<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ____________
COMMISSION FILE NO. 0-18339
SYLVAN INC.
(Exact name of registrant as specified in its charter)
NEVADA 25-1603408
------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA 16056-0249
-------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (724) 352-7520
Securities registered pursuant to Name of each exchange on which registered:
Section 12(b) of the Act: Not applicable
Title of each class
-------------------
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 2, 2000 was approximately $45,804,600. On that date, the
last sale price of registrant's common stock was $9.50 per share. Solely for
purposes of this calculation, shares beneficially owned by directors and
executive officers have been excluded. However, such exclusion is not intended
to be, nor is it to be deemed, a determination or an admission by the registrant
that such directors and officers are, in fact, affiliates of the registrant.
Indicated below is the number of shares outstanding of each of the registrant's
classes of common stock as of March 2, 2000.
Outstanding on
Class March 2, 2000
-------------
COMMON STOCK, PAR VALUE $.001 PER SHARE 5,673,836
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into which
Document the Document is Incorporated
----------------------------
DEFINITIVE PROXY STATEMENT TO SHAREHOLDERS PART III, ITEMS 10, 11, 12 AND 13
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PART I
ITEM 1. BUSINESS
Sylvan Inc. (Sylvan, the company) is the successor to the business of a
Pennsylvania corporation which was chartered in 1937, and consists of a number
of subsidiaries which are engaged principally in the production and distribution
of mushroom spawn, spawn-related products and fresh mushrooms. The company was
organized as a Delaware corporation on March 27, 1989, under the name of Sylvan
Foods Holdings, Inc. The company became a Securities and Exchange Commission
registrant in August 1990 pursuant to the irrevocable distribution by the
company's then majority shareholder, The Prospect Group, Inc., of the shares of
the company that it owned to its shareholders. The company changed its name to
Sylvan Inc. in July 1994 in conjunction with the change of its state of
incorporation to Nevada from Delaware. The company's principal executive offices
are at 333 Main Street, P.O. Box 249, Saxonburg, PA 16056-0249.
Sylvan operates in two reportable business segments. It is the leading worldwide
producer of mushroom spawn (the equivalent of seed for mushrooms) and a major
distributor of a variety of other value-added products and services for use by
mushroom growers. The company is also an important U.S. producer of fresh
mushrooms. Its growth strategy calls for devoting increased capital and
management resources to supplying its spawn and related products and services to
suitable markets throughout the world.
Spawn Operations: Spawn products accounted for 68% of the company's total sales
in 1999 and 90% of its operating income. Spawn is produced by a process whereby
carefully maintained mushroom cultures are introduced into specific nutrient
media to produce inoculum suitable for commercial spawn production. The inoculum
is then combined with a sterile, grain-based substrate in a manner that promotes
the colonization of the mushroom cultures throughout the substrate. The
resulting culture-enriched substrate is measured into sterilized containers and
the filled containers are incubated in environmentally controlled growing rooms.
Once the incubation is complete, the containers are refrigerated until they are
shipped to customers who then initiate their crop production cycle by adding
this seed-like material to the composted growing medium from which the mushrooms
grow.
The company conducts its operations through subsidiaries in the United States,
Europe, Australia and South Africa, and is a leading producer and distributor of
mushroom spawn and various spawn-related products in each of the markets in
which it has a presence. End-stage spawn production in most of the company's
manufacturing facilities takes place in specialized pressure vessels in plants
that are operated pursuant to rigorous quality-control standards. Three plants
are located in the United States and one each in England, Ireland, the
Netherlands, France, Hungary, Australia and South Africa. Sylvan's Irish, Dutch
and Australian plants function under arrangements whereby certain prominent
mushroom growers in each respective country possess minority ownership of the
operating company.
The company also operates two state-of-the-art spawn inoculum production plants.
These facilities, located in Kittanning, Pennsylvania, and Langeais, France,
incorporate the industry's most advanced production techniques and each is
capable of supplying all of the company's inoculum requirements. In addition,
the company produces nutritional supplements for mushroom compost at a plant in
Des Moines, Iowa. The value of backlog orders for spawn products is
insignificant.
The company's investment in biotechnical research has resulted in refinements of
techniques for genetic analysis of mushroom strains and its research programs
have produced some strains that possess commercial suitability. Another
successful product is Sylvan's casing inoculum (CI), a mushroom production
additive that is applied to the top layer of mushroom compost. It enables
mushroom farmers to get more crops per year from their investment in raw
materials and equipment by shortening the mushroom growing cycle and reducing a
crop's exposure to disease. In addition, Sylvan has distribution rights for
products manufactured by others, such as disease-control agents, that are
targeted for use by mushroom growers.
Sylvan's production experience and research capabilities lend themselves to a
variety of commercially viable microbial production applications. It is
supplying a Japanese company with dried Agaricus mushrooms for use in a beverage
that is marketed in the Far East and it collaborates, from time to time, with
chemical, biotechnological and pharmaceutical companies for the purpose of
evaluating and promoting its capabilities beyond the mushroom industry. The
value of backlog orders for biological products is insignificant.
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Fresh Mushroom Operations: The mushroom segment of Sylvan's business accounted
for 32% of the company's total sales in 1999 and 10% of its operating income.
Sylvan operates a mushroom farm located in Quincy, Florida, which is one of the
most modern and efficient mushroom production operations in North America. It
serves a strategic role for Sylvan as a resource for production process
innovations. The facility includes an advanced computer-controlled production
system with which compost is processed more efficiently than with conventional
systems. The mushrooms produced in 1999 were sold to supermarkets, food
processors and distributors principally in the mid-eastern and southeastern
United States. Beginning in 2000, Quincy's mushrooms will be sold to a leading
U.S. mushroom marketing organization that will package and distribute them
throughout the eastern United States.
Mushrooms are grown indoors in a continuous production process that employs a
temperature- and humidity-controlled environment. Compost, produced from a
carefully formulated and monitored mixture of hay or straw, water and various
organic supplements, is pasteurized and spawn is added to it. The spawn
colonizes the compost and, after about four to five weeks, grows into
harvestable mushrooms that are packaged and shipped to customers. The value of
backlog orders for mushroom products is insignificant.
PERSONNEL
On January 2, 2000, Sylvan had approximately 995 full-time employees, of whom
about 730 were engaged in production activities and 265 in supervision, sales
and administration. On January 3, 1999, Sylvan had approximately 925 full-time
employees, of whom about 695 were engaged in production activities and 230 in
supervision, sales and administration.
The employees of the company's French subsidiary are subject to a national,
industry-wide collective bargaining agreement. In addition, harvesting and
packaging employees of its Quincy subsidiary are subject to a collective
bargaining agreement with the United Farm Workers. The remainder of the
company's workforce is not subject to collective bargaining arrangements.
Management believes that its employee relations are good.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The amounts of revenue, operating income and asset-related expenditures
attributable to each of the company's industry segments are set forth in Note 9
of the consolidated financial statements that are filed as part of this annual
report.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The amounts of revenue and long-lived assets attributable to each of the
company's geographic areas are set forth in Note 9 of the company's consolidated
financial statements that are filed as part of this annual report.
COMPETITIVE CONDITIONS
No single customer accounted for 10% or more of Sylvan's consolidated net sales
in 1999.
Spawn and Spawn-Related Products: Sylvan believes that there are seven firms in
the United States and three firms in Canada that produce and market almost all
of the spawn used by North American mushroom growers. Among these firms,
Sylvan's principal North American competitor is Lambert Spawn Company. In
addition, Money's Mushrooms Ltd. (a Canadian-based mushroom and spawn producer)
and Amycel, Inc. (a division of Monterey Mushrooms, Inc.) are major spawn
producers in the United States, but much of their production is consumed by
their mushroom production affiliates. Sylvan believes that its principal
European competitors are Italspawn and Le Lion. In addition, numerous smaller
spawn producers operate in the United States, Canada and in almost every
European country. Sylvan competes in the spawn market with strict quality,
consistency and reliability standards and through its availability of
broad-based, post-sale product support services to mushroom growers. Sylvan has,
and is further developing, the network by which it distributes its products and
services throughout the world.
Fresh Mushrooms: Sylvan believes that the top two producers of mushrooms in the
United States, in order of size, are Money's Mushrooms Ltd. and Monterey
Mushrooms, Inc. Sylvan's production levels are comparable to those of a group of
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six to eight regional producers of substantial size. The balance of the U.S.
industry is fragmented, comprised of about 200 small producers throughout the
country. Quality, supply consistency and price are the principal competitive
factors in the mushroom business. Although Sylvan and its competitors have
established brand names, competition is principally at the grocery retailer or
wholesaler level, rather than at the consumer level. Competition outside of
North America is characterized primarily by the importation of processed
mushroom products into the United States and Canada. However, processed
mushrooms are not a material factor in Sylvan's current operations because
Sylvan's mushrooms compete primarily in the fresh mushroom market. Due to the
fragility of fresh mushrooms, Sylvan believes that the fresh mushroom market in
the United States is somewhat protected from direct non-North American
competition. Fresh mushrooms have limited shelf life, which, together with the
relatively high cost of refrigerated transportation, causes markets to be
regional in nature. However, for the same reasons, imbalances of supply and
demand, from time to time, can and do induce price fluctuations.
SEASONALITY
Spawn and spawn-related product sales are not seasonal, except to the extent
that they correlate to a mushroom grower's expectations of consumer demand for
mushrooms. Since mushrooms are grown indoors, mushroom production is not
particularly sensitive to many of the problems normally associated with
agricultural crops, such as production seasonality and dependence on weather.
However, mushrooms are susceptible to bacterial, fungal and viral contamination
that can reduce yields and affect sales and earnings for periods of weeks or
months. In addition, mushroom prices are typically softened by the increased
availability of a variety of other fresh fruits and vegetables during the summer
months.
RESEARCH
In 1999, Sylvan's research and development expenditures totaled $1.6 million, as
compared with $1.7 million in 1998 and $1.5 million in 1997. These expenditures
were focused on improving the consistency, reliability and customer satisfaction
for the company's existing products and for the development of new products. The
company also utilizes contracted research efforts for specific studies that may
be commercially useful, but fall outside of the scope of its expertise or
capabilities. None of these projects currently constitute a material proportion
of the company's ongoing business.
PATENTS
The company does not believe that its ability to maintain or improve its
competitive position is dependent upon its patents. However, the company holds
several non-U.S. patents that cover a process and apparatus for the cultivation
of cells on solid substrates. The patents were issued in various years from 1982
to 1986. In addition, Sylvan was granted patents in 1994, 1996 and 1997 for
several mushroom strains and for technologies and processes that facilitate
mushroom breeding and may be capable of enhancing the company's strain
development and improvement efforts. The company also holds two process patents
relating to the production of its compost nutritional supplements. They were
issued in 1988 and 1991.
The company holds several Swiss patents that embody a process for commercially
producing spawn and spawn-related products and using a variety of nutrient
substrates as incubation material for spawn. The process is not currently
employed by the company.
ENVIRONMENTAL MATTERS
Certain phases of the mushroom production process create discharges of
conventional pollutants and other organic materials. Expenditures will routinely
be required in order to enable the company's Quincy subsidiary to comply with
existing and future environmental laws and regulations.
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FINANCIAL INFORMATION
Information regarding Sylvan's financial performance is set forth herein
beginning on page F-1.
ITEM 2. PROPERTIES
Constructed in 1981 and expanded in 1990, the company operates a 43,000 square
foot spawn production facility located in Kittanning, Pennsylvania. Also located
in Kittanning are the company's 14,000 square foot inoculum production plant
that opened in 1996, and a 22,000 square foot quality assurance facility that
opened in 1997. The company also operates a 49,000 square foot spawn plant in
Dayton, Nevada that commenced commercial production in January 1993, and a
27,000 square foot plant in Kennett Square, Pennsylvania that was constructed in
the 1960's and upgraded in 1991, which the company acquired in 1999. In
addition, it leases a 12,000 square foot facility in Des Moines, Iowa, in which
it produces compost nutritional supplements, and 40,000 square feet at a former
mushroom farm located near Cabot, Pennsylvania for various bioproducts
production and research operations.
The company's European operations in Langeais, France include a 100,000 square
foot spawn production plant, which the company acquired in 1991, and an inoculum
production plant, which opened in 1998, of a size similar to the Kittanning,
Pennsylvania inoculum production plant mentioned above. In addition, various
spawn culture maintenance and research operations are carried out in the
Langeais inoculum production facility. A 74,000 square foot spawn plant is
operated in Yaxley, Peterborough, England. Also at the site is a 1,500 square
foot storage area for pest-control agents and related products marketed by the
company.
The company operates a 56,000 square foot spawn plant in Horst, the Netherlands
that commenced commercial production in January 1995. In addition, the company
has a 14,000 square foot spawn plant in Windsor, Australia that opened in 1996;
and a 16,000 square foot spawn plant near Budapest, Hungary that opened in 1997.
The company also acquired a 27,000 square foot spawn plant in Navan, Ireland in
1998. In 1999, construction of a 15,500 square foot spawn plant was completed in
Pretoria, South Africa, where commercial production commenced during the third
quarter.
The company's 300,000 square foot fresh mushroom operation in Florida was
constructed in 1981 and expanded in 1991.
The company owns its inoculum production plants, mushroom farm and the spawn
plants in the United States, England, France, Hungary and South Africa. The
company and its joint venture partners own the spawn plants in the Netherlands,
Australia and Ireland. Incorporated into most of the company's plants are cold
storage areas and the company leases several small cold storage facilities to
support its sales operations in some of its North American and overseas market
areas. The spawn plants in England, Ireland and the Netherlands are the only
properties that have been mortgaged. The mortgages collateralize various
construction loans.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Sylvan or any of its
subsidiaries is a party, or of which any of their property is subject, other
than ordinary, routine litigation incidental to their respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the last quarter of
the 1999 fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of the executive officers in the
company indicating the positions and offices with the company held by each
person and each such person's most recent principal employment. There is no
arrangement or understanding between any executive officer and any other person
pursuant to which he was selected as an officer and no
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family relationship exists among the company's officers and directors. The
annual appointment of officers is scheduled to occur on June 6, 2000 at the
organizational meeting of the board of directors, following the annual meeting
of shareholders.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dennis C. Zensen 61 Chairman of the Board,
President and Chief Executive Officer of Sylvan
Donald A. Smith 38 Chief Financial Officer of Sylvan
Fred Y. Bennitt 55 Secretary/Treasurer of Sylvan
Monir K. Elzalaki 44 President of Sylvan America, Inc.
Gregory J. Verhagen 39 President of Quincy Farms
Gary D. Walker 52 President of Sylvan Bioproducts, Inc.
Michael A. Walton 50 Managing Director of Sylvan's European Operations
</TABLE>
Biographical Information
Mr. Zensen was elected chairman of Sylvan in July 1990 and has served as a
director, president and chief executive officer of Sylvan since April 1989.
Mr. Smith was appointed chief financial officer of Sylvan in December 1998. He
joined the company in 1996 as manager of financial planning and analysis and was
named corporate controller in October 1997. Prior to that, he served as chief
financial officer of the company's Sylvan America, Inc. subsidiary from 1994 to
1996 and as controller of the company's former Moonlight Mushrooms, Inc.
subsidiary from 1989 through 1993.
Mr. Bennitt has served as secretary/treasurer of Sylvan since April 1989.
Mr. Elzalaki was named president of the company's Pennsylvania spawn production
subsidiary in March 1992 and president of the company's Nevada spawn production
subsidiary in December 1992 at the time of its creation. He joined the
Pennsylvania company as its director of sales and marketing in April 1990 and
served as vice president and general manager from September 1990 until his
appointment as president.
Mr. Verhagen was appointed president of the company's Quincy Farms subsidiary in
January 2000, having served as Quincy's general manager since May 1999. For the
four years prior to that time, he served in various senior management positions
for Money's Mushrooms Ltd.
Mr. Walker was appointed president of Sylvan Bioproducts in 1998, after serving
as manager and developer of the company's bioproducts business since the
beginning of 1994. He joined Sylvan in 1992 as president of its Moonlight
subsidiary until Moonlight closed in December 1993.
Mr. Walton was named managing director of Sylvan's European operations in 1995.
He joined Sylvan in connection with its acquisition of Hauser Champignonkulturen
AG (Hauser) in June 1992. At the time, he was serving as managing director of
Hauser's UK subsidiaries and continued in that capacity until his present
appointment.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Sylvan's common stock trades on The Nasdaq Stock Market(R) under the symbol
"SYLN." Set forth below are the high and low sales prices for Sylvan's common
stock for 1999 and 1998, as reported by The Nasdaq Stock Market(R).
1999 High Price Low Price
---- ---------- ---------
1st Qtr. 15 9 3/4
2nd Qtr. 11 13/16 9 5/8
3rd Qtr. 13 9 7/8
4th Qtr. 11 1/8 7 7/8
1998 High Price Low Price
---- ---------- ---------
1st Qtr. 15 7/8 11 3/4
2nd Qtr. 18 3/4 13 3/4
3rd Qtr. 16 3/8 13 1/2
4th Qtr. 16 3/8 12 5/8
(b) Holders of Common Equity
At year-end 1999, there were approximately 2,000 shareholders of record of
Sylvan common stock.
(c) Dividends
Sylvan has never paid cash dividends and currently has a policy of retaining its
earnings to fund operations, expansion and the purchase of treasury shares. The
company's revolving credit agreement contains financial covenants which permit,
but limit, the payment of dividends by Sylvan.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are a Five-Year Summary of Selected Financial Data and Quarterly
Results of Operations with respect to Sylvan.
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FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------------
(In millions except share data) 1999 1998 1997 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 89.6 $ 89.6 $ 81.6 $ 79.1 $ 75.8
Operating income 10.6 11.1 11.5 10.6 11.9
Net income 6.1 6.3 6.5 7.8 6.5
Net income per common share - basic 1.00 0.98 1.01 1.23 (a) 1.04
Net income per common share - diluted 1.00 0.97 1.01 1.23 (a) 1.04
Weighted average shares - basic 6,112,007 6,440,287 6,395,971 6,344,609 6,225,995
Weighted average shares - diluted 6,130,694 6,533,740 6,406,544 6,354,379 6,251,015
BALANCE SHEET DATA:
Total assets $ 109.5 $ 102.6 $ 93.7 $ 86.9 $ 81.8
Long-term debt and other
long-term liabilities 51.8 38.4 36.4 34.3 35.6
Shareholders' equity 47.2 50.3 44.0 41.2 33.6
Working capital 22.8 18.9 16.9 12.7 10.6
Net cash provided by operations 13.0 10.2 10.4 6.4 7.4
Cash dividends per common share -- -- -- -- --
</TABLE>
- ---------------------------
(a) See Notes 1 and 6 to the December 29, 1996 Consolidated Financial
Statements regarding the settlement of certain postretirement medical and
other benefit obligations.
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
First Second Third Fourth
(Unaudited, in thousands except share data) Quarter Quarter Quarter Quarter
==============================================================================================================
<S> <C> <C> <C> <C>
1999:
Net sales $ 22,115 $ 21,305 $ 22,222 $ 23,969
Gross profit 9,167 8,740 9,174 10,038
Net income 1,271 1,320 1,502 2,035
Net income per common share - basic 0.20 0.21 0.25 0.35
Net income per common share - diluted 0.20 0.21 0.25 0.35
Weighted average shares - basic 6,360,284 6,269,388 6,021,483 5,796,873
Weighted average shares - diluted 6,388,075 6,290,613 6,048,062 5,800,590
1998:
Net sales $ 21,988 $ 20,971 $ 22,316 $ 24,280
Gross profit 9,529 8,765 8,936 9,576
Net income 1,933 1,480 1,307 1,617
Net income per common share - basic 0.30 0.23 0.20 0.25
Net income per common share - diluted 0.30 0.23 0.20 0.25
Weighted average shares - basic 6,450,771 6,460,989 6,448,245 6,403,939
Weighted average shares - diluted 6,539,391 6,575,834 6,528,630 6,485,460
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(In millions) ------------------ Fiscal Year Ended ------------------
Jan. 2, 2000 Jan. 3, 1999 Dec. 28, 1997
------------ ------------ -------------
<S> <C> <C> <C>
NET SALES $89.6 $89.6 $81.6
OPERATING COSTS AND EXPENSES:
Cost of sales 52.5 52.8 47.3
Selling and administrative 19.5 18.7 16.7
Research and development 1.6 1.7 1.5
Depreciation 5.5 5.3 4.6
----- ----- -----
79.1 78.5 70.1
----- ----- -----
OPERATING INCOME 10.5 11.1 11.5
INTEREST EXPENSE, NET 2.2 2.2 2.1
OTHER INCOME (EXPENSE) -- (0.1) --
----- ----- -----
INCOME BEFORE INCOME TAXES 8.3 8.8 9.4
PROVISION FOR INCOME TAXES 2.1 2.3 2.7
----- ----- -----
INCOME BEFORE MINORITY INTEREST IN
INCOME OF CONSOLIDATED SUBSIDIARIES 6.2 6.5 6.7
----- ----- -----
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 0.1 0.2 0.2
----- ----- -----
NET INCOME $ 6.1 $ 6.3 $ 6.5
===== ===== =====
SELECTED SEGMENT INFORMATION
(In millions)
SPAWN AND SPAWN-RELATED PRODUCTS
Sales (less intersegment sales) $60.4 $58.8 $51.4
Operating expenses 47.5 45.9 39.0
Operating income 12.9 12.9 12.4
FRESH MUSHROOMS
Sales 29.2 30.7 30.2
Operating expenses 27.8 29.6 27.3
Operating income 1.4 1.1 2.9
</TABLE>
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RESULTS OF OPERATIONS
COMPARISON OF 1999 WITH 1998
NET SALES
The 1999 consolidated net sales were $89.6 million, virtually equal to the 1998
net sales. International sales increased to 50% of total net sales from 48% in
1998. Increases in international sales expose the company to larger currency
translation fluctuations. During 1999, the U.S. dollar strengthened by 14% on
average against the company's major foreign trading currencies. This 1999
strengthening had the effect of reducing net sales by $3.3 million.
Spawn and Spawn-Related Products: Net sales of spawn and spawn-related products
increased by 3% to $60.4 million when compared with net sales of $58.8 million
for 1998. Part of this increase was due to higher sales from Sylvan's
bioproducts division. The strengthening of the U.S. dollar continued to mask
Sylvan's overseas sales growth. All of the company's $3.3 million currency
effect was within the spawn and spawn-related products segment. Overall spawn
product sales volume increased by 5%, with a 2% increase in the Americas and a
7% increase in the company's overseas markets. Average spawn selling prices were
1% lower in the Americas in 1999 versus 1998, primarily due to the continued
consolidation of the North American mushroom industry. The overseas average
selling price decreased by 5% when compared with 1998, due to the strengthening
of the U.S. dollar. Overseas local selling prices increased modestly over the
prior-year levels. Sales of nutritional supplements and disease-control agents
for 1999 were essentially equal to 1998 levels, and accounted for 13% of the
company's total net sales.
Fresh Mushrooms: Net mushroom sales decreased by 5% to $29.2 million when
compared with the $30.7 million for 1998. This decrease was the result of
production inefficiencies, primarily during the first half of 1999, which
reduced total pounds sold for the full-year 1999 by 4%. The average selling
price per pound for 1999 decreased by 1% when compared with 1998. The percentage
of total pounds sold to the fresh market in 1999 was 91%, slightly lower than
the 92% in 1998. This percentage calculation fluctuates with variations in
quality, availability of supply and other competitive conditions. Production
inefficiencies in 1999 also reduced the quality of Quincy's mushrooms, which
contributed to the lower fresh market percentage. In response to increasingly
competitive market conditions, Quincy's January 2000 agreement with a unit of
Modern Mushroom Farms, Inc. to market 100% of Quincy's production is expected to
strengthen its position. Quincy will sell its harvested mushrooms to Modern and
Modern will package, distribute and market that product. When including the
Sylvan production, Modern will market more than 85 million pounds of mushrooms
annually (about 12% of the U.S. fresh market) in 23 states.
The United States Department of Agriculture reported a 6% increase in fresh
mushroom sales in the United States for the 1998-99 season, reflecting a 5%
increase in pounds sold. Average selling prices were comparable with the prior
year. The USDA crop reports also indicated that sales of processed mushrooms
increased by 15% in the 1998-99 period over the 1997-98 period.
COST OF SALES
Expressed as a percentage of sales, the company's cost of sales was 58.6% for
1999, as compared with 58.9% for 1998. The 1999 decrease was caused primarily by
improved production efficiencies in the fresh mushroom business.
Spawn and Spawn-Related Products: The cost of sales percentage for 1999 was
49.5%, as compared with 48.8% for 1998. The increase was due primarily to a
decreasing margin on sales of nutritional supplements and disease-control
agents. Sylvan benefited from the opening of additional production capacity in
South Africa, which eliminated the need to ship spawn from the Netherlands. The
South African facility began production in the third quarter of 1999. Discard
percentages in both North America and Europe were comparable with 1998. Sylvan's
Australian facility experienced substantial improvement in its production
discard rate due to the replacement of its blender in the first quarter of 1999.
Fresh Mushrooms: The fresh mushroom cost of sales percentage was 75.2% for 1999,
as compared with 76.4% for 1998. The decrease was due to production efficiency
improvements that occurred primarily in the second half of 1999. The
efficiencies contributed to production yield improvements, spreading a cost
structure that is primarily fixed in nature over more pounds.
