-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OM+Aw3D9n3oMP7z6xhB58KS4vULLbO6Raob2IJ8HtxlX/Hh/gYuMntJ4wn7KV3ZU wtqgjzNCa/sksHKXRGmMtA== 0000950144-98-006957.txt : 19980529 0000950144-98-006957.hdr.sgml : 19980529 ACCESSION NUMBER: 0000950144-98-006957 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980528 SROS: AMEX SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED FOODS INC CENTRAL INDEX KEY: 0000728258 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 741264568 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08574 FILM NUMBER: 98633171 BUSINESS ADDRESS: STREET 1: 10 PICTSWEET DR CITY: BELLS STATE: TN ZIP: 38006 BUSINESS PHONE: 9014227600 MAIL ADDRESS: STREET 1: 10 PICTSWEET DRIVE CITY: BELLS STATE: TN ZIP: 38006 10-K405 1 UNITED FOODS, INC. FORM 10-K405 FYE:2/28/98 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER 1-8574 UNITED FOODS, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1264568 - -------------------------------------- ---------------------------------------- (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) TEN PICTSWEET DRIVE, BELLS, TENNESSEE 38006 - ------------------------------------------- ----------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 422-7600 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ----------------------------------- ----------------------------------------- CLASS A COMMON STOCK AND AMERICAN STOCK EXCHANGE AND CLASS B COMMON STOCK PACIFIC EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] ON MAY 1, 1998, 2,616,139 SHARES OF CLASS A COMMON STOCK AND 4,193,790 SHARES OF CLASS B COMMON STOCK OF UNITED FOODS, INC. WERE OUTSTANDING AND THE AGGREGATE MARKET VALUE OF SUCH COMMON STOCK HELD BY NONAFFILIATES (BASED ON ITS CLOSING TRANSACTION PRICE ON SUCH DATE) WAS APPROXIMATELY $11,985,000, ASSUMING FOR PURPOSES OF THIS REPORT THAT ALL EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT ARE AFFILIATES.
PARTS IN FORM 10-K WHERE DOCUMENTS ARE DOCUMENTS INCORPORATED BY REFERENCE INCORPORATED BY REFERENCE - ---------------------------------------------------- -------------------------------------- PORTIONS OF REGISTRANT'S PROXY STATEMENT TO BE FILED PART III REGARDING THE JULY 11, 1998 ANNUAL MEETING OF STOCKHOLDERS
2 UNITED FOODS, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I .........................................................................................................3 ITEM 1. BUSINESS........................................................................................3 GENERAL .......................................................................................3 PRODUCTS .......................................................................................3 MARKETING.......................................................................................3 TRADEMARKS......................................................................................4 OPERATIONS......................................................................................4 COMPETITION.....................................................................................5 EMPLOYEES.......................................................................................5 ITEM 2. PROPERTIES.............................................................................6 OPERATING PLANTS................................................................................6 ITEM 3. LEGAL PROCEEDINGS......................................................................6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................................................6 PART II .........................................................................................................7 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................................7 PRICE RANGE OF COMMON STOCK AND DIVIDENDS.......................................................7 APPROXIMATE NUMBER OF COMMON EQUITY SECURITY HOLDERS................................................................................7 ITEM 6. SELECTED FINANCIAL DATA................................................................7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................8 FINANCIAL CONDITION.............................................................................9 RESULTS OF OPERATIONS..........................................................................11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................................................................39 PART III ........................................................................................................39 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS......................................................39 ITEM 11. EXECUTIVE COMPENSATION................................................................39 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................................39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................................39 PART IV ........................................................................................................40 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................................................40 SIGNATURES.......................................................................................................41 INDEX TO EXHIBITS................................................................................................42
3 PART I ITEM 1. BUSINESS GENERAL United Foods, Inc. (the "Company") was incorporated under the laws of Texas on March 9, 1956 and became a Delaware Corporation on September 30, 1983. The Company is principally engaged in the growing, processing, marketing and distribution of food products. PRODUCTS The Company's primary food products include frozen asparagus, black-eyed peas, broccoli, Brussels sprouts, carrots, cauliflower, corn, green beans, green peas, green peppers, lima beans, mushrooms, onions, okra, southern greens, spinach, squash, turnips, white acre peas, various vegetable mixes and blends, and fresh mushrooms. MARKETING The Company's food products are primarily sold directly to large national grocery chains and through food brokers to numerous independent food stores located throughout the United States for resale in the retail market. These products are sold both under the Company's brand names and under buyers' labels, and to military commissaries in the United States and overseas under the Company's brand names. Such sales represented approximately 74% of the Company's revenue for the year ended February 28, 1998. The Company's principal brand name is "Pictsweet," which is used throughout the United States and in military commissaries overseas. Since such a large part of the Company's sales are made in the retail market and since a significant proportion of the retail grocery trade in the United States is concentrated in the hands of national grocery chains, a large part of the Company's revenue is derived from sales to these chains. The retail market has experienced a consolidation of participants in recent years, furthering a trend towards fewer and larger customers. The Company's five largest customers are the Defense Personnel Support Center, Food Lion, Inc., The Kroger Company, Publix Supermarkets, Inc. and the J. R. Simplot Company. Sales to these five customers represented approximately 36% of the Company's revenue for the year ended February 28, 1998, with sales to one particular customer representing approximately 13.5% of such revenue. Due to competition, the Company's mix of customers may change. The Company primarily conducts its business through purchase orders. Therefore, it is possible that the Company may lose one or more of its larger customers from time to time, and such loss could have a material adverse effect on revenue and results of operations. As a part of its marketing program, the Company may use sales allowances in certain instances. These sales allowances may include cash discounts for prompt payment, freight allowances, customer incentive programs, advertising allowances and other sales allowances based on competitive factors. The Company may also make additional expenditures in connection with the introduction of new products or the expansion of its market position. The Company accepts purchase orders and may invoice such purchases electronically. The Company also monitors the inventory levels of certain of its customers electronically and, based on the customer's stated expectations, automatically generates a purchase order on such customer's behalf and ships and invoices the appropriate food products. The Company believes that it and its significant customers will be Year 2000 compliant. However, if the Company or one or more significant third parties with whom the Company does 3 4 business fail to become Year 2000 compliant in a