<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
December 31, 1996 (December 16, 1996)
Suiza Foods Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 340-28130 75-2559681
(STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
3811 Turtle Creek Blvd., Suite 1300
Dallas, Texas 75219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(214) 528-0939
<PAGE>
ITEM 2. FINANCIAL STATEMENTS AND EXHIBITS.
On December 16, 1996, Suiza Foods Corporation (the "Registrant" or
the "Company"), through a wholly-owned acquisition subsidiary, completed the
acquisition of substantially all of the assets of Model Dairy, Inc., a Nevada
corporation ("Model Dairy"), for approximately $26.2 million in cash,
excluding expenses, plus the assumption of certain current liabilities.
Model Dairy, which is based in Reno, Nevada, manufactures and distributes
fresh milk and related products in Nevada and Northern California and
reported sales of approximately $57 million during its fiscal year ended
October 31, 1996. The Company will use the acquired assets to continue
operating the business previously operated by Model Dairy. The Company
financed the acquisition with borrowings under the acquisition portion of its
senior credit facility with a group of banks led by First Union National Bank
and First National Bank of Chicago.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
MODEL DAIRY
<TABLE>
<S> <C>
Report of Independent Auditors - Barnard, Vogler & Co. . . . . . Page F-1
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . Page F-2
Statements of Earnings and Retained Earnings . . . . . . . . . . Page F-3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . Page F-4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . Page F-5
</TABLE>
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements
are filed with this report:
<TABLE>
<S> <C>
Pro Forma Consolidated Statements of Operations:
Year Ended December 31, 1995. . . . . . . . . . . . . . . . . . Page F-15
Nine Months Ended September 30, 1996 . . . . . . . . . . . . . Page F-17
Pro Forma Consolidated Balance Sheet as of September 30, 1996. . Page F-19
</TABLE>
The unaudited pro forma financial data have been derived by the
application of pro forma adjustments to the financial statements of the
Company. The pro forma statement of operations data represent income from
continuing operations for the year ended December 31, 1995 and for the
nine months ended September 30, 1996 and give effect to: (i) the
acquisition of Garrido & Company ("Garrido") in July 1996; (ii) the
acquisition of Swiss Dairy Corporation ("Swiss Dairy") in September 1996;
(iii) the acquisition of Model Dairy; and (iv) the related
borrowings to fund such acquisitions (collectively, the "Transactions"), as
if the Transactions had been consummated on January 1, 1995. The pro
forma balance sheet data give effect to the acquisition of Model Dairy as if
the acquisition had been consummated on September 30, 1996. There is no
pro forma balance sheet impact from the Garrido and Swiss Dairy acquisitions
because these acquisitions were consummated prior to September 30, 1996
and are reflected in the historical balance sheet as of that date. The pro
forma adjustments, which are described in the accompanying notes, are based
on available information and certain assumptions that management of the
Company believes are reasonable. The pro forma financial data should not be
considered indicative of actual results that would have been achieved if the
Transactions had been consummated on the dates or for the periods indicated
and do not purport to indicate results of operations as of any future date or
for any future period.
2
<PAGE>
The historical amounts in the pro forma statements of operations for
Garrido, Swiss Dairy and Model Dairy include the operating results of these
entities only for the applicable periods prior to the effective dates of
their acquisition by the Company (July 1996 for Garrido, September 1996 for
Swiss Dairy and December 1996 for Model Dairy). Because the fiscal year for
Garrido ends on June 30 of each year, the financial data for the year ended
December 31, 1995 were derived from the aggregation of the unaudited
financial information of Garrido for the six month period ended June 30, 1995
in Garrido's 1995 fiscal year and the six month period ended December 31,
1995 in Garrido's 1996 fiscal year; and the financial data for the nine
months ended September 30, 1996 were derived from unaudited financial
information of Garrido for the six month period ended June 30, 1996 in
Garrido's 1996 fiscal year. Because the fiscal year for Model Dairy ends on
October 31 of each year, the financial data for the year ended December 31,
1995 represent the financial information of Model Dairy for the fiscal year
ended October 31, 1995; and the financial data for the nine months ended
September 30, 1996 represent the unaudited financial data of Model Dairy for
the same nine month period.
The unaudited pro forma financial data should be read in conjunction with
the historical financial statements of the Company, Garrido, Swiss Dairy and
Model Dairy and the related notes.
(C) EXHIBITS
2.1 Asset Purchase Agreement, dated as of December 11, 1996, among
Suiza Foods Corporation, a Delaware corporation, Model Dairy,
Inc., a Delaware corporation, Model Dairy, Inc., a Nevada
corporation, and the stockholders of Model Dairy identified
therein.
23.1 Consent of independent auditors
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
Model Dairy, Inc.
Reno, Nevada
We have audited the accompanying balance sheets of Model Dairy, Inc. (an S
corporation) as of October 31, 1995 and 1994, and the related statements of
earnings and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Model Dairy, Inc. as of
October 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
BARNARD, VOGLER & CO.
Reno, Nevada
December 14, 1995
F-1
<PAGE>
MODEL DAIRY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
OCTOBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 1,242,695 $ 1,456,140 $ 1,109,631
Receivables....................................................... 4,793,522 5,012,989 5,661,557
Inventories....................................................... 1,723,956 1,855,773 2,052,344
Prepaid expenses and other current assets......................... 97,737 127,625 164,147
------------- ------------- -------------
Total current assets............................................ 7,857,910 8,452,527 8,987,679
PROPERTY, PLANT AND EQUIPMENT....................................... 3,191,896 4,268,844 4,873,348
INTANGIBLE AND OTHER ASSETS......................................... 473,958 549,839 626,693
------------- ------------- -------------
TOTAL............................................................... $ 11,523,764 $ 13,271,210 $ 14,487,720
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Acccounts payable and accrued expenses............................ $ 3,586,135 $ 4,389,494 $ 4,357,859
Current portion of long term debt................................. 250,698 423,916 663,000
------------- ------------- -------------
Total current liabilities....................................... 3,836,833 4,813,410 5,020,859
LONG-TERM DEBT...................................................... 942,202 1,386,304 2,393,769
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 2,400 shares authorized, 700 shares
issued and outstanding.......................................... 67,000 67,000 67,000
Retained earnings................................................. 6,677,729 7,004,496 7,006,092
------------- ------------- -------------
Total stockholders' equity........................................ 6,744,729 7,071,496 7,073,092
------------- ------------- -------------
TOTAL............................................................... $ 11,523,764 $ 13,271,210 $ 14,487,720
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes
F-2
<PAGE>
MODEL DAIRY, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
ELEVEN MONTHS
YEARS ENDED OCTOBER 31, ENDED
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
NET SALES........................................................... $ 49,434,727 $ 50,846,894 $ 51,608,455
COST OF SALES....................................................... 39,770,987 41,309,141 42,374,695
------------- ------------- -------------
Gross profit...................................................... 9,663,740 9,537,753 9,233,760
OPERATING COSTS AND EXPENSES:
Distribution...................................................... 4,166,032 3,920,048 4,051,604
General and administrative........................................ 3,662,429 3,723,719 3,620,238
Amortization of intangibles....................................... 58,178 20,273 9,895
------------- ------------- -------------
Total operating costs and expenses.............................. 7,886,639 7,664,040 7,681,737
------------- ------------- -------------
INCOME FROM OPERATIONS.............................................. 1,777,101 1,873,713 1,552,023
OTHER (INCOME) EXPENSE:
Interest, net..................................................... (1,311) 65,975 61,755
Other income, net................................................. (51,619) (115,627) 23,602
------------- ------------- -------------
Total other (income) expense...................................... (52,930) (49,652) 85,357
------------- ------------- -------------
EARNINGS BEFORE INCOME TAX.......................................... 1,830,031 1,923,365 1,466,666
INCOME TAXES........................................................ 1,948 4,789 --
------------- ------------- -------------
NET EARNINGS........................................................ 1,828,083 1,918,576 1,466,666
RETAINED EARNINGS, beginning of year................................ 6,129,136 6,677,729 7,004,496
CASH DIVIDENDS...................................................... (1,279,490) (1,591,809) (1,465,070)
------------- ------------- -------------
RETAINED EARNINGS, end of year...................................... $ 6,677,729 $ 7,004,496 $ 7,006,902
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes
F-3
<PAGE>
MODEL DAIRY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
ELEVEN MONTHS
YEARS ENDED OCTOBER 31, ENDED
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings....................................................... $ 1,828,083 $ 1,918,576 $ 1,466,666
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation..................................................... 693,056 794,862 783,465
Amortization of intangibles...................................... 58,178 20,273 9,895
Gain on sale of assets........................................... (9,396) (28,750) (9,200)
Changes in operating assets and liabilities:
Receivables.................................................... (181,457) (174,282) (739,207)
Inventories.................................................... (113,595) (131,817) (196,571)
Prepaid expenses and other current assets...................... 28,869 (29,888) (36,522)
Other assets................................................... 11,747 (14,312) 11,112
Accounts payable and accrued expenses.......................... (488,409) 803,359 (31,635)
------------- ------------- -------------
Net cash provided by operating activities........................ 1,827,076 3,158,021 1,258,003
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment................ 27,911 28,750 9,200
Additions to property, plant and equipment......................... (1,379,200) (1,871,810) (1,387,969)
Payments for other assets.......................................... (31,374) (127,027) (7,222)
------------- ------------- -------------
Net cash used in investing activities............................ (1,382,663) (1,970,087) (1,385,991)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit....................................... $ 650,000 $ 850,000 $ 1,477,862
Payments on long-term debt......................................... (260,020) (232,680) (231,313)
Dividends paid..................................................... (1,279,490) (1,591,809) (1,465,070)
------------- ------------- -------------
Net cash used in financing activities............................ (889,510) (974,489) (218,521)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (445,097) 213,445 (346,509)
CASH AND CASH EQUIVALENTS, beginning of year......................... 1,687,792 1,242,695 1,456,140
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year............................... $ 1,242,695 $ 1,456,140 $ 1,109,631
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for
Interest......................................................... $ 54,290 $ 131,878 $ 121,384
Income taxes..................................................... 32,974 31,396 6,888
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of accounts receivable into notes receivable............ $ 160,202 $ -- $ 142,784
</TABLE>
See accompanying notes
F-4
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Model Dairy, Inc. (the "Company") is a Nevada
corporation incorporated on November 17, 1965. The Company operates as a
creamery, processing raw milk into various milk, ice cream and frozen yogurt
products. The Company distributes its manufactured dairy products, as well as
other purchased dairy products, to retail and wholesale distributors, grocery
stores, restaurants and various institutions, located in northern Nevada and
California. The Company provides credit terms to customers generally ranging up
to 30 days and performs ongoing credit evaluations of their customers. The
preparation of financial statements requires the use of significant estimates
and assumptions by management; actual results could differ from these estimates.
INVENTORIES--Cost of purchased inventories is determined on the first-in,
first-out method. Cost of manufactured inventories is based upon standard costs
which approximate average costs. All inventories are stated at the lower of cost
or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method for financial
reporting purposes. The estimated useful lives of the assets are:
<TABLE>
YEARS
---------
<S> <C>
Leasehold improvements...................................................... 10-39
Automobiles and trucks...................................................... 3-7
Machinery and equipment..................................................... 7-10
Office equipment............................................................ 3-10
</TABLE>
Capital lease assets are amortized over the shorter of their lease term or
their estimated useful lives. Maintenance, repairs and renewals that neither
materially add to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Gains and losses on dispositions of property and
equipment are included in income.
INTANGIBLE ASSETS--Intangible assets are stated at cost. Amortization is
computed using the straight-line method. The estimated useful lives of assets
are:
<TABLE>
YEARS
---------
<S> <C>
Covenant not to compete..................................................... 2-5
Trademarks.................................................................. 20-40
Customer lists and routes................................................... 5-10
Goodwill.................................................................... 40
</TABLE>
The Company periodically assesses the net realizable value of its intangible
assets, as well as all other assets, by comparing the expected future net
operating cash flows, undiscounted and without interest charges, to the carrying
amount of the underlying assets. The Company would evaluate a potential
impairment if the recorded value of these assets exceeded the associated future
net operating cash flows. Any potential impairment loss would be measured as the
amount by which the carrying value exceeds the fair value of the asset. Fair
value of assets would be measured by market value, if an active market exists,
or
F-5
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
by a forecast of expected future net operating cash flows, discounted at a rate
commensurate with the risk involved.
REVENUE--Revenue is recognized when the product is shipped to the customer.
ADVERTISING--The Company expenses advertising costs as incurred. During the
years ended October 31, 1994 and 1995, advertising expense approximated $236,000
and $262,000, respectively.
INCOME TAXES--The Company, with the consent of its shareholders, elected to
be taxed under the provisions of Subchapter S of the Internal Revenue Code for
the fiscal year beginning November 1, 1988. Under those provisions, the Company
does not pay federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their respective
shares of the Company's taxable income.
Had the Company been subject to state and federal income taxes at the
corporate level, the estimated income tax expense would have been approximately
$623,000, and $657,000 for the years ended October 31, 1994 and 1995,
respectively and $501,000 for the unaudited eleven months in 1996.
The Company is liable for federal corporate built-in gain taxes attributable
to built-in gain realized on the disposition of ordinary income property and
short-term capital gain property owned at the time the Subchapter S election was
made.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting
Standards (SFAS) No. 107 requires the disclosure of an estimate of the fair
value of the Company's financial instruments, which consist primarily of
accounts and notes receivable, accounts payable and debt. Due to the near-term
maturities of accounts receivable and accounts payable, the Company believes
that the carrying amounts of these instruments are equivalent to fair value. In
the case of notes receivable and debt, the Company believes that the fixed
interest rates on notes receivable and the variable interest rate on primarily
all debt represent market rates which results in the carrying value of such
instruments approximating fair value.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from the use of
the asset and its eventual disposition to the carrying amount of the asset.
These new accounting principles are effective for the Company's fiscal year
ending October 31, 1996. The Company believes that these new accounting
principles will not have a material impact on its financial position.
RECLASSIFICATIONS--Certain amounts in 1994 have been reclassified to conform
with the 1995 presentation.
F-6
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's balance sheet as of
September 30, 1996 and the statements of earnings and retained earnings and cash
flows for the eleven months ended September 30, 1996, have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly the
balance sheet of the Company at September 30, 1996, and the results of
operations and cash flows of the Company for the eleven months ended September
30, 1996 have been made. The results of operations for the interim period are
not necessarily indicative of the results to be expected for the full year.
2. RECEIVABLES
Receivables consist of the following:
<TABLE>
OCTOBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable.................................... $ 4,598,462 $ 4,869,483 $ 5,413,030
Current portion of notes receivable.......................... 108,570 68,592 106,571
Other........................................................ 86,490 74,914 141,956
------------ ------------ -------------
$ 4,793,522 $ 5,012,989 $ 5,661,557
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Included in trade accounts receivable and the current portion of notes
receivable are amounts due from certain distributors who are affiliates of the
Company's shareholders. These affiliates had the following outstanding balances:
<TABLE>
OCTOBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts receivable....................................... $ 388,862 $ 539,496 $ 827,561
Current portion of notes receivable............................. 59,113 34,846 38,262
---------- ---------- -------------
$ 447,975 $ 574,342 $ 865,823
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
Accounts and notes receivable are considered fully collectible by
management. Therefore, no allowance for doubtful accounts is included in the
financial statements.
