UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996 Commission File Number 33-54928
FF HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2506294
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7530 TIDEWATER DRIVE, NORFOLK, VIRGINIA 23505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (757) 480-6700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 No X
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 registrant is not aware of any trading activity in its voting
stock.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date. 41,480
shares of Class A common stock; 2,458,520 shares of Class B non-voting common
stock; 0.24 share of Class C common stock.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference
and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: N/A
<PAGE>
PART I
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD
LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE
THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING BUT
NOT LIMITED TO, THOSE FACTORS SET FORTH ELSEWHERE IN THIS REPORT. READERS ARE
CAUTIONED NOT TO PLACE UNDO RELIANCE ON THESE FORWARD LOOKING STATEMENTS, WHICH
REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF.
ITEM 1. BUSINESS
GENERAL
The registrant, FF Holdings Corporation ("FF Holdings"), was
incorporated in 1988 to effect the acquisition of Farm Fresh, Inc., a Virginia
corporation ("Farm Fresh") (FF Holdings and Farm Fresh are sometimes
collectively referred to in this report as the "Company"). Farm Fresh is a
Virginia supermarket chain operating in the Hampton Roads, metropolitan Richmond
and Shenandoah Valley areas of Virginia. Hampton Roads includes the cities of
Norfolk, Virginia Beach, Newport News, Williamsburg and certain surrounding
cities and counties. The Company operates 48 supermarkets with three formats: 35
combination stores operating primarily under the name "Farm Fresh", 9 super
warehouse stores operating under the name "Rack & Sack" and 4 stores marketed as
"3 Stores, 1 Roof" that combine an expanded perishables presentation, a super
warehouse store and an expanded discount drug store/pharmacy. The Company's
principal market is Hampton Roads, Virginia, where the Company operates 35 Farm
Fresh stores, 6 Rack & Sacks, and one store operated under the name 3 Stores, 1
Roof. Management believes that the Company`s share of traditional supermarket
sales in the Hampton Roads area is in excess of 35%.
FF Holdings is primarily owned by certain former members of the
Company's management (the "Management Investors"), 399 Venture Partners, Inc.
("Venture Partners"), an affiliate of Citicorp, and certain shareholders who
purchased FF Holdings Common Stock (as defined below) in connection with the
1992 Recapitalization (as defined below). FF Holdings has no assets other
than 100% of the common stock of Farm Fresh. See "Item 12. Security Ownership
of Certain Beneficial Owners and Management."
In October 1992, the Company effected a recapitalization plan (the
"Recapitalization") designed to increase operating flexibility by eliminating
Farm Fresh's then existing senior debt amortization requirements and deferring
annual cash debt service of FF Holdings. The Recapitalization included (i) the
issuance by Farm Fresh of $165.0 million aggregate principal amount of 12.25%
Senior Notes due 2000 (the "Senior Notes"); (ii) the issuance by FF Holdings of
14.25% Senior Notes due 2002 (the "Old Holdings Notes") and common stock
constituting 20% of the fully diluted beneficial ownership of FF Holdings for
aggregate gross proceeds of $50.0 million; (iii) the establishment by Farm Fresh
of a $25.2 million revolving credit facility (the "Old Revolving Credit
Facility"); and (iv) the conversion of FF Holdings' then existing 16.75% Junior
Subordinated Debentures due 2006 with a principal amount of $16.8 million and
then existing 16.75% Cumulative Preferred Stock with a face value of $1.7
million and cumulative dividends of $0.7 million, both issued primarily to the
Management Investors and Venture Partners, to approximately $19.2 million stated
value of new preferred stock of FF Holdings. The proceeds from the
Recapitalization transactions were used to repay then existing indebtedness and
to acquire five stores. In early 1993, FF Holdings completed an exchange offer
in which all of the purchasers of the Old Holdings Notes exchanged them for
14.25% Senior Notes due 2002 (the "Holding Company Notes"), the form and terms
of which are the same as the Old Holdings Notes except that the Holding Company
Notes have been registered under the Securities Act of 1933, as amended, and
therefore do not bear legends restricting their transfer.
On December 13, 1993, Farm Fresh, which then operated eight
combination stores in metropolitan Richmond, acquired 11 additional Richmond
supermarkets and one supermarket in Hampton Roads from Safeway, Inc. ("Safeway")
for $31.9 million, including the value of inventory at the stores (the "Safeway
Acquisition"). At that time, management believed that an expanded presence in
Richmond, particularly in light of the economies of scale that could be achieved
with advertising and marketing efforts, would allow the Company to successfully
compete in the combination store segment of the market. Simultaneously with the
Safeway Acquisition, Farm Fresh sold $36.0 million aggregate principal amount of
12.25% Senior Notes due 2000, Series A (the "Old Notes") in a private placement
for aggregate proceeds of $37.8 million and established a new $40 million
revolving credit facility (the "Revolving Credit Facility"). At the same time,
FF Holdings initiated a rights offering to its existing holders of FF Holdings'
Common Stock. In this offering, which closed on January 14, 1994, FF Holdings
issued 2,375,000 shares of its Class B Common Stock for $5 million in cash
proceeds (the "Equity Issuance"). Venture Partners purchased 1,845,869 of these
shares and certain of the other holders purchased the remaining 529,131 shares.
As a result of the Equity Issuance, FF Holdings has a total of 2,500,000 shares
of common stock outstanding. See "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
During May 1994, Farm Fresh completed an exchange offer in which all
of the purchasers of the Old Notes exchanged them for 12.25% Senior Notes due
2000, Series A (the "Series A Notes"), the forms and terms of which are the same
as the Old Notes, except that the Series A Notes were registered under the
Securities Act of 1933, as amended, and therefore do not bear legends
restricting their transfer. Farm Fresh's Senior Notes and Series A Notes are
referred to collectively in this Form 10-K as the "Notes."
In a transaction that closed in September 1995, the Company sold ten
supermarket locations to Hannaford Bros. Co. of Scarborough, Maine (the
"Hannaford Transaction"), most of which had been acquired by the Company in the
Safeway Acquisition. Management decided to sell these stores after concluding
that because of the competitive nature of the Richmond market, as well as the
increasingly competitive nature of the Hampton Roads market, it should shift its
emphasis in Richmond from combination stores to Rack & Sack operations because
of the relative scarcity of stores using the warehouse format in that area. In
addition, the proceeds of the sale allowed the Company to perform needed
remodeling and refurbishing of its stores in Hampton Roads. The sale included
seven stores operating under the name The Grocery Store, six of which were in
the metropolitan Richmond, Virginia area, and one in Charlottesville, Virginia.
The sale also included a store under construction in Richmond and certain assets
from two additional closed Richmond area stores. The gross proceeds from the
Hannaford Transaction were $28.4 million, including the value of inventory and a
license and noncompetition agreement.
STORE OPERATIONS
FARM FRESH STORES. Approximately 69.4% of the Company's fiscal 1996
sales were generated by its Farm Fresh stores. Farm Fresh stores average 33,300
square feet and carry approximately 40,000 individual items of inventory
("SKUs"). The Farm Fresh stores are designed to encourage one-stop shopping, and
typically offer a full line of traditional grocery items, carry selected higher
margin non-food items, and generally feature specialty departments such as salad
bars, delicatessens, floral shops, hot food shops, catering services, bakeries,
fresh seafood departments, video rentals, and, in most cases, prescription
pharmacies and full service branch banks. The stores' specialty departments are
designed to provide a high level of personal service. In 1996, specialty
departments generated 21.8% of sales and 29.1% of gross profit, respectively, at
Farm Fresh stores.
Farm Fresh is a leading advertiser among supermarkets in the Hampton
Roads region and uses weekly newspaper ads, special circulars, billboards, radio
and television. The Company's advertising stresses Farm Fresh's image as
"Virginia's Grocery Store," and emphasizes freshness, product variety and
certain specially priced products. Suppliers help to defray the cost of
advertising through cooperative advertising programs.
RACK & SACK STORES. In 1992, using its experience in operating
previous warehouse formats, the Company developed a new strategy for its super
warehouse stores. This strategy was designed to strengthen the Company's ability
to compete with warehouse clubs, military commissaries, deep discount drugstores
and mass merchandisers by featuring price sensitive grocery items at discount
prices. The Company operates its super warehouse stores under the name Rack &
Sack to highlight the discount nature of the super warehouse stores. To offer
the lowest prices to customers, Rack & Sack stores carry products purchased at
large discounts, causing store offerings to vary depending on product
availability. Rack & Sacks do not charge fees or restrict shopping to members as
do many warehouse clubs. Virtually all advertising reinforces Rack & Sack's
warehouse image.
The Company currently operates 9 super warehouse stores under the
name Rack & Sack, 6 in Hampton Roads, 1 in Richmond and 2 in the Shenandoah
Valley. Rack & Sacks average 55,000 square feet of selling space and carry
approximately 20,000 SKUs. Rack & Sacks operate at higher volumes but with less
customer service and lower margins compared to the Company's Farm Fresh stores.
In 1996, the Company's Rack & Sack stores generated approximately 21.7% of the
Company's total sales.
3 STORES, 1 ROOF. The Company markets 4 stores (one of which was
opened in 1997) as 3 Stores, 1 Roof, 1 in Hampton Roads, 2 in Richmond and 1 in
the Shenandoah Valley. The 3 Stores, 1 Roof average 69,000 square feet of
selling space and carry approximately 46,000 SKUs. 3 Stores, 1 Roof combine an
expanded perishables presentation, a super warehouse store and an expanded
discount drug store/pharmacy. In 1996, these stores generated approximately 8.9%
of the Company's total sales.
PURCHASING AND DISTRIBUTION
RICHFOOD SUPPLY AGREEMENT. Farm Fresh has a supply agreement (the
"Supply Agreement") with Richfood, Inc. ("Richfood'), its principal supplier,
which expires in 2001. The Supply Agreement requires that Richfood provide Farm
Fresh with products on its most favorable pricing terms and that Richfood
maintain inventories of products sufficient to satisfy the needs of the Company.
The Supply Agreement was amended in connection with the Safeway Acquisition. As
amended, the Company is required to purchase at least $350 million of products
per year adjusted for acquisitions and dispositions by the Company, changes in
the Consumer Price Index and certain other factors.
DISTRIBUTION CENTER. The Company owns a 200,000 square foot
distribution center in Norfolk, Virginia. The Company's strategy is to directly
procure and distribute those items that turn quickly and can be bought at
reduced prices, and to purchase slower moving products through Richfood. The
Company implements this strategy through the use of its Distribution Center. In
April 1991, the Company expanded its Distribution Center activities by beginning
self-distribution of produce to help the Company control shrinkage, improve
freshness and provide competitive retail prices. This is accomplished by
establishing produce requirements at store level, and then scheduling shipments
from the distribution center to the stores the same day that the inventory is
received. This process enables the Company to deliver the freshest produce to
its stores at lower costs. Most other produce distribution facilities order
produce, receive it, store it in racks and await orders for the product before
shipping the produce out.
DEMOGRAPHICS
The Company's principal market, Hampton Roads, constitutes the
largest metropolitan region in Virginia in land size, is its second most
populous region, is the home of the United States Navy's Atlantic Fleet, and has
the world's largest Naval base. Hampton Roads, with a population of
approximately 1.5 million, is the twenty-seventh largest U.S. metropolitan area,
and was ranked as the twenty-third fastest growing metropolitan area in absolute
terms from 1980 to 1990 according to the 1990 U.S. Census Bureau Report. The
economy of this area is largely influenced by major United States military
installations and extensive port activity. Shipbuilding and ship repair, a
diversified industrial base and tourism also contribute significantly to the
local economy.
Eighteen military bases and four military command headquarters,
including Naval Base Norfolk, the world's largest navy base, are located in the
area. In August 1991, 136,800 persons or 23.3% of the total labor force in
Hampton Roads were employed by the government through the military or
military-related employers. Military employees, retirees and dependents make up
28.9% of the total population. Although the region has diversified its economic
base, government jobs and government contractors still pay one-third of the
salaries for the region's workers. Although the military presence to date has
been generally favorable for the Hampton Roads economy, during the period of
massive troop deployments for the Persian Gulf War in late 1990 and early 1991,
the region suffered a temporary but dramatic population loss (totaling an
estimated 75,000 persons or 5.4% of the Hampton Roads population, including
military personnel and dependents) and an accompanying decline in consumer
spending.
In 1993, the Federal government approved the BRAC Commission's list
of proposed base closures. In this proposal, the BRAC Commission voted to close
three military facilities, which was projected to cost the Hampton Roads area
approximately 5,400 civilian and military jobs. However, the BRAC Commission
ultimately voted to expand a number of Hampton Roads bases in connection with
operations being relocated to Hampton Roads after the closure of other bases in
other parts of the country and the consolidation of affected personnel and their
dependents at larger installations like those in Norfolk. Any closure
recommendations in future years that result in a decrease in the number of
military personnel and related civilian jobs in the region could negatively
impact the Hampton Roads area in general and the Company's sales in particular.
In particular, the BRAC Commission is expected to consider additional base
closures in the future, and it is likely the Hampton Roads area will be affected
by those actions. Moreover, a substantial portion of the labor force in the
Hampton Roads area is employed in the civilian shipbuilding and repair industry,
and any significant decline in the number of ships to be retained in the United
States Navy could lead to further negative impacts on the area's economy.
Richmond, the capital of Virginia, is the Commonwealth's largest
financial, manufacturing, and distribution center. Richmond is headquarters for
more than 35 major corporations, including 8 Fortune 500 companies and 15
Fortune 1000 companies. With a population of approximately 758,000, Greater
Richmond was ranked as the fifty-third fastest growing metropolitan area from
1980 to 1990 according to the 1990 U.S. Census Bureau Report.
COMPETITION
The retail food industry is a highly competitive, low-margin
business and includes national, regional and local supermarket chains, local
independent operators, wholesale clubs, convenience stores, and mass
merchandisers that carry food products. Discount retailers, led by membership
warehouses, have become increasingly competitive over the past five to six
years. Significant factors that affect competition among food retailers include
convenient store locations, price, service, cleanliness and product quality and
variety. The Company's Farm Fresh stores compete, to a lesser extent, with video
rental chains, drug store operators, local delis, bakeries and floral operators.
The Company's principal competitors have greater financial,
distribution and marketing resources than the Company, and could use those
resources to take steps which could adversely affect the Company's competitive
position and financial performance. The Company's ability to compete also is
adversely affected by its level of indebtedness, limitations imposed by its
existing debt agreements, including the Revolving Credit Facility, and
limitations imposed by the Indentures governing the Holding Company Notes and
the Notes ("Indentures").
In Hampton Roads, the Company's direct supermarket competitors and
their respective share of traditional supermarket sales as reported in the June
1996 issue of FOOD WORLD, include Food Lion, Inc. ("Food Lion") (37%); The Great
Atlantic and Pacific Tea Company, Inc. ("A&P") (7%); Bonnie Be-Lo Markets, Inc.,
a regional grocery chain (4%); Winn Dixie Stores, Inc. ("Winn Dixie") (2%) and a
number of independent operators. In Hampton Roads, the Company also competes
with the U.S. military commissaries which are available to military personnel,
retirees and their dependents. During 1995, Hannaford Bros., a publicly held
supermarket chain, began opening stores in both the Richmond and Hampton Roads
markets. Harris Teeter, also a publicly held supermarket chain, entered the
Hampton Roads market in 1996. Additionally, both Wal-Mart and KMart have opened
"supercenters" in Hampton Roads and in Richmond. Supercenters contain full
supermarket operations in addition to a full line discount mass merchandise
store. In 1996, competitors opened a total of eight new stores in Hampton Roads,
and approximately eight additional new stores are expected to open in 1997. The
increased competitive environment in the Hampton Roads market resulting from the
infusion of these new competitors led to a decline in the Company's same store
sales in 1996 and constitutes a significant continuing challenge to the Company.
SEASONALITY
The Company's fiscal year ends on the Saturday closest to December
31, and is divided into 13 four-week periods for accounting purposes. Therefore,
the first three quarters are comprised of three periods (twelve weeks) and the
fourth quarter is comprised of four periods (sixteen weeks). Every five years,
the Company's fiscal year is 53 weeks in length. In a 53-week year, the fourth
quarter consists of seventeen weeks. For the 52 weeks ended December 28, 1996,
the average percentage of sales occurring in each of the four quarters was 23%,
24%, 24% and 29%, respectively, compared to 24%, 24%, 24% and 28%, respectively,
for fiscal 1995. Profitability varies by quarter due to the timing of holidays
and the annual influx of summer tourists. For the 52 weeks ended December 28,
1996, and December 30, 1995, the average percentage of EBITDA occurring in each
of the four quarters was 22%, 26%, 23% and 29%, respectively.
EMPLOYEES
Farm Fresh employs approximately 6,300 people, 71% of whom work part
time. The predominantly part-time work force is typical of the grocery industry,
and permits the Company to minimize its labor costs while maximizing its
scheduling flexibility. Farm Fresh maintains competitive employee benefit
programs which include health coverage, paid vacations, holidays, a 401(k)
retirement savings plan and tuition reimbursement.
Intermittently since 1986, Farm Fresh has been one of the targets of
a campaign by Local 400 of the United Food and Commercial Workers Union,
AFL-CIO, CLC, Local 400 (the "UFCW" or "the Union") to organize its
nonsupervisory employees. To date, the Union has filed only one petition for an
election with the National Labor Relations Board. That election, limited to a
small group of employees in one of the Company's bakery operations, was won by
the Company in August of 1990.
In connection with the Safeway Acquisition, Safeway obtained a
favorable vote from its employees, who were represented by the UFCW, to waive
certain provisions of their Union contract in exchange for a severance package.
Farm Fresh later hired many of these employees to work in its Richmond area
stores. Shortly after the Safeway Acquisition, the Union engaged in sporadic
informational picketing at a number of Richmond area stores, protesting the
Safeway Acquisition. In June 1994, the Union announced an attempt to organize
employees at some or all of Farm Fresh's Richmond area stores. Subsequently, the
Union engaged in intermittent picketing and solicitation at a number of these
stores, most of which were sold in the Hannaford Transaction in September 1995.
To date, no election petition has been filed, and the Union's activities have
had no material effect on sales or operations. Management cannot predict whether
any election petition will be filed in the future or the scope of such a
petition.
Management does not believe that the Union has the support of Farm
Fresh's employees, as evidenced by the Union's lack of past organizing success
and failure to petition for an election in any significant unit of Farm Fresh
employees. Management continues to oppose actively the Union's organizing
efforts. There can be no assurance, however, that the Union will not be
successful in obtaining a sufficient showing of interest to warrant an election.
If the Union were successful in an election in a significant unit of
Farm Fresh employees, the Company could be adversely affected as a result of
collective bargaining negotiations. However, management believes that its
current wages and benefits do not differ materially from prevailing rates in its
market areas.
TRADEMARKS AND SERVICE MARKS
The Company protects its intellectual property through the use of
trademarks and service marks. The Company has received a United States
registered trademark for "Farm Fresh," and a Virginia registered trademark for
"Rack & Sack." Certain governmental licenses and permits, including alcoholic
beverage licenses, health permits and various business licenses, are necessary
in the Company's operations. The Company believes it has all material licenses
and permits necessary to enable it to conduct its business.
RECENT DEVELOPMENTS REGARDING REVOLVING CREDIT FACILITY
In 1996, the lenders under the Revolving Credit Facility and Farm
Fresh agreed to renew the facility. The renewal extended the expiration date of
the Revolving Credit Facility from December 1996 until January 13, 1998, removed
the requirement to maintain certain ratios, including a leverage ratio, a ratio
of earnings to fixed charges and an interest coverage ratio, and also removed
the minimum net worth requirement. Under the terms of the renewal, the Revolving
Credit Facility continues to bear interest at the same rate as the initial
facility, subject to adjustment under certain circumstances for changes in
operating performance. In addition, the Company is required to maintain a
minimum level of cash flow and to limit capital expenditures, as well as
maintain a monthly average undrawn availability of $2.0 million. The renewal
also waived the Company's noncompliance as of December 30, 1995 with the minimum
fixed charge coverage ratio covenant contained in the Revolving Credit Facility,
which would have allowed the lender to demand repayment of all borrowings under
the Revolving Credit Facility. In February 1997, the lender also waived the
Company's breach in fiscal 1996 of the covenant in the Revolving Credit Facility
limiting capital expenditures. The Company's capital expenditures in fiscal 1996
were $21 million, which exceeded the maximum of $18 million allowed under the
facility. In connection with this waiver, the Revolving Credit Facility was
amended to limit the Company's capital expenditures in fiscal 1997 to $8
million, however, this amount has been further reduced to $6 million as
described below. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
The Company recently entered into an additional amendment to the
Revolving Credit Facility that amends certain covenants. Specifically, the
amendment revises the definition of "EBITDA" to provide that such term as used
in the Revolving Credit Facility shall not take account of up to an additional
$2 million of non-cash charges applicable to the write down of assets in
connection with the closing of a Farm Fresh store. The amendment also modifies
the covenant related to the Company's required EBITDA. Specifically, the
amendment reduces the Company's required EBITDA for the four quarters ended June
14, 1997 and September 6, 1997 from $39 million and $40.5 million, respectively,
to $37.5 million for each of the four quarter periods and reduces the required
EBITDA for the four quarters ended December 27, 1997 from $42 million to $40
million. Finally, the amendment also modifies the covenant limiting the capital
expenditures that the Company can incur, reducing such amount for fiscal 1997
from the $8 million that was provided for in the February 1997 amendment to $6
million.
POTENTIAL INABILITY TO MAKE CASH INTEREST PAYMENT ON HOLDING COMPANY NOTES
Because FF Holdings is a holding company with no independent
operations, its ability to pay interest or dividends is dependent upon Farm
Fresh's ability to pay dividends to FF Holdings in an amount sufficient to
satisfy such obligations. The ability of Farm Fresh to pay these dividends will
be dependent upon Farm Fresh's future performance and its ability to refinance
or restructure its existing debt, including the Revolving Credit Facility, which
terminates in January 1998. Covenants in the Farm Fresh Indenture and other debt
instruments of Farm Fresh restrict Farm Fresh's ability to make cash dividend
payments to FF Holdings. Specifically, Farm Fresh can only make payments to FF
Holdings if (a) the interest coverage ratio calculated in a method substantially
similar to the Consolidated Interest Coverage Ratio under the FF Holdings
Indenture is at least 2.25:1, (b) such payment, along with all other such
payments made by Farm Fresh from the date of issuance of the Senior Notes does
not exceed the sum of (i) 50% of Farm Fresh's net income from the date of
issuance of the Senior Notes and (ii) 100% of any net proceeds received by Farm
Fresh from the sale of its stock, and (c) Farm Fresh is not then in default
under the Farm Fresh Indenture. Farm Fresh's interest coverage ratio was 1.2:1
for the year ended December 28, 1996. Further, Virginia law, under which Farm
Fresh is incorporated, provides that a corporation may not declare or pay
dividends if, after giving effect thereto, such corporation would not be able to
pay its debts as they become due in the usual course of business or such
corporation's total assets would be less than the sum of its total liabilities
and the liquidation value of its preferred stock. Accordingly, Farm Fresh will
likely be prohibited in the future from paying dividends to FF Holdings.
Assuming FF Holdings elects to pay interest through the October 1, 1997 interest
payment date by distributing additional Holding Company Notes in a principal
amount equal to the interest then due, FF Holdings will be required to make
level, semi-annual cash interest payments of $7.1 million each or $14.1 million
annually, to noteholders beginning on April 1, 1998, through the maturity date
of the Holding Company Notes. Even in the unlikely event that Farm Fresh had
sufficient cash flow to pay the required dividends to FF Holdings, covenants in
the Indentures and other instruments evidencing Farm Fresh's debt obligations
will restrict Farm Fresh's ability to make cash dividend payments to FF
Holdings. Assuming Farm Fresh were unable to make cash dividends to FF Holdings,
FF Holdings would be unable to pay cash interest on the Holding Company Notes
and would go into default under the FF Holdings Indenture. In the event of such
a default, the trustee would be entitled to exercise all of its rights under the
Indenture for the Holding Company Notes, including the acceleration of the
principal of the notes. It is also possible that such an event could lead the FF
Holdings noteholders to acquire a controlling interest in Farm Fresh, which
could in turn trigger a "Change of Control" as defined in the Farm Fresh
Indenture. A change of control would require Farm Fresh to offer to repurchase
the Notes, resulting in an effective acceleration of the maturity of the Notes.
There can be no assurance that Farm Fresh would be able to finance such a
repurchase. If it were not able to finance such a repurchase, then Farm Fresh
would be in default under its Indentures. FF Holdings' ability to make dividend
payments to holders of Preferred Stock is also restricted in the Indenture.
In anticipation of the potential inability to pay interest on the FF
Holdings obligations in April 1998 and the possible foreclosure of the FF
Holdings' noteholders on the common stock of Farm Fresh, management of the
Company is currently exploring strategic alternatives. The Company has engaged
an investment banking firm to assist in this process. There can be no assurance
that the Company will be able to secure sufficient capital to enable it to meet
its obligations. In that event, the Company may be required to enter into some
form of reorganization.
DEPENDENCE ON REVOLVING CREDIT FACILITY; POTENTIAL VIOLATIONS OF COVENANTS
The Revolving Credit Facility requires Farm Fresh to comply with
certain financial and operating covenants including a limitation on indebtedness
and liens. Farm Fresh's ability to meet such tests and comply with certain other
covenants contained in the Revolving Credit Facility will be subject to, among
other things, its future performance, which in turn is subject to financial,
business and other factors affecting the business and operations of Farm Fresh,
including factors beyond its control, such as prevailing economic conditions.
There can be no assurance that Farm Fresh will be able to achieve or maintain
the financial ratios contained in the Revolving Credit Facility. Failure to meet
such financial tests or other covenants could result in a default thereunder. If
any such default were not remedied, or waived, within the applicable grace
period, if any, the lenders under the Revolving Credit Facility would be
entitled to declare the amounts outstanding thereunder due and payable,
accelerate the payment of all such amounts and foreclose upon the assets of Farm
Fresh (which include all of Farm Fresh's accounts receivable, inventory and
substantially all of its other assets) collateralizing such payment. While the
lenders have waived Company events of default in the past, there can be no
assurance that future events of default would be waived. For information
regarding previous defaults by the Company of various covenants in the Revolving
Credit Facility, see "Item 1. Business Recent Developments Regarding Revolving
Credit Facility."
LIMITATIONS ON CAPITAL EXPENDITURES
The Company's long term prospects depend in part on its ability to
make necessary capital expenditures, including expenditures incurred in
connection with remodeling or reformatting existing stores and building new
stores. The Company has opened one new store in 1997 for which construction was
begun in 1996. The Company does not intend to commence any further new store
construction for the remainder of 1997, but will continue its maintenance
capital program. Capital expenditures for fiscal 1997 are limited to $6 million
under the Revolving Credit Facility, compared to $21 million that was spent on
capital expenditures in fiscal 1996. Due to the significant investment in
capital expenditures for the last several years, the Company believes that this
reduction of capital expenditures for 1997 will not substantially impact current
operations. However, in the long term, if capital expenditures are substantially
reduced, management believes that the Company's operations and ultimately its
cash flow would be adversely impacted. See "Item 1. Business - Recent
Developments Regarding Revolving Credit Facility" and "Item 7. Management's
Discussions and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
ITEM 2. PROPERTIES
The Company's stores are located in the Hampton Roads, metropolitan
Richmond and Shenandoah Valley areas of Virginia, The majority of the Company's
facilities are leased. The Company owns nine stores (two of which are operated
under long-term ground leases, with the Company owning the improvements at such
locations) and its Distribution Center, which, along with fixtures and
equipment, secure the Revolving Credit Facility.
The leased stores are generally on long-term leases. All but one of
the leases which expire in the next five years have renewal options. The 40
leased stores are operated under 14 operating leases and 26 capital leases. A
typical store lease has a term of 20 years with several five-year renewal
options. The majority of these leases are net of utilities, insurance and taxes
and many provide for fixed minimum rentals with additional percentage rental
triggered at various sales levels. All stores are either in strip centers or are
free standing and all have ample parking. Farm Fresh owns substantially all of
the fixtures and equipment used in both its leased and owned stores and owns
substantially all of its office equipment and furniture and fixtures.
The Company's executive office is located at 7530 Tidewater Drive,
Norfolk, Virginia 23505, and its telephone number is (757) 480-6700.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to
claims arising out of its normal business operations. The Company is not now
engaged in any such legal proceedings that are expected individually or in the
aggregate to have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This item is not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
FF Holdings is authorized to issue 6,700,001 shares of stock,
divided into four classes consisting of 700,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock"); 2,500,000 shares of Class A
common stock, par value $0.01 per share (the "Class A Common Stock"); 3,500,000
shares of Class B common stock, par value $0.01 per share (the "Class B Common
Stock"); and one share of Class C common stock, par value $0.01 per share (the
"Class C Common Stock"). Class A Common Stock, Class B Common Stock and Class C
Common Stock are sometimes collectively referred to as the "Common Stock." The
Preferred Stock consists of 700,000 authorized shares and 191,678.91 shares of
Preferred Stock are outstanding. On the date of this report, 41,480 shares of
the Class A Common Stock are outstanding, 2,458,520 shares of the Class B Common
Stock are outstanding and 0.24 share of Class C Common Stock is outstanding.
