investigation been threatened
by any governmental authority for the assessment or collection of any Taxes for
which the Company or any of its assets would be liable.
(d) Except as set forth on Schedule 4.24, no Returns
required to be filed by or on behalf of the Company (including any consolidated
returns for the group of which the Company is a member) for any taxable year
are currently being examined by the
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Internal Revenue Service ("IRS") or any other state, local or foreign taxing
authority or agency. Schedule 4.24 attached hereto lists all Returns that have
been examined by the IRS for which the applicable statute of limitations has
not expired.
(e) There are no outstanding agreements or waivers that
would extend the statutory period in which a taxing authority may assess or
collect a tax against the Company or any of its assets.
(f) The Company has paid or has made adequate provision
for and will pay when due to the proper taxing authorities all withholding
amounts required to be withheld by or on behalf of the Company with respect to
all Taxes including, without limitation, income, unemployment, social security
and other similar tax withholding for all types of compensation.
(g) The Company is not a party to or bound by (nor will
the Company become a party to or bound by) any tax indemnity, tax sharing or
tax allocation agreement, or if the Company is a party to or bound by any such
tax indemnity, tax sharing, or tax allocation agreement, as of the Closing Date
the Company shall not be a party to and shall not be bound by and shall have no
further obligation with respect to any tax indemnity, tax sharing or tax
allocation agreement.
(h) None of the assets of the Company is "tax-exempt use
property" within the meaning of section 168(h) of the Code.
(i) The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment on or before the Closing Date of any "excess
parachute payments" within the meaning of section 280G of the Code.
(j) None of the assets of the Company directly or
indirectly secures any debt, the interest on which is tax- exempt under Section
103(a) of the Code.
(k) Except for the group of which the Company is
presently a member, the Company has never been a member of an affiliated group
of corporations within the meaning of Section 1504 of the Code.
(l) The Company is not a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
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(m) Each of the statements in this Section 4.24 is
modified by any information disclosed in Schedule 4.24 attached hereto.
Section 4.25 Labor Matters. Except as described in
Schedule 4.25, the Company (i) is not a party to any collective bargaining
agreement, (ii) has not experienced and is not experiencing, and the Seller
does not know of any threatened strike, work stoppage, slowdown or other
material interference with or impairment of the business of the Company by
labor, (iii) is neither a party to nor the subject of an unfair labor practice
complaint or any other proceeding pending or, to the best knowledge of the
Seller, threatened before the National Labor Relations Board, (iv) is not the
subject of, nor does the Seller know of, any current or contemplated union
organization efforts or representation attempts or proceedings, or requests for
negotiations for any representation or any labor contract relating to any
employees of the Company and (v) is neither a party to nor the subject of a
formal discrimination complaint or charge (relating to sex, age, race, national
origin, handicap or veteran status) before any federal, state or municipal
agency or authority.
Section 4.26 Compliance with Laws. (a) The Company has
complied in all material respects with all Legal Requirements regarding
pricing, illegal trade practices and antitrust activities.
(b) Except as set forth on Schedule 4.26(b) attached
hereto: (i) the Company has not deposited, stored or buried at, upon or under
any of the Real Property described in Schedule 4.16, the leased property
described on Schedule 4.17 (together the "Occupied Properties") or any other
site any Hazardous Substances (as herein defined) other than those used, stored
or disposed of in the ordinary course of business and reasonably necessary to
conduct its business in the ordinary course, the transportation, use, storage
and disposal of which comply in all material respects with applicable
Environmental Laws (as hereinafter defined); (ii) there are no citations,
notices, claims or proceedings pending or to the Seller's knowledge threatened,
against the Company, before any federal or state environmental protection
board, agency or authority or before any court alleging violations of law
involving Hazardous Substances or directly arising out of their use, storage,
transportation or disposal by the Company; (iii) neither the Seller nor the
Company has received any notice from any federal or state environmental
protection board, agency or authority or other Person of any violation or
alleged violation of any Environmental Law requiring
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the removal or cleanup of any Hazardous Substance from any of the Occupied
Properties or any other site, or advising the Seller or the Company of any
search or investigation with respect thereto; (iv) neither the Seller nor the
Company has discovered any conditions on real property adjacent to or in the
vicinity of the Occupied Properties which cause the Occupied Properties to be
subject to restrictions on occupancy under any Environmental Laws; (v) the
Company has obtained and is in material compliance with all terms and
conditions of all licenses, orders, permits or other similar authorizations
from all governmental authorities or from any other Person that are required
under any Environmental Laws; (vi) the Company has otherwise complied and is
currently complying with all Environmental Laws applicable to its operations,
assets and business; and (vii) none of the Occupied Properties is on any
federal or state "Superfund" list, is subject to any federal or state
government or private party environmental lien or to the best of the Seller's
knowledge has ever been the site of any activity that would violate any
Environmental Law. As used in this Section 4.26, "Hazardous Substances" shall
mean flammable explosives, radioactive materials, hazardous, toxic or dangerous
materials, substances or wastes, petroleum or waste oil products, PCB's, radon
asbestos and urea formaldehyde. "Environmental Law(s)" shall mean all federal,
state and local statutes, laws, ordinances, decrees, orders, rules and
regulations, to the extent binding on the Company relating in any way to
pollution or protection of human health or the environment, including without
limitation those relating to ambient air, surface water, ground water, land
surface, or subsurface strata, and those relating to emissions, discharges,
releases or threatened release of any Hazardous Substances, or otherwise
relating to the manufacture, storage, generation, clean-up, disposal,
transportation or handling of Hazardous Substances.
(c) Except as described in Schedule 4.26(c), the Company
has complied in all material respects with all Legal Requirements applicable to
its business including, without limitation, (i) those designated to protect
health and/or safety, (ii) those regarding employment and employment practices
or terms and conditions of employment, (iii) those regarding illegal payments
or contributions to any government or governmental agency or any employee or
official thereof or any political party or candidate; or (iv) commercial
bribery (provided, however, that any representations and warranties regarding
the specific matters set forth in Sections 4.26(a) and 4.26(b) are set forth in
such Sections).
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(d) The Company possesses all material governmental
permits, approvals, licenses and similar authorizations necessary to its
business as currently conducted.
Section 4.27 Brokers' or Finders' Fees. Neither the
Seller nor the Company has incurred any liability to any broker, finder or
agent for any brokerage fees, finder's fees or commissions with respect to the
transactions contemplated by this Agreement for which the Purchaser would be
responsible.
Section 4.28 Inventory. The Inventory of the Company
consists of items of a quality and quantity usable or saleable in the ordinary
course of business for the purpose for which it is intended, and conforms with
all applicable Legal Requirements, the quality, content, packaging, labeling
and other requirements of any agreement under which it is produced and with
industry standards and practices. The Company has performed, in the ordinary
course of business, regular tests in accordance with industry practice to
determine that its products comply with all applicable Legal Requirements.
Section 4.29 Product Warranties. Schedule 4.29 attached
hereto sets forth all recalls and withdrawals of the Company's products during
the past three years and a description of all product warranties and guarantees
provided by the Company.
Section 4.30 Guarantees. Schedule 4.30 attached hereto
lists all (i) guarantees made by the Seller and provided in order to support
obligations of the Company to trade creditors and other Persons, (ii) letters
of credit of the Seller that support obligations relating to the Company or its
business and (iii) guarantees made by the Company, other than with respect to
products sold or distributed by the Company.
Section 4.31 Transactions with Affiliates. Except as set
forth in Schedule 4.31 hereto and intra-company trade payables, the Company has
not engaged in any material transactions with any of its Affiliates and there
is no agreement between the Company and any of its Affiliates that cannot be
terminated by the Company on not more than 30 days' notice without penalty.
Section 4.32 Section 1445 of the Code. The Seller is not
a foreign person for purposes of Section 1445 of the Code.
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Section 4.33 Employees. Schedule 4.33 attached hereto
contains a true and complete list of all of the current employees of the
Company, their current respective positions or job classifications, their
current respective wage scales or salaries, as the case may be, and any accrued
vacation or sick pay due to each of such employees. The Seller will update
such list (as of a date no more than one week prior to the Closing Date) and
deliver same to the Purchaser at or prior to the Closing.
Section 4.34 Interests in Competitors. Except as set
forth in Schedule 4.34 hereto, neither the Seller nor any subsidiary of the
Seller owns, directly or indirectly, an interest (but not including any
interest of less than five percent in any public company) in any Person that is
a customer, supplier or landlord of the Company, that otherwise has business
dealings with the Company or that is engaged in the manufacture and/or
distribution of dairy products (including frozen products and novelties),
cultured milk products or fruit and other juices in the State of Florida.
Section 4.35 Closing Date. All of the representations and
warranties of the Seller contained in this Agreement and all information
delivered in any schedule, attachment or exhibit hereto or in any writing
delivered to the Purchaser are true, complete and correct in all material
respects on the date of this Agreement and will be true, complete and correct
in all material respects as if made on the Closing Date, except to the extent
that the Seller has advised the Purchaser in writing prior to the Closing.
Section 4.36 Knowledge. As used in this Article IV, the
term "to the Seller's knowledge" shall mean the actual knowledge of the persons
listed on Schedule 4.36 hereto.
ARTICLE V
Employees
(a) The Purchaser shall employ immediately after the
Effective Time all of the Company's employees at a salary or wage rate not less
than the rate in effect for such individual on the Closing Date. Nothing in
this Agreement shall diminish the right of Purchaser, subject to applicable
laws, at any time, to dismiss any or all of such employees with or without
cause and to change the terms and conditions of employment of any or all of
such employees; provided, however, that Purchaser covenants and agrees
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to indemnify and hold harmless the Seller for any and all severance payments
arising out of the termination of any of such employees terminated following
the Closing Date. The Purchaser shall provide to all employees of the Company
as of the Closing Date all vacation benefits and other benefits reflected as an
accrued expense on the Final Balance Sheet.
(b) The Seller shall, subject to the consummation of the
transactions contemplated by this Agreement, take whatever action is necessary
or appropriate to terminate, as of the Closing Date, the participation of the
Company's employees in each Plan listed on Schedule 4.13(a).
(c) After the Closing, the Purchaser will cause
management employees of the Purchaser to provide reasonable assistance to the
Seller in administering worker's compensation, disability and other insurance
claims. The Seller will reimburse the Purchaser for all reasonable
out-of-pocket expenses incurred by the Purchaser in connection with the
Purchaser's rendering assistance to the Seller on such matters. After the
Closing, the Purchaser will maintain a "light-duty" program comparable to the
light-duty program maintained by the Company prior to the Closing and will
comply with all applicable Legal Requirements regarding employees on leave as
of the Closing Date due to disability or as a result of job-related injury.
(d) For a period of one year after the Closing Date,
neither the Purchaser nor the Seller will hire any employee employed by the
other on the Closing Date.
ARTICLE VI
Covenants of the Purchaser
The Purchaser agrees that on or prior to or after the Closing,
as applicable:
Section 6.1 Corporate Action and Consents. The Purchaser
will take all necessary corporate and other action and will use its Reasonable
Efforts to obtain the consent required under any consents and applicable
approvals, including approvals of any regulatory authority, required to be
obtained by the Purchaser to enable it to carry out the transactions
contemplated by this Agreement and the other agreements contemplated hereby to
be entered into by the Purchaser and to enter into this Agreement and such
other agreements contemplated hereby.
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Section 6.2 Reasonable Efforts to Effectuate
Transactions. The Purchaser agrees at all times to use its Reasonable Efforts
to take such actions (to the extent such actions are within the power of the
Purchaser) and execute such documents, applications and instruments, and to
assist others to take such actions, as may be necessary or advisable to ensure
that all conditions precedent to the obligations of the Seller hereunder are
fulfilled at or prior to the Closing and to use its Reasonable Efforts to
ensure that, as of the Closing Date, the Purchaser will not be subject to any
material contractual, regulatory or other restriction that would prohibit or
delay the Closing provided in this Agreement.
Section 6.3 Status of Representations, Warranties and
Conditions Before the Closing. The Purchaser shall use its Reasonable Efforts
to cause its representations and warranties contained in this Agreement or in
any schedule attached hereto to be true and correct on and as of the Closing
Date in all material respects. Prior to the Closing, the Purchaser shall
promptly notify the Seller in writing if (a) any representation or warranty
contained in this Agreement is discovered to be or becomes untrue, (b) the
Purchaser fails to perform or comply with any of its covenants or agreements
contained in this Agreement, or (c) it is reasonably expected that the
Purchaser will be unable to perform or comply with any of its covenants or
agreements contained in this Agreement.
Section 6.4 Cooperation. The Purchaser will cooperate
with the Seller in supplying such information as may be reasonably requested by
the Seller in connection with obtaining consents and approvals to the
transactions contemplated by this Agreement and to enter into and perform each
of the other agreements contemplated hereby.
Section 6.5 Confidentiality. For a period of five years
from the date hereof, the Purchaser shall, and shall cause its employees,
agents and other representatives to, hold in confidence all Confidential
Information. The Purchaser shall not, and shall use its Reasonable Efforts to
ensure that any other Person that has access to or has obtained Confidential
Information through the Purchaser shall not, disclose the same to any Person
except to the Purchaser's financing sources in connection with this Agreement;
provided, that any such other Person shall be informed of the confidential
nature thereof and the restrictions in this Agreement. For purposes hereof,
"Confidential Information" means all material information of any kind obtained,
directly or indirectly, from the Seller or any of its employees, agents,
accountants, counsel or other
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representatives concerning the Seller, its business, its Affiliates, their
respective businesses, the Company or its business, except information which
constitutes public information, including, without limitation, any information
publicly filed with the Securities and Exchange Commission. The provisions of
this Section 6.5 shall terminate and become inoperative with respect to
information concerning the Company or its business if the Closing occurs, and
shall not apply to any portion of the other Confidential Information which (a)
becomes generally available to the public other than as a result of a
disclosure by the Purchaser, (b) was or is made available to the Purchaser on a
non-confidential basis by a Person not affiliated with or acting on behalf of
the Seller either before or after its disclosure by the Seller to the Purchaser
or (c) the Purchaser becomes legally obligated to disclose other than due to
voluntary actions by the Purchaser (in which case the Purchaser shall
nevertheless use its Reasonable Efforts to obtain confidential treatment for
such information). Upon termination of this Agreement without the occurrence of
the Closing, the Purchaser shall (and shall cause its employees, agents and
other representatives to) return any originals and all copies of any documents
or materials comprising a part of or containing any Confidential Information.
Section 6.6 Interference with Relationships. From the
date hereof until the Closing Date, the Purchaser will not take any action or
engage in any practice calculated or designed to impair the relationships of
the Seller and the Company with their customers, suppliers or others having
business dealings with any of them.
Section 6.7 Compliance with Laws. The Purchaser will
comply with all applicable laws, rules and regulations of all governmental
authorities including, without limitation, the HSR Act, in connection with its
execution, delivery and performance of this Agreement and each other agreement
contemplated hereby to be entered into by the Purchaser and the Purchaser's
consummation and performance of the transactions contemplated hereby and
thereby. In the event that the Purchaser determines that no filing is required
under the HSR Act, the Purchaser will provide a certificate to the Seller at
the Closing certifying as to such determination and setting forth the basis for
such determination. The Purchaser agrees to (i) determine its acquisition
structure as soon as practicable, (ii) make any required filing under the HSR
Act as soon as practicable thereafter and (iii) request early termination of
the waiting period under the HSR Act.
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Section 6.8 Consents. The Purchaser will use its
Reasonable Efforts to assist the Seller (when necessary) in obtaining the
consents referred to in Schedule 7.1 and any other consents and applicable
approvals, including approvals of any regulatory authority, required to enable
the parties to (i) enter into this Agreement and the other agreements
contemplated hereby and (ii) consummate the transactions contemplated by this
Agreement and the other agreements contemplated hereby.
Section 6.9 Financing. The Purchaser will use Reasonable
Efforts to obtain the financing necessary to complete the transactions
contemplated hereby. The Purchaser will keep the Seller informed of its
efforts to obtain such financing, furnish to the Seller copies of any
commitment letters or similar indications of terms for such financing and
notify the Seller immediately if the Purchaser determines that it will not be
able to obtain such financing.
Section 6.10 Insurance. After the Closing, the Purchaser
shall obtain and maintain Florida Storage Tank Third Party Liability and
Corrective Action Insurance provided the Purchaser can obtain such insurance at
a reasonable cost.
ARTICLE VII
Covenants of the Seller
The Seller agrees that on or prior to or after the Closing, as
applicable:
Section 7.1 Corporate Action and Consents. The Seller
will take all necessary corporate and other action and will use its Reasonable
Efforts to obtain the consents referred to in Schedule 7.1 (which schedule
shall be delivered to the Seller no later than ten (10) days from the date
hereof and shall be reasonably acceptable to the Seller) and any other consents
and applicable approvals, including approvals of any regulatory authority,
required to be obtained by the Seller or the Company to enable them to carry
out the transactions contemplated by this Agreement and the other agreements
contemplated hereby to be entered into by the Seller or the Company and to
enter into this Agreement and such other agreements contemplated hereby.
Section 7.2 Reasonable Efforts to Effectuate
Transactions. The Seller agrees at all times to use its Reasonable Efforts to
take such actions (to the extent such actions are within the power of the
Seller) and execute such
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documents, applications and instruments, and to assist others to take such
actions, as may be necessary or advisable to ensure that all conditions
precedent to the obligations of the Purchaser hereunder are fulfilled at or
prior to the Closing and to use its Reasonable Efforts to ensure that, as of
the Closing Date, the Seller will not be subject to any material contractual,
regulatory or other restriction that would prohibit or delay the Closing
provided in this Agreement.
Section 7.3 Status of Representations, Warranties and
Conditions Before the Closing. The Seller shall use its Reasonable Efforts to
cause its representations and warranties contained in this Agreement or in any
schedule attached hereto to be true and correct on and as of the Closing Date
in all material respects. Prior to the Closing, the Seller shall promptly
notify the Purchaser (a) if any representation or warranty contained in this
Agreement is discovered to be or becomes untrue or (b) if the Seller fails to
perform or comply with any of its covenants or agreements contained in this
Agreement or it is reasonably expected that the Seller will be unable to
perform or comply with any of its covenants or agreements contained in this
Agreement.
Section 7.4 Confidentiality. For a period of five years
from the Closing Date, the Seller shall, and shall cause its employees, agents
and other representatives to, hold in confidence all Confidential Information.
The Seller shall not, and shall use its Reasonable Efforts to ensure that any
other Person that has access to or has obtained Confidential Information
through the Seller shall not, disclose the same to any Person. For purposes
hereof, "Confidential Information" means all material information of any kind
concerning the Company or its business except information which constitutes
public information, including, without limitation, any information publicly
filed with the Securities and Exchange Commission. The provisions of this
Section 7.4 shall terminate and become inoperative with respect to information
which (i) becomes generally available to the public other than as a result of a
disclosure by the Seller, (ii) was or is made available to the Seller following
the Closing on a non-confidential basis by a Person not affiliated with or
acting on behalf of the Purchaser or (iii) the Seller becomes legally obligated
to disclose other than due to voluntary actions by the Seller (in which case
the Seller shall nevertheless use its Reasonable Efforts to obtain confidential
treatment for such information).
Section 7.5 Access to Information and Employees. From
and after the execution and delivery of this Agreement and until the Closing
Date, the Seller will give representatives of
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the Purchaser full access, during normal business hours and upon reasonable
notice, to (i) the Facilities, which shall include, without limitation, the
right to conduct such environmental sampling or testing as the Purchaser or its
representatives deem to be reasonably necessary, (ii) the books, records,
agreements and other documents of the Seller and the Company relating directly
to the Company, and furnish such representatives with such other information
relating to the Company as the Purchaser may reasonably request and (iii) all
employees of the Company upon reasonable approval of the Seller.
Section 7.6 Business. Until the Closing, the Seller
shall operate the Company in the ordinary course and consistent with past
practice and not introduce any new method of management or operation to the
Company. Without limiting the foregoing, the Seller shall not, unless
contemplated by this Agreement or the other agreements contemplated hereby or
approved by the Purchaser, take any action to and shall prevent the Company
from taking any action to:
(a) change in any respect the manner, scope or operation
of the Company as it has historically been conducted,
(b) except for sales of inventory in the ordinary course
of business, sell or commit to sell or distribute any properties or
assets of the Company having a net book value (as reflected in the
Financial Statements) or a fair market value of more than $25,000.00
in a single transaction or series of related transactions,
(c) sell, assign, license or dispose of any rights with
respect to the Proprietary Rights,
(d) enter into any material contract, agreement,
commitment or transaction with respect to the Company or its assets,
(e) default in the performance of any term or condition
of any Commitment,
(f) declare or pay any dividend or distribution on the
outstanding securities of the Company except in the ordinary course of
business in connection with the Seller's cash management programs or
make any payments to Affiliates of the Company other than in the
ordinary course of business,
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(g) make any loans, other than advances to employees of
the Company for travel and other expenses in the ordinary course of
business,
(h) effect any material change in the methods, principles
or practices used in the collection of the Company's accounts
receivable,
(i) with respect to the Company, enter into any
agreements, take any action or engage in any activity outside of the
ordinary course of business or inconsistent with the transactions
contemplated by this Agreement, the Seller's representations and
warranties herein and the other agreements contemplated hereby, or
(j) replace any cash deposit with a letter of credit,
bond or other surety.
Section 7.7 Affirmative Actions. Prior to the Closing,
the Seller shall and shall cause the Company to:
(a) use its Reasonable Efforts to maintain in full force
and effect, in accordance with past custom and practice, the existence
and effectiveness of all insurance policies relating to the Company,
(b) use its Reasonable Efforts to maintain good relations
with the suppliers, customers, landlords and employees of the Company
in accordance with past custom and practice,
(c) promptly pay, prior to delinquency, any and all Taxes
and other obligations which become due and payable with respect to the
ownership of the Company's properties or the operation of the
Company's business on or prior to the Closing in accordance with past
custom and practice,
(d) maintain its books and records in the ordinary course
of the Company's business,
(e) make capital expenditures in the ordinary course of
the Company's business, consistent with past practices,
(f) use its Reasonable Efforts to maintain all bonds,
letters of credit and letters of guarantee in the ordinary course of
the Company's business, consistent with past practices,
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(g) use its Reasonable Efforts to maintain its assets and
make replacements in the ordinary course of the Company's business,
consistent with past practices, and
(h) do all things reasonably necessary to keep in full
force and effect the corporate existence of the Company including its
authority to conduct its business in Florida and keep in full force
and effect all material rights and franchises relating to the business
of the Company.
Section 7.8 Material Change. Prior to the Closing, the
Seller shall promptly inform the Purchaser in writing of any change, condition
or event that has or could reasonably be expected to have a Material Adverse
Effect on the Company.
Section 7.9 Employee Compensation. Prior to the Closing,
except with the Purchaser's prior written consent and except for increases
granted in the ordinary course of business consistent with historical practices
of the Company, the Company will neither make nor agree to make any increase in
the compensation or rate of compensation payable or to become payable to the
directors, officers or employees of the Company, and will not pay, agree to pay
or set aside any bonus, profit sharing, retirement, insurance, death,
severance, fringe benefit or other extraordinary or indirect compensation to,
for or on behalf of any of such directors, officers or employees other than as
required by presently existing pension, profit sharing, bonus and similar
benefit plans or policies as presently constituted, and no agreement, policy or
plan other than those now in effect shall be adopted or committed for.
Section 7.10 Capital Assets; Payments of Liabilities.
Except with the Purchaser's prior written consent, or as otherwise contemplated
by this Agreement, the Company, will not acquire or dispose of any capital
asset having a net book value of $25,000 or more, nor will the Company
discharge or satisfy any lien or encumbrance or pay or perform any obligation
or liability with respect to the Company other than (i) liabilities and
obligations reflected in the Financial Statements, and (ii) current liabilities
and obligations incurred in the usual and ordinary course of business since
December 31, 1993, and, in either such case, only as required by the express
terms of the agreement or other instrument pursuant to which the obligation or
liability was incurred.
Section 7.11 Compliance with Laws. The Seller will, and
will cause the Company to, prior to the Closing, comply with all applicable
laws, rules and regulations of all governmental
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authorities, including, without limitation, the HSR Act, in connection with the
Seller's or the Company's, as the case may be, execution, delivery and
performance of this Agreement and each other agreement contemplated hereby to
be entered into by the Seller or the Company and their consummation and
performance of the transactions contemplated hereby and thereby.
Section 7.12 Interference with Relationships. From the
date hereof, the Seller will not take any action or engage in any practice
calculated or designed to impair the relationships of the Company with its
customers, suppliers or others having business dealings with the Company.
Section 7.13 Consents. The Seller will use Reasonable
Efforts to assist the Purchaser (when necessary) in obtaining any consents and
applicable approvals, including approvals of any regulatory authority, required
to enable the parties to (i) enter this Agreement and the other agreements
contemplated by this Agreement and the other agreements contemplated hereby and
(ii) consummate the transactions contemplated by this Agreement and the
agreements contemplated hereby.
Section 7.14 Releases; Terminations. The Seller shall
cause the Company to be released and discharged from, and its assets and the
Shares to be released from, any and all deeds of trust, mortgages and security
interests securing indebtedness of the Company or the Seller, including without
limitation, indebtedness under the Second Amended and Restated Credit Agreement
dated as of May 4, 1992 of the Seller, as amended, and shall provide the
Purchaser with evidence thereof in form and substance reasonably satisfactory
to the Purchaser. The Seller and the Company shall execute an agreement
terminating the Company's obligations under the terms of the instruments,
agreements and arrangements listed on Schedule 4.31.
Section 7.15 Cooperation. The Seller will cooperate with
the Purchaser in supplying such information as may be reasonably requested by
the Purchaser in connection with obtaining consents and approvals to the
transactions contemplated by this Agreement, and to enter into and perform each
of the other agreements contemplated hereby.
Section 7.16 No Other Agreements. From and after the date
of this Agreement neither the Seller nor the Company will enter into any
agreement or understanding, or utilize any resources of the Seller or the
Company for due diligence by any third party other than the Purchaser, that
contemplates the sale
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of any material assets of the Company or the sale of any stock of the Company
(whether by issuance, merger or other transfer).
Section 7.17 Loss, Theft, Damage or Destruction.
(a) The Seller shall or shall cause the Company to make
all ordinary course repairs to the Company's assets except for such assets not
currently used by the Company in its operation.
(b) If the Seller or the Company shall become aware of
any loss, theft, damage or destruction affecting any of the assets of the
Company in any material respect, the Seller shall promptly advise the Purchaser
of such loss, theft or casualty.
(c) If any of the assets of the Company are lost or
stolen or suffer any damage or destruction, the Seller shall or shall cause the
Company to commence and thereafter diligently pursue the repair, replacement or
reconstruction of such assets, provided that (i) if the uninsured portion of
the cost and expenses of such repair, replacement or reconstruction would be
less than $300,000, the Base Cash Amount will be reduced by the aggregate cost
and expenses of such repair, replacement or reconstruction (in which event
neither the Purchaser nor the Seller shall have the right to terminate this
Agreement as a result of such damage or destruction) and (ii) if the uninsured
portion of the costs and expenses of such repair, replacement or reconstruction
would be equal to or greater than $300,000, either the Purchaser or the Seller
may terminate this Agreement.
Section 7.18 Insured Claims. From and after the Closing
Date, the Seller covenants and agrees to discharge, and indemnify and hold
harmless the Purchaser from, all insurable claims with respect to workers'
compensation, disability, employee medical, products liability, automobile and
other general liability matters arising with respect to the operation of the
business of the Company through the Closing Date.
Section 7.19 Environmental Liabilities. Subsequent to the
Closing Date, the Seller covenants and agrees to remediate all conditions
described in Schedule 7.19 in accordance with applicable Legal Requirements and
will indemnify and hold the Purchaser harmless with respect to all costs of
such remediation.
Section 7.20 Litigation. Subsequent to the Closing Date,
the Seller covenants and agrees to indemnify and hold harmless the Purchaser
from all damages, losses, liabilities, obligations and expenses arising from
the litigation described on
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Schedule 4.5; provided, however, that the Purchaser agrees to continue to
purchase products from the plaintiff in the action noted on Schedule 4.5 with
an asterisk, to the extent reasonable under the circumstances, in order to
mitigate the liability of the Seller thereunder.
ARTICLE VIII
Conditions Precedent of the Seller
Except as may be waived in writing by the Seller, the
obligations of the Seller hereunder are subject to the fulfillment at or prior
to the Closing of each of the following conditions:
Section 8.1 Representations and Warranties. The
representations and warranties of the Purchaser contained herein shall be true
and correct in all material respects as of the Closing (except to the extent
such representations and warranties relate solely to an earlier date), subject
to any changes contemplated by this Agreement.
Section 8.2 Covenants. The Purchaser shall have
performed and complied in all materials respects with all covenants or
conditions required by this Agreement to be performed and complied with by it
at or prior to the Closing.
Section 8.3 Officer's Certificate. There shall have been
delivered to the Seller a certificate of the President of the Purchaser to the
effect that (i) all representations and warranties of the Purchaser contained
herein are true and correct as if made on the Closing Date, (ii) the Purchaser
has complied with and performed all covenants and conditions required to be
complied with or performed by it prior to the Closing, (iii) no action,
proceeding or investigation is pending for any injunction, writ, preliminary
restraining order or any order of any nature issued by any court or
governmental agency of competent jurisdiction or regulatory authority directing
that the transactions contemplated by this Agreement or any agreement
contemplated hereby not be consummated, and no such injunction, writ,
preliminary restraining order or such other order has been issued and is in
effect; and (iv) no suit, action or other proceeding is pending before any
court or governmental agency or regulatory authority in which it is sought to
obtain damages or other relief in connection with this Agreement or any of the
transactions contemplated hereby, and, to the best knowledge of
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the Purchaser, no investigation that might eventuate in any such suit, action
or proceeding is pending.
Section 8.4 Corporate Proceedings. All corporate
proceedings of the Purchaser taken or to be taken in connection with the
execution and delivery of this Agreement and the agreements contemplated hereby
to he entered into by the Purchaser and the transactions contemplated hereby
and thereby and all documents incident thereto, shall be in substance and form
reasonably satisfactory to the Seller and the Seller shall have received all
such counterpart originals or certified or other copies of such documents as
the Seller may reasonably request.
Section 8.5 Opinion. Counsel to the Purchaser shall have
delivered to the Seller its opinion, dated the Closing Date, in form and
substance reasonably satisfactory to the Seller.
Section 8.6 Proceedings. No action, proceeding or order
by any court or governmental body or agency shall have been threatened in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated by this Agreement.
Section 8.7 Governmental Approval. All governmental
filings, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby will have been duly made and obtained on
terms and conditions reasonably satisfactory to the Seller, except for any such
filings, authorizations or approvals that would not be material and which are
customarily obtained after the consummation of transactions of this nature.
Section 8.8 Supply Agreement. The Purchaser shall have
executed and tendered to the Seller the Supply Agreement.
Section 8.9 Tax Matters Agreement. The Purchaser shall
have executed and tendered to the Seller the Tax Matters Agreement.
Section 8.10 Administrative Services Agreement. The
Purchaser shall have executed and tendered to the Seller the Administrative
Services Agreement.
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Section 8.11 Secretary's Certificate. There shall have
been delivered to the Seller a certificate of the Secretary of the Purchaser
certifying as to: (i) the Purchaser's certificate of incorporation, (ii) the
Purchaser's bylaws and (iii) resolutions approving this Agreement, the Merger
and the transactions contemplated by this Agreement, each as in effect on the
Closing Date.
ARTICLE IX
Conditions Precedent of the Purchaser
Except as may be waived in writing by the Purchaser, the
obligations of the Purchaser hereunder are subject to fulfillment at or prior
to the Closing of each of the following conditions:
Section 9.1 Representations and Warranties. The
representations and warranties of the Seller contained herein shall be true and
correct in all material respects as of the Closing subject to any changes
contemplated by this Agreement.
Section 9.2 Covenants. The Seller shall have performed
and complied in all material respects with all covenants or conditions required
by this Agreement to be performed and complied with by it at or prior to the
Closing.
Section 9.3 Officer's Certificate. There shall have been
delivered to the Purchaser a certificate of the President of the Seller to the
effect that (i) all representations and warranties of the Seller contained
herein are true and correct in all material respects as if made on the Closing
Date, (ii) the Seller has complied with and performed all covenants and
conditions required to be complied with or performed by it prior to the
Closing, (iii) no action, proceeding or investigation is pending for any
injunction, writ, preliminary restraining order or any order of any nature
issued by any court or governmental agency of competent jurisdiction or
regulatory authority directing that the transactions contemplated by this
Agreement or any agreement contemplated hereby not be consummated, and no such
injunction, writ, preliminary restraining order or such other order has been
issued and is in effect; and (iv) no suit, action or other proceeding is
pending before any court or governmental agency or regulatory authority in
which it is sought to obtain damages or other relief in connection with this
Agreement or any of the transactions contemplated hereby, and, to the best
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knowledge of the Seller, no investigation that might eventuate in any such
suit, action or proceeding is pending.
Section 9.4 Corporate Proceedings. All corporate
proceedings of the Seller and the Company taken or to be taken in connection
with the execution and delivery of this Agreement and the agreements
contemplated hereby to be entered into by the Seller or the Company and the
transactions contemplated hereby and thereby and all documents incident
thereto, shall be in substance and form reasonably satisfactory to the
Purchaser and the Purchaser shall have received all such counterpart originals
or certified or other copies of such documents as the Purchaser may reasonably
request.
Section 9.5 Opinion. Counsel to the Seller shall have
delivered to the Purchaser its opinion, dated the Closing Date, in form and
substance reasonably satisfactory to the Purchaser.
Section 9.6 Proceedings. No action, proceeding or order
by any court or governmental body or agency shall have been threatened in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated by this Agreement.
Section 9.7 Governmental Approval. All governmental
filings, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby will have been duly made and obtained on
terms and conditions reasonably satisfactory to the Purchaser, except for any
such filings, authorizations or approvals that would not be material and which
are customarily obtained after the consummation of transactions of this nature.
Section 9.8 Supply Agreement. The Seller and the Company
shall have executed and tendered to the Purchaser the Supply Agreement.
Section 9.9 Trademark Assignment. The Seller and the
Company shall have executed and tendered to the Purchaser the Trademark
Assignment.
Section 9.10 Trademark Licenses. The Seller and the
Company shall have executed and tendered to the Purchaser the Trademark
Licenses.
Section 9.11 Additional Deliveries of the Seller. On the
Closing Date, in addition to those other deliveries made
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pursuant to this Article IX, the Seller shall have delivered to the Purchaser
all of the following:
(a) certificates representing the Shares, duly endorsed
for transfer or accompanied by duly executed stock powers, the minute
book, stock transfer records, corporate seal and other documents and
materials relating to the Company's corporate administration and
recordkeeping;
(b) a long-form certificate of good standing of the
Company, dated as of a date within seven days prior to the Closing
Date; and
(c) the certificate of existence of the Company issued by
the Secretary of State of the State of Delaware.
Section 9.12 Consents. The Seller shall have obtained and
delivered to the Purchaser all consents listed in Schedule 7.1 except as waived
in writing by the Purchaser.
Section 9.13 Non-Competition Agreement. The Seller and
the Company shall have executed and tendered to the Purchaser the
Non-Competition Agreement.
Section 9.14 Dairy Products Purchase Agreement. The
Company shall have obtained an assignment of the rights of the Seller under the
Dairy Products Purchase Agreement dated April 1, 1988 between the Seller and
The Southland Corporation as such rights relate to the business of the Company,
which assignment shall be consented to by The Southland Corporation and shall
be in form and substance satisfactory to the Purchaser.
Section 9.15 Tax Matters Agreement. The Seller and the
Company shall have executed and tendered to the Purchaser the Tax Matters
Agreement.
Section 9.16 Title Policies. The Purchaser shall have
obtained, at Purchaser's expense, commitments for policies of title insurance
from a title insurance company reasonably satisfactory to the Purchaser, in
form and amount reasonably acceptable to the Purchaser, insuring at regular
rates, good and indefeasible fee simple title to all owned real property listed
on Schedule 4.16 hereto, subject only to the Permitted Liens; provided,
however, that this condition shall be deemed to have been waived by the
Purchaser if the reason for its non-satisfaction is the Purchaser's failure to
tender the consideration for such commitments or policies for a reason other
than the failure of any of the other conditions in this
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Article IX. If the Purchaser is not required by its financing sources to
secure title insurance, then the Purchaser shall have determined to its
reasonable satisfaction that it has received good and indefeasible title to the
owned real property listed on Schedule 4.16 hereto subject only to the
Permitted Liens.
Section 9.17 Administrative Services Agreement. The
Seller and the Company shall have executed and tendered to the Purchaser the
Administrative Services Agreement.
Section 9.18 Releases; Terminations. The Seller shall
have effected the releases required pursuant to Section 7.14. The Seller and
the Company shall have executed an agreement terminating the Company's
obligations under the terms of the instruments, agreements and arrangements
listed on Schedule 4.31.
Section 9.19 FIRPTA Affidavit. The Purchaser shall have
received from the Seller an affidavit declaring that it is not a foreign
corporation, foreign partnership, foreign trust or foreign estate as those
terms are defined in the Code and regulations issued thereunder.
Section 9.20 Secretary's Certificate. There shall have
been delivered to the Purchaser a certificate of the Secretary of each of the
Seller and the Company certifying as to: (i) its certificate of incorporation,
(ii) its bylaws and (iii) resolutions approving this Agreement, the Merger and
the transactions contemplated by this Agreement, each as in effect on the
Closing Date.
ARTICLE X
Indemnity
Section 10.1. Survival of Representations and Warranties; Tax
Matters. (a) Except as expressly set forth in this Section 10.1, each of the
representations and warranties contained in this Agreement will survive the
Closing and remain in full force and effect for fifteen months after the
Closing Date. The representations and warranties of the Seller contained in
Sections 4.1, 4.2, 4.3, 4.4 and 4.8 will survive the Closing and remain in full
force and effect thereafter. The representations and warranties of the Seller
contained in Sections 4.15(a), 4.16(a) and 4.26(a) will survive the Closing and
remain in full force and effect for a period of three years after the Closing
Date. The representations and warranties of
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the Seller contained in Section 4.13 shall survive the Closing and remain in
full force and effect for the applicable statute of limitations. Any claim for
indemnification with respect to any of such matters which is not asserted by
notice given as herein provided relating thereto within such specified period
of survival, if any, may not be pursued and is hereby irrevocably waived after
such time. Any such notice shall specifically identify the particular breach
and the underlying facts and Indemnifiable Loss relating thereto.
(b) Notwithstanding anything to the contrary herein, all
indemnification relating to Taxes shall be governed exclusively by the Tax
Matters Agreement.
Section 10.2. Limitations on Liability. (a) For purposes of
this Agreement, (i) "Indemnity Payment" means any amount of Indemnifiable
Losses required to be paid pursuant to this Agreement, (ii) "Indemnitee" means
any person or entity entitled to indemnification under this Agreement, (iii)
"Indemnifying Party" means any person or entity required to provide
indemnification under this Agreement, (iv) "Indemnifiable Losses" means any and
all damages, losses, liabilities, obligations, costs and expenses (including
reasonable attorneys' fees), and any and all claims, demands or suits (by any
person or entity, including any governmental entity), in any such case provided
that the underlying liability or obligation giving rise thereto is not the
result of any action taken or omitted to be taken by the Indemnified Party, or
any affiliate thereof, and (v) "Third Party Claim" means any claim, action or
proceeding made or brought by any person or entity who or which is not a party
to this Agreement or an affiliate of a party to this Agreement.
(b) Reserved.
(c) Notwithstanding any other provision hereof or of any
applicable statute, law, ordinance, rule or regulation:
(i) no Indemnitee will be entitled to make a claim
against an Indemnifying Party under Sections 10.3(a)(i) or 10.3(b)(i)
unless and until the aggregate amount of Indemnifiable Losses incurred
by the Indemnitee in respect of any individual event or occurrence or
series of related events or occurrences giving rise to such
Indemnifiable Losses exceeds $10,000, in which event (subject to the
following provisions of this Section 10.2), such Indemnitee may assert
its right to indemnification hereunder to the
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full extent of its Indemnifiable Losses in respect thereof; and
(ii) no Indemnitee will be entitled to make a claim
against an Indemnifying Party under Sections 10.3(a)(i) or 10.3(b)(i)
unless and until the aggregate amount of claims which may be asserted
for Indemnifiable Losses under Section 10.3(a)(i) or 10.3(b)(i), as
applicable, exceeds $225,000, and then only to the extent of the
excess;
(d) Notwithstanding any other provisions of this
Agreement, the indemnification obligations of the Seller under Section
10.3(a)(i) and of the Purchaser under Section 10.3(b)(i) will not exceed
$4,500,000.
(e) As between the Seller, on the one hand, and the
Purchaser, on the other hand, the rights and obligations set forth in Articles
V and X and Sections 7.18, 7.19 and 7.20 will be the exclusive rights and
obligations with respect to this Agreement, the events giving rise to this
Agreement and the transactions provided for herein or contemplated thereby.
Without limiting the generality or effect of the foregoing, as a material
inducement to the other parties hereto entering into this Agreement, each of
the parties to this Agreement hereby waives, to the extent permitted by law,
any claim or cause of action which it otherwise might assert, including without
limitation under the common law or any other statute, law, ordinance, rule or
regulation, by reason of this Agreement, the events giving rise to this
Agreement and the transactions provided for herein or contemplated hereby or
thereby, except for claims or causes of action brought under and subject to the
terms and conditions of this Article X or, as applicable, Article V, Sections
7.18, 7.19 and 7.20; provided, however, in no event shall any claim based on
fraud be waived by the foregoing provision.
Section 10.3. Indemnification. (a) Subject to Sections 10.1,
10.2 and 10.4, the Seller will indemnify, defend and hold harmless the
Purchaser from and against any and all Indemnifiable Losses to the extent
relating to, resulting from or arising out of:
(i) any breach by the Seller of any of the
representations or warranties of the Seller contained in Sections 4.1
through 4.25 inclusive, Sections 4.26(b), (c) and (d), and Sections
4.27 through 4.36 inclusive, of this Agreement;
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(ii) any breach by the Seller of any covenant of the
Seller contained in this Agreement; and
(iii) any breach by the Seller of the representations and
warranties of the Seller contained in Section 4.26(a).
(b) Subject to Sections 10.1, 10.2 and 10.4, the
Purchaser will indemnify, defend and hold harmless the Seller from and against
any and all Indemnifiable Losses to the extent relating to, resulting from or
arising out of:
(i) any breach by the Purchaser of any of the
representations or warranties of the Purchaser contained in this
Agreement; and
(ii) any breach by the Purchaser of any covenant of the
Purchaser contained in this Agreement.
(c) The Seller and the Purchaser agree that any indemnity
payment hereunder shall be treated as an adjustment to the purchase price.
Section 10.4. Defense of Claims. (a) If any Indemnitee
receives notice of the assertion or commencement of any Third Party Claim
against such Indemnitee with respect to which an Indemnifying Party is
obligated to provide indemnification under this Agreement, the Indemnitee will
give such Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than 30 calendar days after receipt of such notice of such
Third Party Claim; provided, however, that the failure by an Indemnitee to give
such notice within 30 calendar days shall not relieve the Indemnifying Party of
its obligations, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give timely notice. Such notice will describe
the Third Party Claim in reasonable detail, will include copies of all material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in, or,
by giving written notice to the Indemnitee, to assume, the defense of any Third
Party Claim at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel (reasonably satisfactory to the Indemnitee), and the
Indemnitee will cooperate in good faith in such defense.
(b) If, within 10 calendar days after giving notice of a
Third Party Claim to an Indemnifying Party pursuant to Section 10.4(a), an
Indemnitee receives written notice from the
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Indemnifying Party that the Indemnifying Party has elected to assume the
defense of such Third Party Claim as provided in the last sentence of Section
10.4(a), the Indemnifying Party will not be liable for any legal expenses
subsequently incurred by the Indemnitee in connection with the defense thereof.
Without the prior written consent of the Indemnitee, the Indemnifying Party
will not enter into any settlement of any Third Party Claim unless the
Indemnitee is fully released by the claimant from all liability arising from
such Third Party Claim.
(c) Any claim by an Indemnitee on account of an
Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim") will be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, but in any event not later than 30 calendar days after
the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party
will have a period of 30 calendar days within which to respond in writing to
such Direct Claim. If the Indemnifying Party does not so respond within such
30 calendar day period, the Indemnifying Party will be deemed to have rejected
such claim, in which event the Indemnitee will be free to pursue such remedies
as may be available to the Indemnitee on the terms and subject to the
provisions of this Article X.
(d) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an Indemnity Payment, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or
pursuant to any claim, recovery, settlement or payment by or against any other
entity, the amount of such reduction, less any costs, expenses, premiums or
taxes incurred in connection therewith, together with interest thereon from the
date of payment of such amount by the Indemnifying Party at a rate of interest
equal to 7% per annum will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnity Payment, the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights of
the Indemnitee against any third party that is not an affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnity Payment
relates; provided, however, that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, any and all claims of the Indemnifying Party against any
such third party on account of said Indemnity Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision
hereof, each such Indemnitee and Indemnifying Party will duly execute upon
request
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all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
ARTICLE XI
Access to Information and Other Agreements
Section 11.1 Access to Information and Employees. After
the Closing, upon reasonable notice, the Purchaser shall, and shall use its
Reasonable Efforts to cause its counsel and independent public accountants to,
afford to representatives of the Seller including its counsel and accountants,
reasonable access, during normal business hours, to all books, records, files,
and documents related to the Company in the Purchaser's possession or under the
Purchaser's control as may be reasonably requested by the Seller in order to
permit the Seller (at its cost and expense) to prepare and file federal, state
and local tax returns and to prepare for and participate in any investigation
with respect thereto, to prepare for, participate in, assert or defend any
other investigation or litigation relating to or involving the Seller or the
Company, and to discharge the Seller's obligations or contest and defend any
claims made under this Agreement and any other agreements contemplated hereby.
In addition, the Purchaser will cooperate and will instruct all of its
personnel to cooperate with the Seller in connection with the foregoing. After
the Closing, the Seller shall have the right, at its cost and expense, to copy
such books, records, files and documents related to the Company as may be
reasonably useful to the Seller in connection with any of the matters described
in the preceding provisions of this Section 11.1. If the originals of any such
books, records, files and documents related to the Company are required in
connection with any proceeding, litigation or similar matter, the Seller shall
have the right to use such originals; provided, the Seller shall use its
Reasonable Efforts to have such originals released from any such proceeding,
litigation or other matter and returned to the Purchaser as soon as reasonably
possible under the circumstances. The Purchaser will cause the books, records,
files and documents related to the Company to be maintained in original form
with respect to legal documents and photographic, micrographic or other storage
form with respect to other books, records, files and documents (to the extent
consistent with Legal Requirements applicable to the Seller and the Purchaser)
for not less than five years from the date of the Closing and in any case the
Purchaser shall not destroy or allow the destruction of the same without
providing to the Seller a reasonable opportunity to take possession thereof.
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Section 11.2 Further Assurances. Each party shall execute
and deliver such other certificates, agreements, conveyances, certificates of
title and other documents and take such other actions as may reasonably be
requested by the other party in order to (a) consummate or implement the
transactions contemplated by this Agreement and (b) transfer and assign to the
Purchaser the Shares.
ARTICLE XII
Miscellaneous
Section 12.1 Amendment and Waiver. This Agreement may be
amended, modified or supplemented or any provision of this Agreement may be
waived only by an instrument in writing executed by the party against which
enforcement of the amendment, modification or supplement is sought. No course
of dealing between or among any Persons having any interest in this Agreement
will be deemed effective to amend, modify, supplement, discharge or waive any
part of this Agreement or any rights or obligations of any Person under or by
reason of this Agreement.
Section 12.2 Assignment. This Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned (other than by operation of law) by any party hereto without the prior
written consent of the other party.
Section 12.3 Notice. Any notice or communication must be
in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person or
by telecopier. Such notice shall be deemed received on the date on which it is
hand-delivered or sent via telecopier or on the third business day following
the date on which it is so mailed. For purposes of notice, the addresses of
the parties shall be:
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If to the Purchaser: Engles Dairy Acquisition, Inc.
c/o Engles Management Corporation
3811 Turtle Creek Blvd.
Suite 1950, LB 50
Dallas, TX 75219
Attention: Gregg L. Engles
Fax: (214) 528-9929
with copies to: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: William A. McCormack
Fax: (214) 939-6100
If to the Seller: The Morningstar Group Inc.
5956 Sherry Lane, Suite 1100
Dallas, Texas 75225-6552
Attention: John P. Clarson
Fax: (214) 360-9100
with a copy to: Weil, Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: R. Scott Cohen
Fax: (214) 746-7777
Any party may change its address for notice by written notice given to the
other parties.
Section 12.4 Entire Agreement. This Agreement and the
exhibits and schedules hereto and the agreements contemplated hereby supersede
all prior agreements and understandings relating to the subject matter hereof,
except that the obligations of any party under any agreement executed pursuant
to this Agreement shall not be affected by this Section.
Section 12.5 Costs, Expenses and Legal Fees. Whether or
not the transactions contemplated hereby are consummated, each party hereto
shall bear its own costs and expenses (including attorneys' fees) incurred in
connection with the transactions contemplated by this Agreement.
Section 12.6 Severability. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be
53
<PAGE> 54
construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
Section 12.7 Governing Law. This Agreement and the rights
and obligations of the parties hereto shall be governed, construed and enforced
in accordance with the laws of the State of Texas.
Section 12.8 Captions. The captions in this Agreement are
for convenience of reference only and shall not limit or otherwise affect any
of the terms or provisions hereof.
Section 12.9 Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 12.10 Announcements, Press Releases or Reports.
Any announcements, press releases or reports by any of the parties hereto
relating to the transactions contemplated by this Agreement and each other
agreement contemplated hereby shall be approved in advance by the Seller and
the Purchaser; except that any party, with reasonable advance notice to the
other party and opportunity to review the proposed disclosure, may make any
announcement, press release or report required by applicable law without such
advance approval.
ARTICLE XIII
Termination
Section 13.1 Grounds for Termination. This Agreement may
be terminated at any time prior to the Closing Date:
(a) by the mutual written agreement of the Seller and the
Purchaser;
(b) by the Seller or by the Purchaser if the purchase and
sale of the Shares contemplated hereby shall not have
54
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been consummated by April 4, 1994 (or such other date, if any, as the
Seller and the Purchaser shall have agreed in writing), and if the
failure to consummate such purchase and sale on or before such date is
not caused by any breach of this Agreement by the party electing to
terminate pursuant to this Section 13.1(b);
(c) by the Seller or by the Purchaser if the consummation
of such transactions would violate any nonappealable final order,
decree or judgment of any court or governmental body having competent
jurisdiction;
(d) by the Seller or by the Purchaser if the Purchaser
fails to secure and deliver to Seller copies of financing commitments
issued by responsible financial institutions providing for the
financing of the cash portion of the purchase price for the Shares on
or before March 1, 1994;
(e) by the Seller or by the Purchaser pursuant to Section
7.17(c); or
(f) by the Seller or the Purchaser if either party shall
have received a second request for information under the HSR Act.
Section 13.2 Effect of Termination. If this Agreement is
terminated by the Seller or by the Purchaser as permitted under Section 13.1
hereof, such termination shall be without liability of either party to the
other party to this Agreement, or to any of its shareholders, directors,
officers, employees, agents, consultants or representatives; provided that the
provisions of Sections 6.5, 7.4 and 12.5 hereof shall remain in full force and
effect; and provided further that if such termination shall result from the
willful failure of a party to fulfill a condition to the performance of the
other party or to perform a covenant of this Agreement or from a willful breach
by a party to this Agreement, such party shall be fully liable for any and all
damages, costs and expenses (including, but not limited to, reasonable counsel
fees) sustained or incurred by the other party.
55
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
THE MORNINGSTAR GROUP INC.
By:_____________________________________
Tracy L. Noll
Vice President and Chief Financial
Officer
VELDA FARMS INC.
By:_____________________________________
Tracy L. Noll
Vice President
ENGLES DAIRY ACQUISITION, INC.
By:_____________________________________
Gregg L. Engles
President
<PAGE> 57
AGREEMENT AND PLAN OF MERGER
among
ENGLES DAIRY ACQUISITION, INC.,
VELDA FARMS INC.
and
THE MORNINGSTAR GROUP INC.
February 17, 1994
<PAGE> 58
TABLE OF CONTENTS
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ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Certificate of Incorporation of the
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.4 Bylaws of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.5 Board of Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . 7
Section 2.6 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7 Conversion of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 No Further Ownership Rights in Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.9 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III Representations and Warranties of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.6 Acquisition of Shares for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.8 Brokers' or Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.2 Authorization and Validity of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.3 Authorization and Validity of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.6 Acquisition of Preferred Stock for Investment . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.8 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.9 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.10 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 4.12 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.13 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.14 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.15 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.16 Real Property-Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.17 Real Property-Leased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.18 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.20 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.21 Relationship with Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.23 Patents, Trademarks and Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.24 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.25 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.26 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.27 Brokers' or Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.28 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.29 Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.30 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.31 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.32 Section 1445 of the Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.33 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.34 Interests in Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.35 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.36 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE V Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI Covenants of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.1 Corporate Action and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.2 Reasonable Efforts to Effectuate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.3 Status of Representations, Warranties and Conditions Before the Closing . . . . . . . . . . . . . . 32
Section 6.4 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.6 Interference with Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.9 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII Covenants of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.1 Corporate Action and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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Section 7.2 Reasonable Efforts to Effectuate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.3 Status of Representations, Warranties and Conditions Before the Closing . . . . . . . . . . . . . . 35
Section 7.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.5 Access to Information and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.6 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.7 Affirmative Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.8 Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.9 Employee Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.10 Capital Assets; Payments of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.12 Interference with Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.13 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.14 Releases; Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.15 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.16 No Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.17 Loss, Theft, Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.18 Insured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.19 Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.20 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VIII Conditions Precedent of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.4 Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.5 Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.6 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.7 Governmental Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.8 Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.9 Tax Matters Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.10 Administrative Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.11 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IX Conditions Precedent of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.4 Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.5 Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.6 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.7 Governmental Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.8 Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.9 Trademark Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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Section 9.10 Trademark Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.11 Additional Deliveries of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.12 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.13 Non-Competition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.14 Dairy Products Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.15 Tax Matters Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.16 Title Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.17 Administrative Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.18 Releases; Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.19 FIRPTA Affidavit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.20 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE X Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.1. Survival of Representations and Warranties; Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.2. Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.4. Defense of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE XI Access to Information and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.1 Access to Information and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE XII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.1 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 12.5 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 12.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 12.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.10 Announcements, Press Releases or Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XIII Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.1 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
(iv)
<PAGE> 62
EXHIBITS
Exhibit Description
A Terms of Preferred Stock
B Form of Supply Agreement
C Form of Tax Matters Agreement
D Form of Trademark Assignment
E-1 Form of Trademark License
E-2 Form of Trademark License
E-3 Form of Trademark License
(v)
<PAGE> 1
10(fff)
DRAFT 2/16/94
DAIRY PRODUCTS SUPPLY AGREEMENT
This Dairy Products Supply Agreement (the "Agreement") is made this ____
day of __________, 1994, by and between The Morningstar Group Inc., and its
wholly owned subsidiaries executing this Agreement, with principal offices at
5956 Sherry Lane, Suite 1100, Dallas, Texas 75225 (collectively "Seller") and
Velda Farms Inc., a Delaware corporation, with its principal offices at 501
N.E. 181st Street, Miami, Florida 33162 ("Buyer").