timely manner, such failure may have a material adverse effect on the Company's results of operations. The Company also sells certain of its food products, directly and through food brokers, to institutions located throughout the United States, such as restaurants, schools, hospitals, hotels, and federal and state government agencies. Such sales represented approximately 15% of the Company's revenue for the year ended February 28, 1998. In addition, the Company sells certain of its food products directly to other food companies. Such sales represented approximately 10% of the Company's revenue for the year ended February 28, 1998. The Company's food brokers are compensated on a commission basis. The Company does not consider backlog at fiscal year end to be material to an understanding of its business. Sales are somewhat seasonal. Historically, sales have been lower during the Company's second quarter (summer months) when larger volumes of fresh food products are available. The Company operates a truck fleet which transports a substantial portion of the Company's products. Transportation services are also provided to customers other than the Company and accounted for less than 1% of the Company's revenue for the year ended February 28, 1998. Rental and miscellaneous income accounted for less than 1% of the Company's revenue for the year ended February 28, 1998. TRADEMARKS Approximately 64% of the Company's revenues are derived from sales under the "Pictsweet" brand and other registered trademarks. These renewable trademarks expire over periods of up to 20 years. OPERATIONS Agricultural products comprising approximately 27% of the Company's revenue volume are grown on Company operated farms. The Company farms approximately 7,200 acres of land in West Tennessee, substantially all of which is leased, and operates mushroom farms on the West Coast and in Utah. Procurement of the remaining requirements is generally either by contract with growers, from assemblers or from other food processing companies. Agricultural crops have seasonal features and availability is subject to unpredictable changes in growing conditions that are inherent in the agriculture industry. The Company bears part of the growing risks and all of the processing and marketing risks associated with its agricultural products. Weather abnormalities and other adverse growing conditions sometimes result in substantial reductions in the annual volumes processed in the Company's facilities. When this occurs, the Company may have to procure raw and processed products from alternative sources at higher than expected costs and the reduced volume of products grown and/or processed by the Company results in increased unit costs. When growing conditions result in yields that exceed expectations, the Company will generally pack only volumes required by anticipated demand or will sell excess inventory through alternative channels. Additionally, selling prices are impacted by industry-wide production and inventory levels. Bumper crops and resulting increased 4 5 inventory levels will tend to decrease average selling prices, while crop shortages typically do not result in increased selling prices. The Company has entered into multi-year reciprocal supply agreements with other food processing companies. Prices for food products pursuant to these agreements are determined annually. Through these agreements, the Company procures food products to meet its production and inventory requirements. Quantities available pursuant to these agreements are generally limited as to individual food products and in the aggregate. Generally, the purchaser bears the risks associated with limited supplies under these agreements. Under these reciprocal supply agreements, the Company also sells food products produced at its Tennessee and California facilities to the other food processing companies. The time and duration of production seasons vary considerably according to the specific product. For example, the annual requirement for white acre peas is available only during a period of approximately two weeks, while broccoli is available for approximately ten months of each year and mushrooms are available year round. Thus, substantial inventories are required for long periods of time to support the consumer demand for certain items throughout the year. Working capital requirements follow inventory levels and the Company looks to its lenders to meet working capital requirements. Interest rates on the Company's working capital loans fluctuate with the prime rate and the Term Federal Funds rate. COMPETITION The Company is faced with substantial competition in all aspects of its business. The food industry is highly competitive and competition has increased in recent years. The principal methods of competition in the food industry involve product branding, price and service. The Company has developed the "Pictsweet" brand into a national brand which enables it to differentiate its products on a basis other than price. Additionally, the Company has a broad-based distribution system for its products that gives it a competitive advantage in the area of customer service. The Company also offers electronic links with customers which may be used to transmit purchase orders and invoices and to monitor customers' inventory levels. Over the past several years, imports of food products have increased substantially and significant new production capacity has been put in place in the United States, Mexico and Canada. As a result, the industry's total production capacity is now substantially in excess of current requirements. The foregoing factors, coupled with low overall growth, leave led to weak market pricing. In an effort to address this intense competition, the Company intends to continue to invest in maintaining and expanding its distribution base and to make substantial expenditures to maintain and improve its plants, equipment and technological systems. EMPLOYEES At February 28, 1998, the Company had approximately 2,080 employees, of whom approximately 1,955 were engaged in farming, manufacturing, distribution and service activities and 125 in sales and administration. Because of the seasonal nature of its production activities, the Company utilizes temporary employees. Peak employment during the year was approximately 2,330 employees of whom approximately 1,830 were full time employees and approximately 500 were temporary employees. One labor union has intermittently asserted bargaining rights at the Company's Ventura, California facility. Currently, there are no such negotiations underway. 5 6 ITEM 2. PROPERTIES OPERATING PLANTS The Company owns and is currently operating six facilities in California, Oregon, Tennessee and Utah. Although production varies with the seasons at certain of the facilities, all the facilities operate during a substantial part of the year. Set forth in the table below is a list of all facilities with certain information concerning each:
LOCATION SPACE DEVOTED TO APPROXIMATE SQUARE FOOTAGE(1) - --------------------------------------------- ---------------------------------------- ------------------------------ Bells, Tennessee Processing Plant 212,000 Cold Storage and Distribution Warehouse 239,000 Ogden, Utah Processing Plant 68,000 Cold Storage and Distribution Warehouse 150,000 Fillmore, Utah Mushroom farming, processing and distribution 284,000 Santa Maria, California Processing Plant 150,000 Cold Storage Warehouse 42,000 Ventura, California Mushroom farming, processing and distribution 279,000 Salem, Oregon Mushroom farming, processing and distribution 348,000 West Tennessee Farming 7,200
- ------------ (1) Except for farm land in West Tennessee which is measured in acres. The Company believes the condition of its facilities, in the aggregate, are within industry standards. However, in response to competitive factors, the Company anticipates making substantial expenditures to maintain and improve its plants, equipment and technological systems. Substantially all land, buildings and equipment are pledged as collateral for outstanding debt (See Note 3 - Notes to the Financial Statements). Substantially all of the farm land is leased (See Note 7 -- Notes to the Financial Statement). The Company owns or leases the machinery and equipment located at all of its facilities. Although utilization of production capacity varies from facility to facility, overall utilization is approximately 75% for the Bells, Tennessee facility and near 100% for all other facilities. ITEM 3. LEGAL PROCEEDINGS No reportable items. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders during the quarter ended February 28, 1998. 6 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Class A and B Common Stocks of the Company are both traded on the American Stock Exchange and the Pacific Exchange. Ticker Symbols: UFD A and UFD B.