Neither the Common Stock nor the Preferred Stock are currently
publicly traded and there is no active trading market available for these
securities.
The holders of the Preferred Stock are entitled to receive, when, as
and if declared by the board of directors of FF Holdings, out of funds legally
available for the payment of dividends, cumulative dividends at the annual rate
of 14.25% per share, payable in cash semi-annually. Such semi-annual dividends
are payable on the 1st day each of April and October (each of such dates being a
"Dividend Payment Date"), commencing on April 1, 1993 (the "First Dividend
Payment Date"), in preference to all classes of the Common Stock of FF Holdings
and other preferred stock FF Holdings may issue which by its terms is made
expressly Junior to the Preferred Stock (the "Junior Securities"). Such
dividends are paid to the holders of record at the close of business on the
fifteenth day of the month preceding the Dividend Payment Date. Each of such
semi-annual dividends is fully cumulative and accrues (whether or not earned or
declared) from the date of issue thereof, with the first dividend to be paid on
the later to occur of the First Dividend Payment Date or the Dividend Payment
Date next following the date such share shall have been issued, except that with
respect to the dividend to be paid on the First Dividend Payment Date, such
dividend shall accrue from the date of issuance of the Old Preferred Stock.
Accrued and unpaid dividends on the New Preferred Stock accrue additional
dividends in respect thereof, compounded semi-annually at the rate of 14.25%.
No dividend has ever been paid or declared on the Common or
Preferred Stock. Because FF Holdings has no independent operations of its own,
the only means by which FF Holdings could pay a dividend on the Common or
Preferred Stock would be if Farm Fresh were able to pay it cash dividends.
Covenants in the Indentures securing Farm Fresh's Notes and other debt
instruments of Farm Fresh restrict Farm Fresh's ability to make cash dividend
payments to FF Holdings. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." In addition, the indenture securing the Holding Company Notes
severely restricts FF Holdings' ability to pay dividends. Specifically,
dividends may not be paid if immediately after giving effect thereto (i) any
default or Event of Default shall have occurred and be continuing at the time of
such "Restricted Payment," (ii) FF Holdings' Consolidated Interest Coverage
Ratio is less than 2:1, or (iii) such Restricted Payment, together with the
aggregate of all other Restricted Payments made from the date the Holding
Company Notes are issued, exceeds the sum of (a) 50% of FF Holdings'
Consolidated Net Income (or if such Consolidated Net Income is a deficit, minus
100% of such deficit) from the date the Holding Company Notes are issued and (b)
100% of the aggregate Net Proceeds and fair market value of marketable
securities received by FF Holdings subsequent to the issuance of the Holding
Company Notes from the sale of FF Holdings' Capital Stock (other than any
Disqualified Interest). As discussed above, the Farm Fresh Indenture and other
Farm Fresh debt instruments also prohibit the payment of dividends by Farm Fresh
and FF Holdings unless certain financial tests are satisfied. Even if the Farm
Fresh Indenture allowed payment of dividends to FF Holdings, Virginia law, under
which Farm Fresh is incorporated, provides that a corporation may not declare or
pay dividends if, after giving effect thereto, such corporation would not be
able to pay its debts if they become due in the usual course of business or such
corporation's total assets would be less than the sum of its total liabilities
and the liquidation value of its preferred stock. Accordingly, given these and
other restraints, the Company does not foresee paying any dividends to holders
of FF Holdings Common or Preferred Stock.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data derived from
the audited consolidated financial statements of the Company. The financial data
set forth below should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto, included
elsewhere in this document.
<TABLE>
<CAPTION>
Year Ended(a) Year Ended(a) Year Ended(a) Year Ended(a) Year Ended(a)
January 2, January 1, December 31, December 30, December 28,
1993 1994 1994 1995 1996
---- ---- ---- ---- ----
(dollars in thousands except statistical data)
<S> <C>
STATEMENT OF LOSS DATA:
Sales $ 672,407 $ 741,182 $ 885,883 $ 885,087 $ 761,494
Cost of sales (508,602) (561,167) (677,542) (674,776) (583,521)
----------- ----------- ----------- ----------- -----------
Gross profit 163,805 180,015 208,341 210,311 177,973
Depreciation and amortization (19,335) (22,297) (24,952) (21,798) (20,793)
Other selling, general and administrative expenses (124,263) (140,330) (167,542) (164,397) (138,642)
Store closure and other charges (8,123) (7,186) - (2,635) (1,497)
Write down of long-lived assets to be disposed(b) - - - (7,231) (2,756)
Interest expense (35,169) (36,955) (43,831) (45,285) (46,119)
Gain (loss) on disposition of assets 1,953 (1,923) (396) (4,376) (538)
Other, net 469 226 99 (702) 322
----------- ----------- ----------- ----------- -----------
Loss before income taxes (20,663) (28,450) (28,281) (36,113) (32,050)
Income tax settlement (1,400)(c) - - - -
----------- ----------- ----------- ----------- -----------
Net loss (22,063) (28,450) (28,281) (36,113) (32,050)
Dividends on cumulative preferred stock - (3,612) (3,362) (3,858) (4,427)
----------- ----------- ----------- ----------- -----------
Net loss to common stockholders $ (22,063) $ (32,062) $ (31,643) $ (39,971) $ (36,477)
=========== =========== =========== =========== ===========
Deficiency of earnings to fixed charges(d) $ (20,663) $ (32,062) $ (31,643) $ (39,971) $ (36,477)
BALANCE SHEET DATA (END OF PERIOD):
Total assets $ 234,879 $ 263,341 $ 258,532 $ 210,099 $ 200,789
Total long-term debt, excluding current portion 272,201 319,482 337,515 331,547 351,148
Stockholders' deficit (129,968) (159,528) (188,870) (228,807) (265,079)
OTHER OPERATING DATA:
EBITDA(e) $ 40,330 $ 40,256 $ 41,169 $ 46,039 $ 39,673
EBITDA margin 6.00% 5.43% 4.64% 5.20% 5.21%
Interest coverage ratio 1.2 1.1 1.1 1.0 0.9
Capital expenditures(f) 16,703 29,753 8,063 17,346 18,329
STORE DATA:
Combination and super warehouse stores
open at end of period 54 65 66 52 49
Stores opened or acquired during the year 8 18 2 1 1
Stores closed during the year 1 6 1 15 4
Stores remodeled during the year 4 8 - 5 3
</TABLE>
- ---------------------
(a) The Company's fiscal year is based on a 52-53 week fiscal year ended on the
Saturday nearest to December 31. The year ended January 2, 1993 included 53
weeks.
(b) The Company implemented Statement of Financial Accounting Standards No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF (Statement 121) in 1995 and recorded a charge
related to assets held for disposal. Implementation of Statement 121 had no
impact on assets to be held and used.
(c) The $1,400 income tax settlement reflected in the year ended January 2, 1993
represents the settlement of the IRS audits of the Company's 1986 through
1989 tax returns.
(d) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent loss before income taxes and fixed charges less
interest capitalized during the period. "Fixed charges" consist of interest
expense, dividends on preferred stock, amortization of deferred financing
costs and one-third of all rentals, representing the portion of rental
expense attributable to interest. Earnings were insufficient to cover fixed
charges for all periods presented.
(e) EBITDA is calculated as gross profit less selling, general and
administrative expenses plus depreciation and amortization, the LIFO
adjustment, other expenses and interest income as presented in the Company's
financial statements. For 1992, other expenses include noncash income ($395)
and an insurance premium adjustment ($1,089) related to actual casualty
experience for the years 1989 through 1991. There were no similar noncash
expenses reflected in the EBITDA calculation for any other period presented.
EBITDA is not intended to equate to cash flow from operations or to
represent an alternative to net income or any other measure of performance
under generally accepted accounting principles.
(f) Capital expenditures include purchases reflected on the Company's
consolidated statement of cash flows plus property and equipment purchased
in conjunction with store acquisitions. Assets obtained under new capital
leases are not reflected.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Consolidated Financial Data" and the Consolidated Financial Statements
and related notes thereto included elsewhere in this Form 10-K. The Company's
fiscal year ends on the Saturday closest to December 31, and is divided into 13
four-week periods for accounting purposes. Therefore, the first three quarters
are comprised of three periods (twelve weeks) and the fourth quarter is
comprised of four periods (sixteen weeks).
COMPARISON OF 52 WEEKS ENDED DECEMBER 28, 1996 WITH 52 WEEKS ENDED DECEMBER 30,
1995
SALES. Sales for the 52 week period ended December 28, 1996 were
$761.5 million, a decrease of 13.6% over the $885.1 million in 1995. Same store
sales decreased 2.2% in fiscal 1996 consisting of increases of 3.4% and 0.2% in
the first and second quarters and decreases of 4.3% and 6.2% in the third and
fourth quarters. The decrease in sales was attributable in large part to the
closure of six combination stores, primarily in the fourth quarter of 1995, and
the sale of 10 combination stores to Hannaford Bros. in September 1995. The
Company also sold two combination stores and closed two combination stores in
1996. The decrease in same store sales was attributable to increased competition
in the Company's principal market resulting from the opening of eight new stores
by competitors.
COST OF SALES. Cost of sales for the 52 week period ended December
28, 1996 totaled $583.5 million, a decrease of $91.3 million or 13.5% from 1995.
Cost of sales was 76.6% of sales in 1996 as compared to 76.2% of sales in 1995.
This increase in cost of sales as a percentage of sales is due to increased
volume in the Company's super warehouse stores, which operate at lower margins
compared to the Company's combination stores and promotional markdowns taken in
response to the increased competition in the Company's principal market as
described above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
amounted to $20.8 million for the 52 weeks ended December 28, 1996, a decrease
or $1.0 million or 4.6% over the 52 weeks ended December 30, 1995. As a percent
of sales, depreciation and amortization represented 2.7% and 2.5%, respectively
in 1996 and 1995. The decrease in depreciation and amortization is primarily
attributable to the Hannaford Transaction and the sale or closure of six
additional stores in 1995 and four additional stores in 1996. The impact of the
closures was partially offset by the one new store opened and the five store
remodels in each of 1995 and 1996.
OTHER SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Other selling,
general and administrative expenses for the 52 week period ended December 28,
1996 were $138.6 million, a decrease of $25.8 million or 15.7% from the
comparable period in 1995. These expenses as a percentage of sales decreased to
18.2% in 1996 from 18.6% in 1995. The decrease in other selling, general and
administrative expenses as a percent of sales is primarily due to a decrease in
advertising expense due to reduced advertising in the Richmond market and
increased vendor-supported advertising.
STORE CLOSURE AND OTHER CHARGES. During 1996, the Company closed two
stores. In conjunction with the closures, the Company accrued $1.5 million of
future costs, recorded based on discounted cash flows directly attributable to
the closed stores. The costs accrued include rent, taxes, utilities, common area
maintenance and other costs associated with the store locations.
INTEREST EXPENSE. Interest expense totaled $46.1 million, an
increase of $0.8 million from the comparable period in 1995. The increase is
primarily attributable to a higher outstanding balance on the Holding Company
Notes due to management's decision to pay interest in additional notes rather
than cash. This increase was partially offset by a lower outstanding balance on
Farm Fresh's revolving credit facility and the conversion of $19.3 million face
value of convertible subordinated debentures into $10.3 million in cash during
the fourth quarter of 1995 and throughout 1996.
WRITE DOWN OF LONG-LIVED ASSETS TO BE DISPOSED. In March 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 121., ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. ("Statement 121"). Statement 121 requires
that long-lived assets and certain identifiable intangible assets to be held and
used by an entity be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market or discounted cash flow value is
required. Statement 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less costs to sell. The Company adopted Statement 121 in
1995. In 1996, the Company recognized an impairment in value of long-lived
assets to be disposed of $2.8 million. The write down related to two stores
closed in 1996 and two stores closed in the first quarter of 1997. Two of the
four stores are under contract for sale in 1997. In 1995, the Company
implemented SFAS No. 121 as described below.
LOSS OF DISPOSITION OF ASSETS. The loss on disposition of assets
decreased from $4.4 million in 1995 to $0.5 million in 1996. The decrease is
primarily attributable to the loss of $2.4 million recorded as a result of the
Hannaford Transaction in 1995.
OTHER, NET. During 1996, the Company recorded a gain of $0.3 million
and $0.4 million on the conversion of $8.7 million and $10.5 million at face
value of convertible subordinated debentures during 1996 and 1995, respectively.
In addition, during 1995, Virginia Supermarkets, Inc., an entity in which the
Company had a $1.1 million investment in preferred stock, was sold. As a result,
the Company wrote off its investment in the preferred stock.
COMPARISON OF 52 WEEKS ENDED DECEMBER 30, 1995 WITH 52 WEEKS ENDED DECEMBER 31,
1994.
SALES. Sales for the 52 week period ended December 30, 1995 were
$885.1 million, a decrease of 0.1% over the $885.9 million in 1994. Same
store sales increased 3.2% in fiscal 1995 consisting of an increase of
3.2%, 2.1%, 3.2% and 4.2% in the first, second, third and fourth quarters,
respectively. The increase in same store sales was fully offset by the closure
of six combination stores, primarily in the fourth quarter, and the sale of 10
combination stores in the Hannaford Transaction. See "Item 1. Business."
COST OF SALES. Cost of sales for the 52 week period ended December
30, 1995 totaled $674.8 million, a decrease of $2.7 million or 0.4% from
1994. Cost of sales was 76.2% of sales in 1995 as compared to 76.5% of sales in
1994, primarily due to improvement in shrinkage.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
amounted to $21.8 million for the 52 weeks ended December 30, 1995, a decrease
of $3.2 million or 12.8% over the 52 weeks ended December 30, 1994. As a percent
of sales, depreciation and amortization represented 2.5% and 2.8%, respectively,
in 1995 and 1994. The decrease in depreciation and amortization is primarily
attributable to several assets, obtained in conjunction with the acquisition of
Farm Fresh in 1988, reaching the end of their assigned useful lives, the sale of
10 stores in the Hannaford Transaction in September 1995 and the closure of six
additional stores in 1995.
OTHER SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Other selling,
general and administrative expenses for the 52 week period ended December 30,
1995 were $164.4 million, a decrease of $3.1 million or 1.9% from the comparable
period in 1994. These expenses as a percentage of sales decreased to 21.0% in
1995 from 21.7% in 1994. The decrease in selling, general and administrative
expenses as a percent of sales is primarily due to a decrease in salaries and
other payroll costs due to a change in mix from the combination to the super
warehouse store format. Super warehouse stores, which contributed 21% of total
sales in 1995 and 15% of total sales in 1994, are less labor intensive than the
service oriented combination store format.
STORE CLOSURE AND OTHER CHARGES. During 1995, the Company closed six
stores. In conjunction with the closures, the Company accrued $2.6 million of
future costs, recorded based on discontinued cash flows, directly attributable
to the closed stores. The costs accrued included rent, taxes, utilities, common
area maintenance and other costs associated with the store locations.
INTEREST EXPENSE. Interest expense totaled $45.3 million for the 52
week period ended December 30, 1995, an increase of $1.5 million over the year
ended December 31, 1994. The increase is attributable to a higher outstanding
balance on the Holding Company Notes due to FF Holdings' decision to pay
interest in additional notes rather than in cash.
LOSS ON DISPOSITION OF ASSETS. Loss on disposition of assets totaled
$4.4 million, an increase of $4.0 million over 1994. In September 1995, the
Company sold 10 stores, three of which had been previously closed, in the
Hannaford Transaction for gross proceeds of $28.4 million. A $2.5 million loss
was recorded pertaining to the sale. The remainder of the increase is primarily
due to the write off of leasehold improvements and leasehold rights in closed
stores.
WRITE DOWN OF LONG-LIVED ASSETS TO BE DISPOSED. The Company adopted
Statement 121 in 1995. Upon evaluation of the carrying value of its assets held
for disposal, the Company wrote down certain assets by $7.2 million.
Implementation of Statement 121 had no impact on assets to be held and used.
OTHER, NET. During 1995, Virginia Supermarkets, Inc., an entity in
which the Company had a $1.1 million investment in preferred stock, was sold. As
a result, the Company wrote off its investment in the preferred stock. The
effect of the write down was partially offset by a gain of $0.4 million on the
conversion of $10.5 million at face value of convertible subordinated
debentures.
INFLATION
The Company's cost of sales is affected by a number of factors that
are beyond the Company's control, including the cost of merchandise, the
competitive climate and general and regional economic conditions. As is typical
in the retail food industry, the Company has generally been able to maintain
margins by adjusting its selling prices, but competitive conditions may, from
time to time, render it unable to do so while maintaining or increasing its
market share.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. The Company is highly leveraged. As of December 28,
1996, the Company had total long-term debt of $351.1 million and a
stockholders' deficit of $265.1 million.
Cash flow from the operations of Farm Fresh as well as amounts
available under Farm Fresh's Revolving Credit Facility represent the Company's
primary sources of short-term liquidity. At December 28, 1996, Farm Fresh had
approximately $15.7 million available under the Revolving Credit Facility
subject to certain borrowing base limitations, less $4.0 million reserved for
the redemption of the convertible subordinated debentures and $1.1 million
reserved due to outstanding letters of credit. The Indentures and the Revolving
Credit Facility impose operating and financial restrictions on both Farm Fresh
and FF Holdings. Such restrictions limit or prohibit, among other things, the
ability of both Farm Fresh and FF Holdings to incur additional indebtedness,
repay indebtedness prior to its stated maturity, create liens, sell assets,
engage in mergers or acquisitions, make certain capital expenditures, enter into
capital leases and/or pay dividends. In particular, certain covenants in the
Indentures limit, with certain exceptions, the Company's ability to incur
additional indebtedness if, after giving effect to such additional indebtedness,
the Company's interest coverage ratio would be less than or equal to 1.7:1. The
Company's interest coverage ratio is currently less than 1.7:1 and is
anticipated to remain so in the foreseeable future; accordingly, the Company's
ability to incur additional debt will be limited by these covenants, and the
Company's ability to make strategic acquisitions or take other actions could be
restricted.
The Company is current in the payment of all of its existing
principal and interest payments on its indebtedness including the cash interest
payment made April 1, 1997 on its Senior Notes and Series A Notes. However, the
Company will require substantial cash flow to meet its future interest and
principal repayment obligations under the Senior Notes, the Series A Notes, the
Holding Company Notes, and other indebtedness. See the Company's Consolidated
Financial Statements included elsewhere herein for specific information
regarding such repayment obligations.
Cash flows from the Company's operating, investing and financing
activities for the 52 weeks ended December 28, 1996 and December 30, 1995, are
disclosed in the accompanying consolidated statements of cash flows. In the 52
weeks ended December 28, 1996, the Company's operating activities generated $9.2
million in cash as compared to the $3.6 million generated in the corresponding
period in 1995. This increase is primarily attributable to the increase in cash
flow generated from changes in working capital.
The Company used $13.4 million in cash in its investing activities
in 1996 as compared to the $7.7 million in cash provided in the corresponding
period in 1995. This fluctuation is primarily a result of the decrease in
proceeds generated from the sale of assets of $24.1 million. As described above,
the Company received proceeds of $28.4 million from the Hannaford Transaction in
1995. In 1996, the Company sold two operating stores and one store and one
parcel of land included in assets held for sale for proceeds of approximately
$4.0 million. The Company also completed a sale leaseback of equipment for
proceeds of $0.9 million. In addition, in 1996 the Company opened one new store,
remodeled or reformatted five stores and replaced existing equipment and
fixtures in existing stores at a cost of $18.3 million. In 1995, the Company
opened one new store, remodeled or reformatted five stores and replaced existing
equipment and fixtures at existing stores at a cost of $17.1 million as well as
acquired the assets of a Drug Emporium franchise at a cost of $4.3 million.
In the 52 weeks ended December 28, 1996, the Company provided $3.0
million in cash in its financing activities as compared to $16.0 million used in
the corresponding period in 1995. This fluctuation is primarily due to the net
borrowings against the revolving credit facility in 1996 as compared to net
repayments made in 1995 using the proceeds from the Hannaford Transaction.
On a consolidated basis, the Company's earnings were insufficient
to cover fixed charges incurred for the year ended December 28, 1996 by $36.5
million. See "Item 6. Selected Consolidated Financial Data." This deficiency
is due to the net loss incurred by the Company.
Because FF Holdings is a holding company with no independent
operations, its ability to pay interest or dividends is dependent upon Farm
Fresh's ability to pay dividends to FF Holdings in an amount sufficient to
satisfy such obligations. The ability of Farm Fresh to pay these dividends will
be dependent upon Farm Fresh's future performance and its ability to refinance
or restructure its existing debt, including the Revolving Credit Facility, which
terminates in January 1998. Covenants in the Farm Fresh Indenture and other debt
instruments of Farm Fresh restrict Farm Fresh's ability to make cash dividend
payments to FF Holdings. Specifically, Farm Fresh can only make payments to FF
Holdings if (a) the interest coverage ratio calculated in a method substantially
similar to the Consolidated Interest Coverage Ratio under the FF Holdings
Indenture is at least 2.25:1, (b) such payment, along with all other such
payments made by Farm Fresh from the date of issuance of the Senior Notes does
not exceed the sum of (i) 50% of Farm Fresh's net income from the date of
issuance of the Senior Notes and (ii) 100% of any net proceeds received by Farm
Fresh from the sale of its stock, and (c) Farm Fresh is not then in default
under the Farm Fresh Indenture. Farm Fresh's interest coverage ratio was 1.2:1
for the year ended December 28, 1996. Further, Virginia law, under which Farm
Fresh is incorporated, provides that a corporation may not declare or pay
dividends if, after giving effect thereto, such corporation would not be able to
pay its debts as they become due in the usual course of business or such
corporation's total assets would be less than the sum of its total liabilities
and the liquidation value of its preferred stock. Accordingly, Farm Fresh will
likely be prohibited in the future from paying dividends to FF Holdings.
Assuming FF Holdings elects to pay interest through the October 1, 1997 interest
payment date by distributing additional Holding Company Notes in a principal
amount equal to the interest then due, FF Holdings will be required to make
level, semi-annual cash interest payments of $7.1 million each or $14.1 million
annually, to noteholders beginning on April 1, 1998, through the maturity date
of the Holding Company Notes. Even in the unlikely event that Farm Fresh had
sufficient cash flow to pay the required dividends to FF Holdings, covenants in
the Indentures and other instruments evidencing Farm Fresh's debt obligations
will restrict Farm Fresh's ability to make cash dividend payments to FF
Holdings. Assuming Farm Fresh were unable to make cash dividends to FF Holdings,
FF Holdings would be unable to pay cash interest on the Holding Company Notes
and would go into default under the FF Holdings Indenture. In the event of such
a default, the trustee would be entitled to exercise all of its rights under the
Indenture for the Holding Company Notes, including the acceleration of the
principal of the notes. It is also possible that such an event could lead the FF
Holdings noteholders to acquire a controlling interest in Farm Fresh, which
could in turn trigger a "Change of Control" as defined in the Farm Fresh
Indenture. A change of control would require the Farm Fresh to repurchase the
Notes, resulting in an effective acceleration of the maturity of the Notes.
There can be no assurance that Farm Fresh would be able to finance such a
repurchase. If it were not able to finance such a repurchase, then Farm Fresh
would be in default under its Indentures. FF Holdings' ability to make dividend
payments to holders of Preferred Stock is also restricted in the Indenture.
Accordingly, even if Farm Fresh were able to make dividends to FF Holdings, such
funds are not likely to be available as dividends to Preferred Stockholders.
In anticipation of the potential inability to pay interest on the FF
Holdings obligations in April 1998 and the possible foreclosure of the FF
Holdings' noteholders on the common stock of Farm Fresh, management of the
Company is currently exploring strategic alternatives. The Company has engaged
an investment banking firm to assist in this process. There can be no assurance
that the Company will generate sufficient capital to meet its obligations. In
that event, the Company may be required to enter into some form of
reorganization.
The following table summarizes the Company's estimated debt service
and net budgeted capital expenditures for fiscal 1997.
(in thousands)
Budgeted capital expenditures $5,000
Sale of assets (3,300)
Interest expense 34,000
Principal repayments of obligations under 3,000
capital leases
Principal repayments of notes payable 800
Payments under closed store and restructuring 1,900
accruals, net of imputed interest --------
$41,400
=======
Beginning April 1, 1997 the Company implemented a new short-term
business strategy to improve its financial performance and liquidity. The focus
is to conserve capital, reduce administrative and operating expenses, and direct
management attention toward the operation of existing stores.
The Company plans to fund capital expenditures with cash generated
from operations and amounts available under Farm Fresh's Revolving Credit
Facility. During 1997, the Company has opened one super warehouse store at a
cost of approximately $7.5 million, most of which was incurred in 1996. In
addition to these expenditures, management estimates it will spend approximately
$2.5 million in 1997 on maintenance capital in existing stores. The Company does
not intend to commence any further new store construction in 1997. In the near
term, the Company believes that a reduction or postponement of its new store
program will not substantially impact current operations. However, in the
long-term, if this program is substantially reduced, management believes that
the Company's operations and ultimately its cash flow would be adversely
impacted.
At December 28, 1996, the Company reflected three closed stores and
several parcels of undeveloped land as assets held for sale on its balance sheet
at the estimated net realizable value of the assets less costs to sell of $10.0
million. One of the closed stores is currently under lease. In addition, the
Company sold one parcel of land for gross proceeds of $1.7 million during the
first quarter of fiscal 1997 and has an additional parcel under contract for a
sales price of $1.0 million. Management is pursuing the sale of the remaining
assets.
The Company's relationship with its suppliers is an important
component of its liquidity. During the period of time that strategic
alternatives are explored, as discussed above, management expects that credit
terms with suppliers will remain substantially consistent with past practices.
However, if credit with its major suppliers is curtailed, the Company's
liquidity would decrease.
Based on the Company's ability to generate working capital through
its operations and amounts available under the Revolving Credit Facility, the
Company believes that it has sufficient liquidity and financial resources to
meet its obligations for fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included in
Exhibit 99.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This item is not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages, and titles of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE DIRECTOR SINCE
---- --- ----- --------------
<S> <C>
Michael E. Julian, Jr. 46 Director, Chairman of the Board 1988
Ronald E. Johnson 47 Director, President and Chief Executive Officer 1994
Keith E. Alessi 42 Director 1993
Vincent J. Mastracco, Jr. 57 Director 1986
Barton J. Winokur 57 Director 1993
Stuart L. Agranoff 48 Director 1997
Richard D. Coleman 42 Executive Vice President - Administration; Chief Financial Officer --
Jeffrey P. Thomas 37 Senior Vice President - Operations --
Stephen R. Harmon 43 Senior Vice President - Merchandising --
</TABLE>
All directors hold office until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers are
appointed by the Board of Directors and serve at the discretion of the Board.
BACKGROUND AND EXPERIENCE
Effective March 4, 1997, Mr. Julian resigned as President and Chief
Executive Officer of the Company to become President and Chief Executive Officer
of Jitney-Jungle Stores of America, Inc. ("Jitney Jungle"), a supermarket chain
in Mississippi. Mr. Julian continues to serve as Chairman of the Board, a
position he has held since September 1988. He joined the Company as Executive
Vice President and Chief Operating Officer in 1987, and served as Chief
Executive Officer from 1988 until 1997, and as President from 1992 until 1997.
Mr. Julian served as Executive Vice President and Chief Operating Officer of
Richfood from 1986 to 1987. He previously was a principal in a food consulting
firm and held various management positions in a regional supermarket company.
Mr. Johnson was appointed President and Chief Executive Officer of
the Company effective March 4, 1997. He had joined the Company as Vice President
in 1988 and was named Senior Vice President - Operations in 1990, Senior Vice
President - Operations and Merchandising in 1993 and Senior Executive
Vice-President, Chief Operating Officer in 1994. In January 1995, Mr. Johnson
left the Company to serve as Chairman, Chief Executive Officer and President of
Kash n' Karry Food Stores, Inc. ("Kash n' Karry"), a Florida supermarket chain,
a position he held until January 1997. Mr. Johnson also serves as a director of
Jitney-Jungle.
Mr. Alessi was Vice Chairman, Secretary, Treasurer and Chief
Financial Officer of the Company from 1994 until July 1996. He is now Chairman
of the Board, President and Chief Executive Officer of Jackson Hewitt Inc., a
tax return preparation company. From 1988 through 1992, Mr. Alessi was employed
by the Company. He served as President at the time he left the Company. He is
also director of Cort Business Services and Shoppers Food Warehouse Corp.