W I T N E S S E T H:
Whereas, Seller has entered into that certain Stock Purchase Agreement
dated February ____, 1994, (the "Purchase Agreement"), pursuant to which Seller
has agreed to sell all of the outstanding common stock of Buyer; and
Whereas, one of the conditions precedent to closing under the Purchase
Agreement and part of the consideration therefor is that Buyer and Seller shall
enter into this Agreement, pursuant to which Seller agrees to sell and deliver,
and Buyer agrees to purchase, Buyer's requirements for certain products
supplied by Seller.
Now, therefore, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, Seller and Buyer
agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used herein shall have the meanings ascribed to them
in Article I hereof unless such terms are defined elsewhere in this Agreement.
Affiliate(s): With respect to any specified person, any other person
controlling or controlled by or under common control with such specified
person. For the purpose of this
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definition, "control", when used with respect to any specified person, means
the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meaning
correlative to the foregoing.
Agreement: As defined above in the preamble.
Agreement Year: The one year period commencing on the Effective Date
and each succeeding year during the Term.
Applicable Regulations: As defined in Section 5.1.
Arbitrable Dispute: As defined in Section 19.2.
Base Price: As defined in Section 4.1.
Base Pricing Period: The period from the Effective Date until the fifth
anniversary of the Effective Date.
Best Efforts: With respect to any undertaking as to the performance of
which a party has covenanted to use its Best Efforts to accomplish such
undertaking, the term Best Efforts shall mean the diligent pursuit by such
party, in good faith, of all such acts as may be required in light of such
party's capabilities at the time such performance is required to be rendered to
perform such undertaking; provided, however, in no event shall the obligation
to use Best Efforts require any party to (i) make any capital expenditure
(other than as contemplated by such party's then current capital budget); (ii)
incur any indebtedness for money borrowed (other than as contemplated by such
party's then current operating budget); (iii) modify, amend, breach of
terminate any contractual arrangement with an unaffiliated person by or to
which such party is then bound or subject, which modification, amendment,
breach or termination would cause such party to incur a liability; or (iv)
suffer any operating loss as a result of, or in connection with, the
performance of such undertaking.
Best Price: As defined in Section 4.1
Bid Expiration: As defined in Section 4.4.
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<PAGE> 3
Buyer: As defined above in the preamble.
Buyer's Requirements: During the term of this Agreement, Buyer's
requirements for resale of the Products to retail and commercial customers in
the State of Florida. Buyer's Requirements do not include sales of products
similar in nature to the Products to other dairy operators in the State of
Florida.
Claim: As defined in Section 9.4
Confidential Information: As defined in Section 11.1
Designated Facility: As defined in Section 3.3.
Effective Date: As defined in Section 2.1.
Existing Florida Distributor: As defined in Section 3.2.
Force Majeure: Acts of God, strikes, lockouts or other industrial
disturbances, acts of the public enemy, wars, blockades, insurrections, riots,
requisitions and priorities of the United States or foreign government or the
government of any state or subdivision thereof, including imposition by any
duly authorized agency of such government of mandatory allocation of one or
more of the Products sold hereunder, civil disturbances, explosions, orders,
laws or proclamations of such governmental authorities acting under claim or
color of authority, and any other cause or causes which are not within the
reasonable control of the party claiming Force Majeure, provided that Force
Majeure does not include any interference with a party's performance of its
obligations resulting from or attributable to a violation of any law,
regulation, rule or order, or from any failure to maintain its facilities at
all times in accordance with the requirements of applicable law, regulations,
rules and orders and in accordance with good industry practice.
Indemnified Party: As defined in Section 9.3
Indemnifying Party: As defined in Section 9.3
Index: As defined in Section 4.1
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Labor/Utility Cap: As defined in Section 4.1.
Market Price: As defined in Section 4.3.
Market Pricing Period: The period after the Base Pricing Period until
the termination of this Agreement.
Products: The slate of dairy and other products listed on Exhibit A-1
which are manufactured or processed by Seller for sale to Buyer, together with
any other products of substantially the same quality, character or grade that
Buyer elects to buy in addition to or as a substitute for any of the foregoing.
"Product" refers to any of the Products. Any Product which Seller ceases to
manufacture or process during the Term will no longer be deemed a Product
subject to this Agreement.
Product Group: The sub groups of Products described as Product Group A
and Product Group B on Exhibit A-1.
Rejected Products: As defined in Section 5.4
Seller: As defined in the preamble.
Surplus Packaging: As defined in Section 13.5.
Term: As defined in Section 2.1.
USDA: The United States Department of Agriculture.
ARTICLE II
TERM OF AGREEMENT
Section 2.1. The term (the "Term") of this Agreement shall commence as
of the closing date under the Purchase Agreement (the "Effective Date") and
shall continue for an initial period of five years, during which the Base Price
shall apply, followed by a subsequent period of five years, during which the
Market Price shall apply, unless earlier terminated as set forth in this
Agreement.
ARTICLE III
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BUYER'S REQUIREMENTS
Section 3.1. Subject to the terms of this Agreement, Buyer shall
purchase from Seller, and Seller shall sell to Buyer, such quantities and types
of Products as are needed from time to time to satisfy Buyer's Requirements.
Section 3.2. (a) Buyer agrees that, except as otherwise permitted by
this Agreement, during the Term, Seller will be the exclusive source of supply
for Buyer's Requirements, and that Buyer will not purchase the Products from
any other person, nor process or manufacture the Products in order to satisfy
Buyer's Requirements, unless Buyer has first complied with the terms of this
Agreement.
(b) If Seller fails to deliver any Products required by
Buyer in accordance with the terms of this Agreement (for reasons other than
Force Majeure), Buyer may purchase such products from other suppliers until
such time as Seller resumes the delivery of the Products in accordance with the
terms of this Agreement.
(c) If any customer of Buyer requests that Buyer sell to
that customer products similar to the Products (i) that have a brand, label or
formulation that Seller cannot, or upon request by Buyer will not, manufacture
or process, or (ii) that are manufactured or processed by a manufacturer or
processor other than Seller, then Buyer may purchase such products from other
suppliers, manufacturers or processors or Buyer may manufacture or process such
products, for sale to the customer making that request. Buyer agrees that
Buyer will not solicit or encourage its customers to specify products described
in the preceding sentence.
(d) Provided that all such products purchased, manufactured
or processed are sold and delivered outside of the State of Florida for use or
resale outside of the State of Florida, Buyer may (i) purchase products similar
to the Products from suppliers other than Seller, and (ii) manufacture or
process products similar to the Products.
(e) Buyer is not obligated by this Agreement to purchase
any minimum quantity of any Product from Seller.
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(f) The limitations imposed by Sections 3.1 and 3.2 of this
Agreement apply to Buyer and any subsidiary of Buyer, but will not apply to any
business purchased by Buyer or any of its affiliates which is, at the time of
purchase, engaged in selling products similar to the Products to retail and
commercial customers in the state of Florida (an "Existing Florida
Distributor"). If Buyer acquires an Existing Florida Distributor during the
Term and combines its business with that of Buyer, the parties will in good
faith negotiate such modifications to this Agreement as may be required in
order to permit Buyer's purchase of Products pursuant to this Agreement in
substantially similar volumes to those existing prior to the acquisition of the
Existing Florida Distributor.
Section 3.3. The Products supplied by Seller pursuant to this Agreement
as identified on Exhibit A are presently being, and during the Term will be,
manufactured or processed by Seller or its subsidiaries at the facilities
designated on Exhibit A (the "Designated Facilities"). Seller may not supply
products manufactured or processed at any facility of Seller other than a
Designated Facility without the prior written consent of Buyer, which may not
be unreasonably withheld. Any request by Seller to change the Designated
Facility for any Product must (i) be in writing, (ii) be made not less than
thirty days before such change is to be made effective, (iii) permit Buyer a
reasonable opportunity to evaluate the character and quality of the affected
Products, and (iv) be accompanied by such assurances as Buyer may reasonably
request that such change will not adversely affect the quality and character of
the Product or Products.
Section 3.4. Seller shall use its Best Efforts during the Base Pricing
Period to obtain all ingredients, containers and packaging materials, raw
materials, labor and utilities at competitive prices consistent with the other
quality control provisions of this Agreement and in a manner that is generally
consistent with the practices of Seller employed prior to the Effective Date.
ARTICLE IV
PRODUCTS PRICES
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Section 4.1. During the Base Pricing Period, the purchase price per
unit for each of the Products (inclusive of all transportation, service and
delivery costs) shall be determined as follows (the "Base Price"):
(a) On the Effective Date, the price to Buyer for each
Product shall be the price per unit in effect on February 1, 1994 as
reflected in Exhibit A-1. Exhibit A-2 sets forth Seller's per unit cost
for milk and milk based ingredients and Seller's per unit costs for
labor, electricity and natural gas for the year ended December 31, 1993.
(b) The Base Prices of the Products manufactured or
processed by Seller are to be adjusted after the Effective Date in
accordance with Section 4.2 in the event of and to the extent of:
(i) any increase or decrease in Seller's cost per
unit of raw milk, as reflected by the published Federal Order
No. 30 Class II price announced from time to time (the "Index"),
plus or minus any federally mandated adjustments and as impacted
by the federally published butterfat differential and plus or
minus any changes in applicable supplier premium (or equivalent
measures if the Index is ever changed during the Term) occurring
after February 1, 1994;
(ii) any increase or decrease in Seller's cost per
unit for packaging and raw materials (other than milk), net of
all rebates, discounts and allowances, occurring after December
31, 1993; and
(iii) The lesser of (x) 100% of the annual amount
of the increase or decrease in Seller's product costs resulting
from an increase or decrease in Seller's labor rates and utility
rates occurring after December 31, 1993 and (y) a maximum
percentage increase in Seller's aggregate labor and utility
rates of five percent (5%) per year, on a cumulative basis,
commencing as of January 1, 1994 (the "Labor/ Utility Cap").
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<PAGE> 8
(c) Each invoice for Products purchased at the Base Price
as determined above will be reduced by a rebate amount equal to 8%.
(d) In the event that at any time during the Term Seller
supplies and delivers products substantially similar to the Products to
a dairy operator, distributor or food service supplier located in the
State of Florida in aggregate national quantities not more than twice
the annual quantities of such Products being sold to Buyer under this
Agreement, at a price (the "Best Price") that is less than the Base
Price or Market Price set pursuant to this Agreement, Seller shall
notify Buyer and shall set the Market Price or Base Price at the Best
Price for the relevant Products for so long as Seller is selling
Products at the Best Price in the State of Florida.
Section 4.2. During the Base Pricing Period, Seller shall effect
changes in the Base Price, which will become effective on the first day of the
month following Seller's notice to Buyer, as follows:
(a) Changes in the Base Price made pursuant to Section
4.1(b)(i) are to be announced to Buyer by Seller's written notice on or
before the fifteenth day of each month based upon the relevant costs
effective as of the last day of the preceding month.
(b) Changes in the Base Price made pursuant to Section
4.1(b)(ii) are to be announced to Buyer by Seller's written notice on or
before the fifteenth day of the month following each calendar quarter
based upon the relevant costs of Seller for the preceding calendar
quarter.
(c) Changes in the Base Price made pursuant to Section
4.1(b)(iii) are to be announced to Buyer by Seller's written notice on
or before the fifteenth day of the second month following each calendar
year based upon the relevant costs of the Seller, or changes in the
applicable index, for the preceding calendar year. Measurements of the
percentage change of labor and utility rates subject to the
Labor/Utility Cap are to be
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<PAGE> 9
determined against the level of rates as of December 31, 1993.
(d) Changes in Base Prices will be made in accordance with
this Section 4.2 for the months, calendar quarters and years ending
after the Effective Date.
(e) Upon Buyer's request, Seller will furnish to Buyer (a)
a certificate of its Chief Financial Officer and (b) documentary
evidence from its books and records, reasonably satisfactory to Buyer,
to substantiate the determination of the Base Prices, provided, however,
all such information made available to Buyer will be considered
Confidential Information.
Section 4.3. During the Market Pricing Period, the purchase price of
the Products included in each Product Group will be the prices agreed upon from
time to time by Buyer and Seller for that Product Group or as determined
pursuant to Section 4.4 (the "Market Price") and will reflect competitive
market conditions and include all transportation, service and delivery costs.
Section 4.4. (a) If at any time during the Market Pricing Period,
Seller and Buyer are unable to agree on any Market Prices pursuant to Section
4.3, Buyer may solicit competitive bids for one or more complete Product Groups
from third party suppliers. Buyer will notify Seller that it is soliciting
bids for one or more complete Product Groups at the time Buyer solicits such
bids. If Buyer obtains a bona fide offer to supply the full slate of Products
included in a Product Group which (i) is submitted by a third party supplier
who is capable of furnishing the Products included in a Product Group which are
substantially similar in quality and quantity to the Products then being
supplied by Seller and with substantially similar service by the Supplier as
that required by this Agreement, (ii) is for a term of not less than three (3)
months, (iii) would result in a reduction in the aggregate dollar value of
Buyer's total monthly purchases for that Product Group of more than one percent
(1%) of the aggregate dollar value of Buyer's total monthly purchases of the
Product Group (such percentage to be determined in each case by using the
prices quoted in the third party supplier bid to calculate
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<PAGE> 10
the aggregate dollar value of the Product Group that would have been purchased
by Buyer during the month preceding the month in which such competitive bid is
made), and (iv) certified by Buyer's independent certified public accountants
to meet each of the conditions stated above at (i), (ii) and (iii), then Buyer
will notify Seller of the existence of the competitive bid. If within seven
(7) days after its receipt of written notice from Buyer, Seller has not elected
to meet the competitive bid, Buyer may purchase the Products included in the
Product Group made subject of the competitive bid from the third party supplier
pursuant to the terms of the supplier's bid. If Seller meets the competitive
bid, Buyer will furnish Seller with a copy of the competitive bid.
(b) When the term of the supplier's bid expires (the "Bid
Expiration"), the Seller may thereafter supply the Buyer's Requirements for the
Products if the Buyer neither solicits nor receives third party bids for that
Product Group in accordance with Section 4.4(a). If the Buyer desires to
solicit third party bids for Buyer's Requirements of a Product Group prior to a
Bid Expiration, Buyer will solicit such bids at least fourteen (14) days prior
to the Bid Expiration. Buyer will notify Seller that it is soliciting bids for
the relevant Product Group at the time Buyer solicits bids. If Buyer receives
a third party bid to supply Buyer's Requirements for the relevant Product Group
meeting the conditions of Section 4.4(a)(i) and (ii), then Buyer will notify
Seller of the existence of the competitive bid. If Seller (within seven (7)
business days after being notified of the terms of the competitive bid by
Buyer) submits a bid which meets the competitive bid received by Buyer, Seller
will then supply Buyer's Requirements for the relevant Product Group pursuant
to the terms of the bid and the terms of this Agreement.
(c) Seller may seek to match the bid of a third party supplier with
respect to a Product Group on no more than three occasions. Any Product Group
which is made subject to Seller's rights under this Section 4.4 on three
occasions will upon the solicitation of competitive bids on a fourth occasion
cease to be considered a Product Group subject to this Agreement, and Buyer may
thereafter obtain Buyer's Requirements for that Product Group as Buyer may
determine without compliance with this Agreement.
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ARTICLE V
QUALITY OF PRODUCTS
Section 5.1. (a) Seller represents, warrants and covenants to Buyer as
follows:
(i) All Products sold by Seller to Buyer pursuant to this
Agreement will be of a quality and grade consistent with good industry
practices, will comply with all applicable federal, state and local
laws, rules, regulations and requirements ("Applicable Regulations"),
and will be of a quality and character at least equal to that furnished
to Buyer by Seller during the two year period prior to the Effective
Date;
(ii) All Products sold by Seller pursuant to this Agreement
will be good and merchantable and fit for the purposes and uses for
which they are intended; and
(iii) All Products sold by Seller to Buyer pursuant to this
Agreement will be manufactured, processed, labeled, packaged, stored and
shipped in compliance with Applicable Regulations.
(b) Seller shall regularly conduct such tests of the Products and of
the raw materials, ingredients and processes used in connection with the
manufacturing and processing of the Products as are commonly utilized in the
dairy processing industry or required by federal, state or local governmental
authorities.
(c) Upon request in advance and during reasonable business hours,
Seller will permit qualified representatives of Buyer to enter and inspect the
areas of Seller's manufacturing, processing and distribution, laboratory and
quality control facilities used to produce, store and ship the Products and to
store the raw materials, packaging and ingredients relating thereto. Seller
shall provide Buyer with reasonable notice of and access to all of the tests
conducted by Seller pursuant to paragraph (b) above and copies of the reports
and written results of such tests; provided, however, all information made
available to Buyer's representatives will be considered to be
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Confidential Information and will be used by Buyer only for specific
recommendations and guidelines to ensure compliance with Seller's
representations, warranties and covenants given in this Agreement.
Section 5.2. Seller shall promptly notify Buyer of (i) any citation,
threatened regulatory action or contact by any federal, state or local
authority or regulatory agency which relates to Seller's representations,
warranties and covenants contained in this Article V, (ii) any suspected
bacterial, chemical, pesticide or other contamination of the Products or other
condition of the Products which violates any Applicable Regulations or Seller's
representations, warranties and covenants contained in this Article V, (iii)
Seller's receipt of any citation, notice of violation or enforcement action by
any federal, state or local authority or regulatory agency relating to sanitary
conditions or compliance with Applicable Regulations of Seller's facilities or
in other areas where the Products, and/or ingredients and materials for such
Products, are manufactured, processed, packaged or stored, and (iv) any
occurrence or state of facts of which Seller is aware which would reasonably be
expected, if disclosed to a federal, state or local authority, to have any of
the effects set forth at (i), (ii) or (iii) above. Seller will promptly notify
Buyer of any request or order for recall, market withdrawal or stock recovery
of the Products by any federal, state or local authority or regulatory agency,
and any voluntary recall, market withdrawal or stock recovery of the Products
initiated by Seller.
Section 5.3. If Seller initiates a recall, Buyer agrees to use its Best
Efforts to remove all Products from distribution channels within its control
and to otherwise cooperate with Seller in its efforts associated with such
recall. Buyer shall have the right to withdraw, remove and/or recall any
Products from any stage of Buyer's distribution and/or sale, whether such
Products have been purchased by the ultimate consumer or otherwise, if Buyer,
in the exercise of its reasonable business judgment, believes in good faith
that such Products (i) are in any way contaminated with any foreign substance
that is likely to threaten public safety and health or (ii) have not been
manufactured, processed, labeled, packaged, stored or shipped in compliance
with Applicable
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Regulations and with the terms of this Agreement. If with regard to any recall
(a) instituted by Seller or (b) instituted by Buyer it is determined that
either (i) there is confirmed contamination of any of the Products subject to
the recall which occurred prior to the time that title to the Products passed
to Buyer, or (ii) the Products were not manufactured, processed, labeled,
packaged, stored or shipped in material compliance with Section 5.1 hereof,
Seller shall promptly reimburse Buyer for all expenses reasonably incurred by
Buyer in connection with the recall. Seller shall also utilize the
identification system in effect on the Effective Date or another comparable
system in order to facilitate identification of the Products. All Products
that have been the subject of a withdrawal, removal or recall shall be disposed
of by Seller at its sole cost and expense, in accordance with Applicable
Regulations and consistently with good industry practices. At Buyer's option,
Seller will either (i) replace the withdrawn, removed or recalled Products with
Products conforming to the terms of this Agreement, or (ii) reimburse or credit
Buyer for the cost to Buyer of the recalled, withdrawn or removed Products and
all other expenses incurred by Buyer in connection with the withdrawal, removal
or recall.
Section 5.4. Buyer reserves the right at any time to reject and/or
return Products (the "Rejected Products") which (i) have at the time of
delivery less than the number of days of shelf life set forth on Exhibit A-1 or
(ii) do not comply with the quality standards set forth in this Agreement or
(iii) are damaged or unsaleable as a result of acts or omissions of Seller or
its distributors, carriers or other representatives. Buyer shall notify Seller
by telephone and in writing by facsimile or overnight delivery of such Rejected
Products. All costs associated with rejecting the Rejected Products shall be
borne solely by Seller, including, without limitation, all costs incurred by
Buyer with respect to the transportation and handling, delivery and return of
Rejected Products. As soon as is reasonably possible, but in any event not
later than the next delivery date to Buyer occurring after notice of rejection
is given by Buyer to Seller, Seller shall remove the Rejected Products from
Buyer's premises. All Rejected Products shall be disposed of by Seller at its
expense in strict accordance with Applicable Regulations and consistently with
good industry practices. At Buyer's option, Seller will either (i) replace
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the Rejected Products with Products conforming to the terms of this Agreement,
or (ii) reimburse or credit Buyer for the cost to Buyer of the Rejected
Products and all other expenses incurred by Buyer in connection with the
Rejected Products.
Section 5.5 Seller will not be responsible for any damage to or
degradation in the quality of Products occurring after acceptance of delivery
by Buyer in accordance with this Agreement.
ARTICLE VI
DELIVERY, TITLE AND RISK OF LOSS
Section 6.1. Seller shall deliver Products to the Buyer on such dates
and at such times and in such manner as Buyer may reasonably request from time
to time.
Section 6.2. Seller warrants and shall defend title to the Products
delivered to Buyer hereunder. Title to and risk of loss to the Products shall
pass to Buyer after the Products have been delivered to the Buyer's locations
and accepted there by Buyer's personnel by signing and dating the applicable
delivery documents.
Section 6.3. Seller shall be solely responsible for transportation of
the Products to Buyer's locations, either through its own trucks and equipment
or through independent carriers selected by Seller. Seller shall operate its
trucks and equipment in accordance with good industry practices and Applicable
Regulations. If any employee, independent distributor or other carrier used by
Seller to deliver Products to Buyer's locations demonstrates business practices
that are unsafe or dishonest, upon receipt of notification of such fact from
Buyer, Seller shall use its Best Efforts to replace such individual or entity
as quickly as is reasonably possible.
ARTICLE VII
PAYMENT
Section 7.1. Any payments to be made by either party to the other under
this Agreement shall be made within
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twenty-eight (28) days of the date of invoice. Billing or invoicing shall be
rendered to Buyer as of the date of delivery of the Products to Buyer's
locations, and any invoices remaining unpaid after thirty-five (35) days from
the date of invoice will accrue, and Buyer shall pay Seller, a late fee of 1%
of the unpaid invoice amount. If an invoice remains unpaid for more than sixty
(60) days after the date of invoice, it will accrue, and Buyer shall pay
Seller, a late fee of two percent (2%) of the unpaid invoice amount. The
amount of the late fee will thereafter increase by 1% of the amount of the
invoice monthly, but not in excess of the maximum rate permitted by law, until
paid.
Section 7.2. In the event that Buyer disputes in good faith and with a
reasonable basis the price, quantity and/or types of Products delivered to
Buyer, Buyer is not obligated to pay that portion of any invoice statement that
pertains to the disputed Products until such time as the dispute has been
resolved pursuant to Article XIX. Interest will accrue at a rate of one-half
percent per month only on that portion of any disputed and unpaid amounts which
are finally determined to be due and payable, but commencing as of the
sixteenth (16th) day following the date that payment of the invoice was due.
Each invoice delivered by Seller will constitute prima facie evidence of the
time of delivery, quantities and prices of the Products described therein
absent evidence to the contrary.
Section 7.3. The existence of any dispute described in Section 7.2 will
not be deemed a default by Buyer or otherwise affect either party's future
performance under this Agreement. Payment by Buyer of any invoice does not
constitute a waiver of Buyer's right to dispute such statement.
Section 7.4. If either party identifies an error in any statement, then
such party shall promptly notify the other party in writing of the alleged
error and shall provide written evidence to confirm the error to the extent
reasonably available at the time of notice.
Section 7.5. Unless otherwise agreed by the parties, any notice of
error issued pursuant to this Article VII, which pertains to the quantities of
Products ordered and delivered or the timing of such deliveries shall be
resolved on the basis of
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those records in each party's possession which have been executed or stamped by
Seller's delivery person that delivered the Products and Buyer's representative
at the location where the disputed quantities were delivered.
Section 7.6. Following the resolution of any alleged error, any
overpayment or underpayment shall be promptly remedied by the party benefitting
from the error. Any amounts paid in resolution of an overpayment or
underpayment will include interest on the amount of the overpayment or
underpayment at a rate of one-half percent per month from the date that the
payment pertaining to such error was initially made through the date that such
error was finally corrected.
ARTICLE VIII
FORCE MAJEURE
Section 8.1. In the event either Buyer or Seller is delayed, hindered
or prevented wholly or in part by Force Majeure from carrying out or fulfilling
its obligations under this Agreement for a period of more than three (3)
business days, the party claiming Force Majeure shall give detailed notice of
such Force Majeure by telephone, facsimile, telex or telegraph (which notice
shall be promptly confirmed in writing) to the other party as promptly as
possible after the occurrence of the Force Majeure. Thereupon, the obligations
of both parties shall be suspended during the continuance of the Force Majeure
to the extent such obligations are thereby affected. The party affected by
Force Majeure shall use its Best Efforts to remedy, with reasonable dispatch,
the conditions creating the Force Majeure, but nothing contained herein shall
be construed as requiring a party to settle any labor dispute by acceding to
any opposing demands when such course of action is inadvisable in the
discretion of such party, or to incur any material expenditure.
Notwithstanding the foregoing. Seller shall be entitled to claim Force Majeure
hereunder only if it also claims, with respect to the products similarly
affected thereby, Force Majeure against its other customers in the areas
affected by such Force Majeure.
Section 8.2. If the occurrence of an event of Force Majeure only
partially impairs Seller's ability to supply
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Products to Buyer, then Seller shall allocate all of its available supplies of
Products among Seller's then existing customers, including Buyer, and shall
continue to supply such parties with proportionately the same quantity of
Products as they received from Seller prior to such event of Force Majeure. If
Seller is unable to supply to Buyer a portion of any Product Group that is not
material as a result of an event of Force Majeure, Buyer may purchase during
the continuance of such event of Force Majeure any unsupplied Products from any
third-party supplier and shall continue to purchase from Seller such Products
in the Product Group as Seller is capable of supplying. If Seller is unable to
supply one or more Products from a Designated Facility as a result of an event
of Force Majeure, Seller may, by complying with the requirements of Section
3.3, supply such Products from another facility, and Buyer agrees that it will
act as promptly as possible in order to facilitate a change in facilities in
accordance with Section 3.3. If Seller is unable to supply a material portion
of a Product Group to Buyer as a result of an event of Force Majeure, Buyer may
purchase all of Buyer's Requirements for that Product Group directly from any
third-party supplier during the continuance of such event of Force Majeure. If
the period of nonperformance due to Force Majeure exceeds forty-five (45) days
from the date of notice of Force Majeure by Seller, Buyer may, by giving notice
to Seller, terminate this Agreement as to the Product Group affected by the
event of Force Majeure until such time as Seller is capable of supplying
Buyer's Requirements in a manner which is in all material respects the same as
that being employed prior to the occurrence of the event of Force Majeure, at
which time this Agreement will be reinstated unless Buyer is otherwise
contractually obligated to purchase its requirements for products from a
third-party supplier. In connection with any termination of this Agreement as
the result of an event of Force Majeure, Buyer shall use its Best Efforts to
refrain from entering into any contracts to purchase products from third
parties which provide for a term in excess of the period of time that Buyer
reasonably expects will be required in order to remedy the conditions creating
the Force Majeure or the damages resulting therefrom.
ARTICLE IX
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<PAGE> 18
INDEMNITY
Section 9.1. Seller shall absolutely and irrevocably indemnify, defend
and hold harmless Buyer and its affiliates and its and their respective
directors, stockholders, officers, employees, agents, consultants,
representatives, successors, transferees, assignees, franchisees and licensees
from and against any and all damages arising from, relating to or associated
with any one or more of the following:
(i) Seller's breach, violation or default of, or failure to
comply with, any one or more of the representations or warranties made
by Seller in this Agreement;
(ii) the delivery of the Products to Buyer, including,
without limitation, any damages relating to any act or omission of any
of Seller's independent distributors or of any carriers or such
independent distributor's or carrier's employees or agents, during the
course of, or in any way related to, the delivery of Products;
(iii) the withdrawal, recall, removal, disposal and/or rejection
of the Products to the extent that any such action is (a) instituted by
Seller or (b) permitted by this Agreement and attributable to Seller's
failure to comply with the representations and warranties set forth in
Section 5.1 of this Agreement; and
(iv) any aspect of the manufacture, production, processing,
packaging, storage, distribution, sale or handling of the Products prior
to the acceptance of the Products by Buyer as specified in this
Agreement.
Section 9.2. Buyer shall absolutely and irrevocably indemnify, defend
and hold harmless Seller and its affiliates and its and their respective
directors, stockholders, employees, agents, consultants, representatives,
transferees and assignees from and against any and all damages arising from,
relating to or associated with any of the following:
(i) Buyer's breach or failure to fulfill its
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obligations under Section 5.3; and
(ii) the withdrawal, recall, removal, disposal and/or
rejection of the Products to the extent that any such action is (a)
instituted by Buyer for reasons other than Seller's breach of its
representations and warranties set forth in Section 5.1 or (b) permitted
by this Agreement and attributable to damage to or degradation in the
quality of Products occurring after acceptance of delivery by Buyer in
accordance with this Agreement.
Section 9.3. For purposes of this Article IX, the term "Indemnifying
Party" when used in connection with a particular Claim (defined below) means
the party having an obligation to indemnify the other party with respect to
such Claim, and the term "Indemnified Party" means the party having the right
to be indemnified with respect to such Claim by the other party.
Section 9.4. Each party agrees that promptly after it becomes aware of
facts giving rise to a Claim by it for indemnification pursuant to this Article
XV (a "Claim"), it, as an Indemnified Party, will provide notice of the Claim
in writing to the other party, specifying the nature and basis for such Claim
(a "Claim Notice"). The failure of an Indemnified Party to send a Claim Notice
does not relieve the Indemnifying Party from liability with respect to a Claim
unless the failure actually results in material prejudice to the Indemnifying
Party's ability to effectively defend against such Claim.
Section 9.5. The Indemnifying Party shall, at its sole cost, defend by
all appropriate legal proceedings any Claim for which it is obligated to
indemnify the Indemnified Party pursuant to this Article IX. The Indemnifying
Party shall select the attorneys to defend the Claim; provided, the Indemnified
Party may participate in the proceedings and be represented by attorneys of its
own choosing, and the cost attributable to the attorneys employed by the
Indemnified Party will be borne solely by the Indemnified Party, unless, in the
opinion of counsel to the Indemnified Party, conflicts of interest between the
parties make it inappropriate for the Indemnified Party to be represented by
the counsel selected by the Indemnifying Party, in which event the Indemnifying
Party shall pay the cost of the Indemnified Party's counsel. If,
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after notice as provided for herein, the Indemnifying Party does not defend any
Claim as provided in this Section 9.5., the Indemnified Party may (but shall
have no obligation to) defend any Claim and the Indemnifying Party will be
bound by the result obtained by the Indemnified Party.
Section 9.6. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Claim which the Indemnifying Party elects to contest or, if
appropriate, in making any counterclaim against the person asserting the Claim,
or any cross-complaint against any person; provided, the Indemnifying Party
shall reimburse the Indemnified Party for any expenses incurred by it in so
cooperating.
SECTION 9.7. THE OBLIGATIONS OF THE INDEMNIFYING PARTY TO INDEMNIFY THE
INDEMNIFIED PARTY HEREUNDER SHALL NOT BE TERMINATED, MODIFIED OR ABATED IF THE
CAUSE OR ALLEGED CAUSE OF THE DAMAGES FOR WHICH A CLAIM IS MADE HEREUNDER IS IN
PART THE SOLE OR CONCURRENT, ACTIVE OR PASSIVE, IMPUTED, TECHNICAL OR OTHER
NEGLIGENCE, GROSS NEGLIGENCE OR FAULT OF THE INDEMNIFIED PARTY; provided that
such indemnity shall not extend to any amount of damages which are determined
(on a comparative negligence or similar basis) to be attributable to the sole
or concurrent, active or passive, imputed, technical or other negligence, gross
negligence or fault of the Indemnified Party.
Section 9.8. The Indemnifying Party shall pay to the Indemnified Party,
upon demand, the amount of any damages to which the Indemnified Party may
become entitled by reason of the provisions of this Article IX.
Section 9.9. Notwithstanding the above provisions in this Article IX,
Buyer may, at its option, settle any and all consumer complaints relating to
the Products by substituting other Products without prior notice to Seller,
provided that Buyer retains for delivery to Seller the remainder, if any, of
any Product which is the subject of the consumer complaint. Seller shall
reimburse Buyer for the cost to Buyer of all such settlements, provided such
settlements are limited in amount to the greater of (a) the cost of the
affected Products as set forth in this Agreement or (b) $200.00 per occurrence.
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ARTICLE X
INSURANCE
Section 10.1. During the Term of this Agreement, Seller shall (y)
procure and maintain, from reputable insurance carriers acceptable to Buyer the
insurance set forth below, which shall be primary and will not contribute with
any insurance carried by Buyer and (z) upon execution of this Agreement and
periodically thereafter (but not less often than annually), furnish Buyer with
certificates (i) evidencing that such insurance is in force, and (ii) providing
that such insurance shall not be cancelled or altered without thirty (30) days
prior written notice being given to Buyer (which, unless otherwise agreed to by
Buyer, shall not constitute consent to such cancellation or alteration):
(i) Worker's compensation and employers' liability
insurance covering all persons employed by or acting on behalf of Seller
who will be performing any service hereunder, including, but not limited
to, those involved in the delivery of the Products under this Agreement;
(ii) Comprehensive general liability insurance covering all
services, equipment, and products provided by Seller, including but not
limited to personal injury coverage, products/completed operations
liability coverage including vendors broad form endorsements in favor of
Buyer and broad form contractual liability coverage for liability
assumed by Seller in this Agreement, with limits of at least $5 million
combined single limit per occurrence or higher limits adequate to
protect both Buyer and Seller for claims of personal injury, bodily
injury (including death), property damage and exemplary and punitive
damages where permitted by law, and naming Buyer as an additional
insured on the policy or policies (except with respect to Buyer's
negligence or willful misconduct); and
(iii) Automobile liability insurance covering all vehicles or
equipment used in the performance by Seller of this Agreement, including
coverage for all owned, nonowned, hired and leased vehicles or equipment
with
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policy limits of at least $5 million combined single limit per
occurrence or higher limits adequate to protect both Buyer and Seller
for claims of bodily injury (including death) and property damage, and
naming Buyer as an additional insured (except with respect to Buyer's
negligence or willful misconduct).
Section 16.2. The foregoing insurance held or to be obtained by Seller
must include, if permitted by law, a waiver of subrogation by the insurance
carrier in favor of Buyer. Seller agrees to notify each of its insurance
companies of any waiver of subrogation so as to prevent the invalidation of any
insurance coverage by reason of the waiver. Seller shall provide Buyer with
written acknowledgements of waivers of subrogation executed by authorized
representatives of the insurance companies. Seller shall immediately notify
Buyer of the exhaustion of any limits of coverage, including aggregates, and
will remedy any exhaustion in order to prevent any uninsured gap in coverage.
The insurance required hereunder does not limit Seller's liability nor release
Seller from any liability under this Agreement.
ARTICLE XI
CONFIDENTIALITY
Section 11.1. Seller and Buyer shall, and shall use reasonable efforts
to cause their respective employees, agents and other representatives to, hold
in confidence all Confidential Information, and Seller and Buyer shall not, and
shall use reasonable efforts to ensure that any other persons having access to
the Confidential Information through them shall not, disclose the same to any
person except in connection with this Agreement and otherwise as may be
reasonably necessary to carry out this Agreement and the transactions
contemplated hereby or to comply with applicable law. For purposes hereof,
"Confidential Information" means all information of any kind (including without
limitation sales and promotional results) obtained directly or indirectly from
Seller or Buyer, or any of its employees, agents, accountants, counsel or other
representatives, relating to Seller's or Buyer's business, except information
which constitutes readily ascertainable public information, including without
limitation,
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any information filed with the Securities and Exchange Commission.
ARTICLE XII
ASSIGNMENT
Section 12.1. Buyer may not assign this Agreement without the prior
written consent of Seller. In the event Buyer, or all or substantially all of
Buyer's assets, is sold or otherwise disposed of, Buyer shall cause any such
purchaser or transferee to assume the obligations of Buyer under this
Agreement.
Section 12.2. Seller may assign this Agreement in whole or in part with
respect to any Products to one or more wholly owned subsidiaries which owns and
operates the Designated Facility which manufactures or processes those
Products, following notice to Buyer of such assignment. Seller may assign this
Agreement to one or more Affiliates or successors of Seller, provided that any
such assignment to an Affiliate or successor shall be subject to receipt of
Buyer's prior written consent, which will not be unreasonably withheld or
delayed, so long as such Affiliate or successor (i) owns and operates the
Designated Facility which manufactures or processes those Products, (ii) is
capable of performing the terms and conditions of this Agreement and (iii) is
not partially or wholly owned by a company engaged in the business of operating
a dairy business or distributing products in competition with Buyer, in each
case within the state of Florida. Notwithstanding anything to the contrary
contained in this Section 12.2, if Seller sells, transfers or otherwise
disposes of the stock of any subsidiary or Affiliate to which it has assigned
this Agreement, Seller's previous assignment of this Agreement shall terminate
effective as of the date of such sale of stock and this Agreement shall revert
to Seller without further action by Seller or any such subsidiary or Affiliate
unless Seller shall have obtained Buyer's prior written approval of such stock
sale, which consent and release shall not be unreasonably withheld or delayed
so long as the purchaser of such stock (i) is not a company engaged in the
business of operating a dairy or distributing products in competition with
Buyer, in each case within the state of
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Florida, and (ii) is, in the exercise of Buyer's good faith business judgment,
capable of performing in all material respects the terms and conditions of this
Agreement.
ARTICLE XIII
TERMINATION
Section 13.1. Buyer may terminate this Agreement in its entirety if
Seller commits a material breach of this Agreement and such breach is not cured
within thirty (30) days after receipt of written notice of such default from
Buyer. For the purposes of this Agreement, the occurrences of any one or more
of the following shall constitute a material breach of performance by Seller:
(i) Seller's repeated failure to (a) deliver Buyer's
Requirements for the Products on a timely basis consistent with good
industry practice, or (b) supply Buyer with Products that comply with
the quality standards set forth in this Agreement, or (c) comply in all
material respects with the representations, warranties and covenants set
forth in this Agreement; or
(ii) Seller suspends business, liquidates its business or
dissolves, whether voluntarily or involuntarily.
Section 13.2. Seller may terminate this Agreement in the event that
Buyer commits a material breach of this Agreement and such breach is not cured
within thirty (30) days after receipt of written notice of such default from
Seller. For the purposes of this Agreement, the occurrences of any one or more
of the following shall constitute a material breach of performance by Buyer:
(i) Buyer's repeated failure to (a) purchase and pay for
Buyer's Requirements for the Products in accordance with the terms of
this Agreement, or (b) comply in all material respects with the
representations, warranties and covenants set forth in this Agreement;
or
(ii) Buyer suspends business, liquidates its business
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or dissolves, whether voluntarily or involuntarily.
Section 13.3. The termination rights granted under this Article XIII
are cumulative with, and in addition to, any other rights or remedies to which
Buyer or Seller may be entitled arising from any violation, default, failure or
breach of this Agreement.
Section 13.4. Upon termination of this Agreement, Buyer and Seller will
fulfill their respective outstanding obligations hereunder, and thereafter
Buyer will be relieved of its obligations to purchase Products, and Seller will
be relieved of its obligations to supply the Products hereunder.
Section 13.5. Buyer agrees that upon termination of this Agreement,
other than a termination described in Section 13.1(i), Seller may, upon
reasonable written notice to Buyer (which notice shall be delivered in any
event not more than thirty (30) days after the date of such termination),
require Buyer, subject to the conditions stated in this Section 13.5, to
purchase from Seller Seller's inventory of Products packaging materials as of
the date of termination ("Surplus Packaging"). Buyer's obligation to purchase
Surplus Packaging will be limited to (i) materials that are not useable by
Seller for packaging of products for sale to other customers of Seller due to
size or markings, and (ii) quantities not in excess of the quantities of the
associated Products shipped to Buyer during the sixty (60) day period prior to
termination. The price for the Surplus Packaging will be Seller's
out-of-pocket cost thereof, net of any rebates, discounts and allowances.
Seller will deliver the Surplus Packaging to Buyer with reasonable promptness
after notifying Buyer of Buyer's obligation to purchase the Surplus Packaging.
Payment is to be made by Buyer in accordance with Article VII. To the extent
that Seller elects to retain or resell any Surplus Packaging to a third party
or parties, Seller will not use or resell any Surplus Packaging that includes
markings that in any way relate to or identify Buyer without Buyer's prior
written consent, which will not be unreasonably withheld.
ARTICLE XIV
PUBLICITY
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Section 14.1. Seller and Buyer shall cooperate with each other in the
development and distribution of all news releases and other public disclosures
relating to the transactions contemplated by this Agreement. Neither Seller
nor Buyer may issue or make, or cause to have issued or made, any press release
or announcement concerning the transactions contemplated hereby without the
advance approval in writing of the form and substance thereof by the other
party, unless the release or announcement is required by any federal, state or
local law or order, writ, injunction or decree or in connection with any
withdrawal, removal or recall of any Product, in which event the party making a
release or announcement must provide the other party with a written copy of the
release or announcement and an opportunity to comment on its contents prior to
its public release.
ARTICLE XV
NOTICES
Section 15.1 Unless otherwise provided herein, all notices, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, or sent by telex or
telecopy, or sent by United States mail, first class, registered or certified,
return receipt requested, with property postage prepaid in each case addressed
as follows:
If to Buyer:
Velda Farms, Inc.
501 N.E. 181st Street
Miami, Florida 33162
Attn: General Manager
(305) 653-7020 (FAX)
With a copy to:
ENGLES MANAGEMENT, INC.
3811 Turtle Creek Bl., Suite 1950
Dallas, Texas 75219
Attn: Gregg Engles
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and:
HUGHES & LUCE, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: William A. McCormack
(214) 939-6100 (FAX)
If to Seller:
THE MORNINGSTAR GROUP INC.
5956 Sherry Lane
Suite 1100
Dallas, Texas 75225-6522
Attn: General Counsel
(214) 360-9100 (FAX)
With a copy to:
(Counsel)
or such other address or to such other person as any party to hereto shall have
last designated by notices given to the other party in accordance with this
Section 15.1. Any notice given hereunder shall be deemed to have been given at
the time of receipt thereof by the party to whom such notice is addressed;
provided, any notice given by telecopy and received after the receiving party's
normal business hours shall be deemed received by such party on the immediately
succeeding business day.
ARTICLE XVI
RELATIONSHIP OF PARTIES
Section 16.1. The relationship between the parties to this Agreement is
that of independent contractors. Neither party is an agent, partner or
employee of the other and neither party has any right or any authority to enter
into any contract or undertaking in the name of or for the account of the other
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nor may either assume or create any obligation of any kind, express or implied,
on behalf of the other. Subject to the rights retained or granted to either
party and the obligations undertaken by each party pursuant to this Agreement,
each party will conduct its business at its own initiative and at its own cost
and expense.
ARTICLE XVII
MODIFICATIONS
Section 17.1. This Agreement may not be amended except pursuant to a
written instrument executed by Buyer and Seller, nor will this Agreement be
deemed to have been amended or any rights hereunder to have been waived by any
course of dealing or course of performance between the parties.
ARTICLE XVIII
RIGHTS AND REMEDIES
Section 18.1. The rights and remedies granted under this Agreement are
not exclusive rights and remedies but are in addition to all other rights and
remedies available at law or in equity.
ARTICLE XIX
Dispute Resolution
Section 19.1. Any disputes not resolved between Buyer's personnel
responsible for receiving Products and Seller's delivery personnel responsible
for delivering Products must first be referred for resolution to Buyer's and
Seller's supervisory personnel. To the extent that the dispute cannot be
resolved by these representatives or if the dispute pertains to a matter which
when resolved is likely to impact the interpretation of this Agreement, then
the dispute must be referred for resolution to a representative appointed by
each of Seller and Buyer. Each party's designated representative shall
endeavor in good faith to resolve any disputes within the limits of each
representative's authority. Any dispute that is not so resolved within seven
(7) business days from the
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inception of the dispute must be referred for resolution to an executive
officer of Seller and an executive officer of Buyer, who shall attempt to
resolve the dispute within seven (7) business days from the date that it is
referred to them. If and only if any dispute remains unresolved after the
parties have followed the dispute resolution procedures set forth above in this
Section 19.1, the provisions of Section 19.2 will apply with respect to the
resolution of the unresolved dispute.
Section 19.2. In the event any dispute arising out of or relating to
this Agreement cannot be resolved in accordance with Section 19.1 above (an
"Arbitrable Dispute"), the dispute must be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the Arbitrators may be entered in
Federal Court (or state court if federal courts are without jurisdiction)
located in the City of Dallas in the State of Texas. All arbitration
proceedings shall be held in Dallas County, Texas. Either party may commence
arbitration of any Arbitrable Dispute by giving notice to the other party,
specifying in the notice the name and address of the person designated by it to
act as an arbitrator. Within 10 days after receipt of this notice, the other
party shall notify the first party of the name and address of the person
designated by it to act as an arbitrator. The arbitrators appointed by each
party may be affiliated with that party. If the second party fails to notify
the first party of the appointment of an arbitrator within the 10-day period
specified above, then the appointment of the second arbitrator by the American
Arbitration Association will be made in the same manner as hereinafter provided
for the appointment of a third arbitrator in a case where the two appointed
arbitrators and the parties are unable to agree upon a third arbitrator. The
two arbitrators so chosen shall meet within ten (10) days after the second
arbitrator is appointed, and if, within twenty (20) days after the second
arbitrator is appointed, the two arbitrators cannot agree upon the question in
dispute, they shall together appoint a third arbitrator. If they are unable to
agree upon a third arbitrator within thirty (30) days after the appointment of
the second arbitrator, the third arbitrator will be selected by the parties if
they can agree within a further period of ten (10) days. If the parties do not
agree within ten (10) days, then either party, on behalf of both and
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after notice to the other, may request the American Arbitration Association to
appoint a third arbitrator, in accordance with its rules then prevailing. Each
arbitrator chosen or appointed pursuant to this Section 19.2 must have at least
ten (10) years experience in a calling connected with the dispute, and the
third arbitrator must also be a disinterested person. The arbitrators shall
render their award, upon the concurrence of at least two of their number, not
later than thirty (30) days after the appointment of the third arbitrator.
Their decision and award must be in writing, and counterpart copies are to be
delivered to each of the parties. In rendering their award, the arbitrators
will have no power to modify any of the provisions of this Agreement, and the
jurisdiction of the arbitrators is expressly limited accordingly. Each party
shall pay the fees and expenses of the arbitrator that it appointed, and the
fees and expenses of the third arbitrator and all other expenses of the
arbitration are to be borne by the parties equally. Each party shall pay the
expense of its own counsel, experts, and the preparation and presentation of
proof.
ARTICLE XX
FURTHER ACTIONS
Section 20.1. Each party shall execute and deliver such other
agreements and other documents and take such other actions as may reasonably be
requested by the other party in order to implement the transactions
contemplated by this Agreement.
ARTICLE XXI
SEVERABILITY
Section 21.1. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced due to any rule of law or
public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to either party. Upon a determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
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shall negotiate in good faith to modify this Agreement to effect the original
intent of the parties as closely as possible in an acceptable manner so that
the reasonable expectations of the parties to this Agreement are fulfilled to
the extent possible.
ARTICLE XXII
GOVERNING LAW
Section 22.1. THIS AGREEMENT SHALL BE CONSTRUED, PERFORMED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF (TEXAS).
ARTICLE XXIII
HEADINGS; REFERENCES
Section 23.1. The article and section headings in this Agreement are
for convenience of reference only and do not alter or affect the meaning or
interpretation of any provisions hereof. Any reference in this Agreement to an
article or section shall be deemed to refer to the applicable article or
section of this Agreement unless otherwise stated. Any reference to an Exhibit
refers to the applicable Exhibit attached to this Agreement, all of such
Exhibits being incorporated herein and made a part hereof by this reference.
ARTICLE XXIV
WAIVER
Section 24.1. Rights of the parties hereunder cannot be waived except
pursuant to a written instrument executed by the party against whom such waiver
is sought to be enforced, and the waiver of any one right under this Agreement
by either party does not constitute a waiver of any subsequent or other rights
which that party may have under this Agreement.
ARTICLE XXV
COUNTERPARTS
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Section 25.1. This Agreement may be executed in one or more
counterparts, each of which is to be deemed an original, but all of which
constitute one and the same instrument.
ARTICLE XXVI
ENTIRE AGREEMENT
Section 26.1. This Agreement (which includes the Exhibits attached
hereto) constitutes the entire agreement and understanding of Seller and Buyer
with respect to the subject matter hereof and fully supersedes any and all
statements, projections, understandings, agreements, covenants, representations
and warranties between Seller and Buyer made prior to the execution and
delivery of this Agreement with respect to its subject matter.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first above written.
THE MORNINGSTAR GROUP INC.
Attest:
By:____________________________ By: __________________________
Title: ________________________ Title: _______________________
VELDA FARMS INC.
By:____________________________ By: __________________________
Title: ________________________ Title: _______________________
(Operator Subsidiary)
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EXHIBIT A-1
MINIMUM
DAYS OF
REMAINING PER UNIT DESIGNATED
DESCRIPTION SHELF LIFE PRICE FACILITY
- ----------- ---------- -------- ----------
PRODUCT GROUP A - Sterile Creams
---------------
QT. STERILE LIGHT CREAM
HPT. STERILE LIGHT CREAM
QT. STERILE HEAVY CREAM
HPT. STERILE HEAVY CREAM
QT. COFFEE COMPANION
1/2 OZ. ND CREAMERS (250)
1/2 OZ. H&H CREAMERS (250)
3/8 OZ. 2% CREAMERS (348)
3/8 OZ. H&H CREAMERS (400)
3/8 OZ. ND CREAMERS (400)
PRODUCT GROUP B - Cultured Products
---------------
35 LB. SOUR CREAM
5 LB. SOUR CREAM
16 OZ. FARM STORES SOUR CREAM
8 OZ. SOUR CREAM
35 LB. COTTAGE CHEESE
5 LB. COTTAGE CHEESE
5 LB. 2% COTTAGE CHEESE
24 OZ. FARM STORES COTTAGE CHEESE
16 OZ. COTTAGE CHEESE
12 OZ. FARM STORES COTTAGE CHEESE
8 OZ. COTTAGE CHEESE
35 LB. YOGURT
8 OZ. PLAIN YOGURT
8 OZ. STRAWBERRY YOGURT
8 OZ. STRAWBERRY/BANANA YOGURT
8 OZ. BLUEBERRY YOGURT
8 OZ. RASPBERRY YOGURT
8 OZ. MIXED BERRY YOGURT
8 OZ. PEACH YOGURT
5 LB. PLAIN YOGURT
8 OZ. FRENCH ONION DIP
- A-33 -
<PAGE> 1
EXHIBIT 10 (ggg)
JAMES A. BACH
3105 Cornell
Dallas, Texas 75205
March 17, 1994
Board of Directors
The Morningstar Group Inc.
5956 Sherry Lane
Suite 1100
Dallas, Texas 75226-6522
Dear Sirs:
The purpose of this letter is to confirm my resignation, effective
immediately, as an employee, officer and director of The Morningstar Group Inc.
and its subsidiaries.
In accordance with our prior discussions, in connection with my
resignation I will be entitled to the following benefits and will be subject to
the following obligations:
1. I will be entitled to severance compensation in the
amount and on the terms specified in Section V of that certain
Employment Agreement dated as of March 1, 1991 between the Company and
the undersigned, as amended by (i) Amendment No. 1 to Employment
Agreement dated as of September 12, 1991, (ii) Amendment No. 2 to
Employment Agreement dated as of April 30, 1992, (iii) Amendment No. 3
to Employment Agreement dated as of July 30, 1992, and (iv) Waiver No.
1 to Employment Agreement dated as of December 15, 1993 (the
"Employment Agreement"), notwithstanding the fact that my resignation
does not constitute an event specified in Section IV(A) of the
Employment Agreement. For purposes of the Employment Agreement, the
date of this letter will constitute the Date of Termination (as
defined in the Employment Agreement).
2. I will continue to be subject to the terms and
provisions of Section X of the Employment Agreement for a period of
two years following the date hereof.
<PAGE> 2
Board of Directors
The Morningstar Group Inc.
March 17, 1994
Page 2
3. I will continue to be subject to the terms and
provisions of Section IX(D) of the Employment Agreement for a period
of five years following the date hereof and hereby agree to return
promptly to the Company all materials and articles of information
constituting property of the Company pursuant to the terms of such
Section IX(D).
4. For purposes of the Stock Option Agreements (as
defined in the Employment Agreement), this resignation will be deemed
to be a termination of employment for Good Reason (as defined in such
Stock Option Agreements) resulting in the vesting of all stock options
granted thereunder.
If the foregoing accurately reflects our understanding relating to my
resignation, please so indicate by executing this letter in the space provided
for that purpose below, following which this letter will constitute the legal
and binding agreement of the Company and the undersigned with respect to the
matters addressed herein.
Very truly yours,
James A. Bach
Accepted and Agreed to as
of the date first above written.
THE MORNINGSTAR GROUP INC.
By ___________________________
Title _________________________
<PAGE> 1
EXHIBIT 10 (hhh)
WAIVER NO. 1 TO
EMPLOYMENT AGREEMENT
This Waiver No. 1 to Employment Agreement (the "Waiver") is entered
into as of December 15, 1993, by and among The Morningstar Group Inc., a
Delaware corporation (the "Company") and James A. Bach (the "Executive").
RECITALS
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of March 1, 1991 as amended (the "Employment
Agreement"; all capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Employment Agreement); and
WHEREAS, the Company and the Executive are willing to agree to the
waivers set forth in Sections 1 and 2 below;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the Company and the Executive agree as follows:
1. Section 1. The Executive waives any adjustment to his Base
Salary that may otherwise be due and payable to him during the
year 1994 as a result of the multiplications (concerning the
Index, Base Index and Base Salary) as provided in Section III
subsection (A) of the Employment Agreement. The Executive's
Base Salary for the year 1994 shall be and remain $469,876.00.
2. Section 2. The Executive waives for the year 1994 any bonus
amount for such year that may otherwise be due and payable to
him in accordance with the provisions of Section III
subsection (D) of the Employment Agreement.
3. Section 3. Effect on the Employment Agreement. Except to the
extent of the waivers specifically set forth herein, all
provisions of the Employment Agreement are and shall remain in
full force and effect and are hereby ratified and confirmed in
all respects and the execution, delivery and effectiveness of
this Waiver shall not operate as a waiver of any provision of
the Employment Agreement not specifically referred to herein.
IN WITNESS WHEREOF, the parties have executed this Waiver as of the
date first written above.
THE MORNINGSTAR GROUP INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
________________________________________
JAMES A. BACH
<PAGE> 1
EXHIBIT 10 (iii)
WAIVER NO. 1 TO
EMPLOYMENT AGREEMENT
This Waiver No. 1 to Employment Agreement (the "Waiver") is entered
into as of December 15, 1993, by and among The Morningstar Group Inc., a
Delaware corporation (the "Company") and Tracy L. Noll (the "Executive").