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SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 21.7% of net sales for 1999, as
compared with 20.9% for 1998. The higher 1999 percentage was due to higher
levels of bad debt expense, the resumption of executive bonus payments, and the
full-year inclusion of the 1998 acquisition of International Mushrooms Ltd. The
company recorded a nonrecurring expense of $0.6 million in 1998 to reflect the
settlement of two lawsuits.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased by 8% in 1999 to $1.6 million, as
compared with $1.7 million for 1998. Most of the decrease was due to the
consolidation of some R&D functions within the company's European operations.
DEPRECIATION EXPENSE
The 1999 depreciation expense increased by 5% to $5.5 million, as compared with
the $5.3 million reported for 1998. The increase was a result of capital
expenditures that totaled $7.7 million in 1999 and $8.2 million in 1998,
diminished by the strengthening of the U.S. dollar.
INTEREST EXPENSE
Net interest expense for both 1999 and 1998 was $2.2 million. Sylvan had higher
levels of average borrowing in 1999; however, the average effective interest
rate decreased to 6.4%, as compared with 6.8% for 1998.
INCOME TAX EXPENSE
The company's effective income tax rate for 1999 and 1998 was 26%. A higher
effective tax rate is expected for 2000 because a larger portion of the
company's taxable income is expected from U.S. operating units.
RESULTS OF OPERATIONS
COMPARISON OF 1998 WITH 1997
NET SALES
Consolidated net sales for 1998 were $89.6 million, a 10% increase when compared
with 1997 net sales of $81.6 million. International sales increased as a
percentage of total net sales, climbing to 48% in 1998, compared with 46% for
1997. Although higher international sales exposed the company to larger currency
translation fluctuations, the 1997 to 1998 currency translation difference was
minimal. During 1998, the U.S. dollar weakened 2% on average against the
company's major foreign trading currencies.
Spawn and Spawn-Related Products: Net sales of spawn and spawn-related products
were $58.8 million in 1998, a 15% increase when compared with net sales of $51.4
million for 1997. The 1998 increase was due primarily to two factors. The first
factor was a 5% increase in the volume of spawn products shipped in 1998 over
the 1997 total. Europe recorded an 11% increase from 1997 to 1998, Australia a
14% increase and the Americas a 2% decrease. Average spawn selling prices were
2% higher in the Americas in 1998 versus 1997, due to the implementation of a
price increase during the second quarter of 1998. European spawn selling prices
were essentially the same as in 1997. The average spawn selling price in
Australia decreased by 12% when translated to U.S. dollars, as the impact of a
second-quarter price increase was more than offset by an unfavorable currency
rate movement with respect to the Australian dollar. The second factor
contributing to sales increases in 1998 was a 76% increase in the sales of
nutritional supplements and disease-control agents from 1997 levels. Sylvan's
acquisition of Tartarin S.A. in December 1997 and sales gains in the Americas
accounted for most of this increase. Nutritional supplements and disease-control
agents accounted for 13% of the company's total 1998 net sales.
10
<PAGE> 12
Fresh Mushrooms: Sylvan's net mushroom sales increased in 1998 to $30.7 million,
due primarily to a 1% increase in pounds sold. Net mushroom sales were 2% higher
in 1998, when compared with 1997's net sales of $30.2 million. The average
selling price per pound for 1998 increased by 0.5% when compared with 1997. The
percentage of total pounds sold to the fresh market in 1998 was 92%, which was
lower than the 94% in 1997. These percentages fluctuate with variations in
quality, availability of supply and other competitive conditions. Production
difficulties in 1998 reduced the quality and the supply of Quincy's mushrooms,
which contributed to the lower fresh market percentage. Increased competition in
Quincy's southeastern U.S. market area added to the decline.
U.S. industry activity as a whole, as described in Department of Agriculture
crop reports, experienced an 11% increase in fresh mushroom sales in 1997-98,
reflecting a 12% increase in pounds sold and a 1% decrease in the average
selling price, when compared with 1996-97. The USDA crop reports also indicated
that sales of processed mushrooms decreased by 17% in the 1997-98 period from
the 1996-97 period.
COST OF SALES
The company's cost of sales, expressed as a percentage of sales, was 58.9% for
1998 and 57.9% for 1997. The 1998 increase was caused primarily by higher
production costs in the fresh mushroom business.
Spawn and Spawn-Related Products: The cost of sales percentage for 1998 was
48.8%, as compared with 48.7% for 1997. This increase was due primarily to
increases in the proportion of sales of nutritional supplements and
disease-control agents, which have a higher cost of sales percentage than spawn
products. In 1998, Sylvan benefited from additional European spawn production
capacity, which eliminated the need to ship spawn from the company's U.S.
production facilities to accommodate the strong demand from European markets.
Discard percentages in North America were at historically low levels due to
improvements in inoculum quality. Overseas discard rates were comparable to
prior years with the exception of the Australia operation. The company decided
to replace the Australian plant's blender in the first half of 1999 in order to
rectify production problems.
Fresh Mushrooms: The fresh mushroom cost of sales percentage was 76.4% for 1998,
as compared with 72.4% for 1997. The 1998 increase was due to various production
inefficiencies in the second half of the year. These inefficiencies contributed
to production yield reductions, spreading a cost structure that is primarily
fixed in nature over fewer pounds.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 20.9% of net sales for 1998, as
compared with 20.5% for 1997. The company recorded a nonrecurring expense of
$0.6 million in 1998 to reflect the tentative settlement of two lawsuits. Fees
for legal services were also higher than in prior years, due primarily to the
lawsuits. Selling expenses were higher as the company implemented an expansion
into Eastern European and Asian markets. This expansion continued into 1999.
Certain noncash expenses related to pension and other postretirement benefits
were lower in 1998 when compared with 1997. In addition, bonus payments were
reduced in 1998 from the levels paid in 1997. Currency translation rates did not
have a material effect on selling and administrative expenses for 1998.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by 14% in 1998 to $1.7 million, when
compared with $1.5 million for 1997.
DEPRECIATION EXPENSE
Depreciation expense was $5.3 million in 1998, a 14% increase over the $4.6
million reported for 1997. The 1998 increase was a result of capital
expenditures that totaled $8.2 million in 1998 and $7.6 million in 1997.
Additionally, the second-quarter 1998 acquisition of International Mushrooms
Ltd. added to the depreciation expense.
11
<PAGE> 13
INTEREST EXPENSE
Net interest expense for 1998 was $2.2 million, as compared with $2.1 million
for 1997. The increase resulted from higher average borrowings for 1998, in
spite of a lower average effective borrowing rate of 6.8%, as compared with 6.9%
for 1997.
OTHER INCOME (EXPENSE)
The company reported a net $0.1 million other expense total for 1998, which was
comparable to the less than $0.1 million income reported in 1997.
INCOME TAX EXPENSE
The company's effective income tax rate for 1998 was 26%, compared with 29% for
1997. The 1998 decrease resulted from the contribution of a higher portion of
the company's taxable income from European operating units, as compared with the
previous year's contribution.
LIQUIDITY AND CAPITAL RESOURCES
Sylvan evaluates its liquidity and capital resources position by comparing its
investment opportunities with its cash position, operating cash flow trends and
credit availability. Available credit under the company's $55.0 million
revolving credit agreement was $15.6 million as of January 2, 2000. The
arrangement provides for a reduction of the total credit amount over a six-year
period, with the first reduction to $50 million effective August 6, 2003.
Net cash provided by operating activities was $13.0 million in 1999, as compared
with $10.2 million in 1998 and $10.4 million in 1997. Sylvan's net investment in
working capital (defined as the period-to-period change in the difference
between current assets and current liabilities) increased by $3.9 million in
1999, as compared with the 1998 level. Three primary factors account for this
increase. First, the company's operations, particularly in Europe, provided an
increase in cash balances of $1.1 million. Second, during 1999, $0.7 million of
cash was provided due to timing changes in the funding of certain employee
benefits. This increase is in contrast to the use of cash of $1.5 million in
1998 and $0.8 million in 1997 for employee benefits. Third, the company had cash
provided from tax refunds in several tax jurisdictions. Offsetting these three
primary factors, the company had a $0.2 million increase in its accounts
receivable, a $0.6 million increase in its inventories, a $0.4 million increase
in its prepaid and other assets and a $0.9 million decrease in accounts payable,
accrued expenses and other liabilities.
During most of 1999, Sylvan experienced an overall lower level of accounts
receivable on a year-over-year basis due to an increased focus on timely
collections of accounts receivable. However, particularly strong fourth-quarter
1999 holiday sales at Quincy accounted for the $0.2 million increase over 1998.
During 1998, accounts receivable decreased by $1.6 million as compared with
1997, due mostly to the collection of receivables by the company's Tartarin
subsidiary that was acquired in late 1997. Inventory levels increased slightly
between 1998 and 1999 due primarily to increased finished goods and supplies
held within the U.S. spawn operations. When expressed as days of inventory held,
1999 inventory was 69 days, compared with 68 days in 1998 and 62 days in 1997.
Prepaid expenses and other assets increased by $0.4 million in 1999 and $0.8
million in 1998 as compared with prior years, due primarily to the company's
French subsidiaries carrying increased receivables related to interest and
value-added taxes. Trade accounts payable, accrued expenses and other
liabilities decreased by $0.9 million in 1999 as compared with 1998. Most of
this decrease was due to litigation settlements during the second quarter of
1999. Accounts payable and accrued liabilities decreased by $1.3 million in
1998, primarily as a result of Tartarin's settlement of trade payables.
Cash used in investing activities totaled $12.2 million in 1999, compared with
$9.8 million in 1998 and $11.6 million in 1997. In November 1999, the company
acquired most of the assets of the Swayne spawn company of Kennett Square,
Pennsylvania for $4.6 million. Capital expenditures totaled $7.7 million in
1999, $8.2 million in 1998 and $7.6 million in 1997. Major capital expenditures
for 1999 included plant modifications and the installation of blender technology
at its facility in Ireland, continued construction and completion of a spawn
production facility in South Africa, a replacement blender in its Australian
plant, upgrading chilling equipment at Quincy, cold storage capacity enlargement
in the Netherlands and additional
12
<PAGE> 14
equipment for the company's bioproducts operation. Replacement capital
expenditures represented less than 50% of the total. Capital expenditures in
2000 are expected to total between $6 million and $10 million for existing
operations, with additional expenditures as required for any acquisitions or new
initiatives. During 1999, the company purchased 716,900 shares of Sylvan common
stock at an average price of $10.95 per share. By comparison, 109,425 shares
were purchased during 1998 at an average price of $13.94 per share. Management
expects to continue the purchase program during 2000, subject to price and share
availability conditions that make such purchases financially beneficial and
appropriate.
Term debt and revolving credit obligations increased by $8.9 million in 1999,
compared with increases of $1.1 million and $3.3 million in 1998 and 1997,
respectively. Most of the increase in 1999 related to the acquisition of Swayne
and the purchase of Sylvan stock, offset by the positive cash flows of
operations after capital additions. The company routinely assesses its
requirements for additional capital investments as it experiences continued
growth in the company's international operations. The revolving credit facility
and net operating cash flows are expected to provide sufficient funding for
projected 2000 expenditures.
Sylvan currently does not pay a dividend on its common stock. Management may, in
the future, propose dividend payments after evaluating Sylvan's current and
projected liquidity and financing arrangements, subject to net worth covenants
contained in its revolving credit agreement.
YEAR 2000 ISSUES
Sylvan did not experience any material Year 2000 production, distribution or
information systems problems and it does not anticipate that there will be any
with respect to it, its suppliers or its customers. No financial losses have
been incurred. The total cost of Sylvan's Year 2000 compliance efforts was
approximately $70,000. Most of these expenditures related to computer system
installations and software upgrades.
EURO CURRENCY
A single currency, the Euro, was introduced in Europe on January 1, 1999. Of the
15 member countries of the European Union, 11 agreed to adopt the Euro as their
legal currency on that date. Fixed conversion rates between the existing
currencies of these 11 countries and the Euro were established as of that date.
The existing currencies are scheduled to remain legal tender as denominations of
the Euro until at least January 1, 2002. During this transition period, parties
may settle transactions using either the Euro or a participating country's legal
currency. Currently, Sylvan does not believe that the conversion to the Euro
will have a material impact on its business or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to market risk from changes in foreign currency exchange
rates and interest rates. In order to manage this risk, the company enters into
various contracts and options. A discussion of accounting policies for
derivative instruments is included in Note 1 to Sylvan's consolidated financial
statements that are filed herewith and further disclosure is provided in Note
11.
Foreign Currency Exchange Rate Risk: Note 9 of the consolidated financial
statements sets forth revenues for three years based on the location of the
company's customers. Sylvan has foreign currency exposures related to buying,
selling, and financing in currencies other than the U.S. dollar. This exposes
the company's future earnings, assets, liabilities, cash flow and financial
instruments that are denominated in foreign currencies.
Sylvan believes that its most significant financial instrument rate exposure
relates to its activities in the Netherlands. As of January 2, 2000, the net
fair value liability of Dutch guilder denominated financial instruments was
approximately $7.2 million. The potential fair value loss of a hypothetical 10%
adverse change in the currency exchange rate would be approximately $720,000.
Interest Rate Risk: The company is subject to market risk from exposure to
changes in interest rates based on its financing practices. This risk is managed
by entering into a variety of financial instruments to maintain a desired level
of exposure.
13
<PAGE> 15
The net fair value liability at January 2, 2000 of all financial instruments
subject to interest rate exposures was approximately $39.4 million. The table
below provides information about the company's financial instruments that are
sensitive to interest rates. For debt obligations, the table presents principal
cash flow and related weighted average interest rates according to their
expected maturity dates. For interest rate swaps, the table presents notional
amounts and weighted average interest rates according to their expected maturity
dates. Weighted average interest rates are based on the LIBOR rate in effect at
the reporting date. No future rate assumptions have been made.
<TABLE>
<CAPTION>
Expected Maturity Date for Periods Ended December 31,
-----------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Liabilities
Long-term debt
Fixed rate $418 $440 $2,508 $ 121 $468 $ 623 $ 4,578 $ 4,578
Average interest rate 8.29% 5.86% 7.16% 6.94% 7.02% 8.55%
Variable rate -- -- -- -- -- $39,384 $39,384 $39,384
Average interest rate -- -- -- -- -- 6.88%
Interest rate swaps
Fixed to variable -- -- -- $5,000 -- $10,000 $15,000 $ 613
Average pay rate 5.02% 5.78% 5.53%
Average receive rate 6.16% 6.16%
</TABLE>
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
From time to time in this report, references are made to expectations regarding
future performance of the company. Investors must recognize that events could
turn out to be significantly different from what is expected. The following
factors, among others, in some cases have affected and in the future could
affect the company's financial performance and could cause actual results to
differ materially from those expressed or implied in such forward-looking
statements:
o pricing or product initiatives of the company's competitors;
o changes in exchange risks with respect to the Euro and existing
currencies used in the company's markets;
o the loss of key executives or other employees of the company; and
o failure to achieve production yield and quality expectations from
time to time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required is set forth as Exhibits beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
14
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
The information required by this item is set forth under the caption "Election
of Directors" in Sylvan's definitive Proxy Statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
(b) Identification of Executive Officers
The information required by this item is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption "Management
Compensation and Benefit Plans" in Sylvan's definitive Proxy Statement to be
filed pursuant to Regulation 14A and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in Sylvan's definitive
Proxy Statement to be filed pursuant to Regulation 14A and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Transactions with the Company" in Sylvan's definitive Proxy Statement to be
filed pursuant to Regulation 14A and is incorporated herein by reference.
15
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) AND (2). FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and financial statement schedule listed in the
accompanying Index to Financial Statements, Schedules and Exhibits are
filed as part of this annual report.
(3). EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
3.3 Articles of Incorporation of S. F. Nevada, Inc. - previously
filed as Exhibit 3.3 on November 12, 1999 with the company's
Form 10-Q Quarterly Report for the period ended October 3,
1999 and incorporated herein by reference
3.4 Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods
Holdings, Inc. with exhibit - previously filed as Exhibit 3.4
on November 12, 1999 with the company's Form 10-Q Quarterly
Report for the period ended October 3, 1999 and incorporated
herein by reference
3.5 Bylaws - previously filed as Exhibit 3.5 on November 12, 1999
with the company's Form 10-Q Quarterly Report for the period
ended October 3, 1999 and incorporated herein by reference
Compensation Plans and Arrangements
10.1.2 Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan,
previously filed as Exhibit 3.3.2 on April 2, 1993 with the
company's Form 10-K Annual Report for the fiscal year ended
January 3, 1993 and incorporated herein by reference
10.1.3 Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for
Nonemployee Directors, previously filed on April 1, 1994 with
the company's Form 10-K Annual Report for fiscal year ended
January 2, 1994 and incorporated herein by reference
10.12 Sylvan Inc. 1990 Stock Option Plan (amended and restated),
previously filed on November 12, 1999 with the company's Form
10-Q Quarterly Report for the period ended October 3, 1999 and
incorporated herein by reference
Material Contracts
10.2.1 Revolving Credit Agreement, dated as of August 6, 1998, by and
among Sylvan Inc., a Nevada corporation, Sylvan Foods
(Netherlands) B.V., a Dutch corporation, as Borrowers, the
Banks party thereto from time to time and Mellon Bank, N.A., a
national banking association, as issuing bank and as agent for
the Banks thereunder, together with various annexes, exhibits
and schedules and various related documents, previously filed
as Exhibits 10.1 through 10.10 on November 10, 1998 with
Sylvan's Form 10-Q Quarterly Report for the period ended
September 27, 1998 and incorporated herein by reference
10.2.11 Index of Other Exhibits to the Revolving Credit Agreement,
previously filed as Exhibit 10.11 with Sylvan's Form 10-Q
Quarterly Report for the period ended September 27, 1998 and
incorporated herein by reference
10.3.1 Collective Bargaining Agreement, dated July 20, 1999, between
Quincy Corporation and the United Farm Workers of America,
AFL-CIO, previously filed as Exhibit 10 on August 9, 1999 with
the company's Form 10-Q Quarterly Report for the period ended
July 4, 1999 and incorporated herein by reference
10.4.1 Asset Purchase Agreement, dated November 30, 1999, by, between
and among J. B. Swayne Spawn Company, John B. Swayne, III and
Worthington Holdings, Inc.
16
<PAGE> 18
10.4.2 Index of Exhibits to the Asset Purchase Agreement referenced
above
10.5.1 Agreement, dated January 14, 2000, by and between C And C
Carriage Mushroom Co., t/a Modern Sales Company, and Quincy
Corporation
10.5.2 Index of Exhibits to the C And C Agreement referenced above
11 Statement re computation of per share earnings is not required
because the relevant computation can be clearly determined
from the material contained in the financial statements
included herein
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 7th day of March
2000.
By /s/ DENNIS C. ZENSEN
---------------------------
Dennis C. Zensen
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DENNIS C. ZENSEN Chairman of the Board of March 7, 2000
- -------------------------------------- Directors, President and -------------
Dennis C. Zensen Chief Executive Officer
(Principal Executive Officer)
/s/ DONALD A. SMITH Chief Financial Officer March 7, 2000
- -------------------------------------- (Principal Financial and -------------
Donald A. Smith Accounting Officer)
/s/ WILLIAM L. BENNETT Director March 7, 2000
- -------------------------------------- -------------
William L. Bennett
/s/ MONIR K. ELZALAKI President, Sylvan America, Inc. March 7, 2000
- -------------------------------------- Director -------------
Monir K. Elzalaki
/s/ VIRGIL H. JURGENSMEYER Director March 7, 2000
- -------------------------------------- -------------
Virgil H. Jurgensmeyer
/s/ DONALD T. PASCAL Director March 7, 2000
- -------------------------------------- -------------
Donald T. Pascal
</TABLE>
18
<PAGE> 20
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
Consent of Independent Public Accountants F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets at January 2, 2000 and January 3, 1999 F-3
Consolidated Statements of Income for the Years Ended
January 2, 2000, January 3, 1999, and December 28, 1997 F-5
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended January 2, 2000, January 3, 1999, and
December 28, 1997 F-6
Consolidated Statements of Cash Flows for the Years Ended
January 2, 2000, January 3, 1999, and December 28, 1997 F-7
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts for the Years
Ended January 2, 2000, January 3, 1999, and December 28, 1997 F-22
Report of Independent Public Accountants on Financial Statement
Schedule F-23
3.3 Articles of Incorporation of S. F. Nevada, Inc. (a)
3.4 Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods Holdings, Inc. with exhibit (a)
3.5 Bylaws (a)
10.12 Sylvan Inc. 1990 Stock Option Plan, as amended and restated (a)
10.1.2 Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan (b)
10.1.3 Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for Nonemployee Directors (c)
10.2.1 Revolving Credit Agreement, dated as of August 6, 1998, by and among Sylvan Inc.,
a Nevada corporation, and Sylvan Foods (Netherlands) B.V., a Dutch
corporation, as Borrowers; the Banks party thereto from time to time and Mellon
Bank, N.A., a national banking association, as issuing bank and as agent for the
Banks thereunder, together with various annexes, exhibits, and schedules (d)
10.2.2 Revolving Credit Note, dated August 6, 1998, payable to Mellon Bank, N.A. in the
amount of $25,000,000 (d)
10.2.3 Revolving Credit Note, dated August 6, 1998, payable to ABN AMRO Bank,
Pittsburgh Branch, in the amount of $25,000,000 (d)
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.2.4 Promissory Note, dated August 6, 1998, payable to Mellon Bank, N.A. in the
amount of $5,000,000 (d)
10.2.5 Mellon Global Cash Management ABS Agreement, dated August 6, 1998, by and
between Sylvan Inc. and Mellon Bank, N.A. (d)
10.2.6 Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
Sylvan Inc. and Mellon Bank, N.A. (d)
10.2.7 Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
Sylvan Foods, Inc. and Mellon Bank, N.A. (d)
10.2.8 Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
Sylvan America, Inc. (a Pennsylvania corporation) and Mellon Bank, N.A. (d)
10.2.9 Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
Sylvan America, Inc. (a Nevada corporation) and Mellon Bank, N.A. (d)
10.2.10 Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
Quincy Corporation and Mellon Bank, N.A. (d)
10.2.11 Index of Other Exhibits to the Revolving Credit Agreement referenced in Exhibit 10.2.1 (d)
10.3.1 Collective Bargaining Agreement, dated July 20, 1999, between Quincy Corporation
and the United Farm Workers of America, AFL-CIO (e)
10.4.1 Asset Purchase Agreement, dated November 30, 1999, by, between and among
J.B. Swayne Spawn Company, John B. Swayne, III and Worthington Holdings, Inc. E-3
10.4.2 Index of Exhibits to the Asset Purchase Agreement referenced in Exhibit 10.4.1 E-20
10.5.1 Agreement, dated January 14, 2000, by and between C And C Carriage Mushroom Co.,
t/a Modern Sales Company and Quincy Corporation E-22
10.5.2 Index of Exhibits to the Agreement referenced in Exhibit 10.5.1 E-69
21 Subsidiaries of the Registrant E-70
</TABLE>
- ------------------
(a) This exhibit was previously filed on November 12, 1999 with the
company's Form 10-Q Quarterly Report for the period ended
October 3, 1999 and is incorporated herein by reference.
(b) This exhibit was previously filed on April 2, 1993 with the
company's Form 10-K Annual Report for the fiscal year ended
January 3, 1993 and is incorporated herein by reference.
(c) This exhibit was previously filed on April 1, 1994 with the
company's Form 10-K Annual Report for fiscal year ended
January 2, 1994 and is incorporated herein by reference.
(d) This exhibit was previously filed on November 10, 1998 as one of
Exhibits 10-1 through 10-11 with the company's Form 10-Q Quarterly
Report for the period ended September 27, 1998 and is incorporated
herein by reference.
(e) This exhibit was previously filed on August 9, 1999 as Exhibit 10
with the company's Form 10-Q Quarterly Report for the period ended
July 4, 1999.