Mr. Mastracco is a member of the law firm of Kaufman & Canoles,
Norfolk, Virginia, and has been a practicing attorney in Norfolk since 1966. In
addition, he is a member of the Crestar Bank Norfolk Metropolitan Board of
Directors, and several profit and non-profit corporations. He was a director
from 1973 to 1986 of one of the Company's predecessors, Giant Open Air Markets,
Inc., a company which merged with Farm Fresh in 1986.
Mr. Winokur is a partner of Dechert Price & Rhoads and serves as a
director of CDI Corporation, Metro Corp., FFFG Holdings/Davco Food, Inc., Alco
Health Services Corporation and Alco Health Distribution Corporation.
Mr. Agranoff has been employed by Citicorp Venture Capital Ltd.
("Citicorp Venture Capital"), an investment group, since 1988, and currently
serves as Chief Financial Officer and Vice President. Citicorp Venture Capital
is an affiliate of 399 Venture Partners, Inc., which owns common stock of FF
Holdings.
Mr. Coleman was appointed Executive Vice President - Administration
and Chief Financial Officer effective March 4, 1997. Prior to joining the
Company, Mr. Coleman was employed by Kash n' Karry, serving as Vice President
and Controller from 1988 through 1995 and Senior Vice President of
Administration and Chief Financial Officer from 1996 until January 1997. Kash n'
Karry filed a voluntary petition under federal bankruptcy laws in connection
with a "pre-packaged" bankruptcy in November 1994. The plan of reorganization
was confirmed by the Bankruptcy Court and became effective in December 1994.
Mr. Thomas joined the Company in 1981. In 1986, he became a store
manager for the Company's first super warehouse store. In 1990, he was appointed
district manager for the Company's super warehouse stores. In 1993, he became
Vice President - Discount Operations, and in 1995 he became Senior Vice
President - Operations.
Mr. Harmon joined the Company in 1982. In 1988, he became a district
manager. In 1990, he was appointed Director of Merchandising and served in
that position until 1994, when he was appointed Vice President - Marketing. In
1995, he became Senior Vice President - Merchandising.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
compensation earned by the Company's former Chief Executive Officer and certain
other current and former executive officers of the Company whose total annual
salary and bonus exceeded $100,000 during the 52 weeks ended December 28, 1996.
All Other
Salary Bonus Compensation(a)
------ ----- ---------------
Michael E. Julian, Jr.(b) 1996 $442,122 $150,000 $8,400
Chairman, and Director, former 1995 437,780 200,000 8,400
Chief Executive Officer and 1994 377,866 100,000 8,400
President
Keith E. Alessi(c) 1996 $219,400 $30,000 $7,800
Vice Chairman, former Chief 1995 318,354 162,500 7,800
Financial Officer 1994 150,000 50,000 56,127(d)
Jeffrey P. Thomas 1996 $128,751 $30,000 $7,200
Senior Vice President - 1995 109,732 57,500 6,588
Operations 1994 89,159 20,000 5,167
Stephen R. Harmon 1996 $128,751 $50,000 $6,328
Senior Vice President - 1995 112,531 57,500 5,537
Merchandising 1994 80,872 12,500 4,005
- ---------------
(a) Includes the Company's matching contribution to the Farm Fresh 401(k)
Retirement Savings Plan and life insurance premiums.
(b) Mr. Julian resigned as Chief Executive Officer and President effective
March 4, 1997.
(c) Mr. Alessi joined the Company on July 1, 1994 and resigned as Chief
Financial Officer effective July 1, 1996.
(d) Includes a $50,000 consulting fee paid to Mr. Alessi for the period from
January 1 through June 30, 1994 for consulting services he performed on
behalf of the Company.
DIRECTOR COMPENSATION. Directors are paid a retainer of $3,750 per
quarter. In addition, directors receive $1,000 for attendance in person at
regular Board meetings, and $500 for attendance at Committee meetings. Board
members receive $500 for any meetings conducted by conference call.
EMPLOYMENT AGREEMENTS OF RONALD E. JOHNSON AND RICHARD D. COLEMAN
Farm Fresh has entered into Employment Agreements with each of
Ronald E. Johnson and Richard D. Coleman (the "Johnson Employment Agreement" and
"Coleman Employment Agreement" respectively), both of which became effective as
of March 4, 1997.
Pursuant to the Johnson Employment Agreement, Mr. Johnson is
employed as the President and Chief Executive Officer of Farm Fresh. The period
of Mr. Johnson's employment under the Johnson Employment Agreement is two years
unless the agreement is terminated sooner in accordance with its terms. After
the initial two year employment period, the Johnson Employment Agreement can be
extended on a year-to-year basis unless either Farm Fresh or Mr. Johnson gives
180 days written notice that the term of the Johnson Employment Agreement will
not be extended. Mr. Johnson's base annual salary under the Johnson Employment
Agreement is $400,000 per year. Mr. Johnson is also eligible to participate in
an annual cash bonus program which will contain financial performance formulas
and criteria to be agreed upon by Farm Fresh and Mr. Johnson. Pursuant to this
bonus program, the Company intends that Mr. Johnson will be eligible to earn
$200,000 upon satisfaction of the specified financial performance formulas and
criteria. Mr. Johnson is also entitled to an additional bonus payment in the
event Farm Fresh enters into certain transactions during the term of the Johnson
Employment Agreement, including a reorganization under Chapter 11 of the
Bankruptcy Code, a consensual settlement or other restructuring between Farm
Fresh and its holders of indebtedness for borrowed money, or any acquisition of
Farm Fresh by a third party. Mr. Johnson is also entitled to a severance payment
equal to 100% of his base salary in the event his employment is terminated for
specified reasons, including an election by the Company to terminate employment
without cause or as a result of death or disability. The Johnson Employment
Agreement also prohibits Mr. Johnson from disclosing confidential information of
Farm Fresh to third parties and imposes a noncompetition restriction on Mr.
Johnson.
The terms of the Coleman Employment Agreement are substantially the
same as those of the Johnson Employment Agreement except that (i) Mr. Coleman is
employed as Farm Fresh's Chief Financial Officer, (ii) Mr. Coleman's annual base
salary is $200,000 per year, (iii) the annual cash bonus program is intended to
make Mr. Coleman eligible to earn $100,000 upon satisfaction of specified
financial performance formulas and criteria, and (iv) the bonus payable upon the
occurrence of certain extraordinary transactions as described above is less than
the amount that would be payable to Mr. Johnson.
EMPLOYMENT AGREEMENTS OF JEFFREY P. THOMAS AND STEPHEN R. HARMON
Farm Fresh entered into Executive Employment and Severance
Agreements (each an "Employment Agreement") with Jeffrey P. Thomas and Stephen
R. Harmon (collectively the "Executives"), each effective as of December 1,
1995. Except with respect to the titles of the Executives and as otherwise
described below, the principal terms of each Employment Agreement are the same.
The Employment Agreements provide that the Executives will receive
base and incentive compensation as established from time to time by the Board of
Directors at its sole discretion. The initial terms of the Employment Agreements
expired November 30, 1996. These Employment Agreements have continued on a year
to year term; provided, however, that either Farm Fresh or an Executive may
terminate the Employment Agreement for any reason effective as of any date after
November 30, 1996, upon 180 days written notice. In addition, Farm Fresh has the
right to terminate employment of an Executive at any time with or without notice
for cause (as defined in each Employment Agreement) or if an Executive suffers a
disability (as defined in each Employment Agreement).
Each Employment Agreement provides that upon termination of
employment for specified reasons, an Executive is entitled to a severance
payment equal to the Executive's average annual base salary during the twelve
calendar month period immediately preceding the date of notice of termination.
This severance payment is triggered if, and only if, either (i) an Executive's
employment is terminated by Farm Fresh without cause for reasons other than an
Executive's death or disability or (ii) an Executive voluntarily terminates
employment for "good reason," which is defined to include a material reduction
in an Executive's compensation or employment related benefits, a significant
diminishment of an Executive's title, working conditions or management
responsibilities, the relocation of the Executive's place of employment beyond a
certain mileage radius without the Executive's consent or the occurrence of a
"change of control", as also defined in the Employment Agreements.
The Employment Agreements impose duties on each Executive to
maintain the confidentiality of information relating to the organization,
business or finances of Farm Fresh and further provide that documents in the
possession of an Executive and relating to any manner within the scope of the
business of Farm Fresh are the property of Farm Fresh.
OTHER EXECUTIVE EMPLOYMENT AGREEMENTS
On February 6, 1997, Farm Fresh entered into employment agreements
with seventeen Vice Presidents and District Managers, all of which have
substantially the same terms. Under these agreements, an executive generally is
entitled to a severance payment equal to six months of base salary in the event
employment is terminated, or in some cases regardless of whether employment is
terminated, as a result of a change of control of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The authorized common stock of FF Holdings consists of Class A
Common Stock, par value $.01 per share ("Class A Common Stock"), Class B Common
Stock, par value $.01 per share ("Class B Common Stock"), and Class C Common
Stock, par value $.01 per share ("Class C Common Stock" and, together with Class
A Common Stock and Class B Common Stock, "FF Holdings Common Stock.") Except as
otherwise described herein, all shares of Class A Common Stock, Class B Common
Stock and Class C Common Stock are identical and entitle the holders thereof to
the same rights, privileges, benefits and notices. Holders of Class A Common
Stock may elect at any time to convert any or all of such shares into Class B
Common Stock on a share-for-share basis. Holders of Class B Common Stock may
elect at any time to convert any or all of such shares into Class A Common
Stock, on a share-for-share basis, to the extent the holder thereof is not
prohibited from owning additional voting securities by virtue of regulatory
restrictions. Class C Common Stock is not convertible. The holders of Class A
Common Stock are entitled to one vote per share on all matters to be voted upon
by the stockholders of FF Holdings and will vote together, as a single class,
with the holders of Class C Common Stock who are entitled to 20,000 votes per
share. Except as otherwise required by law, holders of Class B Common Stock
generally do not possess the right to vote on any matters to be voted upon by
the stockholders of FF Holdings.
The current authorized preferred stock of FF Holdings consists of
700,000 shares of 14.25% cumulative preferred stock with a liquidation value of
$100 per share. Holders of the preferred stock have priority with respect to
dividend rights and rights on liquidation, winding up, and dissolution over
holders of all classes of Common Stock. Except as otherwise required by law,
holders of the preferred stock generally do not possess the right to vote on any
matters to be voted upon by the stockholders of FF Holdings.
The following table sets forth as of December 28, 1996 certain
information regarding the ownership of shares of each class of equity securities
of FF Holdings by each of FF Holdings' directors, all directors and officers as
a group, and each person who is known to FF Holdings to beneficially own 5% or
more of a class of voting securities of FF Holdings. Except as otherwise
discussed below, each of the directors, officers and 5% stockholders has sole
voting and investment power with respect to all shares so owned.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF
CLASS A CLASS A CLASS B CLASS B CLASS C
COMMON COMMON COMMON COMMON COMMON
SHARES SHARES SHARES SHARES SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED OWNED OWNED OWNED
---- ----- ----- ----- ----- -----
<S> <C>
Directors and Officers
Ronald E. Johnson 800 1.9% .010
Keith E. Alessi(a) 4,400 10.6% .055
Michael E. Julian, Jr.(b) 7,200 17.4% .090
Vincent J. Mastracco, Jr. - - 30,000 1.2%
All directors and officers 12,400 29.9% 30,000 1.2% 0.155
as a group (9 persons)(c)
Other 5% Stockholders
399 Venture Partners (d) 13,300 32.1% 1,904,389 77.5%
Farm Fresh, Inc.(c) 1,000 2.4% .075
Trustee for the DBL
Liquidating Trust (e) 5,000 12.1% 95,000 3.9%
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF ALL
CLASS C CLASSES OF NUMBER OF PERCENT OF
COMMON COMMON PREFERRED PREFERRED
SHARES SHARES SHARES SHARES
BENEFICIALLY BENEFICIALLY VOTING BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED POWER OWNED OWNED
---- ----- ----- ----- ----- -----
<S> <C>
Directors and Officers
Ronald E. Johnson 4.2% 0.03% 2.2% 1,107 .6%
Keith E. Alessi(a) 22.9% 0.2% 11.9% 6,199 3.2%
Michael E. Julian, Jr.(b) 37.5% 0.3% 19.5% 10,144 5.3%
Vincent J. Mastracco, Jr. - 1.2% 6,514 3.4%
All directors and officers 64.6% 1.7% 33.5% 23,964 2.5%
as a group (9 persons)(c)
Other 5% Stockholders
399 Venture Partners (d) 76.7% 28.7% 145,709 76.1%
Farm Fresh, Inc.(c) 31.2% .04% 5.4% 2,838 1.5%
Trustee for the DBL
Liquidating Trust (e) 4.0% 10.8%
</TABLE>
(a) The address of such beneficial owner is 4575 Bonney Road, Virginia Beach,
Virginia 23462.
(b) The address of such beneficial owner is P.O. Box 3409, Jackson, Mississippi
39207.
(c) The address of such beneficial owners is 7530 Tidewater Drive, Norfolk,
Virginia 23505.
(d) Venture Partners disclaims beneficial ownership as to 3,382 shares of Class
A Common Stock and 35,036 shares of Class B Common Stock held by certain
employees of Venture Partners and its affiliates. The address of Venture
Partners is 1209 Orange Street, Wilmington, Delaware 19801. Venture Partners
is a wholly-owned, indirect subsidiary of Citicorp.
(e) The address of such beneficial owner is 60 Broad Street, New York, New York
10004.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AND SHAREHOLDER DEBT. The Company made loans to certain
Management Investors to facilitate the purchase of FF Holdings Junior Debentures
and shares of Class A Common Stock and Class C Common Stock. The loans are
nonrecourse and are secured by the securities purchased with the proceeds of
such loans. These loans bear interest at 7.0% per annum and are due October
2004. At December 28, 1996, Mr. Julian, Mr. Alessi, Mr. Johnson and Susan Mayo,
a shareholder and former Vice President of the Company, owed the Company
$633,236, $334,544, $70,811 and $70,349, respectively.
REAL ESTATE PARTNERSHIPS. In 1996, Farm Fresh leased two of its
stores from three different general partnerships in which it owned 20%, 33% and
33% partnership interests, respectively. Farm Fresh currently leases one of its
stores from two different general partnerships in which it owns 33% partnership
interests. Farm Fresh also leases two of its combination stores from a Virginia
general partnership, of which one of the partners is Vincent J. Mastracco, Jr.,
a director of Farm Fresh and FF Holdings and a stockholder of FF Holdings.
Management believes the rent the Company pays each of these partnerships is at
prevailing market rates.
FAIR MARKETS. Michael E. Julian, Jr., Chairman of the Board, former
President and Chief Executive Officer of Farm Fresh and FF Holdings and a
stockholder of FF Holdings, and Keith Alessi, the Vice Chairman and former Chief
Financial Officer of Farm Fresh and FF Holdings and a stockholder of FF
Holdings, each own 500 shares, or 25%, of the Class A Common Stock of Fair
Markets Incorporated ("Fair Markets"). An affiliate of Venture Partners owns 999
shares of Class A Common Stock (49.9%), 3,500 shares of Series A Cumulative
preferred stock (100%) and 8,001 shares of Class B Common Stock (100%) of Fair
Markets. Fair Markets and its wholly owned subsidiary, Marketplace Acquisition
Company, owed the Company $522,944 at December 30, 1995. Fair Markets sold its
stores in 1996, and the entire receivable was repaid to the Company.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. The Consolidated Financial Statements are included in Exhibit
99.1.
2. The following Financial Statement Schedules are included in
Exhibit 99.2:
Schedule II - Valuation and Qualifying Accounts.
3. The exhibits on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form 10-K and the
Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Registrant has not sent its security holders an annual report covering
the Registrant's last fiscal year or a proxy statement, form of proxy or other
proxy soliciting material with respect to the annual meeting of the Registrant's
security holders.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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 on April 12 , 1997.
FF HOLDINGS CORPORATION
By /s/ Ronald E. Johnson
---------------------
Ronald E. Johnson
DIRECTOR, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
In accordance with the Exchange Act, this Report has been signed by
the following persons in the capacities and on the dates stated. Each person, in
so signing, also makes, constitutes and appoints Ronald E. Johnson and Vincent
J. Mastracco, Jr. and each of them individually, his true and lawful
attorney-in-fact in his place and stead, with full power of substitution, to
execute and cause to be filed with the Securities and Exchange Commission, any
and all amendments to this Report, including any exhibits or other documents
filed in connection therewith.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Michael E. Julian, Jr. Chairman of the Board of April 14, 1997
- ------------------------------ Directors
Michael E. Julian, Jr.
/s/ Ronald E. Johnson Director, President, April 14, 1997
- ------------------------------ Chief Executive Officer
Ronald E. Johnson (Principal Executive Officer)
/s/ Keith E. Alessi Director April 14, 1997
- ------------------------------
Keith E. Alessi
Director April 14, 1997
- ------------------------------
Stuart L. Arganoff
/s/ Vincent J. Mastracco, Jr. Director April 14, 1997
- ------------------------------
Vincent J. Mastracco
/s/ Barton J. Winokur Director April 14, 1997
- ------------------------------
Barton J. Winokur
/s/ Richard D. Coleman Executive Vice President April 14, 1997
- ------------------------------ Administration Chief Financial
Richard D. Coleman Officer (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NUMBER
<S> <C>
3.1 Articles of Incorporation of FF Holdings Corporation., as *
amended. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-4, Registration
No. 33-54928, filed with the Securities and Exchange
Commission on November 23, 1992)
3.2 Bylaws of FF Holdings Corporation (incorporated herein by *
reference to the Registrant's Registration Statement on Form
S-4, Registration No. 33-54928, filed with the Securities and
Exchange Commission on November 23, 1992)
4.1 Form of the Indenture dated as of October 1, 1992, by and
between FF Holdings Corporation and First National Bank
Association Trustee, relating to the 14.25% Senior Notes due
2002. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Amendment No. 1,
Registration No. 33-54928, filed with the Securities and
Exchange Commission on January 28, 1993)
4.2 Form of 12.25% Senior Notes of Farm Fresh, Inc. (attached as *
Exhibit A to Exhibit 4.1 above). (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-1, Amendment No. 1, Registration No. 33-50458, filed with
the Securities and Exchange Commission on January 28, 1993)
10.1(a) Amended and Restated Credit, Security, Pledge and Guaranty *
Agreement, dated as of March 30, 1990, among Farm Fresh, Inc.,
Debtors and Guarantors referenced to therein, Lenders referred
to therein and Chemical Bank, as Administrative Agent, and
Crestar Bank and LTCB Trust Company, as Co-agents.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.1(b) Amendment No. 1, dated as of September 28, 1990 to the Amended *
and Restated Credit, Security, Pledge and Guaranty Agreement
dated as of March 30, 1990, among Farm Fresh, Inc., Debtors
and Guarantors referenced to therein, Lenders referred to
therein and Chemical Bank, as Administrative Agent, and
Crestar Bank and LTCB Trust Company, as Co-agents.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.1(c) Amendment No. 2, dated as of December 31, 1990 to the Amended *
and Restated Credit, Security, Pledge and Guaranty Agreement
dated as of March 30, 1990, among Farm Fresh, Inc., Debtors
and Guarantors referenced to therein and Chemical Bank, as
Administrative Agent, and Crestar Bank and LTCB Trust Company
as Co-agents. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-4, Registration
No. 33-54928, filed with the Securities and Exchange
Commission on November 13, 1992)
10.1(d) Amendment No. 3, dated December 31, 1991 to the Amended and *
Restated Credit, Security, Pledge and Guaranty Agreement dated
as of March 30, 1990, among Farm Fresh, Inc., Debtors and
Guarantors referred to therein, Lenders referred to therein
and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-4, Registration No. 33-54928, filed with the Securities and
Exchange Commission on November 23, 1992)
10.1(e) Amendment No. 4, dated June 15, 1992 to the Amended and *
Restated Credit, Security, Pledge and Guaranty Agreement dated
as of March 30, 1990, among Farm Fresh, Inc., Debtors and
Guarantors referred to therein, Lenders referred to therein
and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-4, Registration No. 33-54928, filed with the Securities and
Exchange Commission on November 23, 1992)
10.1(f) Amendment No. 5, dated July 15, 1992 to the Amended and *
Restated Credit, Security, Pledge and Guaranty Agreement dated
as of March 30, 1990, among Farm Fresh, Inc., Debtors and
Guarantors referred to therein, Lenders referred to therein
and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-4, Registration No. 33-54928 filed with the Securities and
Exchange Commission on November 23, 1992)
10.1(g) Amendment No. 6, dated July 15, 1992 to the Amended and *
Restated Credit, Security, Pledge and Guaranty Agreement dated
as of March 30, 1990, among Farm Fresh, Inc., Debtors and
Guarantors referred to therein, Lenders referred to therein
and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-4, Registration No. 33-54928, filed with the Securities and
Exchange Commission on November 23, 1992)
10.1(h) Amendment No. 7, dated October 2, 1992 to the Amended and *
Restated Credit, Security, Pledge and Guaranty Agreement dated
as of March 30, 1990, among Farm Fresh, Inc., Debtors and
Guarantors referred to therein, Lenders referred to therein
and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-4, Registration No. 33-54928, filed with the Securities and
Exchange Commission on November 23, 1992)
10.1(i) Amendment No. 8, dated February 12, 1993 to the Amended and *
Restated Credit, Security, Pledge and Guaranty Agreement dated
as of March 30, 1990, among Farm Fresh, Inc., Debtors and
Guarantors referred to therein, Lenders referred to therein
and Chemical Bank, as Administrative Agent, and Crestar Bank
and LTCB Trust Company, as Co-agents. (incorporated herein by
reference to the Registrant's Registration Statement on Form
S-1, Registration No. 33-60364, filed with the Securities and
Exchange Commission on March 31, 1993)
10.2 Deed of Trust and Security Agreement by Farm Fresh, Inc. to *
William J. Dorn and Mark S. Abraham, as Trustees, for the
benefit of Metropolitan Life Insurance Company, dated
September 27, 1990, securing the aggregate principal amount of
$17,000,000. (incorporated herein by reference to the
Registrant's Registration Statement on Form S-4, Registration
No. 33-54928, filed with the Securities and Exchange
Commission on November 23, 1992)
10.3 Letter dated July 13, 1992 from Metropolitan Life Insurance *
Company waiving certain defaults under the Mortgage Facility.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.4(a) Indenture, dated as of March 1, 1985, between Farm Fresh, Inc. *
and United Virginia Bank as Trustee, relating to the 7%
Convertible Subordinated Debentures due 2010 - of Farm Fresh,
Inc. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.4(b) First Supplemental Indenture dated as of September 22, 1988. *
(incorporated herein by reference to FF Holdings Corporation's
Form 10-K, filed with the Securities and Exchange Commission
on March 31, 1995)
10.5 Asset Purchase Agreement, dated April 19, 1989, between Farm *
Fresh, Inc., Open Air Markets, Inc. and Giant Enterprises,
Inc. (incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.6 Supply Agreement, dated as of April 12, 1991, among Richfood, *
Inc., FF Holdings Corporation, Farm Fresh, Inc., Nick's
Markets, Inc. and Fair Markets, Incorporated. (incorporated
herein by reference to the Registrant's Registration Statement
on Form S-4, Registration No. 33-54928, filed with the
Securities and Exchange Commission on November 23, 1992)
10.7 Asset Purchase Agreement, dated April 5, 1991, between Farm *
Fresh, Inc. and Richfood, Inc. regarding the purchase of
certain stores located in Raleigh, North Carolina.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.8 License and Consulting Agreement, dated April 30, 1991, *
between Farm Fresh, Inc. and Fair Markets, Incorporated.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.9 Asset Purchase Agreement, dated February 28, 1992, between *
Nick's Markets, Inc. and Virginia Supermarkets, Inc.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.10 Asset Purchase Agreement, dated February 28, 1992, between *
Fair Markets, Incorporated and Virginia Supermarkets, Inc.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.11 Stock Purchase Agreement, dated August 18, 1992, between Farm *
Fresh, Inc. and Virginia Supermarkets, Inc. (incorporated
herein by reference to the Registrant's Registration Statement
on Form S-4, Registration No. 33-54928, filed with the
Securities and Exchange Commission on November 23, 1992)
10.12 Farm Fresh, Inc. Interest Rate Swap Agreement between Farm *
Fresh, Inc. and Chemical Bank dated March 30, 1990.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.13 Asset Purchase Agreement, dated March 6, 1992, between Fair *
Markets, Incorporated and Virginia Supermarkets, Inc.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-4, Registration No. 33-54928,
filed with the Securities and Exchange Commission on November
23, 1992)
10.14 Asset Purchase Agreement, dated November 18, 1993, by and *
between Safeway Stores 58, Inc., Safeway, Inc., and Farm
Fresh, Inc. (incorporated herein by reference to FF Holdings
Corporation's Form 8-K filed with the Securities and Exchange
Commission on December 28, 1993)
10.15 Revolving Credit Agreement, dated December 10, 1993, by and *
between Farm Fresh, Inc., certain guarantors and lenders and
NatWest USA Credit Corp. (incorporated herein by reference to
FF Holdings Corporation's Form 8-K filed with the Securities
and Exchange Commission on December 28, 1993)
10.16 First Amendment to Supply Agreement, dated December 7, 1993, *
by and between Richfood, Inc., FF Holdings Corporation, Farm
Fresh, Inc. and Fair Markets, Incorporated. (Incorporated
herein by reference to the Registrant's Form 8-K filed with
the Securities and Exchange Commission on December 28, 1993)
10.17 First Amendatory Agreement, dated March 25, 1994, by and *
between Farm Fresh, Inc., certain guarantors and lenders and
NatWest USA Credit Corp. (incorporated herein by reference to
FF Holdings Corporation's Form 10-K filed with the Securities
and Exchange Commission on March 31, 1995)
10.18 Second Amendatory Agreement, Consent and Waiver, dated *
September 23, 1994, by and between Farm Fresh, Inc., certain
guarantors and lenders and NatWest USA Credit Corp.
(incorporated herein by reference to FF Holdings Corporation's
Form 10-K filed with the Securities and Exchange Commission on
March 31, 1995)
10.19 Third Amendatory Agreement, dated as of June 19, 1994, by and *
between Farm Fresh, Inc., certain guarantors and lenders and
NatWest USA Credit Corp. (incorporated herein by reference to
FF Holdings Corporation's Form 10-K filed with the Securities
and Exchange Commission on March 31, 1995)
10.20 Fourth Amendatory Agreement, dated December 31, 1994, by and *
between Farm Fresh, Inc., certain guarantors and lenders and
NatWest USA Credit Corp. (incorporated herein by reference to
FF Holdings Corporation's Form 10-K filed with the Securities
and Exchange Commission on March 31, 1995)
10.21 Asset Purchase Agreement, dated July 31, 1995, by and between *
Farm Fresh, Inc. and Hannaford Bros. Co. (Incorporated herein
by referenced to FF Holdings Corporation's Form 8-K filed with
the Securities and Exchange Commission on October 9, 1995)
10.22 Fifth Amendatory Agreement, dated as of September 25, 1995, by *
and between FF Holdings Corporation, Farm Fresh, Inc. certain
lenders and NatWest USA Credit Corp. (Incorporated herein by
referenced to FF Holdings Corporation's Form 8-K filed with
the Securities and Exchange Commission on October 9, 1995)
10.23 Sixth Amendatory Agreement, dated September 9, 1995, by and *
between Farm Fresh, Inc., FF Holdings Corporation., certain
guarantors and lenders and NatWest USA Credit Corp.
(Incorporated herein by referenced to FF Holdings
Corporation's Form 10-K for the year ended December 30, 1995,
Commission File No. 33-54928, previously filed with the
Commission.)
10.24 Seventh Amendatory Agreement, dated May 15, 1996, by and *
between Farm Fresh, Inc., FF Holdings Corporation, certain
guarantors and lenders and NatWest USA Credit Corp.
(Incorporated herein by referenced to FF Holdings
Corporation's Form 10-Q for the quarter ended September 7,
1996, Commission File No. 33-54928, previously filed with the
Commission.)
10.25 Eight Amendatory Agreement, dated March 31, 1996, by and *
between Farm Fresh, Inc., FF Holdings Corporation, certain
guarantors and lenders and NatWest USA Credit Corp.
(Incorporated herein by referenced to FF Holdings
Corporation's Form 10-Q for the quarter ended September 7,
1996, Commission File No. 33-54928, previously filed with the
Commission.)
10.26 Ninth Amendatory Agreement, dated September 30, 1996, by and *
between Farm Fresh, Inc., FF Holdings Corporation, certain
guarantors and lenders and NatWest USA Credit Corp.
(Incorporated herein by referenced to FF Holdings
Corporation's Form 10-Q for the quarter ended September 7,
1996, Commission File No. 33-54928, previously filed with the
Commission.)