RECITALS
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of March 1, 1991 as amended (the "Employment
Agreement"; all capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Employment Agreement); and
WHEREAS, the Company and the Executive are willing to agree to the
waivers set forth in Sections 1 and 2 below;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the Company and the Executive agree as follows:
1. Section 1. The Executive waives any adjustment to his Base
Salary that may otherwise be due and payable to him during the
year 1994 as a result of the multiplications (concerning the
Index, Base Index and Base Salary) as provided in Section III
subsection (A) of the Employment Agreement. The Executive's
Base Salary for the year 1994 shall be and remain $240,187.00.
2. Section 2. The Executive waives for the year 1994 any bonus
amount for such year that may otherwise be due and payable to
him in accordance with the provisions of Section III
subsection (D) of the Employment Agreement.
3. Section 3. Effect on the Employment Agreement. Except to the
extent of the waivers specifically set forth herein, all
provisions of the Employment Agreement are and shall remain in
full force and effect and are hereby ratified and confirmed in
all respects and the execution, delivery and effectiveness of
this Waiver shall not operate as a waiver of any provision of
the Employment Agreement not specifically referred to herein.
IN WITNESS WHEREOF, the parties have executed this Waiver as of the
date first written above.
THE MORNINGSTAR GROUP INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
________________________________________
TRACY L. NOLL
<PAGE> 1
EXHIBIT 10 (jjj)
ADVISORY AGREEMENT
This ADVISORY AGREEMENT (the "Agreement") is entered into as of
October 1, 1993, between The Morningstar Group Inc., a Delaware corporation,
MStar Inc., a Delaware corporation (collectively together with their successors
"Morningstar"), and C. Dean Metropoulos ("Metropoulos").
WHEREAS, Morningstar has requested that Metropoulos render advisory
services to it consisting of an initial review and continuing advisory services
with respect to Morningstar's business and its strategic direction including a
reassessment and a restructuring of its operations (collectively the
"Business");
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by Metropoulos to Morningstar and to evidence the obligations of the
parties hereto and the mutual covenants herein contained, Morningstar and
Metropoulos hereby agree as follows:
1. Retention.
(a) Morningstar hereby retains Metropoulos as an advisor
in connection with the Business and Metropoulos agrees to act as such advisor
to Morningstar.
(b) Subject to reasonable advance notice in order to
accommodate scheduling, Metropoulos will provide such advisory services to
Morningstar and its subsidiaries as requested by the chief executive officer
and the board of directors of Morningstar during the term of this Agreement.
2. Term. The term of this Agreement shall continue for three
years from the date hereof (the "Term"), unless earlier terminated by either
Morningstar or Metropoulos by written notice delivered to the other party
specifying a termination date of this Agreement prior to the expiration of the
Term, and on such specified date this Agreement shall terminate.
3. Compensation. As compensation for Metropoulos' services as
an advisor to Morningstar pursuant to Section 1, Morningstar shall pay
Metropoulos a fee of $250,000 per year, payable in equal monthly installments
of $20,833.33 each. Morningstar shall also pay Metropoulos operating expenses
of $100,000 per year payable in equal monthly installments of $8,333.33 each.
The first installments of compensation and operating expenses shall be paid in
arrears on the last day of each month during the Term hereof, commencing
October 31, 1993.
4. Reimbursement of Expenses. In addition to the payments
pursuant to Section 3 hereof, Morningstar agrees to reimburse Metropoulos,
promptly following demand therefor, together with invoices or reasonably
detailed descriptions thereof, for all reasonable disbursements and connection
with the performance by him of the services contemplated by Section 1 hereof.
5. Confidential Information. In connection with the performance
of services hereunder, Metropoulos agrees not to divulge any confidential
information, secret processes or
1
<PAGE> 2
trade secrets disclosed by Morningstar, or any of its subsidiaries, to
Metropoulos in his capacity as advisor or otherwise, unless such information,
secret processes or trade secrets are publicly available or otherwise available
to Metropoulos without restriction or breach of any confidentiality agreement.
6. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Texas,
excluding any choice-of-law provisions thereof.
7. Assignment. This Agreement and all provisions contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; provided, however, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party without the prior written consent of the other party.
8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
9. Other Understandings. All discussions, understandings and
agreements theretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the Agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
________________________________________
C. Dean Metropoulos
THE MORNINGSTAR GROUP INC.
By:____________________________________
Its:___________________________________
MSTAR INC.
By:____________________________________
Its:___________________________________
2
<PAGE> 1
EXHIBIT 10 (kkk)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered
into as of February 5, 1993, by and among TSC Holdings, Inc., a Delaware
corporation ("Seller"), the holder of all of the issued and outstanding shares
of capital stock of Favorite Foods, Inc., a California corporation (the
"Company"), and The Morningstar Group Inc., a Delaware corporation ("Buyer").
RECITALS
A. Seller owns all of the issued and outstanding shares of
capital stock of the Company (the "Shares").
B. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Shares, for the consideration and on the terms and
conditions set forth in this Agreement.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants, agreements, representations and warranties contained in
this Agreement, and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Sale and Purchase of Shares.
1.1 Agreement to Sell. Upon the terms and subject
to all of the conditions contained herein, Seller hereby agrees to sell,
assign, transfer and deliver to Buyer on the Closing Date (as defined in
Section 2.5 hereof), and Buyer hereby agrees to purchase and accept from Seller
on the Closing Date, the Shares.
2. Purchase Price and Payment Thereof.
2.1 Purchase Price. The aggregate purchase price
for the Shares being purchased pursuant to Section 1.1 shall be Twenty-Seven
Million, Four Hundred Fifty Thousand Dollars ($27,450,000) (the "Closing
Price") plus that amount (the "Adjustment Amount"), which may be a positive or
a negative number, as determined pursuant to Section 2.2 hereof. The
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<PAGE> 2
Closing Price, increased or decreased, as the case may be, by the Adjustment
Amount is referred to as the "Purchase Price".
2.2 Calculation of Adjustment Amount. Buyer shall
prepare and deliver, within ninety (90) days following the Closing Date, to
Seller, an unaudited statement of net assets of the Company as of the Closing
Date (the "Closing Statement"), in the form of the unaudited statement of net
assets for December 31, 1992, which Buyer has received from Seller (the "Year
End Statement"). In addition, Buyer shall prepare and deliver a calculation of
the Adjustment Amount, if any, payable by Buyer or Seller, as the case may be,
under Section 2.3.2 (the "Payment Calculation"), which calculation shall be
based on the working capital accounts shown on both the Closing Statement and
the Year End Statement. Buyer shall prepare the Closing Statement on a basis
consistent with generally accepted accounting principles ("GAAP"), except as
set forth in Schedule 2.2. Seller and its representatives shall be entitled to
review the work papers, schedules, memoranda and other documents used in
preparing the Closing Statement or the Payment Calculation. In the event that
Seller shall in good faith disagree with the Closing Statement and the Payment
Calculation, Buyer and Seller shall, during the sixty (60) days after delivery
to Seller of the Closing Statement and Payment Calculation, negotiate in good
faith to resolve any disagreements with respect thereto. If at the end of such
60-day period no resolution is reached, such disagreements shall be resolved by
a nationally recognized firm of independent accountants agreed upon by Buyer
and Seller, which determination shall be conclusive, binding and non-appealable
by the parties. The fees and disbursements of such firm of independent public
accountants shall be divided and paid equally by Seller and Buyer.
2.3 Payment of Purchase Price. The Purchase Price
is payable as follows:
2.3.1 Payment at Closing. At the Closing Date
(defined below), Buyer shall pay the Closing Price by wire transfer in
immediately available funds to such account as shall be specified by Seller.
2.3.2 Payment of Adjustment Amount.
(a) If the Net Working Capital (defined
below) shown on the Closing Statement shall be less than
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<PAGE> 3
Three Million, Three Hundred Fifty-Five Thousand Dollars ($3,355,000), Seller
shall pay to Buyer an amount equal to the difference between such Net Working
Capital and $3,355,000, together with interest on such amount at a rate of 6%
per annum payable from the Closing Date until the date the Adjustment Amount is
paid, such payment to be made within two (2) business days after the final
determination of the Adjustment Amount according to Section 2.2 hereof by wire
transfer in immediately available funds to an account designated by Buyer.
(b) If the Net Working Capital shown on the
Closing Statement shall be greater than $3,355,000, Buyer shall pay to Seller
an amount equal to the difference between such Net Working Capital and
$3,355,000, together with interest on such amount at a rate of 6% per annum
payable from the Closing Date until the date the Adjustment Amount is paid,
such payment to be made within two (2) business days after the final
determination of the Adjustment Amount according to Section 2.2 hereof by wire
transfer in immediately available funds to an account designated by Seller.
(c) Net Working Capital shall mean for the
purposes of this Agreement total current assets less total current liabilities,
calculated on a basis consistent with GAAP in accordance with the historical
accounting practices applied by the Company; provided, however, that Buyer
acknowledges that prior to Closing, Seller shall have the right, at its option,
to withdraw all or any portion of cash balances held by the Company prior to
Closing even if such withdrawal results in an increase in Seller's obligation
to make a payment under Section 2.3.2(a).
2.4 Delivery of Purchased Shares. At the Closing
(defined below), Seller shall deliver or cause to be delivered to the Buyer
stock certificates representing the Shares duly executed in blank or
accompanied by stock powers duly executed in blank, in proper form for
transfer.
2.5 Closing Date. The closing ("Closing") of the
transactions contemplated by this Agreement shall take place at the offices of
Nestle USA, Inc., 800 North Brand Boulevard, Glendale, California at such date
and time as may hereafter be agreed upon in writing by all parties hereto (the
"Closing Date"), but the parties hereto will use their reasonable best efforts
to close no later than March 31, 1993.
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<PAGE> 4
3. Seller and Company Representations and Warranties.
Seller represents and warrants to Buyer as follows:
3.1 Authority. The Company has full corporate power
and authority to own, lease and operate its assets, properties and business and
to carry on its business as it is now being and has been conducted. This
Agreement constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms. Seller has the
absolute and unrestricted right, power, authority and capacity to execute and
deliver this Agreement, and to perform its obligations hereunder and
thereunder.
3.2 Organization and Good Standing. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. The Company is duly qualified or otherwise authorized as a foreign
corporation to transact business and is in good standing in each jurisdiction
set forth on Schedule 3.2, which are the only jurisdictions in which such
qualification or authorization is required by law and in which the failure so
to qualify or be authorized could have a material adverse effect on the
business or properties of the Company. No other jurisdiction has claimed, in
writing or otherwise, that the Company is required to qualify or otherwise be
authorized as a foreign corporation therein and, except as set forth on
Schedule 3.2, the Company does not file franchise, income or other tax returns
in any other jurisdiction based upon the ownership or use of property therein
or the derivation of income therefrom. The Company does not own or lease
property in any jurisdiction other than its jurisdiction of incorporation and
the jurisdictions set forth on Schedule 3.2. The Company is duly qualified to
conduct intrastate business and is in good standing in all jurisdictions in
which it owns or leases property or conducts business, and in which the failure
to qualify could have a material adverse effect upon its business or
properties.
3.3 Capital Stock.
3.3.1 Outstanding Stock. The Company is
authorized to issue (i) 15,000 shares of common stock, no par value per share,
of which 6,000 are issued and outstanding; and (ii) 20,000 shares of preferred
stock, no par value per share, of which 0?- are issued and
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<PAGE> 5
outstanding, all of which outstanding Shares are owned by Seller. No other
class of capital stock of the Company is authorized or outstanding. All of the
Shares are duly authorized and are validly issued, fully paid and
nonassessable.
3.3.2 Title to Purchased Shares. Seller owns
the Shares beneficially and of record, free and clear of any lien, option or
other encumbrance and, upon delivery of any payment for such Shares as herein
provided, Seller will convey to Buyer good and valid title thereto, free and
clear of any lien or other encumbrance.
3.4 Options or Other Rights. There are no
outstanding rights, subscriptions, warrants, calls, unsatisfied preemptive
rights, options, conversion rights, commitments or other agreements of any kind
to purchase or otherwise to receive from the Company any of the outstanding,
authorized but unissued, unauthorized or treasury shares of the capital stock,
including the Shares, or any other security of the Company, and there is no
outstanding security of any kind convertible into such capital stock, including
the Shares.
3.5 Title to Assets. Except as set forth in
Schedule 3.5 attached hereto, the Company has good title to all assets (other
than Real Property), including, without limitation, all assets shown on the
Year End Statement (referred to in Section 3.6), free and clear of all
mortgages, liens, leases, pledges, encumbrances, and restrictions other than
(i) liens, if any, for personal property taxes and assessments not yet due and
payable, (ii) liens, leases, pledges, encumbrances and restrictions incurred in
the ordinary course of business, none of which are material, individually or in
the aggregate; or (iii) inventories or assets sold since the date of the
Balance Sheet in the ordinary course of business and consistent with past
practice.
3.6 The Company's Financial Condition.
3.6.1 The Company's Asset and Revenue
Statements. The Company shall have delivered to Buyer: (i) the Year End
Statement, and the unaudited statements of profit and loss and cash flows for
each of the fiscal years 1989, 1990, 1991, and 1992, attached hereto as
Schedule 3.6. Such financial statements and notes fairly present the financial
condition and results of operations of the Company as at the respective dates
thereof and for the periods
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<PAGE> 6
therein referred to, all in accordance with international accounting standards
applicable to a Swiss corporation. Except as set forth in Schedule 3.6 hereto
the financial statements referred to in this Section also have been prepared in
accordance with generally accepted accounting principles ("GAAP") and reflect
the consistent application of such accounting principles throughout the periods
involved.
3.6.2 Absence of Certain Changes. Except as
set forth in Schedule 3.6.2 and except for transactions or changes which would
not materially and adversely affect the Company's business taken as a whole,
since the date of the Company's Year End Statement there has not been: (i) any
transaction not in the ordinary course of the Company's business; (ii) any
material change in the Company's accounting methods or practices (including,
but not limited to, any change in depreciation or amortization policies or
rates); (iii) any sale or transfer of any of the assets of the Company or any
cancellation of any debts, claims or contracts, except in the ordinary course
of business and consistent with past practice; (iv) any amendment or
termination of any lease, or other material contract, purchase order or other
agreement to which the Company is a party; (v) any purchase by the Company of
Fixed assets, including Real Property in excess of an aggregate of $100,000;
(vi) any other currently known event or condition that, individually or in the
aggregate, could reasonably be expected to materially impair the condition
(financial or otherwise), results of operations, properties or business of the
Company; or (vii) any agreement, in writing or otherwise, by the Company to do
any of the things described in any of the preceding subsections (i) through
(vi).
3.6.3 No Undisclosed Liabilities. The Company
has no liabilities or obligations of any nature (contingent, absolute, direct,
indirect, matured, unmatured, accrued or otherwise) except (i) liabilities
which are fully reflected or reserved against in the Year End Statement (which
reserves are appropriate and reasonable); (ii) liabilities incurred in the
ordinary course of business and consistent with past practice since the date of
the Year End Statement; (iii) liabilities set forth in Schedule 3.6.3 hereto;
and (iv) liabilities which are not required by GAAP to be reflected on the Year
End Statement or the Closing Statement, which individually or in the aggregate,
would not materially and adversely affect the Company's business taken as a
whole. The Company has no liabilities with respect to intercompany
indebtedness between the Seller and its
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<PAGE> 7
affiliates and the Company.
3.7 Minute Books and Stock Transfer Records. The
minute books and stock transfer records of the Company, all of which will be
made available to Buyer upon request, are complete and correct. The minute
books of the Company contain accurate and complete records of all meetings held
of, and corporate action taken by, the sole stockholder and the Board of
Directors of the Company, and no meetings of any such stockholder or the Board
of Directors have been held for which minutes have not been prepared and are
not contained in such minute books. At the Closing, all of such books and
records will be tendered to Buyer.
3.8 Compliance with Laws. Except as set forth in
Schedule 3.8A, the Company has, and on the Closing will have, complied in all
material respects with all laws, orders and regulations of any governmental
department, commission, board, agency or instrumentality, domestic or foreign,
having jurisdiction over it or its operations, the violation of which would
have a material and adverse effect on the business of the Company. Except as
set forth on Schedule 3.8A, the Company has complied in all material respects
with all laws, orders and regulations of any governmental department,
commission, board, agency or instrumentality having jurisdiction over its
operations with respect to dairy effluent produced by its operations, the
violation of which would have a material and adverse effect on the business of
the Company. The Company has all governmental permits and approvals from
state, federal or local authorities which are required for the Company to
operate the business, except for those the absence of which would not have a
material adverse effect on the business of the Company.
3.9 Condition of Assets. The buildings, plants,
structures and equipment of the Company are in good operating condition and
repair and are adequate for the uses to which they are currently being put,
normal wear and tear and age taken into account, and such buildings, plants,
structures and equipment are adequate for the Company to operate as it has in
the past.
3.10 No Brokerage or Finder's Fees. Except as set
forth in Schedule 3.10, neither the Company nor Seller has incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees
or commissions with respect to the transactions contemplated by this Agreement
for which the Buyer or the Company would be responsible.
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<PAGE> 8
3.11 No Violation. Except as set forth in Schedule
3.11, neither the execution and delivery of this Agreement nor the consummation
or performance of any of the transactions contemplated hereby will, directly or
indirectly: (i) contravene, conflict with or result in a violation of any of
the provisions of the current articles of incorporation or the Bylaws of the
Company; (ii) contravene, conflict with or result in a violation of any
federal, state, local, municipal, foreign or other law, statute, ordinance,
rule, regulation, directive or other legal requirement or any order, judgment,
injunction, ruling, decision, writ or sentence rendered by any court, agency or
other governmental body to which the Company may be subject; or (iii)
contravene, conflict with or result in a violation or breach of any of the
provisions of, or give any person or entity the right (with or without notice
or lapse of time) to declare a default under, or to accelerate the maturity or
performance of or cancel, terminate or modify, any contract, license, permit or
authorization to which the Company is a party or under which the Company has
any rights, or by which the Company may be bound.
3.12 Consents to Assignment. No consent, approval or
other action of any third party is required to be obtained by the Company or
Seller in connection with the transactions contemplated in this Agreement,
except as set forth in Schedule 3.12 attached hereto. Consents shall be
obtained by the Company or Seller prior to the Closing except as is otherwise
provided in Section 5.2.4 and except that Seller shall not be required to
obtain any consent relating to any natural gas supply contract.
3.13 No Litigation. Except as set forth in Schedule
3.13, there are no legal, administrative, arbitration or other proceedings, or
claims, actions, disputes or investigations pending or threatened against the
Company. The Company has not received notice of any asserted material breach
or violation of any contract, commitment or restriction to which the Company is
a party or by which it is bound. Schedule 3.13 also contains a list of all
workman compensation claims filed by Company employees and general liability
(which for this purpose will exclude product liability) claims arising out of
the Company's business during the two (2) years ended December 31, 1992.
3.14 Benefit Plans.
3.14.1 Plans. Except as set forth in Schedule
3.14.1 there are no Plans (as herein defined) in which any
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<PAGE> 9
employees of the Company participate. As used herein, the term "Plan" shall
include (i) any "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii)
any written profit sharing, pension, deferred compensation, bonus, stock
option, stock purchase, severance, retainer, consulting, health, welfare or
incentive plan or agreement; (iii) any written plan or policy providing for
"fringe benefits" to its employees, including but not limited to vacation, paid
holidays, personal leave, employee discount, educational benefit or similar
programs; or (iv) any written employment agreement. All Plans shall be listed
on Schedule 3.14.1. For purposes of this Agreement, "ERISA Affiliate Plan" is
any "employee benefit plan" within the meaning of Section 3(3) of ERISA which
is (a) subject to Title IV of ERISA or Section 412 of the Internal Revenue Code
of 1986, as amended (the "Code"), (b) a "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA ("Multiemployer Plan"), (c) a multiple employer
plan within the meaning of Section 4063(a) of ERISA or (d) a "group health
plan" within the meaning of Section 5000(b) of the Code which is subject to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
sponsored, maintained, contributed to or obligated to be contributed to by
Nestle U.S.A., Inc., Seller, the Company or any trade or business (whether or
not incorporated) which are under common control, or are treated as a single
employer, with the Company under Section 414(b), (c), (m) or (o) of the Code
("ERISA Affiliate").
3.14.2 Multiemployer Plan. Except as set forth
in Schedule 3.14.2, the Company has not contributed, or been obligated to
contribute, to any Multiemployer Plan.
3.14.3 Compliance. To the best of Seller's
knowledge, each Plan which is an "employee benefit plan", as defined in Section
3(3) of ERISA, complies in all material respects with the requirements provided
by any and all statutes, orders or governmental rules or regulations currently
in effect and applicable to the Plan, including but not limited to ERISA and
the Code.
3.14.4 Reports. All reports, forms and other
documents required to filed with any government entity with respect to any Plan
(including without limitation, summary plan descriptions, Forms 5500 and
summary annual reports) have been timely filed and are accurate in all material
respects.
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3.14.5 Liability. The Company has no liability
nor is it threatened with any liability whether directly or as a result of
joint and several liability among the controlled group as determined under
Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA (i)
for the termination of any single employer plan under Section 4062 or 4064 of
ERISA or any multiple employer plan under Section 4063 of ERISA, (ii) for any
lien imposed under Section 302(f) of ERISA or Section 412(n) of the Code, (iii)
for any interest payments required under Section 302(e) or any excise taxes
imposed by Sections 4971, 4975, 4976, 4977 or 4979 of the Code, (iv) to a fine
under Section 502 of ERISA, or (v) for a transaction within the meaning of
Section 4069 of ERISA.
3.14.6 All of the Plans and ERISA Affiliate
Plans, to the extent applicable, are in compliance with the continuation of
group health coverage provisions contained in Section 4980B of the Code and
Sections 601 through 608 of ERISA.
3.14.7 Withdrawal Liability. The Company has
not incurred any withdrawal liability with respect to any Multiemployer Plan
within the meaning of Sections 4201 and 4204 of ERISA, and no liabilities exist
with respect to withdrawals from any Multiemployer Plans which could subject
the Company to any controlled group liability under Section 4001(b) of ERISA.
The Company is not subject to any current liabilities with respect to
withdrawals from any Multiemployer Plan as a member of Seller's controlled
group under Section 4001(b) of ERISA.
3.14.8 Copies. True, correct and complete
copies of all documents creating or evidencing any Plan listed in Schedule
3.14.1 have been made available to Buyer.
3.15 Real Property. The Company maintains such
interests in real property as are listed on Schedule 3.15 (collectively "Real
Property"). Schedule 3.15A contains a complete and accurate legal description
of each parcel of real property owned by the Company and included in the Real
Property; the Company has previously furnished to Buyer copies of such deeds
and recorded instruments by which the Company acquired such Real Property.
Schedule 3.15B contains a description of each leasehold interest in real
property of the Company and included in the Real Property; all of the leases
pertaining to properties described in such Schedule are valid and subsisting
and in full force and effect, and the Company has not received notice of any
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default or event that, with notice or lapse of time, or both, would constitute
a default by the Company under any of these leases. Except as set forth in
Schedule 3.15, the Company has good title in fee simple to all owned real
property included within the Real Property, free and clear of all mortgages,
deeds of trust, encumbrances, liens and charges of every kind and character,
except (i) liens for current taxes not yet due and payable and (ii) covenants,
conditions, restrictions, rights, rights of way, easements and other matters
which do not materially adversely affect or restrict the current use of the
Real Property.
3.16 Insurance. Schedule 3.16 attached hereto
contains an accurate and complete description of the types of material policies
of fire, liability, workers' compensation and other forms of insurance
currently in force under which the Company, its properties or any of its
officers, directors or employees are insured.
3.17 Equipment Leases. The machinery, equipment,
furniture, leasehold improvements, fixtures, related capitalized items and
other tangible property which are material to the business of the Company are,
and on the Closing Date will be, owned by the Company, except as otherwise
indicated on Schedule 3.17. For purposes of this Section 3.17, tangible
personal property shall not be considered material to the business of the
Company if it is leased pursuant to a lease which may be cancelled on ninety
(90) days notice or less without penalty or if it is subject to payment of not
more than $100,000 prior to termination.
3.18 Intellectual Property. Schedule 3.18 sets forth
(i) patents, trademark registrations, common law trademarks, service mark
registrations, trade names, and copyright registrations and all applications
therefor which are owned or used by the Company (other than in co-packing or
similar arrangements) and which are material to the business of the Company
(collectively, the "Intellectual Property"); and (ii) agreements licensing
technology, know-how, processes, trade secrets, or other proprietary rights
material and necessary to the business of the Company. The Company is licensed
by Societe Des Produits Nestle SA ("SPN") to use certain Intellectual Property.
All rights to Intellectual Property are and on the
Closing Date will be owned by SPN, NESTEC and/or Company. Certain Intellectual
Property (and related goodwill) shall be the subject of the Purchase and Sale
Agreements and licensing arrangements between SPN or NESTEC (as the case
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may be) and Buyer described in Section 8.1.9 of this Stock Purchase Agreement.
Any and all right, title and interest in and to
Intellectual Property not owned by SPN or NESTEC are owned by the Company, and
such Intellectual Property is free and clear of all liens, security interests,
charges, or encumbrances. Schedule 3.18.A is an accurate and complete listing
of all trademark registrations relating to Intellectual Property (except for
the trademark CARNATION). There is no opposition, invalidation, or
cancellation proceeding, and the Company has not received notice that any such
action is threatened with respect to Intellectual Property which is the subject
of such trademark registration. With the exception of any common law
trademarks included in Schedule 3.18, all trademarks have been registered and
are currently in compliance with the formal legal requirements (including the
payment of filing, examination and maintenance fees and proofs of working or
use) and are not subject to any maintenance fees or taxes or actions falling
due within ninety (90) days after the date of Closing.
It is the parties' intention that, after the Closing,
Buyer shall possess all of the Company's prior trade dress rights associated
with the current products sold by the Company (other than (i) those products
which are or were the subject of co-packing or similar arrangement and (ii)
those products utilizing any trademark licensed to Buyer in connection with
this Agreement). Seller agrees to take such reasonable steps, if any, after
the Closing, necessary to transfer to Buyer such trade dress rights.
3.19 Condition of Accounts Receivable. The accounts
receivable of the Company net of reserves that are reflected on the Year End
Statement of the Company or the Closing Statement (i) have arisen in the
ordinary course of business, and (ii) represent or will represent valid and
bona fide obligations due to the Company.
3.20 Inventory. The inventories of the Company
consist of items of a quality and quantity usable or salable in the normal
course of the business of the Company as heretofore conducted by it. As of the
Closing Date, items of below standard quality and items not usable in the
ordinary course of the business of the Company will have been written down in
value in accordance with good business practice to estimated net realizable
market values. The inventory of the Company as of the date of the Year End
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Statement and the Closing Statement was, and on the Closing Date will have
been, acquired in the ordinary course of business. The values of the inventory
carried on the Year End Statement are, and the value of the inventory to be
reflected on the Closing Statement will be, at the lower of first-in, first-out
cost or market of such inventory.
3.21 Capital Projects and Expenditures. All capital
projects and capital expenditures undertaken by the Company, or to which the
Company is committed, which have not been completed by the date hereof and
which involve an expected expenditure on or after the Closing Date to complete
of more than $100,000 are set forth in Schedule 3.21 attached hereto.
3.22 Subsidiaries. At the Closing Date, the Company
will not, directly or indirectly, own any stock or other equity interest in any
other person or entity.
3.23 Environmental Conditions. Except as set forth
on Schedule 3.23 attached hereto, to the best of Seller's knowledge: (i) the
Company has not deposited, stored or buried at, upon or under any of the Real
Property described in Schedule 3.15A or the leased property described on
Schedule 3.15B (together the "Occupied Properties") any Hazardous Substances
(as herein defined) other than those used, stored or disposed of in the
ordinary course of business and reasonably necessary to conduct its business in
the ordinary course, the transportation, use, storage and disposal of which
comply in all material respects with applicable laws; (ii) there are no
proceedings pending or, to the best of Seller's knowledge, threatened, against
the Company, before any federal or state environmental protection board, agency
or authority or before any court alleging violations of law involving Hazardous
Substances or directly arising out of their use, storage, transportation or
disposal by the Company; (iii) Seller has not received notice from any federal
or state environmental protection board, agency or authority requiring the
removal or cleanup of any Hazardous Substances from any of the Occupied
Properties, or advising Seller of any search or investigation with respect
thereto; and (iv) Seller has not discovered any conditions on real property
adjacent to or in the vicinity of the Occupied Properties which cause the
Occupied Properties to be subject to restrictions on occupancy under any state
or federal law relating to Hazardous Substances. As used in this Section 3.23,
the following terms shall have the following meanings: (x) "Hazardous
Substances" shall mean flammable explosives,
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radioactive materials, hazardous, toxic or dangerous wastes, petroleum or waste
oil products, asbestos and urea formaldehyde; and (y) "knowledge" shall mean
facts and circumstances actually known by the Company.
3.24 Compensation and Vacation Time. Attached hereto
as Schedule 3.24 is (i) a list of the names, titles and annual compensation of
each employee of the Company who, as of the Closing Date, is entitled to
receive compensation in excess of $50,000 per annum; and (ii) the accrued
vacation time of each such employee.
3.25 Bank Accounts. Attached hereto as Schedule 3.25
is a list of each financial institution in which the Company maintains an
account or safety deposit box, the number of such account or safety deposit
box, and the names of all persons holding check signing or withdrawal powers or
other authority with respect thereto.
3.26 Suppliers, Distributors and Customers. Schedule
3.26 lists, by dollar volume for the twelve (12) months ending on the date of
the Year End Statement, (i) the five (5) largest suppliers of the Company and
(ii) the five (5) largest direct purchasers of the Company's products. In the
last twelve (12) months no such supplier or customer of the Company has
notified the Company in writing or otherwise that it has cancelled or otherwise
terminated, or threatened in writing or otherwise to cancel or otherwise
terminate, its relationship with the Company to the knowledge of Mr. Mark
Mantey, General Sales Manager of the Company.
3.27 Material Contracts and Other Agreements.
Schedule 3.27 sets forth all of the following contracts and other agreements to
which the Company is currently a party or by which it is bound: (i) contracts
and other agreements with any current officer or director of the Company; (ii)
contracts and other agreements with any labor union or association representing
any employee; (iii) any contracts and other agreements between the Company and
any person which relate to the sale, distribution or marketing of any of the
products of the Company where the Company's sales pursuant to such contract in
the twelve (12) month period ending on the date of the Year End Statement
exceeded $100,000; (iv) material contracts and other material agreements
pursuant to which any party is required to purchase or sell a stated portion of
its requirements or output from or to another party; (v) material contracts and
other material agreements for the sale of any of its assets other than in the
ordinary course of business or for the
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<PAGE> 15
grant to any person of any preferential rights to purchase any of its assets;
(vi) joint venture agreements; (vii) contracts and other agreements containing
covenants of the Company not to compete in any line of business or with any
person in any geographical area; (viii) contracts and other agreements relating
to the acquisition by the Company of any operating business or the capital
stock of any other person; (ix) contracts and other agreements relating to the
borrowing of money, other than those relating to the financing of automobiles
or capital leases; (x) any other contracts or other agreements pursuant to
which payments in excess of $50,000 have been made or which by their terms
extend for terms longer than one hundred eighty (180) days and (xi)
confidentiality agreements the violation of which would have a material and
adverse effect upon the Company. There have been made available to Buyer true
and complete copies of all of the contracts and other agreements set forth on
Schedule 3.27. Except as set forth on Schedule 3.27, all of such contracts and
other agreements are valid and binding upon the Company. Except as set forth
on Schedule 3.27, the Company is not in default in any material respect under
any such contracts or agreements, nor, to the best knowledge of the Company, is
any other party to any such contract or other agreement in default thereunder
in any material respect. For purposes of this Section 3.27, a contract or
other agreement shall not be considered material if (i) it is a purchase order
or invoice entered into in the ordinary course of business in accordance with
past practices, (ii) is terminable on ninety (90) days notice or less without
penalty or (iii) is subject to payment of not more than $100,000 prior to
termination.
3.28 Tax Matters.
All Tax Returns which are or will be due and
required to be filed on or before the Closing Date by or on behalf of the
Company (taking into account all extensions of time for filing granted by any
applicable taxing authority) have been or will be timely filed by the Closing
Date, except for Tax Returns the failure to file which would not, in any case
or in the aggregate, have a material adverse effect on the Company. All Taxes
shown to be payable on the Tax Returns referred to in this Section 3.28 have
been timely paid and no other Taxes are payable by the Company for or with
respect to the Periods covered by such Tax Returns, except for (i) Taxes the
failure to pay which would not, in any case or in the aggregate, have a
material adverse effect on the Company; and (ii) Taxes for which the liability
is accrued on the Year End Statement or the
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Closing Statement. Capitalized terms used in this Section 3.28 shall have the
meaning ascribed to them in the Tax Matters Agreement attached hereto as
Exhibit C.
3.29 Material Misstatements or Omissions. No
representation or warranty of Seller or the Company contained in this Agreement
or the Schedules attached hereto, and no document or certificate furnished or
to be furnished to Buyer in connection herewith or with the transactions
contemplated hereby, contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements of fact contained
herein or therein not misleading.
3.30 Affiliated Transactions. Schedule 3.30 hereto
sets forth a general description of material services or material products
provided by the Seller, or any affiliate of the Seller, to the Company in the
ordinary course (including legal, administrative, purchasing, financial or
other services). Except as set forth on Schedule 3.30 hereto, from and after
the Closing Date, no agreement involving amounts to be paid by the Company to
Seller or any affiliate of Seller for any products or services (including any
charge for any administrative, purchasing, financial or other services) shall
continue to be in force or effect or binding upon the Company or Buyer.
3.31 Inspection, Audits, etc. Schedule 3.31 sets
forth a list of all governmental written inspection reports, audits, deficiency
reports or letters or other written advice received by the Company or Seller
during the last two years which concern violations of any laws, rules or
regulations relating to health or occupational safety at the Company or any of
its facilities.
3.32 Product Recalls and Withdrawals. Schedule 3.32
sets forth all recalls and withdrawals of the Company's products during the
past three years.
4. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller and the Company as follows:
4.1 Authority. This Agreement has been adopted, and
its execution and delivery to Seller and the performance thereof have been duly
authorized by the Board of Directors of Buyer, and no further action is
necessary on the part of Buyer to make this Agreement valid and binding upon
it.
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4.2 Organization and Good Standing. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
4.3 Brokerage or Finder's Fees. Buyer has not
incurred any liability to any broker, finder or agent for any brokerage fees,
finder's fees or commissions with respect to the transactions contemplated by
this Agreement for which Seller is obligated to pay.
5. Seller's Covenants and Agreements. Seller hereby affords
Buyer the following affirmative and negative covenants, thereby agreeing to do
or not to do the following:
5.1 Cash Management. From the date hereof through
the Closing Date, Seller will continue its ordinary course with respect to the
Company of central corporate cash management, involving daily sweeps of the
Company's accounts, which are invested for the benefit of, and all earnings and
interest are payable to, Seller. Such practices shall in no event affect the
Calculation of Adjustment Amount pursuant to Section 2.2, except to the extent
a cash surplus or deficiency results in a working capital surplus or
deficiency.
5.2 Conduct of Business.
5.2.1 Diligent Conduct. Except as set forth on
Schedule 5.2.1, from the date hereof through the Closing Date, Seller will use
its reasonable best efforts to ensure that the Company shall refrain from
taking any action which would materially prevent or reduce its ability to (i)
conduct its business diligently and in the ordinary course; (ii) preserve
intact its business and marketing organization; (iii) retain in its employ all
of its key employees; and (iv) preserve its relationships with its suppliers,
customers, sales representatives, and others having business relations with it.
5.2.2 Capital Transactions. From the date
hereof through the Closing Date, Seller will ensure that the Company shall not,
without the prior written consent of Buyer, make commitments for capital
expenditures in excess of an aggregate of $100,000; provided, however, that the
Company may make expenditures in the event of any emergency without the prior
written consent of Buyer.
5.2.3 Properties and Assets. From the date
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hereof through the Closing Date, Seller will ensure that the Company shall not,
without the prior written consent of Buyer, sell or transfer any of the Real
Property or its other material assets, cancel any debts or claims, or mortgage,
pledge or subject to lien, charge or encumbrance of any kind (other than liens
for taxes and assessments not delinquent) any of the Real Property or its other
material assets, except in the ordinary course of business.
5.2.4 Contracts and Consents. From the date
hereof through the Closing Date, Seller (i) will ensure that the Company shall
not, without the prior written consent of Buyer, enter into, amend, or
terminate any material contract or agreement to which it is a party, other than
in the ordinary course of business and (ii) shall use its reasonable best
efforts to obtain all consents listed on Schedule 5.2.4 hereto. To the extent
Seller is unable to obtain any consents listed on Schedule 5.2.4, Seller will
provide Buyer with the benefits of such contract through other means. For
instance, if Seller is unable to provide Buyer with the benefits of any
contracts listed on Schedule 5.2.4, Seller may obtain an alternative contract
in substitution which is reasonably satisfactory to Buyer, or will provide
Buyer with compensation for the loss suffered by Buyer as a result thereof.
Buyer agrees to cooperate with Seller in obtaining such consents, substitute
contracts, or compensation.
5.2.5 Insurance. From the date hereof through
the Closing Date, the Company shall continue in force its insurance policies,
as described in Schedule 3.16 or policies substantially equivalent thereto.
5.2.6 Compensation of Employees. From the date
hereof through the Closing Date, the Company may, in the ordinary course of
business and consistent with past practice, increase the compensation payable
or to become payable to any of its officers, employees or agents, or make any
bonus payment or similar arrangement with any such person.
5.3 Access and Information. Seller hereby agrees to
provide to Buyer such monthly financial information regarding the Company as is
delivered to Seller in ordinary course when such information becomes available
after the date of this Agreement until the Closing Date. Prior to the Closing,
the Company shall afford to Buyer and Buyer's counsel, accountants and other
representatives, reasonable access to all of its properties, books, contracts,
records,
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employees of the Company, and employees of Seller. Further Seller hereby
agrees to advise Buyer promptly of any material adverse change in the business
of the Company.
5.4 Disposition of Employee Benefit Plans.
(a) Seller shall continue to maintain the
employee benefit plans set forth in Schedule 3.14.1 until the Closing Date;
thereafter Seller shall treat the employees of the Company as terminated
employees in accordance with the current terms and provisions of such plans;
and
(b) Seller shall continue to provide
disability and related health benefits to each employee or former employee of
the Company who, as of the Closing Date, is receiving such benefits pursuant to
any of Seller's disability plans.
6. Buyer's Covenants and Agreements.
6.1 Nondisclosure of Confidential Information of the
Company. Prior to the Closing, Buyer agrees not to divulge, communicate, use
to the detriment of Seller or the Company or for the benefit of any other
person, partnership, corporation or other business entity, or misuse in any
way, any confidential information or trade secrets of the Seller or the
Company, including personnel information, secret processes, know-how, customer
lists or other technical data. Buyer acknowledges and agrees that any
information or data it has acquired on any of these matters or items was
received in confidence provided, however, that Buyer may provide confidential
information to such of its officers, directors, consultants, potential
financial sources, employees and representatives as it may in good faith decide
have a need for such information for the exclusive purpose of fulfilling
Buyer's conditions to Closing provided, however, that all recipients of such
information shall be bound by these provisions or any applicable
confidentiality agreement to keep such information confidential.
Notwithstanding anything to the contrary contained in
this Section 6.1, Buyer acknowledges that it remains bound by the terms of the
confidentiality agreement heretofore signed by it and attached hereto as
Exhibit A.
6.2 Employee Terminations.
(a) Buyer agrees that if any current
non-union
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employees of the Company are terminated, other than for cause, on or after the
Closing Date, Buyer shall be responsible for paying to each such employee a
severance benefit of two (2) weeks of compensation for each full year of
employment with the Company, up to a maximum of six (6) months.
(b) Buyer acknowledges that it shall be
Buyer's responsibility to provide any notice of layoff or plant closing that
might be required pursuant to the Worker Adjustment and Retraining Notification
Act of 1988.
7. Termination of Agreement.
7.1 Termination After Scheduled Closing Date.
Seller and Buyer will use their reasonable best efforts to effect the Closing
on or before March 31, 1993. If the Closing does not occur on or before May
31, 1993, or such later date as the parties may have specified in writing
pursuant to Section 2.5 hereof, after such date and at any time thereafter
either Seller or Buyer may terminate this Agreement and abandon the
transactions contemplated therein by written notice to the other.
7.2 Other Terminations. This Agreement also may be
terminated by mutual written agreement signed by both parties.
7.3 Effect of Termination. A termination shall be
effective as of midnight on the day the notice of termination pursuant to
Section 7.1 is received by the non-Terminating Party or as of the time and date
specified in the termination agreement pursuant to Section 7.2, as the case may
be (the "Termination Date"). From and after the Termination Date, this
Agreement shall become void and shall have no further force or effect
whatsoever, except that the provisions of Section 6.1 shall survive the
termination and shall continue in full force and effect; and provided further
that nothing in this Section 7 shall limit the ability of a party to seek
appropriate legal or equitable remedies in the event of a breach of this
Agreement by the other party hereto.
8. Conditions Precedent to Closing.
8.8 Conditions Precedent to Obligations of Buyer.
The obligation of Buyer to enter into this Agreement and to purchase the Shares
hereunder is subject to the satisfaction
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or waiver by Buyer of each of the following conditions:
8.8.1 Correctness of Representations and
Warranties. There shall be no representation or warranty of Seller contained
in this Agreement that is untrue or inaccurate in any material respect on the
Closing Date. Buyer shall have received a certificate dated the Closing Date
and executed by or on behalf of Seller and to the effect that all such
representations and warranties are true and accurate in all material respects.
8.8.2 Performance of Covenants and Agreement.
There shall be no covenant or agreement of Seller contained in this Agreement
and required to be performed before the Closing which has been breached in any
material respect. Buyer shall have received a certificate dated the Closing
Date and executed on behalf of Seller to the effect that there has been no such
material breach of any such covenant or agreement.
8.8.3 Opinion of Seller's Counsel. Buyer shall
have received from the General Counsel for Nestle USA, Inc., counsel for
Seller, an opinion dated the Closing Date in a form reasonably satisfactory to
Buyer. In rendering such opinion such counsel may rely on governmental advice,
factual certificates, opinions of local counsel and such other matters as such
counsel may deem reasonably appropriate and as are reasonably acceptable to
Buyer's counsel. Such opinion may also contain such assumptions and
qualifications as such counsel deems appropriate and as are reasonably
acceptable to Buyer's counsel.
8.8.4 Good Title to Shares. Seller shall have
transferred all the Shares to Buyer, free and clear of all liens, encumbrances
or restrictions. No claim shall have been filed, made or threatened by any
person or entity asserting that he or she is entitled to any part of the
Purchase Price paid for the Shares.
8.8.5 No Prohibition of Transaction. No
proceeding or regulation or legislation shall have been instituted, threatened
or proposed before, nor any order issued by, any governmental body to enjoin,
restrain, prohibit or obtain substantial damages (i) in respect of, or which is
related to, or arises out of, this Agreement or the consummation of the
transactions contemplated by this Agreement; or (ii) which, in the reasonable
judgment of Buyer, would have a materially adverse effect on the assets,
liabilities, business prospects, results of operations or
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financial condition of the Company.
8.8.6 Compliance with Law. The Company shall
have obtained any and all permits, approvals and consents of any governmental
body which counsel for Buyer may reasonably deem necessary or appropriate so
that consummation of the transactions contemplated by this Agreement will be in
compliance with applicable legal requirements, including without limitation
those specifically set forth on Schedule 8.1.6 and the filing required pursuant
to the provisions of the Hart-Scott-Rodino Anti- Trust Improvements Act of 1976
("HSR Act").
8.8.7 FIRPTA Affidavit. Buyer shall have
received from Seller an affidavit declaring that it is not a foreign
corporation, foreign partnership, foreign trust or foreign estate as those
terms are defined in the Internal Revenue Code and Regulations issued
thereunder.
8.8.8 Consents. On or prior to the Closing
Date, Seller shall provide evidence of compliance with Section 5.2.4 (to the
extent such compliance is required thereunder as of such date);
8.8.9 Sale and License of Trademarks. Buyer and
SPN shall have entered into a trademark sale agreement substantially in the
form of Exhibit B-1 attached hereto, pursuant to which SPN shall sell and Buyer
shall purchase the trademarks set forth in such Exhibit and the goodwill
related thereto. Buyer and Nestle Dairy Systems shall have entered into a
trademark sublicense agreement substantially in the form of Exhibit B-2
attached hereto.
8.8.10 Tax Matters Agreement. Buyer and Seller
shall have entered into a Tax Matters Agreement, substantially in the form of
Exhibit C attached hereto.
8.8.11NonCompetition Agreement. Nestle U.S.A.,
Inc. and Buyer shall have entered into a NonCompetition Agreement,
substantially in the form of Exhibit D attached hereto (the "NonCompetition
Agreement").
8.9 Conditions Precedent to Obligations of Seller.
The Closing shall not take place unless all of the following conditions not
waived by Seller are fulfilled:
8.9.1 Correctness of Representations and
Warranties. There shall be no representation or warranty of Buyer contained in
this Agreement which is untrue or
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inaccurate in any material respect on the Closing Date. Seller shall have
received a certificate dated the Closing Date and executed by Buyer to the
effect that all such representations and warranties are true and accurate in
all material respects.
8.9.2 Performance of Covenants and Agreement.
There shall be no covenant or agreement of Buyer contained in this Agreement
and required to be performed before the Closing which has been breached in any
material respect. Seller shall have received a certificate dated the Closing
Date and executed by Buyer to the effect that there has been no such material
breach of any such covenant or agreement.
8.9.3 Opinion of Buyer's Counsel. The Company
shall have received from John Clarson, General Counsel for Buyer, an opinion
dated the Closing Date, in a form reasonably satisfactory to Seller. In
rendering such opinion such counsel may rely on governmental advice, factual
certificates, opinions of local counsel and such other matters as such counsel
may deem reasonably appropriate and as are reasonably acceptable to Seller's
counsel. Such opinion may also contain such assumptions and qualifications as
such counsel deems appropriate and as are reasonably acceptable to Seller's
counsel.
8.9.4 No Litigation, Etc. No suit, action,
arbitration, legislation or legal, administrative or other proceeding or
governmental investigation shall be pending or threatened against Buyer, Seller
or the Company in relation to or affecting consummation of the transactions
contemplated by this Agreement.
8.9.5 Sale and License of Trademarks. Buyer and
SPN shall have entered into a trademark purchase agreement substantially in the
form of Exhibit B-1 attached hereto, pursuant to which SPN shall sell and Buyer
shall purchase the trademarks set forth in such Exhibit and the goodwill
related thereto. Buyer and Nestle Dairy Systems shall have entered into a
trademark sublicense agreement substantially in the form of Exhibit B-2
attached hereto.
8.9.6 Tax Matters Agreement. Buyer and Seller
shall have entered into a Tax Matters Agreement, substantially in the form of
Exhibit C attached hereto.
8.9.7 NonCompetition Agreement. Nestle U.S.A.,
Inc. and Buyer shall have entered into the NonCompetition Agreement.
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8.9.8 Compliance with Law. Buyer shall have
obtained any and all permits, approvals and consents of any governmental body
which counsel for Seller may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance with applicable legal requirements, including, without limitation,
those specifically set forth on Schedule 8.2.8, and the filing required
pursuant to the provisions of the HSR Act.
9. Mutual Covenants.
9.8 Section 338 Election. Upon consummation of the
transactions contemplated by this Agreement, Seller and Buyer each agree to
make a joint election under Sections 338(h)(10) and 338(g) of the Internal
Revenue Code of 1986 and any corresponding election available under state or
local tax law provisions of each state in which Seller or Buyer files an income
or franchise tax return (collectively, a "Section 338(h)(10) Election"), with
respect to the sale and purchase of the Shares. The parties will make the
Section 338(h)(10) Election in accordance with, and pursuant to, the provisions
of the Tax Matters Agreement.
9.9 Public Statements. From the date of this
Agreement to the Closing Date, the parties hereto will not make, issue or
release any oral or written public announcement or statement concerning, or
acknowledge of the existence of, or reveal the terms, conditions and status of,
any of the transactions contemplated by this Agreement, without first obtaining
the prior approval of, or concurrence in, the contents of such announcement,
acknowledgment or statement by the other party, which approval or concurrence
will not be unreasonably withheld or delayed.
9.10 Assumption of Certain Potential Environmental
Liability of the Company by the Buyer and Seller; Mutual Release. The parties
agree that this Section 9.3 is intended merely to provide an allocation of
potential exposure as between the parties hereto, and nothing in this Section
9.3 or Section 3.23 shall be deemed to constitute an admission of any
liability, responsibility, wrongful or negligent conduct or bad faith by any of
the parties hereto, except for the purposes of establishing obligations between
Buyer and Seller for the purposes of this Agreement.
9.10.1 Seller's Assumption. Upon the terms and
subject to all of the conditions contained herein, and
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for the consideration Seller has received from Buyer in Section 9.3.2 and
elsewhere pursuant to this Agreement, Seller agrees that Seller shall assume,
satisfy and undertake all responsibility and potential liability when due, for,
and to indemnify Buyer and the Company against, any liability which may be
imposed upon Buyer, Seller, or the Company with respect to (i) any matter
disclosed on Schedule 3.23 hereto, and (ii) any other environmental matters,
whether currently known or unknown, which arise out of, relate to, or are based
upon the operations of the Company prior to the time of the Closing or the act
or omission of the Company or any predecessor thereof prior to the time of
Closing.
9.10.2 Buyer's Assumption. Upon the terms and
subject to all of the conditions contained herein, and for the consideration
Buyer has received from Seller in Section 9.3.1 and elsewhere pursuant to this
Agreement, Buyer agrees that Buyer shall assume, satisfy and undertake all
responsibility and potential liability when due, for, and to indemnify Seller
against, any liability which may be imposed upon Buyer, Seller, or the Company
with respect to any environmental matters which may arise out of, relate to, or
are based upon the operations of the Company or any successor thereto after the
time of Closing.
9.10.3 Mutual Covenants. With respect to any
environmental matter for which both Seller and Buyer are responsible pursuant
to Section 9.3.1 and 9.3.2, Buyer and Seller agree that such liability shall be
shared and allocated on mutually acceptable equitable basis, to be agreed upon
between the parties at such time or, in the absence of such agreement, as
determined by a court of competent jurisdiction.
9.10.4 Relation to Section 3.23. In order to
avoid any circumvention of the provisions of Section 9.3 through the assertion
of breach of warranty claims under Section 3.23, Buyer agrees that it will not
be entitled to any damages for breach of warranty or representation under
Section 3.23 unless Buyer can demonstrate by clear and convincing evidence that
Seller's breach was wilful or grossly negligent.
9.11 Other Actions. Each party hereto agrees to
execute and to deliver such instruments, in form and substance mutually
agreeable to the parties, as the other party may reasonably require in order to
carry out the terms of this Agreement or the transactions contemplated by this
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Agreement.
9.12 All Reasonable Efforts. Each party hereto will
use those efforts that a prudent person desirous of achieving a result would
use under similar circumstances to ensure that such result is achieved as
expeditiously as reasonably possible in order to cause all conditions to the
consummation of the transactions contemplated by this Agreement to be
satisfied, and shall not take any action that would cause any of its
representations and warranties in this Agreement not to be true and correct as
of the Closing Date.
10. Indemnifications.
10.8 Seller's Promise to Indemnify. Subject to
Section 10.4 hereof, Seller agrees to indemnify, defend and hold harmless Buyer
against any and all losses, claims, liabilities, damages, actions, costs or
expenses, including without limitation attorneys' fees and costs, arising from,
in connection with or with respect to the following items (the "Indemnified
Losses"): (i) any misrepresentation, breach or inaccuracy of any representation
or warranty set forth in Section 3 hereof; (ii) any nonfulfillment of or
failure to comply with any agreement, condition or covenant on the part of
Seller under this Agreement; (iii) any breach by Nestle U.S.A., Inc. of its
obligations under the NonCompetition Agreement and (iv) any ERISA Affiliate
Plan (other than liabilities arising with respect to such plans with respect to
benefits for the employees of the Company), including but not limited to any
liability (x) to the PBGC under Title IV of ERISA, (y) relating to a
Multiemployer Plan, and (z) with respect to non- compliance with the notice and
benefit continuation requirements of COBRA, to the extent such liabilities in
this clause (iii) are attributable to the operations (including obligations
with respect to employees) of any ERISA Affiliate prior to the Closing Date;
provided, however, that as a condition precedent to any indemnification
pursuant hereto, other than for title to the Shares, the Indemnitor (as
hereinafter defined) shall have received written notice of a claim from the
Indemnified Party (as hereinafter defined) pursuant to Section 10.3 within
eighteen (18) months from the Closing Date; provided, further, that as a
condition precedent to any indemnification pursuant to (iii) above, the
Indemnitor shall have received written notice of a claim from the Indemnified
Party pursuant to Section 10.3 within thirty-six (36) months from the Closing
Date; and provided, further, that any claim for indemnity under clause (iv)
above must be
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made on or prior to the 60th day after the expiration of all applicable
statutes of limitations (including all periods of extension, whether automatic
or permissive) and is not subject to Section 10.4 hereof.
10.9 Buyer's Promise to Indemnify. Buyer agrees to
indemnify, defend and hold harmless Seller against any and all losses, claims,
liabilities, damages, actions, costs or expenses, including without limitation
attorneys' fees and costs, arising from, in connection with or with respect to
the following items (the "Indemnified Losses"): (i) any misrepresentation,
breach or inaccuracy of any representation or warranty set forth in Section 4
hereof; (ii) any nonfulfillment of or failure to comply with any agreement,
condition or covenant on the part of Buyer under this Agreement; or (iii) any
loss, cost, claim, liability or expense arising out of the operation or
ownership of the Company or the Company's business from and after the Closing
Date, provided, however, that as a condition precedent to any indemnification
pursuant to (i) or (ii) above, the Indemnitor shall have received written
notice of a claim from the Indemnified Party pursuant to Section 10.3 within
eighteen (18) months from the Closing Date.