Class A Class B --------------------------------------- ----------------------------------------- Sale Price Sale Price ----------------------- ------------------------ Quarter Ended High Low Dividend(1) High Low Dividend(1) - ---------------------------------- ----------- ---------- --------------- ------------ ----------- ---------------- May 31, 1996 2 1/8 1 3/4 -- 2 1/8 1 3/4 -- August 31, 1996 2 1/4 1 5/8 -- 2 1/4 1 3/4 -- November 30, 1996 1 15/16 1 5/8 -- 2 1 5/8 -- February 28, 1997 1 7/8 1 1/2 -- 1 7/8 1 1/2 -- May 31, 1997 2 1/8 1 7/16 -- 2 3/16 1 9/16 -- August 31, 1997 2 15/16 2 -- 2 15/16 2 1/8 -- November 30, 1997 2 3/4 2 1/4 -- 2 3/4 2 1/8 -- February 28, 1998 4 2 3/8 -- 3 13/16 2 3/8 --
- ---------- (1) Restrictive covenants in various loan agreements limit retained earnings available for payment of dividends to $3,299,000 at February 28, 1998 (See Note 3- Notes to Financial Statements). APPROXIMATE NUMBER OF COMMON EQUITY SECURITY HOLDERS
Approximate Number of Record Title of Class Holders as of February 28, 1998 - ------------------------------------------------- ------------------------------------- Class A Common Stock ............................ 2,000 Class B Common Stock ............................ 1,600
ITEM 6. SELECTED FINANCIAL DATA The following selected financial data of the Company should be read in conjunction with the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere herein. The financial information has been derived from audited financial statements of the Company. 7 8
Year Ended February 28 or 29, ------------------------------------------------------------ 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (Thousands of Dollars, Except Per Share Data) Operating Statement Data: Net sales and service revenues .. 195,087 195,820 191,714 190,256 175,796 Operating income ................ 4,842 4,672 2,914 6,984 3,286 Net income (loss) ............... 460 922 (660) 2,402 90 Per Share Data: Basic and diluted earnings (loss) per common share(1) .......... .06 .08 (.06) .19 .01 Cash dividends per common share: Class A ...................... -- -- -- -- -- Class B ...................... -- -- -- -- -- Balance Sheet Data: Long-term debt .................. 42,168 36,244 46,650 30,076 27,148 Total assets .................... 115,884 119,108 128,188 114,157 109,516
- ------------- (1) Earnings per share of common stock and common stock equivalents have been computed using the average number of shares required to be recognized during the respective periods. Earnings per share are the same for basic and diluted computations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report on Form 10-K and other reports and statements issued on behalf of the Company may include forward-looking information in reliance on the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to substantial risks and uncertainties including those discussed below, and actual results may differ materially from those contained in any such forward-looking statement. The Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances. The Company's liquidity, capital resources and results of operations may be affected from time to time by a number of factors and risks, including, but not limited to: trends in the economy as a whole, which may affect consumer confidence and consumer demand for the types of food products sold by the Company; competitive pressures from processors and distributors of fresh, dry, frozen and canned food products which may affect the nature and viability of the Company's business strategy; competitive pressures from imported food products; unpredictable changes in growing conditions inherent in agriculture; other agricultural risks, including those associated with pesticides, herbicides and disease control and crop protection efforts; the Company's ability to maintain and expand the Company's distribution base; the Company's ability to maintain and improve its plants, equipment and technological systems; changes in the Company's customer base as the result of competition and/or consolidation of retail grocery chains; governmental regulation and taxation; availability and cost of labor employed; changes in industry capacity and production; the availability, costs and terms of financing, including the risk of rising interest rates; availability of trade credit and terms with vendors; the Company's use of financial leverage and the potential impact of such leverage on the Company's ability to execute its operating strategies; the ability to maintain gross profit margins; the seasonal nature of the Company's business and the ability of the Company to predict consumer demand as a whole, as well as demand for specific items; costs associated with the storage, shipping, handling and control of inventory; 8 9 potential adverse publicity for the food industry or certain of the Company's food products; and the ability of the Company and significant third parties with whom it does business to effect conversions to new technological systems, including becoming Year 2000 compliant. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash are operations and external committed credit facilities. At February 28, 1998, the Company's revolving credit facilities totaled $21,000,000, of which $11,552,000 was available (See Note 3- Notes to Financial Statements). The Company's sources of liquidity are expected to meet adequately requirements for the upcoming year and the foreseeable future; however, financing alternatives are constantly evaluated to determine their practicality and availability in order to provide the Company with sufficient capital resources at the least possible cost. The Company's $3,000,000 and $18,000,000 revolving credit facilities currently mature in fiscal 2001. One-year extensions of maturity dates of the revolving credit facilities will be considered by the lenders annually. If annual extensions are not granted, the Company will then investigate revolving credit facilities with other lenders and believes it can replace any current revolving credit facility within its remaining 24-month term. One of the Company's revolving credit facilities was reduced from $23,000,000 to $18,000,000 upon the closing of two term loans during the fourth quarter of fiscal 1997. In January 1997, the Company entered into a $6,000,000, ten-year term loan, which provides for principal and interest payments based on a fifteen-year amortization, with an 8.98% interest rate. This loan is secured by the Company's Ogden, Utah facility. In February 1997, the Company entered into an agreement to increase the term loan secured by its Bells, Tennessee facility to its original $15,000,000 amount. This loan has a 9.10% interest rate and a ten-year term with monthly principal and interest payments of $194,000 during the first year and $148,000 thereafter. The proceeds from these loans were used to reduce outstanding revolving credit borrowings. In March 1998, the Company entered into a $10,000,000 credit facility for the acquisition of certain material handling equipment, rolling stock, vehicles, trailers and composting equipment. The facility is evidenced by a master security agreement with separate loans under the agreement being made for equipment when acquired and with acquired equipment being secured under the terms of the agreement. The loans are amortized using estimated equipment lives and bear interest at 160 basis points over the applicable treasury yield. The Company expects to incur borrowings of approximately $10,000,000 under the agreement during fiscal 1999. Operating activities provided net cash of $5,917,000 in fiscal 1998, as compared with $12,839,000 provided in fiscal 1997. The decrease from 1997 to 1998 results primarily from decreased inventories during fiscal 1997 in the amount of $6,405,000. Operations provided net cash of $12,839,000 in fiscal 1997, as compared with $5,890,000 in fiscal 1996 primarily as the result of the inventory decrease during fiscal 1997, previously mentioned. Increases in accounts receivable during fiscal 1998 and 1997 result from increased sales during the month of February, as well as normal timing factors associated with cash receipts. Investing activities used cash of $4,454,000 in fiscal 1998, provided cash of $205,000 in 1997 and used cash of $12,006,000 in 1996. These changes resulted primarily from an increase in capital expenditures from $693,000 in 1997 to $4,546,000 in 1998. Capital expenditures used $12,064,000 during fiscal 1996. Proceeds from the sale of property and equipment totaled $92,000 in fiscal 1998, compared with $898,000 in 1997 and $58,000 in 1996. 