**10.27 Tenth Amendatory Agreement, Consent and Waiver dated November
5, 1996, by and between Farm Fresh, Inc., certain guarantors
and lenders and Fleet Bank, N.A.
**10.28 Waiver and Eleventh Amendatory Agreement, dated February 21,
1997, by and between Farm Fresh, Inc., certain guarantors and
lenders and Fleet Bank, N.A.
**10.29 Waiver and Twelfth Amendatory Agreement, dated April 10, 1997,
by and between Farm Fresh, Inc. certain guarantors and lenders
and Fleet Bank, N.A.
**10.30 Employment Agreement, dated March 4, 1997, by and between Farm
Fresh, Inc. and Ronald E. Johnson.
**10.31 Employment Agreement, dated March 4, 1997, by and between Farm
Fresh, Inc. and Richard D. Coleman.
**10.32 Form Employment Agreement No. 1 for Vice Presidents and
District Managers.
**10.33 Form Employment Agreement No. 2 for Vice Presidents and
District Managers
21 List of subsidiaries of FF Holdings Corporation. (Incorporated
herein by reference to FF Holdings Corporation's Registration
Statement on Form S-4, Commission File No. 33-54928,
previously filed with the Commission.)
**27 Financial Data Schedule
**99.1 Consolidated Financial Statements
**99.2 Financial Statement Schedules
================================================================================
</TABLE>
* Not filed herewith. In accordance with Rule 12(b)-32 of the General Rules
and Regulations under the Securities Exchange Act of 1934, the exhibit is
incorporated by reference.
** Filed herewith.
EXHIBIT 10.27
TENTH AMENDATORY AGREEMENT,
CONSENT AND WAIVER
FLEET BANK, N.A. (formerly known as
NATWEST USA CREDIT CORP.), as Agent and as a Lender
175 Water Street
New York, New York 10038
HELLER FINANCIAL, INC., as a Lender
101 Park Avenue
New York, New York 10178
as of November 5, 1996
FARM FRESH, INC.
FF HOLDINGS CORPORATION
c/o Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, Virginia 23501
Re: Revolving Credit Agreement dated as of December 10, 1993 (as
amended to date, the "Credit Agreement") among Farm Fresh,
Inc., the Guarantors named therein, the Lenders named therein,
and Fleet Bank, N.A. (formerly known as NatWest USA Credit
Corp.), as Agent
Ladies and Gentlemen:
Reference is made to the above-captioned Credit Agreement.
You have advised the Agent and Lenders that the Borrower desires to (i) enter
into an agreement (the "Store # 732 Agreement") between the Borrower and Staples
Inc. ("Staples"), pursuant to which the Borrower intends to sell and assign, and
Staples intends to purchase and assume, the lease dated December 2, 1981 (as
amended, the "Store # 732 Lease Agreement") between the Borrower and O.T.R., an
Ohio general partnership, with respect to Store # 732 of the Borrower located in
Williamsburg, Virginia for a purchase price (before deduction for reasonable and
customary transaction fees and expenses) of approximately $512,880 (the
foregoing sale and assignment, the "Store 732 Sale") and (ii) enter into an
agreement dated on or about October 1, 1994, as amended (the "Williams Court
Shopping Center Agreement", and together with the Store # 732 Agreement, each an
"Agreement" and collectively, the "Agreements") between the Borrower and each of
Beacon Realty Corp. and Victory Village Limited Partnership (collectively, the
"Williams Court Real Property Purchasers"), pursuant to which the Borrower
intends to sell, and the Williams Court Real Property Purchasers intend to
purchase, the approximately 26 acre unimproved tract of real property described
on Schedule A hereto and located in Portsmouth, Virginia (the "Williams Court
Real Property" and, together with the Store #732 Lease Agreement, the "Sold
Assets") for a purchase price (before deduction for reasonable and customary
fees and expenses) of approximately $375,000 (the foregoing sale, the "Williams
Court Real Property Sale" and, together with the Store 732 Sale, each a "Sale"
and collectively, the "Sales").
Section 7.05 of the Credit Agreement restricts the
ability of the Borrower to sell, assign or otherwise dispose of any of its
assets. Section 2.07(c) of the Credit Agreement requires that the Commitment
thereunder be reduced in connection with certain asset sale transactions.
Section 2.09(f) of the Credit Agreement requires that the Borrower give the
Agent certain prior written notice with respect to certain events, including
certain prepayments.
You have requested that the Agent and Lenders (a)
consent to each of the Sales as described in this Amendment, Consent and Waiver;
(b) waive with respect to the Sales their right to the prior written notice of
prepayment as required under Section 2.09(f) of the Credit Agreement; (c) waive
with respect to the Sales their right to a Commitment reduction as referenced in
Section 2.07(c) of the Credit Agreement; and (d) release any security interest
of the Agent with respect to the Williams Court Real Property and with respect
to the Store #732 Lease Agreement.
Subject to the terms and conditions hereof, upon the
effectiveness of this Tenth Amendatory Agreement, Consent and Waiver, the Agent
and Lenders hereby (a) consent to the Sales; (b) waive their right to the prior
written notice of prepayment in connection with the Sales as required under
Section 2.09(f) of the Credit Agreement; (c) waive their right to a Commitment
reduction in connection with the Sales as referenced in Section 2.07(c) and (d)
release any lien and/or security interest in their favor in the Sold Assets;
provided, however, that the foregoing consent and waiver shall be limited to the
Sales as described herein and shall not apply to any other transaction; and
provided, further, that this Amendment, Consent and Waiver shall not diminish
any of the rights, powers and remedies of the Agent or Lenders under the Credit
Agreement or otherwise with respect to any other existing or future transaction.
This Amendment, Consent and Waiver shall be effective
only upon satisfaction of the following conditions precedent:
1. The Agent shall have received a true and
complete copy of all material agreements, documents, and instruments entered
into in connection with the Sales (collectively, the "Transaction Documents"),
each of the foregoing to be in form and substance satisfactory to the Agent and
the Lenders, and the Borrower shall have certified to the Agent and the Lenders
that the Sales shall have been consummated in accordance with the terms of the
Transaction Documents applicable to it and applicable law.
2. The Agent and Lenders shall have received
either (i) the consent with respect to the Sales of all of the holders of the
Borrower's senior unsecured indebtedness and Subordinated Indebtedness or (ii)
an opinion of counsel stating that the Sales do not conflict with or violate in
any manner the terms of any of the Borrower's Senior Notes (or the related
Senior Indenture) or Subordinated Indebtedness or in any manner affect status of
the Obligations under the Credit Agreement regarding the subordination
provisions of the Borrower's Subordinated Indebtedness, the foregoing to be in
form and substance satisfactory to the Agent and the Lenders.
3. The Agent shall have received counterparts
to this Amendment, Consent and Waiver, duly executed and delivered by each of
the Agent, the Lenders, the Borrower and the Guarantors, and the Agent shall
have additionally received all of the following documents, each document being
dated the effective date of this Amendment, Consent and Waiver, in form and
substance satisfactory to the Agent:
(a) a certificate of the Secretary
or an Assistant Secretary of the Borrower and the Guarantor certifying the names
and true signatures of their respective officers authorized to sign this
Amendment, Consent and Waiver and the other documents to be delivered hereunder;
(b) certified copies of (i) the
resolutions of the Board of Directors of the Borrower and the Guarantor
approving this Amendment, Consent and Waiver and (ii) all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Amendment, Consent and Waiver and the matters contemplated
hereby;
(c) a certificate signed by a duly
authorized officer of each of the Borrower and the Guarantor stating that: (i)
the representations and warranties of the Borrower as set forth in Article IV of
the Credit Agreement and in any documents delivered therewith, including the
Loan Documents, are true and correct on and as of the date of such certificate
as though made on and as of such date (except insofar as such representations
and warranties relate expressly to an earlier date or are based on the accuracy
of schedules prepared as of a prior date); (ii) the execution, delivery and
performance by the Borrower and the Guarantor of this Amendment, Consent and
Waiver, and the Transaction Documents are within the Borrower's and Guarantor's
corporate powers, have been duly authorized by all necessary corporate action
and do not contravene (x) the charter or by-laws, and (y) any law or any
contractual restriction binding on or affecting the Borrower or the Guarantor;
(iii) no authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Borrower or the Guarantor of this
Amendment, Consent and Waiver; (iv) this Amendment, Consent and Waiver and each
of the Transaction Documents constitute the legal, valid and binding obligations
of the Borrower and the Guarantor enforceable against the Borrower and the
Guarantor in accordance with their respective terms; (v) there is no pending or
threatened action or proceeding affecting the Borrower, the Guarantor or any of
their respective subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the financial condition or
operations of the Borrower, the Guarantor or any subsidiary or which purports to
affect the legality, validity or enforceability of this Amendment, Consent and
Waiver, and/or any of the Transaction Documents; and
(d) a favorable opinion of Kaufman &
Canoles, counsel for the Borrower and the Guarantor, in a form reasonably
acceptable to the Agent and Lenders.
4. The entire net proceeds of the Sold Assets (to a
maximum amount equal to the principal amount of Loans outstanding at such time)
shall have been applied by the Borrower to a repayment of the outstanding
principal balance of the Loans, but such repayment will not reduce the
Commitment under the Credit Agreement.
The parties hereto acknowledge that the Store #732 Sale
and the Williams Court Real Property Sale may each be consummated on the same or
different dates and that the foregoing conditions precedent with respect to such
Sale may be satisfied on the same or on different dates. In the event that the
conditions precedent have been satisfied with respect to the Sales on different
dates or with respect to one Sale and not the other, then the consent of the
Agent and the Lenders shall be limited to the Sale for which all conditions
precedent have been satisfied.
By your signature below, you jointly and severally (a)
repeat each of the representations and warranties set forth in Article IV of the
Credit Agreement and in any documents delivered therewith, including the Loan
Documents, (except insofar as such representations and warranties relate
expressly to an earlier date or are based on the accuracy of schedules prepared
as of a prior date); (b) certify that, both before and after giving effect to
the Sales, the terms of this Amendment, Consent and Waiver and the terms of the
Transaction Documents, no Default or Event of Default has occurred and is
continuing (other than as the Borrower has notified the Agent in writing on or
before the effective date of this Amendment, Consent and Waiver); and (c)
confirm and reaffirm all collateral security, guarantees and other agreements
executed or furnished by you in connection with the Credit Agreement.
Except as modified hereby, all terms and conditions of
the Credit Agreement and the Loan Documents remain in full force and effect.
Terms used but not defined herein shall have the meaning
assigned thereto in the Credit Agreement.
The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Amendment, Consent and Waiver
and the other instruments and documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Agent with respect thereto and with respect to advising the Agent as to
its rights and responsibilities hereunder and thereunder. The Borrower further
agrees to pay on demand all costs and expenses, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Amendment, Consent and Waiver and the other instruments and documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this paragraph. In
addition, the Borrower shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of this
Amendment, Consent and Waiver and the other instruments and documents to be
delivered hereunder, and agrees to save the Agent and each Lender harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omitting to pay such taxes.
This Amendment, Consent and Waiver may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
This Amendment, Consent and Waiver shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
FLEET BANK, N.A. (formerly known as
NATWEST USA CREDIT CORP.), as
Agent and as Lender
By: /s/ FLEET BANK
-------------------
Title:
HELLER FINANCIAL, INC., as
Lender
By: /s/ HELLER FINANCIAL, INC.
-----------------------------
Title:
FARM FRESH, INC.
By: /s/ FARM FRESH, INC.
-----------------------
Title:
FF HOLDINGS CORPORATION, as Guarantor
By: /s/ FF HOLDINGS CORPORATION
-----------------------------
Title:
<PAGE>
Schedule A
Williams Court Real Property Description
All those three certain tracts or parcels of land situate, lying and being in
the City of Portsmouth, Virginia, containing ten (10) acres, more or less, and
0.51 Acres, more or less, and sixteen point two six (16.26) acres, more or less,
respectively, and designated as "PARCEL B-1A", "PUMP STATION SITE" and "PARCEL
B-3" on the plat entitled, "MINOR SUBDIVISION OF PARCELS B-1 AND B-2, PROPERTY
OF FARM FRESH, INC. (M.B.13, PG.9), PORTSMOUTH, VIRGINIA," dated August 6, 1996,
and made by Hoggard/Eure Associates, P.C., of record in the Clerk's Office of
the Circuit Court for the City of Portsmouth, Virginia (the "Clerk's Office"),
in Map Book 16, page 165, to which plat reference is here made for a more
accurate and particular description of the said property.
Together with and subject to:
1. Easements, covenants, restrictions, and rights contained in declaration dated
August 1, 1988, of record in the Clerk's Office in Deed Book 1012, page 1504;
amended by amendment of declaration dated October 20, 1988, of record in the
Clerk's Office in Deed Book 1018, page 164; and further amended by second
amendment of declaration dated December 28, 1989, of record in the Clerk's
Office in Deed Book 1034, page 1757.
2. Easements and rights contained in reciprocal easement agreement dated
December 28, 1989, of record in the Clerk's Office in Deed Book 1034, page 1762;
amended by first amendment to reciprocal easement agreement dated September 25,
1995, of record in the Clerk's Office in Deed Book 1156, page 1814.
It being a portion of the property that was conveyed to the Grantor by Deed of
the City of Chesapeake, a municipal corporation, dated December 14, 1983, and
recorded in the Clerk's Office in Deed Book 870, at page 660.
Exhibit 10.28
WAIVER AND ELEVENTH AMENDATORY AGREEMENT
DATED AS OF FEBRUARY 21, 1997
This WAIVER AND ELEVENTH AMENDATORY AGREEMENT is among
FARM FRESH, INC., a Virginia corporation (the "Borrower"), the guarantors
parties to the Credit Agreement referred to below (the "Guarantors"), the
lenders parties to the Credit Agreement referred to below (the "Lenders"), and
FLEET BANK, N.A. (as successor to NatWest USA Credit Corp.), as agent (the
"Agent") for the Lenders thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Guarantors, the Lenders
and the Agent have entered into a Revolving Credit Agreement dated as of
December 10, 1993 (as amended to date, the "Credit Agreement"); the terms
defined therein being used herein as therein defined unless otherwise defined
herein.
(2) The Borrower and the Lenders have, on the
terms and conditions stated below, agreed to waive and amend certain of the
terms of the Credit Agreement as hereinafter set forth.
SECTION 1. Waiver. The Borrower has advised the Agent
and the Lenders of the Borrower's non-compliance (the "Non-Compliance") with
Section 7.07 of the Credit Agreement (Capital Expenditures), as the result of
the Capital Expenditures of the Borrower and its subsidiaries for the Fiscal
Year ending December, 1996 being $21,000,000, instead of the $18,000,000 Maximum
Amount under the Credit Agreement. Effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 3 hereof,
the Agent and the Lenders each hereby waive any Event of Default arising out of
the Borrower's Non-Compliance with Section 7.07 of the Credit Agreement;
provided, however, that the foregoing waiver shall be limited to the
Non-Compliance with Section 7.07 of the Credit Agreement and shall not apply to
any other non-compliances with the terms of the Credit Agreement or any other
Loan Documents. With respect to the aforementioned Non-Compliance with the
Capital Expenditures covenant for the Fiscal Year ending December, 1996, the
foregoing waiver shall also be effective as of December 28, 1996.
SECTION 2. Amendments to Credit Agreement. Effective
as of the date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended
as follows:
Section 7.07 of the Credit Agreement is hereby amended
by deleting the table set forth therein and by substituting therefor the
following table:
"Period" Maximum Amount
------ --------------
Fiscal Year ending December 28, 1996 $21,000,000
Fiscal Year ending December 27, 1997 $ 8,000,000
and each Fiscal Year thereafter"
SECTION 3. Conditions of Effectiveness. This Waiver and Amendatory
Agreement shall be operative as of the date hereof but shall become effective
when, and only when, the Agent shall have received (x) counterparts of this
Waiver and Amendatory Agreement executed by the Borrower and the Lenders or, as
to any of said Lenders, advice satisfactory to the Agent that such Lender has
executed this Waiver and Amendatory Agreement and (y) all of the following
documents, each document (unless otherwise indicated) being dated the effective
date, in form and substance satisfactory to the Agent:
(a) a certificate of the Secretary
or an Assistant Secretary of the Borrower and the Guarantor certifying the
names and true signatures of their respective officers authorized to sign this
Waiver and Amendatory Agreement, and the other documents to be delivered
hereunder;
(b) a certificate signed by a duly
authorized officer of the Borrower stating that:
(i) the representations
and warranties of the Borrower as set forth in Article IV of the Credit
Agreement and in any documents delivered therewith, including the Loan
Documents, are true and correct on and as of the date of such certificate as
though made on and as of such date (except insofar as such representations and
warranties relate expressly to an earlier date or are based on the accuracy of
schedules prepared as of a prior date),
(ii) the representations
and warranties contained in Section 4 hereof are correct on and as of the
date of such certificate as though made on and as of such date, and
(iii) after giving
effect to this Waiver and Amendatory Agreement, no Default or Event of
Default has occurred and is continuing.
(c) certified copies of (i) the
resolutions of the Board of Directors of the Borrower and of the Guarantor
approving this Waiver and Amendatory Agreement and (ii) all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Waiver and Amendatory Agreement and the matters contemplated
hereby; and
(d) a favorable opinion of Kaufman &
Canoles, counsel for the Borrower and the Guarantor, in a form reasonably
acceptable to the Agent and Lenders.
SECTION 4. Representations and Warranties of the
Borrower. The Borrower represents and warrants as follows:
(a) The execution, delivery and
performance by the Borrower of this Waiver and Amendatory Agreement and the
Credit Agreement as amended hereby are within the Borrower's and the Guarantor's
corporate powers, have been duly authorized by all necessary corporate action
and do not contravene (i) the charter or by-laws, and (ii) any law or any
contractual restriction binding on or affecting the Borrower or the Guarantor.
(b) No authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower or the Guarantor of this Waiver and Amendatory Agreement and the
Credit Agreement as amended hereby.
(c) This Waiver and Amendatory
Agreement and the Credit Agreement as amended hereby, constitute legal, valid
and binding obligations of the Borrower and the Guarantor enforceable against
the Borrower and the Guarantor in accordance with their respective terms.
(d) There is no pending or
threatened action or proceeding affecting the Borrower, the Guarantor or
any of their respective subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the financial condition or
operations of the Borrower, the Guarantor or any subsidiary thereof or which
purports to affect the legality, validity or enforceability of this Waiver and
Amendatory Agreement and the Credit Agreement as amended hereby.
(e) The execution, delivery and
performance of this Waiver and Amendatory Agreement does not conflict with or
violate in any manner the terms of any of the Borrower's Senior Notes (or the
related Senior Indenture) or Subordinated Indebtedness or in any manner affect
the status of the Obligations under the Credit Agreement regarding the
subordination provisions of the Borrower's Subordinated Indebtedness.
SECTION 5. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of this Waiver
and Amendment, on and after the date hereof each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement," "thereunder," "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby.
(b) Except as specifically amended
above, the Credit Agreement and the Notes, and all other Loan Documents, are
and shall continue to be in full force and effect and are hereby in all respects
ratified and confirmed.
(c) The execution, delivery and
effectiveness of this Waiver and Amendatory Agreement shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Agent under any of the Loan Documents, nor constitute a waiver
of any provision of any of the Loan Documents.
SECTION 6. Costs, Expenses and Taxes. The Borrower
agrees to pay on demand all costs and expenses of the Agent in connection with
the preparation, execution, delivery, administration, modification and amendment
of this Waiver and Amendatory Agreement and the other instruments and documents
to be delivered hereunder, including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel for the Agent with respect thereto and
with respect to advising the Agent as to its rights and responsibilities
hereunder and thereunder. The Borrower further agrees to pay on demand all costs
and expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Waiver and Amendatory Agreement and the
other instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 6. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Waiver and Amendatory
Agreement and the other instruments and documents to be delivered hereunder, and
agrees to save the Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omitting to
pay such taxes.
SECTION 7. Execution in Counterparts. This Waiver and
Amendatory Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Waiver and Amendatory
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Waiver and Amendatory Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
FARM FRESH, INC.
By:/s/ Farm Fresh, Inc.
--------------------
Name:
Title:
FF HOLDINGS CORPORATION,
as Guarantor
By:/s/ FF Holdings Corporation
---------------------------
Name:
Title:
FLEET BANK, N.A., (as successor
to NatWest USA Credit Corp.), as Lender
By:/s/ Thomas Maiale
-----------------
Name: Thomas Maiale
Title: Vice President
FLEET BANK, N.A. (as successor to
NatWest USA Credit Corp.), as Agent
By:/s/ Thomas Maiale
-----------------
Name: Thomas Maiale
Title: Vice President
HELLER FINANCIAL, INC., as Lender
By:/s/ Salvatore A. Salzillo
-------------------------
Name: Salvatore A. Salzillo
Title: Assistant Vice President
EXHIBIT 10.29
TWELFTH AMENDATORY AGREEMENT
This TWELFTH AMENDATORY AGREEMENT, dated as of April 10,
1997, is among FARM FRESH, INC., a Virginia corporation (the "Borrower"), the
guarantors parties to the Credit Agreement referred to below (the "Guarantors"),
the lenders parties to the Credit Agreement referred to below (the "Lenders"),
and FLEET BANK, N.A. (as successor to NatWest USA Credit Corp.), as agent (the
"Agent") for the Lenders thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Guarantors, the Lenders
and the Agent have entered into a Revolving Credit Agreement dated as of
December 10, 1993 (as amended to date, the "Credit Agreement"); the terms
defined therein being used herein as therein defined unless otherwise defined
herein.
(2) The Borrower and the Lenders have, on the
terms and conditions stated below, agreed to amend certain of the terms of the
Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. Effective
as of the date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, the Credit Agreement is hereby amended
as follows:
(a) The definition of "EBITDA" in Article I of the
Credit Agreement is hereby amended by adding the phrase "(for the fiscal year
ended December 28, 1996, an amount not to exceed $4,000,000)" immediately after
the phrase "and for each fiscal year thereafter, an amount, not to exceed
$2,000,000 in the aggregate for any such fiscal year" in clause (vi) of such
definition.
(b) Section 7.07 of the Credit Agreement is hereby
amended by deleting the table set forth therein and by substituting therefor the
following table:
"Period Maximum Amount
------ --------------
Fiscal Year ending December 28, 1996 $21,000,000
Fiscal Year ending December 27, 1997 $6,000,000
and each Fiscal Year thereafter"
(c) Section 7.11 of the Credit Agreement is hereby
amended by deleting the table set forth therein and by substituting, in lieu
thereof, the following table:
"Date of Determination Amount
--------------------- ------
December 28, 1996 $37,000,000
March 22, 1997 $38,000,000
June 14, 1997 $37,500,000
September 6, 1997 $37,500,000
December 27, 1997 $40,000,000"
SECTION 2. Conditions of Effectiveness. This Amendatory Agreement
shall be operative as of the date hereof but shall become effective when, and
only when, the Agent shall have received (x) counterparts of this Amendatory
Agreement executed by the Borrower, the Guarantors and the Lenders or, as to any
of said Lenders, advice satisfactory to the Agent that such Lender has executed
this Amendatory Agreement and (y) all of the following documents, each document
(unless otherwise indicated) being dated the effective date, in form and
substance satisfactory to the Agent:
(a) a certificate of the Secretary
or an Assistant Secretary of the Borrower and the Guarantor certifying the names
and true signatures of their respective officers authorized to sign this
Amendatory Agreement and the other documents to be delivered hereunder;
(b) a certificate signed by a duly
authorized officer of the Borrower stating that:
(i) the representations and warranties of
the Borrower as set forth in Article IV of the Credit
Agreement and in any documents delivered therewith,
including the Loan Documents, are true and correct on
and as of the date of such certificate as though made on
and as of such date (except insofar as such
representations and warranties relate expressly to an
earlier date or are based on the accuracy of schedules
prepared as of a prior date),
(ii) the representations and warranties
contained in Section 3 hereof are correct on and as of
the date of such certificate as though made on and as of
such date, and
(iii) after giving effect to this Amendatory
Agreement, no Default or Event of Default has occurred
and is continuing.
(c) certified copies of (i) the
resolutions of the Board of Directors of the Borrower and of the Guarantor
approving this Amendatory Agreement and (ii) all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
this Amendatory Agreement and the matters contemplated hereby; and
(d) a favorable opinion of Kaufman &
Canoles, counsel for the Borrower and the Guarantor, in a form reasonably
acceptable to the Agent and Lenders.
SECTION 3. Representations and Warranties of the
Borrower. The Borrower represents and warrants as follows:
(a) The execution, delivery and
performance by the Borrower and the Guarantor of this Amendatory Agreement and
the Credit Agreement as amended hereby are within the Borrower's and the
Guarantor's corporate powers, have been duly authorized by all necessary
corporate action and do not contravene (i) the charter or by-laws, and (ii) any
law or any contractual restriction binding on or affecting the Borrower or the
Guarantor.
(b) No authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower or the Guarantor of this Amendatory Agreement and the Credit
Agreement as amended hereby.
(c) This Amendatory Agreement and
the Credit Agreement as amended hereby, constitute legal, valid and binding
obligations of the Borrower and the Guarantor enforceable against the Borrower
and the Guarantor in accordance with their respective terms.
(d) There is no pending or
threatened action or proceeding affecting the Borrower, the Guarantor or any of
their respective subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the financial condition or
operations of the Borrower, the Guarantor or any subsidiary thereof or which
purports to affect the legality, validity or enforceability of this Amendatory
Agreement and the Credit Agreement as amended hereby.
(e) The execution, delivery and
performance of this Amendatory Agreement does not conflict with or violate in
any manner the terms of any of the Borrower's Senior Notes (or the related
Senior Indenture) or Subordinated Indebtedness or in any manner affect the
status of the Obligations under the Credit Agreement regarding the subordination
provisions of the Borrower's Subordinated Indebtedness.
SECTION 4. Reference to and Effect on the Loan
Documents.
(a) Upon the effectiveness of this
Amendatory Agreement, on and after the date hereof each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement," "thereunder," "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby.
(b) Except as specifically amended
above, the Credit Agreement, the Notes and all other Loan Documents are and
shall continue to be in full force and effect and are hereby in all respects
ratified and confirmed.
(c) The execution, delivery and
effectiveness of this Amendatory Agreement shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of any Lender
or the Agent under any of the Loan Documents, nor constitute a waiver of any
provision of any of the Loan Documents.
SECTION 5. Costs, Expenses and Taxes. The Borrower
agrees to pay on demand all costs and expenses of the Agent in connection with
the preparation, execution, delivery, administration, modification and amendment
of this Amendatory Agreement and the other instruments and documents to be
delivered hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities hereunder
and thereunder. The Borrower further agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Amendatory Agreement and the other
instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 5. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendatory Agreement and the
other instruments and documents to be delivered hereunder, and agrees to save
the Agent and each Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omitting to pay such taxes.
SECTION 6. Execution in Counterparts. This Amendatory
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
SECTION 7. Governing Law. This Amendatory Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendatory Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
FARM FRESH, INC.
By /s/ FARM FRESH, INC.
--------------------
Name:
Title:
FF HOLDINGS CORPORATION,
as Guarantor
By /s/ FF HOLDINGS CORPORAION
--------------------------
Name:
Title:
<PAGE>
FLEET BANK, N.A., (as successor
to NatWest USA Credit Corp.),
as Lender
By /s/ Thomas Maiale
-----------------
Name: Thomas Maiale
Title: Vice President
FLEET BANK, N.A. (as successor to
NatWest USA Credit Corp.),
as Agent
By /s/ Thomas Maisle
-----------------
Name: Thomas Maiale
Title: Vice President
HELLER FINANCIAL, INC., as Lender
By /s/ Salvatore A. Salzillo
-------------------------
Name: Salvatore A. Salzillo
Title: Assistant Vice President
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of this 4th day of March, 1997 (the "Effective Date") by and between
Farm Fresh, Inc., a Virginia corporation (the "Company"), and Ronald E. Johnson
(the "Executive").
BACKGROUND
The Company desires to employ Executive, and Executive
is willing to be employed by the Company, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
set forth herein, and intending to be legally bound hereby, the parties agree as
follows:
TERMS
SECTION 1. Employment. The Company hereby employs
Executive, and Executive hereby accepts such employment and agrees to serve as
the Company's President and Chief Executive Officer (the "President and CEO")
during the Employment Period set forth in Section 6, subject to the terms and
conditions hereinafter set forth.
SECTION 2. Management Duties. As President and CEO of
the Company during the Employment Period, Executive shall carry out such
duties as are commensurate and normally associated with the positions of
President and Chief Executive Officer, which duties shall however, in all cases,
be subject to policies set by, and at the direction and control of, the
Company's Board of Directors. The Company shall, subject to applicable fiduciary
duties of the Company's directors as advised by counsel, nominate the Executive
and use its best efforts to have Executive appointed or elected to serve on the
Company's Board of Directors at all times during the Employment Period.