10.10 Procedure for Indemnification. If there is
asserted any claim, liability or obligation that in the judgment of a party
indemnified above (the "Indemnified Party") may give rise to any Indemnified
Losses, or if the Indemnified Party determines the existence of the foregoing,
whether or not the same shall have been asserted, such Indemnified Party shall
give the party from whom indemnity is sought (the "Indemnitor") notice within
thirty (30) business days of the assertion of any claim, liability or
obligation, or within ten (10) business days of receipt of notice of the filing
of any lawsuit based upon such assertion, or, with respect to a claim not yet
asserted against the Indemnified Party, promptly upon the determination by an
executive officer of the Indemnified Party of the existence of the same, and
shall give the Indemnitor a reasonable opportunity of assuming the defense of
such claim, liability or obligation, using counsel reasonably acceptable to the
Indemnified Party; provided, however, that the Indemnified Party shall have the
right to participate in such defense, except that if the Indemnified Party
retains separate counsel, other than in the event of a conflict of interest
requiring the retention of separate counsel, the Indemnified Party shall assume
the expense of the separate counsel. Failure by the Indemnified Party to give
timely notice pursuant to this Section 10.3 shall not
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relieve the Indemnitor of its obligations, except to the extent that the
Indemnitor is actually prejudiced by such failure to give timely notice. No
settlement or adjustment shall be made without the Indemnified Party's prior
written consent, which consent shall not be unreasonably withheld. If the
Indemnitor fails to contest in good faith any such claim, liability or
obligation, the Indemnified Party shall have the right to defend, settle or pay
the same and pursue its remedies against the Indemnitor hereunder. The
Indemnified Party shall cooperate with the Indemnitor in any such defense which
the Indemnitor elects to assume in the event the Indemnitor makes such request
to the Indemnified Party and such request is reasonable, provided the
Indemnitor shall hold the Indemnified Party harmless from all of its
out-of-pocket expenses, including attorneys' fees, incurred in connection with
the Indemnified Party's cooperation. In the event of a disagreement among the
parties as to whether any claim, liability or obligation may give rise to an
Indemnified Loss, then the Indemnified Party shall have the right to defend,
settle or pay the same, or to pursue its remedies against Indemnitor hereunder;
provided, however, the Indemnitor shall have the right to participate in such
defense and no settlement or adjustment shall be made without Indemnitor's
prior written consent, which consent shall not be unreasonably withheld.
Notwithstanding any provision in Section 10 to the contrary, to the extent the
Indemnified Party (i) has received any income tax benefits on a net basis or
(ii) has collected any insurance payments with respect to a claim, liability or
obligation which has given rise to an Indemnified Loss, then the Indemnitor
shall reduce the amount otherwise payable to the Indemnified Party with respect
to the Indemnified Loss by the amount of such tax benefit or insurance payment.
Notwithstanding anything contained elsewhere in this
Section 10.3, if an offer of compromise is received by the Indemnitor with
respect to a claim related to any of the Indemnified Losses, such Indemnitor
may notify the related Indemnified Party in writing of the Indemnitor's
willingness to compromise or settle such claim on the basis set forth in such
notice. If the Indemnified Party declines to accept such compromise or
settlement, the Indemnified Party may continue to contest such claim, free of
any participation by the Indemnitor, at the Indemnified Party's sole expense.
In such event, the obligation of the Indemnitor to the Indemnified Party with
respect to such claim shall be equal to the lesser of: (i) the amount of the
offer of compromise or settlement which the Indemnified Party declined to
accept, and (ii) the actual out-of-pocket amount the
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Indemnified Party is obligated to pay as a result of the Indemnified Party's
continuing to contest such such claim. An Indemnitor shall be entitled to
recover (by setoff or otherwise) from an Indemnified Party any additional
expenses incurred by the Indemnitor as a result of the Indemnified Party's
decision to continue to contest such claim.
10.11 Limitations on Seller's Liability. Except as
provided in Section 10.3, and except as to those obligations assumed under
Section 9.3.1, Seller shall only be liable under and with respect to this
Agreement and the transactions contemplated hereby from and after the time, if
ever, that the aggregate Indemnified Losses sustained by Buyer exceeds the sum
of Five Hundred Thousand Dollars ($500,000). Thereafter the Seller's liability
shall extend to the full amount of the losses including the first $500,000
amount. The Seller's maximum liability under and with respect to this
Agreement, the transactions contemplated hereby or any claims (whether in tort,
contract or otherwise) associated herewith shall be that sum equal to the
amount of the Net Assets of the Company set forth on Schedule 3.6 hereto and
Buyer shall not be entitled to recover any amounts in excess of this amount.
11. General Provisions.
11.8 Schedules. The disclosures in the Schedules
hereto are to be taken as relating to the representations and warranties taken
as a whole without regard to reference to a specific section of this Agreement.
11.9 Further Assurances. Each party hereto will,
from time to time after the Closing, execute and deliver, and use all
reasonable efforts to cause other persons to execute and deliver, any such
further documents and instruments, and will do or use all reasonable efforts to
cause to be done such other acts, as the other party may reasonably request
more completely to consummate and make effective the transactions contemplated
by this Agreement.
11.10 Notices. Notices and other communications provided
for herein shall be in writing (including wire, telex, telecopy or similar
writing) and shall be sent, delivered, telexed, or telecopied to:
Seller: TSC Holdings, Inc.
c/o Nestle U.S.A., Inc.
800 North Brand Boulevard
Glendale, California 91203
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<PAGE> 30
Attention: General Counsel
with a copy to: Morrison & Foerster
555 West Fifth Street, Suite 3500
Los Angeles, California 90013-1024
Attention: Michael J. Connell, Esq.
Buyer: The Morningstar Group Inc.
5956 Sherry Lane
Dallas, Texas 75225
Attention: Mr. Tracy Noll
with a copy to: Weil Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: R. Scott Cohen, Esq.
11.11 Assignment. This Agreement shall not be
assignable by any party without the prior written consent of the other party.
Nothing contained in this Agreement, express or implied, is intended to confer
upon any person or entity other than the parties hereto and their successors in
interest and permitted assignees, any rights or remedies under or by reason of
this Agreement, unless expressly so stated to the contrary.
11.12 No Third-Party Beneficiaries. No provision of
this Agreement shall create any third-party beneficiary rights in any employee
or former employee (including any beneficiary or dependent thereof) of Seller
or the Company or any of their affiliates in respect of continued employment
(or resumed employment) or otherwise, and no provision of this Agreement shall
create any third-party beneficiary rights in any such persons in respect of any
benefits that may be provided, directly or indirectly, under any employee
benefit plan or arrangement, including the currently existing Plans.
11.13 Time is of the Essence. Time is of the essence in
respect to all provisions of this Agreement in which a definite time for
performance is specified, provided, however, that the foregoing shall not be
construed to limit or deprive a party of the benefit of any grace or use period
provided for in this Agreement.
11.14 Entire Agreement. Except as expressly
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provided in Section 6, this Agreement and the schedules, exhibits and
certificates specifically referred to herein or required to be delivered
pursuant to the terms hereof represent the entire agreement of the parties
hereto with respect to the subject matter hereof, superseding all prior
agreements, understandings, discussions, negotiations and commitments of any
kind. This Agreement may not be amended or supplemented, nor may any rights
hereunder be waived, except in a writing signed by each of the parties affected
thereby.
11.15 Section Headings. The section headings in this
Agreement are included for convenience only, are not a part of this Agreement
and shall not be used in construing it.
11.16 Severability. In the event that any provision or
any part of any provision of this Agreement is held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall not affect
the validity or enforceability of any other provision or part hereof.
11.17 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.18 Governing Law; Venue; Waiver of Jury Trial. The
validity, interpretation, enforceability, and performance of this Agreement
shall be governed by and construed in accordance with the laws of the State of
California, applicable to contracts executed and to be wholly performed in such
State. Any action or proceeding arising out of or relating to this Agreement
shall be venued in a federal or state court of appropriate subject matter
jurisdiction located in Los Angeles, California, and the parties hereby consent
to the personal jurisdiction of such courts. THE SELLER AND BUYER EACH AGREE
THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
SHALL BE TRIED BEFORE A JUDGE AND THEY EACH EXPRESSLY WAIVE ANY RIGHT THEY MAY
HAVE TO A JURY TRIAL.
11.19 Expenses. Except as set forth below or as
otherwise specified herein, each party hereto shall pay its own legal,
accounting, out-of-pocket and other expenses incident to this Agreement and to
any action taken by such party in preparation for carrying this Agreement into
effect. In addition, Seller shall be responsible for
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payment of the fees charged by Lazard Freres & Company in connection with this
transaction.
11.20 Survival of Representations and Warranties. The
respective representations and warranties of each party contained in Sections 3
and 4 of this Agreement shall: (i) not be deemed waived or otherwise affected
by any investigation made by or on behalf of the other party; and (ii) survive
the Closing and the consummation of the transactions contemplated by this
Agreement for eighteen (18) months following the Closing, at which time they
shall be of no further force or effect, unless otherwise specified herein.
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<PAGE> 33
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above mentioned.
Seller: TSC HOLDINGS, INC.,
a Delaware corporation
By:________________________________
Title:_____________________________
Buyer: THE MORNINGSTAR GROUP INC.,
a Delaware corporation
By:________________________________
Title:_____________________________
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<PAGE> 1
EXHIBIT 10 (lll)
THE MORNINGSTAR GROUP INC.
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
THE MORNINGSTAR GROUP INC. (formerly MORNINGSTAR FOODS INC.), a
Delaware Business Corporation, having its principal office in Dallas, Texas
(hereinafter referred to as "Employer") and the Participating Employers, adopt
this Plan.
R E C I T A L S:
A. Effective April 1, 1988, MORNINGSTAR FOODS INC. and
Participating Employers BANCROFT DAIRY INC., STAR SPECIALTY FOODS INC. and
VELDA FARMS INC. established THE MORNINGSTAR FOODS INC. EMPLOYEES' SAVINGS AND
PROFIT SHARING PLAN ("Plan"), a profit sharing plan with a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code of 1986, for the
exclusive benefit of eligible Employees and their Beneficiaries;
B. Effective June 4, 1991, the corporate name of MORNINGSTAR FOODS
INC. was changed to THE MORNINGSTAR GROUP INC.;
C. Effective June 10, 1992, BANCROFT DAIRY MARYLAND INC. adopted
the Plan as a Participating Employer;
D. Effective January 1, 1993, a portion of the assets of THE
MORNINGSTAR GROUP INC. were transferred to MSTAR INC.;
E. Effective January 1, 1993, MSTAR INC. adopted the Plan as a
Participating Employer;
F. Effective April 1, 1993, FAVORITE FOODS INC. adopted the Plan as
a Participating Employer;
G. Effective May 1, 1993, AVOSET FOOD CORPORATION and AVOSET
INTERNATIONAL LTD. adopted the Plan as Participating Employers.
H. THE MORNINGSTAR GROUP INC. and the Participating Employers
("Employer") recognize the lasting contribution made by its Employees to its
successful operation and wants to reward their contribution by continuing the
Plan. The Employer has authorized the execution of this Agreement intended to
continue the Plan and to qualify under Sections 401(a) and 501(a) of the
Internal Revenue Code of 1986 as amended and the regulations promulgated
thereunder;
I. The provisions of this Plan, as amended and restated, shall
apply solely to an Employee who terminates employment with the Employer on or
after the restated Effective Date of this Plan;
J. If an Employee terminates employment with the Employer prior to
the restated Effective Date, that Employee shall be entitled to benefits under
the Plan as the Plan existed on the Employee's termination date; and
K. The Trustee is willing to act as Trustee under the terms of the
Plan and Trust contained in this Agreement;
NOW, THEREFORE, considering the premises and their mutual covenants,
the Employer and the Trustee agree as follows:
1
<PAGE> 2
ARTICLE I
Definitions
The following terms used in this Agreement shall have the meanings set forth in
this Article unless a different meaning is clearly indicated by the context:
1.1. Account Balance
Account Balance means the amount standing in a Participant's
Individual Account(s) as of any date derived from both Employer
Contributions and Employee Contributions, if any.
1.2 Accounting Period
Accounting Period shall mean the three month period ending on the last
day of each calendar quarter.
1.3. Administrator
EFFECTIVE APRIL 1, 1988, Administrator means the person serving as
Corporate Benefits Manager of MORNINGSTAR FOODS INC. and its
successor, THE MORNINGSTAR GROUP INC. EFFECTIVE JANUARY 1, 1993,
Administrator means MSTAR INC. unless MSTAR INC. designates another
person to hold the position of Administrator by written Employer
action. In addition to its other duties, the administrator has full
responsibility for compliance with the reporting and disclosure rules
under ERISA pertaining to this Agreement.
1.4. Agreement
Agreement means this Plan and Trust Agreement and all amendments or
addendums to this Agreement.
1.5. Alternate Payee
Alternate Payee means any spouse, former spouse, child, or other
dependent of a Participant who is recognized by a domestic relations
order as having a right to receive all, or a portion of, the benefits
payable under the Plan with respect to such Participant.
1.6. Anniversary Date
Anniversary Date means December 31 of each Plan Year.
1.7. Annual Compensation
(a) Annual Compensation, pursuant to the safe harbor definition of
Treasury Regulation Section 1.4152(d)(11), means wages as
defined in Code Section 3401(a) and all other payments of
compensation to an Employee by the Employer in the course of the
Employer's trade or business for which the Employer is required
to furnish the Employee a written statement under Code Sections
6041(d) and 6051(a)(3). Compensation must be determined without
regard to any rules under Code Section 3401(a) that limit the
remuneration included in wages based on the nature or location
of the employment or the services performed such as the
exception for agricultural labor in Code Section 3401(a)(2).
(b) Notwithstanding the foregoing, Annual Compensation taken into
account for determining all benefits provided under the Plan for
any determination period shall not exceed $200,000, or such
larger amount the Secretary of the Treasury may prescribe for
the relevant year. (However, for Plan Years beginning prior to
January 1, 1989, the $200,000 limit shall apply only for Top
Heavy Plan Years and shall not be adjusted.) The $200,000 limit
shall be adjusted by the Secretary at the same time and in the
same manner as under Code Section 415(d) except that the dollar
increase in effect on January 1 of any calendar year is
effective for years beginning in such calendar year. If the
period for determining compensation used in calculating an
Employee's allocation for a determination period is a short Plan
Year the Annual Compensation limit is an amount equal to the
otherwise applicable Annual Compensation limit multiplied
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<PAGE> 3
by a fraction, the numerator of which is the number of months in
the short Plan Year and the denominator of which is twelve (12).
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for
the current determination period, the Compensation for such
prior year is subject to the applicable Annual Compensation
limit in effect for that prior year. For this purpose, for
years beginning before January 1, 1990, the applicable Annual
Compensation limit is $200,000. The $200,000 (or adjusted)
Annual Compensation limit applies to the combined Annual
Compensation of the Employee and of any Family Member aggregated
with the Employee under Section 1.24 who is either (i) the
Employee's spouse, or (ii) the Employee's lineal descendant
under the age of 19. If, for a Plan Year, the combined Annual
Compensation of the Employee and the Family Members who are
Participants entitled to an allocation for that Plan Year
exceeds the $200,000 (or adjusted) limit, Annual Compensation
for each such Participant, for purposes of the contribution and
allocation provisions of Articles III and V, means his or her
Adjusted Compensation. Adjusted Compensation is the amount
which bears the same ratio to the $200,000 (or adjusted) limit
as the affected Participant's Annual Compensation without regard
to the $200,000 (or adjusted) limit bears to the combined Annual
Compensation of all the affected Participants in the family
unit. If the Plan uses permitted disparity, the Committee must
determine the integration level of each affected Family Member
Participant prior to prorating the $200,000 (or adjusted) limit,
but the combined integration level of the affected Participants
may not exceed the $200,000 (or adjusted) limit. The combined
Excess Compensation of the affected Participants in the family
unit may not exceed the $200,000 (or adjusted) limit minus the
affected Participants' combined integration level, as determined
under the preceding sentence. If the combined Excess
Compensation exceeds this limit, the Committee will prorate the
Excess Compensation limit among the affected Participants in the
family unit in proportion to each individual's Adjusted
Compensation minus his or her integration level.
(c) For purposes of determining whether the Plan discriminates in
favor of Highly Compensated Employees, Annual Compensation means
Annual Compensation defined in this Section 1.6, except any
exclusions from Annual Compensation other than the exclusions
described in clauses (a)(i), (ii), (iii), (iv), and (v) do not
apply. The Employer also may elect to use an alternate
nondiscriminatory definition, under Code Section 414(s) and the
applicable Treasury regulations. In determining Annual
Compensation under this paragraph, the Employer may elect to
include all Elective Contributions made by the Employer on
behalf of the Employees. The Employer's election to include
Elective Contributions must be consistent and uniform for
Employees and all plans of the Employer for any particular Plan
Year. The Employer may make this election to include Elective
Contributions for nondiscrimination testing purposes, whether or
not this Section includes Elective Contributions in the general
Annual Compensation definition of the Plan.
(d) Notwithstanding the foregoing, Annual Compensation for any
Self-Employed Individual means Earned Income.
(e) Notwithstanding the foregoing, Annual Compensation includes,
pursuant to the safe harbor definition of Treasury Regulation
Section 1.414.(s)-1(c)(4):
(i) Elective Contributions that are made by the Employer
on behalf of its Employees that are not includable in
gross income under Code Section 125 relating to a
cafeteria plan; Code Section 402(a)(8) relating to a
Code Section 401(k) arrangement; Code Section 402(h)
relating to a simplified employee pension plan; and
Code Section 403(b) relating to a tax sheltered
annuity plan;
(ii) Compensation deferred under an eligible deferred
compensation plan defined in Code Section 457(b) for
state and local governments and tax-exempt
organizations; and
(iii) Employee Contributions under governmental plans
described in Code Section 414(h)(2) picked up by the
employing unit and treated as Employer Contributions.
1.8. Beneficiary
Beneficiary means any person or fiduciary designated by a Participant
or Former Participant who is or may become entitled to receive
benefits under Article VII following the death of the Participant or
Former Participant. A Beneficiary who becomes entitled to a benefit
under the Plan shall remain a Beneficiary under the Plan until the
Trustee has fully distributed the benefits to the Beneficiary. A
Beneficiary's right to information or data concerning the Plan, and
the respective duties of the Administrator, the Committee and the
Trustee to provide to the Beneficiary information or data concerning
the Plan, shall not arise until the Beneficiary first becomes entitled
to receive a benefit under the Plan. For purposes of determining
whether
3
<PAGE> 4
the Plan is a Top-Heavy Plan, a Beneficiary of a deceased Participant
shall be considered a Key Employee or a Non-Key Employee in accordance
with the applicable Treasury Regulations.
1.9. Cash Value
Cash Value means the cash surrender value of any Contract acquired
under the Plan, including all dividends or other accumulations
remaining with the Insurance Company as part of such Contract, on the
date cash value is to be determined.
1.10. Code
Code means the Internal Revenue Code of 1986, as amended from time to
time. A reference to a Code Section in this Agreement means the
provisions or successor provisions of the particular Code Section, as
amended or replaced from time to time.
1.11. Committee
Committee means the Plan Committee as from time to time constituted
pursuant to Article XII.
1.12. Contract
Contract means any life insurance, annuity, or other contract which
may be issued by an Insurance Company.
1.13. Determination Date
Determination Date means (a) the last day of the preceding Plan Year
or (b) in the case of the first Plan Year, the last day of the first
Plan Year.
1.14. Disability
Disability means the physical or mental incapacity of a Participant
which, in the opinion of a physician approved by the Committee, will
permanently prevent the Participant from performing any of the usual
duties of his or her employment.
1.15. Early Retirement Date
An Early Retirement Date is not provided under this Plan.
1.16. Effective Date
The original Effective Date of this Plan is April 1, 1988. The
Effective Date of this Plan as restated during the 1993 Plan Year is
April 1, 1988.
1.17. Employee
(a) Employee means any individual currently employed by the Employer
maintaining the Plan or of any other Employer required to be
aggregated with the Employer under Code Sections 414(b), (c),
(m) or (o).
(b) The Plan treats any Leased Employee as an Employee of the
Employer unless excluded by an exclusion classification in
Section 2.1. A Leased Employee is an individual, who otherwise
is not an Employee of the Employer, who, pursuant to a leasing
agreement between the Employer and any other person, has
performed services for the Employer (or for the Employer and any
persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full time basis for at
least one (1) year and who performs services historically
performed by Employees in the Employer's business field. If a
Leased Employee is treated as an Employee because of this
Section 1.16, Annual Compensation includes compensation from the
leasing organization which is attributable to services performed
for the Employer.
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(c) Notwithstanding the foregoing, the Plan does not treat any
Leased Employee as an Employee of the Employer if the leasing
organization covers the Employee in a safe harbor plan and,
prior to the application of this safe harbor plan exception,
twenty percent (20%) or less of the Employer's Employees (other
than Highly Compensated Employees) are Leased Employees. A safe
harbor plan is a money purchase pension plan providing immediate
participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least ten percent (10%) of the
employee's compensation without regard to employment by the
leasing organization on a specified date. The safe harbor plan
must determine the ten percent (10%) contribution on the basis
of compensation defined in Code Section 415(c)(3) plus salary
deferrals.
(d) The Committee must apply this Section 1.16 in a manner
consistent with Code Sections 414(n) and 414(o) and the
applicable Treasury regulations. The Committee will reduce a
Leased Employee's allocation of Employer Contributions under
this Plan by the Leased Employee's allocation under the leasing
organization's plan, but only to the extent that allocation is
attributable to the Leased Employee's service provided to the
Employer. The leasing organization's plan must be a money
purchase pension plan which would satisfy the definition under
this Section 1.16 of a safe harbor plan, irrespective of whether
the Employer is able to apply the safe harbor plan exception.
1.18. Employer
EFFECTIVE APRIL 1, 1988, Employer means MORNINGSTAR FOODS INC., the
Plan Sponsor, and BANCROFT DAIRY INC., STAR SPECIALTY FOODS INC. and
VELDA FARMS INC., the Participating Employers. EFFECTIVE JUNE 4,
1991, the corporate name of MORNINGSTAR FOODS INC. was changed to THE
MORNINGSTAR GROUP INC. EFFECTIVE JUNE 10, 1992, the term Employer
includes the additional Participating Employer, BANCROFT DAIRY
MARYLAND INC. EFFECTIVE JANUARY 1, 1993, a portion of the assets of
THE MORNINGSTAR GROUP INC. were transferred to MSTAR INC. EFFECTIVE
JANUARY 1, 1993, Employer means THE MORNINGSTAR GROUP INC., the Plan
Sponsor, and BANCROFT DAIRY INC., BANCROFT DAIRY MARYLAND INC., STAR
SPECIALTY FOODS INC., VELDA FARMS INC., and MSTAR INC. EFFECTIVE
APRIL 1, 1993, the term Employer includes the additional Participating
Employer FAVORITE FOODS INC. EFFECTIVE MAY 1, 1993, the term Employer
includes the additional Participating Employers AVOSET FOOD
CORPORATION and AVOSET INTERNATIONAL LTD. and any other employer,
who, with the written consent of THE MORNINGSTAR GROUP INC. adopts
this Plan.
1.19. Entry Date
Entry Date means the first pay period ending on or after the first day
of any calendar month after the requirements of Section 2.1 are met.
1.20. ERISA
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
1.21. Family Member
Family Member means an Employee's spouse and lineal ascendants or
descendants and the spouses of lineal ascendants and descendants, as
described in Code Section 414(q)(6)(B).
1.22. Forfeiture
Forfeiture means the loss, by a Participant or Beneficiary, pursuant
to Section 9.4, of that part of the benefit which the Participant or
Beneficiary otherwise would have received under the Plan at any time
prior to the termination of the Plan or the complete discontinuance of
benefits under the Plan, arising from the Participant's severance of
employment.
1.23. Former Employee
Former Employee means any individual who is no longer employed by the
Employer.
1.24. Former Participant
Former Participant means any individual who has been a Participant in
the Plan, but who is either no longer employed by the Employer or is
otherwise no longer eligible to participate and has not yet received
the entire benefit to which the individual is entitled under the Plan.
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1.25. Highly Compensated Employee
Highly Compensated Employee means any Participant or Former
Participant who is a Highly Compensated Employee, defined in Code
Section 414(q). Generally, any Participant or Former Participant is
considered a Highly Compensated Employee if, during the Plan Year (the
"Determination Year") or during the twelve month period immediately
preceding the Determination Year or, if the Employer elects, the
calendar year ending with or within the Determination Year (the "Look
Back Year"), the Participant or Former Participant:
(a) was at any time a Five Percent Owner, defined in Section 1.45(g);
(b) received Compensation from the Employer in excess of $75,000, as
adjusted by the Secretary of the Treasury for the relevant year;
(c) received Compensation from the Employer in excess of $50,000, as
adjusted by the Secretary of the Treasury for the relevant year,
and was in the top-paid group of Employees for the relevant
year. An Employee is in the top-paid group of Employees for any
Plan Year if such Employee is in the group consisting of the top
twenty percent (20%) of the Employees when ranked on the basis
of Annual Compensation paid during the Plan Year. However,
solely for determining the total number of active Employees for
a year, the following Employees are disregarded:
(i) The Employees described in this subsection (i) are
excluded on the basis of age or Service:
(A) Employees who have not completed six (6) months
of Service by the end of the year. (An
Employee's Service in the immediately preceding
year is added to the Employee's Service in the
current year to determine whether the exclusion
applies in the current year.);
(B) Employees who normally work less than 17 1/2
hours per week. (This determination is made
independently for each year. Weeks during
which the Employee did not work are not
considered. An Employee who works less than 17
1/2 hours a week for fifty percent (50%) or
more of the total weeks worked by the Employee
during the year is deemed to normally work less
than 17 1/2 hours per week under this rule.);
(ii) Employees who are included in a unit of employees
covered by an agreement that the Secretary of Labor
finds to be a collective bargaining agreement between
Employee representatives and the Employer which
satisfies Code Section 7701(a)(46) and Temporary
Treasury Regulation Section 301.7701-17T are included
in determining the number of Employees in the top-paid
group unless the following exception applies. If
ninety percent (90%) or more of the Employees of the
Employer are covered under collective bargaining
agreements that the Secretary of Labor finds to be
collective bargaining agreements between Employee
representatives and the Employer, which agreements
satisfy Code Section 7701(a)(46) and Temporary
Treasury Regulation Section 301.7701-17T, and the Plan
covers only Employees who are not covered under the
agreements, then the Employees who are covered under
the agreements are (A) not counted in determining the
number of noncollective bargaining employees who will
be included in the top-paid group in testing the Plan;
and (B) not included in the top-paid group in testing
the Plan.
(d) was at any time an officer of the Employer having Compensation
greater than fifty percent (50%) of the amount in effect under
Code Section 415(b)(1)(A) for the relevant year. The number of
officers taken into account under clause (d) will not exceed the
greater of three (3) or ten percent (10%) of the total number
(after application of the Code Section 414(q) exclusions) of
Employees, but no more than fifty (50) officers. If no Employee
satisfies the Compensation requirement in clause (d) for the
relevant year, the Committee will treat the highest paid officer
as satisfying clause (d) for that year.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Determination Year, but does not satisfy clause (b), (c) or (d)
during the Look Back Year and does not satisfy clause (a) in either
period, the Employee is a Highly Compensated Employee only if the
Employee is one of the one hundred (100) most highly compensated
Employees for the Plan Year.
The Committee must make the determination of who is a Highly
Compensated Employee, including the determinations of the number and
identity of the top paid twenty percent (20%) group, the top one
hundred (100) paid Employees, the number
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of officers includable in clause (d) and the relevant Compensation,
consistent with Code Section 414(q) and regulations issued under that
Code Section. The Employer may make a calendar year election to
determine the Highly Compensated Employees for the Look Back Year, as
prescribed by Treasury regulations. A calendar year election must
apply to all plans and arrangements of the Employer.
For purposes of applying any nondiscrimination test required under the
Plan or under the Code, in a manner consistent with applicable
Treasury regulations, the Committee will treat a Highly Compensated
Employee and all Family Members as defined in Section 1.20 as a single
Highly Compensated Employee, but only if the Highly Compensated
Employee is a more than five percent (5%) owner or is one of the ten
(10) Highly Compensated Employees with the greatest Compensation for
the Plan Year. This aggregation rule applies to a Family Member even
if that Family Member is a Highly Compensated Employee without family
aggregation.
A Former Participant who separated from Service, or is deemed to have
separated from Service under applicable Treasury regulations, prior to
the Plan Year, performs no Service for the Employer during the Plan
Year and was a Highly Compensated Employee either for the Separation
Year or any Plan Year ending on or after such Former Participant
attained age fifty-five (55) years is considered a Highly Compensated
Employee. Generally, Separation Year means the Plan Year during which
the Employee separates from Service with the Employer. A Former
Participant who separated from Service prior to January 1, 1987 is
considered a Highly Compensated Employee only if the Former
Participant was a Five Percent Owner or received Compensation in
excess of $50,000 during (a) the Participant's Separation Year or the
year preceding the Separation Year or (b) any year ending on or after
such Former Participant attained age fifty-five (55) years or the last
year ending before such Former Participant attained age fifty-five
(55) years.
For purposes of this Section, Compensation means Annual Compensation
defined in Section 1.6, excluding only the exclusions described in
paragraphs (i) through (v), and including deferrals under (a) Code
Section 402(a)(8) relating to a Code Section 401(k) arrangement; (b)
Code Section 125 relating to a cafeteria plan; (c) Code Section 403(b)
relating to a tax sheltered annuity plan; and (d) Code Section 408(h)
relating to a simplified employee pension. Compensation from each
Related Employer shall be taken into account.
1.26. Hour of Service
(a) Any Employee or Participant who is compensated on an
hourly-rated basis shall be credited with an Hour of Service
for:
(i) each hour for which the Employee or Participant is
either directly or indirectly paid or entitled to
payment by the Employer for the performance of duties
or for reasons other than for the performance of
duties due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military
duty or leave of absence, whether or not the
employment relationship was terminated; and
(ii) each hour for which back pay has been awarded to the
Employee or Participant or agreed to by the Employer,
irrespective of mitigation of damages.
(b) Any Employee or Participant who is compensated on a basis other
than an hourly-rated basis and who, if hourly-rated, would be
credited with one (1) Hour of Service pursuant to the preceding
sentence, shall be credited with the number of Hours of Service
as follows:
(i) ten (10) hours of service per day, if compensated on a
daily basis;
(ii) forty-five (45) hours of service per week, if
compensated on a weekly basis;
(iii) ninety (90) hours of service per bi-weekly period, if
compensated on a bi-weekly basis;
(iv) ninety-five (95) hours of service per semi-monthly
period, if compensated on a semi-monthly basis; or
(v) one hundred ninety (190) hours of service per month,
if compensated on a monthly basis.
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(c) The number of Hours of Service which shall be credited to an
Employee or Participant for being entitled to payment for
reasons other than for the performance of duties shall be
determined under Sections 2530.200b-2(b) and (c) of the
Department of Labor Regulations which are incorporated herein by
this reference. The method for crediting Hours of Service under
Section 1.26(b) for each Participant shall be the same method
used for crediting Hours of Service for which the Participant
received compensation. Notwithstanding the foregoing, not more
than five hundred one (501) Hours of Service shall be credited
to any Employee or Participant during any Computation Period for
any single, continuous period during which the Employee or
Participant performs no duties.
(d) An Hour of Service performed for any other entity that is a
Related Employer with respect to the Employer shall be
considered an Hour of Service performed for the Employer.
1.27. Individual Accounts
Individual Accounts means accounts or records maintained by the
Committee or its agent indicating the monetary value of the total
interest in the Trust Fund of each Participant, each Former
Participant, and each Beneficiary. The types of Individual Accounts
under this Plan are:
(a) Employer Contribution Accounts holding Employer Contributions
made to the Plan under Section 3.1 and attributable earnings.
The types of Employer Contribution Accounts maintained under
this Plan are:
(i) Employer Matching Contribution Accounts holding
Employer Contributions made to the Plan for the
benefit of an Employee because of an Elective
Contribution made with respect to the Employee or a
contribution by the Employee.
(ii) Employer Matching Contribution Suspense Account
holding excess Employer Matching Contributions made to
the Plan pending allocation at a time so as not to
exceed the maximum deductible limit.
(ii) Employer Fail Safe Contribution Accounts holding
Employer Contributions made to the Plan for the
benefit of an Employee to comply with the
nondiscrimination rules of Code Section 401(k) and
(m).
(iii) Forfeiture Suspense Accounts holding Employer Matching
Contributions made to the Plan to which terminated
Participants are not entitled.
(b) Participant Contribution Accounts holding Participant
Contributions made to the Plan and attributable earnings. The
types of Participant Contribution Accounts maintained under this
Plan are:
(i) Participant After-Tax Contribution Accounts holding
the after-tax contributions of the Participant to the
Plan pursuant to Section 3.6.
(ii) Rollover Accounts holding the Participant's qualified
rollover to the Plan pursuant to Article XVII.
(iii) Qualified Voluntary Employee Contribution Rollover
Accounts holding the Participant's qualified rollover
consisting of deductible employee contributions.
(iv) Prior Plan Accounts are not maintained under this Plan.
(v) Salary Deferral Accounts holding the amount
contributed by the Employer as the result of an
election by a Participant to have that amount
contributed to the Plan rather than paid as cash or
other taxable benefit pursuant to Section 3.1.
1.28. Insurance Company
Insurance Company means any legal reserve life insurance company which
may issue a Contract under this Agreement.
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1.29. Limitation Year
Limitation Year means the Plan Year.
1.30. Named Fiduciary
Named Fiduciary shall mean a fiduciary named in the Plan or who is
identified as a fiduciary pursuant to a procedure specified in the
Plan.
The Named Fiduciaries jointly and severally shall have authority to
control and manage the operation and administration of the Plan.
Unless the Board of Directors of the THE MORNINGSTAR GROUP INC.
specifies otherwise, the Named Fiduciaries of this Plan shall be the
President and Chief Executive Officer of THE MORNINGSTAR GROUP INC.,
the Vice President and Chief Financial Officer of THE MORNINGSTAR
GROUP INC., the Vice President of Human Resources of MSTAR INC., and
the Corporate Benefits Manager of MSTAR INC.
1.31. Nonforfeitable
Nonforfeitable means a vested interest attained by a Participant or
Beneficiary in that part of the Participant's benefit under the Plan
arising from the Participant's Service, which claim is unconditional
and legally enforceable against the Plan.
1.32. Non-Highly Compensated Employee
Non-Highly Compensated Employee means an Employee, Former Employee or
Beneficiary who is not a Highly Compensated Employee.
1.33. Normal Retirement Age
Normal Retirement Age means, for each Participant, the later of (i)
the date the Participant attains age sixty-five (65) years or (ii) the
date the Participant's age plus years of participation in the Plan
equal seventy (70).
1.34. Normal Retirement Date
Normal Retirement Date means, for each Participant, the first day of
the month coincident with or next following the date the Participant
attains Normal Retirement Age.
1.35. One Year Break in Service
(a) A One Year Break in Service, for purposes of eligibility, means
a Period of Severance of at least twelve (12) consecutive
months. A Period of Severance means a continuous period of time
during which an Employee is not employed by the Employer. Such
period shall begin on the date the Employee retires, quits, is
discharged, or dies, or, if earlier, the twelve (12) month
anniversary of the date on which the Employee was otherwise
first absent from work.
(b) A One Year Break in Service, for purposes of vesting, means a
Period of Severance of at least twelve (12) consecutive months.
A Period of Severance means a continuous period of time during
which an Employee is not employed by the Employer. Such period
shall begin on the date the Employee retires, quits, is
discharged, or dies, or, if earlier, the twelve (12) month
anniversary of the date on which the Employee was otherwise
first absent from work.
(c) An Employee shall receive credit for purposes of determining
whether he has incurred a One Year Break in Service under
subsection (a) or (b) above for the aggregate of all time
period(s) commencing with the first day such Employee completes
an Hour of Service, the Employment Commencement Date, (including
such day following reemployment) and ending on the date a Break
in Service begins. An Employee shall also receive credit for
any Period of Severance of less than twelve (12) consecutive
months. Fractional periods of a year shall be expressed in
terms of days.
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(d) In the case of an Employee who is absent from work for
"authorized reasons" or for "maternity or paternity reasons,"
the twelve (12) consecutive month period beginning on the first
anniversary of the first day of such absence shall not be a
Break in Service.
(i) For purposes of this paragraph (d), absence from work
for "authorized reasons" means an unpaid temporary
cessation from active employment with the Employer
pursuant to an established nondiscriminatory policy,
whether occasioned by illness, military service or any
other reason.
(ii) For purposes of this paragraph (d), absence from work
for "maternity or paternity reasons" means an absence
from work for any period because of the pregnancy of
the individual, the birth of a child of the
individual, the placement of a child with the
individual relating to the adoption of such child by
such individual, or for the purpose of caring for such
child for a period beginning immediately following
such birth or placement. In the case of absence from
work for "maternity or paternity reasons," the period
between the first and second anniversaries of the
first date of absence due to said leave shall be
treated as neither a Period of Service nor a Period of
Severance.
1.36. Owner-Employee
Owner-Employee means a sole proprietor or a partner who owns more than
ten percent (10%) of either the capital interest or profits interest
in an unincorporated Employer and who receives income from such
unincorporated Employer for personal services.
1.37. Participant
Participant means an Employee of the Employer who has met the
eligibility requirements of this Plan and who has been enrolled as a
Participant in this Plan.
1.38. Participating Employer
Participating Employer means any Related Employer that may elect to
adopt this Plan pursuant to Article XI.
1.39. Plan
Plan means the profit sharing plan with a cash deferred arrangement
under Code Section 401(k) embodied in this Agreement, as amended from
time to time, designated as THE MORNINGSTAR FOODS INC. EMPLOYEES'
SAVINGS AND PROFIT SHARING PLAN. Effective January 1, 1993, the Plan
is designated as THE MORNINGSTAR GROUP INC. EMPLOYEES' SAVINGS AND
PROFIT SHARING PLAN.
1.40. Plan Year
The first Plan Year means the nine (9) consecutive month period from
April 1, 1988 to the next following December 31, 1988. Thereafter,
Plan Year means the twelve (12) consecutive month period from January
1 of each year to the next following December 31.
1.41. Predecessor Employer
Predecessor Employer means a business organization which has been
acquired by the Employer, whether by merger, stock purchase or
acquisition of the assets and business of the business organization.
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1.42. Related Employer
A related group of employers is a controlled group of corporations
(defined in Code Section 414(b)), trades or businesses (whether or not
incorporated) which are under common control (defined in Code Section
414(c)) or an affiliated service group (defined in Code Section 414(m)
or in Code Section 414(o)). If the Employer is a member of a related
group, the term "Employer" includes the related group members for
purposes of crediting Hours of Service, determining Years of Service
and Breaks in Service under Articles II and IX, applying the
participation test of Code Section 401(a)(26) and the coverage test of
Code Section 410(b), applying the limitations on allocations in
Article V, applying the top-heavy rules and the minimum allocation
requirements of Article V, the definitions of Employee, Highly
Compensated Employee, Compensation and Leased Employee, and for any
other purpose required by the applicable Code Section or by a Plan
provision. However, an Employer may contribute to the Plan only by
being a signatory to a Participation Agreement to the Plan. If one or
more of the Employer's related group members become Participating
Employers by executing a Participation Agreement to the Plan, the term
"Employer" includes the participating related group members for all
purposes of the Plan, and Administrator means the Employer that is the
signatory to the Plan. For Plan allocation purposes, Compensation
does not include Compensation received from a Related Employer that is
not participating in this Plan.
1.43. Self-Employed Individual
Self-Employed Individual means an individual who has earned income for
the taxable year from the trade or business for which the Plan is
established or an individual who would have had earned income for the
fact that the trade or business had no net profits for the taxable
year.
1.44. Service
(a) Service means any period of time the Employee is in the employ
of the Employer. Service in all cases includes periods during
which the Employee is on an "authorized leave of absence" or a
"maternity or paternity leave of absence" defined in Section
1.34(d) relating to One Year Break in Service. Leaves of
absence also shall include periods of absence in connection with
military service during which the Employee's re-employment
rights are legally protected. Except for absence by reason of
military service, leaves of absence shall be for a maximum
period of two (2) years. Leaves of absence shall be granted on
a uniform and nondiscriminatory basis.
(b) If the Employer maintains the plan of a Predecessor Employer,
Service shall include service for the Predecessor Employer. To
the extent it may be required under applicable Treasury
regulations under Code Section 414, Service shall include all
service for any Predecessor Employer.
1.45. Shareholder-Employee
Shareholder-Employee means a Participant who owns more than five
percent (5%) of the Employer's outstanding capital stock during any
year in which the Employer elected to be taxed as a Small Business
Corporation under Code Section 1362(a) and who receives income from
the Employer for personal services.
1.46. Top-Heavy Plan Status/Super Top-Heavy Plan Status
This Plan shall be a Top-Heavy Plan in any Plan Year in which, as of
the Determination Date, (a) the Present Value of Accrued Benefits of
Key Employees, or (b) the sum of the Aggregate Accounts of Key
Employees of any plan of an Aggregation Group, exceeds sixty percent
(60%) of the Present Value of Accrued Benefits or Aggregate Accounts
of all Participants under this Plan and any plan of an Aggregation
Group.
If any Participant is a Non-Key Employee for any Plan Year, but the
Participant was a Key Employee for any prior Plan Year, the
Participant's Aggregate Account balance shall not be taken into
account in determining whether this Plan is a Top-Heavy Plan (or
whether any Aggregation Group which includes this Plan is a Top-Heavy
Group) as further defined in Code Section 416(g) and the applicable
Treasury regulations.
This Plan shall be a Super Top-Heavy Plan for any Plan Year in which,
as of the Determination Date, (a) the Present Value of Accrued
Benefits of Key Employees, or (b) the sum of the Aggregate Accounts of
Key Employees of any plan of an
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Aggregation Group, exceeds ninety percent (90%) of the Present Value
of Accrued Benefits and the Aggregate Accounts of all Participants
under this Plan and any plan of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but the
Participant was a Key Employee for any prior Plan Year, the
Participant's Aggregate Account balance shall not be taken into
account in determining whether this Plan is a Super Top-Heavy Plan (or
whether any Aggregation Group which includes this Plan is a Top-Heavy
Group) as further defined in Code Section 416(g) and the applicable
Treasury regulations.
For purposes of determining Top-Heavy and Super Top-Heavy status, the
following definitions shall apply:
(a) Aggregate Account means, as of the Determination Date, the sum
of:
(i) the Participant Contribution Account and Employer
Contribution Account balances as of the most recent
Valuation Date occurring within a twelve (12) month
period ending on the Determination Date;
(ii) the contributions that would be allocated as of a date
not later than the Determination Date, even though
those amounts are not yet made or required to be made;
(iii) any plan distributions made during the Determination
Period (However, in the case of distributions made
after the Valuation Date and prior to the
Determination Date, such distributions are not
included as distributions for Top-Heavy purposes to
the extent that the distributions are already included
in the Participant's Aggregate Account balance as of
the Valuation Date.); and
(iv) any Employee contributions, whether voluntary or
mandatory (However, amounts attributable to
Participant Deductible Voluntary Contributions shall
not be considered to be a part of the Participant's
Aggregate Account balance.).
(v) Regarding unrelated rollovers and plan-to-plan
transfers (those which are (A) initiated by the
Employee and (B) made from a plan maintained by one
employer to a plan maintained by another employer), if
this Plan provides for rollovers or plan-to-plan
transfers, an unrelated rollover or plan-to-plan
transfer shall be considered as a distribution for
purposes of this Section. If this Plan is the plan
accepting an unrelated rollover or plan-to-plan
transfer, an unrelated rollover or plan-to-plan
transfer accepted after December 31, 1983 shall not be
considered as part of the Participant's Aggregate
Account balance. However, unrelated rollovers or
plan-to-plan transfers accepted prior to January 1,
1984 shall be considered as part of the Participant's
Aggregate Account balance.
(vi) Regarding related rollovers and plan-to-plan transfers
(those either (A) not initiated by the Employee or (B)
made to a plan maintained by the same Employer), if
this Plan provides for rollovers or plan-to-plan
transfers, a related rollover or plan-to-plan transfer
shall be considered as a distribution for purposes of
this Section. If this Plan is the plan accepting a
related rollover or plan-to-plan transfer, a related
rollover or plan-to-plan transfer shall be considered
as part of the Participant's Aggregate Account
balance, irrespective of the date on which the related
rollover or plan-to-plan transfer is accepted.
(b) Aggregation Group means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(i) Required Aggregation Group means the group of plans
composed of (A) each plan of the Employer in which a
Key Employee is a participant or participated at any
time during the Determination Period, regardless of
whether the plan has terminated; and (B) each other
plan of the Employer which enables any plan in which a
Key Employee participates to meet the requirements of
Code Sections 401(a)(4) or 410, which shall be
aggregated.
In the case of a Required Aggregation Group, each plan
in the group will be considered a Top-Heavy Plan if
the Required Aggregation Group is a Top-Heavy Group.
No plan in the Required Aggregation Group will be
considered a Top-Heavy Plan if the Required
Aggregation Group is not a Top-Heavy Group.
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(ii) Permissive Aggregation Group means the Required
Aggregation Group plus any other plan not required to
be included in the Required Aggregation Group,
provided the resulting group, taken as a whole, would
continue to satisfy Code Sections 401(a)(4) and 410.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group
will be considered a Top-Heavy Plan if the Permissive
Aggregation Group is a Top-Heavy Group. No plan in
the Permissive Aggregation Group will be considered a
Top-Heavy Plan if the Permissive Aggregation Group is
not a Top-Heavy Group.
(iii) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated to determine whether the plans are
Top-Heavy Plans.
(c) Determination Date means for any Plan Year (i) the last day of
the preceding Plan Year, or (ii) in the case of the first Plan
Year of the Plan, the last day of the first Plan Year.
(d) Determination Period means the five (5) year period ending on
the Determination Date.
(e) Employer means the Employer that adopts this Plan. Related
Employers shall be considered a single Employer for purposes of
applying the limitations of these top-heavy rules.
(f) Excluded Employees means any Employee who has not performed any
Service for the Employer during the five (5) year period ending
on the Determination Date. Excluded Employees shall be excluded
for purposes of a Top-Heavy determination.
(g) Key Employee means any Employee or Former Employee, or
Beneficiary of the Employee, who, for any Plan Year in the
Determination Period is:
(i) An officer of the Employer having Compensation from
the Employer and any Related Employer greater than
fifty percent (50%) of the amount in effect under Code
Section 415(b)(1)(A);
(ii) One of the ten (10) Employees having Compensation from
the Employer and any Related Employer of more than the
limitation in effect under Code Section 415(c)(1)(A)
and owning (or considered as owning within the meaning
of Code Section 318) the largest interests in the
Employer;
(iii) A Five Percent Owner of the Employer (Five Percent
Owner means any person owning, or considered as owning
within the meaning of Code Section 318, more than five
percent (5%) of the outstanding stock of the Employer
or stock possessing more than five percent (5%) of the
total combined voting power of all stock of the
Employer; or in the case of an unincorporated
business, any person who owns more than five percent
(5%) of the capital or profits interest in the
Employer.); or
(iv) A One Percent Owner of the Employer having
Compensation from the Employer of more than $150,000
(One Percent Owner means any person having
Compensation from the Employer and any Related
Employer in excess of $150,000 and owning, or
considered as owning within the meaning of Code
Section 318, more than one percent (1%) of the
outstanding stock of the Employer or stock possessing
more than one percent (1%) of the total combined
voting power of all stock of the Employer; or in the
case of an unincorporated business, any person who
owns more than one percent (1%) of the capital or
profits interest in the Employer.).
(v) Notwithstanding the foregoing, Key Employee shall have
the meaning set forth in Code Section 416(i), as
amended.
(vi) For purposes of determining whether an Employee or
Former Employee is an officer under this subsection
(g), an officer of the Employer shall have the meaning
set forth in the regulations under Code Section
416(i).
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(vii) For purposes of this Section, Compensation means
Compensation determined under Section 1.24 for the
definition of a Highly Compensated Employee.
(viii) For purposes of determining ownership hereunder,
employers that would otherwise be aggregated as
Related Employers shall be treated as separate
employers.
(h) Non-Key Employee means any Employee or Former Employee, or
Beneficiary of the Employee, who is not a Key Employee.
(i) Present Value of Accrued Benefit. Solely for the purpose of
determining if the Plan, or any other plan included in a
Required Aggregation Group of which this Plan is a part, is a
Top-Heavy Plan, the Accrued Benefit of a Non-Key Employee shall
be determined under (i) the method, if any, that uniformly
applies for accrual purposes under all plans maintained by the
Related Employers, or (ii) if there is no uniform method, in
accordance with the slowest accrual rate permitted under the
fractional accrual method described in Code Section
411(b)(1)(C). To calculate the Present Value of Accrued
Benefits from a defined benefit plan, the Committee will use the
actuarial assumptions for interest and mortality only,
prescribed by the defined benefit plan(s) to value benefits for
Top-Heavy purposes. If an aggregated plan does not have a
Valuation Date coinciding with the Determination Date, the
Committee must value the Accrued Benefits in the aggregated plan
as of the most recent Valuation Date falling within the twelve
(12) month period ending on the Determination Date, except as
Code Section 416 and applicable Treasury regulations require for
the first and second plan year of a defined benefit plan. The
Committee will determine whether a plan is Top-Heavy by
referring to Determination Dates that fall within the same
calendar year.
(j) Top-Heavy Group means an Aggregation Group in which, as of the
Determination Date, the sum of:
(i) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group;
and
(ii) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
(k) Valuation Date shall mean any date on which the Trustee shall
value one or more Individual Accounts in accordance with the
valuation method provided in the Trust Agreement; provided,
however, that the Trustee shall value the Trust Fund not less
frequently than as of each Accounting Date to determine the fair
market value of each Participant's Individual Accounts in the
Trust.
1.47. Trust Fund
Trust Fund means all assets of any kind and nature from time to time
held by the Trustee or its agent under this Agreement without
distinction between income and principal. This Plan creates a single
Trust for all Employers participating under the Plan. However, the
Trustee will maintain separate records of account to reflect properly
each Participant's Accrued Benefit described from each Participating
Employer.
1.48. Trustee
Trustee means Fidelity Management Trust Company and any successor
Trustee.
1.49. Year of Service
(a) Year of Eligibility Service means the twelve (12) consecutive
month period commencing on an Employee's Employment Commencement
Date and ending on the anniversary of the Employee's Employment
Commencement Date. If an Employee fails to complete a Year of
Eligibility Service on the first anniversary of the Employment
Commencement Date, the Employee shall be deemed to complete a
Year of Eligibility Service upon the completion of twelve (12)
months of Service. An Employee shall receive credit for the
aggregate of all time periods commencing with the first day the
Employee is entitled to credit for an Hour of Service, including
the Re-Employment Commencement Date, and ending on the date a
Break in Service begins. An Employee also shall receive credit
for
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<PAGE> 15
any Period of Severance of less than twelve (12) consecutive
months. Fractional periods of a year shall be expressed in
terms of months, with credit for a month of service being given
for each thirty (30) days of Elapsed Time. Service with the
Southland Corporation shall be credited for purposes of
determining a Participant's Years of Eligibility Service.
Service with the Employer by an Employee while he is covered by
a collective bargaining agreement shall be credited for purposes
of determining a Participant's Years of Eligibility Service when
such Employee ceases to be covered by a collective bargaining
agreement and is otherwise eligible to become a Participant in
the Plan.
(b) Year of Vesting Service means twelve (12) months of Service.
For purposes of determining an Employee's Years of Vesting
Service, an Employee shall receive credit for the aggregate of
all time periods commencing on an Employee's Employment
Commencement Date, including the Re-Employment Commencement
Date, and ending on the date a Break in Service begins. An
Employee also shall receive credit for any Period of Severance
of less than twelve (12) consecutive months. Fractional periods
of a year shall be expressed in terms of months, with credit for
a month of service being given for each thirty (30) days of
Elapsed Time. In computing an Employee's Years of Vesting
Service, the following rules shall apply:
(i) For an Employee who terminates employment and is
subsequently re-employed after incurring a One Year
Break in Service, Service prior to the Break in
Service shall not be taken into account until the
Employee has completed a Year of Service after
re-employment.
(ii) For a Participant who terminates employment and who
subsequently is re-employed after incurring five (5)
consecutive One Year Breaks in Service, Years of
Service after the Break in Service shall not be taken
into account for purposes of determining the
Nonforfeitable percentage of an Employee's Account
Balance derived from Employer Contributions which
accrued before the Break in Service.
(iii) For a Participant who terminates employment without
any vested right to the Employer Contribution Account
and who is re-employed after a One Year Break in
Service, Service before the Break in Service shall not
be taken into account if the number of consecutive One
Year Breaks in Service equals or exceeds the greater
of (A) five (5), or (B) the aggregate number of Years
of Service before the Break in Service.
(iv) Years of Service with the Employer during which an
Employee or Participant elected in accordance with
Section 3.6 not to make required Participant After Tax
Contributions shall not be considered for purposes of
vesting. This exception shall not apply to any Plan
Year for which a Participant made any required
Participant After Tax Contributions in the full amount
required under Section 3.6.
(v) Years of Service with the Employer before a
Participant enters the Plan shall not be considered
for purposes of vesting provided that years of
participation in the Southland Corporation Employees
Savings and Profit Sharing Plan shall be considered
for purposes of vesting.
(c) If the Employer is a member of a group of Related Employers,
then Year of Service for purposes of eligibility and vesting
shall include Service with any Related Employer.
(d) For purposes of determining Years of Service for eligibility and
vesting, the following definitions shall apply:
(i) Employment Commencement Date means the date on which
an Employee is first entitled to credit for an Hour of
Service.
(ii) Period of Severance means the period of time
commencing on the Severance from Service Date and
ending on the date on which the Employee again
performs an Hour of Service for the Employer.
(iii) Re-Employment Commencement Date means the first date,
following a Period of Severance which is not required
to be considered under the Service rules, on which the
Employee performs an Hour of Service for the Employer.
(iv) Severance from Service Date means the date on which
occurs the earlier of: (A) the date on which an
Employee quits, retires, is discharged or dies; or (B)
the first anniversary of the first date of a period in
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<PAGE> 16
which an Employee remains absent from Service, with or
without pay, with the Employer for any other reason,
such as vacation, holiday, sickness, disability, leave
of absence or layoff.
* * * * * * *
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ARTICLE II
Eligibility and Participation
2.1. Eligibility Conditions
(a) Each Employee shall be eligible to participate in this Plan on
the Entry Date coincident with or next following completion of
one (1) Year of Service with the Employer.
(b) Notwithstanding the preceding sentence, an Employee who has
completed at least one (1) Year of Service with the Employer on
the Effective Date of this Plan shall be eligible to participate
in this Plan on the Effective Date.
(c) The following Employees are not eligible to participate in the
Plan:
-- Collective Bargaining Employees. Each Employee who is
a member of a collective bargaining unit shall not be
eligible to participate in this Plan unless the
collective bargaining agreement provides otherwise.
An Employee is a member of a collective bargaining
unit if the Employee is included in a unit of
Employees covered by an agreement which the Secretary
of Labor finds to be a collective bargaining agreement
between Employee representatives and one or more
employers if there is evidence that retirement
benefits were the subject of good faith bargaining
between the Employee representatives and the employer
or employers. The term "Employee representatives"
does not include an organization of which more than
one-half ( 1/2) the members are owners, officers, or
executives of the Employer.
-- Any Employee who is classified as "Temporary - N.B."
in the employment records of the Employer.
-- Any Leased Employee treated as an Employee under
Section 1.17 is not eligible to participate in the
Plan.
If a Participant is no longer a member of an eligible class of
Employees and becomes ineligible to participate but has not
incurred a Break in Service, such Employee will participate
immediately upon returning to an eligible class of Employees.
If a Participant incurs a Break in Service, eligibility will be
determined under the Break in Service rules of Section 1.35.
If an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, the Employee
will participate immediately if the Employee has satisfied the
minimum age and service requirements and would have otherwise
previously become a Participant.
2.2. Participation
Whenever a new Employee is hired by the Employer, the Employer
immediately shall give notice to the Committee of the employment and
shall identify the new Employee. The Committee shall notify in
writing each new Employee of the pending eligibility as soon as
administratively feasible prior to the date on which the Employee will
become eligible and shall furnish the Employee a copy of this
Agreement or any other explanation of the Plan that the Committee
shall provide for that purpose. Each Employee so notified
automatically will become a Participant upon meeting the requirements
of Section 2.1.