F-7
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
3. INVENTORIES
Inventories consist of the following:
<TABLE>
OCTOBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................... $ 681,773 $ 838,075 $ 861,239
Finished goods.............................................. 1,042,183 1,017,698 1,191,105
------------ ------------ -------------
$ 1,723,956 $ 1,855,773 $ 2,052,344
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, together with accumulated depreciation,
consist of the following:
<TABLE>
OCTOBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Automobiles and trucks....................................... $ 3,013,498 $ 3,141,602 $ 3,470,695
Machinery and equipment...................................... 4,474,022 5,092,967 5,585,461
Leasehold improvements....................................... 693,451 1,782,953 1,785,333
Office equipment............................................. 611,801 655,742 692,148
Construction in progress..................................... 573,716 393,702 894,753
------------ ------------ -------------
9,366,488 11,066,966 12,428,390
Less accumulated depreciation................................ (6,174,592) (6,798,122) (7,555,042)
------------ ------------ -------------
$ 3,191,896 $ 4,268,844 $ 4,873,348
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Depreciation expense was $693,056 and $794,862 in 1994 and 1995,
respectively, and $783,465 for the unaudited eleven months in 1996.
The Company follows the policy of capitalizing interest as a component of
the cost of property, plant, and equipment constructed for its own use. For the
year ended October 31, 1994, total interest incurred was $70,526, of which
$13,593 was capitalized and $56,933 was charged to operations. For the year
ended October 31, 1995, total interest incurred was $163,778 of which $23,297
was capitalized and $140,481 was charged to operations. For the unaudited eleven
months ended September 30, 1996, total interest incurred was $158,384, of which
$37,000 was capitalized and $121,384 was charged to operations.
F-8
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
OCTOBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Intangible assets............................................... $ 123,399 $ 103,126 $ 93,231
Long term portion of notes receivable........................... 132,546 87,361 178,000
Investments, deposits and other................................. 218,013 359,352 355,462
---------- ---------- -------------
$ 473,958 $ 549,839 $ 626,693
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The above intangible assets, together with accumulated amortization, consist
of the following:
<TABLE>
OCTOBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete...................................... $ 601,950 $ 601,950 $ --
Trademarks.................................................... 48,488 48,488 48,488
Customer lists and routes..................................... 163,821 163,821 113,821
Goodwill...................................................... 29,346 29,346 29,346
Loan fees..................................................... 9,000 9,000 9,000
----------- ----------- -------------
852,605 852,605 200,655
Less accumulated amortization................................. (729,206) (749,479) (107,424)
----------- ----------- -------------
$ 123,399 $ 103,126 $ 93,231
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
Amortization expense consisted of $58,178 and $20,273 in 1994 and 1995,
respectively, and $9,895 for the unaudited eleven months in 1996.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
OCTOBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable....................................... $ 2,746,057 $ 3,593,510 $ 3,736,328
Accrued payroll and benefits................................. 649,322 679,847 500,671
Other........................................................ 190,756 116,137 120,860
------------ ------------ -------------
$ 3,586,135 $ 4,389,494 $ 4,357,859
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-9
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
7. LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
OCTOBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Credit agreement:
Line of credit........................................ $ 650,000 $ 1,418,865 $ 1,169,642
Term loans............................................ 1,625,540
Note payable to Creamland Dairy......................... 383,586 309,823 236,840
Capital lease obligations............................... 136,635 81,532 24,747
Other................................................... 22,679
------------ ------------ -------------
1,192,900 1,810,220 3,056,769
Less current portion.................................... (250,698) (423,916) (663,000)
------------ ------------ -------------
$ 942,202 $ 1,386,304 $ 2,393,769
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
LINE OF CREDIT--On March 30, 1994, the Company entered into a business loan
agreement with Bank of America for a line of credit and a letter of credit. The
line of credit totals $1,500,000. This is a non-revolving line of credit
available to be drawn against for the period between the date of the agreement
and June 5, 1995. After June 5, 1995, the Company is required to begin repayment
under a term repayment option. The proceeds from this line were used for adding
a new cooler facility to the existing creamery plant. The interest rate is the
bank's reference rate plus one-half of one percentage point. Monthly interest
payments begin on May 1, 1994, and continue until the principal is paid in full.
Principal payments are to be paid in sixty successive equal monthly installments
of $31,900 starting July 5, 1995. On June 5, 2000, the remaining principal
balance plus any interest is due in full. At October 31, 1994 and 1995 and the
unaudited September 30, 1996, $650,000, $1,418,865 and $1,169,642 was
outstanding on the line of credit with an interest rate of 8.25%, 9.25% and
7.5%, respectively.
Under this same agreement, the Bank has provided a letter of credit to the
State of Nevada Department of Commerce for workmen's compensation for the
Company.
Under the terms of the business loan agreement, the Company is required to
maintain minimum working capital of $1,500,000, maintain tangible net worth
equal to at least $4,000,000, maintain a ratio of total liabilities to tangible
net worth not greater than 1.50 to 1.00, and maintain a debt service coverage
ratio of at least 1.25 to 1.00. At October 31, 1994 and 1995, the Company was in
compliance with all terms of the business loan agreement.
The line of credit and the letter of credit are collateralized by the
personal guarantees of the shareholders of the Company.
TERM LOANS--During the unaudited eleven months in 1996, the Company entered
into a $1.5 million term loan agreement with Bank of America to fund the
expansion of the Company's ice cream freezer and an equipment loan with Bank of
America to acquire related equipment. The freezer expansion term loan was fully
funded by the bank, requires monthly installment payments of $30,200 and bears
the same interest rate as the line of credit.
F-10
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
7. LONG TERM DEBT (CONTINUED)
In connection with these new loans with Bank of America, the existing loan
covenants were revised to require the Company to maintain minimum working
capital of $2,000,000, maintain tangible net worth equal to at least $5,000,000,
maintain a ratio of total liabilities to tangible net worth not greater than
1.50 to 1.00 and maintain a debt service coverage ratio of at least 1.50 to
1.00. At September 30, 1996, the Company was in compliance with all terms of
revised bank covenants.
OTHER NOTES--The note payable to Creamland Dairy was issued in the original
face amount of $600,000, is secured by an irrevocable, unsecured letter of
credit with Pioneer Citizens Bank and is payable in monthly installments of
$8,482 including interest at 8% through May 1, 1999.
CAPITAL LEASE OBLIGATIONS--In 1991, the Company entered into a lease
obligation for machinery which has been classified as a capital lease. The
machinery is included in machinery and equipment at a cost of $269,307, with
accumulated depreciation in the amount of $87,525, $114,456 and $139,143 at
October 31, 1994 and 1995 and unaudited September 30, 1996, respectively.
Minimum future lease payments under the capital lease as of October 31,
1995, for the remaining term of the lease and in the aggregate are:
<TABLE>
<S> <C>
Total minimum lease payments for 1996.................................. $ 88,122
Less amount representing interest...................................... (6,590)
---------
Present value of net minimum lease payments............................ 81,532
Less current portion................................................... (81,532)
---------
$ --
---------
---------
</TABLE>
The interest rate on the capitalized lease of 12.3% is imputed based on the
Company's incremental borrowing rate at the inception of the lease.
DEBT MATURITIES--Maturities of current and long-term debt, excluding the
capital lease obligations, are as follows:
<TABLE>
YEAR ENDING OCTOBER 31, AMOUNT
- ------------------------------------------------------------------------------------- ------------
<S> <C>
1996............................................................................... $ 342,384
1997............................................................................... 374,352
1998............................................................................... 409,316
1999............................................................................... 395,809
2000............................................................................... 206,827
------------
$ 1,728,688
------------
------------
</TABLE>
8. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN--The Company maintains a profit sharing plan for all
qualified officers and employees except those covered by a collective bargaining
agreement. The amount of the contribution is determined annually by the board of
directors. Allocation of the contribution among officers and employees is based
on the amount of salary or wages earned. The contribution expense was $202,164
and
F-11
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
$200,000 in 1994 and 1995, respectively. No profit sharing contribution expense
has been recognized or is anticipated during the unaudited eleven months in
1996.
PENSION PLANS--Under the terms of a collective bargaining agreement
("Agreement"), the Company is required to contribute for each employee covered
by the Agreement a stipulated amount into the Teamsters Pension Trust Fund.
Contributions to the fund are based on the total straight-time hours worked
during each month, including amounts paid for vacation, holiday, and sick leave.
For the years ended October 31, 1994 and 1995, the Agreement stipulated a
contribution rate of $.77 per hour. For 1994, 1995 and the unaudited eleven
months in 1996, the amount of pension expense was $163,336, $172,376 and
$180,485, respectively.
In addition, the Company sponsors a supplementary defined contribution
pension plan for all employees covered by the Agreement. Contributions to the
plan are based on the total straight-time hours worked during each month, but
are limited to 173 hours per employee per month. For the years ended October 31,
1994 and 1995, the Agreement stipulated a contribution rate of $.85 per hour.
For 1994, 1995 and the unaudited eleven months in 1996, the amount of
supplementary pension expense was $163,553, $177,980 and $162,925, respectively.
9. OPERATING LEASES
The Company leases its main plant under two fifteen year operating leases
expiring April 30, 2003 and December 31, 2004. Additional warehouse space is
occupied under five operating leases. One lease, expiring August 31, 2000,
provided for a rental increase on September 1, 1995, to give effect to changes
in the cost of living index. In addition, the lease contains an option to renew
for three successive five-year periods. The remaining four leases are on a
month-to-month basis. Under all leases the Company is responsible for insurance,
taxes and normal maintenance of the facilities.
The following is a schedule of future minimum rental payments (net of
sublease income) required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year:
<TABLE>
YEAR ENDING OCTOBER 31, AMOUNT
- -------------------------------------------------- --------------
<S> <C>
1996.............................................. $ 509,181
1997.............................................. 509,181
1998.............................................. 509,181
1999.............................................. 509,181
2000.............................................. 502,813
Thereafter........................................ 1,463,440
--------------
$ 4,002,977
--------------
--------------
</TABLE>
Minimum lease payments in this schedule exclude rentals under renewal
options.
Total rental expense for all operating leases, net of sublease rentals, was
$708,070, $733,585 and $697,129 for 1994 and 1995 and for the interim period in
1996, respectively.
F-12
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
10. MAJOR CUSTOMERS, SUPPLIERS AND CONCENTRATION OF CREDIT RISK
The Company had sales to a major customer comprising approximately 24%, 23%
and 25% of net sales in 1994 and 1995 and the unaudited eleven months in 1996,
respectively. At October 31, 1994 and 1995 and the unaudited September 30, 1996,
amounts due from that customer included in trade accounts receivable were
$1,028,894, $716,150 and $894,090, respectively. Credit is granted to customers,
substantially all of whom are located in northern Nevada and northern
California.
During 1994 and 1995, the Company purchased all of its fluid raw milk from
one supplier. At October 31, 1994 and 1995 and the unaudited eleven months in
1996, amounts due to that supplier included in accounts payable were $1,080,937,
$1,609,818 and $1,978,733, respectively.
The Company maintains the majority of its cash accounts in two banking
institutions located in Reno, Nevada. Accounts at each institution are insured
up to $100,000. A summary of the total insured and uninsured amounts held at the
institutions at October 31, 1995, follows:
<TABLE>
<S> <C>
Total cash held................................................. $1,664,463
Portion insured................................................. 109,954
----------
Uninsured cash balance.......................................... $1,554,509
----------
----------
</TABLE>
11. RELATED PARTY TRANSACTIONS
The principal owners of the Company are also principal owners of several
affiliated companies. The Company made sales of approximately $3,260,325,
$3,531,888 and $3,680,784 in 1994 and 1995 and the unaudited eleven months in
1996, respectively, to the affiliated companies. Accounts receivable from
affiliated companies were $388,351, $539,496 and $827,561 at October 31, 1994
and 1995 and unaudited September 30, 1996, respectively.
The Company also rented real property from related parties who are principal
stockholders. Total rental payments to these individuals were $582,576, $592,176
and $544,000 in 1994 and 1995 and unaudited September 30, 1996, respectively.
Notes receivable from related parties consist of the following:
<TABLE>
OCTOBER 31,
------------------------------ SEPTEMBER 30,
1994 1995 1996
-------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
6% note from affiliated company................... $ 76,089 $ 23,702 $ 23,702
8% note from affiliated company................... -- 15,741 14,560
-------------- -------------- -------------
76,089 39,443 38,262
Less current portion.............................. (59,113) (34,846) (38,262)
-------------- -------------- -------------
$ 16,976 $ 4,597 $ --
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
F-13
<PAGE>
MODEL DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1994 AND 1995 AND
THE UNAUDITED ELEVEN MONTHS ENDED SEPTEMBER 30, 1996
12. COMMITMENTS AND CONTINGENCIES
WORKERS' COMPENSATION--Effective May 1, 1990, the Company adopted a
partially self-insured workers' compensation plan. Under the plan, the Company
pays up to $350,000 per occurrence; claims above $350,000 are covered up to
statutory limits by an insurance policy. In addition, the Company maintains a
cash flow protection endorsement limiting the annual liability to $90,000 per
occurrence. The Company estimates its liabilities for unpaid claims based on the
data supplied to them by their insurance administrators. The amount of estimated
unpaid claims in the accompanying financial statements is $127,024, $24,846 and
$42,500 at October 31, 1994 and 1995 and unaudited September 30, 1996,
respectively.
A self-insured employer is required to deposit with the commissioner of the
State of Nevada Department of Commerce an amount reasonably sufficient to ensure
payment of compensation, but in no event may it be less than 105 percent of the
employer's expected annual incurred cost of claims, or less than $100,000. At
October 31, 1994 and 1995 and unaudited September 30, 1996, the Company has
provided as security an unsecured letter of credit from Bank of America for
$116,000, $132,000 and $110,000, respectively.
PURCHASE AGREEMENTS--In conjunction with an equipment acquisition, the
Company has agreed to purchase at least 90% of its sweetener requirement from
Liquid Sugars, Inc. for the period of time covered by their contract payable
ending October 1, 1995.
In November of 1993, the Company entered into a commitment agreement with
Purity to purchase packaging inventory for a certain product. Purity has
provided the Company with equipment for use in packaging this finished product.
Under the terms of the agreement, once the Company has fulfilled the purchase
commitment, the equipment becomes the property of the Company. The inventory
purchased includes an additional charge for this equipment. Based on current
market prices at October 31, 1994 and 1995, the total remaining committed
purchases approximate $1,180,000 and $634,000, respectively. The costs incurred
to purchase this packaging inventory approximated $522,000 and $570,000 during
the years ended October 31, 1994 and 1995, respectively. The commitment
agreement is anticipated to be fulfilled by February of 1997.
CONSTRUCTION CONTRACT--In May of 1994, the Company entered into a contract
with Zero Temp, Inc. to construct a new cold storage facility to their existing
creamery plant. The terms of the payments were based on percentage of completion
determined by the contractor. Total costs incurred of $382,710 were included in
construction in progress at October 31, 1994. At October 31, 1994, the Company
was committed to an additional $255,140 of construction costs under this
contract. Construction was completed during the year ended October 31, 1995 and
no further commitment existed.
In May of 1996, the Company entered into a similar contract with Tri-Com
Refrigeration, Inc., to construct a new freezer facility. Total costs incurred
of $164,675 were included in construction in progress at September 30, 1996. At
September 30, 1996, the Company was commited to an additional $512,054 of
construction costs under this contract.