20
<PAGE> 22
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Sylvan Inc.'s Form 10-K of our reports dated February 4, 2000
included or incorporated by reference in the Company's previously filed
registration statements on Form S-8 (No. 33-46797 and No. 33-86332), including
the prospectuses therein, relating to the Company's 1990 Stock Option Plan and
on Form S-8 (No. 33-83962), including the prospectus therein, relating to the
Company's 1993 Stock Option Plan for Nonemployees Directors. It should be noted
that we have not audited any financial statements of the Company subsequent to
January 2, 2000 or performed any audit procedures subsequent to the date of our
report.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
March 27, 2000
F-1
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sylvan Inc.:
We have audited the accompanying consolidated balance sheets of Sylvan Inc. (a
Nevada corporation) and Subsidiaries as of January 2, 2000 and January 3, 1999,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three fiscal years in the period ended
January 2, 2000. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Sylvan Inc. and
Subsidiaries as of January 2, 2000 and January 3, 1999, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 2, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania,
February 4, 2000
F-2
<PAGE> 24
SYLVAN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
January 2, January 3,
2000 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,601 $ 6,497
Trade accounts receivable, net of allowance for
doubtful accounts of $826 and $710, respectively 12,347 12,630
Inventories 10,110 9,820
Prepaid income taxes and other expenses 1,537 1,459
Other current assets 1,121 1,505
Deferred income tax benefit 500 856
-------- --------
Total current assets 33,216 32,767
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 3,028 3,016
Buildings 35,007 32,384
Equipment 48,605 47,168
-------- --------
86,640 82,568
Less- Accumulated depreciation (32,391) (29,129)
-------- --------
Total property, plant and equipment, net 54,249 53,439
-------- --------
INTANGIBLE ASSETS, net of accumulated
amortization of $3,906 and $3,249, respectively 12,797 12,218
OTHER ASSETS, net of accumulated amortization of $316
and $272, respectively 9,233 4,126
-------- --------
TOTAL ASSETS $109,495 $102,550
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE> 25
SYLVAN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 2, January 3,
2000 1999
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 418 $ 825
Accounts payable - trade 4,647 5,341
Accrued salaries, wages and employee benefits 2,970 2,504
Other accrued liabilities 1,703 2,150
Income taxes payable 697 3,041
-------- --------
Total current liabilities 10,435 13,861
-------- --------
LONG-TERM AND REVOLVING-TERM DEBT 43,544 34,586
-------- --------
OTHER LONG-TERM LIABILITIES:
Other employee benefits 1,053 1,054
Other 5,826 1,437
-------- --------
Total other long-term liabilities 6,879 2,491
-------- --------
MINORITY INTEREST 1,413 1,348
SHAREHOLDERS' EQUITY:
Common stock, voting, par value $.001, 10,000,000
shares authorized, 6,671,601 and 6,637,201 shares
issued in 1999 and 1998, respectively 7 7
Additional paid-in capital 16,801 16,443
Retained earnings 47,785 41,657
Less-Treasury stock, at cost, 966,765 and 249,865
shares in 1999 and 1998, respectively (10,166) (2,318)
-------- --------
54,427 55,789
Cumulative translation adjustment (7,203) (2,122)
Pension adjustment -- (3,403)
-------- --------
Accumulated other comprehensive deficit (7,203) (5,525)
-------- --------
Total shareholders' equity 47,224 50,264
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $109,495 $102,550
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 26
SYLVAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $ 89,611 $ 89,555 $ 81,560
---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of sales 52,492 52,749 47,256
Selling and administrative 19,474 18,710 16,719
Research and development 1,583 1,717 1,506
Depreciation 5,506 5,268 4,606
---------- ---------- ----------
79,055 78,444 70,087
---------- ---------- ----------
OPERATING INCOME 10,556 11,111 11,473
INTEREST EXPENSE, net 2,231 2,170 2,058
OTHER INCOME (EXPENSE) (1) (116) 31
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 8,324 8,825 9,446
---------- ---------- ----------
PROVISION FOR INCOME TAXES:
Current 1,823 1,935 2,626
Deferred 308 344 113
---------- ---------- ----------
2,131 2,279 2,739
INCOME BEFORE MINORITY INTEREST IN
INCOME OF CONSOLIDATED SUBSIDIARIES 6,193 6,546 6,707
---------- ---------- ----------
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 65 209 225
---------- ---------- ----------
NET INCOME $ 6,128 $ 6,337 $ 6,482
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 6,112,007 6,440,287 6,395,971
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 6,130,694 6,533,740 6,406,544
========== ========== ==========
NET INCOME PER SHARE - BASIC $ 1.00 $ 0.98 $ 1.01
========== ========== ==========
NET INCOME PER SHARE - DILUTED $ 1.00 $ 0.97 $ 1.01
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 27
SYLVAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Shareholders'
Stock Capital Earnings Stock Deficit Equity
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 29, 1996 $ 6 $14,377 $28,838 $ (414) $(1,567) $41,240
Net income -- -- 6,482 -- -- 6,482
Foreign currency translation -- -- -- -- (3,993) (3,993)
adjustment
Minimum pension liability adjustment -- -- -- -- (622) (622)
--- ------- ------- -------- ------- -------
Comprehensive income 1,867
Exercise of 109,692 stock options 1 1,261 -- -- -- 1,262
Purchase of treasury stock -- -- -- (378) -- (378)
--- ------- ------- -------- ------- -------
BALANCE, December 28, 1997 7 15,638 35,320 (792) (6,182) 43,991
Net income -- -- 6,337 -- -- 6,337
Foreign currency translation -- -- -- -- 910 910
adjustment
Minimum pension liability adjustment -- -- -- -- (253) (253)
--- ------- ------- -------- ------- -------
Comprehensive income 6,994
Exercise of 47,417 stock options and
stock option compensation expense -- 805 -- -- -- 805
Purchase of treasury stock -- -- -- (1,526) -- (1,526)
--- ------- ------- -------- ------- -------
BALANCE, January 3, 1999 7 16,443 41,657 (2,318) (5,525) 50,264
Net income -- -- 6,128 -- -- 6,128
Foreign currency translation -- -- -- -- (5,081) (5,081)
adjustment
Minimum pension liability adjustment -- -- -- -- 3,403 3,403
--- ------- ------- -------- ------- -------
Comprehensive income 4,450
Exercise of 34,400 stock options -- 358 -- -- -- 358
Purchase of treasury stock -- -- -- (7,848) -- (7,848)
--- ------- ------- -------- ------- -------
BALANCE, January 2, 2000 $ 7 $16,801 $47,785 $(10,166) $(7,203) $47,224
=== ======= ======= ======== ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 28
SYLVAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 6,128 $ 6,337 $ 6,482
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 6,226 6,107 5,237
Employee benefits 706 (1,488) (757)
Trade accounts receivable (248) 1,557 (894)
Inventories (562) (757) (602)
Prepaid expenses and other assets (427) (810) 1,355
Accounts payable, accrued expenses and other liabilities (860) (1,311) (806)
Minority interest 111 302 225
Other 1,879 285 177
------- ------- --------
Net cash provided by operations 12,953 10,222 10,417
------- ------- --------
CASH FLOWS FROM INVESTING:
Expenditures for property, plant and equipment (7,669) (8,195) (7,647)
Payment for acquisition, net of cash acquired (4,574) (1,619) (3,923)
------- ------- --------
Net cash used in investing (12,243) (9,814) (11,570)
------- ------- --------
CASH FLOWS FROM FINANCING:
Principal payments on long-term debt (823) (679) (425)
Net borrowings under revolving credit loan 9,756 1,756 3,734
Proceeds from exercise of stock options 293 546 1,125
Purchase of treasury shares (7,848) (1,525) (379)
------- ------- --------
Net cash provided by financing 1,378 98 4,055
------- ------- --------
EFFECT OF EXCHANGE RATES ON CASH (984) 424 (1,555)
------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,104 930 1,347
CASH AND CASH EQUIVALENTS, beginning of period 6,497 5,567 4,220
------- ------- --------
CASH AND CASH EQUIVALENTS, end of period $ 7,601 $ 6,497 $ 5,567
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 2,429 $ 1,964 $ 2,352
Income taxes paid 1,190 2,478 2,038
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCIAL ACTIVITIES:
ACQUISITION OF BUSINESSES:
Fair value of assets acquired $ 4,879 $ 4,492 $ 5,619
Cash paid for assets or capital stock (4,574) (1,619) (3,923)
------- ------- --------
Liabilities assumed $ 305 $ 2,873 $ 1,696
======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 29
SYLVAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Period
- -----------------
The company maintains its accounting records on a 52-53 week fiscal year ending
the Sunday nearest December 31. The 1999 and 1997 fiscal years were 52 weeks and
the 1998 fiscal year was 53 weeks.
Principles of Consolidation
- ---------------------------
The accounts of majority owned or controlled subsidiaries are included in the
company's statements only for the period subsequent to their acquisition. All
material intercompany transactions and balances have been eliminated in
consolidation.
Basis of Presentation
- ---------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
All cash equivalents are stated at cost, which approximates market. The company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. In addition, the company maintains a
French-franc denominated cash balance of approximately FF15.0 million with a
U.S. bank in support of a loan advanced by a European bank. This balance is
reported under "Other Assets" in the accompanying consolidated balance sheets.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
- -----------------------------
The company's property, plant and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives.
Upon disposal of property items, the asset and related accumulated depreciation
accounts are relieved of the amounts recorded therein for such items and any
resulting gain or loss is reflected in income.
F-8
<PAGE> 30
For financial reporting purposes, the company considers its depreciable assets
to have the following useful lives:
Land improvements 10-20 years
Buildings 30-40 years
Equipment 2-15 years
Intangible Assets
- -----------------
Intangible assets consist of the excess of cost over net assets of acquired
companies and are being amortized over 30 years or less. Subsequent to its
acquisitions, the company continually evaluates whether later events and
circumstances have occurred that indicate that the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of
intangible assets may not be recoverable. When factors indicate that intangible
assets should be evaluated for possible impairment, the company will use an
estimate of the relevant undiscounted cash flows over the remaining life of the
intangible assets in measuring whether the intangible assets are recoverable.
The company's evaluations have not resulted in any revision to intangible assets
or their related amortization periods.
Research and Development
- ------------------------
Research and development costs are expensed as incurred.
Earnings Per Common Share
- -------------------------
Earnings per share were calculated using the weighted average number of shares
outstanding during the period and including the effect of stock options
outstanding.
The following table reflects the calculation of earnings per share (in thousands
except share data):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 2, January 3, December 28,
2000 1999 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic Earnings Per Share:
Net income $ 6,128 $ 6,337 $ 6,482
---------- ---------- ----------
Average shares outstanding 6,112,007 6,440,287 6,395,971
---------- ---------- ----------
Earnings per share $ 1.00 $ 0.98 $ 1.01
========== ========== ==========
Diluted Earnings Per Share:
Net income $ 6,128 $ 6,337 $ 6,482
---------- ---------- ----------
Average shares outstanding 6,112,007 6,440,287 6,395,971
Stock options outstanding 18,687 93,453 10,573
---------- ---------- ----------
Diluted average shares outstanding 6,130,694 6,533,740 6,406,544
---------- ---------- ----------
Earnings per share $ 1.00 $ 0.97 $ 1.01
========== ========== ==========
</TABLE>
Options to purchase approximately 570,000, 88,000 and 142,000 shares of common
stock for the fiscal years ended 1999, 1998 and 1997, respectively, were
outstanding, but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the company's common shares for the respective years.
F-9
<PAGE> 31
Foreign Currency Translation
- ----------------------------
The financial statements of all foreign operations are translated using the
standards established by Statement of Financial Accounting Standards (SFAS) No.
52, "Foreign Currency Translation."
Assets and liabilities of non-U.S. operations are translated into U.S. dollars
using year-end exchange rates, while revenues and expenses are translated at the
average exchange rates for the year. The resulting net translation adjustments
are recorded as a separate component of shareholders' equity.
Transaction gains and losses are reflected in income.
Foreign Currency Exchange Risk Management
- -----------------------------------------
The company evaluates and hedges foreign currency exchange risk exposure on a
transaction-by-transaction basis. As of January 2, 2000, the company had no
outstanding foreign currency exchange contracts.
Highly Inflationary Currency
- ----------------------------
Beginning in 1998, the company categorized the Turkish economy as highly
inflationary and, therefore, the U.S. dollar is the functional currency. Turkish
operations are not material to the company as a whole.
Interest Rate Risk Management
- -----------------------------
The company uses interest rate swap agreements to convert a portion of its
floating rate debt to a fixed rate basis, thus reducing the impact of interest
rate changes on future results. The company has these agreements with its banks
as counterparties. The agreements replace the floating (Euro-rate) LIBOR basis
with a 90-day fixed LIBOR basis as described in the table below. At the end of
each 90-day period, the company and its counterparties make appropriate payments
to settle the difference between the floating rate LIBOR and the fixed rate
LIBOR. When the floating rate LIBOR exceeds the fixed rate LIBOR at the
beginning of a 90-day term, the counterparties will pay the difference between
the rates for the appropriate notional amount to the company. Conversely, when
the fixed rate exceeds the floating rate, the company will pay its
counterparties. Amounts receivable or payable under these swap agreements are
recorded as an adjustment to interest expense. The company's contractual swap
agreements as of January 2, 2000 are as follows:
Notional Origination Expiration Fixed
Amount Date Date Rate
----------- --------------- --------------- -----
$10,000,000 August 25, 1998 August 25, 2007 5.78%
5,000,000 October 4, 1999 October 4, 2002 5.02
On January 10, 2000, the company entered into an agreement with the counterparty
to the above-listed $10.0 million swap to reduce the fixed rate from 5.78% to
5.48% in exchange for a maximum floating rate LIBOR provision of 7.00%. This
agreement is effective February 25, 2000.
F-10
<PAGE> 32
Effective January 13, 2000, the company entered into a new swap agreement with a
notional amount of $5.0 million and a fixed rate of 6.43%. This agreement
expires on December 29, 2000 unless it is extended by the counterparty to
December 31, 2001.
Recent Pronouncements
- ---------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The company has
not completed the process of evaluating the impact that will result from
adopting SFAS No. 133.
2. ACQUISITIONS:
In November 1999, the company acquired most of the assets of the J. B. Swayne
Spawn Company of Kennett Square, Pennsylvania, a modern production facility that
distributes its product within North America. The purchase price was $4.6
million and an additional $250,000 may be paid as contingent consideration
within two years of the acquisition based on certain conditions. This
acquisition has been accounted for as a purchase transaction. As a result of
purchase price allocations, the purchase price exceeded the fair value of net
assets acquired by $1.4 million and will be amortized over 20 years. This excess
purchase price may increase by the aforementioned contingent consideration, if
paid.
In May 1998, the company acquired 90% of the capital stock of International
Mushrooms Limited, a company incorporated in Ireland that produces and
distributes mushroom spawn. The purchase price was $1.6 million. This
acquisition has been accounted for as a purchase transaction. As a result of
purchase price allocations, the purchase price exceeded the fair value of net
assets acquired by $0.9 million, which will be amortized over 20 years.
In December 1997, the company acquired all of the issued share capital of
Tartarin S.A., a French distributor of compost nutritional supplements and
disease-control agents. The purchase price was $3.9 million. This acquisition
has been accounted for as a purchase transaction. As a result of purchase price
allocations, the purchase price exceeded the fair value of net assets acquired
by approximately $2.9 million, which will be amortized over 20 years.
Had the acquisitions taken place at the beginning of 1999, 1998 and 1997,
respectively, the pro forma impact on sales, net income and diluted earnings per
share would not be materially different from the amounts reported.
3. INVENTORIES:
Inventories are summarized as follows (in thousands):
January 2, January 3,
2000 1999
------- ------
Growing crops and compost material $ 5,021 $4,882
Stores and other supplies 1,794 1,632
Mushrooms and spawn on hand 3,295 3,306
------- ------
$10,110 $9,820
======= ======
F-11
<PAGE> 33
4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS:
The company has a Revolving Credit Agreement with two commercial banks, dated
August 6, 1998. It provides for revolving credit loans on which the aggregate
outstanding balance available to the company may not initially exceed $55.0
million. This aggregate outstanding balance will decline over the life of the
agreement as follows:
Maximum Aggregate
Period Beginning Outstanding Balance
---------------- -------------------
August 6, 2003 $50.0 million
August 6, 2004 45.0 million
Outstanding borrowings under the agreement bear interest at either the Prime
Rate or LIBOR (plus an applicable margin), at the company's option. On January
2, 2000, the company had outstanding borrowings under the agreement of $39.4
million. The revolving credit loans mature on August 5, 2005. The company
intends to extend the terms of the revolving credit agreement or secure a
similar arrangement through August 2007, which is concurrent with the expiration
date of the longest-term interest rate swap.
The agreement provides for the maintenance of various financial covenants and
includes limitations as to incurring additional indebtedness and the granting of
security interests to third parties. Obligations under the agreement are
guaranteed by certain wholly owned subsidiaries of the company.
In 1995, the company obtained Dutch guilder financing for the acquisition of
plant and machinery in the Netherlands. Loans outstanding under this agreement,
amounting to approximately $1.1 million, are repayable in quarterly
installments. One loan matures in 2000 and the other loan will mature in fifteen
years. Interest is payable with each installment at a fixed rate of between
8.35% and 8.55% until April 1, 2000, after which the interest rate may vary. The
company has granted a security interest over certain Dutch assets to secure
these borrowings.
The company has a French-franc denominated loan of FF15.0 million. Interest is
payable based on a formula that utilizes a Paris Interbank Offer Rate plus an
applicable margin. Repayment is due in January 2002. The loan is supported by a
compensating cash balance maintained at a U.S. bank.
The company incurred approximately $2.3 million in gross interest expense during
1999, reflecting a weighted average interest rate of 6.38%. The contractual
principal payments due under the company's loan agreements are as follows (in
thousands):
2000 $ 418
2001 440
2002 2,508
2003 121
2004 468
Thereafter 40,007
-------
Total $43,962
=======
F-12
<PAGE> 34
5. ACCRUED SALARIES, WAGES AND EMPLOYEE BENEFITS:
Accrued salaries, wages and employee benefits are composed of the following (in
thousands):
January 2, 2000 January 3, 1999
--------------- ---------------
Accrued compensation $2,028 $1,536
Accrued vacation 673 713
Other 269 255
------ ------
Total $2,970 $2,504
====== ======
6. INCOME TAXES:
The company files a consolidated U.S. federal income tax return with its wholly
owned U.S. subsidiaries. The company does not provide for federal income taxes
on unremitted earnings of non-U.S. subsidiaries.
The amounts of income before income taxes attributable to domestic and foreign
operations are as follows (in thousands):
Year Ended Year Ended Year Ended
January 2, 2000 January 3, 1999 December 28, 1997
--------------- --------------- -----------------
Domestic $1,992 $2,417 $2,807
Foreign 6,332 6,408 6,639
------ ------ ------
Total $8,324 $8,825 $9,446
====== ====== ======
The provision (benefit) for income taxes consists of the following (in
thousands):
Year Ended Year Ended Year Ended
January 2, 2000 January 3, 1999 December 28, 1997
--------------- --------------- -----------------
Current-
Federal $ 388 $ 150 $ 668
State (112) (31) 74
Foreign 1,547 1,816 1,884
Deferred-
Federal 372 354 119
State (64) (10) (6)
Foreign -- -- --
------ ------ ------
$2,131 $2,279 $2,739
====== ====== ======
F-13
<PAGE> 35
A reconciliation between income taxes computed by applying the statutory U.S.
federal income tax rate to income before income taxes and the actual provision
for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 2, 2000 January 3, 1999 December 28, 1997
--------------- --------------- -----------------
<S> <C> <C> <C>
Income tax at U.S.
federal statutory rate $2,830 $3,000 $3,212
State income taxes,
net of federal
income tax benefit (74) (21) 49
Foreign taxes at rates
other than
effective U.S. rates (471) (490) (382)
Net (permanent benefits)
nondeductible charges (34) (259) (22)
Reduction in state income tax
valuation allowance
(99) -- --
Other, net (21) 49 (118)
------ ------ ------
Total provision for
income taxes $2,131 $2,279 $2,739
====== ====== ======
</TABLE>
Temporary differences which generate significant portions of the company's
deferred tax assets and liabilities as of January 2, 2000 and January 3, 1999
were (in thousands):
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
--------------- ---------------
<S> <C> <C>
Postretirement benefits other than pensions $ (408) $ (364)
Depreciation 3,606 3,691
Prepaid pension asset 1,786 --
Workers' compensation (106) (109)
Net operating loss carryforwards (1,061) (610)
Other, net (479) (669)
------- ------
Total 3,338 1,939
Less- Valuation allowance 962 610
------- ------
Net deferred tax liability $ 4,300 $2,549
======= ======
</TABLE>
Included in net deferred tax liabilities at January 2, 2000 are unrealized tax
benefits amounting to $1.1 million related to net operating loss carryforwards.
The realization of these tax benefits is contingent on future taxable net income
being generated by certain
F-14
<PAGE> 36
foreign and domestic operations. The life of the carryforwards is determined by
various foreign and state taxation jurisdictions. Approximately $0.2 million of
the net operating losses has an indefinite carryforward period. The remaining
$0.9 million of net operating losses will expire between 2000 and 2008. The
company has recognized a valuation allowance that reduces the carrying value of
unrealized net deferred tax benefits relating to net operating loss
carryforwards to offset the deferred tax benefits that may not be realized.
7. STOCK OPTIONS:
In June 1991, the shareholders approved a stock option plan (the 1990 Plan) for
employees and others who perform substantial services for the company. In April
1999, the shareholders approved an amendment and restatement of the 1990 Plan to
provide for an increase to 1,700,000 in the number of shares of the company's
stock which are available for the granting of options. In June 1993, the
shareholders approved a stock option plan (the 1993 Plan) for nonemployee
directors of the company, covering 100,000 shares of common stock. The company
accounts for both plans under the Accounting Principles Board Opinion No. 25,
under which no compensation cost is recognized for options granted at fair
market value. Had compensation cost for these plans been determined in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
company's net income and earnings per share (EPS) would have been reduced to the
following pro forma amounts (in thousands, except per share data):
Year Ended Year Ended Year Ended
1999 1998 1997
---------- ---------- ----------
Net Income: As Reported $6,128 $6,337 $6,482
Pro Forma 5,500 5,938 6,224
Diluted EPS: As Reported $ 1.00 $ 0.97 $ 1.01
Pro Forma 0.90 0.91 0.97
The company's Board of Directors, through its Stock Option and Compensation
Committee (the Board) may grant options under the 1990 Plan. Grants under the
1993 Plan are nondiscretionary. The Board has granted options (net of
cancellations) for 1,315,083 shares through January 2, 2000, under the 1990 Plan
and 71,000 shares have been granted under the 1993 Plan. Under both plans, the
option exercise price typically equals the stock's market price on the date of
grant. The 1993 Plan options are exercisable six months from the grant date and
expire ten years after the grant. The 1990 Plan options are generally
exercisable one year from the grant date in installments over a period of three
to four years and expire after ten years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants made in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.85%, 5.08% and 5.87%; no expected dividend yields; expected
lives of 8.0 years; expected volatility of 32%, 31% and 29%.
F-15
<PAGE> 37
A summary of the status of the company's stock option plans at January 2, 2000,
January 3, 1999, and December 28, 1997, and changes during the years then ended
is presented in the table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 769 $11.69 614 $10.88 629 $10.36
Granted 136 9.99 212 13.82 120 12.84
Exercised (34) 8.53 (47) 10.50 (110) 10.26
Forfeited (12) 12.62 (10) 12.88 (25) 9.55
--- ------ --- ------ ---- ------
Outstanding at end of year 859 11.54 769 11.69 614 10.88
--- ------ --- ------ ---- ------
Exercisable at end of year 556 11.27 462 10.60 395 10.26
Weighted average fair value
of options granted $ 5.04 $ 6.60 $ 6.22
</TABLE>
The 859,275 options outstanding under both plans at January 2, 2000 have
exercise prices of between $8.75 and $15.00 per share, with a weighted average
exercise price of $11.54 and a weighted average remaining contractual life of
6.7 years. 556,241 of these options are exercisable. The remaining 303,034
options have exercise prices between $8.875 and $15.00 per share, with a
weighted average exercise price of $12.04 and a weighted average contractual
life of 9.0 years.
8. EMPLOYEE BENEFITS:
The company has a noncontributory defined benefit pension plan covering
substantially all of the former employees of a former operation and certain
employees of Sylvan Foods, Inc. and Sylvan America, Inc., wholly owned
subsidiaries of the company. The company's funding policy is to contribute
annually an amount that satisfies the minimum funding requirement under the
Employee Retirement Income Security Act and that is also deductible for federal
income tax purposes.
The accumulated benefit obligation at January 2, 2000 and January 3, 1999 was
$30.1 million and $33.9 million, respectively, all of which was fully vested.
The plan's assets consist primarily of U.S. government obligations, temporary
deposits, common stocks and corporate obligations.