2.3. Participant Re-Entry
If the employment of a Participant is terminated and the Participant
subsequently is re-employed, the re-employed Employee shall become a
Participant on the Re-employment Commencement Date. If an Employee
terminates employment prior to satisfying the eligibility requirements
of Section 2.1 and subsequently is re-employed, the re-employed
Employee shall become a Participant after meeting the eligibility
requirements of Section 2.1, but shall be credited for Service
retroactively to the Re-employment Commencement Date for purposes of
eligibility and vesting. If an Employee becomes eligible but
terminates employment prior to the first Entry Date, and the Employee
is later re-employed, the Employee shall become a Participant on the
Re-employment Commencement Date.
* * * * * * *
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<PAGE> 18
ARTICLE III
Contributions and Withdrawals
3.1. Employer Contributions
(a) Employer Elective Contributions and Participant Elective
Deferrals. For each Plan Year, the amount of the Employer
Elective Contribution to the Trust Fund will equal the amount
determined under this paragraph. Each Participant shall defer
not less than 6% of Annual Compensation, but shall not elect to
defer an amount to cause the Plan to violate the limitations of
this Section or Section 5.3, or to exceed the maximum amount
allowable as a deduction to the Employer under Code Section 404.
If such mandatory deferral shall cause the Participant to exceed
the limits on Salary Deferral under this Section, such
Participant shall elect a Participant After Tax Contribution in
the amount of the mandatory deferral. EFFECTIVE JANUARY 1,
1994, a participant whose Base Annual Compensation exceeds
$50,000.00 during a Plan Year shall not defer more than six
percent (6%) of Annual Compensation. For purposes of the
foregoing sentence, Base Annual Compensation means Annual
Compensation excluding bonuses and overtime pay.
A Participant may elect to defer Annual Compensation only in an
amount which the Participant otherwise could elect to receive in
cash and which is currently available to the Participant.
Annual Compensation is not currently available to the
Participant if the Participant is not eligible to receive it at
the time of the deferral election. The amounts by which a
Participant elects to reduce Annual Compensation under this Plan
shall be that Participant's Elective Deferrals. The Employer
shall contribute to the Trust Fund the amount of each
Participant's Elective Deferrals which shall be treated as
Employer Elective Contributions and credited to that
Participant's Salary Deferral Account.
(i) The Employer and the Committee shall adopt a procedure
necessary to implement the deferral elections.
(ii) The Employer shall permit changes in a Participant's
deferral election on the Entry Date(s) of each Plan
Year.
(iii) Elective Deferrals, for purposes of the following
clauses (iv) through (viii), means for any taxable
year the sum of:
(A) any Employer contribution under a qualified
cash or deferred arrangement defined in Code
Section 401(k), to the extent not includable in
gross income for the taxable year under Code
Section 402(a)(8), determined without regard to
the dollar limitation under Code Section
402(g);
(B) any Employer contribution under a simplified
employee pension as defined in Code Section
408(k)(6), pursuant to a salary reduction
agreement; and
(C) any Employer contribution toward the purchase
of a tax sheltered annuity contract as defined
in Code Section 403(b), pursuant to a salary
reduction agreement.
Elective Deferrals shall not include any deferrals
properly distributed as excess annual additions.
(iv) A Participant's Elective Deferrals shall not exceed
the statutory dollar limitation under Code Section
402(g) for the taxable year of the Participant. The
dollar limitation under Code Section 402(g) is $7,000
indexed for cost-of-living adjustments under Code
Section 415(d) ($7,627 for 1989, $7,979 for 1990,
$8,475 for 1991) or the amount of the dollar
limitation under Code Section 402(g) in effect on
January 1 of each calendar year, as adjusted annually
by the Secretary of the Treasury.
(v) Excess Elective Deferrals means those Elective
Deferrals that are includable in a Participant's gross
income under Code Section 402(g) to the extent the
Participant's Elective Deferrals for a taxable year
exceed the dollar limitation under Code Section
402(g). Excess Elective Deferrals shall be treated as
Annual Additions under the Plan, unless such amounts
are distributed no later than the first April 15
following the close of the Participant's taxable year.
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<PAGE> 19
(vi) If the statutory dollar limitation in clause (iv) is
exceeded, the Committee shall direct the Trustee to
distribute the Excess Elective Deferrals, and any
income or loss allocable to the Excess Elective
Deferrals, to the Participant not later than the first
April 15 following the close of the Participant's
taxable year. If there is a loss allocable to the
Excess Elective Deferral, the distribution shall in no
event be less than the lesser of the Participant's
Salary Deferral Account or the Participant's Elective
Deferrals for the Plan Year. The amount of Excess
Elective Deferrals to be distributed to an Employee
for a taxable year will be reduced by Excess
Contributions previously distributed or
recharacterized for the Plan Year beginning in the
taxable year of the Employee.
(vii) If a Participant is also a participant in (A) another
qualified cash or deferred arrangement defined in Code
Section 401(k); (B) a simplified employee pension
defined in Code Section 408(k); or (C) a salary
reduction arrangement pursuant to which an employer
purchases a tax sheltered annuity contract defined in
Code Section 403(b), and the Elective Deferrals made
under the other arrangement(s) and this Plan
cumulatively exceed $7,000 indexed for cost-of-living
adjustments under Code Section 415(d) ($7,627 for
1989, $7,979 for 1990, $8,475 for 1991) or the amount
of the dollar limitation under Code Section 402(g) in
effect on January 1 of each calendar year, as adjusted
annually by the Secretary of the Treasury, then the
Participant may, not later than March 1 following the
close of the Participant's taxable year, notify the
Administrator in writing of the excess and request
that the Participant's Elective Deferrals under this
Plan be reduced by an amount specified by the
Participant. The specified amount then shall be
distributed in the same manner as provided in clause
(vi). A Participant is deemed to notify the
Administrator of any Excess Elective Deferrals that
arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of
this Employer.
(viii) If any of the foregoing provisions of this Section are
not in conformity with applicable Treasury
regulations, the nonconforming provisions may be
amended retroactively to assure conformity.
(b) Employer Matching Contributions. For each Plan Year, the amount
of the Employer Matching Contribution to the Trust Fund will
equal an amount equal to a matching percentage the Employer from
time to time may deem advisable of the Participant's Elective
Deferrals for the Plan Year. Notwithstanding the foregoing, the
Employer Matching Contribution for any Plan Year shall not
exceed the maximum amount allowable as a deduction to the
Employer under Code Section 404. The Employer Matching
Contribution for any Plan Year on behalf of a Participant shall
not exceed the Participant's Annual Additions limitation
described in Section 5.3, even if the contribution formula
otherwise would require a larger contribution. The Employer
Matching Contribution on behalf of Highly Compensated Employees
for the Plan Year shall not exceed the maximum contribution
percentage amounts permitted by the ACP test set forth in
Section 4.8(a), to prevent Excess Aggregate Contributions from
being made, pursuant to Final Treasury Regulations Section
1.401(m)-1(e)(1). The Employer Matching Contribution on behalf
of each Participant shall be allocated to each Participant's
Employer Matching Contribution Account.
(c) Reduction of Employer Contributions. At the direction of the
Employer, the Employer Elective Contribution will be decreased
ratably, and the Participant After Tax Contribution will be
increased ratably to the extent necessary to prevent the
Employer Matching Contribution from exceeding the maximum
deductible for Federal income tax purposes. If decreasing such
deferrals to zero is not sufficient to prevent the Employer
Matching Contribution from exceeding such maximum deductible,
the portion of the Employer Matching Contribution allocated to
the Participant will be reduced to the extent necessary at the
direction of the Employer; such reduction will be held in the
Employer Matching Contribution Suspense Account and shall be
paid as additional employer contributions in subsequent years at
the discretion of the Employer as soon as practicable without
exceeding such maximum deductible limit.
3.2. Deadline for Employer Contributions.
(a) The Employer shall pay to the Trustee the Employer Elective
Contribution for each Plan Year not later than thirty (30) days,
or within the time prescribed by applicable Treasury
regulations, after the Plan Year for which they are deemed paid.
Notwithstanding the foregoing, Employer Elective Contributions
accumulated through payroll deductions shall be paid to the
Trustee with reasonable promptness and not later than the end of
the succeeding month following the payroll deductions.
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<PAGE> 20
(b) The Employer shall pay to the Trustee the Employer Contributions
(other than Elective Contributions) at any time and from time to
time; except that the total Employer Contribution for any Plan
Year shall be paid in full not later than the time prescribed by
Code Section 404(a)(6) to enable the Employer to obtain a
deduction on its federal income tax return for the Employer's
taxable year. The total Employer Contribution for any Plan Year
shall be deemed made on the Anniversary Date of that Plan Year.
3.3. Deposit of Employer Contributions
All Employer Contributions shall be added immediately to and become a
part of the Trust Fund.
3.4. Crediting of Employer Contributions
All Employer Elective Contributions and Employer Matching
Contributions shall be credited to the Salary Deferral Account and
Employer Matching Account, respectively, of each Participant as of
each Anniversary Date.
3.5. Withdrawal of Employer Contributions
The Plan does not permit withdrawal of Employer Contributions.
3.6. Participant Voluntary After Tax Contributions
For each Plan Year, every Participant who is actively participating in
the Plan shall contribute to the Trust One Dollar ($1.00) of his
Compensation for the Plan Year as a Participant After Tax
Contribution. For purposes of this Section, the phrase "actively
participating in the Plan" means an Employee who has satisfied the
eligibility conditions of Section 2.1, has executed a consent to make
Participant Contributions, and makes a required Participant
Contribution in the full amount for the Plan Year. A Participant who
does not make a required Participant Contribution in the full amount
for a Plan Year under this Section shall not receive an Employer
Contribution allocation under Section 5.2 for that Plan Year.
The Committee, from time to time, shall establish payroll deduction or
other payment procedures to effect required Participant Contributions
under this Section. Furthermore, the Committee, not later than six
(6) months after the Employee's Employment Commencement Date, shall
furnish each Employee the appropriate form for consenting to required
Participant Contributions under this Section. The consent form shall
include a statement explaining to the Employee the effect of the
failure to consent to required Participant Contributions.
Subject to the investment provisions of Sections 14.1 and 14.2, the
Trustee and the Committee shall hold, administer, and distribute a
required Participant Contribution as provided herein.
Each Participant, for the Participant's own benefit, shall have the
right to make Voluntary After Tax Contributions to the Trust Fund as
of any Accounting Date. The Participant's Voluntary After Tax
Contributions for any Plan Year shall not exceed ten percent (10%) of
the Annual Compensation received by that Participant for all years
that the individual has been a Participant in the Plan. If the
Participant is enrolled in two (2) or more qualified plans maintained
by the same Employer which allow Voluntary After Tax Contributions,
the aggregate Voluntary After Tax Contributions to all plans shall not
exceed ten percent (10%) of the aggregate Annual Compensation received
by that Participant for all years that the individual has been a
Participant in the Plan. Any Participant wishing to contribute may
either: (a) authorize the Employer in writing to deduct at least
monthly from salary or wages an amount (in even dollars) which the
Participant wishes to contribute; or (b) make one or more lump sum
contributions to the Plan from the Participant's own funds. A
Participant who authorizes deductions from the Participant's salary or
wages may notify the Employer in writing to increase, decrease,
discontinue or renew the contributions at any time and from time to
time. The Committee may establish the procedures necessary to
facilitate Participant Voluntary After Tax Contributions.
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<PAGE> 21
3.7. Deadline for Participant Voluntary After Tax Contributions
A Participant must make a Voluntary After Tax Contribution for a
particular Plan Year not later than thirty (30) days after the
Accounting Date of that Plan Year. The Voluntary After Tax
Contribution may be credited to the immediately preceding Plan Year at
the Participant's election.
3.8. Deposit of Participant Voluntary After Tax Contributions
All Voluntary After Tax Contributions of Participants shall be
promptly deposited into a separate bank account by the Employer and
shall remain in this account until they are paid and delivered to the
Trustee. Payment and delivery to the Trustee shall be made at least
quarterly or more often if the Employer so elects. Under no
circumstances shall the Employer borrow, pledge, assign, invest or
otherwise use or divert the funds in this account to its own benefit.
3.9 Crediting of Participant Voluntary After Tax Contributions
Unless otherwise specified, all contributions made by a Participant to
his or her Participant Voluntary After Tax Contribution Account, and
all gains, earnings and losses thereon shall be allocated and credited
to the Participant Voluntary After Tax Contribution Account as the
same are paid or accrued. The Committee shall allocate and credit a
Voluntary After Tax Contribution made for a particular Plan Year to
the contributing Participant's Participant Voluntary After Tax
Contribution Account as of the Accounting Date of that Plan Year.
3.10. Withdrawal of Participant Voluntary After Tax Contributions
The Plan does not permit withdrawal of Participant Voluntary After Tax
Contributions.
3.11. Withdrawal of Employer Elective Contributions (Participant Elective
Deferrals), Employer Qualified Non-Elective Contributions, and
Employer Qualified Matching Contributions
(a) Restrictions on Distributions. Amounts held in the
Participant's Salary Deferral Account and Employer Qualified
Matching Contribution Account may not be distributable prior to
the earliest of:
(i) separation from Service, total and permanent
disability or death;
(ii) attainment of age fifty-nine and one-half (59 1/2)
years;
(iii) Plan termination without establishment of another
defined contribution plan, other than an employee
stock ownership plan (as defined in Code Sections
4975(e) or 409) or a simplified employee pension plan
as defined in Code Section 408(k);
(iv) disposition by a corporation to an unrelated
corporation of substantially all of the assets (within
the meaning of Code Section 409(d)(2)) used in a trade
or business of the corporation, if the corporation
continues to maintain this Plan after the disposition,
but only with respect to Employees who continue
employment with the corporation acquiring the assets;
(v) disposition by a corporation to an unrelated entity of
the corporation's interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) if the corporation
continues to maintain this Plan, but only with respect
to Employees who continue employment with the
subsidiary; or
(vi) proven financial hardship, subject to the following
limitations.
All distributions that may be made pursuant to one or more of
the foregoing distributable events are subject to the spousal
and participant consent requirements, if applicable, of Code
Sections 401(a)(11) and 417. In addition, distributions after
March 31, 1988, that are triggered by one of the preceding
events enumerated as (iii), (iv) or (v) must be made in a lump
sum distribution.
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(b) Hardship Distributions. Distribution of Elective Deferrals (and
any earnings credited to a Participant's Account as of the end
of the last Plan Year ending before July 1, 1989), Employer
Qualified Non-Elective Contributions and Employer Qualified
Matching Contributions made pursuant to a Participant's Elective
Deferrals, may be made to a Participant in the event of
hardship. For the purposes of this Section, a hardship
distribution is defined as a distribution necessary to satisfy
an immediate and heavy financial need of an Employee who lacks
other available resources. Hardship distributions are subject
to the spousal consent requirements contained in Code Sections
401(a)(11) and 417.
(i) A distribution will be considered to satisfy an
immediate and heavy need of an Employee if the
distribution is for:
(A) expenses incurred for or necessary to obtain
medical care, described in Code Section 213(d),
of the Employee, the Employee's spouse,
children, or dependents;
(B) costs directly related to the purchase,
excluding mortgage payments, of a principal
residence for the Employee;
(C) payment of tuition and related educational fees
for the next twelve (12) months of
post-secondary education for the Employee, the
Employee's spouse, children or dependents; or
(D) payment necessary to prevent the eviction of
the Employee from, or a foreclosure on the
mortgage of, the Employee's principal
residence.
(ii) A distribution will be considered necessary to satisfy
an immediate and heavy financial need of an Employee
who lacks other available resources only if:
(A) the Employee has obtained all distributions,
other than hardship distributions, and all
nontaxable loans under all plans maintained by
the Employer; and
(B) the distribution is not in excess of the amount
of an immediate and heavy financial need,
including amounts necessary to pay any federal,
state or local income taxes or penalties
reasonably anticipated to result from the
distribution.
(iii) In addition to the conditions above:
(A) each plan maintained by the Employer or a
legally enforceable arrangement provide that
the Employee's Deferrals and Employee
Contributions will be suspended for twelve (12)
months after the receipt of the hardship
distribution; and
(B) each plan maintained by the Employer or a
legally enforceable arrangement prohibit the
Employee from making Elective Deferrals for the
Employee's taxable year immediately following
the taxable year of the hardship distribution
in excess of the applicable limit under Code
Section 402(g) for such taxable year less the
amount of such Employee's Elective Deferrals
for the taxable year of the hardship
distribution.
3.12. Limitations on Employer Elective Contributions
(a) Actual Deferral Percentage Test. The annual allocation derived
from Employer Elective Contributions to a Participant's Salary
Deferral Account shall satisfy one of the following tests:
(i) The Average Actual Deferral Percentage for
Participants who are Eligible Highly Compensated
Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Participants
who are Eligible Nonhighly Compensated Employees for
the Plan Year multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for
Participants who are Eligible Highly Compensated
Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Participants
who are Eligible Nonhighly Compensated Employees for
the Plan Year multiplied by two (2); provided that the
Average
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<PAGE> 23
Actual Deferral Percentage for Participants who are
Eligible Highly Compensated Employees for the Plan
Year does not exceed the Average Actual Deferral
Percentage for Participants who are Eligible Nonhighly
Compensated Employees for the Plan Year by more than
two (2) percentage points or the amount as may be
prescribed in applicable Treasury regulations to
prevent the multiple use of this alternative
limitation for any Highly Compensated Employee.
(b) Definitions. For the purposes of this Section, the following
definitions shall apply:
(i) Actual Deferral Percentage means the ratio, expressed
as a percentage, of (A) the amount of Employer
Elective Contributions actually paid to the Trust Fund
on behalf of the Eligible Participant for the Plan
Year to (B) the Eligible Participant's Compensation
for the Plan Year, whether or not the Employee was a
Participant for the entire Plan Year. Employer
Contributions on behalf of any Participant shall
include: (A) any Employer Elective Contributions made
pursuant to the Eligible Participant's Elective
Deferrals, (including Excess Elective Deferrals of
Highly Compensated Employees), but excluding (1)
Excess Elective Deferrals of Nonhighly Compensated
Employees that arise solely from Elective Deferrals
made under the plan or plans of this Employer, and (2)
Employer Elective Contributions that are taken into
account in the Contribution Percentage Test (provided
the Actual Deferral Percentage Test is satisfied both
with and without exclusion of these Employer Elective
Contributions); and (B) at the election of the
Employer, Qualified Non-Elective Contributions and
Qualified Matching Contributions. An Employer
Elective Contribution will be taken into account under
the Actual Deferral Percentage Test for a Plan Year
only if it relates to compensation that either would
have been received by the Employee in the Plan Year,
but for the deferral election, or is attributable to
services performed by the Employee in the Plan Year
and would have been received by the Employee within
two and one-half (2 1/2) months after the close of the
Plan Year, but for the deferral election. To compute
Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective
Deferrals shall be treated as a Participant on whose
behalf no Employer Elective Contributions are made.
(ii) Average Actual Deferral Percentage means the average,
expressed as a percentage, of the Actual Deferral
Percentages of the Eligible Participants in a group.
(iii) Eligible Participant means any Employee of the
Employer who is otherwise authorized under the Plan to
have Employer Elective Contributions (or Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Employer
Elective Contributions for the Actual Deferral
Percentage Test) allocated to his or her Salary
Deferral Account for the Plan Year.
(iv) Qualified Non-Elective Contributions means Employer
Contributions, other than Employer Elective
Contributions and Matching Contributions, allocated to
Participants' accounts which are 100% Nonforfeitable
at all times and which are subject to the distribution
restrictions described in Section 3.11(a). Non-
Elective Contributions are not 100% Nonforfeitable at
all times if the Employee has a 100% Nonforfeitable
interest because of Years of Service taken into
account under a vesting schedule. Any Non-Elective
Contributions allocated to a Participant's Salary
Deferral Account under the Plan automatically satisfy
the definition of Qualified Non-Elective
Contributions.
(v) Qualified Matching Contributions means Employer
Matching Contributions allocated to Participants'
accounts which are 100% Nonforfeitable at all times
and which are subject to the distribution restrictions
described in Section 3.11(a). Matching Contributions
are not 100% Nonforfeitable at all times if the
Employee has a 100% Nonforfeitable interest because of
Years of Service taken into account under a vesting
schedule. Any Matching Contributions allocated to a
Participant's Employer Salary Deferral Account under
the Plan automatically satisfy the definition of
Qualified Matching Contributions.
(c) Special Rules
(i) For purposes of this Section, the Actual Deferral
Percentage for any Participant who is a Highly
Compensated Employee for the Plan Year who is eligible
to have Employer Elective Contributions (or Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Employer
Elective Contributions for the Actual Deferral
Percentage Test) allocated to his or her account under
two
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<PAGE> 24
(2) or more plans or arrangements described in Code
Section 401(k) that are maintained by the Employer or
a Related Employer shall be determined as if all
Employer Elective Contributions (and, if applicable,
Qualified Non-Elective Contributions or Qualified
Matching Contributions,), or both, were made under a
single arrangement. If a Highly Compensated Employee
participates in two (2) or more cash or deferred
arrangements that have different plan years, all cash
or deferred arrangements ending with or within the
same calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing, certain
plans shall be treated as separate if mandatorily
disaggregated under applicable Treasury regulations
pursuant to Code Section 401(k).
(ii) If this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4) or 410(b) only if
aggregated with one or more other plans, or if one or
more other plans satisfy the requirements of the Code
Sections only if aggregated with this Plan, then this
Section shall be applied by determining the Actual
Deferral Percentage of Employees as if all such plans
were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated to satisfy
Code Section 401(k) only if they have the same Plan
Year.
(iii) To determine the Actual Deferral Percentage of a
Participant who is a Five Percent Owner or one of the
ten (10) most highly paid Highly Compensated
Employees, the Employer Elective Contributions (and
Qualified Non- Elective Contributions or Qualified
Matching Contributions, or both, if treated as
Employer Elective Contributions for the Actual
Deferral Percentage Test) and Compensation of the
Participant shall include the Employer Elective
Contributions (and, if applicable, Qualified
Non-Elective Contributions or the Qualified Matching
Contributions), or both, and Compensation of Family
Members defined in Code Section 414(q)(6) received by
the Family Member for the portion of the Plan Year
during which the Employee was eligible to participate
in the cash or deferred arrangement. Family Members,
with respect to Highly Compensated Employees, shall be
disregarded in determining the Actual Deferral
Percentage for Participants who are Nonhighly
Compensated Employees and for Participants who are
Highly Compensated Employees except as required in the
preceding sentence.
(iv) To determine the Actual Deferral Percentage Test,
Employer Elective Contributions Qualified Non-Elective
Contributions and Qualified Matching Contributions
must be made before the last day of the twelve (12)
month period immediately following the Plan Year to
which contributions relate.
(v) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Deferral
Percentage Test and the amount of Qualified
Non-Elective Contributions, Qualified Matching
Contributions, or both, used in the test.
(vi) The determination and treatment of the Actual Deferral
Percentage amounts of any Participant shall satisfy
other requirements prescribed by applicable Treasury
regulations.
(d) Fail-Safe Provisions
(i) EFFECTIVE JANUARY 1, 1989 THROUGH DECEMBER 31, 1992,
in the event that the initial allocations of the
Employer's contributions do not satisfy one of the
tests set forth in Section 3.12(a), the Plan
Administrator shall adjust, within 30 days after the
end of the Plan Year, the accounts of the Participants
pursuant to one or more of the options set out below:
(A) In accordance with Regulations promulgated by
the Secretary of the Treasury under Code
Section 401(k)(8), the Employer shall require
that on or before the 15th day of the third
month following the end of each Plan Year, but
in no event later than the close of the
following Plan Year, each Highly Compensated
Participant, beginning with the Participant
having the highest Average Actual Deferral
Percentage, shall elect to treat his portion of
Excess Elective Deferrals (and any income
allocable to such portion) as distributed to
him and then contributed by him to the Plan as
a Participant Voluntary After Tax Contribution
pursuant to Section 3.6, provided that the
limitations of such Section are not exceeded.
Such treatment shall prevail until, taking into
account the Plan Administrator's action under
any option herein, one of the tests set forth
in Section 3.12(a) is satisfied.
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<PAGE> 25
(B) Within 30 days after the end of the Plan Year,
a portion of the Employer's Matching
Contribution shall be deemed an Employer
Elective Contribution for purposes of Section
3.12(a) and for vesting and withdrawal purposes
pursuant to Section 3.1. Such portion shall be
equal to an amount necessary to satisfy one of
the tests set forth in Section 3.12(a), taking
into account the Plan Administrator's action
under any option herein, and shall be
reallocated to the Employer Fail Safe
Contribution Account. Such reallocation of the
Employer's Matching Contribution shall be made
on behalf of Nonhighly Compensated
Participants.
(C) Within 30 days after the end of the Plan Year,
the Employer shall make a contribution on
behalf of Nonhighly Compensated Participants in
an amount sufficient to satisfy one of the
tests set forth in Section 3.12(a), taking into
account the Plan Administrator's action under
any option herein. Such contribution shall be
deemed an Employer Elective Contribution and
allocated to the Employer Fail Safe
Contribution Account of each Nonhighly
Compensated Participant in the same proportion
that each Nonhighly Compensated Participant's
Deferred Compensation for the year bears to the
total Deferred Compensation of all Nonhighly
Compensated Participants.
(ii) EFFECTIVE JANUARY 1, 1993, If the initial allocations
of the Employer Elective Contributions do not satisfy
one of the tests set forth in paragraph (a) of this
Section, the Administrator shall adjust the accounts
of the Participants pursuant to one (1) or more of the
following options:
(A) Distribution of Excess Contributions. If the
Committee determines that the initial
allocations of the Employer Elective
Contributions do not satisfy one of the Actual
Deferral Percentage Tests set forth in
paragraph (a) of this Section, the
Administrator must distribute the Excess
Contributions, as adjusted for allocable
income, during the next Plan Year. However,
the Employer will incur an excise tax equal to
10% of the amount of Excess Contributions for a
Plan Year not distributed to the appropriate
Highly Compensated Employees during the first 2
1/2 months of that next Plan Year. The Excess
Contributions are the amount of Employer
Elective Contributions made at the election of
the Highly Compensated Employees which causes
the Plan to fail to satisfy the Actual Deferral
Percentage Test. The Administrator will
distribute to each Highly Compensated Employee
his or her respective share of the Excess
Contributions by starting with the Highly
Compensated Employee(s) who has the greatest
Actual Deferral Percentage, reducing his or her
Actual Deferral Percentage to the next highest
Actual Deferral Percentage, then, if necessary,
reducing the Actual Deferral Percentage of the
Highly Compensated Employee(s) at the next
highest Actual Deferral Percentage level
(including the Actual Deferral Percentage of
the Highly Compensated Employee(s) whose Actual
Deferral Percentage the Administrator already
has reduced), and continuing in this manner
until the average Actual Deferral Percentage
for the Highly Compensated Group satisfies the
Actual Deferral Percentage Test. Excess
Contributions of Participants who are subject
to the Family Member aggregation rules shall be
allocated among the Family Members in
proportion to the Elective Deferrals (and
amounts treated as Elective Deferrals) of each
Family Member that is combined to determine the
combined Actual Deferral Percentage. The
amount of Excess Contributions to be
distributed to an Employee for a Plan Year
shall be reduced by any Excess Deferrals
previously distributed to the Employee for the
Employee's taxable year ending with or within
the Plan Year.
Allocable Income. To determine the amount of
the corrective distribution required under this
Section, the Administrator must calculate the
allocable income for the Plan Year in which the
Excess Contributions arose and for the "gap
period" measured from the beginning of the next
Plan Year to the date of the distribution. The
income allocable to Excess Contributions is
equal to the sum of the allocable gain or loss
for the Plan Year and the allocable gain or
loss for the gap period.
(I) Method of Allocating Income. The
Administrator may use any reasonable
method for computing the income
allocable to Excess Contributions,
provided that the method does not
violate Code Section 401(a)(4), is
used consistently for all
Participants and for all corrective
distributions under the Plan for the
Plan Year, and is used by the Plan
for allocating income to
Participants' Accounts.
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<PAGE> 26
(II) Alternative Method of Allocating
Income. A Plan may allocate income
to Excess Contributions by
multiplying the income for the Plan
Year and the gap period allocable to
Elective Contributions and amounts
treated as Elective Contributions by
a fraction. The numerator of the
fraction is the Excess Contributions
for the Employee for the Plan Year.
The denominator of the fraction is
equal to the sum of:
(1) The total account balance of
the Employee attributable to
Elective Contributions and
amounts treated as Elective
Contributions as of the
beginning of the Plan Year;
plus
(2) The Employee's Elective
Contributions, and amounts
treated as Elective
Contributions for the Plan
Year and for the gap period.
(III) Safe Harbor Method of Allocating Gap
Period Income. Under the safe
harbor method, income or Excess
Contributions for the gap period
will equal ten percent (10%) of the
income allocable to Excess
Contributions for the Plan Year
(calculated under the method
described in paragraph (B) of this
Section), multiplied by the number
of calendar months that have elapsed
since the end of the Plan Year. For
purposes of calculating the number
of calendar months that have elapsed
under the safe harbor method, a
corrective distribution that is made
on or before the fifteenth day of
the month is treated as made on the
last day of the preceding month. A
distribution made after the
fifteenth day of the month is
treated as made on the first day of
the next month.
(B) Recharacterization of Excess Contributions. If the
Plan permits Participant Voluntary After Tax
Contributions in Section 3.6, a Participant may treat
his or her Excess Contributions as an amount
distributed to the Participant and then contributed by
the Participant to the Plan. Recharacterized amounts
will remain nonforfeitable and subject to the same
distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly
Compensated Employee to the extent that such amount in
combination with other Employee Contributions made by
that Employee would exceed any stated limit under the
Plan on Employee Contributions. Recharacterization
must occur no later than two and one-half (2 1/2)
months after the last day of the Plan Year in which
such Excess Contributions arose, and is deemed to
occur no earlier than the date the last Highly
Compensated Employee is informed in writing of the
amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the
Participant for the Participant's tax year in which
the Participant would have received them in cash. The
amount of Excess Contributions to be recharacterized
with respect to an Employee for a Plan Year shall be
reduced by any Excess Deferrals previously distributed
to the Employee for the Employee's taxable year ending
with or within the Plan Year.
(C) Recharacterization of Matching Contributions. A
portion of the Employer's Matching Contribution shall
be deemed an Employer Elective Contribution for
purposes of paragraph (a) of this Section and for
vesting and withdrawal purposes. The portion shall be
equal to an amount necessary to satisfy one of the
tests set forth in paragraph (a) of this Section,
taking into account the Administrator's action under
any option herein and shall be reallocated to the
Salary Deferral Account. Reallocation of the
Employer's Matching Contribution shall be made on
behalf of Participants who are Nonhighly Compensated
Employees.
(D) Qualified Non-Elective and Qualified Matching
Contributions. The Employer shall make Qualified Non-
Elective or Qualified Matching Contributions on behalf
of Participants who are Nonhighly Compensated
Employees in an amount sufficient to satisfy one of
the tests set forth in paragraph (a) of this Section,
taking into account the Administrator's action under
any option herein. The contribution shall be treated
as an Employer Elective Contribution and shall be
allocated to the Salary Deferral Account of each
Participant who is a Nonhighly Compensated Employee in
the same proportion that each Nonhighly Compensated
Employee's Elective Deferrals for the year bears to
the total Elective Deferrals of all Participants who
are Nonhighly Compensated Employees. The Qualified
Non-Elective and Qualified Matching Contributions may
be treated as Elective Contributions provided that
each of the following requirements, to the extent
applicable, is satisfied:
26
<PAGE> 27
(I) The amount of Non-Elective Contributions,
including those Qualified Non-Elective
Contributions treated as Elective Contributions
for purposes of the Actual Deferral Percentage
Test, satisfies the requirements of Code
Section 401(a)(4).
(II) The amount of Non-Elective Contributions,
excluding those Qualified Non-Elective
Contributions treated as Elective Contributions
for purposes of the Actual Deferral Percentage
Test and those Qualified Non-Elective
Contributions treated as Matching Contributions
under Treasury Regulations Section
1.401(m)-1(b)(5) for purposes of the Average
Contribution Percentage Test, satisfies the
requirements of Code Section 401(a)(4).
(III) The Matching Contributions, including those
Qualified Matching Contributions treated as
Elective Contributions for purposes of the
Actual Deferral Percentage Test, satisfy the
requirements of Code Section 401(a)(4).
(IV) The Matching Contributions, excluding those
Qualified Matching Contributions treated as
Elective Contributions for purposes of the
Actual Deferral Percentage Test, satisfy the
requirements of Code Section 401(a)(4).
(V) The Qualified Non-Elective Contributions and
Qualified Matching Contributions satisfy the
requirements of Treasury Regulations Section
1.401(k)-1(b)(4)(i) for the Plan Year as if the
contributions were Elective Contributions.
(VI) The plan that includes the cash or deferred
arrangement and the plan or plans to which the
Qualified Non-Elective Contributions and
Qualified Matching Contributions are made could
be aggregated for purposes of Code Section
410(b).
3.13. Limitations on Employee Contributions and Matching Employer
Contributions
(a) Average Contribution Percentage Test. The annual allocation
derived from Employee Contributions, Matching Contributions, and
Qualified Matching Contributions to a Participant's Individual
Account shall satisfy one of the following tests:
(i) The Average Contribution Percentage for Participants
who are Eligible Highly Compensated Employees for the
Plan Year shall not exceed the Average Contribution
Percentage for Participants who are Eligible Nonhighly
Compensated Employees for the Plan Year multiplied by
1.25; or
(ii) The Average Contribution Percentage for Participants
who are Eligible Highly Compensated Employees for the
Plan Year shall not exceed the Average Contribution
Percentage for Participants who are Eligible Nonhighly
Compensated Employees for the Plan Year multiplied by
two (2); provided that the Average Contribution
Percentage for Participants who are Eligible Highly
Compensated Employees for the Plan Year does not
exceed the Average Contribution Percentage for
Participants who are Eligible Nonhighly Compensated
Employees for the Plan Year by more than two (2)
percentage points or the amount prescribed in
applicable Treasury regulations to prevent the
multiple use of this alternative limitation for any
Highly Compensated Employee.
(b) Definitions
(i) Aggregate Limit means the greater of (A) or (B),
described as follows:
(A) The sum of:
(I) 1.25 multiplied by the greater of
the Actual Deferral Percentage or
the Average Contribution Percentage
for Participants who are Eligible
Nonhighly Compensated Employees, and
27
<PAGE> 28
(II) Two (2) percentage points plus the
lesser of Actual Deferral Percentage
or the Average Contribution
Percentage of Participants who are
Eligible Nonhighly Compensated
Employees. (In no event shall this
amount exceed twice the lesser of
the Actual Deferral Percentage or
Average Contribution Percentage of
Participants who are Eligible
Nonhighly Compensated Employees).
(B) The sum of:
(I) 1.25 multiplied by the lesser of the
Actual Deferral Percentage or the
Average Contribution Percentage of
Participants who are Eligible
Nonhighly Compensated Employees, and
(II) Two (2) percentage points plus the
greater of Actual Deferral
Percentage or the Average
Contribution Percentage of
Participants who are Eligible
Nonhighly Compensated Employees.
(In no event shall this amount
exceed twice the greater of the
Actual Deferral Percentage or
Average Contribution Percentage of
Participants who are Eligible
Nonhighly Compensated Employees).
(ii) Average Contribution Percentage means the average,
expressed as a percentage, of the Contribution
Percentages of the Eligible Participants in a group.
(iii) Contribution Percentage means the ratio, expressed as
a percentage, of the sum of the Employee Contributions
and Matching Contributions under the Plan on behalf of
the Eligible Participant for the Plan Year to the
Eligible Participant's Compensation for the Plan Year.
(iv) Contribution Percentage Amounts means the sum of the
Employee Contributions, Matching Contributions and
Qualified Matching Contributions, to the extent not
taken into account for purposes of the Actual Deferral
Percentage Test, made under the Plan on behalf of the
Participant for the Plan Year. Contribution
Percentage Amounts shall include Forfeitures of Excess
Aggregate Contributions or Matching Contributions
allocated to the Participant's Account which shall be
taken into account in the year in which the Forfeiture
is allocated. Notwithstanding the foregoing,
Contribution Percentage Amounts shall not include
Matching Contributions that are forfeited either to
correct Excess Aggregate Contributions or because the
contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate
Contributions. The Employer may include Qualified
Non-Elective Contributions in the Contribution
Percentage Amounts. The Employer also may elect to
use Employer Elective Contributions in the
Contribution Percentage Amount if the Actual Deferral
Percentage Test is met before the Employer Elective
Contributions are used in the Average Contribution
Percentage Test and continues to be met following the
exclusion of those Employer Elective Contributions
that are used to meet the Average Contribution
Percentage Test.
(v) Eligible Participant means any Employee who is
eligible to make an Employee Contribution, or an
Elective Deferral, if the Employer takes the
contributions into account in calculating the
Contribution Percentage, or to receive a Matching
Contribution, including Forfeitures, or a Qualified
Matching Contribution. If an Employee Contribution is
required as a condition of participation in the Plan,
any Employee who would be a Participant in the Plan if
the Employee made a required contribution shall be
treated as an Eligible Participant on behalf of whom
no Employee Contributions are made.
(vi) Employee Contribution means any contribution made to
the Plan by or on behalf of a Participant that is
included in the Participant's gross income in the year
in which made and that is maintained under a separate
account to which earnings and losses are allocated.
Employer Elective Contributions are not Employee
Contributions.
(vii) Matching Contribution means an Employer Contribution
made to this or any other defined contribution plan on
behalf of a Participant on account of an Employee
Contribution made by the Participant, or on account of
a Participant's election to defer a portion of his or
her Annual Compensation under a plan maintained by the
Employer.
28
<PAGE> 29
(viii) Qualified Matching Contributions means Employer
Matching Contributions allocated to Participants'
accounts which are 100% Nonforfeitable at all times
and which are subject to the distribution restrictions
described in Section 3.11(a). Matching Contributions
are not 100% Nonforfeitable at all times if the
Employee has a 100% Nonforfeitable interest because of
Years of Service taken into account under a vesting
schedule. Any Matching Contributions allocated to a
Participant's Employer Salary Deferral Account under
the Plan automatically satisfy the definition of
Qualified Matching Contributions.
(ix) Qualified Matching Contributions means Employer
Matching Contributions allocated to Participants'
accounts which are 100% Nonforfeitable at all times
and which are subject to the distribution restrictions
described in Section 3.11(a). Matching Contributions
are not 100% Nonforfeitable at all times if the
Employee has a 100% Nonforfeitable interest because of
Years of Service taken into account under a vesting
schedule. Any Matching Contributions allocated to a
Participant's Employer Salary Deferral Account under
the Plan automatically satisfy the definition of
Qualified Matching Contributions.
(c) Special Rules
(i) Multiple Use. If one or more Highly Compensated
Employees participate in both a cash or deferred
arrangement subject to Code Section 401(k) and a plan
maintained by the Employer subject to Code Section
401(m) and the sum of the Actual Deferral Percentage
and Average Contribution Percentage of those Highly
Compensated Employees subject to either or both tests
exceeds the Aggregate Limit, then the Average
Contribution Percentage of those Highly Compensated
Employees who also participate in a cash or deferred
arrangement will be reduced, beginning with the Highly
Compensated Employee whose Average Contribution
Percentage is the highest, so that the limit is not
exceeded. The amount by which each Highly Compensated
Employee's Contribution Percentage Amount is reduced
shall be treated as an Excess Aggregate Contribution.
The Actual Deferral Percentage and Average
Contribution Percentage of the Highly Compensated
Employees are determined after
(A) use of Qualified Non-Elective Contributions and
Qualified Matching Contributions to meet the
Actual Deferral Percentage Test;
(B) use of Qualified Non-Elective Contributions and
Elective Contributions to meet the Actual
Deferral Percentage Test;
(C) any corrective distribution or forfeiture of
Excess Deferrals, Excess Contributions or
Excess Aggregate Contributions; and
(D) after any recharacterization of Excess
Contributions required without regard to
multiple use of the alternative limitation.
Multiple use occurs if the Actual Deferral Percentage
and Average Contribution Percentage of the Highly
Compensated Employees exceeds 1.25 multiplied by the
Actual Deferral Percentage and Average Contribution
Percentage of the Nonhighly Compensated Employees.
(ii) For purposes of this Section, the Contribution
Percentage for any Participant who is an Eligible
Highly Compensated Employee for the Plan Year who is
eligible to have Contribution Percentage Amounts
allocated under two (2) or more plans described in
Code Section 401(a) or arrangements described in Code
Section 401(k) that are maintained by the Employer or
a Related Employer shall be determined as if the total
of the Contribution Percentage Amounts were made under
each plan. If a Highly Compensated Employee
participates in two (2) or more cash or deferred
arrangements that have different plan years, all cash
or deferred arrangements ending with or within the
same calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing, certain
plans shall be treated as separate if mandatorily
disaggregated under regulations pursuant to Code
Section 401(m).
(iii) If this Plan satisfies the requirements of Code
Sections 401(m), 401(a)(4) or 410(b) only if
aggregated with one (1) or more other plans, or if one
(1) or more other plans satisfy the requirements of
the Code Sections
29
<PAGE> 30
only if aggregated with this Plan, then this Section
shall be applied by determining the Contribution
Percentages of Eligible Participants as if all such
plans were a single plan.
(iv) For purposes of determining the Contribution
Percentage of a Participant who is a Five Percent
Owner or one of the ten (10) most highly paid Highly
Compensated Employees, the Contribution Percentage
Amounts and Compensation of the Participant shall
include the Contribution Percentage Amounts and
Compensation of Family Members as defined in Code
Section 414(g)(6). Family Members shall be
disregarded in determining the Contribution Percentage
for Participants who are Eligible Nonhighly
Compensated Employees and for Participants who are
Eligible Highly Compensated Employees except as
required in the preceding sentence.
(v) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Average Contribution
Percentage Test.
(vi) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy other
requirements prescribed by applicable Treasury
regulations.
(d) Fail Safe Provisions. If the initial allocations of the
Employer Matching Contributions and Employee Contributions do
not satisfy one of the tests set forth in paragraph (a) of this
Section, the Administrator shall adjust the accounts of the
Participants pursuant to one (1) or more of the following
options:
(i) Distribution of Excess Aggregate Contributions. The
Administrator will determine Excess Aggregate
Contributions after determining Excess Deferrals under
Section 3.1(a)(vi) and Excess Employer Elective
Contributions under Section 3.12(d)(i). If the
Administrator determines that the Plan fails to
satisfy the Average Contribution Percentage Test for a
Plan Year, it must distribute the Excess Aggregate
Contributions, as adjusted for allocable income,
during the next Plan Year. However, the Employer will
incur an excise tax equal to 10% of the amount of
Excess Aggregate Contributions for a Plan Year not
distributed to the appropriate Highly Compensated
Employees during the first 2 1/2 months of that next
Plan Year. The Excess Aggregate Contributions are the
amount of aggregate contributions allocated on behalf
of the Highly Compensated Employees which causes the
Plan to fail to satisfy the Average Contribution
Percentage Test. The Administrator will distribute to
each Highly Compensated Employee his or her respective
share of Excess Aggregate Contributions. The
Administrator will determine the respective shares of
the Excess Aggregate Contributions by starting with
the Highly Compensated Employee(s) who has the
greatest Contribution Percentage, reducing his or her
Contribution Percentage to the next highest
Contribution Percentage, then, if necessary, reducing
the Contribution Percentage of the Highly Compensated
Employee(s) at the next highest Contribution
Percentage level (including the Contribution
Percentage of the Highly Compensated Employee(s) whose
Contribution Percentage the Administrator already has
reduced), and continuing in this manner until the
Average Contribution Percentage for the Highly
Compensated Group satisfies the Average Contribution
Percentage Test. Excess Aggregate Contributions of
Participants who are subject to the Family Member
aggregation rules shall be allocated among the Family
Members in proportion to the Employee and Matching
Contributions (or amounts treated as Matching
Contributions) of each Family Member that is combined
to determine the combined Average Contribution
Percentage.
Allocable Income. To determine the amount of the
corrective distribution required under this Section,
the Administrator must calculate the allocable income
for the Plan Year in which the Excess Aggregate
Contributions arose and for the "gap period" measured
from the beginning of the next Plan Year to the date
of the distribution. The income allocable to Excess
Aggregate Contributions is equal to the sum of the
allocable gain or loss for the Plan Year and the
allocable gain or loss for the gap period.
(A) Method of Allocating Income. The Administrator
may use any reasonable method for computing the
income allocable to Excess Aggregate
Contributions, provided that the method does
not violate Code Section 401(a)(4), is used
consistently for all Participants and for all
corrective distributions under the Plan for the
Plan Year, and is used by the Plan for
allocating income to Participants' Accounts.
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<PAGE> 31
(B) Alternative Method of Allocating Income. A
Plan may allocate income to Excess Aggregate
Contributions by multiplying the income for the
Plan Year and the gap period allocable to
Employee Contributions, Matching Contributions,
and amounts treated as Matching Contributions
by a fraction. The numerator of the fraction
is the Excess Aggregate Contributions for the
Employee for the Plan Year. The denominator of
the fraction is equal to the sum of:
(I) The total account balance of the
Employee attributable to Employee
and Matching Contributions, and
amounts treated as Matching
Contributions as of the beginning of
the Plan Year; plus
(II) The Employee and Matching
Contributions, and amounts treated
as Matching Contributions for the
Plan Year and for the gap period.
(C) Safe Harbor Method of Allocating Gap Period
Income. Under the safe harbor method, income
or Excess Aggregate Contributions for the gap
period will equal ten percent (10%) of the
income allocable to Excess Aggregate
Contributions for the Plan Year (calculated
under the method described in paragraph (B) of
this Section), multiplied by the number of
calendar months that have elapsed since the end
of the Plan Year. For purposes of calculating
the number of calendar months that have elapsed
under the safe harbor method, a corrective
distribution that is made on or before the
fifteenth day of the month is treated as made
on the last day of the preceding month. A
distribution made after the fifteenth day of
the month is treated as made on the first day
of the next month.
(ii) Characterization of Excess Aggregate Contributions.
The Administrator will treat a Highly Compensated
Employee's allocable share of Excess Aggregate
Contributions in the following priority: (A) first as
attributable to his or her Employee Contributions
which are voluntary contributions, if any; (B) then
as Matching Contributions allocable with respect to
Excess Contributions determined under the Actual
Deferral Percentage Test described in Section 3.12(a);
(C) then on a pro rata basis to Matching Contributions
and to the Employer Elective Contributions relating to
those Matching Contributions which the Administrator
has included in the Average Contribution Percentage
Test; (D) then on a pro rata basis to Employee
Contributions which are mandatory contributions, if
any, and to the Matching Contributions allocated on
the basis of those mandatory contributions; and (E)
last to Qualified Non-Elective Contributions used in
the Average Contribution Percentage Test. To the
extent the Highly Compensated Employee's Excess
Aggregate Contributions are attributable to Matching
Contributions, and he or she is not 100% vested in the
Account Balance attributable to Matching
Contributions, the Administrator will distribute only
the vested portion and forfeit the nonvested portion.
The vested portion of the Highly Compensated
Employee's Excess Aggregate Contributions attributable
to Employer Matching Contributions is the total amount
of the Excess Aggregate Contributions (as adjusted for
allocable income) multiplied by his or her vested
percentage (determined as of the last day of the Plan
Year for which the Employer made the Matching
Contribution).
(iii) Qualified Non-Elective and Elective Contributions.
The Employer shall make Qualified Non-Elective or
Elective Contributions that, in combination with
Employee and Matching Contributions, satisfy one of
the tests set forth in paragraph (a) of this Section,
taking into account the Administrator's action under
any option herein. The contribution shall be treated
as an Employer Elective Contribution and shall be
allocated to the Salary Deferral Account of each
Participant who is a Nonhighly Compensated Employee.
The Qualified Non-Elective and Elective Contributions
may be treated as Matching Contributions provided that
each of the following requirements, to the extent
applicable, is satisfied:
(A) The amount of Non-Elective Contributions,
including those Qualified Non-Elective
Contributions treated as Matching Contributions
for purposes of the Average Contribution
Percentage Test, satisfies the requirements of
Code Section 401(a)(4).
(B) The amount of Non-Elective Contributions,
excluding those Qualified Non-Elective
Contributions treated as Matching Contributions
for purposes of the Average Contribution
Percentage Test and those Qualified
Non-Elective Contributions treated as Elective
Contributions under Treasury
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<PAGE> 32
Regulations Section 1.401(k)-1(b)(5) for
purposes of the Actual Deferral Percentage
Test, satisfies the requirements of Code
Section 401(a)(4).
(C) The Elective Contributions, including those
treated as Qualified Matching Contributions for
purposes of the Average Contribution Percentage
Test, satisfy the requirements of Code Section
401(k)(3) for the Plan Year.
(D) The Qualified Non-Elective Contributions are
allocated to the Employee under the Plan as of
a date within the Plan Year, and the Elective
Contributions satisfy the requirements of
Treasury Regulations Section
1.401(k)-1(b)(4)(i) for the Plan Year.
(E) The plan that takes Qualified Non-Elective
Contributions and Elective Contributions into
account in determining whether Employee and
Matching Contributions satisfy the requirements
of Code Section 401(m)(2)(A), and the plans to
which the Qualified Non-Elective Contributions
and Elective Contributions are made, are or
could be aggregated for purposes of Code
Section 410(b).
(iv) Forfeiture of Non-Vested Matching Contributions.
Matching Contributions that are not vested may be
forfeited to correct Excess Aggregate Contributions.
Notwithstanding the foregoing sentence, Excess
Aggregate Contributions for a Plan Year may not remain
unallocated or be allocated to a suspense account for
allocation to one or more Employees in any future
year. Forfeitures of Matching Contributions to
correct Excess Aggregate Contributions shall be:
(A) Applied to reduce Employer Contributions for
the Plan Year in which the excess arose, but
allocated according to the following paragraph
(B), to the extent the excess exceeds Employer
Contributions or the Employer has already
contributed for the Plan Year.
(B) Allocated, after all other Forfeitures under
the Plan, to the Employer Matching Contribution
Account of each Nonhighly Compensated
Participant who made Elective Deferrals or
Employee Contributions in the ratio which each
such Participant's Compensation for the Plan
Year bears to the total Compensation of all
such Participants for the Plan Year.
* * * * * * *
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<PAGE> 33
ARTICLE IV
Adjustment of Individual Accounts
4.1. Adjustment Rules
As of each Allocation Date, the Administrator shall adjust all
Individual Accounts in accordance with the valuation of said
Individual Accounts reported by the Trustee based on the applicable
provisions of the Trust Agreement.
In the case of a Participant, Former Participant or Beneficiary who is
entitled to a distribution under the terms of this Plan, the
Administrator shall adjust the affected Individual Accounts in
accordance with the valuation method provided in the Trust Agreement
on the date of each distribution (the "Valuation Date").
* * * * * * *
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<PAGE> 34
ARTICLE V
Allocation of Employer Contributions to Individual Accounts
5.1. Allocation Rules
Employer Elective Contributions shall be allocated and credited to the
Salary Deferral Account of each Participant of the Plan on the date
received by the Trustee.
Employer Matching Contributions shall be allocated and credited to the
Employer Matching Contribution Account of each Participant of the Plan
on the earlier of the Anniversary Date for the Plan Year for which the
contribution is designated or the date the contribution is received by
the Trustee. No Employee who has been enrolled as a Participant,
other than one who died, became disabled or retired during such year,
shall be entitled to have any Employer Matching Contributions
allocated to his account, unless he shall be employed by the Employer
on the Anniversary Date for each year.
Forfeitures shall be allocated from the Forfeiture Suspense Account as
of each Anniversary Date.
5.2. Allocation Formula
Subject to the minimum allocation for Top-Heavy Plans under Section
5.4 and any restoration allocation required under Section 9.7, the
Committee shall allocate the Employer Matching Contributions and
Participant Forfeitures, if any, to each eligible Participant's
Employer Matching Contribution Account.
The Employer Matching Contributions made pursuant to Section 3.1(b)
and Forfeitures shall be allocated to each such eligible Participant's
Employer Matching Contribution Account in proportion to such
Participant's salary deferral during the year, weighted for years of
service, determined as of the last day of the calendar year as
follows:
Years of Service
Group At Least Multiply Deferrals By
A 0 1
B 4 2
C 9 3
D 14* 4
*Provided the Participant attains the age of 50 years before the end
of the year.
For the purpose of determining an Employee's Years of Service for this
Section 5.2, an Employee shall receive credit for all time periods
computed under Section 1.49. An Employee who was covered by a
collective bargaining agreement shall be credited with Years of
Service while he was covered by a collective bargaining agreement, in
excess of his one (1) Year of Eligibility Service credited under
Section 1.49(a), when such Employee ceases to be covered by a
collective bargaining agreement and becomes a Participant in the Plan.
5.3. Limitations on Allocations
(a) Defined Contribution Plan Limits. The amount of Annual
Additions which the Committee may allocate under this Plan on a
Participant's behalf for a Limitation Year may not exceed the
Maximum Permissible Amount. If the amount the Employer
otherwise would contribute to the Participant's Account would
cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the Employer will reduce the amount
of its contribution so the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount. If an
allocation of Employer Contributions pursuant to Section 5.2
would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 5.3(c)) to
the Participant's Account, the Committee will reallocate the
Excess
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<PAGE> 35
Amount to the remaining Participants who are eligible for an
allocation of Employer Contributions for the Plan Year in which
the Limitation Year ends. The Committee will make this
reallocation on the basis of the allocation method under the
Plan as if the Participant whose Individual Account otherwise
would receive the Excess Amount is not eligible for an
allocation of Employer Contributions.
(b) Estimation. Prior to the determination of the Participant's
actual Annual Compensation for a Limitation Year, the Committee
may determine the Maximum Permissible Amount on the basis of the
Participant's estimated Annual Compensation defined in Section
5.3(f) for the Limitation Year. The Committee must make this
determination on a reasonable and uniform basis for all
Participants similarly situated. The Committee must reduce any
Employer Contributions (including any allocation of Forfeitures)
based on estimated Annual Compensation by any Excess Amounts
carried over from prior years. As soon as administratively
feasible after the end of the Limitation Year, the Committee
will determine the Maximum Permissible Amount for the Limitation
Year based on the Participant's actual Annual Compensation for
the Limitation Year.
(c) Disposition of Excess Amount. If, pursuant to Section 5.3(b) or
because of an allocation of Forfeitures, there is an Excess
Amount attributable to a Participant for a Limitation Year, then
the Committee will dispose of the Excess Amount as follows:
(i) The Committee shall return any nondeductible
Participant Voluntary After Tax Contributions to the
Participant to the extent that the return would reduce
the Excess Amount.
(ii) If, after the application of clause (i) an Excess
Amount still exists, and the Plan covers the
Participant at the end of the Limitation Year, then
the Committee will use the Excess Amounts to reduce
future Employer Contributions (including any
allocation of Forfeitures) under the Plan for the next
Limitation Year and for each succeeding Limitation
Year, as is necessary, for the Participant. The
Participant may elect to limit Compensation for
allocation purposes to the extent necessary to reduce
the allocation for the Limitation Year to the Maximum
Permissible Amount and eliminate the Excess Amount.