F-14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
THE SWISS MODEL PRO FORMA
COMPANY GARRIDO DAIRY DAIRY ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 430,466 $ 26,226 $ 126,647 $ 50,847 $ -- $ 634,186
Cost of sales............................. 312,633 17,242 111,798 41,309 (1,077)(a)(b) 481,905
--------- --------- --------- --------- -----------
Gross profit............................ 117,833 8,984 14,849 9,538 152,281
Operating expenses:
Selling and distribution................ 64,289 2,506 7,852 3,920 (1,241)(a)(b) 77,326
General and administrative.............. 19,277 2,041 2,483 3,724 (1,354)(a)(b) 26,171
Amortization of intangibles and other... 3,703 -- -- 20 2,179(c) 5,902
--------- --------- --------- --------- -----------
Total operating costs and expenses.... 87,269 4,547 10,335 7,664 109,399
--------- --------- --------- --------- -----------
Income from operations.................... 30,564 4,437 4,514 1,874 42,882
Other (income) expense:
Interest expense, net................... 19,921 349 -- 66 7,528(d) 27,864
Merger and other costs.................. 10,238 -- -- -- 10,238
Other income, net....................... (469) (110) (270) (116) (965)
--------- --------- --------- --------- -----------
Total other (income) expense.......... 29,690 239 (270) (50) 37,137
--------- --------- --------- --------- -----------
Income before income taxes................ 874 4,198 4,784 1,924 5,745
Income taxes.............................. 2,450 589 65 5 628(e) 3,737
--------- --------- --------- --------- -----------
Income (loss) from continuing operations.. $ (1,576) $ 3,609 $ 4,719 $ 1,919 $ 2,008
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Income (loss) per share from continuing
operations.............................. $ (0.26) $ 0.30
--------- -----------
--------- -----------
Weighted average shares outstanding....... 6,109,398 6,782,907
--------- -----------
--------- -----------
</TABLE>
- --------------------------
(a) Excess of historical depreciation expense over the depreciation of the fair
value of property and equipment acquired, as follows:
<TABLE>
<CAPTION>
GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Cost of sales.......................................... $ (84) $ (170) $ (68) $ (322)
Selling and distribution............................... (15) (149) (68) (232)
General and administration............................. (13) (16) (15) (44)
----- ----- ----- ---------
$ (112) $ (335) $ (151) $ (598)
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>
F-15
<PAGE>
(b) Elimination of (i) salaries and benefits paid primarily to former
shareholders of Swiss Dairy and Model Dairy, whose employment was either
terminated or salaries reduced, and (ii) certain related party rentals at
Model Dairy, as part of the respective acquisition agreements, resulting in
a reduction of historical costs of sales, selling and distribution and
general and administrative costs, as follows:
<TABLE>
<CAPTION>
SWISS DAIRY MODEL DAIRY TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
Cost of sales................................................... $ (620) $ (135) $ (755)
Selling and distribution........................................ (245) (764) (1,009)
General and administration...................................... (702) (608) (1,310)
------------- ------------- ---------
$ (1,567) $ (1,507) $ (3,074)
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
(c) Amortization of goodwill and other intangibles in excess of historical
amounts, as follows:
<TABLE>
<CAPTION>
LIFE GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
--- ----------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Organization costs.............................. 5 $ 5 $ 5 $ 5 $ 15
Tradename....................................... 25 -- -- 120 120
Customer list................................... 10 -- -- 400 400
Goodwill........................................ 40 494 1,000 150 1,644
----- ------ ----- ---------
$ 499 $ 1,005 $ 675 2,179
----- ------ ----- ---------
----- ------ ----- ---------
</TABLE>
(d) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisitions at an assumed interest rate of
7.25%, net of the reduction of historical interest expense related to the
historical debt repaid.
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido..................................................................................... $ 2,083
Swiss Dairy................................................................................. 3,737
Model Dairy................................................................................. 1,708
---------
$ 7,528
---------
---------
</TABLE>
(e) Estimated pro forma adjustment to reflect income taxes at the Company's
estimated effective tax rate of 4% for Garrido, 40% for Swiss Dairy and 35%
for Model Dairy.
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido...................................................................................... $ (502)
Swiss Dairy.................................................................................. 715
Model Dairy.................................................................................. 415
---------
$ 628
---------
---------
</TABLE>
F-16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
THE SWISS MODEL PRO FORMA
COMPANY GARRIDO DAIRY DAIRY ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 364,611 $ 13,228 $ 75,615 $ 42,879 $ -- $ 496,333
Cost of sales........................... 267,131 8,982 65,462 35,171 (872)(a)(b) 375,874
--------- --------- --------- --------- -----------
Gross profit........................ 97,480 4,246 10,153 7,708 120,459
Operating expenses:
Selling and distribution.............. 52,215 1,428 5,153 3,350 (1,131)(a)(b) 61,015
General and administrative............ 15,661 1,163 1,458 3,019 (983)(a)(b) 20,318
Amortization of intangibles and
other............................... 3,200 -- -- 8 1,455(c) 4,663
--------- --------- --------- --------- -----------
Total operating costs and expenses.. 71,076 2,591 6,611 6,377 85,996
--------- --------- --------- --------- -----------
Income from operations.................. 26,404 1,655 3,542 1,331 34,463
Other (income) expense:
Interest expense, net................. 12,844 131 (51) 51 4,625(d) 17,600
Merger and other costs................ 571 -- -- -- 571
Other income, net..................... (3,389) (237) (318) 23 (3,921)
--------- --------- --------- --------- -----------
Total other (income) expense........ 10,026 (106) (369) 74 14,250
--------- --------- --------- --------- -----------
Income before income taxes.............. 16,378 1,761 3,911 1,257 20,213
Income taxes (benefit).................. (7,495) (478) 57 -- 1,705(e) (6,211)
--------- --------- --------- --------- -----------
Income from continuing operations....... $ 23,873 $ 2,239 $ 3,854 $ 1,257 $ 26,424
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Income per share from continuing
operations............................. $ 2.55 $ 2.82
--------- -----------
--------- -----------
Weighted average shares outstanding..... 9,360,539 9,360,539
--------- -----------
--------- -----------
</TABLE>
- --------------------------
(a) Excess of historical depreciation expense over the depreciation of the fair
value of property and equipment acquired, as follows:
<TABLE>
<CAPTION>
GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Cost of sales................................................ $ (42) $ (225) $ (88) $ (355)
Selling and distribution..................................... (8) (199) (88) (295)
General and administration................................... (6) (22) (20) (48)
--- ----- ----- ---------
$ (56) $ (446) $ (196) $ (698)
--- ----- ----- ---------
--- ----- ----- ---------
</TABLE>
F-17
<PAGE>
(b) Elimination of (i) salaries and benefits paid primarily to former
shareholders of Swiss Dairy and Model Dairy, whose employment was either
terminated or salaries reduced, and (ii) certain related party rentals at
Model Dairy, as part of the respective acquisition agreements, resulting in
a reduction of historical costs of sales, selling and distribution and
general and administrative costs, as follows:
<TABLE>
<CAPTION>
SWISS DAIRY MODEL DAIRY TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
Cost of sales......................................................... $ (517) $ -- $ (517)
Selling and distribution.............................................. (240) (596) (836)
General and administration............................................ (352) (583) (935)
------------- ------------- ---------
$ (1,109) $ (1,179) $ (2,288)
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
(c) Amortization of goodwill and other intangibles in excess of historical
amounts, as follows:
<TABLE>
<CAPTION>
LIFE GARRIDO SWISS DAIRY MODEL DAIRY TOTAL
--- ----------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Organization costs.................................... 5 $ 3 $ 4 $ 4 $ 11
Tradename............................................. 25 -- -- 90 90
Customer list......................................... 10 -- -- 300 300
Goodwill.............................................. 40 250 684 120 1,054
----- ----- ----- ---------
$ 253 $ 688 $ 514 $ 1,455
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>
(d) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisitions at an assumed interest rate of
7.25%, net of the reduction of historical interest expense related to the
historical debt repaid.
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido........................................................................................... $ 979
Swiss Dairy....................................................................................... 2,502
Model Dairy....................................................................................... 1,144
---------
$ 4,625
---------
---------
</TABLE>
(e) Estimated pro forma adjustment to reflect income taxes at the Company's
estimated effective tax rate of 4% for Garrido, 40% for Swiss Dairy and 35%
for Model Dairy.
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Garrido........................................................................................... $ 511
Swiss Dairy....................................................................................... 853
Model Dairy....................................................................................... 341
---------
$ 1,705
---------
---------
</TABLE>
F-18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
THE MODEL PRO FORMA
COMPANY DAIRY ADJUSTMENTS PRO FORMA
---------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 9,288 $ 1,110 $ -- $ 10,398
Accounts receivable, net.................................... 47,729 5,662 (19)(b) 53,372
Inventories................................................. 15,853 2,052 17,905
Prepaid expenses and other current assets................... 3,162 164 3,326
Deferred income taxes....................................... 2,127 -- 2,127
---------- --------- -----------
Total current assets...................................... 78,159 8,988 87,128
Property and equipment........................................ 112,280 4,873 3,578(b) 120,731
Deferred income taxes......................................... 7,792 -- 7,792
Intangible and other assets................................... 151,439 627 13,397(b) 165,463
---------- --------- -----------
Total assets.................................................. $ 349,670 $ 14,488 $ 381,114
---------- --------- -----------
---------- --------- -----------
Current liabilities:
Accounts payable and accrued expenses....................... $ 43,702 $ 4,358 $ 238(a) $ 48,298
Income taxes payable........................................ 539 -- 539
Current portion of long-term debt........................... 11,637 663 (663)(a) 11,637
---------- --------- -----------
Total current liabilities................................. 55,878 5,021 60,474
Long-term debt................................................ 204,316 2,394 24,454(a) 231,164
Stockholders' equity:
Common stock................................................ 107 67 (67)(b) 107
Additional paid-in capital.................................. 89,337 -- 89,337
Retained earnings........................................... 32 7,006 (7,006)(b) 32
---------- --------- -----------
Total stockholders equity................................. 89,476 7,073 89,476
---------- --------- -----------
Total liabilities and equity.................................. $ 349,670 $ 14,488 $ 381,114
---------- --------- -----------
---------- --------- -----------
</TABLE>
- ------------------------
(a) In December 1996, the Company completed the acquisition of substantially all
the net assets of Model Dairy for a purchase price of $26.2 million,
including acquired cash and excluding $.9 million in related expenses. The
total purchase price was funded primarily with borrowings under the
Company's Senior Credit Facility, a portion of which was used to repay
indebtedness at Model Dairy, as follows (in thousands):
<TABLE>
<S> <C>
Credit agreement borrowings.............................................................................. $ 26,848
Accrued expenses......................................................................................... 250
-----------
Total purchase price..................................................................................... 27,098
Repayment of existing indebtedness
Accrued interest....................................................................................... (12)
Current portion........................................................................................ (663)
Long-term portion...................................................................................... (2,394)
-----------
Net purchase price................................................................................... $ 24,029
-----------
-----------
</TABLE>
F-19
<PAGE>
(b) The above acquisition resulted in an excess of the purchase price over the
historical net assets acquired, which was allocated to the net assets
acquired as follows:
<TABLE>
<S> <C>
Net purchase price....................................................................................... $ 24,029
Historical carrying value of net assets:
Total net assets....................................................................................... 7,073
Less net assets not assumed:
Accounts receivable.................................................................................. (19)
Intangible and other assets.......................................................................... (439)
---------
Historical carrying value of net assets acquired................................................... 6,615
---------
Excess of net purchase price over historical carrying value.............................................. $ 17,414
---------
---------
Allocation of excess purchase price:
Excess fair value of property and equipment............................................................ $ 3,578
Intangible assets...................................................................................... 13,836
---------
$ 17,414
---------
---------
</TABLE>
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: December 31, 1996 SUIZA FOODS CORPORATION
By: /s/ Tracy L. Noll
----------------------------
Tracy L. Noll
CHIEF FINANCIAL OFFICER
4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1 Asset Purchase Agreement, dated as of December 11, 1996, among
Suiza Foods Corporation, a Delaware corporation, Model Dairy, Inc.,
a Delaware corporation, Model Dairy, Inc., a Nevada corporation,
and the stockholders of Model Dairy identified therein.
23.1 Consent of Independent Auditors
<PAGE>
ASSET PURCHASE AGREEMENTASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into as
of December 11, 1996, by and among Suiza Foods Corporation, a Delaware
corporation ("Suiza Foods"), Model Dairy, Inc., a Delaware corporation and a
wholly owned subsidiary of Suiza Foods (the "Buyer"), Model Dairy, Inc., a
Nevada corporation (the "Company"), J&T Enterprises, a Nevada general
partnership ("J&T"), Bahan & Bahan, a Nevada general partnership ("B&B"), James
N. Bahan, as Special Administrator of The Estate of Thomas E. Bahan (the
"Estate"), James N. Bahan, as Trustee of The Thomas E. Bahan Trust dated August
19, 1994 (the "Trust"), and James N. Bahan, individually ("Bahan"). The Estate,
the Trust and Bahan are referred to collectively as the "Stockholders." The
Company, J&T, B&B and the Stockholders are referred to collectively as the
"Sellers."
WHEREAS, the Sellers desire to sell substantially all of the assets used in
the Company's business to Buyer, and Buyer desires to purchase such assets from
the Sellers, on the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the Stockholders will receive substantial direct and indirect
benefits from the transactions contemplated by this Agreement, and Buyer has
required that the Stockholders execute this Agreement as a condition to Buyer's
execution hereof;
WHEREAS, the parties desire that Suiza Foods join in and be jointly and
severally liable with Buyer with respect to all representations, warranties,
covenants and other obligations of Buyer under this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.1 PURCHASE OF ASSETS. At the Closing (as defined in Section 1.5), the
Sellers agree to sell, transfer, assign and deliver to Buyer the Assets (as
defined below), and Buyer agrees to purchase and take the Assets, on the terms
and subject to the conditions set forth in this Agreement. Subject to the
provisions of Section l.2, the "Assets" mean all tangible and intangible assets
owned by the Company or owned by one of the other Sellers and used in the
business of the Company, including without limitation, all cash and cash
equivalents, accounts receivable, inventory, raw materials, equipment, real
property, fixtures, furnishings, leasehold rights, leasehold improvements,
vehicles, prepaid assets, contract rights, licenses and permits (to the extent
such contract rights, licenses and permits are transferable), customer, prospect
and marketing lists, sales data, records, computer software and software
licenses, proprietary information, intellectual property, trade secrets,
trademarks and trade names (including all rights of the Company to the name
"Model"), copyrights, goodwill associated with such intellectual property,
material and manufacturing specifications, drawings and designs, and including
any
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such assets acquired by the Company, or acquired by any of the other Sellers
and used in the business of the Company, after the date hereof and prior to
the Closing, but excluding any such assets sold or otherwise disposed of in
the ordinary course of business after the date hereof. Without limiting the
generality of the foregoing, the "Assets" specifically include:
(a) all assets described in Schedule 2.4(a), except for such assets used
by the Company under leases or licenses disclosed pursuant to Section 2.19; and
(b) all assets reflected on the Latest Balance Sheet (as defined in
Section 2.8) and all assets acquired by the Company after the date thereof,
except those sold or otherwise disposed of in the ordinary course of business
after the date thereof.
1.2 EXCLUDED ASSETS. Notwithstanding the provisions of Section l.1, the
Assets will exclude the following (the "Excluded Assets"):
(a) the specific assets identified in Schedule 1.2;
(b) the minute books, corporate seal and stock records of the Company;
(c) the Seller's rights under this Agreement and the other agreements,
certificates and instruments to be executed by the Sellers, Buyer and Suiza
Foods in connection with or pursuant to this Agreement; and
(d) the purchase price payable to the Sellers by Buyer at the Closing and
the bank account into which such purchase price is deposited, which, at the
Closing, will contain no funds other than those permitted under section 1.6(l).
1.3 ASSUMED LIABILITIES. It is understood and agreed that Buyer will not
assume any direct or indirect debts, obligations or liabilities of any of the
Sellers of any nature, whether absolute, accrued, contingent, liquidated or
otherwise, and whether due or to become due, asserted or unasserted, known or
unknown (collectively, "Liabilities"), except for the following specifically
identified liabilities (the "Assumed Liabilities") which the Buyer will assume:
(a) all trade payables (including without limitation credit balances in
accounts receivable) and all accrued but unpaid expenses (including without
limitation (i) payroll expenses, (ii) use taxes and employment or payroll taxes,
(iii) workers' compensation expense accruals and (iv) vacation and sick pay
accruals) incurred by the Company prior to the Closing in the ordinary course of
business and not in breach of this Agreement, but (except as specified in
Section 1.3(c)) excluding any expenses arising out of any lawsuit, claim or
proceeding against the Company that arises out of personal injury, death or
other events occurring prior to the Closing;
(b) all obligations of the Company to be performed after the Closing under
the Material Agreements identified in Schedule 2.19 (except those identified as
Excluded Assets in Schedule 1.2) and obligations of the Company to be performed
after the Closing
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under other agreements entered into by the Company in the ordinary course of
business that are not included within the definition of Material Agreements
set forth in Section 2.19, but excluding, in each case, (i) obligations under
any such agreement that result from any breach or default prior to the
Closing (or event occurring prior to the Closing that with notice or lapse of
time would constitute a breach or default) by the Company under such
agreement which is not a Known Breach (as defined in Section 6.1) and (ii)
all contracts and arrangements with stockholders of the Company or any
affiliate or family member thereof; and
(c) all liabilities of the Company resulting from workers' compensation
claims under the Nevada State Industrial Insurance System ("SIIS Claims") that
arise out of events occurring prior to the Closing, including without limitation
any such SIIS Claims that have been closed and are reopened.