F-16
<PAGE> 38
The plan's funded status and amounts recognized in the company's consolidated
financial statements, together with certain accumulated postretirement medical
benefit obligations, are set forth in the following tables:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------------- -------------------------------------
January 2, January 3, December 28, January 2, January 3, December 28,
(in Thousands) 2000 1999 1997 2000 1999 1997
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of $33,886 $33,413 $30,144 $ 716 $ 714 $ 800
year
Interest cost 2,132 2,093 2,100 71 47 56
Plan amendments -- -- -- -- -- (42)
Actuarial (gain) loss (3,595) 726 3,371 357 27 (11)
Benefits paid (2,314) (2,346) (2,202) (100) (72) (89)
------- ------- ------- ------- ------- -------
Benefit obligation at end of year $30,109 $33,886 $33,413 $ 1,044 $ 716 $ 714
======= ======= ======= ======= ======= =======
Change in plan assets:
Fair value of plan assets at
beginning of year $33,867 $33,089 $30,142 $ -- $ -- $ --
Actual return on plan assets 2,809 3,124 5,149 -- -- --
Employer contributions -- -- -- 100 72 89
Benefits paid (2,314) (2,346) (2,202) (100) (72) (89)
------- ------- ------- ------- ------- -------
Fair value of plan assets at end of
year $34,362 $33,867 $33,089 $ -- $ -- $ --
======= ======= ======= ======= ======= =======
Reconciliation of funded status:
Funded status $ 4,253 $ (19) $ (324) $(1,044) $ (716) $ (714)
Unrecognized net actuarial (gain) or
loss 1,003 4,704 4,451 100 (251) (293)
Unrecognized prior service cost -- -- -- (61) (68) (74)
------- ------- ------- ------- ------- -------
Prepaid (accrued) benefit liability $ 5,256 $ 4,685 $ 4,127 $(1,005) $(1,035) $(1,081)
======= ======= ======= ======= ======= =======
Weighted-average assumptions as of
end of fiscal year:
Discount rate 7.50% 6.50% 6.50% 7.50% 7.00% 7.00%
Expected return on plan assets 9.00% 9.00% 9.00% -- -- --
Rate of compensation increase -- -- -- -- -- --
Components of net periodic pension
cost (income):
Interest cost $ 2,132 $ 2,093 $ 2,100 $ 71 $ 47 $ 56
Expected return on plan assets (2,755) (2,689) (2,426) -- -- --
Amortization of prior service cost -- -- -- (6) (6) (2)
Recognized net actuarial loss (gain) 52 37 26 5 (15) (14)
------- ------- ------- ------- ------- -------
Net periodic benefit cost (income) $ (571) $ (559) $ (300) $ 70 $ 26 $ 40
======= ======= ======= ======= ======= =======
Amounts recognized in the
consolidated balance sheet consist
of:
Prepaid benefit cost $ 5,256 $ -- $ -- $ -- $ -- $ --
Accrued benefit liability -- (19) (324) (1,005) (1,035) (1,081)
Accumulated other comprehensive
income -- 4,704 4,451 -- -- --
------- ------- ------- ------- ------- -------
Net amount recognized at year-end $ 5,256 $ 4,685 $ 4,127 $(1,005) $(1,035) $(1,081)
======= ======= ======= ======= ======= =======
Other comprehensive income
attributable to change in
additional minimum liability
recognition $(4,704) $ 253 $ 622 $ -- $ -- $ --
======= ======= ======= ======= ======= =======
</TABLE>
F-17
<PAGE> 39
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------------------ ------------------------------------------
January 2, January 3, December 28, January 2, January 3, December 28,
(in Thousands) 2000 1999 1997 2000 1999 1997
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additional year-end information for
pension plans with accumulated benefit
obligations in excess of plan assets:
Projected benefit obligation $33,886 $33,413
Accumulated benefit obligation 33,886 33,413
Fair value of plan assets 33,867 33,089
Assumed health care cost trend:
Initial trend rate 7.34% 7.12% 7.50%
Ultimate trend rate 5.00% 5.25% 5.25%
Year ultimate trend reached 2005 2003 2003
A one-percentage-point change in the
assumed health care cost trend rates
would have the following effects:
</TABLE>
<TABLE>
<CAPTION>
One Percentage One Percentage
Point Increase Point Decrease
-----------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest
cost components for 1999 $ 6 $ (5)
Effect on 1999 postretirement
benefit obligation 89 (78)
</TABLE>
Additionally, during 1999 certain hourly-paid workers at the company's Quincy
Farms subsidiary became participants in a union-sponsored, collectively
bargained, multi-employer pension plan to which the company makes negotiated
contributions based generally on fixed amounts per hour per employee. Expense
recorded in connection with this plan for fiscal year 1999 was $33,000.
9. NATURE OF OPERATIONS AND BUSINESS SEGMENT INFORMATION:
Sylvan is a worldwide producer and distributor of mushroom products,
specializing in spawn (the equivalent of seed for mushrooms) and spawn-related
products and services, and is a major grower and marketer of fresh mushrooms in
the United States. The company has two reportable business segments: spawn
products, which includes spawn-related products and services, and fresh
mushrooms. Spawn-related products include casing inoculum, nutritional
supplements and disease-control agents. The fresh mushroom business segment is
comprised of a large, regional producer of fresh mushrooms.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The company evaluates the
performance of each segment based on profit or loss from operations. The company
accounts for intersegment sales at a transfer price that approximates an
arms-length sale to an unrelated third party.
F-18
<PAGE> 40
The company's reportable segments are strategic business units that offer
different products and serve different customers. They are managed separately
since each business requires different technology, techniques and marketing
strategies.
<TABLE>
<CAPTION>
Spawn Fresh Total
Products Mushroom Reportable
(in Thousands) Segment Segment Segments
- -------------- ---- ------- ------- --------
<S> <C> <C> <C> <C>
Total Revenues 1999 $61,715 $29,176 $ 90,891
1998 59,968 30,708 90,676
1997 52,079 30,209 82,288
Intersegment Revenues 1999 $ 1,280 $ -- $ 1,280
1998 1,121 -- 1,121
1997 728 -- 728
Depreciation Expense 1999 $ 3,824 $ 1,624 $ 5,448
1998 3,626 1,569 5,195
1997 3,012 1,499 4,511
Operating Income 1999 $12,930 $ 1,425 $ 14,355
1998 12,850 1,107 13,957
1997 12,425 2,867 15,292
Net Fixed Asset Expenditures 1999 $ 7,171 $ 487 $ 7,658
1998 7,545 563 8,108
1997 6,278 1,287 7,565
Assets 1999 $93,054 $23,385 $116,439
1998 82,468 21,584 104,052
1997 71,770 23,186 94,956
</TABLE>
Reconciliation to Consolidated Financial Data
---------------------------------------------
<TABLE>
<CAPTION>
(in Thousands) 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Total for reportable segments $ 90,891 $ 90,676 $82,288
Elimination of intersegment revenues (1,280) (1,121) (728)
-------- -------- -------
Total consolidated revenues $ 89,611 $ 89,555 $81,560
======== ======== =======
Depreciation Expense:
Total for reportable segments $ 5,448 $ 5,195 $ 4,511
Unallocated corporate expenses 58 73 95
-------- -------- -------
Total consolidated depreciation expense $ 5,506 $ 5,268 $ 4,606
======== ======== =======
Operating Income:
Total for reportable segments $ 14,355 $ 13,957 $15,292
Unallocated corporate expenses (3,799) (2,846) (3,819)
-------- -------- -------
Total consolidated operating income $ 10,556 $ 11,111 $11,473
======== ======== =======
Net Fixed Asset Expenditures:
Total for reportable segments $ 7,658 $ 8,108 $ 7,565
Unallocated corporate expenditures 11 87 82
-------- -------- -------
Total consolidated net fixed asset
expenditures $ 7,669 $ 8,195 $ 7,647
======== ======== =======
Assets:
Total for reportable segments $116,439 $104,052 $94,956
Prepaid pension asset from former operation (5,256) -- --
Unallocated corporate assets (1,688) (1,502) (1,276)
-------- -------- -------
Total consolidated assets $109,495 $102,550 $93,680
======== ======== =======
</TABLE>
F-19
<PAGE> 41
Geographic Analysis of Revenues Based on Location of Customer
-------------------------------------------------------------
(in Thousands) United Other Foreign
United States Kingdom Netherlands Countries Total
---------------------------------------------------------------------
1999 $43,543 $ 8,875 $9,822 $27,371 $89,611
1998 46,012 9,838 9,768 23,937 89,555
1997 44,073 10,782 9,213 17,492 81,560
Geographic Analysis of Net Long-Lived Assets
--------------------------------------------
(in Thousands) Other Foreign
United States France Netherlands Countries Total
---------------------------------------------------------------------
1999 $25,669 $8,683 $5,624 $14,273 $54,249
1998 25,090 9,462 6,277 12,610 53,439
1997 26,581 6,087 5,548 9,412 47,628
No single customer accounted for 10% or more of Sylvan's sales during the years
ended January 2, 2000, January 3, 1999, or December 28, 1997. The majority of
the company's trade accounts receivable are from regional mushroom growers. The
remaining portion of the company's trade accounts receivable is from a number of
produce wholesalers and retailers in major cities within its marketing regions.
Many of these customers are privately held businesses with limited capital
resources; however, the company's bad debt loss experience with these entities
compares favorably with the company's bad debt loss experience with its customer
base as a whole.
10. RELATED-PARTY TRANSACTIONS:
During fiscal years 1999, 1998 and 1997, a nonemployee director's business
interests purchased spawn and spawn-related products at fair market value
totaling $659,000, $668,000 and $568,000, respectively, and purchased mushrooms
at fair market value totaling $83,000, $33,000 and $14,000, respectively, in
trading with the company's subsidiaries.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND SIGNIFICANT GROUP
CONCENTRATIONS OF CREDIT RISK:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value. Fair value is defined as the amount at which the instrument could be
exchanged in a transaction between willing parties.
Cash and Cash Equivalents
- -------------------------
The carrying amount approximates fair value because of the short maturity of
these instruments.
F-20
<PAGE> 42
Long-Term Debt
- --------------
The fair value of the company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the company for debt of the same remaining maturities. The company is satisfied
that the stated value of its variably priced long-term debt approximates fair
market value.
Interest Rate Swaps
- -------------------
The fair value of these instruments is based on the difference between the
interest rates either received or paid on the notional amount of the underlying
liabilities. The calculation of fair value was computed on a net present value
basis as if the financial instruments were terminated on the balance sheet date.
A relationship spread was developed based on the difference between the
three-month LIBOR and quoted three-month treasuries. This spread was added to
the quoted treasury yield for the respective maturity period of the financial
instruments and used to compute the net present value. The negative or positive
fair value is an estimate of the amounts that the company would either pay or
receive to cancel the contracts outstanding at the balance sheet date. The
instruments have no carrying value and had fair value benefit of $613,000 and
deficit of $549,000 as of January 2, 2000 and January 3, 1999, respectively.
12. SUBSEQUENT EVENT:
Effective January 16, 2000 Sylvan's Quincy Farms subsidiary entered into a
marketing agreement with C And C Carriage Mushroom Company (C And C) of
Avondale, Pennsylvania. The agreement provides for C And C to purchase all of
the mushrooms produced at the Quincy, Florida operation at a price, based on
product quality, which is adjusted annually to reflect current market
conditions. Under this agreement, Quincy Farms sold its packaging and
distribution-related assets to C And C. The initial term of the agreement is
five years with renewal options thereafter.
F-21
<PAGE> 43
Schedule II
SYLVAN INC. AND SUBSIDIARIES (THE COMPANY)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999
AND DECEMBER 28, 1997
(In Thousands)
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged to Deductions Balance
Beginning Costs and from at End
Description of Period Expenses Recoveries Reserves (a) Other (b) of Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 2, 2000-
Allowance for doubtful accounts $ 710 $524 $0 ($379) ($ 29) $826
====== ==== == ====== ====== ====
Year ended January 3, 1999-
Allowance for doubtful accounts $ 812 $495 $0 ($526) ($ 71) $710
====== ==== == ====== ====== ====
Year ended December 28, 1997-
Allowance for doubtful accounts $1,031 $356 $0 ($418)(c) ($157) $812
====== ==== == ====== ====== ====
</TABLE>
(a) Represents uncollected accounts charged against the allowance.
(b) Represents the effect of currency translation adjustments.
(c) Includes $268,000 set-off against related unrecoverable French trade
receivables.
F-22
<PAGE> 44
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Sylvan Inc.:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in Sylvan Inc.'s
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 4, 2000. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index in Item 14(a) 2 of this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
February 4, 2000
F-23
<PAGE> 1
Exhibit 10.4.1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into on the 30th day of
November 1999, by, between and among J. B. SWAYNE SPAWN COMPANY, located at 652
West South Street, Kennett Square, PA 19348 (hereinafter referred to as the
"Company"); JOHN B. SWAYNE, III, 652 West South Street, Kennett Square, PA 19348
(hereinafter sometimes referred to as "Swayne") (both the Company and Swayne
together hereinafter referred to as "Seller") and WORTHINGTON HOLDINGS, INC.,
333 Main Street, P.O. Box 249, Saxonburg, PA 16056-0249 (hereinafter referred to
as "Worthington" or "Buyer").
BACKGROUND
WHEREAS, Seller owns and operates a business engaged in the
cultivation, production, packaging, sale and shipping of mushroom spawn and
related products (the "Business"); and
WHEREAS, the parties have executed a "Letter of Intent" dated
August 17, 1999 and accepted and agreed on August 25, 1999, the terms of which
are incorporated herein, except that, in the event of a conflict between the
terms of the "Letter of Intent" and the terms of this Agreement, the terms of
this Agreement shall control; and
WHEREAS, Seller desires to sell and Buyer desires to purchase
the assets of the Business in accordance with the terms and conditions of this
Agreement; and
WHEREAS, the Business uses and occupies two (2) parcels, the
main one being located in Kennett Township, Chester County, Pennsylvania, and
designated tax parcel No.___, known as 652 West South Street, Kennett Square
(hereafter the "Principal Real Property") and the second one being located in
New Garden Township, Chester County, Pennsylvania, and designated tax parcel
No._________, known as Newark Road at Railroad (hereafter the "Secondary Real
Property") respectively described in Exhibits "A" and "B"; and
WHEREAS, John B. Swayne, III, owns (or is the equitable owner
of) both of the said parcels of real property and one autoclave located at the
Principal Real Property; and
WHEREAS, as an integral part of this transaction, John B.
Swayne, III, desires to sell and Buyer desires to purchase the Principal Real
Property in accordance with the terms of this Agreement and the attached Exhibit
"C"; and
WHEREAS, Buyer wishes to have the opportunity to make an
arrangement to lease the Secondary Real Property; and
WHEREAS, Buyer wishes to have available the advice and
assistance of John B. Swayne, III, for the benefit of the Business and wishes to
enter into a two-year employment agreement for such services; and
WHEREAS, the parties recognize that John B. Swayne, III, may
be restricted from competing with Buyer for the period of up to five (5) years
from Closing.
E-3
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained and the payments hereinafter provided, intending to be legally bound
hereby, and conditioned as set forth below, the parties do covenant and agree as
follows:
1. INCORPORATION OF BACKGROUND. The above Background is
incorporated herein by reference.
2. SALE AND PURCHASE OF ASSETS. At Closing, the Company shall
sell, transfer and assign to Buyer, and Buyer shall purchase, all of the
Company's right, title and interest in and to all of the assets of the Business,
including the personal property described herein (the "Assets"), all as adjusted
for changes occurring in the ordinary course of business as permitted hereunder
between this date and Closing, which Assets include:
a. All property and assets (except cash) of the Business of
every kind and description wherever located, including claims, rights and choses
in action, whether choate or inchoate, licenses, trademarks, technology, trade
names and including, but not limited to, the inventory, furniture, fixtures,
equipment and vehicles and assets described generally in the attached Exhibit
"D";
b. All rights under Seller's written contracts relating to the
Business, specifically identified herein and accepted in writing by Buyer at
Closing;
c. All accounts receivable as of the date of Closing;
d. All customer files, lists and records of the Business;
e. Such other assets, tangible or intangible, including
contract rights, agreements and licenses, oral or written, relating to the
Business; and
f. The telephone number, mailing address and all advertising
for the Business (including the obligation to pay for same).
3. TRANSFER OF REAL PROPERTY.
a. At Closing, John B. Swayne, III, shall transfer and set
over to Buyer the Principal Real Property in accordance with the attached
Exhibit "C" relating to the sale thereof.
b. John B. Swayne, III, shall make available the Secondary
Real Property (also known as "Plant No. 2" in Toughkenamon, Pennsylvania) for
lease by Buyer for additional consideration as the parties may agree, except
that this clause and any obligations arising hereunder shall terminate and be of
no force or effect unless such agreement is reached and put into writing among
the parties not later than Closing hereunder.
E-4
<PAGE> 3
4. EMPLOYMENT AND NON-COMPETE AGREEMENT.
a. At Closing, the parties shall enter into an Employment
Agreement whereby Buyer agrees to hire John B. Swayne, III, as an employee, and
John B. Swayne, III, agrees to perform the tasks outlined therein, substantially
in the form attached hereto and incorporated by reference as Exhibit "E". Said
agreement shall be for a minimum period of two years from Closing, and shall
provide for payments by Buyer to Swayne in the minimum amount of One Hundred
Twenty Thousand Dollars ($120,000.00) for the first year following Closing in
return for an average of three (3) weeks of work per month, and One Hundred
Thousand Dollars ($100,000.00) for the second year following Closing in return
for an average of two (2) weeks of work per month. Payments under the Employment
Agreement shall be made on at least a monthly basis. Swayne shall also receive
standard employee benefits, expense reimbursements and other employee
perquisites.
b. The Employment Agreement shall provide that John B. Swayne,
III, agrees that for a period of three (3) years from the end of the provision
of employment services, he will be prohibited from consulting or engaging in the
business of producing or selling mushroom spawn in any of Buyer's market areas
or in any of the market areas of Buyer's affiliated companies.
5. PURCHASE PRICE. As full consideration for the Assets of
Seller and the Principal Real Property, Buyer shall pay the purchase price of
FOUR MILLION SEVEN HUNDRED EIGHTY-FOUR THOUSAND DOLLARS ($4,784,000.00) (the
"Purchase Price") subject to adjustment as set forth hereinafter. The Purchase
Price shall be paid to the persons and in the allocations specified by Seller,
as follows:
a. FIFTY THOUSAND DOLLARS ($50,000.00) to counsel for Seller
and counsel for Buyer as joint Escrow Agents, already delivered in accordance
with the Letter of Intent, such monies to be held by Escrow Agents as security
for Buyer's performance hereunder and to be applied at Closing towards the
Purchase Price or, in case of default by Buyer, to be delivered to Seller,
without further liability or obligation upon Escrow Agents.
b. FOUR MILLION TWO HUNDRED THIRTY-FOUR THOUSAND DOLLARS
($4,234,000.00) to be paid at Closing by electronic funds transfer.
c. TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) shall be
payable in two (2) equal installments, the first ONE HUNDRED TWENTY-FIVE
THOUSAND DOLLARS ($125,000.00) to be due and payable on the first anniversary of
Closing, and the second ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($125,000.00)
to be due and payable on the second anniversary of Closing. The Buyer's
obligation to make such payments shall be secured by a security arrangement as
set forth in Paragraph 6. Buyer's obligations with respect to each such payment
shall be conditioned as follows (which condition shall be included in the
security document): Buyer shall be obligated to make the payments in full,
unless the post-Closing annual unit sales (including spawn and Quicknit) drop
below 75% of the unit sales of Seller (excluding unit sales to Giorgio Foods)
for the twelve-month period ending November 30, 1999. This condition shall not
be applicable if the unit sales losses are due to such causes as defective
products produced
E-5
<PAGE> 4
and sold by Buyer after Closing or to post-Closing price increases, customer
mergers, dispositions or shutdowns, or transfers of sales or customers to or
from Buyer or its affiliated companies.
d. Buyer shall be entitled to set-off against the two
installment payments any amounts owed to it by Seller pursuant to this Agreement
and related documents.
e. Buyer shall reimburse Seller for payments by Seller of any
federal or state income taxes levied by the taxing authorities against Seller
due to the imputation by the taxing authorities of interest on unpaid
installments referenced in paragraph 5(c) above.
f. The Purchase Price shall be allocated between the Company
and John B. Swayne, III, as set forth on attached Exhibit "F", or as directed by
Seller at Closing. The allocation of the Purchase Price among the Assets shall
also be as set forth on Exhibit "F", or as the parties shall agree at Closing.
The parties hereto agree to report on all income tax returns the values as so
agreed.
g. An escrow in the amount of TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000.00) shall be held by Escrow Agents in an interest bearing
account following Closing in order to protect Buyer from losses due to any
unassumed liabilities, misrepresentations, breaches, obsolete inventory,
uncollectible accounts receivable, and resolution of claims asserted by
customers alleging quality insufficiencies with respect to goods sold by Seller
prior to Closing. Purchase Price adjustments shall be accomplished within ninety
(90) days of Closing by a memorandum of Purchase Price adjustment, which shall
be executed by all parties hereto, and Escrow Agents shall thereafter disburse
the withheld funds in accordance with the memorandum. No other set-offs or
adjustments to Purchase Price, and none except as set forth on the memorandum,
shall be permitted.
6. SECURITY. As partial security for the indebtedness to
Seller set forth in Paragraph 5(c) of this Agreement, Buyer shall execute and
deliver a commitment (Exhibit "G") secured by the assets listed in Exhibit "D".
Seller agrees that the security interests granted to Seller herein shall be
subordinate to the security interests granted to a third-party lender by Buyer.
7. LIABILITIES. Under no circumstances shall Buyer be deemed
to have assumed or agreed to pay, perform or discharge any liability of Seller
other than the payment and performance obligations set forth under the steam
autoclave equipment lease agreement with The First National Bank of West
Chester, dated June 21, 1999.
8. CLOSING. Settlement and Closing shall occur on or before
November 30, 1999 (which may be extended by the parties until December 31,
1999), time being of the essence, at which time title and possession of the
Assets and the Principal Real Property shall be transferred, conveyed, and
delivered to Buyer. If Settlement and Closing have not occurred by December 31,
1999 for any reason whatsoever, this Agreement shall terminate and be of no
effect and the provisions herein regarding the return or disclosure of
information and material shall apply absolutely.
E-6
<PAGE> 5
9. DUE DILIGENCE AND BUYER'S CONDITIONS OF CLOSING. The
obligations of Buyer hereunder to purchase the Assets and close hereunder shall
be subject to the satisfaction of the following conditions:
a. Buyer and its agents and representatives shall have access
to the records, personnel, and real property of the Seller in a manner and at
such times as the parties shall agree, and in such a way as not to interfere
with the Business and operations of Seller. Each and every person associated
with or acting on behalf of Buyer shall be subject to the existing
Confidentiality Agreement executed by Buyer and incorporated herein as Exhibit
"J".
b. Buyer shall have received from counsel for the Seller, a
favorable opinion dated as of Closing, in form and substance satisfactory to
Buyer and its counsel, to the effect that, to the best of his or their
knowledge, and without special investigation:
(i) The Company is a duly organized and validly existing
corporation in good standing under the laws of the State of
Pennsylvania;
(ii) The Company has the corporate power to carry on its
business as and where such business is now being conducted;
(iii) No provision of the Articles of Incorporation or bylaws
of the Company or, to the best of Seller's knowledge, no provision of
any contract, agreement, or other instrument to which it is a party
prevents Seller from delivering good title to the Assets to Buyer in the
manner contemplated hereby or otherwise prohibit or would be breached by
the consummation of the transactions contemplated herein;
(iv) The Company and John B. Swayne, III, have full power,
legal right and authority to enter into, execute and deliver this
Agreement and to consummate the transactions contemplated herein or have
made adequate arrangements for the proper execution of documents by
others to give full effect to this Agreement; and this Agreement has
been duly executed and delivered by the Company and John B. Swayne, III,
and is a valid and legally binding obligation of each of them,
enforceable in accordance with its terms, except as its validity and
enforceability may be limited by bankruptcy, insolvency, or similar laws
of general application affecting the enforcement of creditors' rights
generally; and
(v) Seller's counsel has no knowledge of any litigation,
proceeding, or governmental investigation (whether state or federal) or
labor dispute or labor trouble pending or threatened against or relating
to Seller or its properties, Assets or Business.
c. No action or proceeding shall have been instituted before
any court, agency or other governmental body to restrain or prohibit the
transactions contemplated hereby.
d. The representations and warranties of Seller contained in
this Agreement shall be true and correct in all respects as of Closing, with the
same effect as though such representations
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and warranties had been made on such date. All of the covenants and agreements
of Seller to be performed on or before Closing pursuant to the terms hereof,
shall have been duly performed.
e. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Buyer and its counsel,
and Buyer shall have received copies of all of such documents and other evidence
as Buyer and its counsel may reasonably request in order to establish the
consummation of such transactions.
f. There shall have been no material adverse change or damage
to the premises, the Assets or the Business of Seller.
g. Seller shall have delivered to Buyer the executed
Noncompete Agreement in the form attached hereto as Exhibit "I".
h. Closing on the Principal Real Property agreement set forth
in Exhibit "C" shall occur contemporaneously with this Closing.
10. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants the following to be true on the date of this Agreement
and at Closing, and, except where specifically noted, such representations and
warranties shall survive for a period of two (2) years following Closing:
a. John B. Swayne, III, is the sole shareholder of the
Company.
b. Seller owns (and/or will be able to convey) the Assets free
and clear of all claims, liens, mortgages, security interests, encumbrances and
demands of any nature, except such liens or encumbrances as are disclosed on
Schedule 10(b). Except for the Secondary Real Property, no other material real
or personal property is used directly in the Business.
c. No condemnation proceedings are proposed or pending, to
Seller's best knowledge, so as to threaten or affect the real property.
d. All equipment leases are in full force and effect and there
is no breach or default nor has there been any occurrence or event which with
notice or the lapse of time or both will become a breach or default under any
such leases by Seller and Seller covenants not to allow any breach or default to
occur prior to Closing. All leases are assignable by Seller to Buyer without
consent.
e. J. B. Swayne Spawn Company is a corporation duly existing,
qualified and in good standing under the laws of the State of Pennsylvania and
is and shall be duly empowered to execute this Agreement and to do any and all
things required or desirable for consummation of all transactions contemplated
hereby. Seller has full corporate power and authority to own or lease its
properties or carry on its business as such properties are now and have been
owned or leased in such businesses now being and having been conducted.