(iii) If, after the application of clause (i) an Excess
Amount still exits and the Plan does not cover the
Participant at the end of the Limitation Year, then
the Committee shall hold the Excess Amount in a
suspense account and use the Excess Amount to reduce
Employer Contributions on behalf of remaining
Participants and shall allocate and reallocate to the
Individual Accounts of remaining Participants in
succeeding Limitation Years to the extent permissible
under the foregoing limitations, prior to any further
Annual Additions to the Plan. If the Plan should be
terminated or contributions should be completely
discontinued, the funds in the suspense account will
be allocated to the extent not prohibited by Code
Section 415. Any suspense account shall not be
adjusted for investment gains or losses of the Trust
Fund.
(iv) The Committee will not distribute any Excess Amount(s)
to Participants or to Former Participants.
(v) Notwithstanding the foregoing sentence and the
foregoing paragraphs (i), (ii), (iii), and (iv), the
Committee may distribute Elective Deferrals (within
the meaning of Code Section 402(g)(3)) or return
voluntary or mandatory Employee Contributions, to the
extent the distribution or return would reduce the
excess amounts in the Participant's account.
(d) Multiple Defined Contribution Plan Limits. If the Employer
maintains any other qualified defined contribution plan, the
amount of the Annual Addition which may be allocated to a
Participant's Individual Account in this Plan shall not exceed
the Maximum Permissible Amount, reduced by the amount of Annual
Additions to such Participant's accounts for the same Limitation
Year in the other plan(s). The Excess Amount attributed to this
Plan equals the product of:
(i) the total Excess Amount allocated as of such date
(including any amount the Committee would have
allocated but for the limitations of Code Section
415), multiplied by
(ii) the ratio of
(A) the amount allocated to the Participant as of such
date under this Plan, divided by
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<PAGE> 36
(B) the total amount allocated as of such date under
all qualified defined contribution plans (determined
without regard to the limitations of Code Section
415).
(e) Defined Benefit Plan Limits. The Employer does not maintain and
never has maintained a defined benefit plan covering any
Participant in this Plan. Accordingly, no special defined
benefit plan limitation applies under this Plan.
(f) Definitions. For purposes of the limitations of Code Section
415 set forth in this Section, the following definitions shall
apply:
(i) Annual Additions means the sum of the following
amounts allocated on behalf of a Participant for a
Limitation Year:
(A) all Employer Contributions;
(B) all Forfeitures;
(C) all Employee Contributions;
(D) excess contributions described in Code Section
401(k) and excess aggregate contributions
described in Code Section 401(m), irrespective
of whether the Plan distributes or forfeits
such Excess Amounts, and excess deferrals
described in Code Section 402(g), unless the
excess deferrals are distributed no later than
the first April 15 following the close of the
Participant's taxable year;
(E) Excess Amounts reapplied to reduce Employer
Contributions under this Section 5.3;
(F) amounts allocated after March 31, 1984 to an
individual medical account, as defined in Code
Section 415(l)(2), included as part of a
pension or annuity plan maintained by the
Employer;
(G) contributions paid or accrued after December
31, 1985, in taxable years ending after that
date, which are attributable to post-retirement
medical benefits allocated to the separate
account of a Key Employee as defined in Code
Section 419A(d)(3), under a welfare benefit
fund, as described in Code Section 419(e),
maintained by the Employer; and
(H) allocations under a simplified employee pension
plan.
(ii) Annual Compensation means the total amount of salary,
wages, commissions, bonuses and overtime, paid or
otherwise includable in the gross income of a
Participant during the Limitation Year, but excluding:
(A) Employer contributions to any deferred
compensation plan (to the extent the
contributions are not included in the
Participant's gross income for the taxable year
in which contributed) or simplified employee
pension under Code Section 408(k) (to the
extent the contributions are excludable from
the Participant's gross income;
(B) distributions from any plan of deferred
compensation, regardless of whether such
amounts are includable in the gross income of
the Employees when distributed;
(C) amounts realized from the exercise of any
nonqualified stock option, or when restricted
stock becomes freely transferrable or is no
longer subject to a substantial risk of
forfeiture;
(D) amounts realized from the sale, exchange, or
other disposition of stock acquired under a
qualified stock option described in Part II,
Subchapter D, Chapter 1 of the Code;
(E) premiums paid by the Employer for group term
life insurance (to the extent the premiums are
not includable in the Participant's gross
income); contributions by the Employer to an
annuity under Code Section 403(b) (to the
extent not includable in the Participant's
gross income); and any other
36
<PAGE> 37
amounts received under any Employer sponsored
fringe benefit plan (to the extent not
includable in the Participant's gross income);
(F) any contribution for medical benefits, within
the meaning of Code Section 419A(f)(2), after
separation from Service which is otherwise
treated as an Annual Addition; and
(G) any amount otherwise treated as an Annual
Addition under Code Section 415(l)(1).
(iii) Average Annual Compensation means the average
compensation during a Participant's highest three (3)
consecutive Years of Service, which period is the
three (3) consecutive calendar years (or the actual
number of consecutive years of employment for those
Employees who are employed for less than three (3)
consecutive years with the Employer) during which the
Participant had the greatest aggregate compensation
from the Employer.
(iv) Employer means the Employer that adopts this Plan.
All Related Employers shall be considered a single
Employer for purposes of applying the limitations of
this Section.
(v) Excess Amount means the excess of the Participant's
Annual Additions for the Limitation Year over the
Maximum Permissible Amount, less administrative
charges allocable to such Excess Amount.
(vi) Limitation Year means the Limitation Year specified in
the Plan or, if none is specified, the calendar year.
(vii) Maximum Permissible Amount means the lesser of:
(A) the Defined Contribution Dollar Limitation, or
(B) twenty-five percent (25%) of the Participant's
Compensation, within the meaning of Code
Section 415(c)(3)
for a Limitation Year with respect to any Participant.
Defined Contribution Dollar Limitation means $30,000
or, if greater, twenty-five percent (25%) of the
Defined Benefit Dollar Limitation set forth in Code
Section 415(b)(1)(A) as in effect for the Limitation
Year.
(viii) Projected Annual Benefit means the benefit of the
Participant payable annually in the form of a straight
life annuity (with no ancillary benefits) under the
terms of a defined benefit plan to which employees do
not contribute and under which no rollover
contributions are made, assuming that the Participant
continues employment until Normal Retirement Age (or
current age, if later), compensation continues at the
same rate as in effect in the Limitation Year under
consideration until the date of Normal Retirement Age,
and all other relevant factors used to determine
benefits under the defined benefit plan remain
constant as of the current Limitation Year for all
future Limitation Years.
5.4. Top-Heavy Minimum Allocation
(a) Minimum Allocation. Notwithstanding the foregoing, for any Plan
Year in which the Plan is determined to be Top- Heavy, the
amount of Forfeitures allocated to the Individual Account of
each Non-Key Employee shall be equal to the lesser of three
percent (3%) of each Non-Key Employee's Compensation or the
highest contribution rate for the Plan Year made on behalf of
any Key Employee. However, if a defined benefit plan maintained
by the Employer which benefits a Key Employee depends on this
Plan to satisfy the nondiscrimination rules of Code Section
401(a)(4) or the coverage rules of Code Section 410 (or another
plan benefitting the Key Employee so depends on the defined
benefit plan), the top heavy minimum allocation is three percent
(3%) of the Non-Key Employee's Compensation regardless of the
contribution rate for the Key Employee.
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<PAGE> 38
(b) Compensation. For purposes of this Section, Compensation means
Annual Compensation defined in Section 1.6 except (i)
Compensation does not include Elective Contributions, and (ii)
any exclusions from Annual Compensation (other than the
exclusion of Elective Contributions and the exclusions described
in clauses (i) through (v) of Section 1.6) do not apply.
Notwithstanding the definition of Annual Compensation in Section
1.6, the period preceding a Participant's Entry Date shall be
included in determining the minimum top-heavy allocation
provided by this Section.
(c) Contribution Rate. For purposes of this Section, a
Participant's contribution rate is the sum of Employer
Contributions (not including Employer Contributions to Social
Security) and Forfeitures allocated to the Participant's Account
for the Plan Year divided by his or her Compensation for the
entire Plan Year. To determine a Participant's contribution
rate, the Committee must treat all qualified top-heavy defined
contribution plans maintained by the Employer (or by any related
Employers described in Section 1.41) as a single plan. For
purposes of this Section, for Plan Years beginning after 1988,
the following rules apply:
(i) Employer Elective Contributions on behalf of Key
Employees are taken into account in determining the
minimum required contribution under Code Section
416(c)(2). However, Employer Elective Contributions
on behalf of Employees other than Key Employees may
not be treated as Employer Contributions for the
minimum contribution or benefit requirement of Code
Section 416.
(ii) Employer Matching Contributions allocated to Key
Employees are treated as Employer Contributions for
determining the minimum contribution or benefit under
Code Section 416. However, if a plan utilizes
Matching Contributions allocated to Employees other
than Key Employees as Employee Contributions or
Elective Contributions to satisfy the minimum
contribution requirement, the Matching Contributions
are not treated as Matching Contributions for applying
the requirements of Code Section 401(k) and 401(m).
(d) Participant Entitled to Top-Heavy Minimum Allocation. The
minimum allocation under this Section shall be provided to each
Non-Key Employee who is a Participant and is employed by the
Employer on the last day of the Plan Year, whether or not the
Participant has been credited with one thousand (1,000) Hours of
Service for the Plan Year. The minimum allocation under this
Section shall not be provided to any Participant who was not
employed by the Employer on the last day of the Plan Year. The
provisions of this Section shall not apply to any Participant to
the extent the Participant is covered under any other plan or
plans of the Employer under which the minimum allocation or
benefit requirements under Code Section 416(c)(1) or (c)(2) are
met for the Participant.
(e) Compliance. The Plan will satisfy the top-heavy minimum
allocation under this Section. The Committee first will
allocate the Employer Contributions (and Participant
Forfeitures, if any) for the Plan Year pursuant to the
allocation formula under Section 5.2. The Employer then will
contribute an additional amount for the Individual Account of
any Participant entitled under this Section to a top-heavy
minimum allocation and whose contribution rate for the Plan
Year, under this Plan and any other plan aggregated under this
Section, is less than the top-heavy minimum allocation. The
additional amount is the amount necessary to increase the
Participant's contribution rate to the top-heavy minimum
allocation. The Committee will allocate the additional
contribution to the Account of the Participant on whose behalf
the Employer makes the contribution.
5.5. Post-Allocation Adjustments to Accounts
After the amount or amounts have been allocated and credited to each
Participant's Employer Matching Contribution Account, as provided in
this Article, the then value of each Employer Matching Contribution
Account shall remain unchanged until the next Anniversary Date.
Notwithstanding the foregoing, the Participant's Employer Contribution
Accounts may be adjusted prior to the next Anniversary Date under:
(a) other provisions in this Agreement authorizing the Committee to
reduce the Participant's Employer Contribution Accounts by
disbursements properly chargeable to them or increased by funds
received and credited to them; or
(b) a special valuation of the Participant's Employer Contribution
Account required under Articles VII, VIII, and IX.
5.6. Employer Contribution Accounts Defined
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<PAGE> 39
For purposes of this Article, reference to the Employer Contribution
Accounts of Participants shall include the Employer Contribution
Accounts of those Participants who die, become disabled or retire
during the Plan Year considered.
* * * * * * *
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<PAGE> 40
ARTICLE VI
Retirement
6.1. Crediting, Adjustment of Accounts Upon Retirement
At Normal Retirement Age, a Participant shall be fully vested in the
Participant's Individual Accounts and the Trustee shall hold the
Individual Accounts for the Participant's benefit. After a
Participant attains Normal Retirement Age or retires after attaining
Normal Retirement Age, the Committee shall credit and adjust the
Individual Accounts of the Participant, as provided in Articles IV and
V, as of the immediately preceding Anniversary Date. A Participant
shall be entitled to benefits under Section 6.3 after attaining Normal
Retirement Age or upon retiring after attaining Normal Retirement Age.
6.2 Early Retirement
This Plan does not provide for retirement by a Participant prior to
the Normal Retirement Date.
6.3. Payment of Retirement Benefits
As soon as administratively feasible after the Committee has credited
and adjusted a Participant's Individual Accounts as provided in
Section 6.1, the Trustee shall make payments to the Participant
pursuant to Article X. Subject to the mandatory distribution
requirements of Section 6.4, the survivor annuity requirements of
Section 6.5, if applicable, and the immediate cashout provisions of
Section 9.3(b), payments shall begin as soon as administratively
feasible after the close of the Plan Year in which the Participant
retires. The Committee shall charge each payment to the Participant's
Individual Account and payment shall continue until death (when
Article VII shall control the disposition of the deceased
Participant's Nonforfeitable Account Balance) or until the
Nonforfeitable Account Balance is paid to the Participant in full,
whichever event shall occur first. Unless a Participant elects
otherwise, payment of benefits shall commence not later than the
sixtieth (60th) day after the end of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant
attains the earlier of age sixty-five (65) or Normal Retirement Age
under the Plan; (b) the tenth (10th) anniversary of the year in which
the Participant commenced participation in the Plan; or (c) the date
on which the Participant terminates service with the Employer.
Notwithstanding the foregoing, a Participant may not defer
commencement of benefits or elect a form of installment payment which
would result in the Participant receiving less than fifty-one percent
(51%) of the total benefits to be paid during the Participant's life
expectancy.
6.4. Mandatory Distribution of Retirement Benefits
The Committee may not direct the Trustee to distribute the
Participant's Nonforfeitable Account Balance, nor may the Participant
elect to make the Trustee distribute the Nonforfeitable Account
Balance under a method of payment which, as of the Required Beginning
Date, does not satisfy the minimum distribution requirements under
Code Section 401(a)(9) and the applicable Treasury regulations.
(a) Limits on Distribution Periods. As of the first Distribution
Calendar Year, distributions, if not made in a lump sum, may
only be made over one of the following periods or a combination
of such periods:
(i) the life of the Participant;
(ii) the life of the Participant and a Designated
Beneficiary, subject to the requirements of Code
Section 401(a)(9) and the applicable Treasury
regulations;
(iii) a period certain not extending beyond the life
expectancy of the Participant; or
(iv) a period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
Designated Beneficiary.
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<PAGE> 41
Under no circumstances may a Participant elect payment of
benefits in the form of an annuity. All distributions required
under this Article shall be determined and made under Code
Section 401(a)(9) and applicable Treasury regulations, including
the minimum distribution incidental benefit requirements of
Treasury Regulations Section 1.401(a)(9)-2. A mandatory
distribution at the Participant's Required Beginning Date will
be in lump sum unless the Participant, pursuant to this Article,
makes a valid election to receive an alternative form of
payment.
(b) Minimum Distribution Amounts
(i) Non-Lump Sum Distribution. If the Participant's
entire interest will be distributed in other than a
lump sum, then the minimum distribution for a calendar
year equals the Participant's Nonforfeitable Account
Balance as of the last Valuation Date preceding the
beginning of the calendar year divided by the
Participant's life expectancy or, if applicable, the
joint and last survivor expectancy of the Participant
and his or her Designated Beneficiary, subject to the
requirements of Code Section 401(a)(9) and the
applicable Treasury regulations. The Committee will
increase the Participant's Nonforfeitable Account
Balance, as determined on the relevant Valuation Date,
for Contributions or Forfeitures allocated after the
Valuation Date and by December 31 of the Valuation
Calendar Year, and will decrease the valuation by
distributions made after the Valuation Date and by
December 31 of the Valuation Calendar Year. For
purposes of this valuation, the Committee will treat
any portion of the minimum distribution for the first
Distribution Calendar Year made after the close of
that year as a distribution occurring in the first
Distribution Calendar Year. Life expectancy and joint
and last survivor expectancy must be computed by the
use of the expected return multiples contained in
Section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the Participant, or Spouse in the
case of distributions described in this Section
6.4(b), by the time distributions are required to
begin, life expectancies shall be recalculated
annually. The election shall be irrevocable for the
Participant, or spouse, and shall apply to all
subsequent years. The life expectancy of a non-spouse
Beneficiary may not be recalculated.
(ii) Non-Spouse Beneficiary. If the Participant's spouse
is not the Designated Beneficiary, a method of payment
to the Participant may not provide more than
incidental benefits to the Beneficiary. The Plan must
satisfy the minimum distribution incidental benefit
("MDIB") requirements in the applicable Treasury
regulations under Code Section 401(a)(9) for
distributions made on or after the Participant's
Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Committee
will compute the minimum distribution required by this
Section 6.4(b) by substituting the applicable MDIB
divisor for the applicable life expectancy factor, if
the MDIB divisor is a lesser number. Following the
Participant's death, the Committee will compute the
minimum distribution required by this Section 6.4(b)
solely on the basis of the applicable life expectancy
factor and will disregard the MDIB factor. For Plan
Years beginning prior to January 1, 1989, the Plan
satisfies the incidental benefits requirement if the
distributions to the Participant satisfied the MDIB
requirement or if the present value of the retirement
benefits payable solely to the Participant is greater
than fifty percent (50%) of the present value of the
total benefits payable to the Participant and
Beneficiaries. The Committee must determine whether
benefits to the Beneficiary are incidental on the date
the Trustee is to commence payment of the retirement
benefits to the Participant, or on the date the
Trustee redetermines the payment period to the
Participant.
(c) Commencement of Benefits
(i) General Rule. The Trustee must distribute or begin to
distribute the entire interest of a Participant no
later than the Participant's Required Beginning Date.
The minimum distribution for the first Distribution
Calendar Year is due by the Participant's Required
Beginning Date. The minimum distribution for each
subsequent Distribution Calendar Year, including the
calendar year of the Participant's Required Beginning
Date, is due by December 31 of that year. Except as
provided in clause (ii), a Participant's Required
Beginning Date is the April 1 following the close of
the calendar year in which the Participant attains age
seventy and one-half (70 1/2) years.
(ii) Transitional Rule. The Required Beginning Date of a
Participant who attains age seventy and one-half (70
1/2) years before January 1, 1988, shall be determined
under the following paragraphs (A) or (B):
41
<PAGE> 42
(A) Other Than Five Percent Owners. The Required
Beginning Date of a Participant who is not a
Five Percent Owner (as defined in (iii) below)
is the first day of April of the calendar year
following the calendar year in which the later
of retirement or attainment of age seventy and
one-half (70 1/2) years occurs. The Required
Beginning Date of a Participant who is not a
Five Percent Owner, who attains age seventy and
one-half (70 1/2) years during 1988 and who has
not retired on January 1, 1989, is April 1,
1990.
(B) Five Percent Owners. The Required Beginning
Date of a Participant who is a Five Percent
Owner during any year beginning after December
31, 1979, is the first day of April following
the later of:
(I) the calendar year in which the
Participant attains age seventy and
one-half (70 1/2) years; or
(II) the earlier of the calendar year
with or within which ends the Plan
Year in which the Participant
becomes a Five Percent Owner, or the
calendar year in which the
Participant retires.
(iii) Five Percent Owner. A Participant is treated as a
Five Percent Owner for purposes of this Section if the
Participant is a Five Percent Owner as defined in
Section 1.45(g)(iii) and Code Section 416(i)
(determined under Code Section 416 but without regard
to whether the Plan is Top-Heavy) at any time during
the Plan Year ending with or within the calendar year
in which the owner attains age sixty-six and one-half
(66 1/2) years or any subsequent Plan Year. Once
distributions have begun to a Five Percent Owner under
this Section, they must continue to be distributed,
even if the Participant ceases to be a Five Percent
Owner in a subsequent year.
(d) Definitions
(i) Applicable Life Expectancy means the life expectancy
(or joint and last survivor expectancy) calculated
using the attained age of the Participant (or
Designated Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the applicable
calendar year reduced by one for each calendar year
which has elapsed since the date life expectancy was
calculated first. If life expectancy is being
recalculated, the applicable life expectancy shall be
the life expectancy as so recalculated. The
applicable calendar year shall be the first
Distribution Calendar Year and, if life expectancy is
being recalculated, the succeeding calendar year.
(ii) Designated Beneficiary means the individual who is
designated as the Beneficiary under the Plan in
accordance with Code Section 401(a)(9) and the
applicable Treasury regulations.
(iii) Distribution Calendar Year means a calendar year for
which a minimum distribution is required. For
distributions beginning before the Participant's
death, the first Distribution Calendar Year is the
calendar year immediately preceding the calendar year
which contains the Participant's Required Beginning
Date.
(iv) Participant's Nonforfeitable Account Balance means the
account balance as of the last Valuation Date in the
calendar year immediately preceding the Distribution
Calendar Year (Valuation Calendar Year), increased by
the amount of any Contributions or Forfeitures
allocated to the account balance as of the dates in
the Valuation Calendar Year after the Valuation Date
and decreased by distributions made in the Valuation
Calendar Year after the Valuation Date. If any
portion of the minimum distribution for the first
Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the Required
Beginning Date, the amount of the minimum distribution
made in the second Distribution Calendar Year shall be
treated as if it had been made in the immediately
preceding Distribution Calendar Year.
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<PAGE> 43
6.5. Joint and Survivor Annuity Requirements
The joint and survivor annuity requirements do not apply to this Plan.
The Plan does not provide any annuity distributions to Participants
nor to surviving spouses. A transfer agreement described in Section
17.2 may not permit a plan which is subject to Code Section 417 to
transfer assets to this Plan, unless the transfer is an elective
transfer as described in Section 17.3.
* * * * * * *
43
<PAGE> 44
ARTICLE VII
Death
7.1. Beneficiary Designation
(a) Each Participant and Former Participant may from time to time
select one or more Beneficiaries to receive benefits under this
Article on the death of the Participant or Former Participant.
The selection shall be made in writing on a form provided by the
Committee and shall be filed with the Committee. Subject to
Section 7.1(b), the last selection filed with the Committee
shall control.
A married Participant's Beneficiary designation is not valid
unless the Participant's spouse consents, in writing, to the
Beneficiary designation. The spouse's consent must acknowledge
the effect of that consent and a notary public or the
Administrator (or Plan representative) must witness that
consent. The spousal consent requirements of this paragraph do
not apply if:
(i) the Participant and spouse are not married throughout
the one year period ending on the date of the
Participant's death;
(ii) the Participant's spouse is the Participant's sole
primary beneficiary;
(iii) the Administrator is not able to locate the
Participants' spouse;
(iv) the Participant is legally separated or has been
abandoned (within the meaning of State law) and the
Participant has a court order to that effect; or
(v) other circumstances exist under which the Secretary of
the Treasury will excuse the consent requirement.
If the Participant's spouse is legally incompetent to give
consent, the spouse's legal guardian (even if the guardian is
the Participant) may give consent. If a Participant fails to
name a Beneficiary under this Section, Section 7.1(b) shall
control.
(b) Unless elected in accordance with Section 7.1(c), the
Beneficiary of the death benefit shall be the Participant's
spouse, who shall receive the benefit in the manner prescribed
in this Article. Notwithstanding the foregoing sentence, the
Participant may designate a Beneficiary other than the spouse
if:
(i) the Participant has no spouse; or
(ii) the spouse cannot be located.
(c) In the case of a married Participant or Former Participant, the
designation of a non-spouse as Beneficiary shall be valid only
if:
(i) the spouse consents in writing to the designation;
(ii) the designation specifies the beneficiary and may not
be changed without spousal consent (or the spouse's
consent expressly permits designations by the
Participant without any requirement of further spousal
consent); and
(iii) the spouse's consent acknowledges the effect of the
election and the written consent is witnessed by a
Plan representative or by a Notary Public.
(d) If a Participant dies without a spouse or alternative
Beneficiary surviving; if the alternative Beneficiary (other
than the spouse) does not survive until final distribution of
the Participant's balance; if a Participant who is not married
dies
44
<PAGE> 45
without having designated a Beneficiary and/or alternative
Beneficiary; or if a Participant who is not married dies after
having made and revoked a designation but prior to having made a
subsequent designation, then the amount remaining in the
deceased Participant's Individual Account shall be payable in
the following descending order to:
(i) the Participant's surviving children, including
adopted persons and their descendants;
(ii) the Participant's other living heirs-at-law determined
under the Texas laws concerning intestate succession;
(iii) the Participant's estate, personal representatives,
heirs or devisees; and
(iv) the estate, personal representatives, heirs or
devisees of the deceased Participant's prior
Beneficiary.
The Committee shall determine the applicable person, class of
persons, or legal entity to whom the benefit shall be paid
beginning with (i), in the descending order of (i) to (iv).
Each class shall be determined to be not in existence and,
therefore, inapplicable by the Committee before proceeding to
the next class. In determining if a classification is
inapplicable, the Committee shall be required only to make
reasonable inquiry into the existence of the person or persons.
Remaining death benefits shall be payable under Section 7.4
regarding mandatory distributions. Payment made pursuant to the
power conferred on the Committee in this Section shall operate
as a complete discharge of all obligations under the Plan
concerning the share of a deceased Participant and shall not be
subject to review by anyone but shall be final, binding and
conclusive on all persons for all purposes.
7.2. Crediting, Adjusting of Accounts Upon Death
Upon death, a Participant or Former Participant shall be fully vested
in his or her Individual Accounts and the Trustee shall hold the
Individual Accounts for the benefit of the Designated Beneficiary or
Beneficiaries. The Committee shall credit and adjust the Individual
Accounts of a deceased Participant or Former Participant, as provided
in Articles IV and V, as of the Anniversary Date concurrent with or
next following death. The Designated Beneficiary or Beneficiaries
shall be entitled to benefits under Section 7.3 after the death of the
Participant or Former Participant. At its discretion, the Committee
may conduct a special valuation to establish the value of a deceased
Participant's Individual Accounts as of death, or any other date that
is administratively feasible, in which case payment of death benefits
can commence immediately thereafter.
7.3 Payment of Death Benefits
As soon as administratively feasible after the Committee has credited
and adjusted the Individual Accounts of the deceased Participant or
Former Participant as provided in Section 7.2, the Trustee shall make
payments to the Designated Beneficiary or Beneficiaries pursuant to
Article X. Subject to the survivor annuity requirements of Section
6.5, if applicable, the mandatory distribution requirements of Section
7.4, and the immediate cashout provisions of Section 9.3(b), the
payments shall begin as soon as administratively feasible after the
close of the Plan Year in which the Participant dies. The Committee
shall charge each payment to the Participant's or Former Participant's
Individual Account. Payments shall continue until the death of the
last survivor of the Beneficiaries or until the Individual Account is
paid in full, whichever event shall occur first.
7.4 Mandatory Distribution of Death Benefits
The Committee may not direct the Trustee to distribute the
Participant's Nonforfeitable Account Balance, to the Beneficiary or
Designated Beneficiary, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution
requirements under Code Section 401(a)(9) and the applicable Treasury
regulations.
(a) Limits on Distribution Periods
(i) If the Participant or Former Participant dies after
distribution has commenced, the Trustee shall continue
to distribute the remaining portion of the
Participant's or Former Participant's Nonforfeitable
Account Balance at least as rapidly as under the
method of distribution used prior to the Participant's
death.
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<PAGE> 46
(ii) If the Participant or Former Participant dies before
distribution commences, the Trustee shall complete
distribution of the Participant's or Former
Participant's Nonforfeitable Account Balance by
December 31 of the calendar year containing the fifth
(5th) anniversary of the Participant's or Former
Participant's death, except to the extent that the
Designated Beneficiary elects to receive distributions
under paragraphs (A) or (B) below:
(A) If any portion of the Participant's or Former
Participant's Nonforfeitable Account Balance is
payable to a Designated Beneficiary, the
Designated Beneficiary may elect distributions
over the life or over a period certain not
greater than the life expectancy of the
Designated Beneficiary commencing on or before
December 31 of the calendar year immediately
following the calendar year in which the
Participant or Former Participant died;
(B) If the Designated Beneficiary is the
Participant's Surviving Spouse, the date
distributions must begin under paragraph (A)
above shall not be earlier than the later of:
(1) December 31 of the calendar year
immediately following the calendar year in
which the Participant or Former Participant
died; and (2) December 31 of the calendar year
in which the Participant or Former Participant
would have attained age seventy and one-half
(70 1/2) years. If the Participant has not
made an election pursuant to this Section by
the time of death, the Designated Beneficiary
must elect the method of distribution no later
than the earlier of: (1) December 31 of the
calendar year in which distributions must begin
under this Section; or (2) December 31 of the
calendar year which contains the fifth (5th)
anniversary of the date of death of the
Participant or Former Participant. If the
Participant has no Designated Beneficiary, or
if the Designated Beneficiary does not elect a
method of distribution, distribution of the
Nonforfeitable Account Balance of the
Participant or Former Participant must be
completed by December 31 of the calendar year
containing the fifth (5th) anniversary of
death.
(C) If the Surviving Spouse is the Beneficiary of
any portion of a deceased Participant's or
Former Participant's benefits under the Plan,
the Surviving Spouse shall be permitted to
direct that this distribution of benefits
commence at a reasonable time following the
death of the Participant or Former Participant
under applicable Treasury regulations.
(D) If the Surviving Spouse dies after the
Participant or Former Participant, but before
payments to the Spouse begin, the preceding
provisions of this Section, with the exception
of paragraph (B), shall be applied as if the
Surviving Spouse had been the Participant.
(b) Minimum Distribution Amounts. If the Trustee will distribute a
Participant's or Former Participant's Nonforfeitable Account
Balance in accordance with the Designated Beneficiary's life
expectancy, the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Account Balance as of the
latest Valuation Date preceding the beginning of the calendar
year divided by the Designated Beneficiary's life expectancy.
For purposes of this Section, payments will be calculated by
using the expected return multiples specified in Tables V and VI
of Treasury Regulations Section 1.72-9. Life expectancy of a
Surviving Spouse shall be recalculated annually; however, in the
case of any other Designated Beneficiary, life expectancy will
be calculated when the first payment commences without further
recalculation. For purposes of this Section, any amount paid to
a child of the Participant or Former Participant will be treated
as if it had been paid to the Surviving Spouse, if the amount
becomes payable to the Surviving Spouse when the child reaches
the age of majority.
(c) Commencement of Benefits
(i) General Rule. For the purposes of this Section,
distribution of a Participant's or Former
Participant's Nonforfeitable Account Balance is
considered to begin on the Participant's or Former
Participant's Required Beginning Date or, if Section
7.4(a)(ii)(D) applies, the date distribution is
required to begin to the Surviving Spouse pursuant to
Section 7.4(a)(ii)(A). If distribution in the form of
an annuity irrevocably commences before the Required
Beginning Date, the date distribution is considered to
begin is the date distribution actually commences.
Except as otherwise provided, the Required Beginning
Date of a Participant or Former
46
<PAGE> 47
Participant is the first day of April of the calendar
year following the calendar year in which the
Participant attains age seventy and one-half (70 1/2)
years.
(ii) Transitional Rules. The Required Beginning Date of a
Participant or Former Participant who attains age
seventy and one-half (70 1/2) years before January 1,
1988, shall be determined under paragraphs (A) or (B)
below:
(A) Other Than Five Percent Owners. The Required
Beginning Date of a Participant or Former
Participant who is not a Five Percent Owner is
the first day of April of the calendar year
following the calendar year in which the later
of retirement or the attainment of age seventy
and one-half (70 1/2) years occurs. The
Required Beginning Date of a Participant who is
not a Five Percent Owner who attains age
seventy and one-half (70 1/2) years during 1988
and who has not retired as of January 1, 1989,
is April 1, 1990.
(B) Five Percent Owners. The Required Beginning
Date of a Participant or Former Participant who
is a Five Percent Owner during any year
beginning after December 31, 1979, is the first
day of April following the later of:
(1) the calendar year in which the
Participant attains age seventy and
one-half (70 1/2) years, or
(2) the earlier of the calendar year
with or within which ends the Plan
Year in which the Participant
becomes a Five Percent Owner, or the
calendar year in which the
Participant retires.
(iii) Five Percent Owner. A Participant is treated as a
Five Percent Owner for purposes of this Section 7.4 if
the Participant is a Five Percent Owner as defined in
Section 1.45(g)(iii) and Code Section 416(i)
(determined under Code Section 416 but without regard
to whether the Plan is Top-Heavy) at any time during
the Plan Year ending with or within the calendar year
in which the owner attains age sixty-six and one-half
(66 1/2) years or any subsequent Plan Year. If
distributions have begun to a Five Percent Owner under
this Section, they must continue to be distributed,
even if the Participant ceases to be a Five Percent
Owner in a subsequent year.
(d) Definitions
(i) Applicable Life Expectancy means the life expectancy
calculated using the attained age of the Designated
Beneficiary as of the Designated Beneficiary's
birthday in the applicable calendar year reduced by
one for each calendar year which has elapsed since the
date life expectancy was calculated first. If life
expectancy is being recalculated, the Applicable Life
Expectancy shall be the life expectancy as
recalculated. The applicable calendar year shall be
the first Distribution Calendar Year and, if life
expectancy is being recalculated, the succeeding
calendar year.
(ii) Designated Beneficiary means the individual who is
designated as the Beneficiary under the Plan under
Code Section 401(a)(9) and the applicable Treasury
regulations.
(iii) Distribution Calendar Year means a calendar year for
which a minimum distribution is required. For
distributions beginning after the Participant's death,
the first Distribution Calendar Year is the calendar
year in which distributions are required to begin
pursuant to this Section.
(iv) Participant's Nonforfeitable Account Balance means the
Account Balance as of the last Valuation Date in the
calendar year immediately preceding the Distribution
Calendar Year (Valuation Calendar Year), increased by
the amount of any Contributions or Forfeitures
allocated to the Account Balance as of the dates in
the Valuation Calendar Year after the Valuation Date
and decreased by distributions made in the Valuation
Calendar Year after the Valuation Date. If any
portion of the minimum distribution for the first
Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the Required
47
<PAGE> 48
Beginning Date, the amount of the minimum distribution
made in the second Distribution Calendar Year shall be
treated as if it had been made in the immediately
preceding Distribution Calendar Year.
* * * * * * *
48
<PAGE> 49
ARTICLE VIII
Disability
8.1. Crediting, Adjusting of Accounts Upon Disability
Upon termination of employment due to disability, a Participant shall
be fully vested in his or her Individual Accounts and the Trustee
shall hold the Individual Accounts for the Participant's benefit. The
Committee shall credit and adjust the Individual Accounts of a
disabled Participant, as provided in Articles IV and V, as of the
Anniversary Date concurrent with or next following the disability.
The disabled Participant shall be entitled to benefits under Section
8.2 after the date of disability. At its discretion, the Committee
may conduct a special valuation to establish the value of a disabled
Participant's Individual Accounts as of the date of disability, or any
other date that is administratively feasible, in which case payment of
disability benefits can commence immediately thereafter.
8.2 Payment of Disability Benefits
As soon as administratively feasible after the Committee has credited
and adjusted the Individual Accounts of the disabled Participant as
provided in Section 8.1, the Trustee shall make payments to the
disabled Participant pursuant to Article X. Subject to the mandatory
distribution requirements of Section 6.4, the survivor annuity
requirements of Section 6.5, if applicable, and the immediate cashout
provisions of Section 9.3(b), payments shall begin as soon as
administratively feasible after the close of the Plan Year in which
the Participant terminates Service with the Employer. The Committee
shall charge each payment to the disabled Participant's Individual
Account, and payments shall continue until death (when Article VII
shall control the disposition of the deceased Participant's
Nonforfeitable Account Balance) or until the Participant's
Nonforfeitable Account Balance is paid to the disabled Participant in
full, whichever event shall occur first.
* * * * * * *
49
<PAGE> 50
ARTICLE IX
Termination of Employment and Forfeiture
9.1. Crediting and Adjusting of Accounts Upon Termination
If a Participant's employment by the Employer shall terminate for any
reason other than retirement, death or disability, the Participant
shall become vested in his or her Individual Accounts as provided in
Section 9.2 and the Trustee shall hold the Participant's
Nonforfeitable Account Balance in the Individual Accounts for the
Participant's benefit. The Committee shall credit and adjust the
Individual Accounts of the terminated Participant, as provided in
Articles IV and V, as of the immediately preceding Anniversary Date.
The terminated Participant shall be entitled to benefits under
Sections 9.2 and 9.3 after the date of termination. At its
discretion, the Committee may conduct a special valuation to establish
the value of the terminated Participant's Individual Accounts as of
the date of termination, or any other date that is administratively
feasible.
9.2 Vesting
(a) A Participant to whom Section 9.1 applies shall be fully vested
at all times in amounts credited to the Participant's Voluntary
After Tax Contribution Account, Salary Deferral Account, and
Rollover Account. In addition, the Participant also shall be
entitled to receive a Nonforfeitable percentage of the balance
credited to the Matching Contribution Accounts, determined under
the following vesting schedule:
<TABLE>
<CAPTION>
Nonforfeitable
--------------
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 1 year 0%
At least 1 but less than 2 years 20%
At least 2 but less than 3 years 40%
At least 3 but less than 4 years 60%
At least 4 but less than 5 years 80%
At least 5 years 100%
</TABLE>
9.3. Payment of Termination Benefits
(a) The Committee shall combine the Nonforfeitable percentage of the
Individual Accounts of a Participant determined under Section
9.2 with the Participant Contribution Account into one
Individual Account, and the Trustee shall make payments to the
Participant pursuant to Article X. Subject to the third and
fourth sentences of Section 6.3, the mandatory distribution
requirements of Section 6.4 and the survivor annuity
requirements of Section 6.5, if applicable, payments shall begin
as soon as administratively feasible after the Participant
terminates. The Committee shall charge each payment to the
Participant's Individual Account and payment shall continue
until death (when Article VII shall control the disposition of
the deceased Participant's Nonforfeitable Account Balance) or
until the Participant's Nonforfeitable Account Balance is paid
to the Participant in full, whichever event shall occur first.
(b) Notwithstanding the foregoing paragraph, if a Participant
separates from Service with the Employer and the Participant's
Nonforfeitable Account Balance determined under Section 9.2 is
$3,500 or less, the Committee may direct the Trustee to make
immediate distribution to the Participant in the form of a lump
sum distribution; provided, however, the Trustee shall not make
a lump sum distribution after benefit distributions have
commenced, without the written consent of the Participant and
spouse. For purposes of this paragraph, if the value of an
Employee's vested Account Balance is zero (0), the Employee
shall be deemed to have received a distribution of his or her
vested Account Balance. Notwithstanding any contrary provision,
if the Nonforfeitable Account Balance of a Participant exceeds
$3,500, then the Trustee shall make no distribution without the
Participant's and the spouse's consent pursuant to Article X
until the later of attainment of age sixty-two (62) years or
attainment of Normal Retirement Age. The foregoing sentence
shall not apply after the death of the Participant.
50
<PAGE> 51
(c) If requested by a Participant and approved by the spouse in
writing after the Participant has separated from Service with
the Employer, the Committee shall direct the Trustee to
distribute the Participant's Nonforfeitable Account Balance
determined under Section 9.2 in the form of a lump sum
distribution.
9.4. Forfeitures
A Participant to whom this Article applies shall forfeit that portion
of the amount of the Individual Account to which the Participant is
not entitled under Section 9.2 on the earlier of the date on which the
Participant incurs five (5) consecutive One Year Breaks in Service or
the date on which the Participant receives a Cashout Distribution (the
Forfeiture Event). A Cashout Distribution means a lump sum
distribution pursuant to Section 9.3(b), that occurs no later than the
last day of the second Plan Year following the Plan Year in which the
Participant separates from Service. For purposes of this Section, a
Participant who separates from Service without a Nonforfeitable
percentage in the Participant's Employer Contribution Account shall be
deemed to have received a distribution of the Nonforfeitable Account
Balance on the date of separation from Service. The amount forfeited
under this Section shall be held in the Participant's Forfeiture
Suspense Account until the date on which the Participant incurs five
(5) consecutive One Year Breaks in Service, at which time the
Forfeiture Suspense Account shall be allocated under Article V among
the Individual Accounts of the remaining Participants as of the
Anniversary Date coincident with or next following such date.
9.5. Determination of Amount of Vested Undistributed Account, Forfeiture
If the Trustee pays any amount outstanding to the credit of a
Participant in the Participant's Individual Account while the
Participant is not fully vested in the Individual Account, other than
a Cashout Distribution defined in Section 9.4, and prior to the
Anniversary Date on which the Participant shall incur five (5)
consecutive One Year Breaks in Service, the value of his or her vested
and undistributed Account shall be held in a separate account and
shall be determined at any time prior to and including the Anniversary
Date on which the Participant shall incur five (5) consecutive One
Year Breaks in Service under the following formula:
X = P(AB + (RxD)) - (RxD).
For this formula, the variables represent the following factors:
X is the value of the vested portion of the Participant's Account;
P is the Participant's Nonforfeitable percentage at the relevant time;
AB is the Account Balance at the relevant time;
D is the amount of the distribution; and
R is the ratio of the Account Balance at the relevant time to the
Account Balance after the distribution.
The nonvested portion of the Participant's Individual Account shall be
forfeited on the Anniversary Date on which the Participant incurs five
(5) consecutive One Year Breaks in Service.
9.6. Crediting Years of Vesting Service
(a) If a Participant's Service with the Employer is terminated and
the Former Participant receives a distribution from the Trustee
and subsequently re-enters the Service of the Employer after
incurring five (5) consecutive One Year Breaks in Service, the
reemployed Participant's Years of Service after the break need
not be taken into account to determine the Nonforfeitable
percentage of the Participant's Account Balance derived from
Employer Contributions which accrued before the Break in
Service. Notwithstanding the foregoing sentence, any reemployed
Participant's Years of Service prior to the Break in Service
must be taken into account to determine the Nonforfeitable
percentage of the Participant's Account Balance derived from
Employer Contributions which accrued
after the Break in Service; provided that, for vesting purposes, the pre-break
Service shall not be taken into account until the Participant completes a Year
of Service measured on a twelve (12) month Computation Period commencing with
the date of re- employment of the Participant.
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(b) If a Participant's Service with the Employer is terminated and
the Participant is reemployed by the Employer prior to incurring
five (5) consecutive One Year Breaks in Service, the reemployed
Participant shall continue to vest at the level in the vesting
schedule in Section 9.2 that the Participant had attained prior
to termination in both the pre- separation and post-separation
Account Balance.
9.7. Restoration of Account Balance
If a partially vested Participant is reemployed after termination of
employment, but prior to incurring five (5) consecutive One Year
Breaks in Service, the Participant shall have the right to repay the
amount previously distributed pursuant to Section 9.3(b). If the
Participant repays the entire amount previously distributed prior to
the earlier of (a) incurring five (5) consecutive One Year Breaks in
Service commencing after the withdrawal, or (b) five years after the
first date on which the Participant is subsequently reemployed by the
Employer, then the Committee shall restore to the Participant's
Individual Account an amount equal to the amount forfeited under
Section 9.4. The Committee will treat a non-vested Participant who is
deemed to have received a distribution on the date of separation from
Service of the Participant's Nonforfeitable Account Balance as having
repaid the deemed distribution on the first date of the Participant's
reemployment with the Employer. Restoration of the Participant's
Account Balance includes restoration of all Code Section 411(d)(6)
protected benefits pertaining to that restored Account under
applicable Treasury regulations.
* * * * * * *
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ARTICLE X
Optional Forms of Benefit
10.1. Optional Forms of Payment of Benefits
(a) Whenever a Participant, Former Participant or Beneficiary is
entitled to receive a distribution of benefits, he or she may
elect that benefits be paid in any one (1) or more of the
following forms:
(i) A lump sum, payable in cash, in kind or partly in cash
and partly in kind, at the fair market value when
distributed;
(ii) A transfer or rollover to:
(A) another plan qualified under Code Section
401(a); or
(B) an individual retirement account defined in
Code Section 408(a).
(iii) Periodic installments over the periods of time and in
the amounts the Committee shall determine. The total
payments for each year shall not be less than an
amount sufficient to cause the Participant's Employer
Contribution Account to be paid in full not later than
the earlier of: (A) the end of a period measured by
the joint life expectancy of the Participant and
Spouse; or (B) the expiration of twenty (20) years
after the Participant, Former Participant or
Beneficiary shall have become entitled to receive the
benefits. Notwithstanding the foregoing, the annual
amount payable under this paragraph shall be at least
as large as would be provided under a life annuity
with a period certain extending to age eighty-five
(85) years. Under no circumstances shall benefits be
paid in the form of a life annuity. If the Trustee
pays the Individual Account of a Participant, Former
Participant or Beneficiary under an installment method
prescribed in this paragraph, the Trustee shall invest
and reinvest the entire unpaid balance remaining in
the Individual Account from time to time and shall
credit and charge the Individual Account its
proportionate share of gains and losses of the Trust
Fund under Article V until the entire Individual
Account is paid pursuant to this Article.
(b) If the Participant so requests, the Committee may direct the
Trustee to distribute any Contract, other than an annuity
contract held for the Participant, to that Participant, provided
that under no circumstances may the Trustee continue to pay
premiums on the Contracts after the actual separation from
Service of a Participant.
(c) Notwithstanding the foregoing, a distribution made pursuant to
this Section shall be subject to the immediate cashout
provisions of Section 9.3(b).
10.2. Direct Rollover Optional Form of Benefit
(a) Direct Rollover. This Section applies to distributions made on
or after JANUARY 1, 1993. Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Plan Administrator, to
have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) Definitions
(i) Eligible Rollover Distribution. An eligible rollover
distribution is any distribution of all or any portion
of the balance to the credit of the distributee,
except that an eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more; any
distribution to the extent such distribution is
required under Section 401(a)(9) of the
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Code; and the portion of any distribution that is not
includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with
respect to Employer Securities).
(ii) Eligible Retirement Plan. An eligible retirement plan
is an individual retirement account described in
Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code,
or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an
eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(iii) Distributee. A distributee includes an employee or
former employee. In addition, the employee's or
former employee's surviving spouse and the employee's
or former employee's spouse or former spouse who is
the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of
the spouse or former spouse.
(iv) Direct Rollover. A direct rollover is a payment by
the plan to the eligible retirement plan specified by
the distributee.
10.3. Election to Defer Receipt of Benefits
Notwithstanding the foregoing, a Participant who leaves the employment
of the Employer before his or her Normal Retirement Date may elect to
leave his or her Nonforfeitable Account Balance under the management
of the Trustee until Normal Retirement Date. The Trustee shall invest
and reinvest and shall credit and charge the Individual Account with
its proportionate share of gains and losses of the Trust Fund pursuant
to Article V until the Nonforfeitable Account Balance is paid out to
the Former Participant under this Article. Any election made under
this Section shall be irrevocable and shall be made no later than
fourteen (14) days before the electing Participant becomes entitled to
receive his or her Nonforfeitable Account Balance in the Plan.
Notwithstanding the foregoing, a Participant who has elected to leave
his or her Nonforfeitable Account Balance under the management of the
Trustee may later elect to have the Account Balance transferred to any
pension or profit sharing plan maintained by another Employer in which
the Participant has, at the time of the later election, become a
participant under the transferee plan.
10.4. Election of Form of Payment of Benefits
The Participant, Former Participant, or Beneficiary shall elect the
form or forms of payment of benefits permitted in Section 10.1 which
the Committee and Trustee shall implement. Not earlier than ninety
(90) days, but not later than thirty (30) days, before the
Participant's Annuity Starting Date, the Committee must provide a
benefit notice to a Participant who is eligible to make an election
under this Section. The Participant's Annuity Starting Date means the
first day of the first period for which an amount is paid as an
annuity or any other form. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features
and relative values of those options, and the Participant's right to
defer distribution until he or she attains the later of Normal
Retirement Age or age 62.
If a Participant, Former Participant, or Beneficiary makes an election
prescribed by this Section, the Committee will direct the Trustee to
distribute the Participant's Nonforfeitable Account Balance pursuant
to that election. Any election under this Section is subject to the
mandatory distribution requirements of Sections 6.4 and 7.4 and the
survivor annuity requirements of Section 6.5, if applicable. The
Participant, Former Participant or Beneficiary must make an election
under this Section by filing an election form with the Committee at
any time before the Trustee otherwise would commence to pay a
Participant's Account Balance under the applicable requirements of
Articles VI, VII, VIII, IX, and X.
10.5. Minority or Disability
During the minority or disability of an individual entitled to receive
benefits under this Plan, the Participant may elect to have the
Committee instruct the Trustee to make payments due the individual
directly to the individual or to the spouse or a relative or to any
individual or institution having custody of the individual. Neither
the Committee nor the Trustee shall be required to cause or to verify
the application of any payments so made, and the receipt of the payee,
including the endorsement of a check or checks, shall be conclusive to
all interested parties.
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10.6. Commencement of Payment of Benefits
Unless a Participant elects otherwise, payment of benefits shall
commence not later than sixty (60) days after the end of the Plan Year
in which the latest of the following events occur:
(a) the day the Participant attains the earlier of age sixty-five
(65) years or Normal Retirement Age;
(b) the tenth (10th) anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) the day the Participant terminates employment with the Employer.
10.7. Unclaimed Account Procedure
(a) EFFECTIVE APRIL 1, 1988 TO DECEMBER 31, 1992, if, after the
expiration of a period of two (2) years from the date on which a
Former Participant or Beneficiary has become entitled to
benefits hereunder, the Administrator, after due diligence, is
unable to locate such Former Participant or Beneficiary, then
such Former Participant's or Beneficiary's benefits hereunder
shall be forfeited and go to reduce the Employer's contribution
for the succeeding Plan Year. Provided, however, that if such
Former Participant or Beneficiary shall subsequently file a
claim for such benefits, such benefits shall be reinstated.
If a Former Participant or Beneficiary who has incurred a
forfeiture of his benefits under the provisions of the first
paragraph of this Section makes a claim, at any time, for his
forfeited benefits, the Administrator shall restore the Former
Participant's or Beneficiary's forfeited benefits to the same
dollar amount as the dollar amount of the benefits forfeited,
unadjusted for any gains or losses occurring subsequent to the
date of the forfeiture. The Administrator shall make the
restoration during the Plan Year in which the Former Participant
or Beneficiary makes the claim first from the amount, if any, of
Participant forfeitures the Administrator otherwise would
allocate for the Plan Year, then from the amount, if any, of the
Trust Fund net income or gain for the Plan Year and then from
the amount, or additional amount, the Employer shall contribute
to enable the Administrator to make the required restoration.
The Administrator shall direct the Trustee to distribute the
Former Participant's or Beneficiary's restored benefits to him
not later than sixty (60) days after the close of the Plan Year
in which the Administrator restores the forfeited benefits. The
forfeiture provisions of this Section shall apply solely to the
Former Participant's or Beneficiary's benefits derived from
Employer contributions and shall be applied so long as such
provisions do not violate applicable state or federal law.
(b) EFFECTIVE JANUARY 1, 1993, the Plan does not require the
Committee to search for, or to ascertain the whereabouts of, any
Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Articles VI,
VII, VIII or IX, the Committee, by certified or registered mail
addressed to his or her last known address of record with the
Committee or the Employer, must notify any Participant, or
Beneficiary, that he or she is entitled to a distribution under
this Plan. The notice must quote the provisions of this Section
and otherwise must comply with the applicable notice
requirements of Article VI. If the Participant, or Beneficiary,
fails to claim his or her distributive share or make his or her
whereabouts known in writing to the Committee within (6) months
from the date of mailing of the notice, the Committee will treat
the Participant's or Beneficiary's unclaimed payable Accrued
Benefit as forfeited and will reallocate the unclaimed payable
Accrued Benefit to reduce the Employer's contribution for the
Plan Year in which the forfeiture occurs. A forfeiture under
this paragraph will occur at the end of the notice period or, if
later, the earliest date applicable Treasury Regulations would
permit the forfeiture. Pending forfeiture, the Committee,
following the expiration of the notice period, may direct the
Trustee to segregate the Nonforfeitable Accrued Benefit in a
segregated Account and to invest that segregated Account in
Federally insured interest bearing savings accounts or time
deposits (or in combination or both), or in other fixed income
investments.
If a Participant or Beneficiary who has incurred a forfeiture of his
or her Accrued Benefit under the provisions of the first paragraph of
this Section makes a claim, at any time, for the forfeited Accrued
Benefit, the Committee must restore the Participant's or Beneficiary's
forfeited Accrued Benefit to the same dollar amount as the dollar
amount of the Accrued Benefit forfeited, unadjusted for any gains or
losses occurring subsequent to the date of the forfeiture. The
Committee will make the restoration during the Plan Year in which the
Participant or Beneficiary makes the claim, first from the amount, if
any, of Participant forfeitures the Committee otherwise would allocate
for the Plan Year, then from the amount, if any, of the Trust Fund net
income or gain for the Plan Year, then from the amount, or additional
amount, the Employer contributes to enable the Committee to make the
required restoration. The Committee must direct the Trustee to
distribute the Participant's or
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Beneficiary's restored Accrued Benefit not later than 60 days after
the close of the Plan Year in which the Committee restores the
forfeited Accrued Benefit. The forfeiture provisions of this Section
apply solely to the Participant's or the Beneficiary's Accrued Benefit
derived from Employer Contributions.
Upon termination of the Plan, in lieu of the unclaimed account
procedure set forth in this Section, Section 18.6 shall apply.
* * * * * * *
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ARTICLE XI
The Employer
11.1. Employer Action
Whenever the Employer is permitted or required to do or perform any
act under this Agreement, it shall be done and performed by a person
duly authorized to do or perform the act by its legally constituted
authority. The legally constituted authority of a corporation shall
be the Board of Directors.
11.2. Plan Amendment
(a) At any time the Plan Sponsor, by resolution of its Board of
Directors, or by any person(s) duly authorized by resolution of
the Board to take such action, may amend or modify this
Agreement in any manner it deems necessary or desirable,
retroactively or prospectively, subject to the following
provisions of this Article.
(b) The Employer must make all amendments in writing, signed by duly
authorized persons with the legally constituted authority of the
Employer and with the consent or approval, if any, as provided
in this Section. An amendment shall become effective upon its
delivery to the Trustee. Each amendment must state the date on
which it is either retroactively or prospectively effective.
(c) Unless it is made to secure the approval of the Commissioner of
the Internal Revenue Service or other governmental bureau or
agency, no amendment or modification of this Agreement by the
Employer shall:
(i) operate retroactively to reduce or divest the then
vested interest in any Individual Account or to reduce
or divest any benefit then payable hereunder unless
all Participants, Former Participants and
Beneficiaries then having Individual Accounts or
benefit payments affected thereby shall consent to the
amendments or modifications;
(ii) directly or indirectly affect any Participant's
Nonforfeitable percentage outside the protection of
Treasury Regulations Section 1.411(a)(8);
(iii) decrease a Participant's accrued benefit, except to
the extent permitted under Code Section 412(c)(8), and
reduce or eliminate Code Section 411(d)(6) protected
benefits determined immediately prior to the adoption
date (or, if later, the effective date) of the
amendment, except as permitted by applicable Treasury
regulations (An amendment reduces or eliminates Code
Section 411(d)(6) protected benefits if the amendment
has the effect of either: (A) eliminating or reducing
an early retirement benefit or a retirement-type
subsidy (as defined in applicable Treasury
regulations); or (B) except as provided by applicable
Treasury regulations, eliminating an optional form of
benefit. The Committee must disregard an amendment to
the extent application of the amendment would fail to
satisfy this paragraph. If the Committee must
disregard an amendment because the amendment would
violate clause (A) or clause (B), the Committee must
maintain a schedule of the early retirement option or
other optional forms of benefit the Plan must continue
for the affected Participant.); or
(iv) affect the rights, duties or responsibilities of the
Trustees, the Plan Administrator or the Committee
without the written consent or approval of the
Trustee, Administrator, or affected Committee member.