SECTION 3. Extent of Services. During the Employment
Period, Executive shall devote substantially all his working time (during
normal business hours) and attention (other than during any illness and
vacations) and give his best efforts, skills and abilities to the management and
operations of the Company; it being understood and agreed that Executive shall
be permitted to manage his own personal affairs and serve as a director or
officer of any trade association, civic, corporate, educational or charitable
organization or governmental entity, provided that Executive's service does not
materially interfere with Executive's performance of his duties hereunder.
Executive shall report only and directly to the Company's Board of Directors.
Notwithstanding the above, the Executive shall not be required to perform any
duties or responsibilities which would be likely to result in a non-compliance
with or violation of any applicable law or regulation. Executive shall perform
his services hereunder only at the Company's Norfolk, Virginia offices and (with
the consent of the Executive) at such other places as are required for the
effective management of the Company (other than business travel).
SECTION 4. Compensation and Benefits.
(a) Executive shall receive, during the
Employment Period, from the Company as compensation for his services a salary
at the annual rate of Four Hundred Thousand Dollars ($400,000) per annum (the
"Base Salary"). The Base Salary shall be payable in equal installments at such
intervals as the Company pays its employees generally (but in no event less
frequently than once per month).
(b) Subject to Section 4(c), the Executive
shall be eligible to participate in an annual cash bonus program which shall
contain financial performance formulas and criteria to be agreed upon by the
Company and the Executive and pursuant to which the Company and the Executive
intend for Executive to be eligible to earn an amount equal to $200,000 upon
satisfaction of the specified financial performance formulas and criteria (the
"Operations Bonus Program"). The amount of each of the annual cash bonuses to
which Executive is entitled under the Operations Bonus Program shall be
determined and the bonus shall be paid to Executive as soon as the underlying
financial data is available (but in no event later than 90 days following the
end of the year for which the bonus is calculated).
(c) The Company, from time to time, may
consider engaging in one or more transactions involving the sale of the
Company and/or all or a portion of its assets, businesses and operations
(including, without limitation, as a merger, consolidation, sale of all or
substantially all of the capital stock of the Company or sale of all or a
portion of the Company's assets) pursuant to (x) a plan of reorganization which
has been confirmed under chapter 11 of title 11 of the United State Code and for
which an effective date thereunder has occurred (an "Effective POR"), or (y) a
full and complete consensual settlement or other restructuring to which the
Company and all of the Company's holders of indebtedness for borrowed money are
a party, or (z) an acquisition agreement between the Company and any acquiror
which, in the opinion of the Company's Board of Directors, contains
indemnification of third parties which is substantially similar (from the
perspective of third parties) to the releases that are customarily available to
third parties under an Effective POR (any such transaction following any one of
the conditions described in clause (x) or (y) or (z), a "Transaction"). In the
event that the aggregate Net Value (as defined below) of the consideration
received in connection with any Transaction(s) during the Employment Period
equals or exceeds $225,000,000 in the aggregate, the Executive shall be entitled
to receive from the Company a cash bonus (a "Transaction Bonus") equal to
$300,000 plus 1.8% of the positive difference (if any) between the Net Value of
the Transaction(s) and $225,000,000. As used herein, "Net Value" shall mean the
sum of: (i) in the case of any asset sale, the sum of the cash and fair market
value of all securities and other non-cash property received by the Company in
any Transaction, increased dollar-for-dollar by any indebtedness for borrowed
money assumed by the purchaser, and reduced dollar-for-dollar by any liabilities
(other than indebtedness for borrowed money) which are properly allocated to the
business sold in the Transaction but which are retained or paid by the Company;
and (ii) in the case of any Transaction other than an asset sale, the sum of the
cash and fair market value of all securities and other non-cash property
received by securityholders of the Company, reduced dollar-for-dollar by (x) any
proceeds from any other Transactions held or to be received by the Company
and/or its securityholders and (y) any liabilities (other than indebtedness for
borrowed money) which are properly allocated to the business sold in the
Transaction but which are retained or paid by such securityholders, and
increased dollar-for-dollar by the aggregate amount of then-existing
indebtedness for borrowed money (after giving effect to any actual or
contemplated debt forgiveness or other similar compromise of such indebtedness
in connection with such Transaction)(all of the foregoing "Net Value" as
reasonably determined by the Company's Board of Directors or any
nationally-recognized investment banking firm designated by the Company). The
amount of any Transaction Bonus to which Executive is entitled under this
Section 4(c) shall be determined and the bonus shall be paid to Executive as
soon as practicable (but in no event later than 90 days following the occurrence
of the latest Transaction for which a payment is owed under this Section 4(c)).
Notwithstanding anything to the contrary contained in this Agreement: (i)
aggregate Transaction Bonus payments owed under this Section 4(c) shall not
exceed $1,650,000 in the aggregate; and (ii) in the event that any Transaction
Bonus is owed with respect to Transactions occurring during any calendar year in
which a payment is otherwise owed pursuant to Section 4(b) under the Operations
Bonus Program, the Executive only shall receive the Transaction Bonus with
respect to such calendar year and no bonus shall be due or owing to the
Executive under the Operations Bonus Program with respect to such calendar year;
and (iii) if any payments (including Transaction Bonus payments) which the
Executive has the right to receive from the Company or any affiliated entities
under this Agreement would otherwise constitute an "excess parachute payment"
(as defined in Internal Revenue Code Section 280G, but determined without regard
to Section 280G(b)(5)(A)(ii)), such payments shall be reduced (the "Parachute
Reduction") pro rata (but not below zero) to the largest amount that will result
in no portion of any such payment being subject to the excise tax imposed by
Internal Revenue Code Section 4999. The determination of any reduction shall be
determined by the Company in good faith before any payments are due and payable
to the Executive. If "Shareholder Approval" (as defined in the next sentence) is
obtained, the Parachute Reduction shall not apply. Shareholder approval means
approval of the elimination of the Parachute Reduction by persons who own,
immediately before a Transaction, more than 75 percent of the voting power of
the Company's outstanding stock by a vote which satisfies the requirements of
Internal Revenue Code section 280G(b)(5)(B) and the applicable proposed,
temporary or final Treasury Regulations thereunder.
(d) During the Employment Period, Executive
and his eligible dependents shall be entitled to participate in the employee
benefit plans and programs generally offered to any other senior executive
officers of the Company during the Employment Period.
(e) All payments to Executive or his estate
made pursuant to this Agreement shall be subject to such withholding as may
be required by any applicable laws.
SECTION 5. Expense Reimbursements; Automobile
Allowance; Special Long-Term Disability Coverage. During the Employment
Period, the Company shall reimburse Executive for all reasonable or necessary
out-of-pocket expenses incurred by Executive in the performance of his duties
hereunder, provided such expenses are submitted to the Company in accordance
with its accounting procedures. The Company shall provide Executive with an
automobile allowance of $750 per month to enable Executive to obtain an
automobile for the Executive's use. The Executive shall be entitled to
participate in the long-term disability plan described on Exhibit A.
SECTION 6. Term. The period of Executive's employment
under this Agreement (the "Employment Period") shall commence as of the date
hereof and, unless sooner terminated pursuant to Section 7 of this Agreement or
extended pursuant to the proviso to this sentence, shall continue until the
close of business on the second anniversary of the date of this Agreement, and
shall terminate at such time; provided however, that the Employment Period shall
be extended for an additional one-year period on the second anniversary of the
date of this Agreement and on each anniversary thereafter, unless either the
Company or the Executive shall have given written notice to the other, no later
than 180 days prior to the last day of the then-existing Employment Period, that
the term of this Agreement shall not be so extended.
SECTION 7. Termination and Severance.
(a) Notwithstanding anything to the contrary contained
herein, the Employment Period shall terminate upon the earliest to occur of the
following (which may occur at any time as provided below and none of which
are deemed to be breaches of any covenants or agreements under this
Agreement):
(i) the close of business on the last day
of the then-existing Employment Period (as such Employment Period may be
extended from time to time pursuant to Section 6) where either the Company or
the Executive has elected not to extend the Employment Period in
accordance with the proviso contained in Section 6;
(ii) the Executive's death;
(iii) delivery by the Company to Executive
of a written notice of the Company's election to terminate Executive's
employment hereunder because of Executive's Disability (as defined below);
(iv) delivery by the Company to
Executive of a written notice of the Company's election to terminate
Executive's employment hereunder for Cause (as defined below);
(v) the close of business which is 90
days after the date on which Executive delivered to the Company a written
notice of Executive's election to terminate Executive's employment hereunder and
such termination is not for Good Reason (as defined below);
(vi) delivery by the Company to
Executive of a written notice of the Company's election to terminate
Executive's employment hereunder and such termination is not for Cause or as a
result of Executive's death or Disability; or
(vii) delivery by Executive to the
Company of a written notice of Executive's election to terminate
Executive's employment hereunder following a Value Transaction (as defined
below) and such termination is for Good Reason; or
(viii) the earlier to occur, as applicable,
of (x) one day following any one or more Transactions resulting in either a sale
of all or substantially all of the assets or capital stock of the Company
(whether by merger or otherwise), and (y) any effective date of any plan of
reorganization of the Company under chapter 11 of title 11 of the United States
Code (the earlier of the foregoing, a "Value Transaction").
(b) For purposes of this Agreement,
"Disability" shall mean that Executive suffers from a permanent physical or
mental impairment which, in the judgment of an independent medical physician,
even with reasonable accommodations prevents Executive from substantially
performing his duties hereunder for a period of one-hundred eighty (180)
consecutive days. For the purposes of this Agreement, the term "Cause" shall
mean (i) the willful and continuing failure by Executive substantially to
perform his duties with the Company (other than any such failure resulting from
illness) under this Agreement, provided that, solely with respect to any act or
omission by Executive which remains curable without significant out-of-pocket
cost to the Company, "Cause" shall not be deemed to exist under this clause (i)
unless Executive has been provided by the Company with at least thirty (30) days
prior written notice of the Company's intention to terminate Executive's
employment hereunder for Cause and Executive has not cured or corrected such
performance defaults within such thirty-day period, or (ii) the willful and
continuing failure by Executive to perform Executive's obligations under Section
9 hereunder, or (iii) the indictment of Executive for theft, embezzlement or
other felony crimes against the Company. For purposes of the foregoing
definition of "Cause," no act, or failure to act, shall be considered "willful"
unless done, or omitted to be done, in bad faith and without reasonable belief
that the action or omission was in the best interest of the Company.
Notwithstanding the foregoing or any other provision hereof, Executive shall not
be deemed to have been terminated for Cause unless there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board of
Directors of the Company at a meeting of the Board of Directors of the Company
called and held for such purpose (after reasonable notice to Executive and an
opportunity for the Executive, together with his counsel, to be heard before the
Board), finding that, in the reasonable and good faith opinion of the Board of
Directors of the Company, Executive was guilty of conduct set forth above and
specifying the particulars thereof in reasonable detail. For purposes of this
Agreement, "Good Reason" shall mean (i) the willful and continuing failure by
the Company substantially to perform its obligations under this Agreement;
provided that, solely with respect to any act or omission by the Company which
remains curable without significant out-of-pocket cost to the Executive, "Good
Reason" shall not be deemed to exist under this clause (i) unless the Company
has been provided by the Executive with at least thirty (30) days prior written
notice of the Executive's intention to terminate Executive's employment
hereunder for Good Reason and the Company has not cured or corrected such
performance defaults within such thirty-day period, or (ii) any material
alteration or diminution in Executive's responsibilities to the Company as its
chief executive officer under this Agreement (other than changes required by
applicable federal or state laws), or (iii) the Executive's compensation or
employment related benefits (other than with respect to any bonus) are in the
aggregate reduced in any material respect, or (iv) the Executive's place of
employment is moved to a location more than 20 miles from the current Norfolk
location without the Executive's consent.
(c) Following any termination of Executive's
employment hereunder, all obligations of the Company under this Agreement
(other than (x) any obligations with respect to the payment of accrued and
unpaid salary, accrued and unpaid bonus, accrued and unpaid vacation, and
expense reimbursement under Section 5 hereof through the date of Executive's
termination of employment hereunder, and (y) as set forth in Section 7(d)) shall
terminate.
(d) In the event of any termination of
Executive's employment hereunder pursuant to Section 7(a)(vi) or Section
7(a)(vii), the Company shall pay to Executive severance compensation in an
amount equal to 100% of Executive's Base Salary. All cash severance compensation
amounts owed pursuant to this Section 7(d) shall be paid within thirty (30) days
following the effective date of Executive's termination.
(e) Any severance compensation granted in
Section 7 of this Agreement shall be the sole and exclusive compensation or
benefit due to Executive upon termination of Executive's employment.
SECTION 8. Representations, Warranties and Acknowledgments of Executive.
(a) Executive represents and warrants that
he is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding (including without limitation any contract,
agreement or understanding containing terms and provisions similar in any manner
to those contained in Section 9 hereof) which in any manner would limit or
otherwise affect his ability to perform his obligations hereunder. Executive
further represents and warrants that his employment with the Company will not
require him to disclose or use any confidential information belonging to prior
employers or other persons or entities.
(b) Executive represents and warrants that he
acknowledges the Company's belief that it would cause the Company serious and
irreparable injury and cost if Executive were to breach the obligations
contained in Section 9.
(c) Executive recognizes and acknowledges
that: (i) in the course of Executive's employment by the Company it will be
necessary for Executive to acquire information which could include, in whole or
in part, information concerning the Company's experimental and development
plans, trade secrets, secret procedures, information relating to ideas,
improvements, and inventions, disclosures, processes, systems, formulas,
composition, patents, patent applications, machinery, materials research
activities and plans, customers or vendors and prospective customers, the
Company's product costs, the Company's prices, profits and volume of sales, and
future business plans, and other confidential or proprietary information
belonging to the Company or relating to the Company's affairs, even if such
information has been disclosed in confidence to one or more third parties
pursuant to distribution agreements, joint research agreements or other
agreements entered into by the Company or any of its affiliates and which
information is not generally available within the public domain (collectively,
such information is referred to herein as the "Confidential Information"); (ii)
the Confidential Information is the property of the Company; (iii) the use,
misappropriation or disclosure of the Confidential Information would cause
irreparable injury to the Company; and (iv) it is essential to the protection of
the Company's good will and to the maintenance of the Company's competitive
position that the Confidential Information be kept secret and that Executive not
disclose the Confidential Information to others (except as may be necessary for
the performance of Executive's duties hereunder).
SECTION 9. Executive's Covenants and Agreements.
(a) Executive agrees that he shall not,
without the prior written consent of the Board of Directors of the
Company, disclose or make available to anyone for use outside the Company's
organization at any time, either during his employment with the Company or
subsequent to the termination of his employment with the Company for any reason,
any Confidential Information, whether or not developed by Executive, except as
required in the performance of Executive's duties to the Company or as is
otherwise required by law, applicable regulation or any recognized subpoena
power. Notwithstanding anything to the contrary contained herein, the foregoing
confidentiality obligations of the Executive shall not apply to any information
or data that is generally available within the public domain or otherwise
publicly accessible through legal means (in no event, in any case, as a result
of Executive's breach of his obligations hereunder).
(b) Upon the termination of Executive's
employment with the Company for any reason, Executive promptly shall deliver to
the Company all correspondence, drawings, blueprints, manuals, letters, notes,
notebooks, reports, flow-charts, programs, proposals, price lists, customer
lists, company credit cards, company vehicles and any documents concerning the
Company's customers or concerning products or processes used by the Company
containing or constituting Confidential Information.
(c) Executive covenants and agrees that during
the period of Executive's employment hereunder and, if applicable, during the
Non-Compete Period, Executive shall not, directly or indirectly (whether as
principal, agent, officer, director, employee, consultant, shareholder, or
otherwise, whether alone or in association with any other person, corporation or
other entity): (i) engage in, own or otherwise operate any supermarket or retail
grocery business in the Commonwealth of Virginia; or (ii) solicit or induce, or
attempt to solicit or induce, any employee of the Company to leave; it being
understood that Executive shall be permitted to own up to 3% of the outstanding
capital stock of any publicly-traded company listed on a national securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotations System. For purposes of this Agreement, "Non-Compete Period" means
the one-year period following any termination of Executive's employment by
Executive pursuant to Sections 7(a)(iv) or 7(a)(v).
SECTION 10. Remedies. Executive acknowledges that
his promised services hereunder are of a special, unique, unusual,
extraordinary and intellectual character, which give them peculiar value the
loss of which cannot be reasonably or adequately compensated in an action of
law, and that, in the event there is a breach hereof by Executive, the Company
will suffer irreparable harm, the amount of which will be impossible to
ascertain. Accordingly, the Company shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either at law or in equity, to obtain damages for any breach or to enforce
specific performance of the provisions or to enjoin Executive from committing
any act in breach of this Agreement. The remedies granted to the Company in this
Agreement are cumulative and are in addition to remedies otherwise available to
the Company at law or in equity.
SECTION 11. Waiver of Breach. The waiver by the
Company or Executive of a breach of any provision of this Agreement by the
other party (the "Breaching Party") shall not operate or be construed as a
waiver of any other or subsequent breach by the Breaching Party of such or any
other provision. No delay or omission by the Company or Executive in exercising
any right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may be
exercised by the Company or Executive from time to time and as often as may be
deemed expedient or necessary by the Company or Executive in its or his sole
discretion.
SECTION 12. Notices. All notices required or
permitted hereunder shall be made in writing by hand-delivery, certified or
registered first-class mail, or air courier guaranteeing overnight delivery to
the other party at the following addresses:
To the Company:
Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, Virginia 23505
Attention: Board of Directors
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: David E. Schulman, Esq.
To Executive:
Ronald E. Johnson
with a copy to:
Barnett, Bolt, Kirkwood & Long
601 Bayshore Boulevard
Suite 700
Tampa, FL 33606
Attention: Robert S. Bolt, Esq.
or to such other address as either of such parties may designate in a written
notice served upon the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received when
delivered by hand, if personally delivered; on the third day next succeeding the
date of mailing if sent by certified or registered first-class mail; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 13. Severability. If any term or provision of
this Agreement or the application thereof to any person or circumstance
shall, to any extent, be held invalid or unenforceable by a court of competent
jurisdiction, the remainder of this Agreement or the application of any such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. If any of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to duration, scope, activity or
subject, it shall be construed by limiting and reducing it, so as to be valid
and enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
SECTION 14. Governing Law. The implementation and
interpretation of this Agreement shall be governed by and enforced in
accordance with the laws of the Commonwealth of Virginia without giving effect
to the conflicts of law provisions thereof.
SECTION 15. Binding Effect and Assignability. The rights and
obligations of both parties under this Agreement shall inure to the benefit of
and shall be binding upon their heirs, successors and assigns. Neither party's
rights under this Agreement shall, in any voluntary or involuntary manner, be
assignable and may not be pledged or hypothecated without the prior written
consent of the other party; it being understood that no merger or consolidation
involving the Company shall be deemed an assignment.
SECTION 16. Attorneys' Fees; Costs. In any action or
proceeding for damages or injunctive relief, the prevailing party, in
addition to other relief, shall be entitled to reasonable attorneys' fees, costs
and the expenses of litigation incurred by such party in securing the relief
granted by the court.
SECTION 17. Counterparts; Section Headings. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument. The section headings of this Agreement are for convenience of
reference only.
SECTION 18. Survival. Notwithstanding the
termination of this Agreement or Executive's employment hereunder for any
reason, Sections 7, 8, 9, 10, 14, 16 and 18 hereof (and any other provisions
that explicitly contemplate extending beyond the termination of this Agreement
or the Employment Period) shall survive any such termination.
SECTION 19. Entire Agreement. This instrument
constitutes the entire agreement with respect to the subject matter hereof
between the parties hereto and replaces and supersedes as of the date hereof any
and all prior oral or written agreements and understandings between the parties
hereto. This Agreement only may be modified by an agreement in writing executed
by both Executive and the Company.
SECTION 20. Representations. The Company represents
that it is authorized and empowered to enter into this contract, and no
contracts or indentures will be breached thereby.
SECTION 21. Arbitration. Subject to the terms and
conditions of this Agreement, any dispute, controversy or claim arising from
or relating to this Agreement (other than for injunctive relief) which the
parties to this Agreement are unable to resolve, shall be resolved only by
arbitration, which may be commenced at any time by notice given by any party to
this Agreement. Arbitration shall be conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") then in
effect. There shall be three arbitrators selected as follows: (i) one arbitrator
shall be selected by the Company, one arbitrator shall be selected by the
Executive, and the third arbitrator shall be selected jointly by the first two
arbitrators, except that if the parties to this Agreement fail to select an
arbitrator within sixty (60) days after initiation of arbitration or if the
first two arbitrators fail to select the third arbitrator within one hundred
twenty (120) days after initiation of arbitration, then the AAA shall make such
selection. The venue of the arbitration shall be New York City, New York.
Expenses of the arbitration proceeding shall be borne by the parties to this
Agreement in such amounts or proportions as the arbitrators may determine. The
decision of the arbitrators shall be by majority vote and shall be delivered in
writing. Any arbitral award shall be final and binding on the parties to this
Agreement and judgment upon any arbitral award may be entered and enforced by
any court or judicial authority of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement the date and year first written above.
Company:
FARM FRESH, INC.
By:/s/ Farm Fresh, Inc.
Executive:
/s/ Ronald E. Johnson
---------------------
Ronald E. Johnson
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of this 4th day of March, 1997 (the "Effective Date") by and between
Farm Fresh, Inc., a Virginia corporation (the "Company"), and Richard D. Coleman
(the "Executive").
BACKGROUND
The Company desires to employ Executive, and Executive
is willing to be employed by the Company, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
set forth herein, and intending to be legally bound hereby, the parties agree as
follows:
TERMS
SECTION 1. Employment. The Company hereby employs
Executive, and Executive hereby accepts such employment and agrees to serve as
the Company's Chief Financial Officer and Executive Vice President,
Administration (the "CFO") during the Employment Period set forth in Section 6,
subject to the terms and conditions hereinafter set forth.
SECTION 2. Management Duties. As CFO of the Company
during the Employment Period, Executive shall carry out such duties as are
commensurate and normally associated with the position of Chief Financial
Officer, which duties shall however, in all cases, be subject to policies set
by, and at the direction and control of, the Company's Board of Directors.
SECTION 3. Extent of Services. During the Employment
Period, Executive shall devote substantially all his working time (during normal
business hours) and attention (other than during any illness and vacations) and
give his best efforts, skills and abilities to the management and operations of
the Company; it being understood and agreed that Executive shall be permitted to
manage his own personal affairs and serve as a director or officer of any trade
association, civic, corporate, educational or charitable organization or
governmental entity, provided that Executive's service does not materially
interfere with Executive's performance of his duties hereunder. Executive shall
perform his services hereunder only at the Company's Norfolk, Virginia offices
and (with the consent of the Executive) at such other places as are required for
the effective management of the Company (other than business travel).
SECTION 4. Compensation and Benefits.
(a) Executive shall receive, during the
Employment Period, from the Company as compensation for his services a salary at
the annual rate of Two Hundred Thousand Dollars ($200,000) per annum (the "Base
Salary"). The Base Salary shall be payable in equal installments at such
intervals as the Company pays its employees generally (but in no event less
frequently than once per month).
(b) Subject to Section 4(c), the Executive shall
be eligible to participate in an annual cash bonus program which shall contain
financial performance formulas and criteria to be agreed upon by the Company and
the Executive and pursuant to which the Company and the Executive intend for
Executive to be eligible to earn an amount equal to $100,000 upon satisfaction
of the specified financial performance formulas and criteria (the "Operations
Bonus Program"). The amount of each of the annual cash bonuses to which
Executive is entitled under the Operations Bonus Program shall be determined and
the bonus shall be paid to Executive as soon as the underlying financial data is
available (but in no event later than 90 days following the end of the year for
which the bonus is calculated).
(c) The Company, from time to time, may consider
engaging in one or more transactions involving the sale of the Company and/or
all or a portion of its assets, businesses and operations (including, without
limitation, as a merger, consolidation, sale of all or substantially all of the
capital stock of the Company or sale of all or a portion of the Company's
assets) pursuant to (x) a plan of reorganization which has been confirmed under
chapter 11 of title 11 of the United State Code and for which an effective date
thereunder has occurred (an "Effective POR"), or (y) a full and complete
consensual settlement or other restructuring to which the Company and all of the
Company's holders of indebtedness for borrowed money are a party, or (z) an
acquisition agreement between the Company and any acquiror which, in the opinion
of the Company's Board of Directors, contains indemnification of third parties
which is substantially similar (from the perspective of third parties) to the
releases that are customarily available to third parties under an Effective POR
(any such transaction following any one of the conditions described in clause
(x) or (y) or (z), a "Transaction"). In the event that the aggregate Net Value
(as defined below) of the consideration received in connection with any
Transaction(s) during the Employment Period equals or exceeds $225,000,000 in
the aggregate, the Executive shall be entitled to receive from the Company a
cash bonus (a "Transaction Bonus") equal to $300,000 plus 0.4% of the positive
difference (if any) between the Net Value of the Transaction(s) and
$225,000,000. As used herein, "Net Value" shall mean the sum of: (i) in the case
of any asset sale, the sum of the cash and fair market value of all securities
and other non-cash property received by the Company in any Transaction,
increased dollar-for-dollar by any indebtedness for borrowed money assumed by
the purchaser, and reduced dollar-for-dollar by any liabilities (other than
indebtedness for borrowed money) which are properly allocated to the business
sold in the Transaction but which are retained or paid by the Company; and (ii)
in the case of any Transaction other than an asset sale, the sum of the cash and
fair market value of all securities and other non-cash property received by
securityholders of the Company, reduced dollar-for-dollar by (x) any proceeds
from any other Transactions held or to be received by the Company and/or its
securityholders and (y) any liabilities (other than indebtedness for borrowed
money) which are properly allocated to the business sold in the Transaction but
which are retained or paid by such securityholders, and increased
dollar-for-dollar by the aggregate amount of then-existing indebtedness for
borrowed money (after giving effect to any actual or contemplated debt
forgiveness or other similar compromise of such indebtedness in connection with
such Transaction)(all of the foregoing "Net Value" as reasonably determined by
the Company's Board of Directors or any nationally-recognized investment banking
firm designated by the Company). The amount of any Transaction Bonus to which
Executive is entitled under this Section 4(c) shall be determined and the bonus
shall be paid to Executive as soon as practicable (but in no event later than 90
days following the occurrence of the latest Transaction for which a payment is
owed under this Section 4(c)). Notwithstanding anything to the contrary
contained in this Agreement: (i) aggregate Transaction Bonus payments owed under
this Section 4(c) shall not exceed $400,000 in the aggregate; and (ii) in the
event that any Transaction Bonus is owed with respect to Transactions occurring
during any calendar year in which a payment is otherwise owed pursuant to
Section 4(b) under the Operations Bonus Program, the Executive only shall
receive the Transaction Bonus with respect to such calendar year and no bonus
shall be due or owing to the Executive under the Operations Bonus Program with
respect to such calendar year; and (iii) if any payments (including Transaction
Bonus payments) which the Executive has the right to receive from the Company or
any affiliated entities under this Agreement would otherwise constitute an
"excess parachute payment" (as defined in Internal Revenue Code Section 280G,
but determined without regard to Section 280G(b)(5)(A)(ii)), such payments shall
be reduced (the "Parachute Reduction") pro rata (but not below zero) to the
largest amount that will result in no portion of any such payment being subject
to the excise tax imposed by Internal Revenue Code Section 4999. The
determination of any reduction shall be determined by the Company in good faith
before any payments are due and payable to the Executive. If "Shareholder
Approval" (as defined in the next sentence) is obtained, the Parachute Reduction
shall not apply. Shareholder approval means approval of the elimination of the
Parachute Reduction by persons who own, immediately before a Transaction, more
than 75 percent of the voting power of the Company's outstanding stock by a vote
which satisfies the requirements of Internal Revenue Code section 280G(b)(5)(B)
and the applicable proposed, temporary or final Treasury Regulations thereunder.
(d) During the Employment Period, Executive and
his eligible dependents shall be entitled to participate in the employee benefit
plans and programs generally offered to any other senior executive officers of
the Company during the Employment Period.
(e) All payments to Executive or his estate made
pursuant to this Agreement shall be subject to such withholding as may be
required by any applicable laws.
SECTION 5. Expense Reimbursements; Automobile
Allowance. During the Employment Period, the Company shall reimburse Executive
for all reasonable or necessary out-of-pocket expenses incurred by Executive in
the performance of his duties hereunder, provided such expenses are submitted to
the Company in accordance with its accounting procedures.