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f. The execution and performance of this Agreement and the
documents necessary to close have been and will be duly authorized by all
requisite corporate proceedings by Seller, including the approval of the
Company's board of directors and stockholders and, when so delivered, constitute
a legal and binding obligation.
g. Execution and delivery of this Agreement and consummation
of the transactions contemplated hereby do not conflict with or result in a
breach of any of the terms, provisions, or conditions of the Company's
Certificate of Incorporation, bylaws, or any statute, regulation or court or
administrative order or process applicable or any agreement, lease or other
agreement or instrument to which Seller is a party, or by which it is bound; nor
does execution of this Agreement and consummation of the transactions
contemplated hereby constitute a default thereunder.
h. All approvals or orders necessary, reasonable and helpful
for the authorization, execution and delivery of this Agreement and related
documents by Seller and/or the consummation by Seller of the transactions
contemplated hereby and thereby have been or will be obtained by Seller prior to
Closing and true, correct and complete copies of each furnished to Buyer,
including without limitation all consents required or advisable in connection
with the assignment or transfer of any contracts to Buyer by Seller.
i. The Assets shall be operated and maintained in accordance
with Seller's normal operating standards until Closing, except for reasonable
wear and tear incurred in the normal course of the Business.
j. Seller shall not sell, dispose of, transfer or encumber any
of the Assets after the execution of this Agreement except in the regular course
of the Business.
k. Seller holds all necessary licenses and permits to operate
the Business and all such licenses and permits are listed on Schedule 10(k).
l. The Company has furnished or will furnish to Buyer its
financial statements for the years ended 1997 and 1998, and its financial
statements for the period ended March 31, 1999. Such financial statements will
be correct in all material respects and will have been prepared in accordance
with the books and records of the Company (which books and records properly and
accurately reflect the transactions and activities of the Company). There are no
liabilities of the Company, contingent or otherwise, which are not disclosed by
or reflected fully in such financial statements and disclosed in a schedule
provided to Seller by Buyer.
m. Since the date of its most recent financial statement
referred to in paragraph l, above, except as disclosed in this Agreement, Seller
has not:
(i) Entered into any transaction out of the ordinary course
of business;
(ii) Had any change in its financial condition, assets,
business or customer list, other than changes in the ordinary course of
business, none of which changes have been materially adverse;
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(iii) Suffered any fire, riot, explosion, earthquake,
windstorm, strike or other labor trouble, lockout, flood, act of God or
of the public enemy, casualty, condemnation, confiscation, requisition,
embargo, activity of the Armed Forces of the United States, revocation
of license or right to do business, cancellation or modification of
contracts by governmental authority, government regulation or order
restricting the operation of its business, cancellation or modification
of any franchise, right, contract, license or agreement or any other
event which has materially and adversely affected its business,
operations, properties or assets;
(iv) Had any material change in the accounting principles and
practices heretofore followed by the Company; or
(v) Entered into any sale or transfer of any of the Assets
or any disposition of any of its intangible assets.
n. All accounts receivable reflected on the Balance Sheet are,
and all accounts and notes receivable subsequently accruing to Closing will be:
(i) Valid, genuine and subsisting;
(ii) Subject to no known defenses, setoffs or counterclaims;
(iii) Current and collectible;
(iv) Due and payable in full on or before sixty (60) days of
Closing; and
(v) Fully collectible within one hundred and twenty (120)
days after Closing.
o. Except as set forth in Schedule 10(o), all federal, state,
local and foreign tax and information returns required to be filed by or on
behalf of Seller have been timely filed or requests for extensions have been
timely filed, granted and have not expired. All taxes shown on filed returns
have been paid. There is no audit examination, deficiency, refund, litigation or
matter in controversy with respect to which an adjustment to any tax item has
been asserted or proposed. All taxes, interest, additions and penalties which
are material in amount and which are due with respect to periods prior to
Closing have been paid or adequately reserved for. Seller has not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any tax due that is currently in effect. The representation in
this paragraph 10(o) shall survive Closing for a period of six (6) years.
p. No purchase commitment for materials, supplies, component
parts or other items of inventory to which Seller is a party, is in excess of
normal, ordinary, usual and current requirements of its business or at a price
in excess of the current reasonable market price.
q. To the best of Seller's knowledge, each of the contracts
and agreements to which Seller is a party is a valid and binding obligation of
the parties thereto in accordance with its
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terms and conditions. To the best of Seller's knowledge, no party to any such
contract or agreement is in default with respect to any term or condition
thereof, nor has any event occurred which, through the passage of time or the
giving of notice, or both, would constitute a default thereunder or would cause
the acceleration of any obligation of any party thereto or the creation of a
lien or encumbrance upon any asset of Seller being transferred hereunder.
r. Set forth on Schedule 10(r) is a list of all assigned
contracts, agreements, insurance agreements and understandings requiring
payments in excess of $5,000 per year. Other than these, there are no
agreements, contracts, commitments or instruments which are material to or
binding upon the Business or to which the Assets are subject.
s. All intellectual property owned, used or licensed by Seller
is free and clear of liens, claims, security interests and restrictions. No
intellectual property owned, used or licensed by Seller infringes any rights
owned or held by any other person. No person or entity is infringing the rights
of Seller to any intellectual property. No product or service sold by Seller
violates or infringes any intellectual property right owned or held by any other
person or entity.
t. To the best of Seller's knowledge, Seller is not in
violation of nor has it received a notice of any violation or potential
violation of any applicable law, ordinance or regulation regarding the
protection of the environment and, to Seller's best knowledge, no basis exists
for any claim of any such violation by Seller, Buyer or in connection with the
Assets. Except as disclosed on Schedule 10(t), there has been no release of
hazardous material in, on, under or affecting any such property during the
period of Seller's ownership, leasing, or operation. Prior to the period of
Seller's ownership, leasing or operation of any of Seller's properties, to the
knowledge of Seller, there was no release of hazardous material in, on, under or
affecting any such property. The representations in this paragraph 10(t) shall
survive Closing for a period of three (3) years.
u. Except as set forth on Schedule 10(u) Seller is not a party
to or bound by any employment agreement or any collective bargaining or other
labor agreement or any pension, stock option, stock purchase, savings, profit
sharing, deferred compensation, retainer, consultant, bonus, group insurance or
other incentive or welfare contract, plan or arrangement relating to the
Business. Seller has (and upon consummation of the transactions contemplated by
this Agreement will have) no liability with respect to the applicable provisions
of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"),
any other similar federal or state statute or under the plans to the Pension
Benefit Guarantee Corporation. Seller has complied in all material respects with
the reporting and disclosure requirements of ERISA. Except as disclosed on
Schedule 10(u), Seller is not in violation of any rules and regulations of the
U.S. Immigration and Naturalization Service.
v. Seller maintains policies of insurance with coverages and
limits customary in its business and has not received any notice of default
under or cancellation of any such policies and has paid or financed all premiums
due thereon with respect to the business represented by the Assets covering all
periods up to and including Closing.
w. There is no suit, claim, action, or proceedings now pending
or threatened before any court, administrative or regulatory body or any
governmental agency, nor is Seller aware of any grounds therefor, to which
Seller is a party or which may result in any judgment, order,
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decree, liability or other determination that will or could have any material
adverse effect upon the Business or conditions, financial or otherwise, of
Seller. No such judgment, order or decree has been entered against Seller nor
any such liability incurred that has, or could have, such effect. There is no
claim, action or proceeding now pending or threatened before any court,
administrative or regulatory body or any governmental agency, that will or could
prevent or hamper the consummation of the transactions contemplated by this
Agreement.
x. On information and belief, no representation or warranty by
Seller, or in any certificate, exhibit, schedule, or other document furnished or
to be furnished by Seller pursuant thereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained therein not misleading.
11. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer makes the
following representations and warranties to Seller as an inducement to enter
into and consummate this Agreement as contemplated herein:
a. Buyer is a corporation duly existing, qualified and in good
standing under the laws of the State of Pennsylvania and is and shall be duly
empowered to execute this Agreement and to do any and all things required or
desirable for consummation of all transactions contemplated thereby.
b. The execution and performance of this Agreement and the
documents necessary to close have been and will be duly authorized by all
requisite corporate proceedings by Buyer, including the approval of Buyer's
board of directors and shareholders and, when so delivered, constitute a legal
and binding obligation. Buyer is not bound by or subject to any contractual or
other obligation that would be violated by Buyer's execution or performance of
this Agreement.
c. Execution and delivery of this Agreement and consummation
of the transactions contemplated hereby do not conflict with or result in a
breach of any of the terms, provisions or conditions of Buyer's Certificate of
Incorporation, bylaws or any statute, regulation or court or administrative
order or process applicable or any agreement, lease or other agreement or
instrument to which Buyer is a party, or by which it is bound, nor does
execution of this Agreement and consummation of the transactions contemplated
hereby constitute a default thereunder.
d. Buyer has entered into no contract that will interfere with
Buyer's ability to consummate this transaction as contemplated herein.
e. There is no litigation, proceeding, or governmental
investigation pending or, so far as is known to Buyer, threatened, against or
relating to Buyer or Buyer's business or the transactions contemplated by this
Agreement, nor is there any basis known to Buyer for such action.
f. No representation or warranty by Buyer in this Agreement or
any statement or certificate furnished or to be furnished to Seller pursuant
hereto or in connection with the transactions contemplated hereby contains or
will contain any untrue statement of material fact or omits or will omit any
material fact.
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12. REPRESENTATIONS TO SURVIVE CLOSING. All of the
representations and warranties contained herein (including all statements
contained in any exhibit or certificate or other instrument delivered by or on
behalf of Seller or Buyer pursuant to this Agreement or in connection with the
transactions contemplated by it) are a material part of the consideration for
the sale of the Assets and the inducement for Buyer to buy the Assets and Seller
to sell the Assets. For the purposes of each representation and warranty
contained herein, Seller and Buyer are materially relying upon the
representations of each other.
13. INDEMNITY.
a. Seller agrees to indemnify and hold harmless Buyer, Buyer's
affiliates and their respective officers, directors, shareholders, agents and
employees, and each person, if any, who controls or may control Buyer within the
meaning of the Securities Act of 1933, as amended, from and against all claims,
liabilities, losses, costs, damages and expenses arising out of or sustained by
Buyer by reason of:
(i) Any material breach of any representation, warranty or
covenant of Seller contained herein or in any agreement, certificate,
document, schedule or exhibit relating to or delivered pursuant hereto;
(ii) Any inaccurate representation made by Seller in or under
this Agreement;
(iii) Breach of any of the warranties made by Seller in or
under this Agreement;
(iv) Breach or default in the performance by Seller of any of
the covenants to be performed under this Agreement; or
(v) Any debts, liabilities or obligations of Seller whether
accrued, absolute, contingent or otherwise, except for those matters
with respect to which Buyer has expressly agreed to become liable
pursuant to Paragraph 7 hereof.
b. Buyer shall indemnify, defend, and hold Seller harmless
from any and all claims, debts, demands, judgments, actions, or causes of action
asserted against Seller, which arise from any event or occurrence subsequent to
Closing and/or which relate to Buyer's operation of the Business after Closing.
14. LIMITATIONS ON INDEMNIFICATION.
a. Seller's obligation to indemnify Buyer hereunder shall be
applicable only after and to the extent that the aggregate amount of all damages
asserted by Buyer under indemnifiable claims exceeds $25,000.
b. Buyer's obligation to indemnify Seller hereunder shall be
applicable only after and to the extent that the aggregate amount of all damages
asserted by Seller under indemnifiable claims exceeds $25,000.
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c. The amount of any payment or reimbursement of damages by an
indemnifying party shall be net of:
(i) A reasonable estimate of the present value of any tax
benefits realized or reasonably expected to be realized by the
indemnified party by reason of the facts and circumstances giving rise
to the indemnifying party's liability (after taking into consideration
the tax effect of the receipt by the indemnified party of the
indemnification payment); and
(ii) Any insurance proceeds received by the indemnified party
in connection with the facts giving rise to the right of
indemnification. The parties agree to use their best efforts to make
claims on and pursue recovery with respect to all insurance on account
of such matters.
15. OPERATION PENDING CLOSING. During the period from the date
hereof to Closing:
a. Seller shall:
(i) Conduct the Business according to the ordinary and usual
course and use Seller's best efforts to maintain and preserve the
organization of the Business, its employees and relationships with
suppliers, customers and others; and
(ii) Inform Buyer in writing from time to time of the
development of any material matters relating to the Business, including,
without limitation, any adverse changes in the results of operation or
financial position of the Business or any litigation, proceeding or
government investigation instituted or threatened against Seller
relating to the Business or the occurrence of any factor that might give
rise to any litigation, proceeding or investigation as aforesaid.
b. Seller shall not, without the prior written consent of
Buyer:
(i) Mortgage, pledge or subject any of the Assets to liens,
security interests or other obligations or encumbrance;
(ii) Sell or otherwise transfer any of the Assets other than
the sale of inventory in the ordinary course;
(iii) Enter into any contract or agreement relating to the
Business not in the usual ordinary course or terminate or make any
material change in any contracts or agreements relating to the Business;
or
(iv) Increase or agree to increase in any manner the
compensation of any of the employees of the Business or commit the
Business to any pension, retirement or profit sharing plan or agreement
or employment agreement with or for the benefit of any employee or other
person.
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c. Seller shall afford to Buyer and its counsel, auditors, and
authorized representatives full access to all personnel, properties, records and
documents of the Business and shall furnish such financial and other information
with respect to the Business, its personnel and property as Buyer may reasonably
require, except that such access shall not be disruptive to Seller's normal
Business operation.
d. Except as otherwise provided in this Agreement, all
revenues, profits, losses and liabilities resulting from the ownership or
operation of the Business and the Assets before Closing shall accrue to and be
the responsibility of Seller. All revenues, profit, losses and liabilities
resulting from the ownership or operation of the Assets after Closing shall
accrue to and be the responsibility of Buyer. Seller shall keep the Assets
adequately insured against fire and casualty until Closing. Buyer shall show
continuing evidence that the Assets are adequately insured against fire and
casualty after Closing until all obligations to Seller have been satisfied.
Prior to Closing, all risk of loss shall be borne by Seller; after Closing, all
risk of loss shall be borne by Buyer.
e. Seller will cause all property owned or leased by it to be
insured against all ordinary and insurable risks and will operate, maintain and
repair all its property in a careful, prudent and efficient manner.
f. Each party to this Agreement hereby covenants and agrees to
furnish all information and to make all filings required by any statute or
governmental regulation.
16. EXPENSES.
a. Buyer shall pay for any intangible tax on notes, mortgages
or security agreements. John B. Swayne, III, and Buyer shall each pay one-half
of any realty transfer tax. Sales taxes shall be paid and collected as provided
by law and any real estate taxes shall be proportioned on the taxing authority's
fiscal year.
b. Notwithstanding the above, each of the parties to this
Agreement shall pay its own expenses in connection with this Agreement and the
transactions contemplated thereby, including the fees and expenses of counsel,
certified public accountants or other professionals.
17. CONFLICT. Closing of this transaction and the transfer of
the Assets of the Business are contingent upon the simultaneous Closing on the
real property owned by John B. Swayne, III, in accordance with the sale
agreement attached as Exhibit "C", together with the execution of title transfer
documents for the autoclave owned by Swayne. Closing of said sale agreement is
also contingent upon the Closing of this transaction.
18. PAYMENT OF PURCHASE PRICE AND SUBSEQUENT SALE.
a. Buyer will furnish all of the funds for the transactions
contemplated herein and the Purchase Price (other than funds supplied by
institutional lenders) and such funds will not be from sources that are
described in 18 U.S.C. sections 1956 and 1957 as funds or property derived from
"specified unlawful activity" and Buyer agrees to execute and deliver to Seller
a Certificate of
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Corporate Entity Structure and Ownership, attached to this Agreement as Exhibit
"K", at Closing, if requested by Seller.
b. Buyer has no agreement, either written or oral, to sell,
transfer or convey the Assets, or any interest therein (other than liens or
security interests that may be granted pursuant to Buyer's borrowing
arrangements), to any third party within the twelve-month period following
Closing and Buyer has no present intent to immediately offer the Assets for sale
after Closing.
19. TERMINATION. This Agreement may be terminated at any time
prior to Closing by:
a. Mutual consent of Buyer and Seller; or
b. Buyer if any of the conditions of Seller's obligation to
close have not been met at or before the Closing and have not been waived by
Buyer.
In the event of a termination of this Agreement pursuant to
the provisions of this paragraph, all escrows and other deposits by Buyer shall
be immediately returned to Buyer and this Agreement shall become void and have
no effect, subject only to any post-termination obligations with respect to
confidentiality or the return of information or documents; provided, however,
that if any party hereto willfully fails to perform its obligations herein, any
other party may seek any available legal or equitable remedies in addition to
those provided herein.
20. DEFAULT. If Buyer breaches or otherwise fails to perform
under this Agreement, Seller may demand and receive from the Escrow Agents all
monies paid on account, and Seller may exercise any right it has including, but
not limited to, bringing an action for specific performance, damages or other
relief.
If Seller breaches this Agreement, Buyer's remedy shall be
the return of the escrow deposit, the reimbursement of any out-of-pocket
expenses from the date of the Agreement until the date of such breach and, in
addition, Buyer may exercise any other right it has including, but not limited
to, bringing an action for specific performance, damages or other relief.
21. NOTICE. Notice required or permitted hereunder shall be in
writing and shall be delivered by hand or deposited in the United States mail
addressed to Company, J.B. SWAYNE SPAWN COMPANY, INC., at 652 West South Street,
PO Box 618, Kennett Square, PA 19348, with a copy to Lawrence M. O'Donnell,
Esquire, at 171 West Lancaster Avenue, Paoli, PA 19301; and to Buyer,
WORTHINGTON HOLDINGS, INC., at 333 Main Street, PO Box 249, Saxonburg, PA 16056.
22. ASSIGNMENT. Except with the express written consent of the
other party hereto, this Agreement shall not be assignable or otherwise
transferred in whole or in part. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective successors and assigns.
Notwithstanding the foregoing, Buyer shall have the right to have the real
property described in Exhibit "A" and the other assets acquired hereunder
conveyed to a related third person or entity; provided, however, that any
assignment shall not discharge assignor's liability or
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obligation to any other party to this Agreement, and all assignees must
specifically acknowledge that said assignees shall assume all obligations and
liabilities of this Agreement. If Seller consents to an assignment of this
Agreement, or any interest therein, an express condition of that assignment
shall be that the assignee must execute the Certificate of Entity Structure and
Ownership.
23. BROKERAGE. Seller and Buyer represent that there is no
broker or agent involved in effecting this transaction. Seller and Buyer hereby
agree to indemnify and hold each other harmless for any liability or claim for
the payment of any commission, including interest and attorneys' fees, arising
from the conduct of the other party. These representations are made as part of
the consideration of this transaction. This paragraph shall survive the passage
of title and delivery of the deed and other documents of conveyance.
24. HEADINGS. All headings used herein are for convenience and
reference only and shall not be deemed to have any substantive effect.
25. ENTIRE AGREEMENT. This Agreement, along with the Purchase
and Sale Agreement executed by the parties contemporaneously herewith and the
exhibits and documents delivered pursuant hereto, constitute the entire contract
between the parties hereto, pertaining to the subject matter hereof and
supersede all prior and contemporaneous agreements, understandings, negotiations
and discussions, whether written or oral, of the parties; and there are no
representations, warranties or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein or therein. No supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the parties to be bound thereby. A
breach of this Agreement shall be deemed to be a breach of the sale agreement
executed contemporaneously herewith and vice versa.
26. FURTHER INSTRUMENTS AND ACTIONS. Each party shall deliver
any further instruments and take any further action that may be reasonably
requested by the other in order to carry out the provisions and purposes of this
Agreement.
27. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Pennsylvania.
28. SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall
deliver to Buyer the following documents:
a. Executed deeds, assignments, consents, bills of sale,
certificates of title, and other documents or instruments of transfer and which
shall contain full warranties of title as shall be effective to vest in Buyer
all of Seller's right, title and interest in and to all of the Assets being
conveyed hereunder, free and clear of all liens, charges, encumbrances and
restrictions;
b. All contracts, files, commitments and rights pertaining to
the Business and other data relating to its operations;
c. Certificate of Good Standing for the Company;
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d. Resolution of the Board of Directors of the Company, along
with a Certificate of Incumbency of Directors and Officers, authorizing
execution, delivery and performance of this Agreement and all documents required
for Closing;
e. Certified copy of Minutes of Shareholders' meetings of the
Company authorizing the entry and completion of all transactions hereunder;
f. Transfer of all permits, licenses and use rights of the
Business;
g. Closing Statement; and
h. Opinion of Seller's counsel.
29. BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall
deliver to Seller:
a. Payment of the sums due pursuant to this Agreement;
b. Certificate of Good Standing for Worthington Holdings,
Inc.;
c. Resolution of Board of Directors of Buyer, along with a
Certificate of Incumbency of Directors and Officers, authorizing execution,
delivery and performance of this Agreement and all documents required for
Closing;
d. Certified copy of Minutes of Shareholders' meeting of Buyer
authorizing the entry and completion of all transactions hereunder;
e. Execution of all agreements executed by Seller that require
Buyer's agreement and execution;
f. Execution of security documents;
g. Closing statement; and
h. Any other documents, drafts, etc., required to give effect
to the transaction.
30. PRE-CLOSING OBLIGATIONS. At least ten (10) days prior to
Closing, the parties will arrange for the obtaining of any clearances or notices
to the Pennsylvania Department of Revenue, Pennsylvania Department of Labor and
Industry or other required notices.
31. NON-MARKETING AGREEMENT. During the pendency of this
Agreement and until such time as the Agreement is terminated by Closing or by
mutual abandonment or by reason of failure of a condition or by reason of a
breach by Buyer, no person acting on behalf of the Company or John B. Swayne,
III, shall offer the shares, Assets or Business for sale or for negotiations
regarding a sale to or with any person other than an affiliate of Buyer.
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32. NO PUBLICITY AGREEMENT. During the pendency of this
Agreement, neither party, without the permission of the other, shall release any
publicity or make any announcement with respect to the transaction contemplated
herein, and each party shall use its best efforts to keep information and
knowledge about the transaction limited only to those with the need to know.
IN WITNESS WHEREOF, and intending to be legally bound, the
undersigned have executed this Agreement as of the date first written above.
ATTEST: SELLER:
J.B. SWAYNE SPAWN COMPANY
/s/ John B. Swayne, III By: /s/ John B. Swayne, III
- ---------------------------------- -------------------------------
Secretary President
WITNESS: JOHN B. SWAYNE, III
/s/ Lawrence M. O'Donnell /s/ John B. Swayne, III
- ---------------------------------- ----------------------------------
ATTEST: BUYER:
WORTHINGTON HOLDINGS, INC.
/s/ Fred Y. Bennitt By: /s/ Donald A. Smith
- ---------------------------------- ------------------------------
Secretary
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Exhibit 10.4.2
INDEX OF EXHIBITS TO ASSET PURCHASE AGREEMENT
BY, BETWEEN AND AMONG J B SWAYNE SPAWN COMPANY, JOHN B. SWAYNE, III, AND
WORTHINGTON HOLDINGS, INC.
1. Agreement for the Sale of Commercial Real Estate, dated as of November 29,
1999, between John B. Swayne, III, J B Swayne Spawn Company and Worthington
Holdings, Inc., with respect to the Principal Real Property
2. Lease Agreement between John B. Swayne, III and Worthington Holdings, Inc.
with respect to the Secondary Real Property
3. Bill of Sale and Assignment, dated November 30, 1999, between and among
J B Swayne Spawn Company, John B. Swayne, III, and Worthington Holdings,
Inc. with respect to the personal property referenced in the Agreement
4. Allocation of Purchase Price
5. Employment Agreement, dated as of November 13, 1999, by and between
Worthington Holdings, Inc. and John B. Swayne, III
6. Pledge Agreement, dated November 30, 1999, between Worthington Holdings,
Inc., J B Swayne Spawn Company and John B. Swayne, III
7. Certificate of Entity Structure and Ownership, dated November 29, 1999
8. Worthington Holdings, Inc. Secretary's Certificate as to Incumbency of
Directors and Officers, dated November 29, 1999
9. Non-Compete Agreement, dated November 30, 1999, between J B Swayne Spawn
Company and Worthington Holdings, Inc.
10. Worthington Holdings, Inc. Certified Resolutions of the Board of Directors,
executed as of November 23, 1999
11. Sylvan Foods, Inc. Consent of the Shareholder in Lieu of Meeting, dated as
of September 29, 1999
12. Opinion of Counsel for J B Swayne Spawn Company and John B. Swayne, III,
dated November 30, 1999
13. J B Swayne Spawn Company Secretary's Certificate of Incumbency and Board
of Directors Resolutions
14. Articles of Incorporation of Worthington Holdings, Inc.
15. Commitment for Title Insurance, effective August 15, 1999, with respect to
the Principal Real Property
16. Purchaser's Affidavit with respect to the title insurance coverage
referenced above, dated November 30, 1999
17. Settlement Statements with respect to the Principal Real Property, dated as
of November 30, 1999
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18. Deed, dated September 9, 1996, with respect to the Secondary Real Property
19. Phase I Environmental Assessment Report with respect to the Principal Real
Property, dated October 7, 1999
20. Mutual Confidentiality Agreement, dated May 13, 1999, by and between J B
Swayne Spawn Company, Inc. and Sylvan America, Inc.
21. Commonwealth of Pennsylvania Department of State subsistence certificate
with respect to Worthington Holdings, Inc., dated November 22, 1999
22. Uniform Commercial Code Form UCC-1 with respect to the personal property
and equipment conveyed by the Agreement
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Exhibit 10.5.1
AGREEMENT
THIS AGREEMENT, is made this 14th day of January, 2000, by and between C
And C Carriage Mushroom Co., t/a Modern Mushroom Sales Company ("Modern Sales"),
a Pennsylvania corporation, with its principal place of business located in
Avondale, Pennsylvania, and Quincy Corporation, t/a Quincy Farms ("Quincy"), a
Florida corporation and wholly-owned subsidiary of Sylvan Inc. ("Sylvan"), with
its principal place of business located in Quincy, Florida.