1.4 CONSIDERATION. As consideration for the acquisition of the Assets
from the Sellers, Buyer will assume the Assumed Liabilities and pay the Sellers
an aggregate of $26,200,000 plus the Cash Adjustment referenced below (the
"Purchase Price"). The Purchase Price will be payable as follows:
(a) $2,000,000 of the Purchase Price will be deposited into escrow
pursuant to an escrow agreement substantially in the form of Exhibit A (the
"Escrow Agreement") as security for the indemnification obligations of the
Company under Article VI;
(b) $20,665,155 of the Purchase Price will be paid to the Company at the
Closing by wire transfer of immediately available funds (to one or more accounts
specified in writing by the Company to Buyer at least two days prior to the
Closing);
(c) $3,534,845 of the Purchase Price will be paid at the Closing to J&T
and/or B&B, in respect of certain real property included within the Assets, by
wire transfer of immediately available funds (to one or more accounts specified
in writing by the Sellers to Buyer at least two days prior to such date); and
(d) the Cash Adjustment will be paid by wire transfer of immediately
available funds at the Closing or as soon after the Closing as the amount of the
Cash Adjustment is determined. For such purposes, the "Cash Adjustment" equals
(i) $355,000; plus (ii) any portion of the Interim Tax Amount (as defined in
Section 4.1) not distributed to the Company's stockholders prior to the Closing;
minus (iii) any portion of the Seller Expenses (as defined in Section 4.8) paid
by the Company prior to the Closing; minus (iv) the Capurro Expenditures (as
defined in Section 4.16); minus (v) $91,667, which represents 11/12 of the
$100,000 in aggregate bonuses to be paid by the Company with respect to services
rendered during the year ended October 31, 1996. The Sellers will calculate the
Cash Adjustment and deliver to Buyer a written statement showing such
calculation (together with any supporting documentation reasonably requested by
Buyer) at the Closing or as soon thereafter as practicable.
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1.5 CLOSING. The Closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Company's
counsel in Reno, Nevada (or such other place as the parties may agree) on either
(i) December 12, 1996 or, if the conditions set forth in Sections 5.1(c) and (d)
and 5.2(c) have not been satisfied or waived by such date, on December 16, 1996
or (ii) such other day as the parties may mutually agree to in writing.
Notwithstanding the foregoing, the Closing shall not take place unless all of
the conditions set forth in Article V have been satisfied or waived on the date
of the Closing determined as provided above. The Sellers will notify Buyer in
writing within one business day after the consents, approvals, orders and
authorizations referred to in Sections 5.1(c) and 5.2(c) required to be obtained
by the Sellers have been obtained and, to the Sellers' knowledge, the condition
in the last sentence of the same Sections relating to the HSR Act has been
satisfied or waived. Likewise, Buyer will notify the Company in writing within
one business day after the consents, approvals, orders and authorizations
referred to said Sections required to be obtained by Buyer have been obtained
and, to Buyer's knowledge, the condition in the last sentence in those Sections
has been satisfied or waived and the conditions in Section 5.1(d) have been
satisfied or waived.
1.6 CLOSING DELIVERIES. At the Closing,
(a) Buyer will transfer the cash portion of the Purchase Price specified
in Section 1.4(b) to the bank accounts specified by the Company and will deposit
the remainder of the Purchase Price into escrow pursuant to the Escrow Agreement
in accordance with Section 1.4(a);
(b) Buyer and the Company will execute and deliver the Escrow Agreement;
(c) Buyer and Bahan will execute and deliver an Employment Agreement, in
the form of Exhibit B (the "Bahan Agreement");
(d) Buyer and Kelly Kading will execute and deliver an Employment
Agreement, in the form of Exhibit C (the "Kading Agreement");
(e) the Sellers will execute and deliver to Buyer a Bill of Sale conveying
the Assets to Buyer, in the form of Exhibit D;
(f) each Seller that owns real estate included within the Assets will
execute and deliver to Buyer one or more grant, bargain and sale deeds conveying
such real estate to Buyer, in the form of Exhibit E (the "Deeds");
(g) the Sellers will execute and deliver to Buyer an Assignment of Lease,
in the form of Exhibit F;
(h) the Company will endorse and deliver to Buyer any certificates of
title necessary to effect or record the transfer of any vehicles or other Assets
for which ownership is evidenced by a certificate of title;
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(i) the Sellers will deliver to Buyer or otherwise make available the
originals or copies of all of the Company's books, records, ledgers, disks,
proprietary information and other data and all other written or electronic
depositories of information relating to the Assets;
(j) Buyer will deliver to the Company an Assumption Agreement, in the form
of Exhibit G hereto;
(k) Buyer and the Company will execute and deliver an Assignment and
Assumption Agreement relating to certain of the Company's employee benefit
plans, in the form of Exhibit H hereto; and
(l) the Company will pay to Buyer all cash then held in the Company's bank
accounts other than the Excluded Assets, the purchase price payable to the
Company at the Closing, the amount authorized for distribution to the Company's
stockholders pursuant to the last sentence of Section 4.1 (to the extent not
previously distributed) and (if necessary) an amount sufficient to cover
outstanding checks.
1.7 FURTHER ASSURANCES. At or after the Closing, and without further
consideration, the Sellers, Buyer and Suiza Foods will execute and deliver to
each other such further instruments of conveyance and transfer as any party may
reasonably request in order more effectively to convey and transfer the Assets
to Buyer, to put Buyer in operational control of the business of the Company, or
to aid or assist the collecting and reducing to possession of any of the Assets
and exercising rights with respect thereto or to further evidence and satisfy
creditors and claimants with respect to the assumption of the Assumed
Liabilities, provided that no such instruments shall subject any party to any
loss, cost, liability, obligation, expense or risk not contemplated by this
Agreement.
1.8 ALLOCATION OF PURCHASE PRICE. Buyer and the Sellers agree that, for
all purposes relevant to the calculation of federal or state taxes, the Purchase
Price will be allocated among the Sellers and among the Assets in the manner
described in Schedule 1.8 on the respective income and other tax returns and
statements that each of them may file with any government agency.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby represent and warrant to Buyer as follows:
2.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of Nevada and has full corporate
power to own its properties and to conduct its business as presently conducted.
Each of J&T and B&B is a general partnership duly organized and validly existing
under the laws of Nevada and has full partnership power to own its properties
and to conduct its business as presently conducted. Each of the Company,
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J&T and B&B is duly authorized, qualified or licensed to do business, and the
Company is in good standing as a foreign corporation, in each state or other
jurisdiction in which its assets are located or in which its business or
operations as presently conducted make such qualification necessary.
2.2 AUTHORITY. The Sellers have all requisite power and authority to
execute, deliver and perform under this Agreement and the other agreements,
certificates and instruments to be executed by the Sellers in connection with or
pursuant to this Agreement (collectively, the "Seller Documents"). The
execution, delivery and performance by each Seller of the Seller Documents to
which it is a party have been duly authorized by all necessary action,
corporate, partnership or otherwise, on the part of such Seller. Bahan is the
duly appointed trustee of the Trust and the duly appointed special administrator
of the Estate, and in such capacities is authorized to execute the Seller
Documents on behalf of the Trust and the Estate (to the extent each has an
interest in such Seller Documents). This Agreement has been, and at the Closing
the other Seller Documents will be, duly executed and delivered by the Sellers
(to the extent each is a party thereto). This Agreement is, and, upon execution
and delivery by the Sellers at the Closing, each of the other Seller Documents
will be, a legal, valid and binding agreement or other document of the Sellers
(to the extent each is a party thereto), enforceable against Sellers in
accordance with their respective terms.
2.3 MINUTE BOOKS. The Sellers have made available to Buyer true, correct
and complete copies of the partnership agreements of J&T and B&B and the
Company's articles of incorporation, bylaws, minute books, stock certificate
books and stock record books, except that (i) the minutes for meetings at which
action has been taken with respect to the transaction contemplated by this
Agreement may be redacted to show only the portions of such minutes reflecting
action taken by the directors or shareholders, as the case may be and (ii) the
minute books may not reflect all actions taken by the directors and stockholders
unrelated to the transaction contemplated by this Agreement.
2.4 TITLE TO ASSETS.
(a) Set forth in Schedule 2.4(a) is a complete list (including the
street address, where applicable) of (i) all real property owned by the
Company; (ii) all real property owned by a Seller other than the Company
and used in the business of the Company; (iii) all real property leased
by the Company (from someone other than a Seller); (iv) each vehicle
owned, leased or otherwise used in the business of the Company; and (v)
each other asset owned or leased by the Company with a book value or
fair market value greater than $20,000.
(b) The Company or one of the other Sellers owns all of the Assets
(excluding real estate, goodwill and Intellectual Property as to which
no such representation or warranty is made in this paragraph) free and
clear of any liabilities, obligations, liens, claims, security interests
or encumbrances of any nature (collectively, "Liens"), other than (i)
statutory Liens securing current taxes and other obligations that are
not yet delinquent; (ii) the Liens described in Schedule 2.4(b) that are
designated to survive the
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Closing; and (iii) the Liens described in Schedule 2.4(b) that are
designated to be discharged prior to the Closing. The execution and
delivery of the Seller Documents by the Sellers at the Closing will
convey to and vest in Buyer title to the Assets (other than real estate,
goodwill and Intellectual Property), free and clear of any Liens except
the Assumed Liabilities and the Liens described in clauses (i) and (ii)
of the preceding sentence and will convey to and vest in Buyer all of
the Seller's rights in and to the real estate, goodwill and Intellectual
Property included in the Assets. The Company owns all of the Assets
except for the real property referenced in Section 2.4(a)(ii) above,
which is owned by another Seller as specified in Schedule 2.4(a). All
interests in the Company, J&T, B&B and the Assets owned by Thomas E.
Bahan immediately prior to his death are now owned by the Trust or the
Estate.
(c) Except as set forth in Section 2.21 and except for warranties
included in the Deeds or implied by law in the delivery of the Deeds,
the Sellers make no representation or warranty as to the ownership or
freedom from Liens of any Assets constituting real estate, goodwill or
Intellectual Property. Buyer has received commitments for title
insurance from Western Title with respect to the real property included
within the Assets, and Buyer will look solely to the Deeds and such
title insurance with respect to all matters concerning title to such
real property.
2.5 INCLUSIVENESS OF ASSETS. Subject to the provisions of Section 2.4(c),
the Assets constitute all assets used by the Company in the conduct of its
business, except for assets held under leases or licenses disclosed pursuant to
Section 2.19 and the Excluded Assets.
2.6 NO VIOLATION. Except as described in Schedule 2.6, neither the
execution or delivery of the Seller Documents nor the consummation of the
transactions contemplated thereby, including without limitation the sale of the
Assets to Buyer, will conflict with or result in the breach of any term or
provision of, or violate or constitute a default under, or result in the
creation of any Lien on the Assets pursuant to, or relieve any third party of
any obligation to any Seller or give any third party the right to terminate or
accelerate any obligation under, any charter provision, bylaw, trust agreement
or other governing document, Material Agreement, Permit (as defined in Section
2.14), order, law or regulation to which any Seller is a party or by which any
Seller or any of their assets is in any way bound or obligated.
2.7 GOVERNMENT CONSENTS. Except as required in connection with the Hart
Scott Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
as described in Schedule 2.6, no consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
governmental or quasi-governmental agency, authority, commission, board or other
body (collectively, a "Governmental Body") is required on the part of any Seller
in connection with the transfer of any Permits or other Assets to Buyer or any
of the other transactions contemplated by this Agreement. Buyer acknowledges
its understanding that the operation of the Company's business requires a
substantial number of Nontransferable Permits (as defined in Section 2.14),
which the Sellers cannot transfer to Buyer. Buyer will have sole responsibility
to, and will use commercially reasonable efforts to, obtain all Permits
necessary for Buyer to operate the Company's business, and the Sellers will use
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commercially reasonable efforts, as requested by Buyer and at Buyer's expense,
to assist Buyer in obtaining such Permits.
2.8 FINANCIAL STATEMENTS.
(a) Attached as Schedule 2.8(a) are true and complete copies of
(i) the unaudited balance sheet of the Company (the "Latest Balance
Sheet") as of September 30, 1996 (the "Latest Balance Sheet Date") and
the related unaudited statements of operations and cash flow for the 11
months then ended, and (ii) the audited balance sheets of the Company as
of October 31, 1995 and 1994 and the related audited statements of
operations and cash flow for the years then ended (collectively, the
"Financial Statements").
(b) Except as described in Schedule 2.8(b), the Financial
Statements present fairly the financial condition of the Company at the
dates specified and the results of its operations for the periods
specified and have been prepared in accordance with generally accepted
accounting principles, consistently applied, subject (i) to the absence
of footnote disclosure and other presentation items in the unaudited
statements and (ii) in the case of the interim statements, to changes
resulting from normal period-end adjustments for recurring accruals,
which will not be material individually or in the aggregate. The
Financial Statements do not contain any items required by generally
accepted accounting principles to be stated as an extraordinary item,
except as expressly stated therein. The Financial Statements have been
prepared from the books and records of the Company, which accurately and
fairly reflect the transactions of, acquisitions and dispositions of
assets by, and incurrence of liabilities by the Company in all material
respects.
(c) Except for the Assumed Liabilities and except for the
indebtedness described in Schedule 2.8(c) (which indebtedness is not
included in the Assumed Liabilities), the Company has no Liabilities,
known or unknown, that would be required to be reflected in a balance
sheet prepared in accordance with generally accepted accounting
principles, applied in a manner consistent with the Financial Statements.
(d) Except as set forth in Schedule 2.8(d), (i) except to the
extent reserved for, all inventories and raw materials reflected in the
Latest Balance Sheet are of good and merchantable quality and are
salable in the ordinary course of business (in the case of inventory
held for sale) or currently usable (in the case of other inventory and
raw materials), and (ii) the value of the inventories reflected in the
Latest Balance Sheet are stated in accordance with generally accepted
accounting principles, consistently applied.
(e) All accounts receivable reflected in the Latest Balance Sheet,
except those constituting Excluded Assets, arose in the ordinary course
of business. All notes receivable included within the Assets are
enforceable and collectible in the ordinary course of business in
accordance with their terms, assuming that commercially reasonable
efforts are made to collect such notes receivable.
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2.9 REAL ESTATE MATTERS. The real property owned by the Company or owned
by one of the other Sellers and used in the business of the Company or leased by
the Company (collectively, the "Real Property") is zoned for a classification
that permits the continued use of the Real Property in the manner currently used
by the Company. The existing use of the Real Property by the Company complies
in all material respects with all applicable laws, ordinances and regulations
related to zoning. To the knowledge of the Sellers, there are no actions
pending or threatened that would alter the current zoning classification of the
Real Property. To the knowledge of the Sellers, improvements included in the
Assets were constructed in compliance in all material respects with all
applicable laws, statutes, regulations, codes, covenants, conditions and
restrictions affecting the Real Property or any part thereof at the time of
construction. To the knowledge of the Sellers, no fact or condition exists that
would result in the discontinuation of necessary utilities or services to the
Real Property or the termination of current access to and from the Real
Property. None of the Sellers is a "foreign person" as that term is defined in
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable regulations.