9 10 Financing activities used cash of $4,589,000 during fiscal 1998 as compared with cash used of $10,301,000 during the same period of the prior year. On May 19, 1997, the Company initiated a cash tender offer for up to 1,000,000 shares of its Class A and Class B Common Stock at a price of $2.50 per share. On June 17, 1997, the Company amended the cash tender offer by extending the expiration date to July 3, 1997 and by increasing the number of shares it offered to purchase from 1,000,000 shares of its Class A and Class B Common Stock to up to 2,500,000 shares of its Class A Common Stock and up to 1,500,000 shares of its Class B Common Stock, each at a price of $2.50 per share. A total of approximately 2,641,299 shares of Class A common Stock and approximately 1,720,932 shares of Class B Common Stock were validly tendered and not withdrawn in response to the offer, as amended. The purchases of shares were prorated in accordance with the terms of the offer, as amended, for each class of Common Stock. The purchase, which totaled approximately $10,168,000, including expenses, was funded with borrowings from the Company's revolving credit facilities and available cash. Cash provided by operations during fiscal 1997 and proceeds from two term loans that closed during the fourth quarter of fiscal 1997, previously mentioned, were used to reduce borrowings under the Company's revolving credit agreements. Working capital at February 28, 1998 amounted to $39,179,000, compared to working capital of $40,738,000 at February 28, 1997. The decrease in working capital in fiscal 1998 resulted primarily from a decrease in cash as a result of the stock purchase previously mentioned. The Company's ratio of debt to equity was 1.53 to 1 at February 28, 1998, an increase from 1.15 to 1 at February 28, 1997. The increase results primarily from the effect on long-term debt and equity that resulted from the stock purchase previously mentioned. CAPITAL EXPENDITURES Capital expenditures, on an accrual basis, amounted to $4,774,000 in fiscal 1998 as compared with $533,000 and $19,914,000 in fiscal 1997 and 1996, respectively. Fiscal 1996 capital expenditures include the purchase of the previously leased Santa Maria, California facility, which was financed with $8,000,000 in mortgage notes (See Note 3-Notes to Financial Statements). Capital expenditures for fiscal 1999 are estimated to be approximately $16,600,000, which is approximately $8,500,000 more than depreciation expense projected for fiscal 1999. Capital expenditures anticipated in fiscal 1999 include outlays to be funded under the terms of the $10,000,000 credit facility, previously mentioned, as well as for improvements to its plants, equipment and technological systems. YEAR 2000 ISSUE The Company has conducted a review of its computer systems to identify those which could be adversely affected by the "Year 2000" issue and is currently reprogramming those systems using existing internal resources. The Company believes that these changes will be made in a timely manner and that the Year 2000 problem will not pose significant operational problems for the Company. Additionally, the Company believes the significant third parties with whom the Company does business, including certain customers with whom the Company is linked electronically, will be Year 2000 compliant in a timely manner. The Company is addressing the Year 2000 issue primarily with existing internal resources and does not expect to incur significant out-of-pocket costs. However, if the Company or one or more significant third parties with whom the Company does business fail to become Year 2000 compliant in a timely manner, such failure may have a material adverse effect on the Company's results of operations. 10 11 IMPACT OF INFLATION Whether current selling prices will be maintained or future selling price increases will be sufficient to match any future cost increases is not determinable at the present time due to the highly competitive conditions which exist in the food industry. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Also, in June 1997, the Financial Accounting Standards Board issued SFAS 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"), which supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 130 and SFAS 131 are effective for financial statements from periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to evaluate fully the impact, if any, these standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of these standards. RESULTS OF OPERATIONS OVERVIEW AND TRENDS The Company's product line is made up of agricultural products which are subject to the cyclical conditions and risks inherent in the agricultural industry. The Company bears part of the growing risks and all of the processing and marketing risks of these agricultural products. Weather abnormalities and excess inventories sometimes cause substantial reductions in the annual volume of product processed in the Company's facilities. When this happens, the unit cost of that year's production will increase substantially, resulting in reduced profit margins for one or more years. On the other hand, when bumper crops occur unit costs will decrease but selling prices will, in general, be depressed. The Company is faced with very strong competition in the marketplace from large brand name competitors, private regional U.S. growers and processors, and privately-owned Mexican and Canadian growers and processors. These competitive pressures, coupled with low overall growth, have led to weak market pricing, and a substantial increase in trade spending required for the Company to maintain its market 11 12 position. These factors have adversely impacted earnings in certain prior periods and, as a result, certain discretionary repair and maintenance projects were deferred to later periods. The Company anticipates that these competitive conditions will continue. The Company believes in order to address the intense competition within its industry, it must improve its operational efficiency, lower its costs, improve its customer service and provide value-added services to its customers. Accordingly, the Company intends to continue to invest in maintaining and expanding its distribution base and to make substantial expenditures to maintain and improve its plants, equipment and technological systems. The Company believes these expenditures are necessary to keep its business competitive and will fund such spending during periods when earnings are available. As a result, the Company expects that its future earnings, if any, may be decreased from historical levels. In addition to general inflation and the growing, processing and marketing risks described above, the Company is facing the significant costs associated with governmental regulation, the loss of land and water available for agriculture in California and the increasing competition due to world wide facilitation of trade. As a result of these factors, the Company's earnings are subject to fluctuations and will continue to be so in the future. The effect on the Company's operations and its ability to withstand the costs of developing healthcare, OSHA, EPA, taxation and other governmental regulations is unknown. SERVICE REVENUES Service revenues consist primarily of outside revenue from the Company's trucking operations, rental and miscellaneous income. SUPPLY AGREEMENTS The Company has entered into multi-year reciprocal supply agreements with other food processing companies. Through these agreements the Company procures food products to meet production and inventory requirements. The Company also sells food products processed at its Tennessee and California facilities to the other food processing companies. FISCAL 1998 COMPARED TO FISCAL 1997 NET SALES AND SERVICE REVENUES Net sales and service revenues decreased $733,000 or .4% for fiscal 1998 as compared with fiscal 1997 as follows:
YEAR ENDED FEBRUARY 28, ------------------------------- 1998 1997 ------------ ------------ Gross Sales Revenues: Food Products ...................... $231,430,000 $227,192,000 Services ........................... 3,557,000 3,173,000 ------------ ------------ Total Gross Revenues ........................ 234,987,000 230,365,000 Less Sales Allowances on Food Products ...... (39,900,000) (34,545,000) ------------ ------------ Net Sales and Service Revenues ..... $195,087,000 $195,820,000 ============ ============