W I T N E S S E T H:
- - - - - - - - - -
Modern Sales is primarily engaged in the purchase, processing,
packaging, resale and transportation of mushrooms. Quincy is primarily engaged
in the growing and sale of mushrooms from its farm in Quincy, Florida ("Quincy
Farms"). As an adjunct to its mushroom-growing activities, Quincy has also
historically engaged in the processing, packaging, and sale of its mushroom
output from facilities located at Quincy Farms (the "Business"). Modern Sales
and Quincy have been engaged in discussions, over the last few months, pursuant
to which Modern Sales would establish a regional mushroom processing, packaging
and sales facility at Quincy Farms, and Quincy would divest to Modern Sales
specified mushroom processing and packaging assets and customers. These
discussions resulted in the execution of a non-binding letter of intent, on
October 13, 1999, which outlined the broad terms of the contemplated arrangement
between the parties (the "Letter of Intent"). Since the date of execution of the
Letter of Intent, the parties have continued to exchange information and proceed
with the planning of the proposed business arrangements contemplated by the
Letter of Intent. The purpose of this Agreement is to memorialize the definitive
terms of the proposed arrangement between the parties.
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NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Representations and Warranties of Modern Sales. Modern Sales hereby
represents and warrants to Quincy that:
(a) Corporate Organization and Authority. Modern Sales is a
corporation duly organized, validly existing and subsisting under the laws of
the Commonwealth of Pennsylvania, and has the requisite corporate power and
authority to own and use its assets and to carry on its business as it is now
being conducted. Modern Sales has the requisite power and authority to enter
into this Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement, by Modern Sales, will not contravene or violate, or constitute a
breach of the terms of, Modern Sales' Articles of Incorporation or Bylaws, or
any agreement to which it is a party.
(b) Binding Agreement. The execution and delivery by Modern Sales
of this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the part
of Modern Sales. This Agreement has been duly executed and delivered by Modern
Sales and is the legal, valid and binding agreement of Modern Sales, enforceable
against Modern Sales in accordance with its terms. The execution, delivery and
performance of this Agreement will not conflict with, result in a breach of, or
entitle any party to terminate or call a default with respect to, any contract,
instrument, judgment, order, decree, law, rule or regulation applicable to
Modern Sales or by which it is bound.
(c) Consents. No consent of any party to any contract or
arrangement to which Modern Sales is a party or by which it is bound or to which
Modern Sales is subject is required for the execution, consummation or
performance of this Agreement. To the knowledge of Modern
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Sales, no authorization, approval, or consent of, and no registration or filing
with, any governmental or regulatory official, body, or authority is required in
connection with the execution, delivery or performance of this Agreement by
Modern Sales.
(d) Litigation. Except as disclosed on Schedule 1(d), there are no
actions, suits, proceedings, orders, investigations or claims pending or, to the
knowledge of Modern Sales, threatened, against or relating to Modern Sales, or
that would affect this Agreement, or, if adversely determined, could have a
material adverse effect on Modern Sales, at law or in equity, or before or by
any federal, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and to the knowledge of
Modern Sales, there is no reasonable basis for any of the foregoing.
(e) Compliance with Laws. To the knowledge of Modern Sales, it is
in compliance , in all material respects, with all existing requirements of
federal, state, local and other laws, regulations and ordinances, and all
existing requirements of all governmental bodies or agencies having jurisdiction
over it and relating to the operation of its business.
2. Representations and Warranties of Quincy. Quincy hereby represents
and warrants to Modern Sales that:
(a) Corporate Organization and Authority. Quincy is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida, and has the requisite corporate power and authority to own and
use its assets and to carry on its business as it is now being conducted. Quincy
has the requisite power and authority to enter into this Agreement, to perform
its obligations hereunder, and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement, by Quincy,
will not contravene or violate or constitute a breach of the terms of, Quincy's
Articles of Incorporation or Bylaws, or any agreement to which it is a party.
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(b) Binding Agreement. The execution and delivery by Quincy of this
Agreement. and the consummation by it of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of
Quincy. This Agreement has been duly executed and delivered by Quincy and is the
legal, valid and binding agreement of Quincy, enforceable against Quincy in
accordance with its terms. The execution, delivery and performance of this
Agreement will not conflict with, result in a breach of, or entitle any party to
terminate or call a default with respect to, any contract, instrument, judgment,
order, decree, law, rule or regulation applicable to Quincy or by which it is
bound.
(c) Consents. No consent of any party to any contract or
arrangement to which Quincy is a party or by which it is bound or to which
Quincy is subject is required for the execution, consummation or performance of
this Agreement. To the knowledge of Quincy, no authorization, approval, or
consent of, and no registration or filing with, any governmental or regulatory
official, body, or authority is required in connection with the execution,
delivery or performance of this Agreement by Quincy.
(d) Litigation. Except as disclosed on Schedule 2(d), there are no
actions, suits, proceedings, orders, investigations or claims pending or, to the
knowledge of Quincy, threatened, against or relating to Quincy, or that would
affect this Agreement, or, if adversely determined, could have a material
adverse effect on Quincy, at law or in equity, or before or by any federal,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, and to the knowledge of Quincy, there
is no reasonable basis for any of the foregoing.
(e) Compliance with Laws. To the knowledge of Quincy, it is in
compliance,
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in all material respects, with all existing requirements of federal, state,
local and other laws, regulations and ordinances, and all existing requirements
of all governmental bodies or agencies having jurisdiction over it and relating
to the operation of its business.
(f) Assets. Quincy is the owner of, and has good and marketable
title to all of the specified Assets (hereinafter defined). The Assets will be
conveyed by Quincy to Modern Sales on the Closing Date, free and clear of any
and all liens, charges, pledges, mortgages, security interests or other
encumbrances, of any kind, except for liens and encumbrances in favor of
Quincy's bank, which will be terminated immediately prior to Closing. The Assets
are in operating condition and working order, reasonable wear and tear excepted.
To the knowledge of Quincy, the Assets are free from material defects and
damage, are functioning in the manner and are usable for the purposes intended,
and conform with all applicable government and trade standards and requirements.
The Production Equipment (hereinafter defined) includes tangible personal
property now being used by Quincy to process, pack and/or handle mushrooms at
Quincy Farms.
(g) Customers. To the knowledge of Quincy, Quincy's current
relationships with its Customers (hereinafter defined) is good, and there has
been no indication of any intention, on the part of any such Customers, to
terminate or modify, in a manner adverse to Quincy, any of such relationships.
Except as disclosed on Schedule 2(g) attached hereto, Quincy does not have
knowledge of any Customer which has notified or advised Quincy of its intention
to terminate, reduce or change its business with Quincy, whether as a result of
this Agreement or otherwise, and to the knowledge of Quincy, no material adverse
change in relations with Customers will occur as a result of the announcement or
consummation of the transactions contemplated by this Agreement. The Business
has approximately fifty (50) active Customer (hereinafter defined) accounts,
accounting for not less than $29 million dollars of annual sales in calender
years 1997 and 1998.
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(h) Trade Names, Trademarks, Etc. To the knowledge of Quincy, all
trade names, trademarks and service marks, both domestic and foreign, used or
held by Quincy for use in connection with the sale of mushrooms, as hereinafter
more specifically described (the "Marks"), do not infringe upon the corporate
names, trade names, trademarks, service marks, business styles or other
proprietary rights or property of any other party, no other party is infringing
upon the Marks, and no such infringement has been alleged, either by or against
Quincy. Quincy has not licensed any of the Marks to any third party.
(i) Employee Agreements and Plans. Except as disclosed on Schedule
2(i) attached hereto, Quincy does not have outstanding, and is not subject to,
any written employment agreements, restrictive covenant agreements or
confidentiality agreements, with any of its non-unionized, administrative,
supervisory, sales and clerical employees, who are involved in the Business and
identified on Schedule 2(i), who may be expected to be employed (directly or
indirectly) by Modern Sales after the Closing Date (hereinafter defined), or any
collective bargaining agreement or incentive compensation, deferred
compensation, profit sharing, savings, pension or other "fringe benefit" plan or
arrangement with or for the benefit of any current Quincy employees, which is
not subject to immediate cancellation by Quincy.
(j) Material Agreements. Schedule 2(j), which is attached hereto,
lists each material (i.e., over $25,000) mushroom sales agreement, if any, to
which Quincy is a party or by which it is bound which is scheduled to be
performed, in whole or in part, after the Closing Date.
(k) Financial Disclosures. Schedule 2(k) consists of financial
information which has been supplied by Quincy to Modern Sales regarding the
Business, specifically, information regarding income from sales of mushrooms by
Quincy, and direct expenses associated
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with the processing and packaging of mushrooms and sales thereof, for the period
January 1, 1996 through May 31, 1999 (the "Financial Disclosures"). The
Financial Disclosures are true, correct and complete in all material respects,
and fairly and accurately present, in all material respects, the revenues and
direct operating expenses of the Business for the periods covered thereby. Since
May 31, 1999, Quincy has operated the Business in the ordinary course and,
except as disclosed on Schedule 2(k), there have been no material and adverse
changes in the revenues or expenses associated with the Business. Except as
disclosed on Schedule 2(k), all sales reflected in the Financial Disclosure, and
all sales since May 31, 1999, were made to third party customers of Quincy.
Except as disclosed on Schedule 2(k) and except for normal competitive forces,
and general economic conditions, Quincy has no knowledge of any present
condition or contingency specifically related to the Business or the Assets
which it can reasonably expect to materially and adversely affect the Business.
The books and accounts and other corporate records of Quincy relating to the
Business and the Assets are true, correct and complete in all material respects,
and all sales, and other material transactions related to the Business, have
been recorded.
3. Disclaimer of Other Representations and Warranties.
(a) Except as provided in Paragraphs 1 and 2 hereof, no party to
this Agreement has requested or demanded any further representations or
warranties of the other, and no further representations or warranties,
whatsoever, expressed or implied, have been given by either party.
(b) The representations and warranties contained in Paragraphs 1
and 2 hereof shall be true and correct on and as of the Closing Date, with the
same force and effect as though such representations and warranties have been
made on and as of the Closing Date.
4. Establishment of the Modern Florida Facility.
(a) Modern Sales hereby agrees to establish a regional mushroom
processing,
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packing and sales operation at Quincy Farms (the "Modern Florida Facility"). The
Modern Florida Facility will replace, in its entirety, the existing mushroom
processing and packaging facility now being conducted by Quincy at Quincy Farms,
and will commence operations within one (1) business day of the Closing Date.
The parties understand and anticipate that Modern Sales expects to make changes
to the configuration of the production lines currently being operated by Quincy;
has ordered and purchased (in anticipation of properly equipping the Modern
Florida Facility), and expects to install, new processing and packaging
equipment; will re-deploy production personnel; and expects to institute
different proprietary mushroom handling and processing methods. Modern Sales
will use its best efforts, consistent with the plans described in the previous
sentence, to accomplish such changes as expeditiously as is practicable, so as
to minimize any adverse impact on Quincy or the Modern Florida Facility. After
the Closing and until such time as the business arrangement to be implemented by
this Agreement is terminated, Quincy covenants that it will not process, package
or sell mushrooms.
(b) At Closing, Modern Sales will enter into the form of property
lease, which is attached hereto as Schedule 4(b) (the "Lease"), by which Modern
Sales will lease from Quincy a defined portion of Quincy Farms for use by the
Modern Florida Facility (the "Modern Florida Facility Space"). The initial term
of the Lease will commence two (2) days after the execution thereof. All
leasehold improvements required to be made by Quincy to the Modern Florida
Facility Space under the Lease, and which are shown on Schedule 4(b) hereto,
shall be completed, in a workman-like fashion, by the Closing Date. Modern Sales
will have the option, and will be given access to the Modern Florida Facility
Space, to make leasehold improvements, at its expense, and to install new
processing and packaging equipment procured by it in advance of commencement of
the Lease. If Closing fails to occur, Quincy will give Modern Sales the
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opportunity to remove any such property owned by Modern Sales that is installed
or delivered to the Modern Florida Facility in advance of commencement of the
Lease. Any such removal shall be done so as to not damage or destroy Quincy's
property or to unreasonably disrupt Quincy's business.
(c) In the event that the business arrangement to be implemented by
this Agreement is terminated by a party, it is agreed that the Lease may be
simultaneously terminated, at the option of, and by, the party exercising its
right to terminate this Agreement.
5. Purchase of Quincy's Mushroom Processing and Sales Assets.
(a) Purchase and Sale of the Assets. At Closing (hereinafter
defined), Quincy shall sell and assign to Modern Sales, and Modern Sales shall
purchase and acquire from Quincy, free and clear of all liens, encumbrances and
charges of any kind, all assets (but not any assets which are rejected as
substandard by Modern Sales or which are expressly excluded by Paragraph 5(d))
owned by Quincy, of every kind and description, wherever located and whether or
not reflected upon Quincy's books and records, which are currently owned and
used by Quincy to handle, clean, grade, pack, market and/or sell mushrooms at
Quincy Farms (collectively, the "Assets") and which consist of the following:
(i) all tangible personal property, including all machinery,
equipment, devices, vehicles, forklifts, and other material handling
apparatuses, all as more fully described by item, quantity and location on
Schedule 5(a)(i) (collectively, the "Production Equipment"). The Production
Equipment shall include all spare parts, inventories, tools, supplies and
maintenance equipment related thereto, together with all assignable
manufacturer's warranties thereon;
(ii) all furniture, furnishings, computers and related
software, telephone and office equipment, all as more fully described by item,
quantity and location on Schedule 5(a)(ii) (collectively, the "Office
Equipment");
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(iii) all remaining inventories (on the Closing Date) of
consumable packaging materials, including plastic and cellophane shrink wrap,
containers, boxes, cartons, product labels, insulating cardboard and the like
("Inventories"), all as are more fully described by item, quantity and location
on Schedule 5(a)(iii), all of which Inventories meet applicable regulatory and
industry standards;
(iv) all right, title and interest in and to all supplier
agreements in respect of Quincy's mushroom processing and packaging operation
and all contracts, commitments and agreements to sell mushrooms after the
Closing Date, if any, described on Schedule 5(a)(iv) ("Contracts");
(v) all Customer (hereinafter defined) and trade deposits, if
any, described on Schedule 5(a)(v) ("Deposits");
(vi) all books and records and customer files and
correspondence relating to sales of fresh and canned mushrooms ("Books and
Records"), the customer list and the exclusive right to service all of Quincy's
past and present fresh and canned mushroom customers and prospects (all such
mushroom customers are listed on Schedule 5(a)(vi)) (collectively, the
"Customers"), and all records with respect to mushroom sales, mailing lists,
advertising and promotional materials, label artwork, personnel records and
mushroom sales telephone numbers. Quincy and Modern Sales mutually recognize
that certain of such Books and Records are co-mingled with books and records of
Quincy that do not relate to the Business, and cannot be readily separated out.
Accordingly, all such Books and Records (whether separable or co-mingled) will
be preserved, held and maintained by Quincy at Quincy Farms, for a minimum of
two years, and Modern Sales will be given reasonable access to all such Books
and Records, and will be provided
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with copies of such Books and Records upon reasonable notice. Should Quincy
determine to relocate or destroy (after two years) any such Books and Records,
it will first offer to transfer the same to Modern Sales at the Modern Florida
Facility. Any such Books and Records (particularly, Customer files and
correspondence) that relate solely to the Business and can be extracted from
Quincy Farms without undue effort will be moved to the Modern Florida Facility,
and Modern Sales will make such records available for review and copying by
Quincy or its accountants.
(b) Third Party Possession of Assets. If any Assets are in the
possession of a third party after Closing who is unwilling to release its
possession of the same, it shall be the responsibility of Quincy to provide
Modern Sales with possession of such Assets.
(c) Intellectual Property License. Effective as of the Closing,
Quincy grants to Modern Sales, and Modern Sales accepts, an exclusive, worldwide
license to use all trademarks, service marks and trade names (including all
variations thereof), which are owned and have been used by Quincy in connection
with the sale of mushrooms as identified on Schedule 5(c) attached hereto
("Marks"). During the term of such license, Quincy will make no use of the Marks
whatsoever in connection with mushroom or other agricultural products (provided,
however, that Quincy may indicate, in its marketing materials, that its spawn
and other growing products are used to produce mushrooms sold under the Marks),
and Quincy will take all steps reasonably necessary and bear all costs
reasonably required to preserve and maintain its ownership rights in the Marks.
In the event of the infringement of any Mark, Quincy agrees, at Modern Sales'
request and expense, to defend the infringed Mark. Modern Sales will pay to
Quincy an annual license fee of $1.00 in respect of the Marks, such fee to be
payable annually in December in respect of the succeeding calendar year. The
license fee in respect of calendar year 2000 (the "Initial Annual License Fee")
shall be payable at Closing. Upon the termination of Paragraph 7 of this
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Agreement, such license will also terminate provided, however, that any product
packed under any Mark prior to the date of such termination may continue to be
associated with such Mark after such termination.
(d) Excluded Assets. Apart from the Assets specifically described
in Paragraph 5(a) above, Modern Sales will not acquire title or rights to any
other assets belonging to Quincy including, specifically, production assets
currently used in Quincy's mushroom processing or sales operation which are held
by Quincy under lease, all of which leased assets are identified on Schedule
5(d) ("Leased Assets"), or cash (other than the Deposits) or accounts receivable
arising prior to Closing. In its sole discretion, Modern Sales may elect to
assume, by express assumption agreement at Closing, any assignable obligation
for any of the Leased Assets, provided that such liabilities accrue from and
after the Closing Date.
(e) Assumption of Certain Liabilities. On the Closing Date, Modern
Sales may elect to assume and fulfill, when due, all liabilities and obligations
of Quincy which are to be performed and which accrue, from and after the Closing
Date, under those Contracts designated by Modern Sales from the list set forth
on Schedule 5(a)(iv) attached hereto, and for such designated Leased Assets as
Modern Sales may elect to assume in its discretion.
(f) No Other Liabilities Assumed. Except for designated Contracts,
and any liabilities assumed in respect of designated Leased Assets, Quincy shall
remain solely responsible for the satisfaction of all of its liabilities,
whether absolute, known or unknown, liquidated or unliquidated, contingent or
otherwise, pending or threatened, and whether incurred before or after the
Closing Date. Quincy will satisfy all liabilities (other than taxes not yet
due), other than the Contracts and any liabilities to be assumed in respect of
Leased Assets, on the Closing Date, out of the Purchase Price.
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(g) Employees, Consultants and Agents. Except as otherwise
expressly set forth herein, Modern Sales has not undertaken and shall have no
obligation to employ or retain, in any capacity, any employees, consultants or
agents presently employed or engaged by Quincy.
6. Lease of Employees. Schedule 6.1 sets forth a true, correct and
complete list of the supervisory, production, sales and clerical employees
presently employed by Quincy in its mushroom processing and sales operation,
including their current rates of pay and benefits. All production employees, who
are (or will become) engaged in mushroom processing and packaging functions at
Quincy Farms (the "Production Employees"), are subject to a collective
bargaining agreement, dated July 20, 1999, with the United Farm Workers of
America, AFL-CIO (the "Collective Bargaining Agreement"), a true, correct and
complete copy of which is attached hereto as Schedule 6.2. Quincy hereby agrees
to retain, and not terminate, all Production Employees selected by Modern Sales
for employment and, commencing on the Closing Date, will lease all such
personnel (the "Leased Production Employees") to Modern Sales pursuant to the
terms of a form of labor resolution agreement which is attached hereto as
Schedule 6.3 (the "Labor Resolution Agreement"). The term of the Labor
Resolution Agreement shall commence two (2) days following the Closing Date and
shall continue through the end of the specified term of the Collective
Bargaining Agreement (the "Employee Leasing Term"). Modern Sales will not do any
act, or fail to take any action, which would cause a violation of the Collective
Bargaining Agreement.
7. Outputs Commitment for Quincy Farms Mushrooms.
(a) Purchase Commitment. Commencing two (2) days after the Closing
Date, Modern Sales agrees to purchase (or cause to be purchased by its
designated affiliate) from Quincy, and Quincy agrees to sell to Modern Sales (or
its designated affiliate), 100% of the
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merchantable output of fresh mushrooms, consisting of white and brown varieties
of agaricus mushrooms, and such other species of mushrooms as may be mutually
agreed to by the parties ("Fresh Product"), and 100% of the merchantable soup
output (i.e., mushrooms appropriately destined for canning) ("Canned Product"),
that are grown and produced at Quincy Farms (Fresh Product and Canned Product
are hereinafter collectively referred to as "Product") during the term of this
Agreement. Quincy will use its best efforts to produce at least twenty-five (25)
million pounds of Product annually at Quincy Farms (the "Annual Output Target"),
and will use its best efforts to do so in relatively stable weekly quantities,
without significant seasonal variation (that is, the expected weekly output will
approximate 1/52 of the projected Annual Output Target). Purchases of Canned
Product may be made by Modern Sales' affiliate, Dove Foods, Inc.
(b) Coordination. Quincy will use its best efforts, at all times
during the term of this Agreement, to grow quantities of mushrooms consistent
with the Annual Output Target. If Quincy's production falls below an average of
1.7 million pounds per month in any three consecutive calendar month period,
Quincy acknowledges that Modern Sales may seek other sources of fresh mushrooms,
and/or may suffer adverse operating expense results. Correspondingly, if
Quincy's production rises above an average of 2.6 million pounds per month in
any three consecutive calendar month period, Quincy acknowledges that excess
Fresh Product may need to be diverted to (lower paying) canned mushroom
customers, due to a lack of adequate fresh processing capacity. Modern Sales
agrees to use its best efforts to reasonably expand its processing capabilities
at the Modern Florida Facility to meet the gradually increasing mushroom
production output of Quincy Farms.
(c) Allocation of Purchases Between Fresh Product and Canned
Product. Modern Sales agrees to use its best efforts to sell the maximum
quantity of Product, in the best
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available grades, into the market for fresh mushrooms (it being understood that
Fresh Product will generally command higher prices than Canned Product). The
parties mutually agree that Modern Sales will finally determine, in its best
judgment, how to best allocate Product between fresh and canned customers, based
on market demand, and the quality and grade of available Product. The parties
mutually acknowledge that Fresh Product may, at times, be properly categorized
as Canned Product, and treated as soup output, due to market-demand forces, and
not due to quality issues. The parties mutually acknowledge that any loss of
Customers suffered by Modern Sales or any reduced purchases made by Customers,
after the Closing Date, could result in the short-term redirection of Fresh
Product from the fresh market to the canned market.
(d) Priority Given to Quincy's Product. Modern Sales agrees that it
will not "import" to the Modern Florida Facility product that will result in the
diversion of identical Fresh Product from the fresh market to the canned market
(i.e., it will use Product from Quincy Farms before it will substitute identical
product from elsewhere).
(e) Price and Terms.
(i) In consideration of its purchases of Product, Modern Sales
will pay Quincy in accordance with the prevailing price list in effect at the
time of delivery of Product (the "Price List"). The initial Price List, which
will govern purchases from the inception of this Agreement through December 1,
2000, is attached to this Agreement as Schedule 7(e)(i). The Price List will be
adjusted annually by the parties, effective as of December 1, commencing on
December 1, 2000. Adjustments to the Price List will be made based upon changes
to prevailing regional market prices for mushrooms (fresh and canned), and is
(and will be) based upon Quincy's belief that Customers are presently paying
(and will continue to pay) the average per pound price, net of advertising and
sales promotion allowances, for mushrooms, which price is
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indicated on Schedule 7(e)(i)(A) (the "Assumed Realized Price"). If the parties
are unable to come to agreement on any revised Price List, reflecting the
factors noted above, then such dispute will be submitted to binding arbitration
for resolution. Such arbitration will be conducted in accordance with the
procedures set forth on Schedule 7(e)(i)(B). Notwithstanding the determination
of prices set forth or to be set forth in the initial or any subsequent Price
List, the parties agree that Modern Sales will have the right to prospectively
(i.e., when the next Price List is put into effect) reduce Price List prices
payable to Quincy for mushrooms by an amount equal to 50% of the amount below
the Assumed Realized Price if it is determined that the average selling price
per pound of mushrooms to Customers has fallen below the Assumed Realized Price.
Correspondingly, Modern Sales will be obligated to increase Price List prices
payable to Quincy, prospectively (i.e., when the next Price List is put into
effect) by an amount equal to 50% of the amount above the Assumed Realized Price
if the average selling price per pound of mushrooms to Customers and to other
regional customers serviced by the Modern Florida Facility has risen above the
Assumed Realized Price if such increase comes about solely as a result of price
increases achieved throughout the industry in the regional markets serviced by
the Modern Florida Facility, or, if both parties agree that Quincy is employing
a new and/or unique technique or technology that clearly produces a superior
and/or unique mushroom product. The determination of the average per pound
selling price to Customers and to other regional customers serviced by the
Modern Florida Facility will be made on the basis of a fiscal year ending on
September 30 of each calendar year, for the Price List which would take effect
on the next occurring December 1, commencing December 1, 2000. Quincy will pay
all Mushroom Council assessments on Product, and expressly acknowledges that the
Price List (initial and as thereafter revised) assumes that Quincy will be
responsible for such assessments on Product.
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(ii) Modern Sales will pay Quincy for purchases of mushrooms on
a weekly basis, with Product delivered through Friday of any week to be paid
within 28 days of the end of such week.
(iii) Due to the substantial volume of mushroom purchases
projected to be made by Modern Sales from Quincy, Modern Sales has agreed to put
into and maintain in effect at all times during the term of this Agreement, a
credit enhancement arrangement to secure at least the dollar amount indicated on
Schedule 7(e)(iii)(A) (the "Credit Protection Target") for purchases of Product
from Quincy. In particular, Modern has secured a commitment for the issuance of
an irrevocable stand-by letter of credit in the face amount of the Credit
Protection Target, which instrument is expected to annually cost the amount
shown on Schedule 7(e)(iii)(A), and which cost will be borne by Quincy as long
as it desires to have such instrument in effect. In the alternative, the parties
have investigated the availability of credit insurance to protect Quincy's
accounts receivable from sales of Product to Modern Sales. Such insurance is
described on Schedule 7(e)(iii)(B). To the extent that Modern Sales arranges
such credit insurance on behalf of Quincy, which coverage is acceptable to
Quincy, Quincy will either pay the premiums directly, or will reimburse Modern
Sales for the premiums, for as long as Quincy desires to maintain such coverage.