2.10 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the Latest Balance Sheet
Date, except as specifically contemplated by this Agreement or as described in
Schedules 2.10(a), (b) and (e), there has not been: (a) any material adverse
change overall in the Assets or in the condition (financial or otherwise),
results of operations, business, assets or Liabilities of the Company or with
respect to the manner in which the Company conducts its business or operations
or, to the knowledge of the Sellers, its prospects; (b) any payment or transfer
of assets between or among any of the Sellers (including without limitation any
dividend, stock repurchase or other distribution or any repayment of
indebtedness), other than compensation (including bonuses in an aggregate amount
not exceeding $100,000) and expense reimbursements paid by the Company to its
stockholders in the ordinary course of business, consistent with past practice,
and other than the distribution to stockholders contemplated by the last
sentence of Section 4.1; (c) any breach or default (or event that with notice or
lapse of time would constitute a breach or default), termination or threatened
termination under any Material Agreement; (d) any theft, damage, destruction,
casualty loss, condemnation or eminent domain proceeding affecting any assets
used by the Company, whether or not covered by insurance; (e) any sale,
assignment or transfer of any of the assets used by the Company, except in the
ordinary course of business; (f) any waiver by any Seller of any material rights
related to the Assets or the Company's business; (g) any other transaction,
agreement or commitment entered into by any Seller or affecting the Assets or
the Company's business, except in the ordinary course of business; or (h) any
agreement or understanding to do or resulting in any of the foregoing.
Notwithstanding the foregoing, Buyer acknowledges that Seller has made or
intends to make the planned capital expenditures described in Section 4.19.
2.11 TAXES. Except as described in Schedule 2.11, all required federal,
state, local and other tax returns, notices and reports (including without
limitation income, property, sales, use, franchise, withholding, social security
and unemployment tax returns) relating to or involving the Assets or
transactions with the Sellers have been accurately prepared and duly and timely
filed, and all taxes required to be paid with respect to the periods covered by
any such returns have been timely paid. There has been no tax deficiency
proposed or assessed against any Seller that
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has not been fully paid, and no Seller has executed any waiver of any statute
of limitations on the assessment or collection of any tax. No tax audit,
action, suit, proceeding, investigation or claim is now pending or, to the
knowledge of the Sellers, threatened against any Seller, and to the knowledge
of the Sellers no issue or question has been raised (and is currently
pending) by any taxing authority in connection with any of the Seller's tax
returns or reports. The Company has withheld or collected from each payment
made to each of its employees the full amount of all taxes required to be
withheld or collected therefrom and has paid the same to the proper tax
receiving officers or authorized depositories. Except for the transfer taxes
(including sales, use and deed taxes) associated with the transfer of the
Assets to Buyer, which will be allocated between Buyer and the Sellers as set
forth in Section 4.8, and the accrued taxes specifically included in the
Assumed Liabilities, Buyer will not be responsible for any income, sales,
use, excise or other tax that arises out of or results from the operation of
the Assets prior to the Closing or any other transaction or activity of the
Sellers, excluding (in each case) taxes attributable to the income of Buyer
after the Closing and to the ownership and operation of the Assets by Buyer
after the Closing.
2.12 LITIGATION. Except as described in Schedule 2.12, there are currently
no pending or, to the knowledge of the Sellers, threatened lawsuits,
administrative proceedings or reviews, or, to the knowledge of the Sellers, any
formal or informal complaints or investigations (other than reviews and
investigations carried out in the absence of any complaint or alleged violation
known to the Sellers) by any individual, corporation, partnership, Governmental
Body or other entity (collectively, a "Person") against or relating to the
Company, any of its directors any other Seller, or any employees or agents of
the foregoing (in their capacities as such) or to which any of the Assets are
subject. There are no pending complaints or investigations by any Person that
will subject the Assets to any Liability. No Seller is subject to or bound by
any currently existing judgment, order, writ, injunction or decree.
2.13 COMPLIANCE WITH LAWS. Each Seller is currently complying in all
material respects with and has at all times complied in all material respects
with each statute, law, ordinance, decree, order, rule or regulation of any
Governmental Body applicable to the Assets or the Company, including without
limitation all federal, state and local laws relating to occupational health and
safety, product quality and safety and employment and labor matters but
excluding Environmental Laws (as defined in Section 2.15), as to which the
Sellers' representations and warranties are limited to those set forth in
Section 2.15. The Company has performed regular tests in accordance with
industry practice to determine whether its products comply in all material
respects with applicable laws and regulations. Except as described in Schedule
2.13, the Company has not recalled any of its products during the last five
years.
2.14 PERMITS. Except as described in Schedule 2.14, the Sellers have
obtained and possess from each appropriate Governmental Body all permits,
licenses, authorizations, approvals, quality certifications, franchises or
rights (collectively, "Permits") issued by any Governmental Body necessary to
conduct the business of the Company. Each of such Permits is listed in
Schedule 2.14 and is included within the Assets, except for those Permits
identified in Schedule 1.2 as being nontransferable (the "Nontransferable
Permits"). No loss or expiration of any such Permit is pending or, to the
knowledge of the Sellers, threatened, other than expiration
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in accordance with the terms thereof of Permits that the Sellers believe may
be renewed in the ordinary course of business without lapsing and other than
the Nontransferable Permits, which Buyer will have to obtain from the
appropriate Governmental Body for itself in connection with the transactions
contemplated by this Agreement.
2.15 ENVIRONMENTAL MATTERS.
(a) Except as described in Schedule 2.15, (i) no Seller has used,
stored, disposed of or released any Hazardous Substance in violation of
any applicable Environmental Law and, except as set forth in said
Schedule, no Seller has received any notices, demand letters or requests
for information from any Governmental Body or other Person indicating
that any Seller or any of the Assets may be in violation of or subject
to liability under any Environmental Law; and (ii) to the knowledge of
the Sellers, none of the Real Property contains any Hazardous Substance
in amounts exceeding the levels permitted by applicable Environmental
Laws, and to the knowledge of the Sellers, no Person other than the
Sellers has used, stored, disposed of or released any Hazardous
Substance in violation of any applicable Environmental Law on, to or
from any of the Real Property.
(b) As used herein, "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, Permit,
order, judgment, decree, requirement or agreement with any Governmental
Body relating to (i) the protection, preservation or restoration of the
environment or (ii) the use, storage, generation, transportation,
processing, production, release or disposal of Hazardous Substances, in
each case as amended and in effect on the date of the Closing.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous under any Environmental Law.
Hazardous Substance includes any substance to which exposure is
regulated by any Governmental Body or any Environmental Law, including
without limitation any toxic waste, pollutant, toxic contaminant,
hazardous substance, toxic substance, hazardous waste, petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos
or asbestos containing material, urea formaldehyde, foam insulation,
lead or polychlorinated biphenyls.
(d) Buyer acknowledges its understanding and agreement that the
Sellers have not made any investigation of the Assets with respect to
the presence or absence of Hazardous Substances or the violation of any
Environmental Laws and that no reference to the knowledge of the Sellers
in this Section 2.15 or any other provision of this Agreement is
intended to imply or create any obligation to undertake any
investigation as to those or any other matters.
2.16 EMPLOYEE MATTERS. Set forth on Schedule 2.16 is a complete list of
all current employees of the Company, including date of employment, current
title and compensation, and date and amount of last increase in compensation.
The Company is in substantial compliance in
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all material respects with all provisions of each applicable collective
bargaining agreement, and no complaint alleging any material violation of
such provisions has been filed or, to the knowledge of the Sellers,
threatened to be filed with or by any Governmental Body. The Company has not
experienced any strike, material labor trouble, work stoppage, slow down or
other interference with or impairment of the business of the Company, nor has
any of the foregoing been threatened within the last 60 months.
2.17 EMPLOYEE BENEFIT PLANS.
(a) Set forth in Schedule 2.17 is a complete list of all "employee
benefit plans," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), all plans or policies
providing for fringe benefits (including without limitation vacation,
paid holidays, personal leave, employee discounts, educational benefits
or similar programs), and all other bonus, incentive, compensation,
profit-sharing, stock, severance, retirement, health, life, disability,
group insurance, employment, fringe benefit and other similar plans,
agreements, policies or understandings (whether written or oral,
qualified or nonqualified, currently effective or terminated), and any
trust, escrow or other agreement related thereto, which (i) is
maintained or contributed to by the Company, or with respect to which
the Company has or may have any liability, or (ii) provides benefits, or
describes policies or procedures applicable, to any employee or former
employee or dependents thereof, regardless of whether funded (the
"Employee Plans"). The Company has made available to Buyer accurate and
complete copies of the documents, records and other materials related
thereto reasonably requested by Buyer in writing. Except pursuant to the
Company's collective bargaining agreements and the Health and Welfare
Trust (as defined below), no written or oral representations have been
made to any employee or former employee of the Company promising or
guaranteeing any employer payment or funding for the continuation of
medical, dental, life or disability coverage for any period of time
beyond the end of the current plan year (except to the extent of
coverage required under Code Section 4980B). The consummation of the
transactions contemplated by this Agreement will not accelerate the time
of payment or vesting, or increase the amount of compensation due to any
employee or former employee of the Company. "ERISA Affiliate" means the
Company and each Person that is or has been treated as a single employer
or controlled group member with the Company pursuant to Section 414 of
the Code or Section 4001 of ERISA.
(b) With respect to each "employee benefit plan" (as defined in
ERISA) that is not a "multiemployer plan" or a "multiple employer plan"
(as such terms are defined in Sections 3(37)(A) and 3(40)(A) of ERISA
(multiemployer plans and multiple employer plans are hereinafter
referred to as "Multiemployer Plans")) and that is maintained or
contributed to, currently or in the past, by the Company or any ERISA
Affiliate, or with respect to which the Company or any ERISA Affiliate
has liability (the "Controlled Group Plans"):
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(i) with respect to each Controlled Group Plan that is a
"pension plan" (as defined in Section 3(2)(A) of ERISA), there are
no unfunded liabilities existing under any such plan;
(ii) each Controlled Group Plan could be terminated as of the
date of the Closing with no liability to Buyer, the Company or any
ERISA Affiliate;
(iii) there is no Controlled Group Plan that is a defined benefit
plan (as defined in Section 3(35) of ERISA); and
(iv) each Controlled Group Plan has been operated in compliance
with ERISA, applicable tax qualification requirements and all other
applicable laws.
(c) (i) the only Multiemployer Plans maintained by the Company or
any ERISA Affiliate are the Teamsters Pension Trust Fund (the "Pension
Plan") and the Teamsters Local #533 Health and Welfare Trust (the "Health
and Welfare Trust");
(ii) the Company and each ERISA Affiliate has or will have, as
of the date of the Closing, made all contributions to the Pension Plan
and the Health and Welfare Trust required by the terms of each such
Plan or any collective bargaining agreement;
(iii) the Company or Buyer would not be subject to any withdrawal
liability under Part 1 of Subtitle E of Title IV of ERISA if, as of
the date of the Closing, the Company or any ERISA Affiliate were to
engage in a complete withdrawal (as defined in ERISA Section 4203) or
a partial withdrawal (as defined in ERISA Section 4205) from the
Pension Plan or the Health and Welfare Trust; and
(iv) the Company has delivered to Buyer current, accurate and
complete copies of all collective bargaining agreements requiring
contributions to be made to the Pension Plan or the Health and Welfare
Trust.
2.18 OWNERSHIP OF THE COMPANY. All of the issued and outstanding capital
stock of the Company is owned of record and beneficially by the Stockholders.
The Stockholders are the only partners of J&T and of B&B. There are no
outstanding options, warrants, convertible securities or other rights,
agreements, arrangements or commitments (other than community property interests
of Bahan's wife) obligating any Person to issue or sell any securities or
ownership interests in the Company, J&T or B&B.
2.19 MATERIAL AGREEMENTS.
(a) Schedule 2.19 lists each of the following types of agreements
(whether written or oral and including all amendments thereto) to which the
Company is a party or a beneficiary or by which the Company or any of the
Assets is bound (collectively, the
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"Material Agreements"): (i) agreements pursuant to which the Company sells
or distributes any products; (ii) real estate leases; (iii) agreements
evidencing, securing or otherwise relating to any indebtedness for
borrowed money for which the Company is liable; (iv) agreements which
create, or could require the creation of, any Lien on any of the Assets;
(v) capital or operating leases or conditional sales agreements relating to
vehicles, equipment or other Assets; (vi) agreements pursuant to which the
Company is entitled or obligated to acquire any assets from a third party;
(vii) insurance policies; (viii) employment, consulting, noncompetition,
separation, collective bargaining, union or labor agreements or
arrangements; (ix) agreements with or for the benefit of any employee of
the Company, or any affiliate or immediate family member thereof; and
(x) any other agreement under the terms of which the Company could be
required to make or entitled to receive aggregate payments or other value
in excess of $50,000 in any year.
(b) The Sellers have delivered to Buyer a copy of each Material
Agreement that is in writing and a written summary of the material terms
of each verbal Material Agreement. Except as described in Schedule 2.19,
(i) each Material Agreement is valid, binding and in full force and effect
and enforceable in accordance with its terms in all respects material to
such agreement; (ii) the Company has performed all of its obligations under
each Material Agreement, and there exists no breach or default (or event
that with notice or lapse of time would constitute a breach or default)
under any Material Agreement; (iii) there has been no termination or notice
of default or, to the knowledge of the Sellers, any threatened termination
under any Material Agreement; and (iv) no consent of any Person is required
in connection with the transactions contemplated by this Agreement in order
to assign any of the Material Agreements to Buyer.
2.20 CUSTOMERS. Set forth in Schedule 2.20 is a complete list of each
customer of the Company that accounted for more than $150,000 of revenues during
the year ended December 31, 1995 or during the 11 months ended on the Latest
Balance Sheet Date (the "Material Customers"), and indicating the amount of
revenues attributable to each Material Customer during such periods. Except as
set forth in Schedule 2.20, none of the Material Customers has threatened to, or
notified any Seller of any intention to, terminate or materially alter its
relationship with the Company, and there has been no dispute with a Material
Customer since January 1, 1995 which could reasonably be expected to result in
any such termination or alteration.
2.21 INTELLECTUAL PROPERTY RIGHTS. Set forth in Schedule 2.21 is a
complete list of all patents, trademarks, service marks, trade names and
copyrights, and applications for and licenses (to or from any Seller) with
respect to any of the foregoing, used in the Company's business (collectively,
"Intellectual Property"). To the knowledge of the Sellers, none of the
Intellectual Property is registered with the Federal government or any state.
To the knowledge of the Sellers, the Company has the right to use all
Intellectual Property and other computer software and software licenses, trade
secrets, manufacturing specifications, drawings and designs (collectively,
"Proprietary Rights") used in connection with the operation of the Company's
business, without infringing on or otherwise acting adversely to the rights or
claimed rights of any Person, and, to
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the knowledge of the Sellers, except as described in Schedule 2.21, no Seller
is obligated to pay any material royalty or other consideration to any Person
in connection with the use of any such Proprietary Rights. To the knowledge
of the Sellers, except as described in Schedule 2.21, no other Person is
infringing the rights of the Company in any of its Proprietary Rights.
2.22 SUBSIDIARIES AND INVESTMENTS. Except as described in Schedule 2.22,
the Company does not own and the Assets do not include any direct or indirect
equity or debt interest in any other Person, including without limitation any
interest in a corporation, partnership or joint venture, and the Company is not
obligated or committed to acquire any such interest.
2.23 COMPETING INTERESTS. Except as described in Schedule 2.23, none of
the Sellers, any affiliate or immediate family member of any Stockholder or any
officer or director of the Company owns, directly or indirectly, an interest in
any Person that is a competitor, customer or supplier of the Company or that
otherwise has material business dealings with the Company.