SECTION 6. Term. The period of Executive's employment
under this Agreement (the "Employment Period") shall commence as of the date
hereof and, unless sooner terminated pursuant to Section 7 of this Agreement or
extended pursuant to the proviso to this sentence, shall continue until the
close of business on the second anniversary of the date of this Agreement, and
shall terminate at such time; provided however, that the Employment Period shall
be extended for an additional one-year period on the second anniversary of the
date of this Agreement and on each anniversary thereafter, unless either the
Company or the Executive shall have given written notice to the other, no later
than 180 days prior to the last day of the then-existing Employment Period, that
the term of this Agreement shall not be so extended.
SECTION 7. Termination and Severance.
(a) Notwithstanding anything to the contrary contained
herein, the Employment Period shall terminate upon the earliest to occur of the
following (which may occur at any time as provided below and none of which are
deemed to be breaches of any covenants or agreements under this Agreement):
(i) the close of business on the last day of
the then-existing Employment Period (as such Employment Period may be extended
from time to time pursuant to Section 6) where either the Company or the
Executive has elected not to extend the Employment Period in accordance with the
proviso contained in Section 6;
(ii) the Executive's death;
(iii) delivery by the Company to Executive
of a written notice of the Company's election to terminate Executive's
employment hereunder because of Executive's Disability (as defined below);
(iv) delivery by the Company to Executive of
a written notice of the Company's election to terminate Executive's employment
hereunder for Cause (as defined below);
(v) the close of business which is 90 days
after the date on which Executive delivered to the Company a written notice of
Executive's election to terminate Executive's employment hereunder and such
termination is not for Good Reason (as defined below);
(vi) delivery by the Company to Executive of
a written notice of the Company's election to terminate Executive's employment
hereunder and such termination is not for Cause or as a result of Executive's
death or Disability; or
(vii) delivery by Executive to the Company
of a written notice of Executive's election to terminate Executive's employment
hereunder following a Value Transaction (as defined below) and such termination
is for Good Reason; or
(viii) the earlier to occur, as applicable,
of (x) one day following any one or more Transactions resulting in either a sale
of all or substantially all of the assets or capital stock of the Company
(whether by merger or otherwise), and (y) any effective date of any plan of
reorganization of the Company under chapter 11 of title 11 of the United States
Code (the earlier of the foregoing, a "Value Transaction").
(b) For purposes of this Agreement, "Disability"
shall mean that Executive suffers from a permanent physical or mental impairment
which, in the judgment of an independent medical physician, even with reasonable
accommodations prevents Executive from substantially performing his duties
hereunder for a period of one-hundred eighty (180) consecutive days. For the
purposes of this Agreement, the term "Cause" shall mean (i) the willful and
continuing failure by Executive substantially to perform his duties with the
Company (other than any such failure resulting from illness) under this
Agreement, provided that, solely with respect to any act or omission by
Executive which remains curable without significant out-of-pocket cost to the
Company, "Cause" shall not be deemed to exist under this clause (i) unless
Executive has been provided by the Company with at least thirty (30) days prior
written notice of the Company's intention to terminate Executive's employment
hereunder for Cause and Executive has not cured or corrected such performance
defaults within such thirty-day period, or (ii) the willful and continuing
failure by Executive to perform Executive's obligations under Section 9
hereunder, or (iii) the indictment of Executive for theft, embezzlement or other
felony crimes against the Company. For purposes of the foregoing definition of
"Cause," no act, or failure to act, shall be considered "willful" unless done,
or omitted to be done, in bad faith and without reasonable belief that the
action or omission was in the best interest of the Company. Notwithstanding the
foregoing or any other provision hereof, Executive shall not be deemed to have
been terminated for Cause unless there shall have been delivered to Executive a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors of the Company at a
meeting of the Board of Directors of the Company called and held for such
purpose (after reasonable notice to Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board), finding
that, in the reasonable and good faith opinion of the Board of Directors of the
Company, Executive was guilty of conduct set forth above and specifying the
particulars thereof in reasonable detail. For purposes of this Agreement, "Good
Reason" shall mean (i) the willful and continuing failure by the Company
substantially to perform its obligations under this Agreement; provided that,
solely with respect to any act or omission by the Company which remains curable
without significant out-of-pocket cost to the Executive, "Good Reason" shall not
be deemed to exist under this clause (i) unless the Company has been provided by
the Executive with at least thirty (30) days prior written notice of the
Executive's intention to terminate Executive's employment hereunder for Good
Reason and the Company has not cured or corrected such performance defaults
within such thirty-day period, or (ii) any material alteration or diminution in
Executive's responsibilities to the Company as its chief financial officer under
this Agreement (other than changes required by applicable federal or state
laws), or (iii) the Executive's compensation or employment related benefits
(other than with respect to any bonus) are in the aggregate reduced in any
material respect, or (iv) the Executive's place of employment is moved to a
location more than 20 miles from the current Norfolk location without the
Executive's consent.
(c) Following any termination of Executive's
employment hereunder, all obligations of the Company under this Agreement (other
than (x) any obligations with respect to the payment of accrued and unpaid
salary, accrued and unpaid bonus, accrued and unpaid vacation, and expense
reimbursement under Section 5 hereof through the date of Executive's termination
of employment hereunder, and (y) as set forth in Section 7(d)) shall terminate.
(d) In the event of any termination of
Executive's employment hereunder pursuant to Section 7(a)(vi) or Section
7(a)(vii), the Company shall pay to Executive severance compensation in an
amount equal to 100% of Executive's Base Salary. All cash severance compensation
amounts owed pursuant to this Section 7(d) shall be paid within thirty (30) days
following the effective date of Executive's termination.
(e) Except for benefits under the Company's
qualified benefit plans, any severance compensation granted in Section 7 of this
Agreement shall be the sole and exclusive compensation or benefit due to
Executive upon termination of Executive's employment.
SECTION 8. Representations, Warranties and
Acknowledgments of Executive.
(a) Executive represents and warrants that he is
not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding (including without limitation any contract, agreement
or understanding containing terms and provisions similar in any manner to those
contained in Section 9 hereof) which in any manner would limit or otherwise
affect his ability to perform his obligations hereunder. Executive further
represents and warrants that his employment with the Company will not require
him to disclose or use any confidential information belonging to prior employers
or other persons or entities.
(b) Executive represents and warrants that he
acknowledges the Company's belief that it would cause the Company serious and
irreparable injury and cost if Executive were to breach the obligations
contained in Section 9.
(c) Executive recognizes and acknowledges that:
(i) in the course of Executive's employment by the Company it will be necessary
for Executive to acquire information which could include, in whole or in part,
information concerning the Company's experimental and development plans, trade
secrets, secret procedures, information relating to ideas, improvements, and
inventions, disclosures, processes, systems, formulas, composition, patents,
patent applications, machinery, materials research activities and plans,
customers or vendors and prospective customers, the Company's product costs, the
Company's prices, profits and volume of sales, and future business plans, and
other confidential or proprietary information belonging to the Company or
relating to the Company's affairs, even if such information has been disclosed
in confidence to one or more third parties pursuant to distribution agreements,
joint research agreements or other agreements entered into by the Company or any
of its affiliates and which information is not generally available within the
public domain (collectively, such information is referred to herein as the
"Confidential Information"); (ii) the Confidential Information is the property
of the Company; (iii) the use, misappropriation or disclosure of the
Confidential Information would cause irreparable injury to the Company; and (iv)
it is essential to the protection of the Company's good will and to the
maintenance of the Company's competitive position that the Confidential
Information be kept secret and that Executive not disclose the Confidential
Information to others (except as may be necessary for the performance of
Executive's duties hereunder).
SECTION 9. Executive's Covenants and Agreements.
(a) Executive agrees that he shall not, without
the prior written consent of the Board of Directors of the Company, disclose or
make available to anyone for use outside the Company's organization at any time,
either during his employment with the Company or subsequent to the termination
of his employment with the Company for any reason, any Confidential Information,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company or as is otherwise required by law, applicable
regulation or any recognized subpoena power. Notwithstanding anything to the
contrary contained herein, the foregoing confidentiality obligations of the
Executive shall not apply to any information or data that is generally available
within the public domain or otherwise publicly accessible through legal means
(in no event, in any case, as a result of Executive's breach of his obligations
hereunder).
(b) Upon the termination of Executive's
employment with the Company for any reason, Executive promptly shall deliver to
the Company all correspondence, drawings, blueprints, manuals, letters, notes,
notebooks, reports, flow-charts, programs, proposals, price lists, customer
lists, company credit cards, company vehicles and any documents concerning the
Company's customers or concerning products or processes used by the Company
containing or constituting Confidential Information.
(c) Executive covenants and agrees that during
the period of Executive's employment hereunder and, if applicable, during the
Non-Compete Period, Executive shall not, directly or indirectly (whether as
principal, agent, officer, director, employee, consultant, shareholder, or
otherwise, whether alone or in association with any other person, corporation or
other entity): (i) engage in, own or otherwise operate any supermarket or retail
grocery business in the Commonwealth of Virginia; or (ii) solicit or induce, or
attempt to solicit or induce, any employee of the Company to leave; it being
understood that Executive shall be permitted to own up to 3% of the outstanding
capital stock of any publicly-traded company listed on a national securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotations System. For purposes of this Agreement, "Non-Compete Period" means
the one-year period following any termination of Executive's employment by
Executive pursuant to Sections 7(a)(iv) or 7(a)(v).
SECTION 10. Remedies. Executive acknowledges that his
promised services hereunder are of a special, unique, unusual, extraordinary and
intellectual character, which give them peculiar value the loss of which cannot
be reasonably or adequately compensated in an action of law, and that, in the
event there is a breach hereof by Executive, the Company will suffer irreparable
harm, the amount of which will be impossible to ascertain. Accordingly, the
Company shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either at law or in equity,
to obtain damages for any breach or to enforce specific performance of the
provisions or to enjoin Executive from committing any act in breach of this
Agreement. The remedies granted to the Company in this Agreement are cumulative
and are in addition to remedies otherwise available to the Company at law or in
equity.
SECTION 11. Waiver of Breach. The waiver by the
Company or Executive of a breach of any provision of this Agreement by the other
party (the "Breaching Party") shall not operate or be construed as a waiver of
any other or subsequent breach by the Breaching Party of such or any other
provision. No delay or omission by the Company or Executive in exercising any
right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may be
exercised by the Company or Executive from time to time and as often as may be
deemed expedient or necessary by the Company or Executive in its or his sole
discretion.
SECTION 12. Notices. All notices required or permitted
hereunder shall be made in writing by hand-delivery, certified or registered
first-class mail, or air courier guaranteeing overnight delivery to the other
party at the following addresses:
To the Company:
Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, Virginia 23505
Attention: Board of Directors
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: David E. Schulman, Esq.
To Executive:
Richard D. Coleman
or to such other address as either of such parties may designate in a written
notice served upon the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received when
delivered by hand, if personally delivered; on the third day next succeeding the
date of mailing if sent by certified or registered first-class mail; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 13. Severability. If any term or provision of
this Agreement or the application thereof to any person or circumstance shall,
to any extent, be held invalid or unenforceable by a court of competent
jurisdiction, the remainder of this Agreement or the application of any such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. If any of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to duration, scope, activity or
subject, it shall be construed by limiting and reducing it, so as to be valid
and enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
SECTION 14. Governing Law. The implementation and
interpretation of this Agreement shall be governed by and enforced in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
conflicts of law provisions thereof.
SECTION 15. Binding Effect and Assignability. The rights
and obligations of both parties under this Agreement shall inure to the benefit
of and shall be binding upon their heirs, successors and assigns. Neither
party's rights under this Agreement shall, in any voluntary or involuntary
manner, be assignable and may not be pledged or hypothecated without the prior
written consent of the other party; it being understood that no merger or
consolidation involving the Company shall be deemed an assignment.
SECTION 16. Attorneys' Fees; Costs. In any action or
proceeding for damages or injunctive relief, the prevailing party, in addition
to other relief, shall be entitled to reasonable attorneys' fees, costs and the
expenses of litigation incurred by such party in securing the relief granted by
the court.
SECTION 17. Counterparts; Section Headings. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument. The section headings of this Agreement are for convenience of
reference only.
SECTION 18. Survival. Notwithstanding the termination
of this Agreement or Executive's employment hereunder for any reason, Sections
7, 8, 9, 10, 14, 16 and 18 hereof (and any other provisions that explicitly
contemplate extending beyond the termination of this Agreement or the Employment
Period) shall survive any such termination.
SECTION 19. Entire Agreement. This instrument
constitutes the entire agreement with respect to the subject matter hereof
between the parties hereto and replaces and supersedes as of the date hereof any
and all prior oral or written agreements and understandings between the parties
hereto. This Agreement only may be modified by an agreement in writing executed
by both Executive and the Company.
SECTION 20. Representations. The Company represents
that it is authorized and empowered to enter into this contract, and no
contracts or indentures will be breached thereby.
SECTION 21. Arbitration. Subject to the terms and
conditions of this Agreement, any dispute, controversy or claim arising from or
relating to this Agreement (other than for injunctive relief) which the parties
to this Agreement are unable to resolve, shall be resolved only by arbitration,
which may be commenced at any time by notice given by any party to this
Agreement. Arbitration shall be conducted pursuant to the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") then in effect. There
shall be three arbitrators selected as follows: (i) one arbitrator shall be
selected by the Company, one arbitrator shall be selected by the Executive, and
the third arbitrator shall be selected jointly by the first two arbitrators,
except that if the parties to this Agreement fail to select an arbitrator within
sixty (60) days after initiation of arbitration or if the first two arbitrators
fail to select the third arbitrator within one hundred twenty (120) days after
initiation of arbitration, then the AAA shall make such selection. The venue of
the arbitration shall be New York City, New York. Expenses of the arbitration
proceeding shall be borne by the parties to this Agreement in such amounts or
proportions as the arbitrators may determine. The decision of the arbitrators
shall be by majority vote and shall be delivered in writing. Any arbitral award
shall be final and binding on the parties to this Agreement and judgment upon
any arbitral award may be entered and enforced by any court or judicial
authority of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement the date and year first written above.
Company:
FARM FRESH, INC.
By /s/ FARM FRESH, INC.
Executive:
/s/ Richard D. Coleman
----------------------
Richard D. Coleman
EXHIBIT 10.32
FARM FRESH, INC.
EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT is made in the City of Norfolk, Virginia, effective
______________, 1997, by and between FARM FRESH, INC., a corporation organized
under the laws of the Commonwealth of Virginia, having its principal office in
Norfolk, Virginia (the "Corporation"), and ___________________, a resident of
Virginia (the "Executive").
WHEREAS, the Executive has experience and knowledge in the affairs
of the Corporation, and his services are key to the continued successful
management of the Corporation; and
WHEREAS, the Corporation desires to retain the services and business
counsel of the Executive and to induce the Executive to remain in his executive
capacity with the Corporation.
NOW, THEREFORE, to accomplish the foregoing objective, the
Corporation and the Executive hereby agree as follows:
1. Employment. Upon the terms and subject to the conditions
contained herein, during the Employment Term (as hereinafter defined), the
Corporation hereby employs Executive as [INSERT JOB TITLE] of the Corporation.
Executive shall be responsible for such duties as are commensurate with his
office and as may from time to time be assigned to Executive by the Board of
Directors and the President of the Corporation. Executive hereby accepts such
employment and, during the Employment Term, shall devote his full business time,
skill, energy and attention to the business of the Corporation, and shall
perform his duties in a diligent, trustworthy, loyal, businesslike and efficient
manner, all for the purpose of advancing the business of the Corporation.
2. Compensation. During the Employment Term, the Corporation
shall pay, and Executive shall be entitled to receive from the Corporation, such
compensation as may be established from time to time by the Board of Directors
of the Corporation in the exercise of its sole discretion.
3. Term and Termination. The Employment Term shall commence on the
date hereof and shall continue thereafter until terminated as herein provided.
Either party may terminate the Employment Term for any reason provided that it
has given the other party at least thirty (30) days advance written notice of
its intent to terminate. In addition, the Corporation shall have the right to
terminate the Employment Term at any time with or without notice for Cause (as
hereinafter defined) or in the event Executive suffers an illness or incapacity
of such character that it has or will likely substantially disable him from
performing his duties hereunder for a period of more than ninety (90)
consecutive days (herein, a "Disability"). Furthermore, the Employment Term
shall terminate immediately upon the death of Executive. Notwithstanding
anything to the contrary set forth in this Agreement, Executive's obligations
and covenants set forth in Sections 5 and 6 hereof shall survive the termination
of this Agreement.
4. Severance.
(a) General. The Executive shall be entitled
to receive Severance (as hereinafter defined) according to the remaining
provisions of this section if a Change of Control occurs during the Employment
Term or within three months following the expiration of the Employment Term.
Except as expressly provided above, no Severance shall be payable to the
Executive. If Executive is entitled to such Severance, Severance shall be the
exclusive remedy of Executive in the event of early termination of the
Employment Term as herein provided and shall be in lieu of any other claim for
damages related to early termination.
(b) Severance.
(i) "Severance" shall equal the Executive's Base Period Income
(as hereinafter defined) and shall be paid in six (6) equal consecutive monthly
installments. Severance payable to the Executive hereunder shall commence on the
later of the fifteenth business day after the Executive's employment termination
date or the first day of the month following the Executive's employment
termination date. At the Corporation's sole discretion, however, Severance
payments may be commenced on an earlier date. Severance is subject to reduction
according to Section 4(g). If Executive dies after the commencement of
Severance, Executive's estate shall be entitled to the balance of any and all
payments thereafter.
(c) Change of Control. "Change of Control" shall
mean the occurrence of any of the following:
(i)any person, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, other than Citicorp
Venture Capital, Ltd. or entities under its common control, shall acquire more
than fifty (50) percent of the voting control of the Corporation or its parent
corporation, FF Holdings Corporation ("Holdings"); or
(ii)the sale of substantially all of the assets
of the Corporation.
For purposes of this Agreement, a Control of Change is deemed to
occur on the date on which an event described in (i) or (ii) above occurs. If a
Change in Control occurs on account of a series of transactions, the date on
which a Change of Control is deemed to occur is the date of the last such
transaction.
(d) Base Period Income. The Executive's "Base
Period Income" shall equal the Executive's base salary during the six (6)
calendar month period immediately preceding the date of notice of termination.
(e) Severance Reductions. If any payments which
the Executive has the right to receive from the Corporation (including Severance
payments) or any affiliated entity or any payments or benefits under any plan
maintained by the Corporation or an affiliated entity would otherwise constitute
an "excess parachute payment" (as defined in Internal Revenue Code Section
280G), Severance payments must be reduced pro-rata (but not below zero) to the
largest amount that will result in no portion of any such payment being subject
to the excise tax imposed by Internal Revenue Code Section 4999. The
determination of any reduction pursuant to this subsection must be made by the
Corporation in good faith, before any such payments are due and payable to the
Executive.
5.Confidentiality. Executive shall not (except as authorized by the
Board of Directors of the Corporation or as required in the scope of his
employment) during the term of his employment or at any time thereafter disclose
to any person, firm or company any information relating to the organization,
business or finances of the Corporation or any of its customers, agents or
suppliers, or any of its trade secrets or details of any dealings, transactions
or affairs of which he is or may become aware during his employment hereunder.
Executive shall keep absolutely confidential all such matters entrusted to him,
and he shall not use, nor attempt to use, nor permit others to use, any such
information in any manner which may injure or cause loss whether directly or
indirectly to the Corporation.
6.Proprietary Information. Any notes or memoranda or copies thereof
made by Executive during the term of his employment with the Corporation or at
any time thereafter relating to any matter within the scope of the business of
the Corporation or concerning any of its dealings, transactions or affairs shall
be the property of the Corporation. Executive shall not, either during the term
of his employment or at any time thereafter, use or permit others to use any
such notes or memoranda or copies thereof other than for the benefit of the
Corporation. Upon request by the Board of Directors of the Corporation,
Executive shall immediately return any and all such notes and memoranda and
copies thereof to the Corporation.
7.Assignability. The right of the Executive or any other person to
the payment of compensation or other benefits under this Agreement shall not be
assigned, transferred, pledged or encumbered except by will or by the laws of
descent and distribution.
8.Notices. All notices which may be required or given hereunder
shall be in writing addressed to the respective addresses of the parties hereto
as shown below, posted in the U.S. mail by certified or registered mail, or hand
delivered.
As to Corporation: Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, VA 23505
Attention: President
As to Executive:
-------------------------------
-------------------------------
-------------------------------
9.Binding Effect. All the terms of this Agreement shall be binding
upon and inure to the benefit of, and be enforceable by, the respective heirs
and legal representatives and the successors and permitted assigns of the
Corporation and the Executive.
10.Governing Law. This Agreement shall be interpreted, construed
and enforced in accordance with the laws of the Commonwealth of Virginia.
11.Jurisdiction. Executive and the Corporation irrevocably submit to
the jurisdiction of the Circuit Court of Norfolk, Virginia in any action or
proceeding arising out of, or relating to, this Agreement, and hereby
irrevocably agree that all claims in respect of any such action or proceeding
may be heard and determined in such courts. Executive and the Corporation agree
that a final judgment in any action or proceeding shall, to the extent permitted
by applicable law, be conclusive and may be enforced in other jurisdictions by
suit on the judgment, or in any other manner provided for by applicable law
related to the enforcement of judgments except that nothing shall restrict a
party's right to appeal the decision in any action or proceeding.
12.Prior Agreements. This Agreement supersedes all prior
arrangements, understandings, letters of intent, conversations and negotiations
between the parties with respect to the subject matter of this Agreement and
shall, together with any other contemporaneously executed agreement between the
parties, constitute the entire agreement between the parties with respect to the
matters mentioned in this Agreement.
13.Amendment. Neither this Agreement nor any term or provision
thereof may be changed, waived, discharged or terminated orally, or in any
manner other than by an instrument in writing signed by the party against which
the enforcement of this change, waiver, discharge or termination is sought.
14.Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
be deemed one and the same instrument. 15.Severability. If for any reason any
provision of this Agreement is declared invalid, void, or unenforceable by a
court of competent subject matter and personal jurisdiction, the validity and
binding effect of any remaining provision of this Agreement shall remain in full
force and effect as if this Agreement had been executed with the invalid, void
or unenforceable provision eliminated.
16.Construction of Headings. The captions or headings are for
convenience only and are not intended to limit or define the scope or effect of
any provision of this Agreement.
WITNESS the following signatures as of the date first above written.
FARM FRESH, INC.
By:
-------------------------------------
Title:
----------------------------------
EXECUTIVE:
----------------------------------------
EXHIBIT 10.33
FARM FRESH, INC.
EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT is made in the City of Norfolk, Virginia, effective
______________, 1997, by and between FARM FRESH, INC., a corporation organized
under the laws of the Commonwealth of Virginia, having its principal office in
Norfolk, Virginia (the "Corporation"), and ___________________, a resident of
Virginia (the "Executive").
WHEREAS, the Executive has experience and knowledge in the affairs
of the Corporation, and his services are key to the continued successful
management of the Corporation; and
WHEREAS, the Corporation desires to retain the services and business
counsel of the Executive and to induce the Executive to remain in his executive
capacity with the Corporation.
NOW, THEREFORE, to accomplish the foregoing objective, the
Corporation and the Executive hereby agree as follows:
1. Employment. Upon the terms and subject to the conditions
contained herein, during the Employment Term (as hereinafter defined), the
Corporation hereby employs Executive as [INSERT JOB TITLE] of the Corporation.
Executive shall be responsible for such duties as are commensurate with his
office and as may from time to time be assigned to Executive by the Board of
Directors and the President of the Corporation. Executive hereby accepts such
employment and, during the Employment Term, shall devote his full business time,
skill, energy and attention to the business of the Corporation, and shall
perform his duties in a diligent, trustworthy, loyal, businesslike and efficient
manner, all for the purpose of advancing the business of the Corporation.
2. Compensation. During the Employment Term, the Corporation
shall pay, and Executive shall be entitled to receive from the Corporation, such
compensation as may be established from time to time by the Board of Directors
of the Corporation in the exercise of its sole discretion.
3. Term and Termination. The Employment Term shall commence on the
date hereof and shall continue thereafter until terminated as herein provided.
Either party may terminate the Employment Term for any reason provided that it
has given the other party at least thirty (30) days advance written notice of
its intent to terminate. In addition, the Corporation shall have the right to
terminate the Employment Term at any time with or without notice for Cause (as
hereinafter defined) or in the event Executive suffers an illness or incapacity
of such character that it has or will likely substantially disable him from
performing his duties hereunder for a period of more than ninety (90)
consecutive days (herein, a "Disability"). Furthermore, the Employment Term
shall terminate immediately upon the death of Executive. Notwithstanding
anything to the contrary set forth in this Agreement, Executive's obligations
and covenants set forth in Sections 5 and 6 hereof shall survive the termination
of this Agreement.
4. Severance.
(a) General. The Executive shall be entitled
to receive Severance (as hereinafter defined) according to the remaining
provisions of this section if the Executive's employment with the Corporation
terminates because of an event described in Sections 4(b) or 4(c). If the
Executive's employment terminates for reasons other than those described in
Sections 4(b) or 4(c), no Severance shall be payable to the Executive. If
Executive is entitled to such Severance, Severance shall be the exclusive remedy
of Executive in the event of early termination of the Employment Term as herein
provided and shall be in lieu of any other claim for damages related to early
termination.
(b) Termination by the Corporation. The
Executive shall be entitled to receive Severance if the Executive's
employment is terminated by the Corporation without Cause for reasons other than
Executive's death or Disability within three months prior to, or within twelve
months following, the occurrence of a Change of Control (as hereinafter
defined). The term "Cause" shall mean (i) misappropriation or embezzlement of
any funds or property of the Corporation by the Executive, (ii) Executive's
conviction of a felony or a crime involving moral turpitude, (iii) a material
breach of this Agreement by Executive or (iv) Executive's gross misconduct,
neglect or dereliction in the performance of his duties for the Corporation.
(c) Termination by Executive for Good Reason.
The Executive shall be entitled to receive Severance if the Executive
voluntarily terminates employment for "Good Reason," within three months prior
to, or within twelve months following, the occurrence of a Change of Control. As
used herein, "Good Reason" shall mean (i) the Executive's compensation or
employment related benefits are in the aggregate reduced in any material respect
(other than a reduction of any bonus based on the Executive's performance); (ii)
the Executive's status, title(s), office(s), working conditions, or management
responsibilities are diminished significantly (other than changes in reporting
or management responsibilities required by applicable federal or state law); or
(iii) the Executive's place of employment is moved more than twenty miles or to
a location other than the Corporation's principal executive offices without the
Executive's consent. A voluntary termination of employment by the Executive for
any reason not set forth in this section does not entitle the Executive to
Severance.
(d) Severance.
(i) "Severance" shall equal the Executive's Base Period
Income (as hereinafter defined) and shall be paid in six (6) equal consecutive
monthly installments. Severance payable to the Executive hereunder shall
commence on the later of the fifteenth business day after the Executive's
employment termination date or the first day of the month following the
Executive's employment termination date. At the Corporation's sole discretion,
however, Severance payments may be commenced on an earlier date. Severance is
subject to reduction according to Section 4(g). If Executive dies after the
commencement of Severance, Executive's estate shall be entitled to the balance
of any and all payments thereafter.
(e) Change of Control. "Change of Control"
shall mean the occurrence of any of the following:
(i)any person, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, other than Citicorp
Venture Capital, Ltd. or entities under its common control, shall acquire more
than fifty (50) percent of the voting control of the Corporation or its parent
corporation, FF Holdings Corporation ("Holdings"); or
(ii)the sale of substantially all of the assets
of the Corporation.
For purposes of this Agreement, a Control of Change is deemed to
occur on the date on which an event described in (i) or (ii) above occurs. If a
Change in Control occurs on account of a series of transactions, the date on
which a Change of Control is deemed to occur is the date of the last such
transaction.
(f) Base Period Income. The Executive's "Base
Period Income" shall equal the Executive's base salary during the six (6)
calendar month period immediately preceding the date of notice of termination.
(g) Severance Reductions. If any payments which
the Executive has the right to receive from the Corporation (including Severance
payments) or any affiliated entity or any payments or benefits under any plan
maintained by the Corporation or an affiliated entity would otherwise constitute
an "excess parachute payment" (as defined in Internal Revenue Code Section
280G), Severance payments must be reduced pro-rata (but not below zero) to the
largest amount that will result in no portion of any such payment being subject
to the excise tax imposed by Internal Revenue Code Section 4999. The
determination of any reduction pursuant to this subsection must be made by the
Corporation in good faith, before any such payments are due and payable to the
Executive.
5.Confidentiality. Executive shall not (except as authorized by the
Board of Directors of the Corporation or as required in the scope of his
employment) during the term of his employment or at any time thereafter disclose
to any person, firm or company any information relating to the organization,
business or finances of the Corporation or any of its customers, agents or
suppliers, or any of its trade secrets or details of any dealings, transactions
or affairs of which he is or may become aware during his employment hereunder.
Executive shall keep absolutely confidential all such matters entrusted to him,
and he shall not use, nor attempt to use, nor permit others to use, any such
information in any manner which may injure or cause loss whether directly or
indirectly to the Corporation.