In the event that there is a significant increase (i.e., in excess of 50%) in
the annual cost of such coverage over the cost of the initial coverage, due to
the insurability of Modern Sales, as opposed to general insurance market
factors, such increase in premium cost will be borne by Modern Sales. Modern
Sales will determine, prior to Closing, what credit enhancement arrangement it
will utilize. If it elects to provide credit insurance, and if the cost or
availability of such insurance becomes prohibitive (i.e., double the initial
cost, or more), then Modern Sales may, in its discretion, elect to switch to an
alternative credit enhancement instrument ("Credit
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Protection"). Modern Sales agrees to put Credit Protection into effect by
Closing.
(f) Synergy Payment.
(i) Modern Sales agrees to pay to Quincy, on account of its
purchases of Product, in addition to the applicable payments due under the
prevailing Price List for Product, and as additional compensation for such
purchases of Product, a quarterly synergy bonus determined by reference to this
Paragraph (the "Synergy Bonus") during the term of this Agreement. The parties
mutually expect that the Modern Florida Facility will process a substantially
higher volume of mushrooms than has been historically processed by Quincy at
Quincy Farms, and will do so on a more economical basis, particularly, by
spreading fixed overhead costs incurred by Modern Sales over a larger volume of
processed mushrooms. The parties further recognize and agree that a portion of
the overhead savings expected to be realized will be directly attributable to
the volume of Product to be put through the Modern Florida Facility.
(ii) For purposes of this paragraph, the term "Realized
Overhead Cost" is understood to mean the amount that results from combining all
expenses, of every kind, that will be incurred by Modern Sales at the Modern
Florida Facility and at any of its other facilities, in the processing of
mushrooms during a given Agreement Year, other than mushroom acquisition costs
and salaries and benefits paid to members of the Ciarrocchi family, and dividing
the resulting amount by the total number of pounds of mushrooms that are
processed by the Modern Sales in the same time period. The term "Agreement Year"
is understood to mean a specified calendar year (e.g., the first Agreement Year
is expected to commence on January 16 and to end on December 31, 2000; the
second Agreement Year is expected to run for all of calendar year 2001; etc.).
(iii) Based upon the Financial Disclosures, the parties have
mutually concluded that if their respective, pre-Agreement processing, packaging
and sales overhead costs
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<PAGE> 19
were combined, the hypothetical resulting overhead cost to process a pound of
mushrooms would have been as indicated on Schedule 7(f)(iii) (the "Overhead Cost
Benchmark"). To the extent that Modern Sales realizes savings or other economies
of scale that drive down the Realized Overhead Cost below the Overhead Cost
Benchmark during a given Agreement Year, then Modern Sales will pay to Quincy,
on account of Product acquired during such Agreement Year, a Synergy Bonus equal
to the excess (if any) of the Overhead Cost Benchmark over the Realized Overhead
Cost, multiplied by the total number of pounds of mushrooms processed during the
Agreement Year, with the resulting amount to be multiplied by a factor of 33%.
Such payment assumes that Quincy will use best efforts to provide Modern Sales
with at least twenty-five (25) million pounds of Product during the Agreement
Year (such number to be pro-rated if the Agreement Year consists of less than
twelve full months).
(iv) The Synergy Bonus, if any, payable to Quincy in respect of
an Agreement Year, will be paid in four equal quarterly installments, without
interest, with the first payment due forty-five days after the conclusion of the
subject Agreement Year, and with the first such installment due on February 16,
2001.
(v) The Quincy representative on the Advisory Board shall
receive from Modern Sales monthly data on the expenses that will be utilized to
determine the Realized Overhead Cost, and the parties will annually review the
cost savings to be used to calculate the Synergy Bonus. Reference is made to
Schedule 7(f)(v) for an illustration of the expense data to be used in the
calculation of the Synergy Bonus.
(vi) The parties acknowledge that it should be mutually
advantageous to fold, into Modern Sales, other processors of mushrooms, in order
to endeavor to further reduce the Realized Overhead Cost. To the extent that any
such addition increases the Realized Overhead
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<PAGE> 20
Cost, such increase will not impact upon the Synergy Bonus otherwise payable to
Quincy but, for, the financial impact of such addition. To the extent that any
such addition further reduces the Realized Overhead Cost, Quincy will share in
such marginal savings, on the relative basis of the quantity of Product compared
to the overall quantity (inclusive of any such additions) of mushrooms processed
by Modern Sales. The decision to add additional mushroom processors to the
Modern Florida Facility or elsewhere shall be made solely by Modern Sales,
following consultation with Quincy in advance of such decision. Reference is
made to Schedule 7(f)(vi) for an illustration of how the parties expect to
calculate the Synergy Bonus if additional mushroom processors are folded into
Modern Sales.
(vii) If, in the first six (6) months of operation of the
Modern Florida Facility, the Realized Overhead Cost exceeds the Overhead Cost
Benchmark, such inefficiency shall be recovered by Modern Sales by credit, on a
dollar-for-dollar basis, against the first dollars that would thereafter be
subject to payment of a Synergy Bonus. Reference is made to Schedule 7(f)(vii)
for an illustration of such recovery.
(viii) The parties contemplate that Quincy, Sylvan or their
affiliates may desire to take advantage of other marketing opportunities (not
involving the processing or sales of mushrooms) through the Modern Florida
Facility or other facilities operated by Modern Sales, which may result in
further overhead expense savings to Modern Sales, and should Modern Sales desire
to pursue such opportunities, the parties undertake to make an appropriate
adjustment to the determination of the Synergy Bonus as a result thereof.
(g) Successors. Subject to Paragraph 14(d) hereof, Quincy covenants
and agrees that any sale of Quincy Farms will be expressly subject to the
outputs commitment set forth in this Paragraph 7, and Quincy agrees that it will
require any such purchaser to expressly assume such obligation as a condition of
any such sale.
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8. Closing; Purchase Price.
(a) Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Quincy at Quincy
Farms, Quincy, Florida, at 10:00 a.m. on January 14, 2000, or at such other time
and place as the parties may otherwise mutually agree (including the use of the
U.S. mails or Federal Express), not later than ten (10) business days after the
satisfaction and/or waiver by Modern Sales and/or Quincy of the conditions to
Closing set forth in Paragraphs 12 or 13 hereof (the "Closing Date"). If the
Closing shall not have occurred on or before January 14, 2000, due to the
failure of conditions set forth in Paragraphs 12 or 13 hereof, then the party
that would otherwise have the ability to not proceed to Closing by virtue of the
failure of conditions shall have the option to extend the Closing Date for up to
one (1) thirty (30) day extension period. If, after giving effect to any such
elected extension, the conditions to Closing shall not have been satisfied by
the Closing Date or the extended Closing Date, then this Agreement shall
automatically terminate and shall be null and void, and no party hereto shall
have any further rights, liabilities or obligations hereunder. Modern Sales and
Quincy will use their respective reasonable best efforts to cause the conditions
set forth in Paragraphs 12 and 13 to be satisfied.
(b) Amount of the Purchase Price. In consideration of the sale,
assignment and delivery by Quincy of the Assets, Modern Sales shall pay to
Quincy, and Quincy shall accept from Modern Sales, the fair market value of the
Assets, which the parties have determined is the sum of Two Hundred and Forty
Six Thousand Seven Hundred and Twenty Three Dollars ($246,723.00) for the
Production Equipment, the Office Equipment, Contracts, Deposits and Intangibles,
less the total amount of Deposits, per Schedule 5(a)(v); and the sum determined
by reference to the values
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assigned to the various classes of items which make up the Inventories, as set
forth on Schedule 5(a)(iv), as such Inventories shall exist on the Closing Date
(collectively, the "Purchase Price"). The cash portion of the Purchase Price
shall be paid in full at Closing, by wire transfer, or by certified or corporate
check.
(c) Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets as provided on Schedule 8(c) attached hereto. The
parties shall each report the income and other tax consequences of this purchase
and sale in accordance with such allocation, and shall cooperate with each other
in the filing of any and all tax returns required by the Internal Revenue
Service and any state or local taxing agencies or authorities in connection with
the foregoing allocation.
9. Covenants of Quincy. Quincy hereby covenants and agrees to and with
Modern Sales as follows:
(a) Interim Operation of Quincy's Mushroom Processing and Sales
Business. Between the date hereof and the Closing Date, Quincy will continue to
conduct the Business, in the ordinary course, consistent with past practice, and
will use its best efforts to preserve intact the Business, and to retain its
present employees and to preserve the goodwill of its Customers and others
having business relationships with the Business; will maintain the Assets in the
same condition and state of repair as exists on the date of this Agreement,
reasonable wear and tear excepted; will refrain from taking or omitting to take
any action that would result in a violation of Quincy's representations and
warranties contained herein or render them inaccurate on the Closing Date, and
will take all actions which may be necessary in order that said representations
and warranties shall be true and correct, in all material respects, on the
Closing Date. During such period, Quincy will not sell, encumber or dispose of
any of the Assets, except in the ordinary course
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of business and consistent with past practice. Quincy will, from the date hereof
to Closing, do or cause to be done all things necessary to maintain and
safeguard the Assets in a reasonable and proper manner. Quincy will also limit
purchases of Inventories to levels consistent with past practice and the
reasonably anticipated needs of the Business. The provisions of this Paragraph
9(a) are subject in all respects to Paragraph 14 hereof.
(b) Access. Between the date hereof and the Closing Date, Quincy
shall cooperate with and shall afford representatives and agents of Modern Sales
access, during normal business hours and on reasonable notice, to all of
Quincy's properties, books, contracts and records relating to the Business and,
during such period, Quincy shall promptly furnish to Modern Sales all
information concerning the Assets and the Business as Modern Sales may
reasonably request. In particular, Quincy will permit Modern Sales' operations
people to observe, inspect and view the processing functions, while in
operation, so long as Quincy's operations are not unduly disrupted. Such
investigation, if made, shall not affect or diminish the representations and
warranties of Quincy made in this Agreement or any of the obligations of Quincy
in this Agreement. Quincy shall disclose to Modern Sales, in writing prior to
Closing, any such representations and warranties it believes to be untrue or
incorrect.
(c) Insurance. Between the date hereof and the Closing Date, Quincy
shall maintain in full force and effect all insurance policies that are
currently in effect.
(d) Employees. Quincy will use its best efforts to cause such of
its non-unionized administrative, supervisory, sales and clerical employees
involved in the Business, as may be designated by Modern Sales, to become
employees of Modern Sales, effective on the Closing Date.
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<PAGE> 24
(e) Bulk Transfer Compliance. Quincy will comply with any Florida
tax or other state law provisions which may be triggered by the purchase and
sale of Assets contemplated by this Agreement, and shall fully, completely and
promptly indemnify Modern Sales for any and all taxes, charges, assessments,
penalties, interest or other fees that are levied against Modern Sales as a
result of any non-compliance by Quincy with such tax and other state law
provisions, it being understood that Modern Sales is not to become liable for
any pre-Closing obligations arising from the operation of the Business and which
are occasioned by reason of the transaction contemplated by this Agreement.
Modern Sales will cooperate and assist Quincy to comply with all such state law
requirements.
10. Deliveries to Modern Sales. On or prior to the Closing Date, Quincy
shall deliver or cause to be delivered to Modern Sales:
(a) Documents of Transfer. Such Bills of Sale, Assignments and
other documents as may be reasonably required to vest in Modern Sales good and
marketable title to the Assets, free and clear of all encumbrances, together
with possession of the Assets (or, at Modern Sales' option, the right to obtain
possession on demand), including a warranty as to title thereto.
(b) Corporate Certificates. Copies of resolutions of the Board of
Directors and (if required) the sole shareholder of Quincy (Quincy's counsel
will deliver its legal opinion to Modern Sales, at Closing, indicating that such
shareholder approval is not required under Florida law if Quincy fails to
deliver the approval of the sole shareholder of Quincy at Closing), certified by
the President of Quincy, authorizing and approving the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, and a
certificate of Quincy's President certifying that all obligations of Quincy and
all conditions to Closing contained in this Agreement have been complied with.
(c) Third Party Consents. All consents or approvals of third
parties and any
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<PAGE> 25
governmental or regulatory body required to permit the consummation of the
transactions contemplated hereby and necessary to permit Quincy to sell the
Assets and transfer the Contracts.
(d) Lease. The Lease in respect of the proposed Modern Florida
Facility Space, in the form of that attached hereto as Schedule 4(b), duly
executed by Quincy.
(e) Labor Resolution Agreement. The Labor Resolution Agreement, in
the form of that attached hereto as Schedule 6.3, duly executed by Quincy.
(f) Inventories. A computer-generated list of the Inventories
existing on the Closing Date, in order to determine the amount of the Purchase
Price due in consideration thereof.
(g) Deposits. A true, correct and complete list of Deposits,
itemized by customer and supplier.
(h) Other Instruments. Such other instruments and documents as may
be reasonably necessary to effect the consummation of the transactions
contemplated by this Agreement, in form and substance reasonably satisfactory to
Modern Sales.
(i) Bulk Transfer Compliance. Appropriate proof of compliance with
Paragraph 9(e).
11. Deliveries to Quincy. On or prior to the Closing Date, Modern Sales
shall deliver or cause to be delivered to Quincy:
(a) Purchase Price. The Purchase Price required to be paid under
Paragraph 6(b) above.
(b) Corporate Certificates. Copies of resolutions of the Board of
Directors of Modern Sales, certified by the President of Modern Sales,
authorizing and approving the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and a certificate of Modern
Sales' President certifying that all obligations of Modern Sales and all
conditions to Closing contained in this Agreement have been complied with.
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(c) Other Instruments. Such other instruments and documents as may
be reasonably necessary to effect the consummation of the transactions
contemplated by this Agreement, in form and substance reasonably satisfactory to
Quincy, as Quincy may reasonably request.
(d) Lease. The Lease described in Paragraph 4(b) above, executed by
Modern Sales.
(e) The Labor Resolution Agreement. The Labor Resolution Agreement
described in Paragraph 6, executed by Modern Sales.
(f) Payment of Initial Annual License Fee. Payment of the sum of
$1.00 on account of the fee for the Initial Annual License Fee (i.e., first
year's license of the Marks).
(g) Credit Protection. Delivery of a Credit Protection instrument
in favor of Quincy.
12. Conditions to Obligations of Modern Sales. The obligation of Modern
Sales to purchase the Assets under this Agreement shall be subject to the
complete satisfaction and fulfillment of each of the following conditions
precedent, any or all of which may be waived in whole or in part by Modern
Sales:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Quincy made in or pursuant to this Agreement shall be true and
correct at and as of the Closing with the same force and effect as though made
at and as of the Closing.
(b) Obligations. All obligations and conditions required to be
performed or observed by Quincy shall have been performed or observed by Quincy
on or prior to the Closing Date.
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(c) Deliveries. Unless waived, Modern Sales shall have received
from Quincy all of the items required to be delivered pursuant to Paragraph 10
above.
(d) No Litigation. No litigation, governmental action or other
proceedings shall have been threatened in good faith or commenced which would
prevent or otherwise have an impact on the consummation of the transactions
contemplated hereby.
(e) No Encumbrances. Modern Sales shall have confirmed to its
satisfaction that there are not on file in any applicable jurisdiction any
presently effective financing statements or statements of assignments relating
thereto and covering any of the Assets.
(f) Completed Due Diligence. Modern Sales shall have completed, to
its satisfaction, the due diligence investigation of the Business and the Assets
which Modern Sales deems necessary including, but not limited to, Modern Sales'
confirmation that the Business has approximately fifty (50) active Customer
accounts, accounting for not less than $29 million dollars of annual sales in
calendar years 1997 and 1998, that the Financial Information is substantially
accurate and consistent with Quincy's books and records, and no material adverse
information with respect to the Business shall have been discovered by Modern
Sales in the course of such investigation. Such condition shall be deemed to be
satisfied or waived by Modern Sales unless Modern Sales notifies Quincy, prior
to January 7, 2000, that it is terminating this Agreement because the results of
its due diligence investigation are unsatisfactory.
(g) Consents. Quincy shall have obtained and delivered to Modern
Sales all consents required to permit the assignment of the Contracts and the
Leased Assets selected to be assumed by Modern Sales to Modern Sales, from and
after the Closing Date, on the same terms and conditions as exist on the date of
this Agreement. Modern Sales shall also have obtained, at its sole cost and
expense, any and all such approvals and clearance certificates as shall be
necessary
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and appropriate under Florida law as a result of the transactions contemplated
by this Agreement, and Quincy shall have given all notices and shall have made
all filings, and shall have paid all taxes, and other statutory assessments,
charges, contributions and fees (and any interest and penalties relating
thereto) accrued up to and through the Closing Date.
13. Conditions to Obligations of Quincy. The obligation of Quincy to
sell the Assets under this Agreement shall be subject to the complete
satisfaction and fulfillment of each of the following conditions precedent, any
or all of which may be waived in whole or in part by Quincy:
(a) Deliveries. Unless waived, Quincy shall have received from
Modern Sales all of the items required to be delivered pursuant to Paragraph 11
above.
(b) No Litigation. No litigation, governmental action or other
proceedings shall have been threatened in good faith or commenced which would
prevent or otherwise have an impact on the consummation of the transactions
contemplated hereby.
(c) Accuracy of Representations and Warranties. The representations
and warranties of Modern Sales made in or pursuant to this Agreement shall be
true and correct at and as of the Closing with the same force and effect as
though made at and as of the Closing.
(d) Obligations. All obligations and conditions required to be
performed or observed by Modern Sales shall have been performed or observed by
Modern Sales on or prior to the Closing Date.
14. Term and Terminations.
(a) Term. The term of this Agreement shall commence two (2) days
after the Closing Date and shall continue until the fifth annual anniversary of
such date (the "Initial Term"), and shall automatically extend from year to year
thereafter (each such additional year is hereinafter referred to as a "Renewal
Term"), unless and until terminated in accordance with this Agreement.
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Either party may terminate this Agreement, without cause, at the end of the
Initial Term, or at the end of any Renewal Term, provided that the party
desiring to terminate gives at least six (6) months prior written notice to the
other party. Either party may terminate this Agreement, with cause, upon three
(3) months prior written notice to the other. The term "cause" shall mean the
failure to abide by or to perform any covenant, agreement or other term or
provision set forth in this Agreement, or in any other certificate or agreement
executed and/or delivered in connection with the Closing of this Agreement, or
the breach of any representation or warranty set forth herein, following not
less than ten (10) days prior written notice and reasonable opportunity to cure
(if such failure or breach is capable of being cured).
(b) Effect of Termination Without Cause. Upon a termination of this
Agreement without cause, this Agreement will terminate and each party will be
relieved of any further liabilities or obligations to perform hereunder accruing
from and after the effective date of termination. All liabilities and
obligations accrued up to the effective date of termination will continue to
exist, and will be required to be satisfied in accordance with the terms of this
Agreement.
(c) Effect of Termination With Cause. Upon a termination of this
Agreement with cause, the non-breaching party may elect, at its option, to be
relieved of all or specified of its liabilities and obligations hereunder, as of
the effective date of termination; may hold the breaching party responsible for
damages suffered (by the non-breaching party) by reason of the breach committed
by the breaching party; and may insist on (and may be awarded damages for the
breach of) compliance with its other obligations and liabilities under this
Agreement through the scheduled end of the then pending term of this Agreement.
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(d) Termination Upon Certain Dispositions. Subject to the consent
and assumption requirements of Paragraph 25(b) and to the conditions set forth
in this Paragraph 14, either party may terminate this Agreement in the event of:
(i) a sale or other disposition to an unrelated third party of substantially all
the assets of Quincy or a majority of the capital stock of Quincy (a "Quincy
Disposition"), or (ii) a sale or other disposition to an unrelated third party
of substantially all the assets of Modern Sales or a majority of the capital
stock of Modern Sales (but not if any such disposition is related to preparing
to take the operation public as part of a public offering) (a "Modern
Disposition"). If such a disposition occurs prior to the Closing of the
transactions contemplated by this Agreement, then such termination will be
without liability or penalty to either party, except as otherwise set forth in
Paragraph 6 of the Letter of Intent. If such a disposition occurs after Closing
and if the non-disposing party does not grant its prior written consent to the
assignment of this Agreement to the buyer, then the selling party will pay a
termination fee to the non-disposing party. The termination fee will be $2
million plus an amount equal to (i) expenditures (on a depreciated basis as of
the date of payment) made by the non-selling party in carrying out the
transactions contemplated by this Agreement, for capital assets (including, by
way of illustration, leasehold improvements) that it is unable to recover and
retain following the applicable disposition; and (ii) the reasonable and
necessary costs incurred by the non-selling party to transport to and reinstall
at new production sites those capital assets that the non-selling party is able
to recover and retain. The termination fee shall be payable upon the closing of
the applicable disposition. In addition to payment of the termination fee: (I)
in the event of a Quincy Disposition, the parties further agree that all
customers of the Modern Florida Facility, including Customers, shall remain the
customers of Modern Sales, and Quincy covenants and agrees not to solicit sales
of mushrooms to any such customers for a period of six (6) months after the
disposition closing; and (II) in the event of a Modern Disposition, the parties
agree that all
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Customers (i.e., those listed on Schedule 5(a)(vi)) shall revert to Quincy, and
Modern Sales covenants and agrees not to solicit sales of mushrooms to any such
Customers for a period of six (6) months after the disposition closing, and
Quincy covenants and agrees not to solicit sales of mushrooms to any other
customers (i.e., all customers of Modern Sales other than Customers) of the
Modern Florida Facility for a period of six (6) months after the disposition
closing. Notwithstanding such covenants, if a customer elects to purchase
mushrooms from a party who has agreed to not solicit such customer, then a
royalty of $.20 per pound shall be paid by the party selling such customer for
six (6) months on sales to any such customer, commencing with the first full
month following the disposition closing, with such royalties to be paid monthly,
within ten (10) days following the month of collection of any sale subject to
the royalty. Any termination pursuant to this Paragraph 14(d): (x) prior to
Closing shall be on not less than seven (7) days' prior written notice by the
terminating party to the non-terminating party; and (y) after Closing shall be
on not less than thirty (30) days' prior written notice by the terminating party
to the non-terminating party. If the non-disposing party does grant its written
consent to the assignment of this Agreement to the Buyer, then it is understood
that such approval is conditioned upon, and the disposing party agrees to
secure, as a precondition to closing any such disposition, the express written
assumption, by the buyer, of this Agreement, the Lease and the Labor Resolution
Agreement, on the same terms and conditions, and which assumptions shall be
binding on such buyer's successors and assigns.
(e) Termination Upon Pricing Change. Subject to the provisions of
Paragraph 14(g) hereof, but notwithstanding any other provision in this
Agreement to the contrary, Quincy may terminate this Agreement, in its sole
discretion, on not less than ninety (90) days' prior written notice to Modern
Sales in the event that the average price per pound paid to Quincy falls
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below the price indicated on Schedule 14(e) for any period of nine (9)
consecutive months. Any such termination will be without any dollar liability or
penalty to either party by reason of such termination, but will be subject to
all other obligations set forth in this Agreement including, by way of
illustration only, Paragraphs 14(f) and (g) hereof.
(f) Technology Fee. The parties recognize that, following Closing,
Modern Sales will redesign, re-equip, re-deploy production personnel and
reconfigure the mushroom processing and packaging operation previously conducted
by Quincy at Quincy Farms and, accordingly, Quincy acknowledges that it will
become privy to Modern Sales' proprietary mushroom processing, handling and
packaging expertise and knowledge (the "Proprietary Technology") as a result
thereof. Proprietary Technology shall not include anything that is a currently
accepted industry practice. Schedule 14(f) identifies, in reasonable detail, the
Proprietary Technology that belongs to Modern Sales and which will be introduced
to the Modern Florida Facility. In the event that Quincy terminates this
Agreement, without cause, and desires to use (or have its affiliates use) any of
the Proprietary Technology after such termination, and Modern Sales consents to
such use, Quincy will be obligated to pay to Modern Sales a technology fee on
account of such use (the Technology Fee"), in accordance with the table set
forth on Schedule 14(f). Upon such termination, Modern Sales will have the sole
discretion to remove and/or to refuse to allow Quincy to use any of the
Proprietary Technology, which use, Quincy acknowledges, may be blocked by
temporary and permanent injunctive relief. In the event that Quincy terminates
this Agreement, with cause, or if Modern Sales terminates this Agreement without
cause, Modern Sales will grant Quincy a non-assignable, royalty-free license to
use the Proprietary Technology for the periods of time described, and on such
other terms as are indicated, on the table set forth on Schedule 14(f). To the
extent that either party introduces technologies unrelated to the Proprietary
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Technology to the other party, the parties agree that such unrelated
technologies will be the subject of licensing and royalty arrangements to be
negotiated. All such technology arrangements will survive the termination of
this Agreement, by their respective terms, and will be binding on successors and
assigns, even if Quincy, Quincy Farms and/or Modern Sales are sold, or their
respective assets are disposed of.