12 13 Food product gross sales revenue increased $4,238,000 or 1.9% in fiscal 1998 as compared with fiscal 1997 and included sales volume increases of 3.0%. The average selling price of food products decreased 1.1%, primarily as the result of a five million pound (14.0%) increase in sales to other food processing companies in connection with the previously mentioned multi-year reciprocal supply agreements. The volume increase in sales to other food processing companies accounted for approximately one half of the Company's total sales volume increase. The average selling price of food products sales, excluding the effect of sales to other food processing companies, increased .3% from 1997 to 1998. Sales allowances increased $5,355,000 or 15.5% from the prior year primarily as the result of competitive market conditions and the Company's efforts in maintaining current and obtaining additional distribution. COST OF SALES AND SERVICES Cost of sales and services decreased $485,000 or .3% in fiscal 1998 as compared with the previous year primarily as the result of the effect of improved production efficiencies in 1998, the effects of which were partially mitigated by the 3.0% volume increase. Gross profit decreased $248,000 or .7% in fiscal 1998 as compared with the previous year and the gross profit margin was 18.7% for both fiscal 1998 and 1997. The decrease in gross profit resulted primarily from the increased promotional allowances and decreased average selling prices previously mentioned, the effects of which were partially mitigated by favorable production efficiencies in fiscal 1998 as compared with fiscal 1997. Operating results for fiscal 1998 include a charge to operations of approximately $1,850,000 as compared with approximately $1,100,000 in fiscal 1997, as the result of a plant repair and maintenance program. It is expected that repair and maintenance expenditures under this program will continue to be significant during fiscal 1999. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES Selling, administrative and general expenses decreased $418,000 (1.3%) in fiscal 1998 as compared with the previous year, primarily as the result of a fiscal 1997 charge of approximately $829,000 resulting from the Company's adoption of a non-contributory, unqualified supplemental retirement plan for management employees. Storage expense increased $443,000 for fiscal 1998 as compared with fiscal 1997 primarily as the result of repairs to the Company's cold storage facilities. Other expenses increased $32,000 in fiscal 1998 as compared with fiscal 1997. INTEREST EXPENSE Interest expense increased $270,000 (7.0%) in fiscal 1998 from fiscal 1997, primarily as the result of higher average borrowings resulting from the stock purchase previously mentioned. MISCELLANEOUS INCOME Miscellaneous Income - Net was $53,000 in fiscal 1998 as compared with $707,000 for fiscal 1997. Fiscal 1997 includes $314,000 resulting from net gains realized on disposal of property, plant and equipment, and $212,000 to restore the carrying value of certain property held for disposal to original cost, based on its current fair market value. Further, miscellaneous income in fiscal 1997 includes the realization of a claim in the amount of $167,000 related to operations which were discontinued in 1992. 13 14 TAXES ON INCOME Taxes on income consist of current and deferred income taxes required to be recognized for each of fiscal 1998 and 1997. FISCAL 1997 COMPARED TO FISCAL 1996 NET SALES AND SERVICE REVENUES Net sales and service revenues increased $4,106,000 or 2.1% for fiscal 1997 as compared with fiscal 1996 as follows:
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------- 1997 1996 ------------ ------------ Gross Sales Revenues: Food Products ................ $227,192,000 $221,991,000 Services ..................... 3,173,000 3,192,000 ------------ ------------ Total Gross Revenues .................. 230,365,000 225,183,000 Less Sales Allowances on Food Products (34,545,000) (33,469,000) ------------ ------------ Net Sales and Service Revenues $195,820,000 $191,714,000 ============ ============
Food product gross sales revenue increased $5,201,000 or 2.3% in fiscal 1997 as compared with fiscal 1996 and included sales volume increases of 2.9%. The average selling price of food products decreased .6%, primarily as the result of an increase in sales to other food processing companies in connection with the previously mentioned multi-year reciprocal supply agreements in the amount of $2,492,000 (29%). The average selling price of food product sales, excluding the effect of sales to other food processing companies, increased .6% from 1996 to 1997. Sales allowances increased $1,076,000 or 3.2% from the prior year primarily as the result of the Company's change from deferring and amortizing product introduction and related costs to expensing such costs as incurred. This change was made in February 1997 due to the increasingly competitive nature of the industry which has resulted in the inability to reasonably estimate the period benefitted by these costs. The effect of this change was to decrease income before income taxes by approximately $897,000 (See Summary of Accounting Policies). COST OF SALES AND SERVICES Cost of sales and services increased $3,777,000 or 2.4% in fiscal 1997 as compared with the previous year primarily as the result of the sales volume increase of 2.9% previously noted, partially offset by the effect of improved yields and production efficiencies in 1997. Gross profit increased $329,000 in fiscal 1997 as compared with the previous year and the gross profit margin was 18.7% for fiscal 1997 as compared with 19.0% for fiscal 1996. The increase in gross profit results primarily from increased sales volume in 1997 as compared with 1996 and the decrease in the gross margin percentage results primarily from the decrease in the overall average selling price and increased sales allowances previously mentioned. Operating results for fiscal 1997 include a charge to operations of approximately $1,100,000, as compared with approximately $500,000 in fiscal 1996, as the result of a repair and maintenance program to restore the throughput of the Company's plants to their approximate original capacity. It is expected that repair and maintenance expenditures under this program will continue to be significant for some time. 14 15 SELLING, ADMINISTRATIVE AND GENERAL EXPENSES Selling, administrative and general expenses decreased $1,429,000 (4.3%), primarily as the result of decreased storage expenses of $512,000 (resulting from lower average inventories), decreased pension and incentive compensation of $530,000 and decreased brokerage and other direct selling expenses of $337,000. Additionally, administrative and general expense in fiscal 1997 includes a charge to income before income taxes of approximately $829,000 resulting from the Company's adoption in February 1997 of a non-contributory, unqualified supplemental retirement plan for management employees. The effect of adopting this plan was mitigated by the rationalization of general and administrative functions during fiscal 1997, which resulted in an overall decrease in administrative and general expenses of approximately $50,000 as compared with the prior year. INTEREST EXPENSE Interest expense decreased $105,000 (2.6%) due to lower average borrowings related primarily to reductions in revolving credit borrowings which were partially attributable to lower average inventories. MISCELLANEOUS INCOME Miscellaneous Income - Net in the amount of $707,000 for fiscal 1997 includes $314,000 resulting from net gains realized on disposal of property, plant and equipment, and $212,000 to restore the carrying value of certain property held for disposal to its original cost, based on its current fair market value. Further, miscellaneous income includes the realization of a claim in the amount of $167,000 related to operations which were discontinued in 1992. TAXES ON INCOME Taxes on income consist of current and deferred income taxes required to be recognized for each of fiscal 1997 and 1996. 15 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of United Foods, Inc. We have audited the accompanying balance sheets of United Foods, Inc. as of February 28, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1998. 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 audits 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 United Foods, Inc. at February 28, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended February 28, 1998, in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP Memphis, TN April 3, 1998 16 17 UNITED FOODS, INC. BALANCE SHEETS
FEBRUARY 28, ------------------------------- 1998 1997 ------------ ------------ ASSETS CURRENT: Cash and cash equivalents .............................. $ 646,000 $ 3,772,000 Trade accounts receivable, less allowance of $285,000 and $308,000 for possible losses (Notes 1 and 3) ..... 19,263,000 17,533,000 Inventories (Notes 2 and 3) ............................ 37,344,000 36,694,000 Prepaid expenses and miscellaneous ..................... 3,935,000 3,871,000 Deferred income taxes (Note 5) ......................... 1,249,000 1,255,000 ------------ ------------ TOTAL CURRENT ASSETS ................................. 62,437,000 63,125,000 ------------ ------------ PROPERTY AND EQUIPMENT (Note 3): Land and land improvements ............................. 9,968,000 8,846,000 Buildings .............................................. 21,399,000 21,060,000 Machinery and equipment ................................ 94,870,000 91,942,000 ------------ ------------ 126,237,000 121,848,000 Less accumulated depreciation and amortization ......... (74,151,000) (67,210,000) ------------ ------------ NET PROPERTY AND EQUIPMENT ........................... 52,086,000 54,638,000 ------------ ------------ OTHER ASSETS ............................................. 1,361,000 1,345,000 ------------ ------------ $115,884,000 $119,108,000 ============ ============