6.Proprietary Information. Any notes or memoranda or copies thereof
made by Executive during the term of his employment with the Corporation or at
any time thereafter relating to any matter within the scope of the business of
the Corporation or concerning any of its dealings, transactions or affairs shall
be the property of the Corporation. Executive shall not, either during the term
of his employment or at any time thereafter, use or permit others to use any
such notes or memoranda or copies thereof other than for the benefit of the
Corporation. Upon request by the Board of Directors of the Corporation,
Executive shall immediately return any and all such notes and memoranda and
copies thereof to the Corporation.
7.Assignability. The right of the Executive or any other person to
the payment of compensation or other benefits under this Agreement shall not be
assigned, transferred, pledged or encumbered except by will or by the laws of
descent and distribution.
8.Notices. All notices which may be required or given hereunder
shall be in writing addressed to the respective addresses of the parties hereto
as shown below, posted in the U.S. mail by certified or registered mail, or hand
delivered.
As to Corporation: Farm Fresh, Inc.
7530 Tidewater Drive
Norfolk, VA 23505
Attention: President
As to Executive:
----------------------------------
----------------------------------
----------------------------------
9.Binding Effect. All the terms of this Agreement shall be binding
upon and inure to the benefit of, and be enforceable by, the respective heirs
and legal representatives and the successors and permitted assigns of the
Corporation and the Executive.
10.Governing Law. This Agreement shall be interpreted, construed
and enforced in accordance with the laws of the Commonwealth of Virginia.
11.Jurisdiction. Executive and the Corporation irrevocably submit to
the jurisdiction of the Circuit Court of Norfolk, Virginia in any action or
proceeding arising out of, or relating to, this Agreement, and hereby
irrevocably agree that all claims in respect of any such action or proceeding
may be heard and determined in such courts. Executive and the Corporation agree
that a final judgment in any action or proceeding shall, to the extent permitted
by applicable law, be conclusive and may be enforced in other jurisdictions by
suit on the judgment, or in any other manner provided for by applicable law
related to the enforcement of judgments except that nothing shall restrict a
party's right to appeal the decision in any action or proceeding.
12.Prior Agreements. This Agreement supersedes all prior
arrangements, understandings, letters of intent, conversations and negotiations
between the parties with respect to the subject matter of this Agreement and
shall, together with any other contemporaneously executed agreement between the
parties, constitute the entire agreement between the parties with respect to the
matters mentioned in this Agreement.
13.Amendment. Neither this Agreement nor any term or provision
thereof may be changed, waived, discharged or terminated orally, or in any
manner other than by an instrument in writing signed by the party against which
the enforcement of this change, waiver, discharge or termination is sought.
14.Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
be deemed one and the same instrument.
15.Severability. If for any reason any provision of this Agreement
is declared invalid, void, or unenforceable by a court of competent subject
matter and personal jurisdiction, the validity and binding effect of any
remaining provision of this Agreement shall remain in full force and effect as
if this Agreement had been executed with the invalid, void or unenforceable
provision eliminated.
16.Construction of Headings. The captions or headings are for
convenience only and are not intended to limit or define the scope or effect of
any provision of this Agreement.
WITNESS the following signatures as of the date first above written.
FARM FRESH, INC.
By:
----------------------------
Title:
-------------------------
EXECUTIVE:
-------------------------------
Exhibit 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF FF HOLDINGS CORPORATION
PAGE
----
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 30, 1995
and December 28, 1996 F-3
Consolidated Statements of Loss for each of the years in the three
year period ended December 28, 1996 F-5
Consolidated Statements of Stockholders' Deficit for each
of the years in the three year period ended December 28, 1996 F-6
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 28, 1996 F-7
Notes to Consolidated Financial Statements F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FF Holdings Corporation:
We have audited the consolidated balance sheets of FF Holdings Corporation and
subsidiaries as of December 30, 1995 and December 28, 1996 and the related
consolidated statements of loss, stockholders' deficit and cash flows for each
of the years in the three year period ended December 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FF Holdings
Corporation and subsidiaries as of December 30, 1995 and December 28, 1996 and
the results of their operations and their cash flows for each of the years in
the three year period ended December 28, 1996 in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, in 1995 the
Company adopted Statement of Financial Accounting Standards No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 11, 1997, except as to note 10,
which is as of February 21, 1997
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
ASSETS
<S> <C>
Current assets (note 10):
Cash (note 3) $ 2,085,769 853,560
Accounts receivable, net of allowance
for doubtful accounts of $491,330 at
December 30, 1995 and $1,003,038 at
December 28, 1996 (note 18) 17,026,234 14,792,965
Merchandise inventories, net
Assuming the first-in, first-out method 56,700,404 54,164,510
Less adjustment to the last-in, first-out method 3,036,896 3,355,394
------------ --------------
53,663,508 50,809,116
------------ --------------
Prepaid expenses and other current assets 2,083,743 1,355,115
------------ --------------
Total current assets 74,859,254 67,810,756
------------ --------------
Assets held for sale (note 10) 6,220,362 9,998,102
Property, plant and equipment (notes 8, 9, 10 and 18):
Land 10,627,356 8,727,365
Buildings 64,835,421 62,675,865
Leasehold improvements 32,016,115 35,955,672
Fixtures and equipment 82,743,500 87,093,915
Transportation equipment 628,072 608,037
Construction in progress 348,932 894,515
------------ --------------
191,199,396 195,955,369
Less accumulated depreciation and amortization 85,264,691 91,778,403
------------ --------------
Net property, plant and equipment 105,934,705 104,176,966
------------ --------------
Favorable lease rights, net of accumulated
amortization of $6,398,657 at December 30, 1995
and $7,283,859 at December 28, 1996 4,519,402 3,540,441
Goodwill, net of accumulated amortization of
$994,136 at December 30, 1995 and $2,348,851 at
December 28, 1996 8,567,662 7,227,683
Deferred financing costs, net of accumulated
amortization of $4,393,934 at December 30, 1995 and
$6,419,514 at December 28, 1996 8,853,224 7,859,675
Other, net (note 18) 1,144,005 175,677
------------ ----------
$ 210,098,614 200,789,300
============ ==============
(continued)
</TABLE>
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of notes payable (note 9) $ 1,183,073 801,467
Current installments of obligations under capital
leases (notes 8 and 18) 1,858,914 3,040,132
Trade accounts payable 32,900,110 36,149,820
Accrued expenses (note 7) 27,124,842 27,505,006
Accrued costs relating to closed stores,
current portion (notes 3 and 5) 1,965,073 1,901,305
------------- ---------------
Total current liabilities 65,032,012 69,397,730
------------- ---------------
Long-term debt, excluding current installments:
Revolving credit facility (note 10) 12,169,258 24,289,957
Notes payable (note 9) 1,751,721 919,698
Obligations under capital leases (notes 8 and 18) 31,617,554 33,958,653
12.25% senior notes (note 11) 165,000,000 165,000,000
12.25% senior notes, series A (note 11) 37,337,873 37,074,410
Convertible subordinated debentures (notes 10 and 13) 9,322,398 4,380,243
14.25% senior notes (note 12) 74,348,357 85,524,614
------------- ---------------
Total long-term debt, including current installments 331,547,161 351,147,575
Accrued costs relating to closed stores (notes 3 and 5) 7,969,459 7,470,884
Deferred credits and other liabilities (note 3) 4,356,659 3,424,988
------------- ---------------
Total liabilities 408,905,291 431,441,177
------------- ---------------
14.25% cumulative redeemable preferred stock, authorized 700,000 shares; issued
191,679 shares; stated at liquidation value of $100 per share plus accrued
and unpaid dividends (note 14) 30,000,043 34,427,346
Stockholders' deficit (note 15):
Class A common stock of $.01 par value; authorized
2,500,000 shares; issued and outstanding 41,480 shares 415 415
Class B common stock of $.01 par value; authorized
3,500,000 shares; issued and outstanding 2,458,520 shares 24,585 24,585
Class C common stock of $.01 par value, authorized
and issued 1 share - -
Additional paid-in capital 10,975,050 10,975,050
Accumulated deficit (238,492,733) (274,970,333)
Stockholder loans (note 18) (1,314,037) (1,108,940)
-------------- ----------------
Total stockholders' deficit (228,806,720) (265,079,223)
Commitments, contingencies and subsequent event
(notes 2, 8, 10, 17 and 18) - -
------------- ----------------
$ 210,098,614 200,789,300
============= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
<S> <C>
Sales $ 885,883,350 885,087,448 761,493,845
Cost of sales 677,542,329 674,776,002 583,521,074
------------- ------------ ------------
Gross profit 208,341,021 210,311,446 177,972,771
Depreciation and amortization (24,951,897) (21,797,566) (20,792,781)
Other selling, general and administrative expenses (167,542,289) (164,397,459) (138,641,513)
Store closure and other charges (note 5) - (2,635,666) (1,497,284)
Interest expense (43,831,255) (45,285,328) (46,119,354)
Loss on disposition of assets (note 3) (396,434) (4,376,073) (537,956)
Write down of long-lived assets to be
disposed (note 1) - (7,230,982) (2,756,207)
Other, net (notes 6 and 13) 99,448 (701,308) 322,027
------------- ------------- ------------
Net loss (28,281,406) (36,112,936) (32,050,297)
Dividends on cumulative preferred stock (3,361,832) (3,857,959) (4,427,303)
------------- ------------- -------------
Net loss to common stockholders $ (31,643,238) (39,970,895) (36,477,600)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
Common Stock
----------------------------------------------------
Class A Class B Class C
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at
January 1, 1994 41,480 $ 415 2,458,520 $ 24,585 1 $ -
Loans to stockholders - - - - - -
Repayment of stockholder
loans - - - - - -
Proceeds from offering - - - - - -
Preferred stock dividends - - - - - -
Net loss - - - - - -
----------------------------------------------------
Balance at
December 31, 1994 41,480 415 2,458,520 24,585 1 -
Repayment of stockholder
loans - - - - - -
Preferred stock dividends - - - - - -
Net loss - - - - - -
----------------------------------------------------
Balance at
December 30, 1995 41,480 415 2,458,520 24,585 1 -
Write down of stockholder
loans (note 18) - - - - - -
Preferred stock dividends - - - - - -
Net loss - - - - - -
----------------------------------------------------
Balance at
December 28, 1996 41,480 $ 415 2,458,520 $ 24,585 1 $ -
====== ====== ========= ======== ==== ======
<TABLE>
<CAPTION>
Total
Additional
Paid-In Due from Accumulated Stockholder Stockholders'
Capital Stockholders Deficit Loans Defecit
------- ------------ ------- ----- -------
<S> <C>
Balance at (159,527,211)
January 1, 1994 10,975,050 (2,266,052) (166,878,600) (1,382,609)
Loans to stockholders - - - (76,007) (76,007)
Repayment of stockholder
loans - - - 110,000 110,000
Proceeds from offering - 2,266,052 - - 2,266,052
Preferred stock dividends - - (3,361,832) - (3,361,832)
Net loss - - (28,281,406) - (28,281,406)
------------------------------------------------------------------
Balance at
December 31, 1994 10,975,050 - (198,521,838) (1,348,616) (188,870,404)
Repayment of stockholder
loans - - - 34,579 34,579
Preferred stock dividends - - (3,857,959) - (3,857,959
Net loss - - (36,112,936) - (36,112,936)
------------------------------------------------------------------
Balance at
December 30, 1995 10,975,050 - (238,492,733) (1,314,037) (228,806,720)
Write down of stockholder
loans (note 18) - - - 205,097 205,097
Preferred stock dividends - - (4,427,303) - (4,427,303)
Net loss - - (32,050,297) - (32,050,297)
------------------------------------------------------------------
Balance at
December 28, 1996 10,975,050 - (274,970,333) (1,108,940) (265,079,223)
========== ============ ============== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
<S> <C>
Cash flows from operating activities:
Net loss $ (28,281,406) $ (36,112,936) $ (32,050,297)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 24,951,897 21,797,566 20,792,781
Store closure and other charges - 2,635,666 1,497,284
Loss on disposition of property and equipment 396,434 1,915,615 537,956
Loss on sale of 10 stores to Hannaford Bros. Inc. - 2,460,458 -
Loss on disposition of preferred stock - 1,084,604 -
Write down of long-lived assets to be disposed - 7,230,982 2,756,207
Write down of stockholder loans - - 205,097
Gain on conversion of convertible subordinated
debentures, net - (293,546) (298,536)
Additional 14.25% senior notes issued
in lieu of interest 8,442,740 9,688,690 11,118,513
Amortization of premium on 12.25%
senior notes (211,042) (235,800) (263,463)
Amortization of discount on 14.25%
senior notes 5,639 20,067 57,744
LIFO charge to earnings 271,000 35,553 318,498
Noncash recognition of deferred revenue (417,147) (701,763) (1,124,194)
Changes in assets and liabilities that increase
(decrease) net cash provided by operating activities
Accounts receivable (1,861,757) 2,130,031 2,233,269
Merchandise inventories (3,418,568) (283,722) 781,332
Prepaid expenses and other current assets (184,182) 120,241 728,628
Trade accounts payable 5,069,662 (8,540,684) 3,249,710
Accrued expenses 2,483,942 1,918,962 380,164
Accrued costs relating to closed stores (3,783,251) (2,266,813) (2,059,627)
Deferred credits and other liabilities (8,322) 936,388 192,523
Other, net (349,970) 93,405 175,098
------------ ------------ ------------
Total adjustments 31,387,075 39,745,900 41,278,984
------------ ------------ ------------
Net cash provided by operating
activities 3,105,669 3,632,964 9,228,687
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (7,668,431) (17,081,346) (18,329,078)
Proceeds from sale of property and equipment 1,939,894 654,394 4,880,711
Proceeds from sale of 10 stores to Hannaford Bros. Inc. - 28,368,789 -
Acquisition of Bold Horizons common stock, net
of cash acquired (394,539) - -
Acquisition of assets from Drug Emporium franchisee - (4,246,988) -
------------ ------------ ------------
Net cash provided by (used in)
investing activities (6,123,076) 7,694,849 (13,448,367)
------------ ------------ ------------
(continued)
</TABLE>
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
<S> <C>
Cash flows from financing activities:
Borrowings under revolving credit facility $ 144,604,126 $ 150,438,533 $ 151,656,252
Repayments under revolving credit facility (135,533,535) (156,950,483) (139,535,553)
Repayments of long-term debt (2,115,466) (2,014,286) (1,104,515)
Stockholder loan repayments 110,000 34,579 -
Principal repayments of obligations
under capital leases (1,744,016) (1,922,040) (2,188,222)
Payment upon conversion of convertible subordinated
debentures - (5,627,762) (4,667,521)
Payment of refinancing costs (229,507) - (1,172,970)
Proceeds from issuance of Class B
common stock 2,266,052 - -
-------------- -------------- --------------
Net cash provided by (used in)
financing activities 7,357,654 (16,041,459) 2,987,471
-------------- -------------- --------------
Net increase (decrease) in cash 4,340,247 (4,713,646) (1,232,209)
Cash at beginning of period 2,459,168 6,799,415 2,085,769
-------------- -------------- --------------
Cash at end of period $ 6,799,415 $ 2,085,769 $ 853,560
============== =============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 33,588,257 $ 36,080,529 $ 34,352,498
============== =============== ==============
Income taxes $ - $ - $ -
============== =============== ==============
</TABLE>
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 30, 1995, Farm Fresh sold selected
assets to Hannaford Bros. Inc. (note 3) for net proceeds of
$28,368,789, including $820,000 received for noncompete and
license agreements. The net assets sold are as follows:
Assets sold $ 33,848,965
Liabilities assumed by Hannaford Bros. Inc. 3,839,718
-----------
Net assets sold 30,009,247
Net proceeds, excluding proceeds related to
noncompete and license agreements 27,548,789
-----------
Loss on sale of assets $ 2,460,458
-----------
(continued)
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES
(CONTINUED):
During the year ended December 31, 1994, Farm Fresh purchased all of
the outstanding stock from Bold Horizons, Inc. for $416,434
(note 4). In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets purchased $ 2,887,278
Cash paid to seller, net of change funds 394,539
------------
Liabilities assumed, principally long-term debt $ 2,492,739
------------
Duringthe year ended December 31, 1994, Farm Fresh finalized the
purchase price allocation for the acquisition of 12 stores from
Safeway Inc. as follows:
Overvaluation of assets $ 1,060,712
Overaccrual of closed store liability (1,549,112)
Payment of additional direct costs of acquisition 82,605
-------------
Net change in goodwill $ (405,795)
-------------
During the year ended December 31, 1994, stockholder loans increased by
$76,007 for the accrual of interest.
During the years ended December 31, 1994, December 30, 1995, and
December 28, 1996 the Company entered into capital lease
obligations of $3,258,104, $3,688,500 and $5,765,295,
respectively.
The Company accrued cumulative dividends on its redeemable preferred
stock of $3,361,832, $3,857,959, and $4,427,303 respectively, in
the years ended December 31, 1994, December 30, 1995 and December
28, 1996.
See accompanying notes to consolidated financial statements.
<PAGE>
FF HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS AND BASIS OF PRESENTATION
FF Holdings Corporation (FF Holdings or the Company), a Delaware
corporation, was organized in 1988 to effect the acquisition of
Farm Fresh, Inc. (Farm Fresh), a Virginia corporation. As a
result, Farm Fresh became a wholly-owned subsidiary of FF
Holdings. From the time of its formation, FF Holdings has engaged
in no independent business operations, and its activities have
been limited to those incidental to the acquisition of and
investment in Farm Fresh. Farm Fresh is engaged in the retail
grocery business under the names "Farm Fresh," "Rack and Sack,"
and "Gene Walters' Marketplace." These operations include
combination stores and super warehouse stores located in the
Hampton Roads, Richmond and Shenandoah Valley areas of Virginia.
The consolidated financial statements include the accounts of FF
Holdings Corporation and subsidiaries. All significant
intercompany balances and transactions of consolidated
subsidiaries have been eliminated.
The consolidated financial statements do not include the accounts
of certain joint venture partnerships in which Farm Fresh has
acquired interests ranging from 20% to 33%. These joint ventures
were formed to acquire, renovate, construct and operate various
rental properties. The joint venture partnerships are carried on
the equity method.
(b) DEFINITION OF FISCAL YEAR
The fiscal year of the Company ends on the Saturday nearest to
December 31. Fiscal 1994 ended December 31, 1994, fiscal year 1995
ended December 30, 1995 and fiscal year 1996 ended December 28,
1996.
(c) MERCHANDISE INVENTORIES
Inventories are stated at the lower of cost or market. For
substantially all of the inventories, cost has been determined on
a last-in, first-out (LIFO) basis. With respect to the remaining
inventories, cost has been determined on a first-in, first-out
(FIFO) basis. Approximately 93% of total merchandise inventories
in 1995 and 1996 were costed using the LIFO method. Movies held
for rent are included in merchandise inventories and amortized to
their net realizable value over 90 days.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Buildings and
equipment under capital leases are stated at the lower of the
present value of minimum lease payments at the beginning of the
lease term or fair value of the property at the inception of the
lease. Owned buildings, fixtures and equipment are depreciated
over the estimated useful lives of the respective assets using
the straight-line method. Buildings under capital leases,
fixtures and equipment under capital leases and leasehold
improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the
related asset. Farm Fresh uses the following estimated lives for
depreciating and amortizing property, plant and equipment:
Buildings 10-40 years
Leasehold improvements 10 years
Fixtures and equipment 3-8 years
Transportation equipment 3-8 years
(e) FAVORABLE LEASE RIGHTS
Favorable lease rights are amortized over the term of the lease
using the straight-line method.
(f) GOODWILL
Goodwill represents the excess purchase price over the estimated
fair value at the date of acquisition of the tangible and
identifiable intangible net assets acquired and is amortized
over its estimated recovery period using the straight-line
method. The maximum recovery period is 25 years.
(g) DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the term of the related
financing primarily using the effective interest method.
(h) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(i) ASSETS HELD FOR SALE
Assets held for sale are carried at estimated net realizable value
less estimated costs to sell. Included in assets held for sale
at December 28, 1996 are three buildings, one of which is
currently leased to third party through 2000, and three parcels
of land. Management expects to see these properties over the next
three years.
(j) PREOPENING COSTS
Farm Fresh capitalizes costs associated with the opening of new or
remodeled stores and amortizes these costs over the first six
accounting periods during which the store is open.
(k) ADVERTISING COSTS
Advertising costs, which are included in selling, general and
administrative expenses in the accompanying consolidated
statements of loss, are expensed as incurred. Advertising
expenses, net of cooperative advertising allowances, amounted
to $5,379,335, $5,283,195 and $3,296,464, respectively, for the
years ended December 31, 1994, December 30, 1995 and December 28,
1996.
(l) IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF (Statement 121). Statement 121 requires that
long-lived assets and certain identifiable intangible assets to
be held and used by an entity be reviewed for impairment when
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is
required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount
to determine if a write-down to market or discounted cash flow
value is required. Statement 121 also requires that long-lived
assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less costs
to sell. Farm Fresh adopted Statement 121 in 1995. The
application of Statement 121 to assets held for disposal resulted
in a charge of $7.2 million and $2.8 million in 1995 and 1996,
respectively. Statement 121 has not had an impact on assets to be
held and used.
(m) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenue and expenses during the reporting period to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(n) RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated
financial statements for the years ended December 31, 1994 and
December 30, 1995 in order to conform with the financial
statement presentation for the year ended December 28, 1996.
(2) LIQUIDITY
Although the Company has historically generated cash flow from
operations, the interest incurred on its substantial debt
obligations has resulted in recurring losses. In addition, FF
Holdings will be required to make cash interest payments on its
14.25% senior notes commencing April 1, 1998. As a holding
company with no operations independent from the operations of
Farm Fresh, FF Holdings is dependent on dividends from Farm Fresh
to make its cash interest payments. Farm Fresh's limited cash
flow as well as the covenants in its debt agreements will likely
preclude it from paying dividends to FF Holdings to enable FF
Holdings to make its April 1, 1998 cash interest payment.
Although management believes the Company's cash flow from operations
and amounts available under its revolving credit facility will
provide sufficient financial resources to meet its obligations
through fiscal 1997, substantial additional capital will be
required to satisfy its debt service obligations in 1998.
Management of Farm Fresh has engaged an investment banking firm
and is in the process of exploring strategic alternatives, which
may include the sale of some or all of FF Holdings' assets or the
negotiation by FF Holdings of modifications in the terms of its
14.25% senior notes. Because the FF Holdings senior notes are
subordinated to the indebtedness of Farm Fresh, proceeds
generated from any of these alternatives would not be available
to satisfy the obligations of FF Holdings until all of Farm
Fresh's indebtedness has been satisfied. There can be no
assurance that the Company will be able to secure sufficient
Capital to enable it to satisfy all outstanding obligations. In
that event, the Company may be required to enter into some form
of reorganization.
In addition, Farm Fresh's existing revolving credit facility expires
on January 13, 1998. Therefore, Farm Fresh will be required to
renew its existing facility or secure an alternative source of
short-term financing prior to the expiration. Although there can
be no assurances that Farm Fresh will succeed in renewing its
existing facility or securing a new facility which will provide
sufficient financial resources to conduct its operations, Farm
Fresh believes that it will be able to obtain some form of
short-term interim facility.
(3) SALE TO HANNAFORD BROS. INC.
On September 25, 1995, Farm Fresh sold the assets of 10 combination
stores, three of which had been previously closed by Farm Fresh,
to Hannaford Bros. Inc. (Hannaford). The stores were primarily
located in Richmond, Virginia.
The net proceeds were as follows:
Gross proceeds:
Inventory and other assets sold $ 28,318,993
Noncompete and license agreements 820,000
----------
29,138,993
Divestiture expenses:
Sales tax on sale of assets 261,000
Other divestiture expenses 509,204
----------
Net proceeds $ 28,368,789
==========
The gross proceeds reflected above include $750,000 received pursuant
to a three year noncompetition agreement. This agreement
restricts Farm Fresh's activities in Richmond and the surrounding
areas except with respect to its remaining stores in the Richmond
market. The gross proceeds also include $70,000 received pursuant
to a one year license agreement under which Hannaford was
permitted to trade under the name "The Grocery Store" in the
Richmond market for a period of one year. Farm Fresh deferred the
proceeds received under these agreements and is recognizing
revenue over the term of the respective contract.
The net assets sold and related loss can be summarized as follows:
Assets sold:
Merchandise inventories $ 4,339,497
Property and equipment 13,404,723
Favorable lease rights 5,257,126
Goodwill 10,847,619
----------
Total assets sold 33,848,965
----------
Liabilities assumed by Hannaford:
Obligations under capital leases 3,334,235
Closed store liability 505,483
---------
Total liabilities assumed 3,839,718
---------
Net assets sold 30,009,247
Net proceeds, excluding proceeds related to
noncompete and license agreements 27,548,789
----------
Loss on sale of assets $ 2,460,458
==========
Under the terms of the agreement, $1,261,000 of the net proceeds were
placed in escrow after closing for any potential claims against
Farm Fresh with respect to the stores sold and sales tax
attributable to the sale. As of December 30, 1995, $250,000 of
the escrowed amount had been released to Farm Fresh. The
remaining amounts held in escrow, including interest accrued
thereon, were released to Farm Fresh in 1996. The amounts held in
escrow are included in cash on the accompanying consolidated
balance sheet as of December 30, 1995.
Farm Fresh used $200,534 of the net proceeds to repay an industrial
revenue development bond which was collaterialized by one of the
stores sold.
In order to comply with the terms of the indentures of Farm Fresh's
12.25% senior notes and 12.25% senior note series A, Farm Fresh
reinvested the proceeds from the sale of the assets in the
remodeling existing stores.
(4) ACQUISITIONS
(A) DRUG EMPORIUM
In November 1995, Farm Fresh purchased selected assets from a
Drug Emporium franchisee in Richmond for $4.2 million. In
conjunction with the acquisition, Farm Fresh acquired $1.8
million in inventory and $0.2 million in fixtures, which
were placed in existing Farm Fresh stores. The acquisition
was accounted for as a purchase, with the excess of the
purchase price over the fair value of the assets acquired
allocated to goodwill. Farm Fresh is amortizing the
goodwill over 2 years. Farm Fresh also entered into a
two-year license agreement with Drug Emporium which allows
Farm Fresh to use Drug Emporium's trademarks in certain
Farm Fresh stores located in Richmond. A stockholder and
member of the Company's Board of Directors currently serves
on Drug Emporium's Board of Directors.
(B) BOLD HORIZONS, INC.
In August 1994, Farm Fresh acquired the outstanding common
stock of Bold Horizons, Inc., for $416,434 in cash,
including the direct costs of the acquisition, and notes
payable totaling $700,000 (note 9). The acquisition was
accounted for as a purchase. As a result, the cost of the
acquisition was allocated on the basis of the fair market
value of the assets acquired and the liabilities assumed,
with the excess purchase price of $1.7 million allocated to
goodwill. Bold Horizons, Inc. operates one super warehouse
store.
(5) ACCRUED COSTS RELATING TO CLOSED STORES
During 1995 and 1996, Farm Fresh closed six and two stores,
respectively. In conjunction with the closures, Farm Fresh
accrued future costs of $2.6 million in 1995 and $1.5 million in
1996. The costs, recorded based on discounted cash flows are
directly attributable to the closed stores. The costs accrued
include rent, taxes, utilities, common area maintenance and other
costs associated with the store locations.
During the years ended December 31, 1994, December 30, 1995 and
December 28, 1996, $2.5 million, $2.3 million and $2.1 million,
respectively, net of related interest expense, related to closed
facilities were charged against the liability noted as accrued
costs relating to closed stores in the accompanying consolidated
balance sheets. These costs represent rent, taxes, utilities,
common area maintenance and other costs associated with the
specific store locations.
(6) WRITE-OFF OF VIRGINIA SUPERMARKETS, INC. PREFERRED STOCK
During 1992, Farm Fresh sold 11 of its Nick's stores to Virginia
Supermarkets, Inc., (Supermarkets), an entity related to Farm
Fresh by common ownership. Farm Fresh received cash of $4,955,675
and 10% cumulative preferred stock with $3,000,000 face value.
Because the preferred stock represented an investment in a thinly
capitalized entity, the gain on the sale of $1,915,396 was
deferred until realization could be reasonably assured.
Supermarkets was dissolved in 1995 and Farm Fresh wrote off its
$1,084,604 investment in the preferred stock. This write-off has
been included in other, net in the accompanying consolidated
statement of loss for the year ended December 30, 1995.