2.24 NO MISREPRESENTATIONS. The representations and warranties set forth
in Article II of this Agreement are true and correct in all material respects
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary to make any such representation or warranty or
statement, under the circumstances in which it is made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
3.1 ORGANIZATION. Buyer and Suiza Foods are each a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
3.2 AUTHORITY. Buyer and Suiza Foods each has all requisite power and
authority to execute, deliver and perform under this Agreement and the other
agreements, certificates and instruments to be executed by each of them in
connection with or pursuant to this Agreement (collectively, the "Buyer
Documents"). The execution, delivery and performance by Buyer and Suiza Foods
of each Buyer Document have been duly authorized by all necessary action,
corporate or otherwise, on the part of each of them to the extent they are
signatories thereto. This Agreement has been, and at the Closing the other
Buyer Documents will be, duly executed and delivered by Buyer and Suiza Foods to
the extent they are signatories thereto. This Agreement is, and, upon execution
and delivery by Buyer and Suiza Foods at the Closing to the extent they are
signatories thereto, each of the other Buyer Documents will be, a legal, valid
and binding agreement of each of them, enforceable against each of them who is a
signatory thereto in accordance with its respective terms.
3.3 NO VIOLATION. The execution, delivery and performance of the Buyer
Documents by Buyer and Suiza Foods will not conflict with or result in the
breach of any term or provision
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of, or violate or constitute a default under any charter provision or bylaw
or under any material agreement, instrument, order, law or regulation to
which either is a party or by which either is in any way bound or obligated.
3.4 GOVERNMENTAL CONSENTS. Except as required in connection with the HSR
Act and except for the Nontransferable Permits, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Body is required on the part of Buyer or Suiza
Foods in connection with the transactions contemplated by this Agreement.
3.5 FINANCIAL CONDITION OF BUYER. Buyer is a newly organized corporation
having been incorporated solely for purposes of consummating the transactions
contemplated by this Agreement. Buyer has no assets or liabilities of any kind
except for a nominal amount of cash, and Buyer has had no operations of any kind
except for the execution and delivery of this Agreement and the performance of
the activities of Buyer contemplated hereby. All of the issued and outstanding
shares of capital stock of Buyer are owned of record and beneficially by Suiza
Foods.
3.6 NO MISREPRESENTATIONS. The representations and warranties set forth
in Article III of this Agreement are true, complete and correct in all material
respects. None of such representations, warranties or statements contains any
untrue statement of a material fact or omits to state any material fact
necessary to make any such representation, warranty or statement, under the
circumstances in which it is made, not misleading.
3.7 ACKNOWLEDGMENT BY BUYER. Buyer has been afforded an opportunity to
perform such investigations, inspections and other procedures as it determines
to be necessary or desirable with respect to the Assets, including without
limitation, such environmental surveys, soils tests and other procedures as it
determines to be necessary or desirable, but the parties acknowledge and agree
that the fact that Buyer has been afforded such opportunity in no way affects
the definition of Known Breach in Section 6.1, which (except as expressly set
forth therein with respect to audit results, related work papers and the
accounting due diligence report) is limited to matters actually known by the
specified individuals. Except for the specific warranties set forth in
Article II and in any certificate delivered at the Closing, Buyer is acquiring
the Assets "as is" without representation or warranty of any kind.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 CONDUCT OF BUSINESS. Prior to the Closing, unless Buyer otherwise
consents in writing, the Sellers will (a) operate the Company's business in the
ordinary course of business and consistent with past practices and use
commercially reasonable efforts to preserve the goodwill of the Company and of
its employees, customers, suppliers, Governmental Bodies and others having
business dealings with the Company; (b) except as specifically contemplated by
this Agreement or as described in Schedule 4.1, not engage in any transaction
related to the Company's business or the Assets that is outside the ordinary
course of business, including
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without limitation by making any material expenditure, investment or
commitment or entering into any material agreement or arrangement that is
outside the ordinary course of its business or not consistent with past
practice; (c) not increase the compensation of any officer or key employee of
the Company; (d) use commercially reasonable efforts to maintain all
insurance policies and all Permits that are required for the Company to carry
on its business; (e) maintain books of account and records in the usual,
regular and ordinary manner and consistent with past practices; and (f) not
intentionally take any action that the Person taking the action on behalf of
such Seller knows, at the time the action is taken, is reasonably likely to
result in a breach (as of the Closing) of the representations and warranties
set forth in clauses (b), (e), (f), (g) or (h) of Section 2.10 if they were
made as of the Closing Date. Notwithstanding the foregoing, the Company may
make a cash distribution to the Stockholders prior to the Closing in an
aggregate amount equal to the incremental income tax liability of the
Stockholders that results from the net taxable income of the Seller from
October 1, 1996 to the Closing (the "Interim Tax Amount"). For such
purposes, the Interim Tax Amount will be calculated by determining the
average taxable net income of the Company per day during the year ended
October 31, 1996, multiplying such average by the number of days from October
1, 1996 to the date of the Closing, and multiplying such product by 40%. The
Interim Tax Amount will not reflect any tax liability that results from the
sale of the Assets hereunder.
4.2 ACCESS AND INFORMATION. Prior to the Closing the Sellers will permit
Buyer and its representatives to have reasonable access to the Company's assets
and properties and all relevant books, records and documents of or relating to
the Assets or the business of the Company during normal business hours and will
furnish to Buyer such information, financial records and other documents
relating to the Assets and the Company's operations and business as Buyer may
reasonably request. Prior to the Closing the Sellers will use commercially
reasonable efforts to permit Buyer and its representatives reasonable access to
the Company's directors, officers, employees, accountants, auditors, customers
and suppliers for consultation or verification of any information obtained by
Buyer and to cause such Persons to cooperate with Buyer and its representatives
in such consultations and in verifying such information. The Sellers will have
the right to participate in any contact with such Persons, and Buyer will give
the Company reasonable advance notice of any such contact in order to permit
such participation. Notwithstanding the foregoing, the Sellers will have no
obligation to disclose information under circumstances that would constitute a
breach of contract or a violation of applicable law, if the Sellers notify Buyer
that information is being withheld due to such circumstances.
4.3 SUPPLEMENTAL DISCLOSURE. As soon as reasonably practicable, the
Sellers will supplement or amend each of the Schedules hereto with respect to
any matter known to them that arises or is discovered after the date hereof and
prior to the Closing that, if existing or known at the date hereof, would have
been required to be set forth or listed in the Schedules hereto. Any matters so
disclosed will constitute Known Breaches (as defined in Section 6.1) for
purposes of this Agreement.
4.4 INFORMATION FOR FILINGS. The Sellers will furnish Buyer with all
information concerning the Assets, the Company and the Stockholders that is
required for inclusion in any application or filing made by Buyer to any
Governmental Body in connection with the
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transactions contemplated by this Agreement to the extent that such information
is reasonably available to the Sellers. Nothing in this Section 4.4 shall
require the Sellers to provide Buyer with audited financial statements of the
Company for any period.
4.5 FULFILLMENT OF CONDITIONS BY THE SELLERS. The Sellers agree not to
intentionally take any action that the Person taking the action knows, at the
time the action is taken, is reasonably likely to cause the conditions on the
obligations of the parties to effect the transactions contemplated hereby not to
be fulfilled, including without limitation by taking or causing to be taken any
action that would cause the representations and warranties made by the Sellers
herein not to be true and correct as of the Closing. The Sellers will take all
commercially reasonable steps within their power to cause to be fulfilled the
conditions precedent to Buyer's obligations to consummate the transactions
contemplated hereby set forth in paragraphs (b), (c) and (e) through (h) of
Section 5.1, except that the Sellers shall have no such obligation with respect
to the Nontransferable Permits.
4.6 FULFILLMENT OF CONDITIONS BY BUYER. Buyer and Suiza Foods agree not
to intentionally take any action that the Person taking the action on behalf of
Buyer or Suiza Foods knows, at the time the action is taken, is reasonably
likely to cause the conditions on the obligations of the parties to effect the
transactions contemplated hereby not to be fulfilled, including without
limitation by taking or causing to be taken any action that would cause the
representations and warranties made by Buyer herein not to be true and correct
as of the Closing. Buyer will take all commercially reasonable steps within its
power to cause to be fulfilled the conditions precedent to the obligations of
the Sellers to consummate the transactions contemplated hereby that are set
forth in paragraphs (b) through (d) of Section 5.2, except that Buyer will have
no obligation to obtain any Permits that are transferable by the Sellers without
any action of Buyer.
4.7 PUBLICITY. Buyer and the Sellers will cooperate with each other in
the development and distribution of all news releases and other public
disclosures relating to the transactions contemplated by this Agreement.
Neither Buyer nor any Seller will issue or make, or allow any of its employees
or agents to issue or make, any press release or public announcement concerning
the transactions contemplated by this Agreement without giving the other party a
reasonable opportunity to comment on such release or announcement in advance,
consistent with applicable legal and stock market requirements.
4.8 TRANSACTION COSTS. Buyer will pay all transaction costs and expenses
(including legal, accounting and other professional fees) that it incurs in
connection with the negotiation, execution and performance of this Agreement and
the transactions contemplated hereby, including the filing fees required under
the HSR Act, the costs of any mortgagee policies of title insurance and any
incremental costs resulting from a decision by Buyer to obtain an ALTA extended
coverage owner's policy of title insurance (as opposed to a CLTA title insurance
policy). Buyer will also pay one-half of any transfer taxes (including sales,
use and deed taxes) associated with the transfer of the Assets to Buyer. The
Sellers will pay (a) all legal, accounting and other professional fees incurred
by the Sellers in connection with the negotiation, execution and performance of
this Agreement or the transactions contemplated hereby; (b) all costs and
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expenses associated with obtaining a CLTA owner's policy of title insurance for
Buyer (including the costs of any required surveys); and (c) one-half of any
transfer taxes (including sales, use and deed taxes) associated with the
transfer of the Assets to Buyer (collectively, the "Seller Expenses"). In the
event of any claim against either party after the Closing for the payment of any
item referred to in this Section 4.8, each party will promptly pay to the other
or to any third party making a claim the amount of such item which that party is
obligated to pay pursuant to the preceding provisions of this Section 4.8,
including without limitation any claimed deficiency in the amount of any sales,
use or other transfer taxes.
4.9 NONDISCLOSURE. The Sellers acknowledge and agree that all customer,
prospect and marketing lists, sales data, intellectual property, proprietary
information, trade secrets and other confidential information of the Company
(collectively, "Confidential Information") constitute part of the Assets and,
following the Closing, will be owned exclusively by Buyer. The Sellers agree
to, and agree to use commercially reasonable efforts to cause their
representatives to, treat the Confidential Information, together with any other
confidential information furnished to them by Buyer, as confidential (except as
may otherwise be required by law) and not to make use of such information for
its own purposes or for the benefit of any other Person (other than the Company
prior to the Closing or Buyer after the Closing), but nothing herein shall
require the Company to cause any of its employees to enter into confidentiality
agreements with the Company. Prior to the Closing, Buyer and Suiza Foods agree
to, and agree to use reasonable efforts to cause their representatives to, treat
the Confidential Information as confidential (except as may otherwise be
required by law) and not to make use of such information for their own purposes
or for the benefit of any other Person except in connection with the
transactions contemplated by this Agreement. If this Agreement is terminated
prior to the Closing, Buyer and Suiza Foods, on the one hand, and the Sellers,
on the other, agree that they will not thereafter use any confidential
information furnished to them by the other party for any purposes whatsoever or
permit any such information to be made available publicly, except to the extent
required by law, and that they will return any such written information to the
other party upon request.
4.10 REPURCHASE OF COMPANY ACCOUNTS. Following the Closing, Buyer will
attempt to collect the accounts receivable included within the Assets (the
"Company Accounts") in good faith in a manner consistent with that used in
attempting to collect Buyer's other accounts receivable. Buyer acknowledges
that, prior to the Closing, the Company will write off the accounts receivable
identified in Schedule 4.10 (which have an aggregate face amount not exceeding
$25,000), with the result that such accounts receivable will not be included in
the Company Accounts at the Closing. Payments from each account debtor in
respect of the Company Accounts and Buyer's other accounts receivable from the
operation of the Company's business after the Closing will be applied as
instructed by the account debtor or, if no such instructions are provided, in
the order in which the accounts were created. Neither party will, nor will it
permit any of its employees or agents to, request that any account debtor issue
any instruction with respect to the application of its payments. So long as the
Bahan Agreement remains in effect, Buyer will delegate to Bahan the
responsibility for supervising the collection of all Company Accounts. At
Buyer's option, the Company will repurchase any Company Accounts that have not
been paid in full within 120 days after the Closing at a purchase price
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equal to the face amount thereof, less any reserve applicable thereto
reflected on the Latest Balance Sheet, less any amount collected by Buyer in
respect thereof. Buyer may exercise such option (the "Repurchase Option") by
delivering written notice to the Company identifying the Company Accounts
that have not been paid in full and setting forth a calculation of the
purchase price applicable thereto, and the Company will repurchase such
Company Accounts within three business days after delivery of such notice.
Such written notice will be delivered to the Company not later than 150 days
after the Closing Date, and the Company shall have no obligation to
repurchase any Company Accounts if such notice is not given by that date. If
any Seller receives any payment in respect of a Company Account after the
Closing and prior to the exercise of the Repurchase Option, such Seller will
promptly pay over the amount collected to Buyer. After exercise of the
Repurchase Option, Buyer will provide any reasonable assistance requested by
the Company in connection with the collection of any Company Accounts that
have been repurchased by the Company, and if Buyer receives any payment in
respect of such Company Accounts, Buyer will promptly pay over the amount
collected to the Company. The Company will be free to seek collection of any
Company Account it acquires upon exercise of the Repurchase Option in any
commercially reasonable manner.
4.11 NAME CHANGE. Within 15 days after the Closing, the Company will file
all documents necessary to change the Company's corporate name to a name bearing
no similarity to "Model Dairy, Inc."
4.12 AVAILABILITY OF BOOKS AND RECORDS OF THE COMPANY. After the Closing,
Buyer will permit the Sellers to have reasonable access to the books, records
and documents of the Company relating to time periods before the Closing to the
extent such access is reasonably determined by any of them to be necessary or
desirable in connection with the preparation of income tax returns on behalf of
the Company or any of the Stockholders or for any other reasonable purpose,
including audits or investigations by any Governmental Body or in connection
with a claim under Article VI. Buyer shall maintain all such books, records and
documents for a period of seven years after the Closing.
4.13 EMPLOYMENT OF COMPANY EMPLOYEES. Promptly after the Closing, Buyer
will offer employment to all of the Company's employees identified in Schedule
2.16 at their existing base salary levels, seniority and length of service and
with benefits (other than bonus compensation and company cars) substantially
similar to those currently provided by the Company, except as indicated in
Schedule 2.16 with respect to employees who will not be employed by Buyer and
except for Bahan and Kelly Kading, whose services for Buyer will be governed by
the Bahan Agreement and the Kading Agreement, respectively.
4.14 ICE CREAM FREEZER. As soon as reasonably practicable after the date
hereof, the Sellers will complete the ice cream freezer that is currently under
construction for the Company in accordance with the applicable plans and
specifications, and such freezer will be included within the Assets and will be
transferred to Buyer free and clear of any Liens. All costs associated with the
completion of such freezer, and all indebtedness related thereto, will be paid
out of the separate money market account related to the freezer (the "Freezer
Account") or by the Stockholders
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personally or by the Seller after the Closing. The Seller may retain any
funds remaining in the Freezer Account following payment of such costs and
indebtedness.
4.15. USE OF COMPUTER SYSTEM. Buyer acknowledges that certain
affiliates of the Stockholders are currently using the Company's computer
accounting system for separate business activities, and Buyer agrees that such
affiliates may continue using such system in substantially the same manner, at
no charge, for one year following the Closing.
4.16 CAPURRO EXPENDITURES. The Company intends to complete certain
leasehold improvements to its leased real property, as described in Schedule
4.16. The total amount of expenditures necessary to complete such improvements
in accordance with the description set forth in Schedule 4.16 (the "Capurro
Expenditures") is currently estimated to be approximately $65,000.