See accompanying summary of accounting policies and notes to financial statements. 17 18 UNITED FOODS, INC. BALANCE SHEETS (CONCLUDED)
FEBRUARY 28, ------------------------------ 1998 1997 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .............................................. $ 12,191,000 $ 11,982,000 Accruals: Compensation and related taxes .............................. 2,889,000 2,656,000 Pension contributions (Note 8) .............................. 965,000 726,000 Income taxes (Note 5) ....................................... 46,000 328,000 Workers' compensation claims (Note 9) ....................... 993,000 849,000 Interest .................................................... 448,000 437,000 Promotional allowances ...................................... 905,000 384,000 Miscellaneous ............................................... 394,000 253,000 Current maturities of long-term debt (Notes 3 and 8) .......... 4,427,000 4,772,000 ------------ ------------ TOTAL CURRENT LIABILITIES ................................. 23,258,000 22,387,000 LONG-TERM DEBT, less current maturities (Notes 3 and 8) ......... 42,168,000 36,244,000 DEFERRED INCOME TAXES (Note 5) .................................. 4,710,000 5,021,000 ------------ ------------ TOTAL LIABILITIES ......................................... 70,136,000 63,652,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 9) STOCKHOLDERS' EQUITY (Note 4): Preferred stock, $1 par, shares authorized 10,000,000 ......... -- -- Common stock, Class A, $1 par, shares authorized 12,000,000; outstanding 2,616,139 and 5,116,075 ......................... 2,616,000 5,116,000 Common stock, Class B, $1 par, shares authorized 6,000,000; outstanding 4,193,790 and 5,693,854 ......................... 4,194,000 5,694,000 Additional paid-in capital .................................... 3,993,000 2,463,000 Retained earnings (Note 3) .................................... 34,945,000 42,183,000 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY ................................ 45,748,000 55,456,000 ------------ ------------ $115,884,000 $119,108,000 ============ ============
See accompanying summary of accounting policies and notes to financial statements. 18 19 UNITED FOODS, INC. STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 28 OR 29, -------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ NET SALES AND SERVICE REVENUES ........................ $195,087,000 $195,820,000 $191,714,000 COST OF SALES AND SERVICES ............................ 158,635,000 159,120,000 155,343,000 ------------ ------------ ------------ Gross profit ........................................ 36,452,000 36,700,000 36,371,000 SELLING, ADMINISTRATIVE AND GENERAL EXPENSES .......... 31,610,000 32,028,000 33,457,000 ------------ ------------ ------------ Operating income .................................... 4,842,000 4,672,000 2,914,000 ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense .................................... (4,141,000) (3,871,000) (3,976,000) Miscellaneous income (expense), net ................. 53,000 707,000 28,000 ------------ ------------ ------------ Total other income (expense), net ................. (4,088,000) (3,164,000) (3,948,000) ------------ ------------ ------------ Income (loss) before taxes on income (benefit) .... 754,000 1,508,000 (1,034,000) TAXES ON INCOME (BENEFIT) (Note 5) .................... 294,000 586,000 (374,000) ------------ ------------ ------------ NET INCOME (LOSS) ..................................... $ 460,000 $ 922,000 $ (660,000) ============ ============ ============ BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 6) ............................... $ 0.06 $ 0.08 $ (0.06) ============ ============ ============
See accompanying summary of accounting policies and notes to financial statements. 19 20 UNITED FOODS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock -- Class A COMMON STOCK -- CLASS B ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- Balance, February 28, 1995 .................. 7,647,932 $ 7,648,000 7,097,705 $ 7,098,000 Net loss for the year ....................... -- -- -- -- Exchange of Class B common stock for Class A common stock .............................. 1,525 2,000 (1,525) (2,000) Purchase of treasury stock (Note 4) ......... -- -- -- -- Exercise of options ......................... -- -- -- -- ---------- ----------- ---------- ----------- Balance, February 29, 1996 .................. 7,649,457 7,650,000 7,096,180 7,096,000 Net income for the year ..................... -- -- -- -- Exchange for Class B common stock for Class A common stock .............................. 6,000 6,000 (6,000) (6,000) Retirement of treasury stock (Note 4) ....... (2,539,382) (2,540,000) (1,396,326) (1,396,000) ---------- ----------- ---------- ----------- Balance, February 28, 1997 .................. 5,116,075 5,116,000 5,693,854 5,694,000 Net income for the year ..................... -- -- -- -- Exchange of Class B common stock for Class A common stock .............................. 64 -- (64) -- Purchase of treasury stock (Note 4) ......... -- -- -- -- Retirement of, and adjustment in connection with, treasury stock (Note 4) ............. (2,500,000) (2,500,000) (1,500,000) (1,500,000) ---------- ----------- ---------- ----------- Balance, February 28, 1998 .................. 2,616,139 $ 2,616,000 4,193,790 $ 4,194,000 ========== =========== ========== ===========
See accompanying summary of accounting policies and notes to financial statements. 20 21
TREASURY STOCK ---------------------------- ADDITIONAL RETAINED PAID-IN CAPITAL EARNINGS SHARES AMOUNT TOTAL - ------------------------------------------------------------------------------------- $ 8,687,000 $ 41,921,000 2,953,139 $ (7,914,000) $ 57,440,000 -- (660,000) -- -- (660,000) -- -- -- -- -- -- -- 1,012,569 (2,284,000) (2,284,000) (43,000) -- (30,000) 81,000 38,000 - ----------- ------------ ---------- ------------ ------------ 8,644,000 41,261,000 3,935,708 (10,117,000) 54,534,000 -- 922,000 -- -- 922,000 -- -- -- -- -- (6,181,000) -- (3,935,708) 10,117,000 -- - ----------- ------------ ---------- ------------ ------------ 2,463,000 42,183,000 -- -- 55,456,000 -- 460,000 -- -- 460,000 -- -- -- -- -- -- -- 4,000,000 (10,168,000) (10,168,000) 1,530,000 (7,698,000) (4,000,000) 10,168,000 -- - ----------- ------------ ---------- ------------ ------------ $ 3,993,000 $ 34,945,000 -- $ -- $ 45,748,000 =========== ============ ========== ============ ============
See accompanying summary of accounting policies and notes to financial statements. 21 22 UNITED FOODS, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------------------ 1998 1997 1996 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ................................... $ 460,000 $ 922,000 $ (660,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ...................................... 7,285,000 7,859,000 7,362,000 Provision for losses on accounts receivable ....... 81,000 60,000 43,000 Gain on disposal of property and equipment ........ (51,000) (314,000) (34,000) Recovery of writedown on property held for disposal .................................... -- (212,000) -- Deferred income taxes ............................. (305,000) (626,000) (943,000) Change in operating assets and liabilities: Accounts receivable ............................. (1,811,000) (3,091,000) 783,000 Inventories ..................................... (650,000) 6,405,000 (2,735,000) Prepaid expenses and miscellaneous .............. (64,000) 721,000 469,000 Other assets .................................... (16,000) 508,000 716,000 Income taxes payable ............................ (282,000) 122,000 (536,000) Accounts payable and accruals ................... 1,270,000 485,000 1,407,000 Changes in net assets of discontinued operations .. -- -- 18,000 ----------- ----------- ------------ Net cash provided from operating activities ..... 5,917,000 12,839,000 5,890,000 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................ (4,546,000) (693,000) (12,064,000) Proceeds from sale of property and equipment ........ 92,000 898,000 58,000 ----------- ----------- ------------ Net cash provided (used) by investing activities .. $(4,454,000) $ 205,000 $(12,006,000) ----------- ----------- ------------
See accompanying summary of accounting policies and notes to financial statements. 22 23 UNITED FOODS, INC. STATEMENTS OF CASH FLOWS (CONCLUDED)