(7) ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 30, December 28
1995 1996
---- ----
Accrued licenses and other taxes $ 6,110,228 $ 5,407,620
Accrued interest 9,670,600 10,261,199
Accrued insurance claims 3,669,027 4,125,522
Accrued other 7,674,987 7,710,665
----------- -----------
$ 27,124,842 27,505,006
=========== ===========
(8) LEASES
Included in property, plant and equipment are the following amounts
applicable to capital leases:
December 30, December 28
1995 1996
Buildings $34,884,277 $36,396,380
Fixtures and equipment 1,395,560 4,897,322
---------- ----------
36,279,837 41,293,702
Less accumulated amortization 12,526,405 14,308,039
---------- ----------
$23,753,432 26,985,663
=========== ==========
Amortization expense of assets under capital leases was $2,580,176,
$2,627,032 and $2,709,123 for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996, respectively.
Future minimum lease payments under noncancelable operating leases
and the present value of future minimum capital lease payments as
of December 30, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Leases Operating Leases
----------- -------------- ----------------
<S> <C>
1997 $ 7,547,981 $ 7,531,515
1998 7,483,889 7,193,193
1999 6,878,229 6,581,622
2000 6,318,343 6,187,426
2001 5,499,795 6,084,442
Later years 48,997,548 43,129,778
---------- -------------
Total minimum lease payments 82,725,785 $ 76,707,976
=============
Less amount representing interest 45,727,000
----------
Present value of net minimum
capital lease payments 36,998,785
Less current installments of obligations
under capital leases 3,040,132
---------
Long-term obligations
under capital leases $ 33,958,653
==============
</TABLE>
Minimum payments under capital leases have not been reduced by
minimum sublease rentals of $830,590 due in the future under
noncancelable subleases.
Rental expense for operating leases and contingent rentals for both
operating and capital leases are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
<S> <C>
Minimum rentals - operating leases $ 10,271,529 $ 10,191,480 $ 7,276,377
Contingent rentals - operating leases 464,779 287,643 200,638
Contingent rentals - capital leases 248,155 224,450 180,803
---------- ----------- -----------
$ 10,984,463 $ 10,703,573 $ 7,657,818
========== =========== ============
</TABLE>
Contingent rentals are determined as a percentage of sales in excess
of stipulated amounts for certain stores. Most of Farm Fresh's
leases provide for payment of taxes, maintenance, insurance and
certain other operating expenses applicable to leased property.
Minimum payments under capital leases and operating leases do not
include minimum rentals for certain leases assumed by Nash
Finch and the operators of the Tinee Giant stores. Farm Fresh is
secondarily liable for these leases in the event of default by
the present lessee. Future minimum lease payments on these leases
as of December 28, 1996 are approximately $2,024,000.
FarmFresh sold its North Carolina stores in early 1991 and its Nick's
conventional stores in 1992 to independent operators financed by
Richfood, Inc. (Richfood), Farm Fresh's primary supplier. Under
the agreements, Richfood agreed to guarantee the lease payments
for these stores. Therefore, Farm Fresh would be liable under
these leases only to the extent that the current lessee and
Richfood default. Future minimum lease payments under these
leases amount to approximately $9,363,000 as of December 28,
1996.
(9) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
<S> <C>
Industrial Development Revenue Bonds;
65% of prime, which averaged 5.7% for 1995
and 5.4% for 1996, quarterly installments
of $90,000 plus interest, due January 2000 $1,498,463 1,138,463
Obligations under noncompete agreements;
10% to 12% interest; monthly payments
ranging from $2,950 to $3,462; due
May 1997 to November 2003 474,403 228,379
Notes payable:
Prime + 2% notes, which averaged 11% for 1995 and 10% for
1996; weekly installments of
$7,752 including interest; collateralized by
substantially all assets of Bold Horizons, Inc.;
due September 1998 566,095 198,767
Prime + 2% notes, which averaged 11% for 1995
and 10% for 1996; monthly installments of
$19,444 plus interest; collateralized by the
common stock of Bold Horizons, Inc.;
due September 1998 $ 395,833 $ 155,556
--------- ---------
Total notes payable 2,934,794 1,721,165
Less current installments of notes payable 1,183,073 801,467
--------- ---------
Notes payable, excluding current installments $1,751,721 $ 919,698
========= =========
</TABLE>
At December 28, 1996, collateral for the industrial development
revenue bonds consisted of certain property, plant and equipment
against which the notes were issued. The net book value of the
related collateral is approximately $2,790,000 at December 28,
1996.
Aggregate annual maturities of notes payable for fiscal years after
December 28, 1996 are as follows: 1997--$801,467;
1998--$378,459; 1999--$380,800; 2000-- $81,901, 2001 and
thereafter--$78,538.
(10) REVOLVING CREDIT FACILITY
In 1996, Farm Fresh renewed its existing revolving credit facility.
The revolving credit facility allows Farm Fresh to borrow up to
$40.0 million, less $4.0 million reserved for the redemption of
convertible debentures, subject to certain borrowing base
limitations through January 13, 1998. The availability of the
revolving credit facility is also reduced by outstanding letters
of credit of $1,072,501 at December 28, 1996.
The revolving credit facility bears interest at prime plus 1 3/4%,
payable quarterly. The actual interest rate on the revolving
credit facility averaged 10 3/4% for 1995 and 10% for 1996. The
facility is collateralized by accounts receivable, inventory
and substantially all other assets of Farm Fresh. In addition,
FF Holdings has pledged all of the outstanding capital stock of
Farm Fresh for the repayment of the facility.
The agreement governing the revolving credit facility contains
covenants which, among other things, limit the incurrence of
additional indebtedness, capital expenditures, payment of
dividends, transactions with affiliates, mergers and
consolidations, prepayment of other indebtedness and liens and
encumbrances. Farm Fresh is also required to maintain a minimum
level of cashflow.
For the year ended December 28, 1996, Farm Fresh exceeded the maximum
capital expenditures covenant and as a result the lender had the
right to demand repayment of the borrowings under the facility.
On February 21, 1997, the lender agreed to waive the
noncompliance.
(11) SENIOR NOTES
On October 9, 1992 Farm Fresh issued $165,000,000 of senior notes
(senior notes) through a public offering. The notes, which bear
interest at 12.25%, payable semiannually each April 1 and October
1, represent general unsecured obligations of Farm Fresh and
mature October 1, 2000.
On December 13, 1993, Farm Fresh issued $36,000,000 face value of
12.25% senior notes, for gross proceeds of $37,800,000, to
finance the acquisition of 12 stores from Safeway Inc. The
related premium is being amortized over the life of the notes
using the effective interest method. The effective rate on the
notes is 11.1%. These notes, labeled Series A in the accompanying
balance sheets, have terms that mirror the previously issued
senior notes.
The senior notes are redeemable, at the option of Farm Fresh, in
whole or in part, at any time on or after October 1, 1997 at
specified redemption prices, together with interest to the date
fixed for redemption. A sinking fund payment of $100,500,000 is
due on October 1, 1999. This sinking fund payment is calculated
to retire 50% of the senior notes originally issued prior to
maturity. In the event of a change of control of Farm Fresh, Farm
Fresh is obligated to make an offer to purchase all outstanding
senior notes at a redemption price of 101% of the principal
amount plus accrued interest to the date of repurchase. As
described in note 12, a foreclosure by the FF Holdings
noteholders on the common stock of Farm Fresh would constitute a
change of control.
The indentures contain certain covenants that, among other things,
limit the ability of Farm Fresh to incur additional indebtedness,
transfer or sell assets, pay dividends or make certain other
restricted payments, create liens, enter into certain
transactions with affiliates or merge or consolidate.
(12) FF HOLDINGS SENIOR NOTES
On October 9, 1992, FF Holdings issued senior notes (FF Holdings
senior notes) with a face value of $50,000,000. Because the notes
were issued together with 20% of FF Holdings fully diluted common
stock, the notes were recorded at a discount which is amortized
over the life of the loan on the interest method. The notes bear
interest at 14.25% payable semi-annually in arrears on each April
1 and October 1. The effective rate on the notes is 14.50%. FF
Holdings has the option to pay interest with additional
securities through October 1, 1997. During 1994, 1995 and 1996,
FF Holdings exercised this option by issuing $8,442,740,
$9,688,690 and $11,118,513, respectively, of additional 14.25%
senior notes in lieu of interest. The notes represent general,
unsecured obligations of FF Holdings and are junior to the
indebtedness of Farm Fresh.
Since FF Holdings is a holding company with no operations independent
from Farm Fresh, its ability to pay interest on the FF Holdings
senior notes is dependent upon Farm Fresh's ability to pay
dividends to FF Holdings in an amount sufficient to satisfy such
obligations. Assuming FF Holdings elects to pay interest through
the October 1, 1997 interest payment date, by distributing
additional FF Holdings notes in a principal amount equal to the
interest then due, FF Holdings will be required to make level,
semi-annual cash interest payments of $7.1 million each or $14.1
annually, to noteholders beginning on April 1, 1998, through the
maturity date of the FF Holdings notes. Even if Farm Fresh were
able to increase its annual cash flow sufficient to pay the
required dividends to FF Holdings, covenants in the indentures
governing the senior notes (note 11) and other instruments
evidencing Farm Fresh's debt obligations restrict Farm Fresh's
ability to make cash dividend payments to FF Holdings. Farm Fresh
has not generated sufficient cash to satisfy the restrictive
covenant governing dividends to FF Holdings in the past and is
unlikely to satisfy the covenant by April 1, 1998, the date upon
which the first cash interest payment on the FF Holdings Notes is
due. If Farm Fresh were unable to make cash dividends to FF
Holdings, FF Holdings would be unable to pay cash interest on the
FF Holdings senior notes. In the event of such a default, the
trustee would be entitled to exercise all of its rights under the
indenture for the FF Holdings senior notes, including the
acceleration of the principal of the notes. It is possible that
such an event could lead to the FF Holdings senior noteholders
acquiring a controlling interest in Farm Fresh, which could in
turn trigger a "Change in Control" as defined in the senior notes
indentures. A change of control would require Farm Fresh to
repurchase the senior notes, resulting in an effective
acceleration of the maturity of those senior notes.
The FF Holdings senior notes are redeemable, at the option of FF
Holdings, in whole or in part, at any time on or after October 1,
1997 at specified redemption prices, together with interest to
the date fixed for redemption. No principal payments are required
until maturity on October 1, 2002. In the event of a change of
control, FF Holdings is obligated to make an offer to purchase
all outstanding FF Holdings senior notes at a redemption price of
101% of the principal amount plus accrued interest to the date of
repurchase.
The indenture contains certain covenants that, among other things,
limit the ability of FF Holdings to incur additional
indebtedness, transfer or sell assets, pay dividends or make
certain other restricted payments, create liens, enter into
transactions with affiliates, or merge or consolidate.
(13) CONVERTIBLE SUBORDINATED DEBENTURES
In March 1985, $40,000,000 of 7.5% convertible subordinated
debentures (convertible debentures) due in 2010 were issued by
Farm Fresh. Interest is payable March 1 and September 1. On
October 2, 1988, as a result of the acquisition of Farm Fresh by
FF Holdings, the convertible debentures were written down from
their original face value by $18,613,867 to $21,386,133 to
reflect their fair value at the date of acquisition. Therefore,
convertible debentures that would formerly have converted, at the
option of the holder, at $25.25 per share into common stock
converted into $10.50 cash and $3.00 in merger debentures of FF
Holdings per equivalent common share. Subsequent to the
recapitalization in 1992 and the corresponding repayment of the
FF Holdings merger debentures, the convertible debentures now
convert into $13.50 in cash per equivalent common share. For the
years ended December 31, 1994, December 30, 1995 and December 28,
1996, convertible debentures with face value of $12,000,
$10,526,000 and $8,730,000, respectively, were converted,
resulting in cash payments by the Company of $6,415, $5,627,762
and $4,667,521, respectively. Due to the significant amount
converted in 1995 and 1996, Farm Fresh also wrote off a
proportionate amount of deferred financing costs associated with
issuance of the convertible debentures. These amounts, $109,042
and $85,212 for the years ended December 30, 1995 and December
28, 1996, respectively, have been netted against the gains of
$402,588 and $383,748 on conversion and included in other
expenses, net in the accompanying consolidated statements of loss
for the years ended December 30, 1995 and December 28, 1996,
respectively.
The face value of debentures outstanding was $26,764,000 at December
31, 1994, $16,238,000 at December 30, 1995 and $7,508,000 at
December 28, 1996. The difference between the face value of the
convertible debentures and the carrying value is being amortized
over the term of the bonds using the effective interest method.
The effective interest rate is 14.7%.
Commencing March 1, 1996, Farm Fresh is required to make annual
sinking fund payments of $2,000,000. Under the terms of the
indenture, this requirement can be met through either cash
payments or contribution of retired convertible debentures.
As a result, Farm Fresh will not be required to make a sinking
fund payment in cash until March 1, 2008, at the earliest.
Although the convertible debentures are convertible on demand, a
portion of the revolving credit facility described in note 10 has
been reserved to finance the conversion of all outstanding
debentures as they occur. As a result, the convertible
debentures are classified as a long-term liability in the
accompanying balance sheets.
(14) CUMULATIVE REDEEMABLE PREFERRED STOCK
In conjunction with the 1992 recapitalization, the Company exchanged
all of its 16.75% junior subordinated debentures and 16.75%
cumulative preferred stock for new 14.25% preferred stock.
Holders of the 14.25% preferred stock are entitled to receive, if
declared by the board of directors, cumulative dividends at an
annual rate of 14.25% per share, payable in cash semi-annually on
April 1 and October 1. Each of the semi-annual dividends is fully
cumulative and will accrue (whether declared or not) ratably each
period. Additional dividends accrue on unpaid dividends. On
December 28, 1996, dividends on the 14.25% preferred stock were
in arrears in the amount of $15,259,455, which have been accrued
in the accompanying consolidated financial statements. The
preferred stock is required by its terms to be redeemed in its
entirety on or before October 1, 2004. The preferred stock ranks
higher than all classes of common stock with respect to dividend
rights and rights on liquidation.
(15) COMMON STOCK
The authorized common stock of FF Holdings consists of 2,500,000
shares of Class A common stock, 3,500,000 shares of Class B
common stock and one share of Class C common stock. Except as
described below, all shares of Class A common stock, Class B
common stock and Class C common stock are identical and entitle
the holders thereof to the same rights, privileges, benefits and
notices. These are summarized as follows:
DIVIDENDS
The holders of each class of common stock are entitled to share
ratably, on a share-for-share basis, in dividends declared by the
Board of Directors. If dividends are declared that are payable in
shares of FF Holdings common stock, dividends must be declared
which are payable at the same rate on each class of stock, and
the dividends payable in shares of common stock will be payable
to holders of each class of stock in such class of stock. FF
Holdings may not make any split-up, division or other
reclassification of any class of common stock unless it makes a
corresponding split-up, division or reclassification of the other
classes of common stock. Dividends are restricted by certain
provisions of the Company's debt agreements.
CONVERTIBILITY
Pursuant to the Certificate of Incorporation of FF Holdings, holders
of Class A common stock may elect at any time to convert any or
all of such shares into Class B common stock on a share-for-share
basis. Holders of Class B common stock may elect at any time to
convert any or all of such shares into Class A common stock, on a
share-for-share basis, to the extent the holder thereof is not
prohibited from owning additional voting securities by virtue of
regulatory restrictions. Class C common stock is not convertible.
LIQUIDATION PREFERENCE
Upon the liquidation or dissolution of FF Holdings, the holders of
the Class A common stock, Class B common stock and Class C
common stock will be entitled to share ratably, on a
share-for-share basis, in all distributions made in connection
with such liquidation or dissolution after payment in full of
amounts due in respect of any outstanding indebtedness and senior
equity securities.
VOTING RIGHTS
The holders of Class A common stock are entitled to one vote per
share on all matters to be voted upon and will vote together as
a single class with holders of Class C common stock, who are
entitled to 20,000 votes per share. Except as otherwise required
by law, holders of Class B common stock generally do not possess
the right to vote.
RIGHTS OFFERING
Concurrent with the closing of the Safeway acquisition in 1993, FF
Holdings began a private placement of 2,375,000 shares of Class B
common stock to its existing shareholders. At the time of
closing, FF Holdings had an unconditional guarantee of $5,000,000
in proceeds for the stock; therefore, the entire amount of the
offering was reflected as a capital contribution in 1993. The
private placement was completed on January 14, 1994, and the
remaining proceeds of $2,266,052 were received.
(16) INCOME TAXES
At December 28, 1996, FF Holdings had net operating loss
carryforwards for regular Federal income tax purposes which
expire as follows:
Year
2003 $ 2,400,000
2004 9,900,000
2005 21,100,000
2006 5,400,000
2007 17,100,000
2008 13,700,000
2009 22,000,000
2010 8,200,000
2011 11,900,000
----------
$111,700,000
============
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
of the Company at December 30, 1995 and December 28, 1996 are
presented below:
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 38,427,000 42,400,000
14.25% senior notes, due to payment-in-kind interest,
not deductible for tax purposes until paid 10,652,000 15,037,000
Accrued closed store reserves, deductible as paid
for tax purposes 3,775,000 3,558,000
Capital leases, deductible as paid for tax purposes 3,694,000 3,897,000
General business credit carryforwards 1,798,000 1,798,000
Vacation and bonus accruals, deductible as paid
for tax purposes 962,000 731,000
Allowance for doubtful accounts, deductible as
receivables are written off for tax purposes 187,000 560,000
Noncompete agreements, due to differences between
book and tax amortization periods 373,000 411,000
Other 32,000 103,000
------------ ------------
Total deferred tax assets 59,900,000 68,495,000
Less valuation allowance (47,234,000) (57,555,000)
------------- -------------
Net deferred tax assets 12,666,000 10,940,000
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
<S> <C>
Deferred tax liabilities:
Property, plant and equipment, due to differences
between book and tax depreciation methods and
adjustments made in purchase accounting
not recognized for tax purposes $ (5,048,000) (4,979,000)
Convertible debentures, due to write downs
in purchase accounting not recognized
for tax purposes (2,628,000) (1,187,000)
Goodwill, due to differences between book and tax
amortization periods (744,000) (432,000)
LIFO, due to adjustments made in purchase
accounting not recognized for tax purposes (2,578,000) (2,569,000)
Leasehold rights, due to differences between book
and tax depreciation periods and adjustments
made in purchase accounting (1,009,000) (1,146,000)
Other (659,000) (627,000)
-------------- ------------
Total deferred tax liabilities (12,666,000) (10,940,000)
-------------- ------------
Net deferred tax assets and liabilities $ - -
============== ============
</TABLE>
A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized.
Due to losses incurred historically and the uncertainty of future
income, the Company has recorded a valuation allowance to defer
recognition of its deferred tax assets until it is more likely
than not the benefit will be realized. The valuation allowance
for deferred tax assets as of December 31, 1994 was $35,098,000,
therefore, an increase of $12,136,000 was reflected in the year
ended December 30, 1995 and an increase of $10,321,000 in the
valuation allowance was reflected in the year ended December 28,
1996.
During 1994 and 1995 the Company paid $1,460,394 and $403,168,
respectively, in interest related to the settlement of an
Internal Revenue Service audit of the Company's 1986 through 1989
tax returns.
(17) SUPPLY AGREEMENT
Farm Fresh has an agreement with Richfood to purchase store
merchandise and products of at least $350 million annually,
subject to adjustment based on the number of stores in operation.
Under the agreement, which expires in December, 2001, Richfood's
prices for products sold to Farm Fresh will not exceed Richfood's
prevailing lowest offering price to its customers, and Richfood
will continue to offer to Farm Fresh billing and payment terms at
least as favorable as those offered to Richfood's ten largest
customers.
(18) RELATED PARTY TRANSACTIONS
Two stores are leased from real estate partnerships in which Farm
Fresh is a general partner. One store was treated as a capital
lease with net assets of $1,125,397 and $1,060,972 and long-term
obligations of $1,688,205 and $1,691,341 in 1995 and 1996,
respectively. Both leases expire within the next 19 years.
Aggregate annual payments under these related party leases were
$653,613 in 1994, 1995, and 1996.
Included in other assets are investments in real estate partnerships
in which Farm Fresh is a general partner. Under the terms of the
partnership agreements Farm Fresh guarantees a portion of the
partnership debt. In January 1997, Farm Fresh assigned its
ownership interest in one real estate partnership to the other
partners. Farm Fresh guaranteed $4,364,570 of notes payable at
December 29, 1996 relating to the two remaining partnerships,
representing the two partnerships total outstanding debt.
Included in stockholders' deficit are loans to certain members of
management and stockholders of $1,314,037 and $1,108,940 at
December 30, 1995 and December 28, 1996, respectively, which
were made to enable them to purchase securities of FF Holdings.
Accrued and unpaid interest and cash loans have been charged
against the net loss in the accompanying 1996 consolidated
statement of loss.
Farm Fresh has employment contracts with certain members of
management. Two of the contracts provide a base salary plus an
incentive bonus of up to one half of the individual's salary. The
contracts also provide for a bonus to be paid upon the occurrence
of certain transactions, which include among other things, the
sale of all or a portion of the Company's assets. The contracts
have an initial term of two years and automatically renew on an
annual basis thereafter. The contracts may be terminated upon
death or disability of the employee or by cause, as defined in
the contract. Upon termination for reasons other than cause, the
employee is eligible to receive severance equal to one year's
base salary.
The remaining employment contracts provide for severance payments
ranging from six months to one year's salary upon termination
without cause or the occurrence of a change in control of the
Company, as defined in the agreements. If these employees had
been terminated as of December 28, 1996, the Company would be
obligated to pay $950,000 relating to these agreements.
Farm Fresh also sells merchandise to Fair Markets, Inc., a company
related by common ownership. Included in accounts receivable at
December 30, 1995 was $522,944. Fair Markets, Inc. sold its
stores during 1996 and the entire receivable was repaid.
(19) RETIREMENT SAVINGS PLAN
Farm Fresh, Inc. Retirement Savings Plan (Plan) is a defined
contribution plan sponsored by Farm Fresh. The Plan is designed
to provide employees an opportunity to accumulate capital for
their future economic security. The Plan provides for employee
salary deferral and matching employer contributions.
Employees of Farm Fresh and its subsidiaries become eligible to
participate in the Plan when they attain age twenty-one and have
completed a twelve-month period of not less than 1,000 hours of
service. Participation by employees commences at the beginning of
the quarter subsequent to the quarter in which the above
conditions have been met. Participants become fully vested in the
Plan upon normal retirement (age 60 or older), permanent
disability, death or completion of one year of credited service.
Contributions to the Plan accrued by Farm Fresh were $1,397,904,
$1,424,426 and $1,399,938 for 1994, 1995 and 1996, respectively.
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes disclosure regarding the estimated fair value
of FF Holdings' financial instruments at December 30, 1995 and
December 28, 1996:
(A) CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The carrying amount approximates fair value because of the short
maturity of these instruments.
(B) REVOLVING CREDIT FACILITY
The carrying amount approximates fair value since the rate was
recently negotiated in conjunction with the renewal described
in note 10.
(C) NOTES PAYABLE
The fair value of Farm Fresh's notes payable is estimated based on
the present value of future cash flows discounted using Farm
Fresh's revolving credit facility borrowing rate of prime plus
1 3/4%.
(D) ACCRUED COSTS RELATING TO CLOSED STORES
The carrying amount of these obligations is determined based upon
discounted future cash flow and therefore approximates fair
value.
(E) SENIOR NOTES
The fair value of the 12.25% senior notes and 14.25% senior notes
is based on recent trading of these securities in public
markets.
(F) CONVERTIBLE DEBENTURES
The fair value of the convertible debentures is based upon their
conversion value.
(G) LETTERS OF CREDIT
The Company has letters of credit outstanding which guarantee
various trade activities. The contract amounts of the letters of
credit approximate their fair value.
(H) FINANCIAL GUARANTEES
A reasonable estimate of the fair value of Farm Fresh's guarantees
of long-term debt and lease obligations of others, more fully
described at notes 8 and 18, could not be made without incurring
excessive costs.
The estimated fair values of FF Holdings' financial instruments are
summarized as follows:
At December 30, 1995
-------------------------
Carrying Estimated
Amount Fair Value
------ ----------
Cash $ 2,085,769 $ 2,085,769
Accounts receivable 17,026,234 17,026,234
Revolving credit facility 12,169,258 12,169,258
Notes payable 2,934,794 2,836,462
Accounts payable 32,900,110 32,900,110
Accrued expenses 27,124,842 27,124,842
Accrued costs relating to closed stores 9,934,532 9,934,532
12.25% senior notes 165,000,000 135,300,000
12.25% senior notes, series A 37,337,873 29,520,000
Convertible debentures 9,322,398 8,681,703
Letters of credit - 1,135,055
Financial guarantees, for which it is not
practicable to estimate fair value - -
At December 28, 1996
----------------------------
Carrying Estimated
Amount Fair Value
------------- -------------
Cash $ 853,560 $ 853,560
Accounts receivable 14,792,965 14,792,965
Revolving credit facility 24,289,957 24,289,957
Notes payable 1,721,165 1,761,714
Accounts payable 36,149,820 36,149,820
Accrued expenses 27,505,006 27,505,006
Accrued costs relating to closed stores 9,372,189 9,373,189
12.25% senior notes 165,000,000 125,400,000
12.25% senior notes, series A 37,074,410 27,360,000
Convertible debentures 4,380,243 4,014,178
14.25% senior notes 85,524,614 5,187,500
Letters of credit - 1,072,501
Financial guarantees, for which it is not
practicable to estimate fair value - -
(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table and related footnotes present selected quarterly
financial data for FF Holdings:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(dollars in thousands)
Year Ended December 30, 1995:
<S> <C>
Sales 208,235 214,680 215,895 246,278 885,087
Gross profit 49,270 51,156 50,477 59,408 210,311
Net loss (5,930) (3,640) (5,699) (20,844)(a) (36,113)
Year Ended December 28, 1996:
Sales 178,954 180,032 180,582 221,926 761,494
Gross profit 41,664 42,357 41,175 52,777 177,973
Net loss (5,764) (4,558) (6,395) (15,333)(b) (32,050)
</TABLE>
-----------------
(a) Includes charges to earnings for reserves established for closed
stores of $2.6 million (note 5), write down of long-lived assets
to be disposed of $7.2 million and the loss on the sale of 10
stores to Hannaford of $2.5 million (note 3).
(b) Includes charges to earnings for reserves established for closed
stores of $1.5 million (note 5), and write down of long-lived
assets to be disposed of $2.8 million.
Exhibit 99.2
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
FF Holdings Corporation:
Under date of February 11, 1997, except as to note 10 which is as of
February 21, 1997, we reported on the consolidated balance sheets of
FF Holdings Corporation and subsidiaries as of December 30, 1995 and
December 28, 1996 and the related consolidated statements of loss,
stockholders' deficit and cash flows for each of the years in the
three-year period ended December 28, 1996 which are included herein.
In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated
financial statement schedule, Schedule II - Valuation and Qualifying
Accounts. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information
set forth therein.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 11, 1997
<PAGE>
SCHEDULE II
FF HOLDINGS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE, AMOUNTS
BEGINNING CHARGED TO BALANCE,
OF YEAR EXPENSE DEDUCTIONS END OF YEAR
------- ------- ---------- -----------
<S> <C>
Year Ended December 31, 1994
LIFO Reserve $ 2,730,343 $ 271,000 $ - $ 3,001,343
Allowance for doubtful accounts 402,617 185,000 (338,239) 249,378
Deferred tax asset valuation allowance 27,626,000 7,472,000 - 35,098,000
Year Ended December 30, 1995
LIFO Reserve $ 3,001,343 $ 35,553 $ - $ 3,036,896
Allowance for doubtful accounts 249,378 333,000 (91,048) 491,330
Deferred tax asset valuation allowance 35,098,000 12,136,000 47,234,000
Year Ended December 28, 1996
LIFO Reserve $ 3,036,896 $ 318,498 $ - $ 3,355,394
Allowance for doubtful accounts 491,330 649,381 (137,673) 1,003,038
Deferred tax asset valuation allowance 47,234,000 10,321,000 - 57,555,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-28-1996 DEC-30-1995
<PERIOD-END> DEC-28-1996 DEC-30-1995
<CASH> 854 2,322
<SECURITIES> 0 0
<RECEIVABLES> 15,796 17,281
<ALLOWANCES> 1,003 1,003
<INVENTORY> 50,809 53,664
<CURRENT-ASSETS> 67,811 74,859
<PP&E> 195,955 191,199
<DEPRECIATION> 91,778 85,265
<TOTAL-ASSETS> 200,789 210,099
<CURRENT-LIABILITIES> 69,397 65,032
<BONDS> 291,979 286,008
0 0
34,427 30,000
<COMMON> 25 25
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 200,789 210,099
<SALES> 761,494 885,087
<TOTAL-REVENUES> 761,494 885,087
<CGS> 583,521 674,776
<TOTAL-COSTS> 583,521 674,776
<OTHER-EXPENSES> 163,904 201,139
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 46,119 45,285
<INCOME-PRETAX> (32,050) (36,113)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (32,050) (36,113)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