4.17 CARSON CITY PROPERTY. Buyer acknowledges that the Sellers own
certain real property and improvements located at 888 Corbett Street, Carson
City, Nevada (the "Carson City Property"), which is currently used by an
independent distributor of the Company but is otherwise not used in connection
with the Company's business. The Sellers hereby agree that such distributor
may continue using the Carson City Property, in accordance with past practice
and without charge, for 12 months following the Closing. Buyer may extend
such 12 month period for up to two additional 12 month periods by giving
written notice to the Sellers of its intention to extend at least 10 days
prior to the termination date. Notwithstanding the foregoing, the obligations
of the Sellers under this paragraph will terminate if such distributor ceases
to use the Carson City Property hereunder for a period of 30 consecutive days.
4.18 RELEASE OF SELLERS. Buyer will take all commercially reasonable
actions (other than the payment of money) necessary in order to release the
Sellers from personal liability for the Assumed Liabilities, including by
providing financial statements and by posting bonds related to the State
Industrial Insurance System and required Nevada and California Milk Handler's
Licenses. Buyer will use commercially reasonable efforts to obtain as soon as
reasonably practicable all of the Nontransferable Permits required to conduct
its business following the Closing.
4.19 RECENT AND PLANNED CAPITAL EXPENDITURES. Buyer acknowledges that the
Company has made expenditures (a) in the amount of approximately $35,000 for a
forklift, (b) in the amount of approximately $75,000 for upgrades to its AS-400
computer system, and (c) in the amount of approximately $40,000 for a new
telephone system. Buyer agrees that these capital expenditures are permitted
under this Agreement and will not reduce the cash payable to the Sellers
hereunder or otherwise be charged to the Sellers. In addition, Buyer
acknowledges that it may be required to make an expenditure of approximately
$65,000 after the Closing in connection with the purchase and installation of an
ammonia dump system, and such expenditure will be the Buyer's responsibility.
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ARTICLE V
CLOSING CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer under
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions, but compliance with any such conditions may be waived by
Buyer in writing:
(a) All representations and warranties of the Sellers contained in
this Agreement are true and correct in all material respects at and as of
the Closing with the same effect as though such representations and
warranties were made at and as of the Closing, except that the condition
in this clause (a) shall be deemed satisfied if the aggregate amount of
Losses (as defined in Section 6.1) that Buyer would be reasonably likely
to suffer as a result of all Known Breaches does not exceed $150,000.
(b) The Sellers have performed and complied in all material respects
with all the covenants and agreements required by this Agreement to be
performed or complied with by them at or prior to the Closing, including
without limitation the delivery of all items required to be delivered by
them pursuant to Section 1.6.
(c) All contractual and governmental consents, approvals, orders or
authorizations necessary to close the transaction contemplated by this
Agreement without breaching or forfeiting any material rights under any
contract or violating any law have been obtained and all contractual or
governmental notices necessary for that purpose have been given. Without
limiting the generality of the foregoing, all filings pursuant to the HSR
Act have been made by Buyer, the Sellers and their respective affiliates
and the required waiting period under the HSR Act has expired or been
terminated without any threat or commencement of antitrust proceedings
with respect to the transactions contemplated by this Agreement.
(d) With respect to the Real Property, Buyer has received
(i) commitments for owners and mortgagee policies of title insurance with
respect to the owned Real Property, (ii) leasehold mortgages, landlord's
consents and other documents required by Buyer's financing sources with
respect to the leased Real Property and (iii) surveys sufficient to remove
any survey exceptions from the title insurance commitments referred to in
clause (i) above, in each case in form and substance satisfactory to Buyer.
(e) The Sellers have delivered to Buyer executed UCC-3 Termination
Statements or other releases as reasonably requested by Buyer in writing
not less than five days prior to the Closing Date to evidence the release
of any Liens on the Assets other than Liens described in clauses (i) and
(ii) of Section 2.4(b).
(f) The Sellers have delivered to Buyer a closing certificate,
substantially in the form of Exhibit I hereto.
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(g) The Sellers have delivered to Buyer a secretary's certificate,
substantially in the form of Exhibit J hereto.
(h) The Sellers have delivered to Buyer a legal opinion of the
Company's counsel substantially in the form of Exhibit K hereto.
(i) The escrow holder has executed and delivered the Escrow
Agreement.
5.2 CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers under this Agreement are subject to the satisfaction at or prior to the
Closing of the following conditions, but compliance with any such conditions may
be waived by the Company in writing:
(a) All representations and warranties of Buyer contained in this
Agreement are true and correct in all material respects at and as of the
Closing with the same effect as though such representations and warranties
were made at and as of the Closing.
(b) Buyer has performed and complied in all material respects with
the covenants and agreements required by this Agreement to be performed or
complied with by it at or prior to the Closing, including without
limitation the delivery of all items required to be delivered by Buyer
pursuant to Section 1.6.
(c) All governmental consents, approvals, orders or authorizations
necessary to close the transaction contemplated by this Agreement without
breaching any contract or violating any law have been obtained and all
governmental notices necessary for that purpose have been given. Without
limiting the generality of the foregoing, all filings pursuant to the HSR
Act have been made by Buyer, the Sellers and their respective affiliates
and the required waiting period under the HSR Act has expired or been
terminated without any threat or commencement of antitrust proceedings
with respect to the transactions contemplated by this Agreement.
(d) Buyer has delivered to the Company a legal opinion of Buyer's
counsel, Hughes & Luce, L.L.P., substantially in the form of Exhibit L
hereto.
(e) The escrow holder has executed and delivered the Escrow
Agreement.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify and hold
Suiza Foods, Buyer, and their respective directors, officers and employees, in
their capacities as such (collectively, the "Buyer Parties"), harmless from any
and all liabilities, obligations, claims, damages, costs and expenses, including
all court costs and reasonable attorneys' fees (collectively, "Losses"), that
any Buyer Party may suffer or incur as a result of or relating to:
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(a) the breach of any representation, warranty, covenant or agreement
made by the Sellers in this Agreement or any claim by a third party to the
extent based on allegations that, if true, would constitute such a breach;
(b) any Liability of any Seller, known or unknown, other than the
Assumed Liabilities, including without limitation any Liabilities arising
out of the matters described in Schedule 2.12 (except to the extent that
such matters are specifically included within the Assumed Liabilities
pursuant to Section 1.3(c)); provided that the matters referred to in
Section 6.5(b) (giving effect to the proviso thereto) do not constitute
Liabilities;
(c) any liability of the Company arising under the Assignment and
Assumption Agreement referenced in Section 1.6(k); or
(d) SIIS Claims that arise out of events occurring on or prior to
September 30, 1996, but only to the extent that Losses resulting from
such SIIS Claims exceed $42,500 in the aggregate;
provided that (i) the Buyer Parties will not be entitled to indemnification
under paragraphs (a), (b) or (c) of this Section 6.1 unless the aggregate amount
of all Losses for which indemnification is sought by the Buyer Parties under
paragraphs (a), (b) and (c) of this Section 6.1 and Section 6.2 exceeds
$150,000, in which case the Buyer Parties will be entitled to indemnification
for the full amount of such Losses; (ii) the Buyer Parties will not be entitled
to indemnification under this Section 6.1 in an aggregate amount exceeding
$2,000,000 and such amount may be recovered only out of the funds deposited into
escrow pursuant to the Escrow Agreement; (iii) the Buyer Parties will not be
entitled to indemnification under paragraph (d) of this Section 6.1 in an
aggregate amount exceeding $350,000 and such amount may be recovered only out of
the funds deposited into escrow pursuant to the Escrow Agreement; and (iv) the
Buyer Parties will not be entitled to indemnification under paragraph (a) of
this Section 6.1 in respect of any breach of a representation or warranty that
is known by Buyer prior to the Closing (a "Known Breach").
For such purposes, a breach will be considered "known by Buyer" if a senior
executive of Suiza Foods or Buyer or an employee or agent of either of them
(including independent accountants, attorneys and consultants retained by either
of them) actively involved in the transactions contemplated by this Agreement is
actually aware of the existence of such breach prior to the Closing or if the
Company makes a supplemental written disclosure thereof pursuant to Section 4.3
or otherwise. The Sellers acknowledge their understanding and agreement that no
reference to the knowledge of Buyer or its employees or agents in this Section
6.1 or any other provision of this Agreement is intended to imply or create any
obligation on the part of Buyer to undertake any investigation as to any
particular matter; provided that a breach will be deemed to be "known by Buyer"
if its existence would be apparent to a skilled certified public accountant or a
senior executive experienced in the dairy industry from an examination of the
written due diligence report delivered to Buyer by its independent accountants.
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Buyer will promptly notify Seller in writing whenever it discovers any
Known Breach (other than those disclosed to Buyer in writing by the Company).
At least two business days and not more than five business days prior to the
Closing, Buyer shall cause its representatives and a representative of its
independent accounting firm to meet with the Company and its accountant to
advise the Company as to the results of its investigation of the business and
affairs of the Company. If the Closing does not occur, Buyer will deliver to
the Company copies of any reports, surveys, soil tests and other similar items
prepared or caused to be prepared by Buyer relating to the real property owned
by the Company.
6.2 INDEMNIFICATION FOR TITLE AND TAXES. The Company and the
Stockholders will indemnify and hold the Buyer Parties harmless from any and
all Losses that any Buyer Party may suffer or incur as a result of or
relating to the breach of any representation or warranty set forth in the
first sentence of Section 2.4(b) or Section 2.11 or any claim by a third
party to the extent based on allegations that, if true, would constitute such
a breach; provided that (a) the indemnification obligation of each
Stockholder under this Section 6.2 shall not exceed such Stockholder's
proportionate share of the Purchase Price paid hereunder (based on such
Stockholder's ownership of the Company), (b) the Buyer Parties will not be
entitled to indemnification under this Section 6.2 in respect of any Known
Breach and (c) the limitations in Section 6.1(i) shall apply to Losses under
paragraphs (a), (b) and (c) of Section 6.1 and this Section 6.2. The
obligations of the Company and the Stockholders under this Section 6.2 shall
be joint and several. Among themselves, the obligations of the Stockholders
shall be several (and not joint) based upon the percentage that the number of
outstanding shares of capital stock of the Company owned beneficially by each
of them represents of the total number of such shares owned beneficially by
both of them.
6.3 SURVIVAL. Buyer's right to indemnification with respect to the
matters referred to in Sections 6.1 and 6.2 will survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby until the second anniversary of the Closing; provided that (a) Buyer's
right to indemnification with respect to the representations and warranties of
the Sellers set forth in the first sentence of Section 2.4(b) and Section 2.11
will survive until the sixth anniversary of the Closing, (b) Buyer's right to
indemnification under paragraph (d) of Section 6.1 will survive until the fifth
anniversary of the Closing, and (c) any claim for indemnification pursuant to
Section 6.1 or Section 6.2 will survive until such claim is finally resolved if
Buyer notifies the Company of such claim in reasonable detail prior to the date
on which such claim would otherwise expire hereunder. Notwithstanding the
foregoing, Buyer's right to indemnification with respect to the matters referred
to in Sections 6.1 and 6.2 will not survive beyond the sixth anniversary of the
Closing unless, prior to such sixth anniversary, Buyer has commenced a lawsuit
with respect to such claim for indemnification and served the Company and (if
applicable) the Stockholders with notice of such lawsuit.
6.4 SOLE REMEDY. The indemnification provisions set forth in this Article
VI constitute Buyer's sole and exclusive remedy against the Sellers in respect
of the breach of any representation or warranty of the Sellers in this Agreement
or pursuant hereto, or any covenant hereunder of the Sellers other than (a) the
covenants set forth in Sections 1.5, 1.7, 4.8, 4.9, 4.10, 4.14, 417 and Article
VII, (b) the covenant to deliver the documents referred to in Section 1.6,
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and (c) any claim by a third party based on allegations that, if true, would
constitute a breach of the covenants described in the preceding clause (a) or
(b). In no event may Buyer offset a claim for indemnification under this
Article VI against the Purchase Price payable at the Closing.
6.5 INDEMNIFICATION BY BUYER. Buyer will indemnify and hold the Company,
its directors, officers, employees and stockholders, in their capacities as
such, and the other Sellers (collectively, the "Seller Parties"), harmless from
any and all Losses that any Seller Party may suffer or incur as a result of or
relating to (a) any failure by Buyer to perform and discharge in full, in a due
and timely manner, the Assumed Liabilities, or any claim by a third party based
on allegations that, if true, would constitute such a failure, or (b) any other
debts, obligations, liabilities or claims of any nature incurred by Buyer or
arising out of the operation of the Assets and/or the business of Buyer
following the Closing, including without limitation any obligations or
liabilities resulting from any remodeling or construction activities on the Real
Property following the Closing or any change in conduct or course of dealing by
Buyer following the Closing in connection with any of the Assumed Contracts;
provided that the Seller Parties will not be entitled to indemnification for any
Losses for which Buyer is entitled to indemnification under Section 6.1 or
Section 6.2.
6.6 NOTICE. Any party entitled to receive indemnification under this
Article VI (the "Indemnified Party") agrees to give prompt written notice to the
party or parties required to provide such indemnification (the "Indemnifying
Parties") upon the occurrence of any indemnifiable Loss or the assertion of any
claim or the commencement of any action or proceeding in respect of which such a
Loss may reasonably be expected to occur (a "Claim"), but the Indemnified
Party's failure to give such notice will not affect the obligations of the
Indemnifying Party under this Article VI except to the extent that the
Indemnifying Party is prejudiced thereby. Such written notice will include a
reference to the event or events forming the basis of such Loss or Claim and the
amount involved, unless such amount is uncertain or contingent, in which event
the Indemnified Party will give a later written notice when the amount becomes
fixed.
6.7 DEFENSE OF CLAIMS. The Indemnifying Party may elect to assume and
control the defense of any Claim, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of expenses related
thereto, if (a) the Indemnifying Party acknowledges its obligation to indemnify
the Indemnified Party for any Losses resulting from such Claim and provides
reasonable evidence to the Indemnified Party of its financial ability to satisfy
such obligation and (b) the Claim does not seek to impose any liability or
obligation on the Indemnified Party other than for money damages. If such
conditions are satisfied and the Indemnifying Party elects to assume and control
the defense of a Claim, then (i) the Indemnifying Party will not be liable for
any settlement of such Claim effected without its consent, which consent will
not be unreasonably withheld; (ii) the Indemnifying Party may settle such Claim
without the consent of the Indemnified Party; and (iii) the Indemnified Party
may employ separate counsel and participate in the defense thereof, but the
Indemnified Party will be responsible for the fees and expenses of such counsel
unless the Indemnifying Party has failed to adequately assume the defense of
such Claim or to employ counsel with respect thereto, in which case the fees and
expenses of such separate counsel will be paid by the Indemnifying Party. If
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such conditions are not satisfied, the Indemnified Party may assume and control
the defense of the Claim; provided that the Indemnified Party may not settle any
such Claim without the consent of the Indemnifying Party, which consent will not
be unreasonably withheld, and the Indemnifying Party will have the right to
participate in the defense of the Claim.
6.8 INSURANCE. The amount of indemnifiable Losses resulting from any
Claim shall be net of any amounts recovered by the Indemnified Party under
insurance policies in respect of such Claim, and the Indemnified Party will use
commercially reasonable efforts to recover any such amounts under its insurance
policies. The limitations on the Sellers' indemnification obligations set forth
in clauses (ii) and (iii) of Section 6.1 will not be reduced by any Losses
recovered by the Buyer Parties under insurance policies.