(g) Dealings with Customers of the Modern Florida Facility in the
Event of Certain Terminations. In the interests of attempting to insure the best
possible continued service and availability of mushrooms to former customers of
the Modern Florida Facility in the event of the termination of this Agreement,
the parties desire to address the handling of customers of the Modern Florida
Facility following the termination of this Agreement. Accordingly, in the event
that this Agreement terminates, for any reason other than cause, then, in any
such event, each party would have the sole and exclusive right (as between the
parties), for a period of two (2) years, to solicit sales of mushrooms to any
former customer of the Modern Florida Facility that such party initially brought
to the Modern Florida Facility (such as Customers of Quincy; and new regional
customers that were extensions of any such initial customers brought to the
Modern Florida Facility by a party). Each party covenants and agrees not to
solicit any such customer on the other party's list during such two (2) year
period. All other new customers of the Modern Florida Facility will be added to
the two customer lists, upon such termination, 50%/50%, based upon the volume of
mushrooms purchased, from the Modern Florida Facility, unless the parties opt,
by agreement, to trade such customers (or any initial customers brought to the
Modern Florida Facility) with each other, in the interests of greater
efficiency. If, however, a customer elects to purchase mushrooms from a party
who has agreed not to solicit such customer, then a royalty of $.20 per pound
shall be paid by the party selling such customer for two (2) years on sales to
any
E-54
<PAGE> 34
such customer, commencing with the first full month following the effective
date of termination of the Agreement, with such royalties to be paid monthly,
within ten (10) days following the month of collection of any sale subject to
the royalty. The provisions of this Paragraph 14(g) shall not apply in the event
of a termination pursuant to Paragraph 14(d).
15. Restrictive Covenants.
(a) Non-Competition Pending Term of Agreement. Quincy agrees that,
during the term of this Agreement, Quincy will not, directly or indirectly,
whether as employer, employee, principal, agent, independent contractor,
consultant, officer, director, shareholder, partner, joint venturer, or in any
other capacity own, manage, operate, control, be employed by, engage in, be
associated with, or have a financial interest in any business involved or
engaged in the processing, packing or sale of mushrooms anywhere in the
geographic territory identified on Schedule 15(a). If, during the term of this
Agreement, Quincy or any of its affiliates desires to enter into any business
involved or engaged in the processing, packaging and/or sale of mushrooms
anywhere outside of the geographic territory identified on Schedule 15(a),
Quincy will give prompt notice to Modern Sales of such desired undertaking,
together with a reasonably complete description of the proposed activities, and
thereupon Modern Sales will, in its discretion, have ninety (90) days to elect
to pursue such processing, packaging and sales activities in lieu of Quincy. If
Modern Sales fails to so timely elect to pursue such activities, then Quincy may
do so, but without making use of any of the Marks during the license term
indicated in Paragraph 5(a) above.
(b) Non-Solicitation.
(i) Quincy. Except as specifically set forth in Paragraph 14(g)
hereof, Quincy further agrees that, during the term of this Agreement and for
twenty-four (24) months
E-55
<PAGE> 35
thereafter, Quincy will not initiate communication with, contact, solicit, or
sell, either directly or indirectly, on behalf of themselves or on behalf of any
other person, firm or corporation, any current or former customer of the Modern
Florida Facility, inclusive of Customers, or induce, solicit or attempt to
influence any employee, agent or representative of the Modern Florida Facility
to leave the employ of Modern Sales.
(ii) Modern Sales. Except as specifically set forth in
Paragraph 14(g) hereof, Modern Sales agrees that during the term of this
Agreement and for twenty-four (24) months thereafter, Modern Sales will not
induce, solicit or attempt to influence any employee, agent or representative of
Quincy (other than those employees identified in this Agreement) to leave the
employ of Quincy.
16. Remedies.
(a) Injunctive Relief. Both Quincy and Modern Sales acknowledge
that the restrictive covenants contained in this Agreement, in view of the
nature of the business in which each expects to be engaged during the term of
this Agreement, are reasonable and necessary in order to protect the legitimate
interests of each party, and that any violation thereof would result in
irreparable harm to such party. Both Quincy and Modern Sales agree, each with
respect to the other party, that if it violates the terms of this Agreement,
then the other party shall be entitled to obtain from any court of competent
jurisdiction temporary, preliminary and permanent injunctive relief, which right
shall be cumulative and in addition to any other rights or remedies to which
such party may otherwise be entitled at law or in equity. Quincy and Modern
Sales each further agree with respect to the other that, upon a breach or
violation by it, of the provisions of this Agreement, the period during which
the restrictive covenants herein contained shall be enforced shall be deemed to
be extended by an amount of time equal to the duration of any such breach or
violation.
E-56
<PAGE> 36
(b) Cut-Back Provision. If all or any portion of the covenants
contained in this Agreement or the application thereof are construed to be
invalid or unenforceable, then the remainder of such covenant or covenants
and/or the application thereof shall not be affected and any remaining covenants
or portions thereof shall then be given full force and effect without regard to
the invalid or unenforceable portions. If any covenant is held to be
unenforceable because of the geographic area covered, the duration thereof, or
the scope thereof, then the court making such determination may, in the exercise
of its power, reduce the area and/or the duration, and/or limit the scope
thereof, and the covenant shall then be enforceable in such manner and scope as
will be adjudged to be reasonable by such court.
17. Risk of Loss. Between the date hereof and the Closing Date, Quincy
shall bear the risk of all loss or damage to the Assets. If, prior to the
Closing Date, any portion of the Assets or the Modern Florida Facility Space are
"materially" damaged or destroyed as a result of any casualty whatsoever, then
Quincy shall, within three (3) business days after its receipt of notice
thereof, give written notice thereof to Modern Sales. Modern Sales shall then
have the right, at its sole option, within three (3) days after its receipt of
such notice, to: (a) terminate this Agreement, in which event this Agreement
shall become null and void and Modern Sales shall have no further liabilities or
obligations hereunder, or (b) accept the Assets in their then condition together
with the proceeds of any insurance received by Quincy, together with an
assignment of all rights to any such proceeds not yet received. For purposes of
this Agreement, a "material" part of the Assets or the proposed Modern Florida
Facility Space shall be deemed to have been damaged or destroyed if the cost of
replacement, repair or restoration thereof exceeds $50,000 in the aggregate (in
the opinion of an insurance adjuster mutually selected by Modern Sales and
Quincy). In the event of a non-material
E-57
<PAGE> 37
loss, Modern Sales and Quincy agree that, at the Closing (if it otherwise occurs
hereunder), the Purchase Price shall be reduced by an amount equal to the value
of the loss as determined by a third party mutually selected by Modern Sales and
Quincy.
18. Indemnification.
(a) Losses Incurred by Modern Sales. Quincy shall defend, indemnify
and hold harmless Modern Sales (and its directors, officers, employees and
affiliates) from and against any and all claims, liabilities, losses, damages,
costs and expenses, including reasonable attorneys' fees and court costs, and
fees and costs incurred in investigation, and including any legal or equitable
action brought by any federal, state or local governmental authority (each of
the foregoing being referred to herein as a "Loss"), of every kind and nature
suffered or incurred by or threatened against Modern Sales arising out of,
resulting from, or in connection with any or all of the following:
(i) Any misrepresentation or breach of any representation or
warranty made by Quincy in this Agreement;
(ii) Any non-performance, failure to comply or breach by Quincy
of any covenant, promise or agreement of Quincy contained in this Agreement;
(iii) The assertion, against Modern Sales, of responsibility
for any liabilities of Quincy, other than Contracts or obligations for specified
Leased Assets that are expressly assumed by Modern Sales at Closing;
(iv) Any negligence, tortious act, thing or occurrence caused
by or resulting from any act or omission of Quincy and/or its employees or
agents relating to the Business prior to the Closing Date;
(v) Any responsibility for damage or injury to the environment
arising
E-58
<PAGE> 38
out of any and all acts of Quincy, on and off the Modern Florida Facility Space,
prior to and up to the Closing Date including, but not limited to, the
generation and disposal of waste, whether on or off the Modern Florida Facility
Space; and
(vi) Any claim based upon product liability with respect to
products grown, processed or sold by Quincy on or prior to the Closing Date.
(b) Losses Incurred by Quincy. Modern Sales shall defend, indemnify
and hold harmless Quincy (and its directors, officers, employees and affiliates)
from and against any and all claims, liabilities, losses, damages, costs and
expenses, including reasonable attorneys' fees and court costs, and fees and
costs incurred in investigation, and including any legal or equitable action
brought by any federal, state or local governmental authority (each of the
foregoing being referred to herein as a "Loss"), of every kind and nature
suffered or incurred by or threatened against Quincy arising out of, resulting
from, or in connection with any or all of the following:
(i) Any misrepresentation or breach of any representation or
warranty made by Modern Sales in this Agreement;
(ii) Any non-performance, failure to comply or breach by Modern
Sales of any covenant, promise or agreement of Modern Sales contained in this
Agreement;
(iii) The assertion, against Quincy, of responsibility for any
liabilities of Modern Sales;
(iv) Any negligence, tortious act, thing or occurrence caused
by or resulting from any act or omission of Modern Sales and/or its employees or
agents relating to the Business after the Closing Date;
(v) Any responsibility for damage or injury to the environment
arising out of any and all acts of Modern Sales, on and off the Modern Florida
Facility Space, after the
E-59
<PAGE> 39
Closing Date including, but not limited to, the generation and disposal of
waste, whether on or off the Modern Florida Facility Space; and
(vi) Any claim based upon product liability with respect to
products grown, processed or sold by Modern Sales after the Closing Date.
(c) Notice of Claims, etc. As soon as reasonably practicable after
a party entitled to indemnification hereunder (the "Indemnifiable Party")
receives notice of any Loss, in respect of which the other party may be liable
under this Paragraph 18, the Indemnifiable Party shall give notice thereof to
the other party. The Indemnifiable Party may at its option claim indemnity under
this Paragraph 18 as soon as a claim has been threatened by a third party,
regardless of whether an actual Loss has been suffered, so long as the
Indemnifiable Party shall in good faith determine that such claim is not
frivolous and that the Indemnifiable Party may be liable or otherwise incur a
Loss as a result thereof and shall give notice of such determination to the
other party. The Indemnifiable Party shall permit the other party, at its sole
option and expense, to assume the defense of any such claim by counsel
satisfactory to the Indemnifiable Party, and to settle or otherwise dispose of
the same, provided that the Indemnifiable Party may at all times participate in
such defense, and provided, further, that the other party shall not, in defense
of any such claim, except with the prior written consent of the Indemnifiable
Party, consent to the entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant or
plaintiff in question to the Indemnifiable Party and its affiliates a release of
all liabilities in respect of such claims, or that does not result only in the
payment of money damages by the other party.
(d) Non-Waiver. Failure by the Indemnifiable Party to give prompt
notice to the other as specified in Paragraph 18(c) above shall not release,
waive or otherwise affect the
E-60
<PAGE> 40
indemnity obligations of the parties hereunder, except to the extent that the
other party can demonstrate actual loss and prejudice as a result of such
failure.
19. deleted.
20. Agreement to Consummate; Further Assurances; Advisory Board; Quincy
Accounts Receivable.
(a) Joint Agreement to Consummate. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to do all things necessary, proper or advisable, under this
Agreement and all applicable laws and regulations, to consummate the
transactions contemplated hereby. If, at any time after the Closing Date, any
further action is necessary, proper or advisable to carry out the intention of
this Agreement, then, as soon as is reasonably practicable, each party to this
Agreement shall take, or cause its proper officers to take, such action.
(b) Formation of Advisory Board. Following the Closing, Modern
Sales will promptly form an advisory board (the "Advisory Board") to generally
oversee and supervise the operations of the Modern Florida Facility, and to
coordinate the supply of mushrooms from Quincy Farms with the processing and
sales capabilities of the Modern Florida Facility. The Advisory Board will hold
regular meetings at the Modern Florida Facility, no less frequently than
monthly. A representative of Quincy will serve as a member of, and will
participate in all deliberations of, the Advisory Board. The Advisory Board will
regularly address and resolve the mix of mushroom varieties to be grown at
Quincy Farms and to be processed at the Modern Florida Facility, with the
parties to this Agreement recognizing the need to respect and reasonably
accommodate each other's business needs. In particular, the parties will
endeavor to reconcile Quincy's desire to maximize revenues by producing and
selling to Modern Sales higher-priced
E-61
<PAGE> 41
varieties of mushrooms, in increasing quantities, with the need of Modern Sales
to be able to sell a full line of mushrooms to its regional customers, and not
to be overwhelmed with quantities of mushrooms that are beyond the market-demand
of the regional customer base, or the processing capacity of the Modern Florida
Facility. The Advisory Board will also use its best efforts to address
appropriate grading standards for Product. The Quincy representative on the
Advisory Board will also be invited to observe and participate in (on a
non-voting basis) all meetings of the Board of Directors of Modern Sales.
(c) Post Closing Quincy Accounts Receivables Collection Assistance.
Quincy is solely responsible for the collection and maintenance of accounts
receivable arising from the sale of mushrooms by it up to and including the
Closing Date. Nevertheless, with respect to Customers that continue to be
customers of Modern Sales after the Closing Date, Modern Sales agrees to use its
best efforts to assist Quincy in the collection of amounts validly owed Quincy
by such Customers. These best efforts will include any and all collection
practices that are reasonable and customary in the mushroom business and that
Modern Sales deems appropriate under the circumstances. Best efforts is
understood not to include the commencement of collection litigation or the
filing of PACA complaints or liens by Modern Sales.
21. Post Closing Covenants of Quincy. Quincy covenants and agrees with
Modern Sales that, after the Closing:
(a) Satisfaction of Business Liabilities. Quincy will pay, perform
and discharge, in full and prior to their respective due dates, all of Quincy's
liabilities, obligations and debts related to the operation of the Business
prior to the Closing Date, other than those liabilities, accruing from and after
the Closing Date, to be expressly assumed by Modern Sales hereunder, and other
than liabilities being contested by Quincy in good faith.
E-62
<PAGE> 42
(b) Further Assurance of Title. Quincy will, for no further
consideration, perform all such other actions, and execute, acknowledge and
deliver and cause to be executed, acknowledged and delivered, such assignments,
transfers, consents and certificates, and other documents as Modern Sales, or
its counsel, may reasonably request to better vest in Modern Sales and perfect
Modern Sales' right, title and interest in, and enjoyment of, the Assets.
(c) deleted.
(d) Production of Mushrooms. Quincy will, at all times during the
term of this Agreement, continue to use best efforts to grow mushrooms at Quincy
Farms, at the minimum annual production rate of twenty-five (25) million pounds,
at a monthly rate of between 1.7 and 2.6 million pounds.
22. Survival. All representations, warranties and covenants of the
parties hereto contained in this Agreement or otherwise made in writing in
connection with the transactions contemplated hereby (in each case except as
affected by the transactions contemplated by this Agreement) shall survive the
execution, delivery and performance of this Agreement. In addition, the
indemnification obligations set forth in Paragraph 18.
23. Expenses. Each party shall be responsible for its own expenses
incurred in connection with the preparation and negotiation of this Agreement
and the consummation of the transactions contemplated hereby, except as
otherwise expressly provided herein. Except as hereinafter set forth, Quincy
shall pay all costs incurred in connection with transferring title to the Assets
to Modern Sales as contemplated by this Agreement (whether at or subsequent to
the Closing). Modern Sales will bear the cost to retitle any motor vehicles to
be transferred by Quincy, and Quincy will bear the cost of clearing or releasing
any liens and encumbrances, if any, of record against the Assets.
E-63
<PAGE> 43
24. Notices. All notices, requests, demands and other communications
required or permitted to be made hereunder ("Notice") shall be given in writing
and shall be deemed duly given if hand delivered against a signed receipt
therefor, sent by registered or certified mail, return receipt requested, first
class postage prepaid, or sent by nationally recognized overnight delivery
service, in each case addressed to the party entitled to receive the same at the
address specified below.
If to Modern Sales, then to: If to Quincy, then to:
C And C Carriage Mushroom Co. Quincy Corporation
P.O. Box 388 190 Mannie Gunn Road
Avondale, PA 19311 Quincy, Florida 32351
Attn: Charles J. Ciarrocchi, Jr., Attn: Bob Weatherford, CFO
President Facsimile: 850-627-1222
Facsimile: 610-268-3099
and to and to
C And C Carriage Mushroom Co. Fred Bennitt
P. O. Box 388 c/o Sylvan Inc.
Avondale, PA 19311 333 Main Street
Attn: Bennett D. Lazar, CFO P.O. Box 249
Facsimile: 610-268-3099 Saxonburg, PA 16056-0249
Facsimile: 724-352-7550
With a copy, sent in the manner prescribed above, to:
Sanford K. Mozes, Esquire
Fox Rothschild O'Brien & Frankel, LLP
2000 Market Street, 10th Floor
Philadelphia, PA 19103
Facsimile: 215-299-2150
Any party may alter the address or facsimile numbers to which communications are
to be sent by giving Notice of such change of address or facsimile in conformity
with the provisions of this paragraph providing for the giving of Notice. Notice
shall be deemed to be effective, if personally
E-64
<PAGE> 44
delivered, when delivered; if delivered by facsimile, on the next business day
after transmission thereof on a machine with confirmed answer back; if mailed,
at midnight on the third business day after being sent by registered or
certified mail; and if sent by nationally recognized overnight delivery service,
on the next business day following the date of delivery to such delivery
service.
25. Miscellaneous.
(a) Amendments. No change, amendment or modification of any
provision of this Agreement will be effective unless it is in writing signed by
the party against whom enforcement of the change, amendment or modification is
sought.
(b) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned by either party without
the prior written consent of the other party. Notwithstanding the foregoing
sentence to the contrary, each party shall have the right, upon prior notice to
the other, to assign all or any of its rights under this Agreement to any
corporation, partnership or other entity in which such party or any affiliate of
such party has an interest as part of a reorganization of its business or
otherwise, provided that such party remains responsible as surety of the
obligations set forth in this Agreement.
(c) Waivers. No waiver of any right under this Agreement will be
deemed effective unless contained in writing signed by the party charged by such
waiver, and no waiver of any right arising from any breach or failure to perform
will be deemed to be a waiver of any future such right or of any right arising
under this Agreement.
(d) Brokers. Quincy, on the one hand, and Modern Sales, on the
other hand, warrant and represent to the other that each has had no dealings,
negotiations or communications with any brokers, finders or other intermediaries
in connection with this Agreement or the
E-65
<PAGE> 45
transactions contemplated hereby. If any claim is asserted by any other person,
corporation or other entity, whether a broker, finder or otherwise, claiming a
commission and/or finder's fee with respect to this Agreement or the sale and
purchase of the Assets resulting from any act, representation or promise of
Quincy, on the one hand, or Modern Sales, on the other hand, then such party
shall indemnify, defend and hold harmless the other party from and against any
such claim.
(e) Titles. The titles of the Paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing the terms and provisions hereof.
(f) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(g) Schedules. All schedules to this Agreement are hereby
incorporated by reference into, and made a part of, this Agreement.
(h) Execution; Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories hereto.
(i) Entire Agreement. This Agreement and the other documents
delivered pursuant hereto shall constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof, and supersedes all prior agreements,
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<PAGE> 46
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. All of the terms of the Letter of Intent not
expressly modified by this Agreement shall continue to apply to the relationship
between the parties. A copy of the Letter of Intent is attached hereto as
Schedule 24(i) and is incorporated by reference. The express terms hereof shall
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof.
(j) Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania. The
parties agree that any suit or proceeding arising under this Agreement shall be
brought in the U.S. District Court for the Northern District of Florida, in
Tallahassee, or in the Eastern District of Pennsylvania, in Philadelphia, or, if
federal jurisdiction does not pertain, in the state court of the State of
Florida, in Gadsden County, or in the Court of Common Pleas of Pennsylvania, in
Chester County. Each of the parties hereto hereby submits and consents to the
jurisdiction of such courts for the purpose of any suit or proceeding and hereby
waives any objection which any of them may now or hereafter have to the laying
of venue in such courts, and any claim that any such suit or proceeding brought
in any such court has been brought in an inconvenient forum.
E-67
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized agents on the day and year first above
written.
"Quincy"
Attest: QUINCY CORPORATION
By: /s/ Bob Weatherford By: /s/ G. J. Verhagen
------------------------------ -------------------------------
Title: CFO Title: President
---------------------------
"Modern Sales"
C And C CARRIAGE MUSHROOM CO.
t/a Modern Mushroom Sales Company
By: /s/ Bennett D. Lazar By: /s/ Charles J. Ciarrocchi, Jr.
----------------------------- -------------------------------
Charles J. Ciarrocchi, Jr.
Title: CFO Title: President
--------------------------
The undersigned, intending to be legally bound, hereby joins in the above
Agreement to the extent specifically indicated therein with respect to the
undersigned.
"Sylvan"
SYLVAN INC.
By: /s/ Donald A. Smith By: /s/ Fred Y. Bennitt
----------------------------- -------------------------------
Title: CFO Title: Secretary/Treasurer
-------------------------- ----------------------------
E-68
<PAGE> 1
Exhibit 10.5.2
INDEX OF EXHIBITS TO THE AGREEMENT, DATED JANUARY 14, 2000,
BY AND BETWEEN C AND C CARRIAGE MUSHROOM COMPANY AND QUINCY CORPORATION
1. Schedules 1(d), 5(a)(i), 5(a)(iii), 5(a)(vi), 5(c), 5(d) and 6.1
2. Collective Bargaining Agreement between Quincy Corporation and United
Farm Workers of America, AFL-CIO, dated July 20, 1999
3. Labor Resolution Agreement, dated January 14, 2000, by and among Quincy
Corporation, and C And C Carriage Mushroom Company
4. Schedules 7(e)(i), 7(e)(i)(A), 7(e)(i)(B), 7(e)(iii), 7(f)(ii),
7(f)(v), 7(f)(vi), 7(f)(vii), 8(c), 14, 14(f) and 15(a)
5. Packaging and Marketing Proposal by C And C Carriage Mushroom Company,
dated October 13, 1999, to Bob Weatherford, CFO, Quincy Corporation
6. Bill of Sale, dated January 14, 2000, with respect to the Assets as
such term is defined in the Agreement
7. Certificate of President of C And C Carriage Mushroom Company, dated as
of January 14, 2000, with respect to preambles and resolutions adopted
by the Board of Directors of C And C Carriage Mushroom Company
8. Sylvan Foods, Inc. Certified Resolution of the Board of Directors,
dated as of January 13, 2000
9. Agreement of Lease, dated as of January 14, 2000, by and between Quincy
Corporation and C And C Carriage Mushroom Company
10. Labor Resolution Agreement, dated January 14, 2000, by and between
Quincy Corporation and C And C Carriage Mushroom Company
11. Certificate of President of C And C Carriage Mushroom Company, dated
January 14, 2000, with respect to buyer's compliance with obligations
and conditions under the Agreement
12. First refusal letter from C And C Carriage Mushroom Company to Quincy
Corporation and Sylvan Inc.
13. Landlord's Release and Waiver Agreement, dated January 27, 2000, by
Quincy Corporation in favor of Wilmington Trust Company
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<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Sylvan Inc., a Nevada corporation, has the domestic and international
subsidiaries listed below. All are wholly owned except as noted. Certain
international subsidiaries are not named because they are not significant in the
aggregate. Sylvan Inc. has no parent.
<TABLE>
<CAPTION>
State/Country of Incorporation
------------------------------
<S> <C>
International Mushrooms Limited (a) Ireland
Quincy Corporation Florida
Somycel S.A. France
Sylvan Africa (Pty) Ltd. South Africa
Sylvan America, Inc. Nevada
Sylvan America, Inc. Pennsylvania
Sylvan Bioproducts, Inc. Pennsylvania
Sylvan Communications, Inc. California
Sylvan Export Corporation Barbados
Sylvan Foods, Inc. Pennsylvania
Sylvan Foods (France) S.A. France
Sylvan Foods (Netherlands) B.V. The Netherlands
Sylvan Holdings Pty Ltd. (b) Australia
Sylvan Horst B.V. (c) The Netherlands
Sylvan Hungaria Kft. Hungary
Sylvan Italia S.r.l. Italy
Sylvan Nederlands B.V. The Netherlands
Sylvan Pilz AG Switzerland
Sylvan Polska Sp. z.o.o. Poland
Sylvan Spawn Laboratory Hungary Ltd. Hungary
Sylvan Spawn Limited England
Sylvan Tarim Urunleri Sanayi Ve Ticaret Limited Sirketi (d) Turkey
Tartarin S.A. France
White Queen Ltd. England
Worthington Holdings, Inc. Pennsylvania
</TABLE>
- -------------------------
(a) 90% ownership
(b) 49% ownership
(c) 75% ownership
(d) 60% ownership
E-70
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000861291
<NAME> SYLVAN INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 7,601
<SECURITIES> 0
<RECEIVABLES> 13,173
<ALLOWANCES> 826
<INVENTORY> 10,110
<CURRENT-ASSETS> 33,216
<PP&E> 86,640
<DEPRECIATION> 32,391
<TOTAL-ASSETS> 109,495
<CURRENT-LIABILITIES> 10,435
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 47,217
<TOTAL-LIABILITY-AND-EQUITY> 109,495
<SALES> 89,611
<TOTAL-REVENUES> 89,611
<CGS> 52,492
<TOTAL-COSTS> 79,055
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,231
<INCOME-PRETAX> 8,324
<INCOME-TAX> 2,131
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,128
<EPS-BASIC> 1.00
<EPS-DILUTED> 1.00
</TABLE>