(d) If the vesting schedule described in Section 9.2 is amended, a
Participant's vested interest in any contribution to which the
vesting schedule in Section 9.2 applied, shall not be less than
the Nonforfeitable percentage determined as of the later of the
effective date of the amendment or the date of its adoption. A
Participant with at least three (3) Years of Service on the last
day of the election period described in this paragraph, may
elect to have the Nonforfeitable percentage of the Employer
Contribution Accounts determined without regard to the
amendment. For Participants who do not have at least one (1)
Hour of Service in any Plan Year beginning after December 31,
1988, the preceding sentence shall be applied by substituting
"five (5) Years of Service" for "three (3) Years of Service"
where the
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language appears. If a Participant fails to make an election,
then the Participant shall be subject to the new vesting
schedule. The election period shall commence on the date the
amendment is adopted or deemed to be made and shall end sixty
(60) days after the latest of:
(i) the date of the adoption of the amendment;
(ii) the effective date of the amendment; or
(iii) the date the Participant receives written notice of
the amendment from the Employer or Administrator.
11.3. Discontinuance, Termination of Plan
(a) The Employer has the right, at any time, to suspend or
discontinue its contributions under the Plan to the Trust Fund,
and to terminate, at any time, the Plan and the Trust created
under this Agreement. The Plan will terminate on the first to
occur of the following events:
(i) the date the Plan is terminated by action of the
Employer;
(ii) the date the Employer is judicially declared bankrupt
or insolvent, unless the proceeding authorized
continued maintenance of the Plan; or
(iii) the dissolution, merger, consolidation or
reorganization of the Employer or the sale by the
Employer of all or substantially all of its assets,
unless the successor or purchaser elects and makes
provision to continue the Plan, in which event the
successor or purchaser will substitute itself as the
Employer under this Plan.
(b) Upon either full or partial termination of the Plan, or, if
applicable, upon complete discontinuance of contributions to the
Plan, the Individual Accounts of all Participants, Former
Participants and Beneficiaries shall be and become fully vested
and Nonforfeitable, notwithstanding the Nonforfeitable
percentage which otherwise would apply under Article IX. The
Trustee, in its discretion, may convert some or all of the Trust
Fund to cash and shall deduct therefrom all unpaid charges and
expenses, except as the same may be paid by the Employer. The
Committee then shall adjust the balance of all Individual
Accounts on the basis of the net cash balance and fair market
value of all property in the Trust Fund. Thereafter, the
Trustee shall distribute the amount to the credit of each
Participant, Former Participant and Beneficiary in cash, in
kind, or partly in cash and partly in kind, as the Committee
shall direct. Notwithstanding the foregoing, a distribution
made because of a termination of the Plan shall be subject to
the mandatory distribution requirements of Sections 6.4 and 7.4,
the survivor annuity requirements of Section 6.5, if applicable,
and the immediate cashout distribution provisions of Section
9.3(b).
11.4. Prohibition Against Reversion to Employer
Under no circumstances or conditions, other than those specifically
provided herein, shall the Trust Fund or any portion thereof revert to
the Employer or be used for or diverted to purposes other than the
exclusive benefit of the Participants, Former Participants and
Beneficiaries. No amendment or revocation by the Employer of this
Section may cause or permit any portion of the Trust Fund to revert to
or become a property of the Employer.
11.5. Adoption by Related Employer
Notwithstanding any contrary provision contained in this Agreement,
with the written consent of the Plan Sponsor, any other association,
corporation, or other business organization, which is a Related
Employer may adopt this Plan and Trust in its entirety, participate
herein and be known as a Participating Employer, by executing a
properly authorized document evidencing the intent and will of the
Participating Employer. Unless the context of this Agreement clearly
indicates the contrary, the term "Employer" shall be deemed to include
each Participating Employer relating to its adoption of the Plan.
11.6. Requirements for Adoption by Related Employer
The following requirements shall apply to any Participating Employer
who elects to adopt this Plan pursuant to this Article:
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(a) Each Participating Employer shall be required to use the same
Trustee as provided in this Agreement.
(b) The Trustee may, but shall not be required to, commingle, hold
and invest as one (1) Trust Fund all contributions made by
Participating Employers and all increments thereof.
(c) The transfer of any Participant from or to any corporation
participating in this Plan, whether the Participant is an
Employee of the Plan Sponsor or a Participating Employer, shall
not affect the Participant's rights under the Plan; all amounts
credited to the Participant's Individual Account, all
accumulated service with the transferor or Predecessor Employer,
and the length of participation in the Plan shall continue to
the Participant's credit.
(d) All rights and values forfeited by termination of employment
shall inure only to the benefit of the Employees and
Participants of the Participating Employer which employed the
forfeiting Participant, except, if the Forfeiture is for an
Employee whose Employer is a Related Employer, then the
Forfeiture shall be allocated based on Annual Compensation to
all Individual Accounts of Participating Employers who are
Related Employers. Should an Employee of one ("First") Employer
be transferred to a Related ("Second") Employer the transfer
shall not cause the Employee's Account Balance, generated while
an Employee of the First Employer, in any manner or by any
amount, to be forfeited. The Employee's Account Balance for all
purposes of the Plan, including length of service, shall be
considered as though the Employee had always been employed by
the Second Employer and as such had received contributions,
forfeitures, earnings or losses, and appreciation or
depreciation in value of assets totaling the amount so
transferred.
(e) Upon an Employee's transfer between Participating Employers, the
Employee involved shall carry accumulated Years of Service for
eligibility and vesting. No transfer shall effect a termination
of employment under this Agreement and the Participating
Employer to which the Employee transfers shall thereupon become
obligated under this Agreement to the Employee in the same
manner as the Participating Employer from whom the Employee
transfers.
(f) Any expenses of the Plan and Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total
amount standing to the credit of all Participants employed by
the Participating Employer bears to the total amount standing to
the credit of all Participants.
(g) Any contributions made by a Participating Employer under this
Plan, shall be paid to and held by the Trustee for the exclusive
benefit of the Employees of the Participating Employer and the
Beneficiaries of the Employees, subject to all the terms and
conditions of this Agreement.
(h) Based on information furnished by the Administrator, the
Committee and the Trustee shall keep separate books and records
concerning the affairs of each Participating Employer and of the
Account Balances of the Participants of each Participating
Employer. The Trustee may, but need not, register Contracts to
evidence that a particular Participating Employer is the
interested Employer under this Agreement, but upon an Employee's
transfer from one Participating Employer to another, the
employing Employer shall immediately notify the Trustee of the
transfer.
11.7. Plan Sponsor as Agent of Participating Employer
Each Participating Employer shall be deemed to be a part of this Plan;
however, each Participating Employer shall be deemed to have
designated irrevocably the Plan Sponsor as its agent in all of its
relations with the Trustee, the Committee and the Administrator under
this Agreement.
11.8. Participating Employer Contributions
All contributions made by a Participating Employer provided for in
this Plan shall be determined separately on the basis of its net
profit and total Annual Compensation paid. The Participating Employer
shall pay the contributions to the Trustee who shall hold the
contribution for the exclusive benefit of the Employees of the
Participating Employer and the Beneficiaries of the Employees, subject
to all of the terms and conditions of this Plan.
11.9. Amendment by Plan Sponsor, Participating Employers
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Amendment of this Plan by the Plan Sponsor at any time when there
shall be a Participating Employer under this Agreement shall be
effective only upon the written action of each and every Participating
Employer and with the consent of the Trustee where the consent is
necessary under this Agreement. Notwithstanding the foregoing
sentence, each Participating Employer shall be deemed to have
authorized irrevocably the Plan Sponsor or any person(s) duly
authorized by resolution of the Board of Directors of the Plan
Sponsor, to amend or modify this Agreement in any manner it deems
necessary or desirable, retroactively or prospectively, subject to the
provisions of this Article.
11.10. Revocation of Participation by Participating Employer
Any Participating Employer shall be permitted to discontinue or revoke
its participation in this Plan. Upon any discontinuance or
revocation, satisfactory evidence thereof and of any applicable
conditions imposed shall be delivered to the Trustee. The Trustee
shall thereafter transfer, deliver and assign Contracts and other
Trust Fund assets allocable to the Participants of the Participating
Employer to the new plan as shall have been designated by the
Participating Employer, if it has established a separate employee
benefit pension plan for its employees. If no successor plan is
designated, the Trustee shall retain the assets for the Employees of
the Participating Employer under Article X. No part of the corpus or
income of the Trust Fund relating to the Participating Employer shall
be used for or diverted to purposes other than the exclusive benefit
of the Employees of the Participating Employer and the Beneficiaries
of the Employees.
11.11. Authority of Administrator over Participating Employers
The Administrator shall have the authority to make any and all
necessary rules or regulations binding on all Participating Employers
and all Participants and Beneficiaries to effectuate the purposes of
this Article.
11.12. Deficiency of Earnings or Profits
If any Participating Employer is prevented in whole or in part from
making a contribution to the Trust Fund which it otherwise would have
made under the Plan because of having no current or accumulated
earnings or profits, or because the earnings or profits are less than
the contribution which it otherwise would have made, then so much of
the contribution which the Participating Employer was prevented from
making may be made for the benefit of the participating Employees of
the Participating Employer by the other Participating Employers who
are Related Employers. The contribution by each other Participating
Employer shall be limited to the proportion of its total current and
accumulated earnings or profits remaining after adjustment for its
contribution to the Plan made without regard to this Section, which
the total prevented contribution bears to the total current and
accumulated earnings or profits of all the Participating Employers
remaining after adjustment for all contributions made to the Plan
without regard to this Section. A Participating Employer on behalf of
whose Employees a contribution is made under this Section shall not
reimburse the contributing Participating Employer unless it has
otherwise agreed to do so in writing.
* * * * * * *
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ARTICLE XII
The Committee
12.1. Committee Appointment
The Employer shall appoint a Committee consisting of one (1) or more
members. The Employer may remove any member of the Committee at any
time and a member may resign by written notice to the Employer. Any
vacancy in the membership of the Committee shall be filled by
appointment made by the Employer, but pending the filling of any
vacancy, the then members of the Committee may act under this
Agreement as though they alone constitute the full Committee. The
Employer shall notify the Trustee promptly of the appointment of the
original Committee and of any change in the membership of the
Committee.
12.2. Committee Action and Procedure
(a) Any and all acts and decisions of the Committee shall be by at
least a majority of the then members. The Committee may
delegate to any one or more of its members the authority to sign
notices or other documents on its behalf or to perform
ministerial acts for it, in which event the Trustee and any
other person may accept the notice, document or act without
question as having been authorized by the Committee.
(b) The Committee may, but need not, call or hold formal meetings,
and any decisions made or actions taken pursuant to written
approval of a majority of the then members shall be sufficient.
(c) The Committee shall maintain adequate records of its decisions,
which records shall be subject to inspection by the Employer and
by any Participant, Former Participant, or Beneficiary, but only
to the extent that they apply to the individuals.
(d) The Committee may designate one (1) of its members as Chairman
and one (1) of its members as Secretary and may establish
policies and procedures governing it if they are consistent with
this Agreement.
12.3. Committee Powers and Duties
The Committee shall perform the duties and may exercise the powers and
discretion given to it in this Agreement, and its decisions and
actions shall be final and conclusive regarding all persons affected
thereby. The Committee shall exercise its discretion at all times in
a nondiscriminatory manner. Subject to any limitations stated in this
Agreement, the Trustee is authorized and empowered with the following
powers, rights, and duties:
(a) To select a Secretary, who need not be a member of the Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Account
Balance and the Nonforfeitable percentage of each Participant's
Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan provided the
rules are consistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan
documents and documents related to the Plan's operation;
(e) To direct the Trustee concerning the crediting and distribution
of the Trust;
(f) To review and render decisions respecting a claim for, or denial
of a claim for, a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
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(h) To engage the service of agents whom it may deem advisable to
assist it with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as
defined in ERISA Section 3(38)), each of whom will have full
power and authority to manage, acquire or dispose, or direct the
Trustee with respect to acquisition or disposition, of any Plan
asset under its control;
(j) To establish, in its sole discretion, a nondiscriminatory
policy, pursuant to this Section, which the Trustee must observe
in making loans, if any, to Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make
credits and charges to the account to the extent required by and
in accordance with applicable Code provisions;
The Committee must exercise all of its powers, duties, and discretion
under the Plan in a uniform and nondiscriminatory manner.
12.4. Committee Reliance
The Trustee may rely without question on any notices or other
documents received from the Committee. The Employer shall furnish the
Committee with all data and information available to the Employer,
which the Committee may reasonably require to perform its functions
under this Agreement. The Committee may rely without question on any
data or information furnished by the Employer.
12.5. Committee Authority
Any and all disputes which may arise involving Participants, Former
Participants, Beneficiaries and/or the Trustee shall be referred to
the Committee, and its decisions shall be final and conclusive
regarding all affected persons. Furthermore, if any issue arises
concerning the meaning, interpretation or application of any
provisions of this Agreement, the decision of the Committee on any
issue shall be final.
12.6. Conflicts in Interest
Notwithstanding any other provisions of this Agreement, no member of
the Committee shall vote or act on any matter involving the Committee
member's rights, benefits or other participation under this Agreement.
12.7. Appointment of Agent and Legal Counsel
The Committee may engage agents to assist it and may engage legal
counsel who may be counsel for the Employer. The Committee shall not
be responsible for any action taken or omitted to be taken on the
advice of counsel. All reasonable expenses incurred by the Committee
shall be paid by the Employer.
12.8. Appointment of Investment Manager
The Committee may delegate investment management authority pertaining
to all or a portion of the Plan assets by appointing an Investment
Manager(s) and may authorize payment of the fees and expenses of the
Investment Manager(s) from the Plan assets. For purposes of this
Agreement, any Investment Manager so appointed shall, during the
period of appointment, possess fully and absolutely those powers,
rights and duties of the Trustee (to the extent delegated by the
Committee) regarding the investment or reinvestment of that portion of
the Plan assets over which the Investment Manager has investment
management authority. An Investment Manager must be one (1) of the
following:
(a) an Investment Advisor registered under the Investment Advisors
Act of 1949;
(b) a bank, as defined in the Investment Advisors Act of 1940; or
(c) an insurance company qualified to manage, acquire, or dispose of
Plan assets under the laws of more than one (1) state.
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Any Investment Manager shall acknowledge in writing to the party
making the appointment and to the Trustee that it is a fiduciary
respecting the Plan. During any period when the Investment Manager is
appointed and serving, and regarding those assets in the Plan over
which the Investment Manager exercises investment management
authority, the Trustee's responsibility shall be limited to holding
assets as a custodian, providing accounting services, disbursing
benefits as authorized, and executing investment instructions only as
directed by the Investment Manager. Any certificates or other
instrument duly signed by the Investment Manager (or the authorized
representative of the Investment Manager), purporting to evidence any
instruction, direction or order of the Investment Manager regarding
the investment of those assets of the Plan over which the Investment
Manager has investment management authority, shall be accepted by the
Trustee as conclusive proof thereof. The Trustee also shall be fully
protected in acting in good faith on any notice, instruction,
direction, order, certificate, opinion, letter, telegram or other
document believed by the Trustee to be genuine and to be from the
Investment Manager (or the authorized representative of the Investment
Manager). The Trustee shall not be liable for any action taken or
omitted by the Investment Manager or for any mistakes of judgment or
other action made, taken or omitted by the Trustee in good faith on
direction of the Investment Manager.
12.9. Annual Accounting
As soon as administratively feasible after the Accounting Date of each
Plan Year, but within the time prescribed by ERISA and the applicable
Labor regulations and at least annually, the Committee shall advise
each Participant, Former Participant and Beneficiary for whom
Individual Accounts are held under this Plan of the then balance in
the Participant's Individual Accounts and the other information ERISA
requires to be furnished. No Participant except a member of the
Committee shall have the right to inspect the records reflecting the
Individual Accounts of any other Participant.
12.10. Funding Policy
The Committee will review, not less often than annually, all pertinent
Employee information and Plan data to establish the funding policy of
the Plan and to determine the appropriate methods of carrying out the
Plan's objectives. The Committee must communicate periodically, as it
deems appropriate, to the Trustee and to any Plan Investment Manager
the Plan's short- term and long-term financial needs so investment
policy can be coordinated with Plan financial requirements.
* * * * * *
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ARTICLE XIII
Administration
13.1. Administrator Appointment
The Employer shall be the Administrator of this Plan and shall be
responsible for filing all reporting and disclosure documents required
by the Department of Labor and the Internal Revenue Service in
accordance with ERISA, the Code and the respective regulations. The
Employer may delegate any of its duties and responsibilities as
Administrator to the Committee. Service of process on the Plan or
Trust may be obtained by personal service on the Employer or any
Committee member.
13.2. Summary Plan Description
The Administrator shall furnish a summary plan description to each
Participant within ninety (90) days after becoming a Participant and
to each Beneficiary receiving benefits under the Plan within ninety
(90) days after beginning to receive benefits. Every fifth (5th) year
after the Effective Date of the Plan, the Administrator shall furnish
an updated summary plan description, which integrates all amendments
made within the five (5) year period, to each Participant and
Beneficiary receiving benefits. If no amendments have been made
within the five (5) year period, the Administrator shall furnish the
updated summary plan description only every tenth (10th) year. If
there is a modification or change in the Plan, the Administrator shall
furnish to each Participant and each Beneficiary who is receiving
benefits, a summary description of the change or modification not
later than two hundred ten (210) days after the end of the Plan Year
in which the change is adopted.
13.3. Summary Annual Report
The Administrator shall furnish to each Participant and each
Beneficiary receiving benefits a summary of the Annual Return/Report
of the Plan containing a statement of the Plan assets and liabilities,
receipts and disbursements and other information fairly summarizing
the Plan's financial statement within two hundred ten (210) days after
the close of each Plan Year, or an extended period as may be permitted
by the Secretary of Labor.
13.4. Individual Benefit Statements
The Administrator shall furnish to any Participant or Beneficiary
receiving benefits, who requests in writing, a statement reporting the
total benefits accrued and the Nonforfeitable benefits, if any, which
have accrued or the earliest date on which benefits will become
Nonforfeitable. In no event shall a Participant or Beneficiary be
entitled to receive the report described in this Section more than
once in every twelve (12) month period.
13.5. Copies of Additional Documents
Upon written request from a Participant or Beneficiary receiving
benefits, the Administrator shall furnish a copy of any one (1) or all
of the following documents: the latest updated summary plan
description, the latest annual report, any terminal report, Trust
agreement, contract or other instruments under which the Plan was
established or is operated. The Administrator may make a reasonable
charge to cover the cost of furnishing complete copies.
13.6. Documents Available for Examination
Copies of the Plan description and the latest annual report, Trust
agreement, contract or other instruments under which the Plan was
established or is operated shall be available for examination at the
principal office of the Employer by any Participant or Beneficiary
receiving benefits. Examination may be made during reasonable hours
in person or by agent, accountant or attorney.
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13.7. Notice of Participant Rights under ERISA
The Committee shall furnish to each Participant and to each
Beneficiary receiving benefits information on their rights under the
Plan and how the rights may be protected by law.
13.8. Notice to Participant on Participant Termination
The Administrator shall furnish a statement to a Participant who
terminated Service with the Employer for any of the reasons set forth
in Articles VI through IX, describing the nature, amount and form of
the Nonforfeitable Account Balance, if any, to which the Participant
is entitled as soon as administratively feasible after the close of
the Plan Year in which the Participant terminated Service.
13.9. Notice to Trustee on Participant Termination
(a) As soon as practicable after a Participant terminates Service
with the Employer for any of the reasons set forth in Articles
VI through IX, the Committee shall give written notice to the
Trustee, including the following information and directions
which may be necessary or advisable under the circumstances:
(i) name and address of the Participant;
(ii) reason the Participant terminated Service with the
Employer;
(iii) name and address of the Beneficiary or Beneficiaries
of a deceased Participant;
(iv) Nonforfeitable percentage or amount to which the
Participant is entitled on termination of employment
pursuant to Article IX; and
(v) time, manner and amount of payment to be made pursuant
to the Participant's election under Article X.
If a Former Participant or Beneficiary dies, the Committee shall
give like notice to the Trustee, but only if the Committee
learns of the death.
(b) At any time and from time to time after giving the notice
provided under this Section, the Committee may modify the
original notice or any subsequent notice by a further written
notice or notices to the Trustee, but any action taken or
payments made by the Trustee pursuant to a prior notice shall
not be affected by a subsequent notice.
(c) A copy of each notice provided under this Section shall be
mailed by the Committee to the Participant, Former Participant
or Beneficiary involved, but the failure to send or receive the
copy shall not affect the validity of any action taken or
payment made pursuant thereto.
(d) Upon receipt of any notice provided under this Section, the
Trustee shall promptly take any action and make any payments
directed in the notice. The Trustee may rely on the information
and directions in the notice absolutely and without question.
However, the Trustee may inform the Committee of any error or
oversight which the Trustee believes to exist in any notice.
13.10. Claim for Benefits
Normally, whenever a Participant or Beneficiary becomes entitled to
benefits under this Agreement, the Committee and the Trustee will
automatically initiate procedures to provide for the payment of the
benefits. If a Participant or Beneficiary believes that he or she is
entitled to the payment of benefits under this Agreement and no action
is forthcoming from the Committee or the Trustee, then the Participant
or Beneficiary may file a written claim for benefits with the
Committee or the Trustee.
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13.11. Appeal for Decision of Committee
(a) If any Participant or Beneficiary files a claim for benefits
under this Plan ("Claimant") and the claim is denied in whole or
in part, the Administrator shall give notice of the decision to
the Claimant in writing setting forth:
(i) the specific reasons for the denial;
(ii) a specific reference to pertinent provisions of the
Plan, if any, upon which the denial is based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the
claim with an explanation of the necessity therefor;
and
(iv) that any appeal the Claimant wishes to make of the
adverse determination must be in writing to the
Committee within seventy-five (75) days after receipt
of the Administrator's notice of denial of benefits.
The Administrator's notice must further advise the
Claimant that failure to appeal the action to the
Committee in writing within the seventy-five (75) day
period will render the Committee's determination
final, binding and conclusive.
(b) The written notice shall be given to the Claimant as soon as
administratively feasible after the decision is made, but not
later than sixty (60) days after the claim is filed. The
Claimant shall have the right to be represented, to review
pertinent documents and to present written and oral evidence.
(c) If the Claimant should appeal to the Committee, the Claimant or
the duly authorized representative, may submit, in writing,
issues and comments the Claimant or the duly authorized
representative considers pertinent. The Committee shall render
the decision on the review and shall set forth the specific
reasons for the decision with specific references to pertinent
provisions. The Committee shall render the decision in writing
within sixty (60) days after receipt of the request for review
unless special circumstances, such as the need for a hearing,
require an extension which shall not exceed an additional sixty
(60) days.
* * * * * * *
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ARTICLE XIV
Investments
14.1. Investment Selection
The Committee is given the power to select the investment options in
which Plan Participants may invest, subject to the limitations set
forth in the Trust Agreement. The Trustee shall not be responsible
for any acts or omissions of such Committee. Any Certificates or
other instrument duly signed by such Committee (or the authorized
representative of such Committee), purporting to evidence any
instruction, direction or order of such Committee with respect to the
investment selection pertaining to those assets of the Plan over which
the Committee has investment selection authority, shall be accepted by
the Trustee as conclusive proof thereof. The Trustee shall also be
fully protected in acting in good faith upon any notice, instruction,
direction, order, certificate, opinion, letter, telegram or other
document believed by the Trustee to be genuine and by such Committee
(or the authorized representative of such Committee). The Trustee
shall not be liable for any action taken or omitted by such Committee
or for any mistakes of judgment or other action made, taken or omitted
by the Trustee in good faith upon direction of such Committee.
14.2. Individual Direction of Investment
If, by written instrument, the Employer shall permit, each individual
Participant shall have the right from time to time to direct the
Trustee regarding the investment and reinvestment of any and all
amounts in the Participant's Individual Accounts, except that the
purchase of Contracts shall be governed by Article XV. Such
Participant direction of investment is authorized to be made by using
the telephone exchange system maintained for such purpose by the
Trustee or its agent in accordance with the Trust Agreement. When a
Participant or Beneficiary exercises control over the assets in the
Individual Account by directing the Trustee in the investment of the
Individual Account, the Participant or Beneficiary shall not be deemed
to be a fiduciary because of the exercise, and no person who is
otherwise a fiduciary shall be liable for any loss, or because of any
breach, resulting from the Participant's or Beneficiary's exercise of
control. If the Participant or Beneficiary directs the Trustee to
invest the full balance of the Individual Account in any one (1)
investment, the Trustee shall not be liable for any loss because of
the failure to diversify or because the investment does not meet
standards of prudence. If a Participant does not direct the Trustee
in the investment of all the funds in an Individual Account, the
Trustee shall invest the funds under the provisions of this Article.
In its sole discretion, the Employer may, by written instrument,
establish the rules as it deems necessary for the orderly
administration of this Section.
Each individual Participant shall have the right to direct the Trustee
to purchase Qualifying Employer Securities in an amount not to exceed
twenty-five percent (25%) of the portion of such Participant's vested
interest in his Employer Contribution Account. However, the Trustee
shall not permit an investment in Employer Securities if it would
cause the value of Employer Securities held by the Plan to exceed ten
percent (10%) of the fair market value of the Trust Fund.
* * * * * * *
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ARTICLE XV
Insurance Contracts
15.1. Investment in Insurance Contracts for the Benefit of the Trust Fund
At the written direction of the Committee, the Trustee shall have the
right to apply for and pay premiums on Contracts for the benefit of
the Trust Fund as a whole. The Contracts may be on the lives of any
persons in whom there is an insurable interest, including
Participants. The Employer shall direct the Trustee regarding the
insurance company and insurance agent through which the Trustee shall
purchase the Contracts, the amount of the coverage and the applicable
dividend plan.
15.2. Ownership of Contracts for the Benefit of the Trust Fund
(a) Each application for a policy, and the policies themselves, must
designate the Trustee as sole owner, with the right reserved to
the Trustee to exercise any right or option contained in the
policies, subject to the terms and provisions of this Agreement.
The Trustee must be the named beneficiary of the insured for the
Trust Fund.
(b) All Contracts owned by the Trustee for the benefit of the Trust
Fund as a whole shall be treated as investments of the Trust
Fund. The cash value of the Contracts shall be used in valuing
the Trust Fund, and all premiums paid thereon by the Trustee
shall be charged to the Trust Fund and shall not be charged to
any Individual Accounts. All dividends, death benefits and
other payments actually received by the Trustee under the
Contracts shall be credited to the Trust Fund, the same as
proceeds derived from the sale of an asset held under this
Agreement.
15.3. Investment in Insurance Contracts for the Benefit of the Participant
If the Employer shall permit, each Participant shall have the right to
request that the Committee direct the Trustee to purchase one (1) or
more Contracts for the benefit of an Individual Account of the
Participant, subject to the following restrictions:
(a) If only ordinary life insurance contracts are purchased, the
aggregate premiums payable thereon in the case of each
Participant shall not exceed forty-nine percent (49%) of the
total contributions allocated to the Individual Account of the
Participant.
(b) If only term life, accident and/or health insurance contracts
(including hospitalization, major medical or similar types of
insurance) are purchased, the aggregate premiums payable thereon
in the case of each Participant shall not exceed twenty-five
percent (25%) of the total Contributions allocated to the
Individual Account of the Participant.
(c) If both ordinary life and term life, accident and/or health
insurance contracts are purchased, the amount expended for the
term life, accident and/or health insurance premiums plus
one-half ( 1/2) of the amount expended for the ordinary life
insurance premiums shall not exceed, in the aggregate,
twenty-five percent (25%) of the total Contributions allocated
to the Individual Account of the Participant.
(d) The payment of the premiums thereon shall be reasonably assured,
taking into consideration the then credit balance in the
Participant's Individual Account and the probable sums to be
credited thereto in the future.
(e) Any Contract which provides primarily life insurance protection
shall be one which can be converted at or before retirement of
the Participant to provide periodic income payable to him on
retirement, but provided that the periodic income cannot be paid
in the form of a life annuity. When a Contract is obtained, the
Trustee shall be required to convert the entire value of the
Contract at or before retirement into cash, or to provide
periodic income so that no portion of the value may be used to
continue life insurance protection beyond retirement; or the
Trustee may, at the option of the Participant, distribute the
entire Contract to the Participant.
(f) Any Contract may contain a waiver of premium benefit if and when
the insured becomes disabled. The cost of the benefits may be
paid either by the Participant or by the Trustee, but if the
cost will be paid by the Trustee, the
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requirements of paragraphs (a), (b) and (c) of this Section
shall remain fully applicable, and no cost of the waiver of
premium benefit shall be paid by the Trustee which would violate
the restrictions.
15.4. Ownership of Contracts for the Benefit of a Participant
(a) Each application for a policy, and the policies themselves, must
designate the Trustee as sole owner, with the right reserved to
the Trustee to exercise any right or option contained in the
policies, subject to the terms and provisions of this Agreement.
The Trustee must be the named beneficiary for the Individual
Account of the insured Participant.
(b) All Contracts owned by the Trustee for the individual benefit of
a Participant shall be noted on the Participant's Individual
Accounts, but so long as the individual remains a Participant,
the Contracts shall be treated as having no value for the
Individual Accounts. All dividends and other payments actually
received by the Trustee on any Contract shall be credited to the
Individual Account of the Participant for whose individual
benefit the Contract is held. Contracts for the individual
benefit of Participants may be continued after Normal Retirement
Date during the period of continued employment of a Participant
who elects not to retire, if the preceding limitations on the
protection of funds so expendable are applied.
(c) All premiums paid by the Trustee on Contracts held under this
Agreement for the individual benefit of Participants shall be
charged against the Individual Account of the respective
Participants for whom the Contracts are held; however, the
Trustee shall not pay a premium unless the balance in the
Individual Account to be charged is sufficient to pay the
premium. The premium first shall be charged against the
Participant Contribution Account until the Account is reduced to
zero (0), and thereafter against the Employer Contribution
Account of the Participant. If the balance is not sufficient to
pay a premium when due, the Trustee shall notify the Committee
of that fact and shall take the action on the Contract that the
Committee shall direct.
(d) Proceeds of Contracts paid to the Participant's Individual
Account under this Article are subject to the distribution
requirements of Articles VI, VII, VIII, IX and X. The Trustee
will not retain any proceeds for the benefit of the Trust.
15.5. Payment of Insurance Premiums
The Trustee shall take the action regarding all Contracts held under
the Plan that the Committee may from time to time direct in writing.
Unless the Committee directs otherwise, the Trustee may pay the net
premium due on any Contract by applying any available dividend to
reduce the premium.
15.6. Duties of Insurance Company
(a) No insurance company is a party to this Agreement nor shall any
insurance company be responsible for the validity of this
Agreement. No insurance company is required to examine the
terms of this Agreement nor be responsible for any action taken
by the Trustee.
(b) Any Insurance Company issuing a Contract or Contracts under this
Agreement shall be fully protected in dealing with the Trustee
and shall not be required to ascertain whether the Trustee is
acting pursuant to this Agreement. For the purpose of making
application to an insurance company and in the exercise of any
right or option contained in any policy, the insurance company
may rely on the signature of the Trustee and shall be saved
harmless and completely discharged in acting at the direction
and authorization of the Trustee. An insurance company shall be
discharged from all liability for any amount paid to the Trustee
or paid pursuant to the direction of the Trustee, and it shall
not be obliged to see to the distribution or further application
of any monies it so pays.
15.7. Execution of Contracts
For convenience of administration, the Trustee and the Committee,
respectively, may designate one of their number to sign all
applications and other forms required by any Insurance Company issuing
Contracts under this Agreement, and the signature of any individual
Trustee or Committee member in regard to the Insurance Company
applications and forms shall be binding on the Trust and may be relied
on by the Insurance Company.
* * * * * * *
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ARTICLE XVI
Participant Loans
16.1. Participant Loan Program
The Plan does not authorize nor permit Participant Loans.
* * * * * * *
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ARTICLE XVII
Rollovers, Mergers, Direct Transfers
17.1. Participant Rollover Contributions
Any Participant who has the Employer's written consent and who has
filed with the Trustee the form prescribed by the Committee may
contribute cash or other property to the Trust other than as a
voluntary contribution if the contribution is a Rollover Contribution
which the Code permits an Employee to transfer either directly or
indirectly from one qualified plan to another qualified plan. Before
accepting a Rollover Contribution, the Employer or Trustee may require
an Employee to furnish satisfactory evidence that the proposed
transfer is in fact a Rollover Contribution which the Code permits an
Employee to make to a qualified plan. A Rollover Contribution is not
an Annual Addition.
An eligible Employee, prior to satisfying the Plan's conditions, may
make a Rollover Contribution to the Trust to the same extent and in
the same manner as a Participant. If an Employee makes a Rollover
Contribution to the Trust prior to satisfying the Plan's eligibility
conditions, the Committee and Trustee must treat the Employee as a
Participant for all purposes of the Plan except the Employee is not a
Participant for purposes of sharing in Employer Contributions or
Participant Forfeitures under the Plan until the Employee actually
becomes a Participant in the Plan. If the Employee has a separation
from Service prior to becoming a Participant, the Trustee will
distribute the Rollover Account to the Participant as if it were an
Employer Contribution Account.
For any Rollover Contribution, the following requirements shall be met:
(a) The Committee shall maintain a Participant's Rollover
Contributions in a separate Rollover Account. A Participant's
transferred benefits consisting of deductible employee
contributions shall be maintained in a Qualified Voluntary
Employee Contribution Rollover Account;
(b) The Employer will direct the Trustee to invest the Rollover
Contribution in a segregated investment Rollover Account for the
Participant's sole benefit unless the Employer directs the
Trustee to invest the Rollover Contribution as part of the Trust
Fund. The Trustee will not have any investment responsibility
for a Participant's segregated Rollover Account. The
Participant, however, from time to time, may direct the Trustee
in writing as to the investment of the segregated Rollover
Account in property, or property interests, of any kind, real,
personal or mixed; provided however, the Participant may not
direct the Trustee to make loans to the Employer. A
Participant's segregated Rollover Account alone will bear any
extraordinary expenses resulting from investments made at the
direction of the Participant. As of the Accounting Date, or
other Valuation Date, for each Plan Year, the Committee will
allocate and credit the net income or charge the net loss from a
Participant's segregated Rollover Account and credit or charge
respectively the increase or decrease in the fair market value
of the assets of a segregated Rollover Account solely to that
Rollover Account. The Trustee is not liable nor responsible for
any loss resulting to any Beneficiary, nor to any Participant,
because of any sale or investment made or other action taken
pursuant to and in accordance with the direction of the
Participant. In all other respects, the Trustee will hold,
administer and distribute a Rollover Contribution in the same
manner as any Employer Contribution made to the Trust Fund.
(c) A Participant's Rollover Contributions shall not be forfeitable
nor reduce in any way the obligations of the Employer under this
Agreement.
17.2. Merger and Direct Transfer
The Employer possesses the specific authority to enter into merger
agreements or direct transfer of assets agreements with the trustees
of other retirement plans described in Code Section 401(a), including
an Elective Transfer defined in Section 17.3, and to accept the direct
transfer of plan assets or to transfer plan assets, as a party to any
agreement. Further, the Employer may permit the transfer of plan
assets to an individual retirement account or an individual retirement
annuity. However, the Employer, before any merger or direct transfer
is consummated, shall be satisfied that the holding of any transferred
assets is permitted by the transferee trusts. When the Trustee is so
satisfied, the Trustee shall accept the direct transfer of plan assets
or shall cause to be transferred the assets directed to be transferred
and as appropriate shall direct the insurance company to
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transfer any Contracts held by it to the new Trustee. The Employer
may direct the Trustee to accept a direct transfer of plan assets on
behalf of an Employee prior to the date the Employee satisfies the
Plan's eligibility conditions. If the Employer directs the Trustee to
accept a direct transfer of plan assets, the Committee and Trustee
must treat the Employee as a Participant for all purposes of the Plan
except that the Employee is not a Participant for purposes of sharing
in Employer Contributions or Participant Forfeitures under the Plan
until the Employee actually becomes a Participant in the Plan.
The Employer may not consent to, or be a party to, any merger or
consolidation with another plan or to a transfer of assets and
liabilities to another plan, unless, immediately after the merger,
consolidation or transfer the surviving plan provides each Participant
a benefit equal to or greater than the benefit each Participant would
have received had the plan terminated immediately before the merger,
consolidation or transfer.
17.3. Certain Rollovers, Mergers and Direct Transfers Prohibited
Notwithstanding any contrary provision, neither the Employer nor the
Trustee, after August 9, 1988, may consent to or be a party to a
rollover, merger, consolidation or transfer of assets from a qualified
plan which is required to provide benefits in the form of a joint and
survivor annuity under Code Section 417, except with respect to an
Elective Transfer, or unless the transferred benefits are in the form
of paid-up individual annuity contracts guaranteeing the payment of
the transferred benefits under the terms of the transferor plan and in
a manner consistent with the Code and ERISA. The Employer will direct
the Trustee to hold, administer and distribute the transferred assets
as a part of the Trust Fund and to maintain a separate Employer
Contribution Account for the benefit of the Employee on whose behalf
the Trustee accepted the transfer to reflect the value of the
transferred assets.
Unless a transfer of assets to this Plan is an Elective Transfer, the
Plan will preserve all Code Section 411(d)(6) protected benefits with
respect to those transferred assets, in the manner described in
Section 11.2(c)(iii). A transfer is an Elective Transfer if: (a) the
transfer satisfies Section 17.2; (b) the transfer is voluntary, under
a fully informed election by the Participant; (c) the Participant has
an alternative that retains his or her Code Section 411(d)(6)
protected benefits, including an option to leave the benefit in the
transferor plan, if that plan is not terminating; (d) the transfer
satisfies the applicable spousal consent requirements of the Code; (e)
the transferor plan satisfies the joint and survivor notice
requirements of the Code, if the Participant's transferred benefit is
subject to those requirements; (f) the Participant has a right to
immediate distribution from the transferor plan, in lieu of the
Elective Transfer; (g) the transferred benefit is at least the greater
of the single sum distribution provided by the transferor plan for
which the Participant is eligible or the present value of the
Participant's Accrued Benefit under the transferor plan payable at
that plan's normal retirement age; (h) the Participant has a one
hundred percent (100%) Nonforfeitable interest in the transferred
benefit; and (i) the transfer otherwise satisfies applicable Treasury
regulations. An Elective Transfer may occur between qualified plans
of any type.
If the Plan receives a direct transfer, by merger or otherwise, of
Elective Contributions, or amounts treated as Elective Contributions,
under a Plan with a Code Section 401(k) arrangement, the distribution
restrictions of Code Sections 401(k)(2) and 401(k)(10) continue to
apply to those transferred Elective Contributions.
* * * * * * *
72
<PAGE> 73
ARTICLE XVIII
Exclusive Benefit
18.1. Exclusive Benefit
Except as provided under this Article and Article III, the Employer
has no beneficial interest in any asset of the Trust and no part of
any asset in the Trust may ever revert to or be repaid to an Employer,
either directly or indirectly. Further, prior to the satisfaction of
all liabilities with respect to the Participants and their
Beneficiaries under the Plan, no part of the corpus or income of the
Trust Fund, or any asset of the Trust, may be used for, or diverted
to, purposes other than the exclusive benefit of the Participants or
their Beneficiaries. No amendment or revocation by the Employer of
this Section may cause or permit any portion of the Trust Fund to
revert to or become a property of the Employer.
18.2. Denial of Request for Initial Approval
Any contribution to the Trust Fund associated with this Plan is
conditioned on initial qualification of the Plan under applicable Code
Sections 401(a), 403(a) or 405(a) and of the exemption of the Trust
created under the Plan under Code Section 501(a). If the Commissioner
of the Internal Revenue Service, upon the Employer's request for
initial approval of this Plan and Trust, determines that the Plan is
not qualified or the Trust is not exempt, then the Trustee may return
to the Employer, within one (1) year after the date of final
disposition of the Employer's request for initial approval, any
contribution made by the Employer, and any increment attributable to
the contribution.
18.3. Mistake of Fact
Notwithstanding any contrary provision in this Agreement, if a
contribution is made by an Employer by a mistake of fact, the
contribution may be returned to the Employer within one (1) year after
the payment of the contribution. The amount of the mistaken
contribution is equal to the excess of (a) the amount contributed over
(b) the amount that would have been contributed had there not occurred
a mistake of fact. Earnings attributable to mistaken contributions
may not be returned to the Employer, but losses attributable thereto
shall reduce the amount to be returned.
18.4. Disallowance of Deduction
Notwithstanding any contrary provision in this Agreement, any
contributions by the Employer to the Plan and Trust are conditioned on
the deductibility of the contribution by the Employer under the Code.
To the extent any deduction is disallowed, the Employer, within one
(1) year following a final determination of the disallowance, whether
by agreement with the Internal Revenue Service or by final decision in
a court of competent jurisdiction, may demand repayment of the
disallowed contribution, and the Trustee shall return the contribution
within one (1) year following the disallowance. Earnings attributable
to excess contributions may not be returned to the Employer, but
losses attributable thereto shall reduce the amount to be returned.
18.5. Spendthrift Clause
Except as provided below, no Participant, Former Participant or
Beneficiary shall have the right to anticipate, assign or alienate any
benefit provided under the Plan and the Trustee will not recognize any
anticipation, assignment or alienation. Furthermore, a benefit under
the Plan is not subject to attachment, garnishment, levy, execution or
other legal or equitable process. All provisions of this Agreement
shall be for the exclusive benefit of those designated herein. These
restrictions shall not apply in the following case(s):
-- Participant Loans. If a Participant, Former Participant or
Beneficiary who has become entitled to receive payment of
benefits under this Agreement is indebted to the Trustee, by
virtue of a Participant Loan, the Committee may direct the
Trustee to pay the indebtedness and charge it against the
Individual Account of the Participant, Former Participant or
Beneficiary; provided that in the case of a married Participant,
the Participant's spouse must consent in writing to the
application of the Participant's benefits toward the repayment
and discharge of the Participant Loan.
73
<PAGE> 74
-- Distributions Pursuant to Qualified Domestic Relations Orders.
The Committee may direct the Trustee under the nondiscriminatory
policy adopted by the Committee to pay an Alternate Payee
designated under a Qualified Domestic Relations Order as defined
in Code Section 414(p) or any domestic relations order entered
before January 1, 1985 if payment of benefits pursuant to the
order has commenced as of that date. To the extent provided
under a Qualified Domestic Relations Order, a former spouse of a
Participant shall be treated as the spouse or surviving spouse
for all purposes of the Plan.
18.6 Termination
Upon termination of the Plan, in lieu of the distribution provisions
of Article X, the Committee will direct the Trustee to distribute each
Participant's Nonforfeitable Account Balance, in a single sum, as soon
as administratively feasible after the later of the termination of the
Plan or the receipt of a favorable determination letter from the
Office of the Key District Director, if an application is filed,
irrespective of the present value of the Participant's Nonforfeitable
Account Balance and whether the Participant consents to that
distribution. This paragraph applies only if:
(i) the Plan does not provide an annuity option;
(ii) the Plan is a profit sharing plan on its termination
date; and
(iii) as of the period between the Plan termination date and
the final distribution of assets, the Employer does
not maintain any other defined contribution plan
(other than an employee stock ownership plan).
For Participants or Beneficiaries who cannot be located upon Plan
termination, and whose Nonforfeitable Account Balance exceeds $3,500,
to liquidate the Trust, the Committee will purchase a deferred annuity
contract, distribute the benefits to an individual retirement account,
or transfer the account to an ongoing qualified plan of a Related
Employer. If the Committee distributes the lost Participant's or
Beneficiary's benefits to an individual retirement account or
purchases an annuity, and the Participant's or Beneficiary's
whereabouts remain unknown for the duration of the escheat period, the
benefits will ultimately escheat to the state under applicable state
law.
* * * * * * *
74
<PAGE> 75
ARTICLE XIX
Construction
19.1. Headings
The headings in this Agreement are for convenience only and shall not
be considered in construing this Agreement.
19.2. Context
In this Agreement, wherever the context of the Plan dictates, words
used in the masculine may be construed in the feminine, the plural
includes the singular and the singular includes the plural.
19.3. Employment Not Guaranteed
Nothing contained in this Agreement, or regarding the establishment of
the Plan or Trust, or any modification or amendment to the Agreement,
Plan or Trust, or in the creation of any Individual Account, or the
payment of any benefit, shall be construed as giving any Employee,
Participant or Beneficiary whomsoever any right to continue in the
Service of the Employer, any legal or equitable right against the
Committee, against the Employer, its stockholders, officers or
directors or against the Trustee, except as expressly provided by the
Agreement, the Plan, the Trust, ERISA or by separate agreement.
Employment of all persons by the Employer shall remain subject to
termination by the Employer to the same extent as if this Agreement
had never been executed.
19.4. State Law
This Agreement and each of its provisions shall be construed and their
validity determined by the laws of the State of Texas and applicable
Federal law to the extent Federal statute supersedes Texas law.
19.5. Parties Bound
This Agreement shall be binding on all persons entitled to benefits
under the Plan, their respective heirs and legal representatives, on
the Employer, its successors and assigns, and on the Trustee, the
Committee and their successors.
* * * * * * *
75
<PAGE> 76
IN WITNESS WHEREOF, the Plan Sponsor, THE MORNINGSTAR GROUP INC., has
caused this instrument to be executed on this _____________ day of
________________________________, 19_________.
EMPLOYER:
THE MORNINGSTAR GROUP INC.
By:_____________________________________
President
76
<PAGE> 1
EXHIBIT 13
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company has presented information in its Consolidated Statements of
Operations in a manner which delineates the results of those operations
designated as Remaining Operations and of those operations designated as
Divested Operations. Net sales from Remaining Operations are further classified
into three categories: (i) Branded Specialty Products, which include historical
sales of the Company's four nationally branded products -- International
Delight(R), Second Nature(R), Naturally Yours(TM) and Lactaid(R); (ii) Other
Specialty Products, which includes all sales of the Company's specialty foods
business other than Branded Specialty Products; and (iii) Velda and Other,
which includes sales of the Company's regional dairy located in Florida (Velda
Farms) and sales of the Company's other miscellaneous operations.
Throughout the following discussions, the results of operations for the
two-month period ended February 28, 1991 and the ten- month period ended
December 31, 1991 have been combined when compared to other annual periods in
order to provide meaningful comparisons.
The Company sold its Texas novelty/ice cream operation in July 1991 and
closed its Missouri novelty/ice cream operation in October 1991. The Company
completed the sales of its Maryland regional dairy (Embassy) and ice cream
(East Coast Ice Cream) operations in July 1992. The Company acquired Favorite
Foods Inc. ("Favorite") on March 31, 1993. Favorite is a cultured products and
ultrapasteurized processor headquartered in Fullerton, California which
recorded approximately $31 million in sales during the nine months ended
December 31, 1993. The results of operations for each respective period
presented includes such operations only for the periods that such operations
were owned or open for business, as the case may be.
On January 6, 1994, the Company announced a restructuring plan to sharpen
its focus on the faster-growing value-added segments of its core specialty food
products business, while reorganizing its operations to be more efficient. The
plan, which resulted in a $9 million charge in the fourth quarter, includes
provisions for reductions in workforce, relocation of the manufacturing for
certain product lines to gain operating efficiencies, and the abandonment of
other product lines. The charge also included $1.9 million representing the
excess of the book value of operating assets sold in 1991 and 1992 over their
estimated realizable value. The $9 million charge includes noncash expenses of
$4.4 million and future cash expenses of $4.6 million. Most of the cash
expenditures will occur during 1994. Management believes this plan, which is
already being implemented, will result in cost reductions in 1994 in the $5
million range.
The Company has also suspended the payment of the current nominal
dividend on its common stock immediately following the $.0375 per share payment
to holders of record as of December 31, 1993.
The Company also announced that on January 5, 1994, it had signed a
letter of intent to sell the stock of its wholly owned subsidiary, Velda Farms
Inc. ("Velda") for $48 million, of which $45 million is expected to be in cash
at closing. A gain is expected on the sale. When the sale is consummated, the
Company will have completed its divestiture of regional dairies and these
operations will be treated as discontinued operations. There can be no
assurance that this sale will be consummated or that the net proceeds will be
realized.
1993 COMPARED TO 1992
Net sales for the year ended December 31, 1993 totaled $396.7 million, a
decrease of $14.0 million (or 3.4%) from sales during 1992. The following
table reflects net sales by product category for each year:
9
<PAGE> 2
<TABLE>
<CAPTION>
Year Ended Year Ended
Product Categories December 31, December 31,
------------------ 1992 1993
---------- -----------
(Dollars in Thousands)
<S> <C> <C>
Branded products . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,401 $ 82,556
Other specialty products . . . . . . . . . . . . . . . . . . . . . . . 162,819 191,883
Velda and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,126 122,229
---------- -----------
Remaining operations . . . . . . . . . . . . . . . . . . . . . . 351,346 396,668
Divested operations . . . . . . . . . . . . . . . . . . . . . . . . . . 59,285 -
---------- -----------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 410,631 $ 396,668
========== ===========
</TABLE>
Net sales of branded products increased 22.5% to $82.6 million in
1993 from $67.4 million in 1992 reflecting volume increases in International
Delight, Lactaid and Naturally Yours. Second Nature volumes declined slightly
year to year. Net sales of other specialty products increased to $191.9
million in 1993 from $162.8 million in 1992 primarily as the result of the
acquisition of Favorite Foods on March 31, 1993. Volumes of specialty products
prior to the Favorite acquisition increased slightly year to year. Net sales
in the Velda and other category rose 0.9% reflecting relatively little change
in sales volumes period to period.
Net sales from Divested Operations were $59.3 million in 1992. These
sales include the Company's former regional dairy in Maryland (Embassy) and the
Company's former novelty/ice cream operation in Maryland (East Coast Ice
Cream), both of which were sold in July 1992.
Gross profit totaled $93.7 million or 23.6% of net sales during 1993
compared to $100.9 million or 24.6% of net sales in 1992. The gross profit
decrease was due to reduced margins in the Company's branded and other
specialty products categories resulting primarily from increased raw material
and overhead costs which could not be entirely recouped through pricing
improvements.
Operating expenses were $84.9 million or 21.4% of net sales in 1993
(including $9.0 million in restructuring and other charges) compared to $82.0
million (including other charges of $3.2 million) or 20.0% of net sales in
1992. Operating expenses before these charges were $75.9 million or 19.1% in
1993 compared to $78.7 million or 19.2% in 1992. Distribution expenses
declined as a percentage of net sales due to the shift away from regional dairy
operations. Selling expenses rose as a percentage of net sales primarily as a
result of increased advertising and promotion activities related to increased
sales of branded products. General and administrative expenses declined
slightly.
The Company's operating income for 1993 was $8.8 million, which includes
$10.7 million relating to Remaining Operations, a decline of $10.1 million from
1992. The decline in operating income was the result of the increase in
restructuring and other charges and the decrease in gross profit margins. Prior
to restructuring and other charges, the Company's operating income declined
from $22.1 million in 1992 to $17.8 million in 1993.
Interest expense declined 31.0% from $9.3 million in 1992 to $6.4 million
in 1993 primarily as the result of decreased indebtedness levels and lower
average borrowing costs during 1993.
The Company's net profit for 1993 of $.8 million compares to a net loss
in 1992 of $10.7 million. Included in the net loss for 1992, the Company
recorded an extraordinary loss of $5.7 million on the purchase of subordinated
debentures at a premium and charged $14.5 million of previously incurred
financing costs to expense as a result of refinancing its senior debt agreement
during 1992.
1992 COMPARED TO 1991.
Net sales for the year ended December 31, 1992 totaled $410.6 million, a
decrease of $68.9 million (or 14.4%) from sales during 1991. The following
table reflects net sales by product category for each year:
10
<PAGE> 3
<TABLE>
<CAPTION>
Product Categories Combined Year Ended
------------------ 1991 December 31,
Periods 1992
---------- -----------
(Dollars in Thousands)
<S> <C> <C>
Branded products . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,610 $ 67,401
Other specialty products . . . . . . . . . . . . . . . . . . . . . . . 160,725 162,819
Velda and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,402 121,126
---------- -----------
Remaining operations . . . . . . . . . . . . . . . . . . . . . . 319,737 351,346
Divested operations . . . . . . . . . . . . . . . . . . . . . . . . . . 159,722 59,285
---------- -----------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 479,459 $ 410,631
========== ===========
</TABLE>
Net sales of branded specialty products increased by 51.1%, to $67.4
million in 1992 from $44.6 million in 1991. This improvement was accomplished
primarily through increased sales volume of International Delight and Second
Nature. Net sales of other specialty products increased to $162.8 million in
1992 from $160.7 million in 1991, primarily as the result of increased sales
volume for cultured products. Net sales in the Velda and other category
increased 5.9% to $121.1 million in 1992 from $114.4 million in 1991, as a
result of both price increases that reflected higher bulk milk costs and
increased sales volumes.
Net sales from Divested Operations declined by 62.9% to $59.3 million in
1992 from $159.7 million in 1991 primarily as a result of the divestitures
described above. Sales from Divested Operations during 1992 include the
Company's regional dairy in Maryland (Embassy) and the Company's novelty/ice
cream operation in Maryland (East Coast Ice Cream) both of which were divested
in July 1992.
Gross profit totaled $100.9 million or 24.6% of net sales during 1992
compared to $118.1 million or 24.6% of net sales from Remaining Operations for
1991. Gross profit from Remaining Operations was $86.4 million or 24.6% of net
sales from Remaining Operations during 1992 compared to approximately $78.1
million or 24.4% of net sales from Remaining Operations for 1991. This gross
profit increase was the result of increased sales in all segments of the
Company's Remaining Operations. Gross margins for Remaining Operations
increased slightly over 1991 as a result of margin increases in the branded
products, offset by margin declines in Velda and certain other specialty
product categories.
Operating expenses were $82.0 million or 20.0% of net sales in 1992
compared to $99.1 million or 20.7% of net sales in 1991. Both years included
plant closing costs and other charges. As adjusted for these charges, operating
expenses were $78.7 million or 19.2% of net sales during 1992 while operating
expenses were $97.6 million or 20.4% of net sales for 1991. Distribution
expenses declined as a percent of net sales due to a shift away from regional
dairy operations that have higher distribution expenses. Selling expenses
increased as a percent of net sales primarily as the result of increased
advertising and promotional activities related to the sales of branded
specialty products. General and administrative expenses rose slightly as a
percentage of sales due to the allocation of relatively fixed corporate
overhead costs across a significantly lower net sales base.
The Company's operating income for 1992 was $18.9 million, a slight
decrease from 1991 operating income of $19.0 million. Operating income from
Remaining Operations was $21.0 million or 6.0% of net sales from Remaining
Operations for 1992 compared to operating income from Remaining Operations of
approximately $20.5 million or 6.4% of net sales for 1991. The Company's
increased operating income from Remaining Operations resulted from significant
sales gains in branded specialty food products, offset by the lower gross
margins at Velda Farms as compared to 1991, and increases in selling and
administrative expenses.
Interest expense declined by 45.3% to $9.3 million in 1992 from $17.1
million in 1991 as a result of the significant reduction in the Company's
indebtedness accomplished by using the net proceeds of the Company's public
stock offering and the divestitures. Interest rates on the Company's senior
floating rate debt also declined during 1992, which further reduced interest
expense for 1992 when compared to 1991.