ARTICLE VII
NONCOMPETITION AGREEMENT
7.1 NONCOMPETITION. For a period of five years following the Closing,
none of the Sellers will, directly or indirectly, on its own behalf or as an
officer, director, employee, consultant or other agent of, or as a stockholder,
partner or other investor in, any Person (other than Buyer or Suiza Foods or its
affiliates):
(a) engage in the business of manufacturing, processing,
distributing, marketing or selling dairy products or fruit drinks (the
"Business") within the geographic area currently served by the Company as
designated in Schedule 7.1 (the "Territory"); provided that a
distribution business will not constitute a competing "Business" if at
least 80% of the dairy products and fruit drinks being distributed are
purchased from Buyer;
(b) directly or indirectly influence or attempt to influence any
customer or potential customer of Buyer located within the Territory to
purchase goods or services which are competitive with those presently
being offered by the Company from any Person other than Buyer; or
(c) employ, attempt to employ or solicit for employment in any
position related to the conduct of the Business in the Territory any
individual who is an employee of Buyer at such time or was an employee of
Buyer during the year prior to such time; provided that the foregoing
will not apply to any investment in publicly traded securities
constituting less than 1% of the outstanding securities in such class.
7.2 DISPOSAL OF COMPETING INTERESTS. If any of the Sellers becomes aware
that a Person in which one of the Sellers has an equity interest (a "Competing
Affiliate") is engaged in the Business within the Territory, then the Sellers
will promptly (and in any event within three days) notify Buyer of the existence
and general scope of such competing activities, and if Buyer becomes aware of
such activities by a Competing Affiliate, then Buyer will notify the Sellers of
such activities (in either case, such notice is referred to as the "Competition
Notice"). Upon delivery of a Competition Notice, the Sellers will have 10 days
to cause such Competing Affiliate to cease Business activities within the
Territory. If the Competing Affiliate does not
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cease such activities within such 10 day period, the Sellers will use
commercially reasonable efforts to dispose of their equity interests in such
Competing Affiliate as soon as reasonably practicable, including by offering
such interests to the other owners of the Competing Affiliate. If the
Sellers have not disposed of such interests within 60 days after delivery of
the Competition Notice, then Buyer will have the option to purchase such
interests for an amount equal to five times the earnings before interest,
taxes, depreciation and amortization ("EBITDA") of the Competing Affiliate
for the twelve full calendar months preceding the date of the Competition
Notice, times the percentage of the Competing Affiliate's equity owned by the
Sellers. For such purposes, EBITDA will be determined in a manner consistent
with the calculation of EBITDA in the written due diligence report concerning
the Company that is referenced in Section 6.1. Buyer may exercise its option
pursuant to this paragraph by delivering written notice of exercise to the
Sellers within 90 days after the date on which such option becomes
exercisable, in which case the interests will be transferred at a closing to
be held within 60 days after notice of exercise from the Buyer. At the
closing, Buyer will deliver the purchase price for such interests, payable in
immediately available funds, against delivery by the Sellers of their entire
interest in such Competing Affiliate, free and clear of any Liens. If Buyer
elects not to exercise its option to acquire the Sellers' interests in a
Competing Affiliate, then the Sellers may retain such interests, but if such
Competing Affiliate expands the scope of its competing Business activities
within the Territory in any material respect following the time of the
Competition Notice, then the Sellers will again be required to dispose of, or
offer Buyer the opportunity to acquire, the Sellers' interests in such
Competing Affiliate pursuant to this paragraph.
7.3 ENFORCEMENT.
(a) The Sellers acknowledge and agree that their obligations under
this Article VII are a material inducement and condition to Buyer's
entering into this Agreement and performing its obligations hereunder and
that the restrictions and remedies contained in this Article VII are
reasonable as to time, geographic area and scope of activity and do not
impose a greater restraint than is necessary to protect the goodwill and
other legitimate business interests of Buyer.
(b) If the provisions of this Article VI are found by a court of
competent jurisdiction to contain unreasonable or unnecessary limitations
as to time, geographic area or scope of activity, then such court is
hereby directed to reform such provisions to the minimum extent necessary
to cause the limitations contained therein as to time, geographical area
and scope of activity to be reasonable and enforceable.
(c) The Sellers acknowledge and agree that Buyer would be
irreparably harmed by any violation of their obligations under this
Article VII and that, in addition to all other rights or remedies
available at law or in equity, Buyer will be entitled to injunctive and
other equitable relief to prevent or enjoin any such violation.
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ARTICLE VIII
MISCELLANEOUS
8.1 TERMINATION. This Agreement and the transactions contemplated hereby
may be terminated and abandoned (a) at any time prior to the Closing by mutual
written consent of Buyer and the Company; (b) by Buyer if the aggregate Losses
that would be reasonably likely to result from all Known Breaches exceed
$150,000; or (c) by either Buyer or the Company if the Closing has not occurred
by the close of business on December 16, 1996. Any termination pursuant to (c)
above shall be without prejudice to any right any party may have against the
other for any misrepresentation or breach of warranty or covenant under this
Agreement, except that if the Agreement is terminated as a result of a Known
Breach, then the Sellers will not have any liability or obligation to Buyer or
Suiza Foods with respect to such Known Breach or any such termination.
8.2 NOTICES. All notices that are required or may be given pursuant to
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or by
United States mail, postage prepaid, to the parties at the following addresses
(or to the attention of such other person or such other address as any party may
provide to the other parties by notice in accordance with this Section 8.2):
if to Buyer or Suiza Foods: with copies to:
-------------------------- --------------
Suiza Foods Corporation Hughes & Luce, L.L.P.
3811 Turtle Creek Boulevard, Suite 1300 1717 Main Street
Dallas, Texas 75219 Suite 2800
Attention: Gregg L. Engles Dallas, Texas 75201
Telecopy: (214) 528-9929 Attention: William A. McCormack
Telecopy: (214) 939-6100
if to any Seller: with copies to:
---------------- --------------
Model Dairy, Inc. William C. Sanford, Jr.
500 Gould Street 100 W. Liberty Street
Reno, Nevada 89505 Suite 900
Attn: James N. Bahan Reno, Nevada 89505-3438
Telecopy: (702) 788-7971 Telecopy: (702) 322-6644
Mark W. Knobel
Avansino, Melarky, Knobel,
McMullen & Mulligan
165 West Liberty Street
Suite 21D, Wiegand Center
Reno, Nevada 89501
Telecopy: (702) 333-0305
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Any such notice or other communication will be deemed to have been given
and received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service or sent by
telecopy or, if mailed, when actually received.
8.3 ATTORNEYS' FEES AND COSTS. If attorneys' fees or other costs are
incurred to secure performance of any obligations hereunder, or to establish
damages for the breach thereof or to obtain any other appropriate relief,
whether by way of prosecution or defense, the prevailing party will be entitled
to recover reasonable attorneys' fees and costs incurred in connection
therewith.
8.4 NO BROKERS. Each party to this Agreement agrees that it will
indemnify and hold harmless the other party against any claim for brokerage and
finders' fees or agents' commissions in connection with the negotiation or
consummation of the transactions contemplated by this Agreement and against any
court costs and reasonable attorneys' fees incurred in connection therewith.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
will constitute one and the same instrument.
8.6 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder may be assigned or delegated by any Seller or Buyer
without the prior written consent of the other parties; except that Buyer may
assign its rights and obligations under this Agreement to any direct or indirect
wholly-owned subsidiary of Suiza Foods Corporation. This Agreement is not
intended to confer any rights or benefits on any Person other than the parties
hereto, except that the Buyer Parties and the Seller Parties are intended
beneficiaries of Article VI.
8.7 ENTIRE AGREEMENT. This Agreement and the related documents contained
as Exhibits and Schedules hereto or expressly contemplated hereby contain the
entire understanding of the parties relating to the subject matter hereof and
supersede all prior written or oral and all contemporaneous oral agreements and
understandings relating to the subject matter hereof. This Agreement may not be
modified or amended except in writing signed by the party against whom
enforcement is sought. All statements of the Sellers contained in the
certificates referenced in Sections 5.1(f) and 5.1(g) will constitute
representations and warranties of the Sellers under this Agreement. The
Exhibits and Schedules to this Agreement are hereby incorporated by reference
into and made a part of this Agreement for all purposes. Unless otherwise
expressly stated in this Agreement, no right or remedy described or provided in
this Agreement is intended to be exclusive or to preclude a party from pursuing
other rights and remedies to the extent available under this Agreement, at law
or in equity.
8.8 GOVERNING LAW. This Agreement will be governed by and construed and
interpreted in accordance with the substantive laws of the State of Nevada,
without giving effect to any conflicts of law rule or principle that might
require the application of the laws of another jurisdiction.
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8.9 DISPUTE RESOLUTION. If any dispute arises out of this Agreement or
any of the other documents to be delivered hereunder, the parties agree not to
commence any lawsuit with respect to such dispute until the following procedures
have been completed:
(a) The party believing a dispute to exist will give the other
parties written notice thereof, setting forth in reasonable detail the
facts alleged to give rise to such dispute, the relevant contractual
provisions, the nature of any claimed default or breach and a statement
of the manner in which such party believes the dispute should be resolved.
(b) Within 20 days after receipt of such notice, each party against
whom relief is sought in connection with such dispute will deliver a
written response, setting forth in reasonable detail its views of the
facts alleged to give rise to such dispute, the relevant contractual
provisions, the nature of the claimed default or breach and a statement
of the manner in which such party believes the dispute should be resolved.
(c) If the parties do not agree on the manner in which the dispute
should be resolved, they will arrange to hold a meeting within 10 days
after delivery of the response. Each party will have in attendance at
such meeting a representative. At the meeting (and any adjournments
thereof), the parties will negotiate in an attempt to agree as to whether
a dispute exists, the exact nature of the dispute and the manner in which
the dispute should be resolved. If deemed appropriate by the parties, a
professional mediator may be engaged to assist in resolving the dispute.
Any resolution of the dispute will be evidenced by a written agreement
setting forth in reasonable detail the actions to be taken by each party.
If no such written agreement is reached within 20 days after the first
meeting, the parties may pursue binding arbitration with respect to such
dispute pursuant to Section 8.10.
8.10 BINDING ARBITRATION. To the extent that the dispute resolution
procedures set forth in Section 8.9 are unsuccessful, all claims, disputes and
controversies arising out of or relating to this Agreement or any of the other
documents to be delivered hereunder, or the performance, breach, validity,
interpretation or enforcement thereof, will be resolved by binding arbitration
as set forth in this Section.
(a) A party may initiate arbitration by sending written notice of
its intention to arbitrate to the other party and to the American
Arbitration Association ("AAA") office located in San Francisco,
California (the "Arbitration Notice"). The Arbitration Notice will
contain a description of the dispute and the remedy sought. The
arbitration will be conducted at the offices of the AAA in San Francisco,
California before three independent and impartial arbitrators experienced
in legal matters related to the dairy or food distribution industries.
Each party will be entitled to select one arbitrator, and the two
individuals so selected will select the third arbitrator. In no event
may the demand for arbitration be made after the date when the
institution of a legal or equitable proceeding based on such claim,
dispute or other matter in question would be barred by the applicable
statute of limitations.
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(b) Except as otherwise specifically provided herein, the arbitration and
any discovery conducted in connection therewith will be conducted in accordance
with the Commercial Rules of arbitration and procedures established by the AAA
in effect at the time of the arbitration, including without limitation the
expedited procedures set forth therein (the "AAA Rules"). The arbitrators will
deliver their decision in writing, together with a summary of the reasons for
their decision, including citations to legal authority to the extent
appropriate. The decision of the arbitrators will be final and binding on all
parties and their successors and permitted assignees. A judgment upon the award
rendered by the arbitrators may be entered by any court having jurisdiction
thereof. The parties intend that this agreement to arbitrate be irrevocable.
(c) The panel of arbitrators will be selected no later than 45 days after
the date of the Arbitration Notice. The arbitration hearing will commence no
later than three (3) months after the panel of arbitrators is selected. The
arbitrators will render their decision no later than 30 days after the close of
the hearing, in accordance with AAA Rules.
(d) The arbitrators' fees and costs will conform to the then current AAA
fee schedule and will be borne equally by the parties or as otherwise determined
by the arbitrators.
(e) Notwithstanding the foregoing, to the extent necessary to prevent
irreparable harm, any party may commence an action in a court of competent
jurisdiction seeking a temporary restraining order, preliminary injunction or
other injunctive relief without complying with the dispute resolution or
arbitration procedures set forth in Section 8.9 or this Section 8.10.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MODEL DAIRY, INC.,
a Delaware corporation
By: /s/ Tracy L. Noll
-----------------------------------
Tracy L. Noll,
Vice President
MODEL DAIRY, INC.,
a Nevada corporation
By: /s/ James N. Bahan
-----------------------------------
James N. Bahan,
President
/s/ James N. Bahan
--------------------------------------
James N. Bahan
J&T PARTNERSHIP
By: /s/ James N. Bahan
-----------------------------------
James N. Bahan, individually and
as Special Administrator of the
Estate and as Trustee of the Trust,
in their capacities as general
partners
BAHAN & BAHAN
By: /s/ James N. Bahan
-----------------------------------
James N. Bahan, individually and
as Special Administrator of the
Estate and as Trustee of the Trust,
in their capacities as general
partners
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THE THOMAS E. BAHAN TRUST,
DATED AUGUST 19, 1994
By: /s/ James N. Bahan
-----------------------------------
James N. Bahan, Trustee
THE ESTATE OF THOMAS E. BAHAN
By: /s/ James N. Bahan
-----------------------------------
James N. Bahan,
Special Administrator
For value received, the undersigned Suiza Foods hereby agrees to be jointly
and severally responsible and liable for the performance of all of the covenants
and other obligations of Buyer to the Sellers and the Seller Parties under this
Agreement and for any misrepresentation or breach of warranty of Buyer
hereunder; provided that such agreement is not intended to confer any rights or
benefits on any Person other than the Sellers and the Seller Parties.
SUIZA FOODS CORPORATION,
a Delaware corporation
By: /s/ Tracy L. Noll
-----------------------------------
Tracy L. Noll,
Vice President
The undersigned, who is the wife of James N. Bahan, hereby acknowledges
that she has read the foregoing Asset Purchase Agreement and that she knows and
understands its contents, and she hereby consents to and agrees to be bound by
the terms and provisions thereof with respect to any community property or other
interest that she may have in the Company or the Assets.
/s/ Mary Ellen Bahan
--------------------------------------
Mary Ellen Bahan
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EXHIBITS
A Escrow Agreement
B Bahan Agreement
C Kading Agreement
D Bill of Sale
E Real Estate Deed
F Assignment of Lease
G Assumption Agreement
H Assignment and Assumption Agreement for Benefit Plans
I Closing Certificate
J Secretary's Certificate
K Opinion of Company Counsel
L Opinion of Buyer's Counsel
SCHEDULES
1.2 Excluded Assets
1.8 Allocation of Purchase Price
2.4(a) Assets
2.4(b) Liens
2.6 Contractual and Governmental Consents
2.8(a) Financial Statements
2.8(b) Exceptions to GAAP
2.8(c) Undisclosed Liabilities
2.8(d) Inventory
2.10 Changes Since Latest Balance Sheet Date
2.11 Tax Matters
2.12 Litigation
2.13 Compliance with Laws
2.14 Permits
2.15 Environmental Matters
2.16 Employees
2.17 Employee Benefit Plans
2.19 Material Agreements
2.20 Material Customers
2.22 Subsidiaries and Investments
2.21 Intellectual Property
2.23 Competing Interests
4.1 Capital Expenditures
4.10 Account Receivable Write-offs
4.16 Capurro Improvements
7.1 Territory
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 333-11185) pertaining to the 1995
Suiza Foods Corporation Stock Option and Restricted Stock Plan and the
related Prospectus of our report dated December 14, 1995, with respect to the
balance sheets of Model Dairy, Inc., as of October 31, 1995 and 1994, and the
related statements of earnings and retained earnings and cash flows for the
years then ended, included in the Current Report on Form 8-K of Suiza Foods
Corporation dated December 31, 1996.
BARNARD, VOGLER & CO.
Reno, Nevada
December 30, 1996