The Company recorded a net loss for 1992 of $10.7 million compared to net
income of $57.7 million in 1991. The Company's 1991 net income included a
benefit of $58.1 million resulting from an extraordinary gain on the purchase
of subordinated debt at a discount. Included in the net loss for 1992, the
Company recorded an extraordinary loss of $5.7 million on the purchase of
subordinated debt at a premium and charged $14.5 million of previously incurred
financing costs to
11
<PAGE> 4
expense as a result of refinancing its senior debt agreement in 1992. The
Company expects its 1993 federal income tax obligation to be substantially
eliminated as a result of its net operating losses.
EARNINGS PER SHARE
The weighted average common shares outstanding has increased from
12,128,343 in 1992 to 15,011,607 in 1993, primarily as the result of the
Company's initial public offering in April 1992. Prior to the offering, fewer
shares were outstanding thereby lowering the average for 1992.
LIQUIDITY AND CAPITAL RESOURCES
In 1993, the Company generated cash of $16.7 million from its operating
activities, which, coupled with $41.7 million received from the issuance of
debt and reduced cash balances of $.5 million, was used to acquire Favorite
Foods for $30.0 million, to repay debt of $18.2 million, fund capital and other
expenditures of $8.6 million and pay dividends of $2.1 million on its common
stock
The Company announced on January 6, 1994, that it had signed a letter of
intent to sell the stock of its wholly owned subsidiary, Velda, for $48
million, of which $45 million is expected to be in cash at closing. The
current estimate of net cash proceeds after payment of expenses and taxes due
upon the sale is approximately $39.0 million. The current Senior Credit
Agreement requires that 50% of the proceeds be applied to the outstanding term
loan as a mandatory prepayment, 25% of such payment to be applied to the final
maturities of the term loan and 75% of such payment to be applied pro rata
across all remaining maturities. The Company expects that upon receipt of such
proceeds, it will seek an amendment to its existing Senior Credit Agreement to,
at a minimum, adjust the remaining amortization schedule of the term loan.
There can be no assurance that this sale will be consumated or that the
estimated net proceeds will be realized.
The Company believes that, taking into account this potential
divestiture, cash generated from its operations, together with borrowings under
the Revolver will provide the cash necessary to fund the Company's operations,
cash restructuring expenditures, debt service and capital expenditures for the
foreseeable future. The Company estimates that prior to the potential Velda
transaction, it would require cash of $26.8 million during 1994 to fund $4.6
million in cash restructuring expenses, $6.0 million in capital spending,
approximately $14.7 million in senior bank debt reduction, $.5 million for
common stock dividends and $1.0 million for expected working capital increases;
funding would be obtained from operations and short term borrowings, if
necessary. At December 31, 1993, the Company had approximately $8.1 million of
unused borrowing capacity under the Revolver. The Company discontinued the
payment of its common stock dividend following the payment of its quarterly
dividend of $.0375 per common share to holders of record as of December 31,
1993.
Due to the recording of the restructuring and other charges, it was
necessary for the Company to obtain a waiver of the net worth covenant as of
December 31, 1993. The Company was in compliance with all other financial
covenants as of that date. As previously stated, the Company intends to amend
its Senior Credit Agreement upon completion of the sale of Velda at which time
it intends to reset future financial covenants. If the Velda transaction is
not completed, certain covenants may require future amendment or waiver.
The Company's consolidated balance sheet includes significant goodwill
and intangible assets as a result of its financial restructuring on March 1,
1991, and the subsequent acquisition of Favorite. The Company continually
evaluates whether events and circumstances indicate the remaining estimated
useful life of goodwill warrants revision or that the remaining balance of
goodwill may not be recoverable. To make this evaluation the Company uses an
estimate of undiscounted net income over the remaining life of the goodwill.
12
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
The Morningstar Group Inc.:
We have audited the accompanying consolidated balance sheets of The
Morningstar Group Inc. (a Delaware corporation) and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for The Morningstar Group Inc.
and subsidiaries for the years ended December 31, 1993 and 1992 and for the ten
months ended December 31, 1991, and for the Predecessor Company for the two
months ended February 28, 1991. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Morningstar
Group Inc. and subsidiaries as of December 31, 1993 and 1992, and the results
of operations and cash flows for The Morningstar Group Inc. and subsidiaries
for the years ended December 31, 1993 and 1992 and for the ten months ended
December 31, 1991 and for the Predecessor Company for the two months ended
February 28, 1991, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Dallas, Texas,
February 11, 1994
13
<PAGE> 6
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1992 1993
------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,851 $ 3,343
Receivables, net of allowance for doubtful accounts of $419
and $1,147, respectively . . . . . . . . . . . . . . . . . . . . . . . 30,587 36,621
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,784 15,127
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,986 9,966
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . 52,208 65,057
PROPERTY, PLANT AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,435 9,765
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 17,925 22,557
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 29,682 37,807
-------------- --------------
Gross property, plant and equipment . . . . . . . . . . . . . 54,042 70,129
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . (8,979) (13,882)
-------------- --------------
Net property, plant and equipment . . . . . . . . . . . . . . 45,063 56,247
INTANGIBLE AND OTHER ASSETS:
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . 2,340 3,177
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,801 90,114
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . 2,771 3,099
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,802 2,778
-------------- --------------
Total intangible and other assets . . . . . . . . . . . . . . 90,714 99,168
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 187,985 $ 220,472
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE> 7
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1992 1993
------------------------------------ --------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,248 $ 24,417
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,336 19,434
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . 10,167 14,750
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 41,751 58,601
LONG-TERM DEBT (net of current maturities) . . . . . . . . . . . . . . . . . . 86,329 105,425
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 4,126 1,913
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . .
STOCKHOLDERS' EQUITY :
Common stock, $.01 par value, 50,000,000 shares authorized;
14,258,012 in 1992 and 14,287,212 in 1993 issued and outstanding . . . . . 143 143
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . 69,467 69,541
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,831) (15,151)
-------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 55,779 54,533
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . $ 187,985 $ 220,472
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
15
<PAGE> 8
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Predecessor Successor
------------- ----------------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
Remaining operations . . . . . . . . . . . . $ 48,795 $ 270,942 $ 351,346 $ 396,668
Divested operations . . . . . . . . . . . . 24,403 135,319 59,285 -
------------ ------------ ------------ ------------
Total net sales . . . . . . . . . . 73,198 406,261 410,631 396,668
COST OF GOODS SOLD . . . . . . . . . . . . . . 55,186 306,134 309,769 302,987
------------ ------------ ------------ ------------
GROSS PROFIT:
Remaining operations . . . . . . . . . . . 12,302 65,809 86,444 93,681
Divested operations . . . . . . . . . . . 5,710 34,318 14,418 -
------------ ------------ ------------ ------------
Total gross profit . . . . . . . . . 18,012 100,127 100,862 93,681
OPERATING COSTS AND EXPENSES:
Distribution . . . . . . . . . . . . . . . . 9,242 47,095 40,505 35,576
Selling . . . . . . . . . . . . . . . . . . 3,228 15,271 18,350 21,660
General and administrative . . . . . . . . . 4,021 18,764 19,875 18,679
Restructuring and other charges . . . . . . - 1,500 3,227 9,000
------------ ------------ ------------ ------------
Total operating costs and expenses . 16,491 82,630 81,957 84,915
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS):
Remaining operations . . . . . . . . . . . . 2,631 17,884 20,955 10,666
Divested operations . . . . . . . . . . . . (1,110) (387) (2,050) (1,900)
------------ ------------ ------------ ------------
Total operating income . . . . . . . 1,521 17,497 18,905 8,766
INTEREST EXPENSE . . . . . . . . . . . . . . . 2,403 14,647 9,320 6,429
AMORTIZATION AND WRITE-OFF OF DEFERRED
FINANCING COSTS . . . . . . . . . . . . . . . 716 2,990 1,391 747
REFINANCING CHARGES . . . . . . . . . . . . . . - - 14,521 -
OTHER INCOME . . . . . . . . . . . . . . . . . (505) (2,217) (1,355) (1,279)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . (1,093) 2,077 (4,972) 2,869
PROVISION FOR INCOME TAXES . . . . . . . . . . - 1,350 27 1,885
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM . . . . . . . . . . . . . . . . . . . . (1,093) 727 (4,999) 984
EXTRAORDINARY ITEM . . . . . . . . . . . . . . 58,115 (a) - (5,676)(b) (164)(c)
------------ ------------ ------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . 57,022 727 (10,675) 820
LESS: DIVIDENDS ON PREFERRED STOCK . . . . . . - 1,875 939 -
------------ ------------ ------------ ------------
NET INCOME (LOSS) TO COMMON
STOCKHOLDERS . . . . . . . . . . . . . . . . $ 57,022 $ (1,148) $ (11,614) $ 820
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary item . $ (.12) $ (.15) $ (.49) $ .06
Extraordinary gain (loss) . . . . . . . . . 6.57 - (.47) (.01)
------------ ------------ ------------ ------------
Earnings (loss) . . . . . . . . . . . . . . $ 6.45 $ (.15) $ (.96) $ .05
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . 8,843,301 7,825,473 12,128,343 15,011,607
</TABLE>
____________________________________
(a) Gain on purchase of senior subordinated debentures, net of applicable
taxes of $904,000.
(b) Loss on purchase of senior subordinated debentures, net of applicable
taxes of $0.
(c) Loss on purchase of senior subordinated debentures, net of applicable tax
benefit of $71,000.
The accompanying notes are an integral part of these consolidated statements.
16
<PAGE> 9
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock and
Additional Paid-in-Capital
---------------------------------
Preferred Single Retained
Stock Class A Class B Class Deficit Total
---------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance, January 1, 1991 . . . . . . . . $ 17,307 $ 6,587 $ 2,372 $ - $(78,600) $ (52,334)
Net Income . . . . . . . . . . . . . . . - - - - 57,022 57,022
---------- ---------- ---------- --------- --------- ----------
Balance, February 28, 1991 . . . . . . . $ 17,307 $ 6,587 $ 2,372 $ - $(21,578) $ 4,688
========== ========== ========== ========= ========= ==========
SUCCESSOR:
Balance March 1, 1991 . . . . . . . . . $ - $ - $ - $ - $ - $ -
Issuance of common stock, March 1, 1991 - 15,421 2,815 - - 18,236
Dividends on redeemable preferred stock
($3.125 per share) . . . . . . . . . - - - - (1,875) (1,875)
Net Income . . . . . . . . . . . . . . . - - - - 727 727
---------- ---------- ---------- --------- --------- ----------
Balance, December 31, 1991 . . . . . . . - 15,421 2,815 - (1,148) 17,088
Dividends on redeemable preferred stock - - - - (939) (939)
($1.565 per share)
Conversion to single class of stock . . - (15,421) (2,815) 18,236 - -
Issuance of common stock . . . . . . . . - - - 50,281 - 50,281
Vesting of stock options . . . . . . . . - - - 1,093 - 1,093
Cash dividends on common stock . . . . . - - - - (1,069) (1,069)
($.075 per share)
Net Loss . . . . . . . . . . . . . . . . - - - - (10,675) (10,675)
---------- ---------- ---------- --------- --------- ----------
Balance, December 31, 1992 . . . . . . . - - - 69,610 (13,831) 55,779
Issuance of common stock . . . . . . . . - - - 74 - 74
Cash dividends on common stock . . . . . - - - - (2,140) (2,140)
($.15 per share)
Net Income . . . . . . . . . . . . . . . - - - - 820 820
---------- ---------- ---------- --------- --------- ----------
Balance, December 31, 1993 . . . . . . . $ - $ - $ - $ 69,684 $(15,151) $ 54,533
========== ========== ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
17
<PAGE> 10
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
------------- -------------------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from customers . . . . . . . $ 75,152 $ 414,400 $ 403,815 $ 396,095
Interest received . . . . . . . . . . . . 4 108 194 238
Income tax refund . . . . . . . . . . . . - - - 6
Cash paid to suppliers and employees . . . (72,300) (373,615) (379,730) (372,949)
Interest paid . . . . . . . . . . . . . . (11,350) (14,575) (9,276) (6,240)
Income taxes paid . . . . . . . . . . . . - (678) (547) (453)
------------- ------------- ------------- --------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . (8,494) 25,640 14,456 16,697
CASH FLOWS FROM INVESTING ACTIVITIES:
Divestiture (acquisition) of the Company
and subsidiaries:
Working capital . . . . . . . . . . . . 28,922 (27,782) 10,974 (2,936)
Property, plant and equipment . . . . . 75,827 (52,893) 76 (12,255)
Other assets . . . . . . . . . . . . . 70,991 (113,725) (782) (15,190)
Notes and receivables due from buyer
of subsidiary . . . . . . . . . . . . - - (1,000) -
Other long term liabilities . . . . . . (47,028) 47,028 - 354
------------- ------------- ------------- --------------
128,712 (147,372) 9,268 (30,027)
Capital expenditures . . . . . . . . . . . (256) (3,128) (5,530) (5,520)
Proceeds from sale of assets . . . . . . . 108 2,634 3,324 209
Other . . . . . . . . . . . . . . . . . . (219) (2,060) (2,119) (3,245)
------------- ------------- ------------- --------------
Net cash provided by (used in)
investing activities . . . . . . . . 128,345 (149,926) 4,943 (38,583)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance (redemption) of preferred stock . - 15,000 (17,814) -
Issuance of common stock . . . . . . . . . - 18,236 50,281 74
Proceeds from issuance of long-term debt . 263 92,189 104,000 35,000
Net borrowings (repayments) under
revolving credit facility . . . . . . . (14,850) 9,500 500 6,675
Principal payments on long-term debt . . . (110,881) (5,070) (154,409) (18,231)
Refinancing fees . . . . . . . . . . . . . - - (3,140) -
Dividends paid . . . . . . . . . . . . . . - - (535) (2,140)
------------- ------------- ------------- --------------
Net cash provided by (used in)
financing activities . . . . . . . . (125,468) 129,855 (21,117) 21,378
NET INCREASE (DECREASE) IN CASH . . . . . . . (5,617) 5,569 (1,718) (508)
CASH, BEGINNING OF PERIOD . . . . . . . . . . 5,617 - 5,569 3,851
------------- ------------- ------------- --------------
CASH, END OF PERIOD . . . . . . . . . . . . . $ - $ 5,569 $ 3,851 $ 3,343
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE> 11
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS RECONCILIATION OF
NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
------------- ------------------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 57,022 $ 727 $ (10,675) $ 820
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATIONS:
Depreciation . . . . . . . . . . . . . 1,280 4,662 4,998 5,293
Amortization of other assets . . . . . 279 1,498 1,042 922
Amortization of intangibles . . . . . . 1,663 6,857 6,348 4,954
Amortization of original issue discount 14 544 218 -
Refinancing charges . . . . . . . . . . - - 15,671 -
Restructuring and other charges . . . . - 749 2,048 9,000
(Gain) loss on fixed asset retirements (22) 20 68 90
Increase in noncash taxes . . . . . . . - - - 1,040
(Gain) loss on extinguishment of debentures (59,019) - 5,676 164
Change in assets and liabilities net of
effects from acquisitions and
divestitures of subsidiaries:
Accounts receivable . . . . . . . . 1,306 5,530 (8,451) (2,111)
Inventories . . . . . . . . . . . . (3,539) 9,249 (2,615) (2,939)
Prepaids and other . . . . . . . . (653) 2,085 200 (2,970)
Accounts payable . . . . . . . . . 1,563 (5,614) 2,809 1,988
Other accrued liabilities . . . . . (8,393) 284 (3,560) 2,660
Other long-term liabilities . . . . 5 (951) 679 (2,214)
------------- ------------- ------------- --------------
Total adjustments . . . . . . (65,516) 24,913 25,131 15,877
NET CASH PROVIDED BY (USED IN)
OPERATIONS . . . . . . . . . . . . . . . $ (8,494) $ 25,640 $ 14,456 $ 16,697
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE> 12
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
BACKGROUND
The Morningstar Group Inc. (together with its subsidiaries, the
"Company", "Morningstar", or "Successor") was formed in March 1991. On
April 1, 1988, the Company's predecessor, MorningStar Foods Inc. ("MSF"),
acquired substantially all of the net assets and operations of the Dairy
Group of The Southland Corporation.
Due to a change of ownership, the Company adopted a new basis of
accounting on March 1, 1991. In accordance with generally accepted
accounting principles, the assets and liabilities of the Company were
adjusted to their appraised fair market values as of this date (see Note
3 -- "Financial Restructuring").
In the second quarter of 1992 the Company accomplished a public
offering of 5,000,000 new shares of common equity, which provided $50.3
million in net cash proceeds which, combined with $104.0 million in new
senior borrowings was utilized to purchase $34.0 million in face amount
of the Company's 13% Senior Subordinated Debentures at a cash premium of
$4.1 million, to redeem $17.8 million of the Company's preferred stock
and to refinance $98.4 million of previously outstanding senior debt.
The Company announced on January 6, 1994, a new growth strategy
which includes $9 million in restructuring and other charges, the pending
sale of Velda Farms Inc. ("Velda") for $48 million and the cessation of
the payment of its dividend on common stock. When the sale of Velda is
consummated, the Company will have completed its divestiture of regional
dairies and these operations will be treated as discontinued operations.
There can be no assurance that this sale will be consummated.
DIVESTITURES
The Company has made significant divestitures since its inception .
Those operating units divested or closed are referred to as the "Divested
Operations". As a result of the divestitures, the size and scope of the
Company's operations have been significantly changed. The Company has
presented information within its Consolidated Statements of Operations to
provide a clearer delineation of the results of the Divested Operations
from those operations designated to be retained (the "Remaining
Operations").
In 1991, the Company divested a novelty/ice cream operation in Texas
and closed a novelty/ice cream operation in Missouri. In 1992, the
Company divested a regional dairy operation and a novelty/ice cream
operation, both located in Maryland.
FAVORITE FOODS ACQUISITION
On March 31, 1993, the Company completed its purchase of Favorite
Foods, Inc., formerly a subsidiary of Nestle USA, Inc., for approximately
$28 million plus expenses. Simultaneously with the purchase, the
acquired corporation was merged into Favorite Foods Inc., a Delaware
corporation (collectively "Favorite"). Favorite, headquartered in
Fullerton, California, is a processor of cultured and ultrapasteurized
products and recorded approximately $31 million in sales during the nine
months ended December 31, 1993. Favorite's results are included in the
Consolidated Statement of Operations for the period April 1 through
December 31, 1993. The Company amended its senior credit agreement to
increase the term loan and borrowed funds thereunder to complete this
purchase.
20
<PAGE> 13
BUSINESS
The Company's Remaining Operations include its specialty operations
which manufacture and market food products that include nationally
branded products and other specialty, dairy-based cultured and
ultrapasteurized products. Remaining Operations also include Velda, a
leading supplier of dairy products to foodservice outlets and convenience
stores in Florida and a packaging operation located in Texas. The
packaging operation was sold in January 1994.
PRO FORMA RESULTS FROM REMAINING OPERATIONS
The following unaudited pro forma information is presented to
illustrate the estimated effects of and the elimination of non-recurring
charges related to: (i) the divestitures and closing of certain
operations during 1992; (ii) the completion of the May 1992 equity
offering and related financing and debenture purchase; (iii) the
acquisition of Favorite, as if each such transaction had occurred at
January 1, 1992; and (iv) the 1993 restructuring plan (see Note 6 -
"Restructuring and Other Charges") (dollars in thousands except per share
amounts):
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
------------------------------------
1992 1993
------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Pro forma net sales . . . . . . . . . . . . . . . . . . . . . . $ 394,403 $ 407,855
============= ============
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,716 $ 7,481
============= ============
Pro forma shares outstanding . . . . . . . . . . . . . . . . . 14,980,582 15,011,607
Pro forma earnings per share . . . . . . . . . . . . . . . . . $ 0.72 $ 0.50
============= ============
</TABLE>
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intracompany transactions and balances have been eliminated.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company sells in 49 states and 16 foreign countries,
with a concentration of customers located in Florida and California. The
Company performs ongoing credit evaluations of its customers' financial
condition. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information. The Southland Corporation
accounted for 21.9%, 13.8% and 5.8% of all net sales and 9.0%, 7.7% and
5.8% of net sales from Remaining Operations during 1991, 1992 and 1993,
respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------------------
1992 1993
---------- -----------
<S> <C> <C>
Raw materials and supplies . . . . . . . . . . . . . . . . . . . $ 5,413 $ 8,970
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 5,371 6,157
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,784 $ 15,127
========== ==========
</TABLE>
Finished goods inventories include the costs of materials, labor and
plant overhead.
21
<PAGE> 14
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is depreciated on a straight-line
basis over the estimated useful lives of the assets, as follows:
<TABLE>
<CAPTION>
Useful
Asset Category Life (Years)
-------------- ------------
<S> <C>
Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 10
Buildings and Improvements . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
Property sold or retired is eliminated from the accounts in the year
of disposition. Major expenditures for renewals and betterments are
capitalized while maintenance and repairs are charged against income.
IDENTIFIABLE INTANGIBLE ASSETS
Certain identifiable intangible assets related to the 1988 and 1991
acquisitions were amortized over their respective estimated useful lives
which ended in 1993. Additional identifiable intangible assets of
$4,168,000 were recorded in 1990 to reflect product purchase agreements
entered into with the buyers of certain divested operations; these assets
were retired in 1993. Identifiable intangible assets of $3,690,000
relating to the acquisition of Favorite were added in 1993, and are being
amortized over their estimated useful lives which is generally 5 years.
Amortization costs totaled $658,000 for the two months ended February
28, 1991, $2,169,000 for the ten months ended December 31, 1991,
$2,709,000 in 1992 and $2,060,000 in 1993. The 1993 amortization does
not include the write-down of certain identifiable intangibles associated
with the 1993 restructuring and other charges. Accumulated amortization
was $4,878,000 and $513,000 at December 31, 1992 and 1993, respectively.
GOODWILL
Goodwill is amortized on a straight-line basis over 40 years and is
recorded at cost less accumulated amortization. The Company continually
evaluates whether events and circumstances indicate the remaining
estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. To make this
evaluation, the Company uses an estimate of undiscounted net income over
the remaining life of the goodwill. For Divested Operations, the Company
writes off the applicable goodwill. Amortization costs totaled $289,000
for the two months ended February 28, 1991, $1,698,000 for the ten months
ended December 31, 1991, $2,248,000 in 1992 and $2,148,000 in 1993.
Accumulated amortization was $3,946,000 and $6,094,000 at December 31,
1992 and 1993, respectively.
DEFERRED FINANCING COSTS
Costs incurred that relate to the issuance of indebtedness and the
corresponding accumulated amortization are included in deferred financing
costs in the accompanying consolidated balance sheets. Deferred financing
costs related to existing debt are amortized over the life of the related
debt. Accumulated amortization was $451,000 and $1,198,000 at December
31, 1992 and 1993, respectively.
OTHER ASSETS
Cases and containers are used to transport milk, juices and other
products to customers and are reflected in other assets in the
accompanying consolidated balance sheets. Such amounts are amortized over
a period ranging from one to two years. Amortization of such costs
included in cost of goods sold was $241,000 for the two months ended
February 28, 1991, $1,325,000 for the ten months ended December 31, 1991,
$1,003,000 in 1992 and $922,000 in 1993.
22
<PAGE> 15
ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------------------
1992 1993
---------- -----------
<S> <C> <C>
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . $ 322 $ 390
Payroll & benefits (accrued wages, vacation, and
profit sharing) . . . . . . . . . . . . . . . . . . . . . . . . 4,179 4,308
Restructuring accruals . . . . . . . . . . . . . . . . . . . . . 450 4,425
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . 4,249 5,083
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . 2,136 5,228
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,336 $ 19,434
========== ==========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial position of the Company at December 31, 1993 includes
certain financial instruments which may have a fair value that is
different than that which is currently reflected on the financial
statements. However, any variation in value is insignificant.
SUPPLEMENTAL OPERATING INFORMATION
The Consolidated Statements of Operations segregate the Company's
net sales, gross profit and operating income (loss) between Remaining
Operations and Divested Operations. This information is obtained from
records that are maintained at each subsidiary.
In determining operating income for 1991, 1992, and 1993, expenses
of the corporate office were charged entirely against the Remaining
Operations. Amortization of goodwill and other identifiable intangibles
were also deducted from the operating income of Remaining Operations.
Plant closing and divestiture-related charges were charged to the
Divested Operations. The Company's profit sharing expense was allocated
between Remaining Operations and Divested Operations based on the amounts
contributed to each individual employee account. In 1992, compensation
expenses related to stock options were charged to Remaining Operations
(see Note 6 - "Restructuring and Other Charges"). In 1993, $7.1 million
of the restructuring provision related to continuing units and was
charged to Remaining Operations.
NET SALES
The Company recognizes revenue upon shipment to customers.
Intracompany sales principally between the "Other Specialty Products"
category and the "Velda and Other" and "Divested Operations" categories
have been eliminated. These intracompany sales totaled $6,589,000 for the
two months ended February 28, 1991, $32,987,000 for the ten months ended
December 31, 1991, $26,642,000 for 1992 and $38,409,000 for 1993.
INCOME TAXES
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," was issued in February 1992. The Company
elected to adopt the new standard effective January 1, 1992. The
adoption of SFAS 109 had no material effect on the Company's financial
statements.
OTHER INCOME
Other income primarily consists of purchase discounts and royalty
revenue.
EARNINGS (LOSS) PER COMMON SHARE
The earnings (loss) per common share is computed based on the
weighted average number of shares outstanding during the period
reflecting retroactively the 9 for 1 split that occurred on April 24,
1992 in conjunction with the Company's initial public equity offering.
The impact of stock options discussed in Note 9 has not been considered
in 1991 and 1992 because of their antidilutive effect.
23
<PAGE> 16
FINANCIAL STATEMENT PRESENTATION
Certain 1992 balances have been reclassified to conform to the 1993
presentation.
(3) FINANCIAL RESTRUCTURING
On March 1, 1991, the Company completed a comprehensive financial
restructuring of its capitalization (the "Financial Restructuring"). In
connection with the Financial Restructuring, a group of investors formed
by Hicks, Muse, Tate and Furst Incorporated ("Hicks Muse") acquired
shares of class A (voting) common stock representing approximately 80% of
the combined voting and non-voting common stock of the Company (assuming
full exercise of the Warrants) by purchasing for $30.0 million: (i)
650,000 shares of class A (voting) common stock, par value $.01 per
share; (ii) 600,000 shares of 15% Series A Exchangeable Preferred Stock,
par value $.01 per share (the "Preferred Stock"); and (iii) warrants to
purchase 150,000 additional shares of class A (voting) common stock at a
nominal exercise price (the "Warrants"). Hicks Muse is a privately held,
Dallas, Texas based investment firm engaged in acquisitions,
recapitalizations and strategic investments. Simultaneously with this
equity infusion, the Company obtained a new $140.0 million senior credit
facility. The Company used the $30.0 million received from the Hicks
Muse investment group and approximately $118.0 million borrowed under
this senior credit facility to: (i) purchase approximately $110.2 million
aggregate principal amount of the Company's 13% Senior Subordinated
Debentures Due 2000 ("Debentures") for $525 per $1,000 principal amount,
consisting of $460 in respect of principal and $65 in respect of accrued
and unpaid interest; (ii) repay outstanding balances under an existing
senior term loan of approximately $46.8 million and a revolving credit
facility of approximately $15.4 million; (iii) repay an outstanding
bridge loan from a then related party of approximately $11.8 million
(including amounts for accrued and unpaid interest); and (iv) pay costs
and expenses related to the Financial Restructuring of approximately
$16.0 million. In connection with the Financial Restructuring, the new
senior lenders received an aggregate of 150,000 shares of class B
(non-voting) common stock, representing approximately 15.0% of the
combined voting and non-voting common stock of the Company (assuming full
exercise of the Warrants). Existing stockholders received cash or class A
(voting) common stock representing in the aggregate, 5% of the combined
voting and non-voting common stock of the Company (assuming full exercise
of the Warrants). The common and preferred equity originally authorized
and issued in 1988 was canceled in the Financial Restructuring. Hicks
Muse's interest in the Company is held primarily through HMC/MorningStar,
L.P. ("HMCM"), a limited partnership, of which the general partner is HMC
Partners, L.P. The general partner of HMC Partners, L.P. is Hicks Muse.
(4) INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------
1991 1992 1993
-------- --------- ---------
<S> <C> <C> <C>
Current . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25 $ - $ 250
Deferred tax expense charged to goodwill . . . . . . . . . 1,175 - 1,085
State income tax . . . . . . . . . . . . . . . . . . . . . 150 27 550
-------- --------- --------
Provision for income taxes . . . . . . . . . . . . . . . . $ 1,350 $ 27 $ 1,885
======== ========= ========
</TABLE>
24
<PAGE> 17
Temporary differences and carryforwards which give rise to a
significant portion of net deferred income tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
At December 31,
---------------------------
1992 1993
---------- -----------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward . . . . . . . . . . . . . $ 10,800 $ 7,887
Accrued vacation . . . . . . . . . . . . . . . . . . . . . 690 811
Accrued workers' compensation . . . . . . . . . . . . . . 1,052 946
Restructuring reserves . . . . . . . . . . . . . . . . . . - 2,331
Other accrued expenses and reserves . . . . . . . . . . . 1,934 2,075
Other deferred tax assets . . . . . . . . . . . . . . . . 210 1,548
---------- ----------
Total deferred tax assets . . . . . . . . . . . . . . . . . 14,686 15,598
Deferred Tax Liabilities:
Accelerated depreciation and amortization . . . . . . . . 3,097 2,880
Other deferred tax liabilities . . . . . . . . . . . . . . 386 519
---------- ----------
Deferred income taxes . . . . . . . . . . . . . . . . . . 11,203 12,199
Valuation allowance . . . . . . . . . . . . . . . . . . . (11,203) (12,199)
---------- ----------
Long-term deferred income taxes, net . . . . . . . . . . . . $ - $ -
========== ==========
</TABLE>
Approximately $9.7 million of the deferred tax assets were created
prior to the Company's Financial Restructuring transaction (see Note 3 -
"Financial Restructuring"), and when utilized will result in a reduction
of goodwill associated with that transaction.
The provision (benefit) for income taxes was different than the
amount computed using the statutory income tax rate for the reasons set
forth in the following table (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------
1991 1992 1993
-------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) computed at statutory rate . . . . . . $ 706 $ (1,690) $ 975
State income taxes . . . . . . . . . . . . . . . . . . . . 150 27 363
Tax on non-deductible goodwill amortization . . . . . . . . 486 673 1,018
Net operating loss not recognized (recognized) . . . . . . - 1,017 (494)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 23
-------- --------- --------
Provision for income taxes . . . . . . . . . . . . . . . . . $ 1,350 $ 27 $ 1,885
======== ========= ========
</TABLE>
AVAILABILITY AND AMOUNT OF NET OPERATING LOSS CARRYFORWARDS
At December 31, 1993, the Company had pretax net operating loss
("NOL") carryforwards for federal income tax purposes of $23.2 million
which are available to offset future income tax liabilities. NOL
carryforwards expire by 2007.
25
<PAGE> 18
(5) LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
At December 31,
--------------------------
1992 1993
----------- -----------
<S> <C> <C>
Senior term loan . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,667 $ 100,500
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . 10,000 16,675
Industrial development revenue bonds . . . . . . . . . . . . . . . . 3,000 3,000
Senior subordinated debentures . . . . . . . . . . . . . . . . . . . 4,829 -
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . 96,496 120,175
Less: Current maturities . . . . . . . . . . . . . . . . . . . . . 10,167 14,750
----------- ----------
Long-term debt, net of current maturities . . . . . . . . . . . . . . $ 86,329 $ 105,425
=========== ==========
</TABLE>
Maturities of long-term debt at December 31, 1993, are as follows (in
thousands):
<TABLE>
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,750
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,625
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,500
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,500
1998 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,800
----------
Total maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,175
==========
</TABLE>
SENIOR TERM LOAN AND REVOLVING CREDIT FACILITY
In March 1993 in conjunction with the acquisition of Favorite Foods
Inc., the Company's existing credit agreement was amended and restated
(the "Senior Credit Agreement"). The Senior Credit Agreement includes a
six-year term loan (the "Term Loan") and a $30 million revolving credit
facility (the "Revolver"). At December 31, 1993, $16.7 million was
borrowed under the Revolver and approximately $5.2 million was issued
pursuant to letters of credit.
The Senior Credit Agreement also requires mandatory prepayments of
the loans under certain conditions such as the sale of assets, excess
cash flow, the issuance of new debt or equity and the receipt of certain
other cash proceeds.
The initial base interest rate on the Term Loan is the prime rate
plus .75% with reduction provided in the future for improved interest
coverage ratios (as defined in the Senior Credit Agreement). The initial
base interest rate on the Revolver is the prime rate plus .50% with
similar reduction provisions as those in the Term Loan. Both facilities
have alternative rate options based upon spread above the London
Interbank Offering Rate ("LIBOR"). At December 31, 1993, $100.5 million
in borrowings under the Term Loan were drawn at a weighted average
interest rate of 5.53%. At December 31, 1993, $16.7 million in
borrowings under the Revolver were drawn at a weighted average interest
rate of 5.33%. Borrowings under these lending facilities are secured by
virtually all of the assets of the Company. Up to $17 million in letters
of credit may be issued under the Revolver. As of December 31, 1993
approximately $8.1 million was additionally available to the Company
under the Revolver. A fee of 2% per year is charged on outstanding
letters of credit. A 0.5% per year commitment fee on uncommitted funds
is payable quarterly. The Revolver matures on March 20, 1999 coincident
with the scheduled maturity of the Term Loan. The Revolver commitment
will be reduced from $30 million to $25 million on June 20, 1994. The
Senior Credit Agreement contains numerous covenants pertaining to
management and operations of the Company including limitations on the
amount of annual dividends to be paid, limitations on the amount of
annual capital expenditures as well as specification of certain leverage
ratios, interest coverage ratios, fixed charge coverage ratios and
minimum net worth.
The Company announced on January 6, 1994, that it had signed a
letter of intent to sell the stock of its wholly owned subsidiary, Velda,
for $48 million, of which $45 million is expected to be in cash at
closing. The current estimate of net cash proceeds after payment of
expenses and taxes due upon the sale is approximately $39.0 million. The
current Senior Credit Agreement requires that 50% of the proceeds be
applied to the outstanding term loan as a mandatory prepayment, 25% of
such payment to be applied to the final maturities of the term loan and
75% of such
26
<PAGE> 19
payment to be applied pro rata across all remaining maturities. The
Company expects that upon receipt of such proceeds, it will seek an
amendment to its existing Senior Credit Agreement to, at a minimum,
adjust the remaining amortization schedule of the term loan. There can
be no assurance that this sale will be consumated or that the estimated
net proceeds will be realized.
Due to the recording of the restructuring charge, it was necessary
for the Company to obtain a waiver of the net worth covenant as of
December 31, 1993. The Company was in compliance with all other
financial covenants as of that date. As previously stated, the Company
intends to amend its Senior Credit Agreement upon completion of the sale
of Velda at which time it intends to reset future financial covenants.
If the Velda transaction is not completed, certain covenants may require
future amendment or waiver.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
The industrial development revenue bonds were issued on December 14,
1988 to fund the construction of a waste water treatment facility at the
Company's Frederick, Maryland processing plant. The bonds mature on
December 1, 2003, and bear interest that fluctuates weekly based upon
market factors. The interest rate in effect for these bonds on December
31, 1993 was 3.75%.
(6) RESTRUCTURING AND OTHER CHARGES
In contemplation of the sale of certain assets (see Note 1 -
"Organization and Business"), the Company recorded provisions in the ten
months ended December 31, 1991 Consolidated Statements of Operations
representing management's best estimate of the cost of restructuring. In
1992, additional losses were incurred as divestitures were completed and
compensation expense was recorded related to the accelerated vesting of
stock options in connection with the Company's initial public offering.
On January 6, 1994, the Company announced a restructuring plan to sharpen
its focus on the faster-growing value-added segments of its core
specialty food products business, while reorganizing its operations to be
more efficient. The plan, which resulted in a $9 million charge in the
fourth quarter, includes provisions for reductions in workforce,
relocation of the manufacturing for certain product lines to gain
operating efficiencies, and the abandonment of other product lines. The
$9 million charge includes noncash expenses of $4.4 million and future
cash expenses of $4.6 million. Most of the cash expenditures will occur
during 1994. Management believes this plan, which is already being
implemented, will result in cost reductions in 1994 in the $5 million
range. Approximately 100 employment positions are being eliminated as a
part of the 1993 restructuring plan. The relocation of product lines
impacts each of the Company's six specialty dairy facilities. The charge
also includes a $1.9 million representing the excess of book value of
operating assets sold in 1991 and 1992 over their estimated realizable
value.
The components of these charges include (in thousands):
<TABLE>
<CAPTION>
Ten Months Year Ended
Ended ----------------------------
December 31, December 31, December 31,
1991 1992 1993
------------ ------------ ------------
<S> <C> <C> <C>
Restructuring Charge
Consulting, severance and related personnel costs . . . $ - $ - $ 2,500
Relocation of product lines . . . . . . . . . . . . . . - - 3,600
Excess data processing conversion expenses . . . . . . - - 1,000
------------ ------------ ------------
Subtotal . . . . . . . . . . . . . . . . . . . . - - 7,100
Other Charges
Estimated operating loss on closed plant . . . . . . . 1,500 - -
Loss on divestitures . . . . . . . . . . . . . . . . . - 2,134 1,900
Compensation expense on stock options . . . . . . . . . - 1,093 -
------------ ------------ ------------
Subtotal . . . . . . . . . . . . . . . . . . . . 1,500 3,227 1,900
------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 1,500 $ 3,227 $ 9,000
============ ============ ============
</TABLE>
27
<PAGE> 20
(7) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company has adopted a defined contribution profit sharing plan
for the purpose of providing retirement benefits for eligible non-union
employees. At December 31, 1993, eligible employees totaled 775, of
which 609 were participants in the plan. Contributions are made by the
Company and by plan participants. Company contributions are allocated to
the participants on the basis of individual contributions, the age of the
participant and the number of years that the participant has been in the
plan. During 1993 the Company also contributed to two single-employer
and four multi-employer pension/retirement plans under the terms of
various union contracts, which covered 482 of its 1432 employees at
December 31, 1993. The number of union pension plans and the portion of
employees covered has varied from year to year. Contributions to these
pension plans are as follows (in thousands):
<TABLE>
<CAPTION>
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Defined contribution profit sharing plan $ 83 $ 667 $ 710 $ 637
Union pension plans . . . . . . . . . . 240 1,228 998 1,197
</TABLE>
POST-RETIREMENT BENEFIT PLANS
In December 1990, the Financial Accounting Standards Board issued a
new standard on accounting for post-retirement benefits other than
pensions. This new standard requires that the expected cost of these
benefits must be charged to expense during the years that the employees
render service. The cost of providing these benefits has been primarily
paid by non-union retirees and the Company's calculation of its
obligation is not material as of December 31, 1993.
The Company's union employees participate in various defined
contribution union plans that provide health care and other welfare
benefits during their employment and after retirement. Amounts charged to
expense and contributed to these health and welfare plans totaled
$576,000 for the two months ended February 28, 1991, $2,769,000 for the
ten months ended December 31, 1991, $2,175,000 for 1992 and $2,292,000 in
1993. Having made these payments, no remaining obligations exist for
these years under the union plans.
(8) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain plant facilities and related equipment
and vehicles under operating lease arrangements. Lease expense pursuant
to such arrangements was approximately $1,900,000 for the two months
ended February 28, 1991, $9,410,000 for the ten months ended December
31, 1991, $9,840,000 for 1992 and $8,860,000 for 1993.
The following is a summary of future minimum annual lease payments
under noncancelable operating lease obligations as of December 31, 1993
(in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,742
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,362
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,903
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,349
1998 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,976
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,332
==========
</TABLE>
28
<PAGE> 21
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, as amended, with
its Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer. The agreements describe the terms and conditions of employment
for each of these individuals and terminate on February 28, 1995, unless
terminated earlier due to death, disability or otherwise. In addition,
the agreements provide for the payment of approximately two and one-half
times the executive's then current salary if terminated without cause or
by each such executive after a change in control (as defined) or a
material change in the terms or duties of the executive's employment. For
the year ended December 31, 1993, the combined salaries and bonuses for
these executives was approximately $1.5 million.
LITIGATION
The Company has received a "target letter" dated December 31, 1991,
from the United States Department of Justice informing it that
Morningstar is a target of a federal grand jury investigation of
suspected bid-rigging and market allocation in the dairy industry in the
State of Texas. The investigation relates to activities conducted in the
fluid milk industry in Texas. Oak Farms and Cabell's (collectively the
"Texas Dairy Subsidiaries") were formed by the Company in March 1988 in
connection with the acquisition of substantially all of the assets of
Southland's dairy operations. The Texas Dairy Subsidiaries conducted
fluid milk operations in Texas and were sold to Southern Foods Group,
Inc. ("Southern Foods") in September 1990, which merged them into its
subsidiary, Schepps-Foremost, Inc.
The investigation by the Department of Justice is continuing, and
the scope and time of the conspiracies that may be alleged by the
government are uncertain. Based on the Company's internal investigation
to date and the advice of special counsel with respect to such matters,
the Company believes Morningstar should not be, and that Morningstar
should ultimately be removed as, a target given that (i) all of
Morningstar's Texas fluid milk operations were conducted through the
Texas Dairy Subsidiaries and (ii) the Company is not aware of any
evidence that any officers of Morningstar had any knowledge of or
participated in such alleged wrongdoings.
The Company has agreed to indemnify purchasers of its divested
operations with regard to certain potential liabilities arising out of
the acquisition of such operations. In connection therewith, the Company
has indemnified Southern Foods, the purchaser of the Oak Farms and
Cabell's dairy subsidiaries, against claims related to compliance with
environmental regulations and fair trade practices arising out of the
prior operation of Oak Farms and Cabell's through March 2000. The
Company is aware that Southern Foods may claim that the Company is
obligated to indemnify Southern Foods with respect to any illegal
activities which are found to occur prior to the sale of the Texas Dairy
Subsidiaries to Southern Foods.
The Company cannot accurately predict the outcome of the
government's investigation. However, based upon the information
available to the Company at this time, the Company believes that this
matter should not have a material impact on the Company's financial
position or future results of operations.
From time to time the Company is subject to other litigation in the
ordinary course of its business. In connection with the divestitures of
certain of the Company's operations, the Company assumed certain
obligations of indemnification, none of which is believed to be material
to the Company. The Company maintains insurance in respect of certain
losses that may result from its current or future operations. The
Company believes that the outcome of any existing litigation, after
considering the indemnities and insurance related to such litigation,
would not have a material impact on its operations.
(9) EQUITY
1991 STOCK OPTION PLAN
In March 1991, the Company established the 1991 Incentive and
Nonstatutory Stock Option Plan which provides for the issuance of options
to purchase 999,999 shares of common stock to key employees of the
Company. At December 31, 1993, 771,741 tenure options and 228,258
incentive options had been granted to employees. Upon completion of the
common stock offering in 1992, the incentive options became vested,
resulting in compensation expense of $1,093,000. Of the options
outstanding, 466,844 tenure options and 228,258 incentive options are
currently exercisable. The exercise price for all options granted was
$2.56 per share, which was the fair market value of the options at the
date of issue. The options expire ten years after the date of their
issuance.
29
<PAGE> 22
1992 STOCK OPTION PLAN
In July 1992, the Company established the 1992 Incentive and
Nonstatutory Option Plan which provides for the issuance of options to
purchase 181,818 shares of common stock to key employees of the Company.
At December 31, 1993, 160,000 options had been granted to employees.
The exercise price for all options granted is $9.00 per share, which was
the fair market value of the options at the date of issue. These options
become exercisable over a 3-year period. The options expire ten years
after the date of their issuance.
A summary of transactions for the years ended December 31, 1992 and
1993 is set forth in the following table.
<TABLE>
<CAPTION>
1991 Plan 1992 Plan
Number of Options Number of Options
----------------- -----------------
<S> <C> <C>
Outstanding at December 31, 1991 . . . . . . . . . . 999,999 -
Granted in 1992 . . . . . . . . . . . . . . . . . . - 150,000
-------------- --------------
Outstanding at December 31, 1992 . . . . . . . . . . 999,999 150,000
Granted in 1993 . . . . . . . . . . . . . . . . . . - 11,000
Cancelled in 1993 . . . . . . . . . . . . . . . . . - (1,000)
Exercised in 1993 . . . . . . . . . . . . . . . . . (29,000) -
-------------- --------------
Outstanding at December 31, 1993 . . . . . . . . . . 970,999 160,000
============== ==============
Exercisable at December 31, 1992 . . . . . . . . . . 467,064 -
============== ==============
Exercisable at December 31, 1993 . . . . . . . . . . 695,102 53,319
============== ==============
</TABLE>
(10) RELATED PARTY TRANSACTIONS
PREFERRED STOCK SALE
On September 17, 1991, HMCM and certain of its affiliates, including
Messrs. Hicks and Muse, (the "Hicks Muse Group"), collectively sold
532,500 shares of Preferred Stock, 205,932 shares of Common Stock and
133,125 Warrants (the "Preferred Stock Sale") to a group of investors
composed of Chemical Equity Associates ("CEA"), Wand/MorningStar
Investments, L.P. ("Wand"), RFE Investment Partners IV, L.P. ("RFE") and
First National Bank of Chicago, Trustee of the Institutional Venture
Capital Fund II ("Fund II", and together with Chemical, Wand and RFE the
"Preferred Buyers"). Messrs. Hicks and Muse are directors, officers and
controlling stockholders of Hicks Muse, the general partner of the
partnership that is the general partner of HMCM. Mr. Hicks resigned from
the Board of Directors of the Company on December 14, 1993. Mr. Muse is
a director of the Company.
The Company, in recognition of certain benefits received by it in
connection with the aforementioned sale of securities, agreed to pay the
reasonable out of pocket expenses, including attorneys fees, incurred by
the Hicks Muse Group and the Preferred Buyers in connection with such
transaction. The aggregate amount of such expenses was approximately
$522,000.
In May 1992, in connection with the public offering the Company
redeemed all its outstanding preferred stock, for which the Hicks Muse
Group was paid a total of $702,000. Mr. Tate, who is a director of the
Company, received approximately $5,000 for his preferred stock.
HICKS MUSE
The Company entered into a financial advisory agreement dated March
1, 1991, as amended, pursuant to which Hicks Muse has provided financial
advisory services to the Company in connection with the negotiation and
financing of the Financial Restructuring and will continue to provide
financial advisory services to the Company in the future. The term of
this agreement is ten years and will continue from year to year
thereafter unless terminated by either party. As compensation for such
services, the Company pays Hicks Muse a fee of $50,000 per quarter,
together with all reasonable expenses incurred in connection therewith.
During 1994 this quarterly fee will be $28,500 plus reasonable expenses.
The Company paid a total of $150,000 during 1991, $200,000 during 1992
and $200,000 during 1993 in quarterly fees and reimbursed Hicks Muse
approximately $39,000, $30,000 and $21,000 for expenses for each year,
respectively. Hicks Muse was also paid a fee of $420,000 relating to the
acquisition of Favorite.
30
<PAGE> 23
In connection with the Financial Restructuring, Hicks Muse was paid
approximately $3.0 million, of which $2,750,000 was paid in the first
quarter of 1991.
C. DEAN METROPOULOS
The Company entered into an advisory agreement dated October 1,
1993, pursuant to which C. Dean Metropoulos will provide advisory
services to the Company in implementing its new growth strategy and
accomplishing its 1993 restructuring plan. The term of this agreement is
three years and is cancelable by either party at any time. As
compensation for such services, the Company pays Mr. Metropoulos a
monthly fee of $20,833 plus all reasonable expenses incurred in
connection therewith. During 1993, the Company paid a total of $62,500
in monthly fees and reimbursed $25,000 in expenses pursuant to this
agreement.
(11) QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the years ended December 31,
1992 and 1993 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS:
Net Sales . . . . . . . . . . . . . 1992 $ 109,374 $ 121,267 $ 87,020 $ 92,970
1993 88,277 103,361 98,734 106,296
Gross profit . . . . . . . . . . . . 1992 27,998 29,709 19,176 23,979
1993 23,199 24,924 21,298 24,260
Net income (loss) before
extraordinary item . . . . . . . . 1992 201 (11,953) (a) 1,630 5,123
1993 1,949 2,670 560 (4,195) (b)
Extraordinary gain (loss) . . . . . . 1992 - (5,582) (94) -
1993 - (164) - -
Net income (loss) . . . . . . . . . . 1992 201 (17,535) (a) 1,536 5,123
1993 1,949 2,506 560 (4,195) (b)
PER COMMON SHARE:
Earnings (loss) before
extraordinary item . . . . . . . . 1992 $ (.07) $ (1.00) $ .11 $ .34
1993 .13 .18 .04 (.29)
Earnings (loss) . . . . . . . . . . . 1992 (.07) (1.46) .10 .34
1993 .13 .17 .04 (.29)
Cash dividends declared . . . . . . . 1992 - - .0375 .0375
1993 .0375 .0375 .0375 .0375
Market Price Range:
High . . . . . . . . . . . . . . . . 1992 $ - $ 11.00 $ 10.75 $ 11.75
Low . . . . . . . . . . . . . . . . . 1992 - 8.75 7.75 9.25
High . . . . . . . . . . . . . . . . 1993 13.00 11.25 10.75 10.00
Low . . . . . . . . . . . . . . . . . 1993 10.50 8.50 8.75 6.00
</TABLE>
______________________________________________
(a) Includes other charges of $2,311,000 and refinancing charges of
$14,518,000.
(b) Includes restructuring and other charges of $9,000,000.
31
<PAGE> 24
Selected Financial Data
1989 Through 1993
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Predecessor(a) Successor
----------------------------------- -------------------------------------
Two Ten
Months Months Year Year
Year Ended Ended Ended Ended Ended
December 31, February December December December
-------------------- 28, 31, 31, 31,
STATEMENTS OF OPERATIONS DATA 1989 1990 1991 1991 1992 1993
-------------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Remaining operations . . . . . . . $288,443 $319,356 $ 48,795 $270,942 $351,346 $396,668
Divested operations . . . . . . . 520,861 383,140 24,403 135,319 59,285 -
--------- --------- -------- -------- -------- --------
Total net sales . . . . . . . 809,304 702,496 73,198 406,261 410,631 396,668
Costs of goods sold . . . . . . . . 650,818 550,577 55,186 306,134 309,769 302,987
--------- --------- -------- -------- -------- --------
Gross profit:
Remaining operations . . . . . . . 55,530 70,111 12,302 65,809 86,444 93,681
Divested operations . . . . . . . 102,956 81,808 5,710 34,318 14,418 -
Operating costs and expenses:
Distribution . . . . . . . . . . . 96,935 85,689 9,242 47,095 40,505 35,576
Selling . . . . . . . . . . . . . . 20,689 19,709 3,228 15,271 18,350 21,660
General and administrative . . . . 32,263 30,141 4,021 18,764 19,875 18,679
Restructuring and other charges . . 12,076 3,510 - 1,500 3,227 9,000
--------- --------- -------- -------- -------- --------
Total operating costs and expenses 161,963 139,049 16,491 82,630 81,957 84,915
Operating income (loss):
Remaining operations . . . . . . . 7,501 17,022 2,631 17,884 20,955 10,666
Divested operations . . . . . . . . (10,978) (4,152) (1,110) (387) (2,050) (1,900)
Interest expense . . . . . . . . . . 37,003 35,082 2,403 14,647 9,320 6,429
Amortization . . . . . . . . . . . . 2,879 4,238 716 2,990 1,391 747
Refinancing charges . . . . . . . . . - - - - 14,521 -
Other (income) expense . . . . . . . (3,902) (4,143) (505) (2,217) (1,355) (1,279)
--------- --------- -------- -------- -------- --------
Income (loss) before income taxes . . (39,457) (22,307) (1,093) 2,077 (4,972) 2,869
Provision for income taxes . . . . . - - - 1,350 27 1,885
--------- --------- -------- -------- -------- --------
Income (loss) before extraordinary item (39,457) (22,307) (1,093) 727 (4,999) 984
Extraordinary item, net of tax . . . - - 58,115 (b) - (5,676) (c) (164) (d)
--------- --------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . (39,457) (22,307) 57,022 727 (10,675) 820
Dividends on preferred stock . . . . 1,731 1,904 - 1,875 939 -
--------- --------- -------- -------- -------- --------
Net income (loss) to common stockholders $(41,188) (24,211) $ 57,022 $ (1,148) $(11,614) $ 820
========= ========= ========= ======== ======== ========
Earnings (loss) per common and
equivalent share:
Before extraordinary item . . . . . $ (4.66) $ (2.74) $ (.12) $ (.15) $ (.49) $ .06
Extraordinary gain (loss) . . . . . - - 6.57 - (.47) (.01)
--------- --------- -------- -------- -------- --------
Net earnings (loss) . . . . . . . . $ (4.66) $ (2.74) $ 6.45 (b) $ (.15) $ (.96) (c) $ .05 (d)
Weighted average common and common
equivalent shares outstanding . . . 8,843,301 8,843,301 8,843,301 7,825,473 12,128,343 15,011,607
OTHER DATA
Depreciation . . . . . . . . . . . $ 15,267 $ 11,592 $ 1,280 $ 4,662 $ 4,998 $ 5,293
Amortization . . . . . . . . . . . 11,394 13,196 1,942 8,355 7,390 5,876
Capital expenditures . . . . . . . 7,163 2,754 256 3,128 5,530 5,520
BALANCE SHEET DATA
Working capital . . . . . . . . . . $ 38,875 $ 25,030 $ 23,817 $ 22,436 $ 20,624 $ 21,206
Total assets . . . . . . . . . . . 331,690 231,338 231,479 217,970 187,985 220,472
Current portion of long-term debt . 75,248 1,782 221 7,048 10,167 14,750
Long-term debt . . . . . . . . . . 213,622 225,527 167,294 132,794 86,329 105,425
Preferred stock . . . . . . . . . . 17,327 17,307 17,307 16,875 - -
Common stockholders' equity . . . . (47,334) (69,641) (12,619) 17,088 55,779 54,533
</TABLE>
________________________________
(a) The Company was formed in 1988 to acquire several regional dairies,
novelty/ice cream operations and specialty food operations. On March 1, 1991,
the Financial Restructuring resulted in a change in control of the Company.
The statements of operations data, other data and balance sheet data of the
predecessors and successor are not comparable due to the application of
purchase accounting in connection with the 1988 acquisition and 1991
Restructuring. See Note 1 to the Notes to Consolidated Financial Statements.
(b) The Company reported a net gain of $58.1 million on the purchase of
approximately $110.2 million in subordinated debt at a discount. See Note 3 to
the Notes to Consolidated Financial Statements.
(c) The Company reported a net loss of $5.7 million on the purchase of
approximately $34 million in subordinated debt at a premium. See Note 1 to the
Notes to Consolidated Financial Statements.
(d) Loss on purchase of senior subordinated debentures, net of applicable tax
benefit of $71,000.
32
<PAGE> 1
EXHIBIT 22
LIST OF SUBSIDIARIES
Avoset Food Corporation
Avoset International Ltd.
Bancroft Dairy Inc.
Bancroft Dairy Maryland Inc.
Favorite Foods Inc.
MSF Subsidiary Corporation
MStar Inc.
Star Specialty Foods Inc.
Velda Farms Inc.