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------------------- 1998 1997 1996 ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under line of credit agreements .......................................... $ 9,448,000 $(20,095,000) $12,209,000 Proceeds from long-term borrowings .................... 922,000 14,884,000 1,169,000 Purchase of treasury stock ............................ (10,168,000) -- (2,284,000) Reduction of long-term debt ........................... (4,791,000) (5,090,000) (4,439,000) Exercise of stock options ............................. -- -- 38,000 ------------ ------------ ----------- Net cash provided (used) by financing activities .... (4,589,000) (10,301,000) 6,693,000 ------------ ------------ ----------- NET INCREASE (DECREASE) IN CASH FOR THE YEAR ............ (3,126,000) 2,743,000 577,000 CASH AND CASH EQUIVALENTS, beginning of year ............ 3,772,000 1,029,000 452,000 ------------ ------------ ----------- CASH AND CASH EQUIVALENTS, end of year .................. $ 646,000 $ 3,772,000 $ 1,029,000 ============ ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest ............................................... $ 3,618,000 $ 3,690,000 $ 3,452,000 Income taxes ........................................... $ 854,000 $ 1,084,000 $ 1,157,000
Non-cash investing and financing activities: Capital expenditures of $228,000 and $160,000 are included in accounts payable at February 28, 1998 and at February 29, 1996, respectively. See accompanying summary of accounting policies and notes to financial statements. 23 24 UNITED FOODS, INC. SUMMARY OF ACCOUNTING POLICIES LINES OF BUSINESS The Company is principally engaged in the growing, processing, marketing and distribution of food products, primarily frozen vegetables and fresh mushrooms. Food products are distributed for resale in the retail market directly to large national grocery chains and through food brokers to numerous independent food stores located throughout the United States, both under the Company's brand name and under buyers' labels, and to military commissaries in the United States and overseas under the Company's brand name. The Company also sells certain of its food products, directly and through food brokers, to institutions located throughout the United States, such as restaurants, schools, hospitals, hotels, and federal and state government agencies. In addition, the Company purchases and sells certain products under reciprocal supply agreements with other food processors. The Company currently operates six owned facilities in California, Oregon, Tennessee and Utah. Although production varies with the seasons at the three frozen vegetable plants, all the facilities operate during a substantial part of the year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company classifies cash on hand, savings and checking accounts and short-term investments with initial maturities of less than 90 days as cash equivalents. INVENTORY VALUATION Substantially all of the Company's inventories are valued at the lower of cost (first-in, first-out) or market. Market for finished goods is based on net realizable value; and for raw materials and growing crops, market is based on replacement cost. 24 25 UNITED FOODS, INC. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost. Depreciation and amortization on property and equipment are computed principally on the straight-line method for financial reporting purposes over the following estimated useful lives:
Description Years ---------------------------------- ----------- Land improvements ............... 10-40 Buildings ....................... 5-60 Machinery and equipment ......... 3-13
For income tax purposes, depreciation on property and equipment is computed primarily on accelerated methods. The Company continually reviews property and equipment to determine that the carrying values have not been impaired. REVENUE RECOGNITION Sales and related cost of sales are recognized primarily upon shipment of products. PRODUCT INTRODUCTION AND MARKETING COSTS In connection with the introduction of new product lines or the expansion of its market position in the United States, the Company historically deferred and amortized product introduction and related costs over a twelve-month period. In February 1997, the Company began expensing such costs in the period incurred due to the increasingly competitive nature of the industry which has resulted in the inability to reasonably estimate the period benefited by these costs. The effect of this change was to decrease after-tax net income for the year ended February 28, 1997, by $551,000. EMPLOYEE BENEFIT PLANS The Company has a "401(k)" defined contribution pension plan for certain salaried and hourly employees. The Company funds pension costs as accrued. See Note 8 - Other Benefit Plans. TAXES ON INCOME The Company provides for estimated income taxes payable or refundable on current year income tax returns and for the estimated future tax effects attributable to temporary differences and carryforwards. Measurement of deferred income taxes is based on enacted tax laws and tax rates, with the measurement of deferred income tax assets being reduced by estimated amounts of tax benefits not likely to be realized. 25 26 UNITED FOODS, INC. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) STOCK OPTIONS Stock options were granted to certain key employees at the prevailing market price on the date of the grant. Proceeds from the sale of unissued common stock under these options were credited to common stock and additional paid-in capital at the time the options were exercised. If treasury stock was issued, the Company credited cost of treasury stock and charged additional paid-in capital for the excess of cost over the option price. The Company made no charge to earnings with respect to these options. See Note 8 - Other Benefit Plans. EARNINGS PER SHARE Effective February 28, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). This statement simplifies the standards for computing earnings per share ("EPS") previously found in APB Opinion No. 15, "Earnings Per Share," as the presentation of "Primary" and "Fully-Diluted" EPS under APB 15 is replaced by "Basic" and "Diluted" EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock, or result in the issuance of common stock that then shares in the earnings of the Company. In accordance with the provisions of SFAS 128, earnings per share amounts for the years ended February 28, 1997 and February 29, 1996 have been recalculated to give effect to the application of this new standard. The effect of this restatement had no material effect on either year. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Also in June 1997, the Financial Accounting Standards Board issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. 26 27 UNITED FOODS, INC. SUMMARY OF ACCOUNTING POLICIES (CONCLUDED) SFAS 130 and SFAS 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to evaluate fully the impact, if any, these standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by the implementation of these standards. RECLASSIFICATIONS Certain prior year amounts in the financial statements have been reclassified to conform to the 1998 presentation. 27 28 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. RECEIVABLES Activity in the allowance for possible losses is summarized as follows:
YEAR ENDED FEBRUARY 28 OR 29, --------------------------------------- 1998 1997 1996 --------- -------- -------- Balance at beginning of year .......... $ 308,000 $260,000 $235,000 Charged to expense .................... 81,000 60,000 43,000 Balances written off, net of recoveries (104,000) (12,000) (18,000) --------- -------- -------- Balance at end of year ................ $ 285,000 $308,000 $260,000 ========= ======== ========
NOTE 2. INVENTORIES Inventories are summarized as follows:
FEBRUARY 28, ---------------------------- 1998 1997 ----------- ----------- Finished products ............ $31,607,000 $30,807,000 Raw materials ................ 2,303,000 2,525,000 Growing crops ................ 2,644,000 2,111,000 Merchandise and supplies ..... 790,000 1,251,000 ----------- ----------- $37,344,000 $36,694,000 =========== ===========
28 29 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. LONG-TERM DEBT Long-term debt is summarized as follows:
FEBRUARY 28, ------------------------------- 1998 1997 ----------- ----------- 9.10% term note, payable in monthly installments of $194,000 through March 1998, and $148,000 thereafter, including interest, through March 2007, collateralized by certain real estate and equipment located in Bells, Tennessee (approximate carrying value of $27,100,000) ................... $14,096,000 $15,000,000 9.25% term notes, payable in monthly installments of $82,000, including interest, through October 2010, collateralized by certain real estate and equipment located in California (approximate carrying value of $7,300,000) .................................................................... 7,357,000 7,649,000 $18 million revolving credit note payable to bank, collateralized by certain trade receivables and inventories (approximate carrying value of $45,400,000), due June 2000, with interest at the bank's prime rate (8.5% at February 28, 1998) .................................................... 6,448,000 -- 8.98% term note, payable in monthly installments of $61,000, including interest, through January 2007, collateralized by certain real estate and equipment located in Ogden, Utah (approximate carrying value of $1,900,000) .................................................................... 5,799,000 6,000,000 6.97% term note, payable in quarterly installments of $643,000, plus interest, through July 1999, collateralized by certain trade receivables, inventory, farms and equipment located in California, Oregon and Utah (approximate carrying value of $8,000,000) ..................... 3,857,000 6,429,000 $3 million revolving credit note payable to bank, collateralized by certain trade receivables, inventory, farms and equipment located in California, Oregon and Utah (approximate carrying value of $7,400,000), due August 2000, with interest at 1.3% over the Term Federal Funds rate (7.01% at February 28, 1998) ................................................... 3,000,000 -- 6.48% term note, payable in quarterly installments of $179,000, plus interest, through October 1999, collateralized by certain real estate and equipment located in Tennessee (approximate carrying value of $1,300,000) .................................................................... 689,000 1,403,000 Deferred compensation agreements, with interest at prime (8.5% at February 28, 1998) (Note 8), and miscellaneous notes ........................... 5,349,000 4,535,000 ----------- ----------- Totals .......................................................................... 46,595,000 41,016,000 Less current maturities ......................................................... (4,427,000) (4,772,000) ----------- ----------- Long-term debt, less current maturities ......................................... $42,168,000 $36,244,000 =========== ===========
29 30 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. LONG-TERM DEBT (CONTINUED) Principal payments required to be made for each of the next five fiscal years and thereafter are summarized as follows: 1999 ................................... $ 4,427,000 2000 ................................... 2,509,000 2001 ................................... 10,781,000 2002 ................................... 1,455,000 2003 ................................... 1,584,000 After 2003 ............................. 25,839,000 ----------- Total .................................. $46,595,000 ===========
The terms of various notes include certain negative covenants which provide for, among other things, restrictions relating to the maintenance of minimum levels of working capital and equity, payment of dividends and the incurrence of additional indebtedness. Under the most restrictive of these provisions, retained earnings of $31,646,000 is restricted at February 28, 1998. The Company entered into a $10 million master security agreement dated March 1998 with a financial institution whereby the Company may borrow amounts to purchase equipment for use in the Company's operations. Interest is payable monthly at per annum rates equal to U.S. Treasuries having maturities similar to the useful lives of the equipment purchased, plus 1.6%. Principal amounts due are amortized over the lives of the equipment purchased. As of March 31, 1998, the Company had borrowed approximately $642,000 to purchase equipment, with interest payable at various rates ranging from 7.3% to 7.35% per annum. NOTE 4. COMMON STOCK Each Class B common share is convertible into one share of Class A common stock at the holders' election. Holders of the Class A common stock are entitled to a preference dividend of $.025 per share for any quarter and each preceding quarter of the Company's fiscal year before the holders of the Class B common stock are entitled to any regular cash dividend. With respect to election of directors, holders of Class A common stock are entitled to elect 25% of the directors, and holders of Class B common stock are entitled to elect the remaining directors. On matters requiring the classes to vote together, the Class A holders are entitled to 1/10 vote per share and holders of Class B common stock are entitled to one vote per share. In November 1995, the Company purchased 831,169 shares of Class A and 181,400 shares of Class B common stock at a cost of $2.25 per share, plus expenses of approximately $5,000. The Company funded the purchases of these shares from borrowings under a revolving credit facility. In August 1996, the Company amended its certificate of incorporation to reduce the number of authorized shares of Class A and Class B common stock to 12,000,000 and 6,000,000 shares, respectively. As a result of this amendment, the Company retired 2,539,382 and 1,396,326 Treasury shares of the Company's Class A and Class B common stock, respectively. 30 31 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4. COMMON STOCK (CONTINUED) On May 19, 1997, the Company initiated a cash tender offer for up to one million shares of its Class A and Class B common stock at a price of $2.50 per share. On June 17, 1997, the Company amended the cash tender offer by extending the expiration date to July 3, 1997, and by increasing the number of shares it offered to purchase from one million shares of its Class A and Class B common stock to up to 2,500,000 shares of its Class A common stock and up to 1,500,000 shares of its Class B common stock, each at a price of $2.50 per share. A total of approximately 2,641,299 shares of Class A common stock and 1,720,932 shares of Class B common stock were validly tendered and not withdrawn in response to the offer, as amended. The purchase of shares was prorated in accordance with the terms of the offer, as amended, for each class of common stock. The purchase, which totaled approximately $10,168,000, including expenses, was funded with borrowings from the Company's revolving credit facilities and available cash. The Company had an incentive stock option plan for granting key employees options to purchase shares of the Company's Class A common stock which was terminated, effective with the expiration of all the options outstanding, in December 1997. Class A common shares which had been reserved for issuance of options and unexercised outstanding options were as follows:
NUMBER OF OPTION PRICE SHARES PER SHARE --------- ------------ Outstanding, February 28, 1995 .... 919,384 $1.25 Exercised ......................... (30,000) 1.25 -------- Outstanding, February 29, 1996 .... 889,384 1.25 Cancelled ......................... (10,000) 1.25 -------- Outstanding, February 28, 1997 .... 879,384 1.25 Cancelled ......................... (879,384) 1.25 -------- Outstanding, February 28, 1998 .... -- -- ========
NOTE 5. TAXES ON INCOME The components of income tax expense (benefit) are as follows:
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------------- 1998 1997 1996 ---------- ---------- --------- Current: Federal .................. $ 475,000 $1,006,000 $ 498,000 State .................... 124,000 206,000 71,000 ---------- ---------- --------- 599,000 1,212,000 569,000 ---------- ---------- --------- Deferred: Federal .................. (273,000) (502,000) (868,000) State .................... (32,000) (124,000) (75,000) ---------- ---------- --------- (305,000) (626,000) (943,000) ---------- ---------- --------- Income tax expense (benefit) $ 294,000 $ 586,000 $(374,000) ========== ========== =========
31 32 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5. TAXES ON INCOME (CONTINUED) The components of the net deferred income tax assets and liabilities consist of the following:
FEBRUARY 28, ------------------------------ 1998 1997 ----------- ------------ Deferred tax assets: Jobs and other tax credit carryforwards ..... $ 2,804,000 $ 3,399,000 Inventory overhead adjustment ............... 380,000 466,000 Accrued vacation ............................ 472,000 458,000 Deferred compensation ....................... 2,029,000 1,699,000 Other ....................................... 676,000 661,000 ----------- ------------ Total deferred income tax assets .............. 6,361,000 6,683,000 ----------- ------------ Deferred income tax liabilities: Fixed asset basis difference ................ (9,707,000) (10,334,000) Other ....................................... (115,000) (115,000) ----------- ------------ Total deferred income tax liabilities ......... (9,822,000) (10,449,000) ----------- ------------ Net deferred income tax liabilities ........... (3,461,000) (3,766,000) Current deferred income tax asset ............. 1,249,000 1,255,000 ----------- ------------ Net long-term deferred income tax liability ... $(4,710,000) $ (5,021,000) =========== ============
32 33 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5. TAXES ON INCOME (CONTINUED) The effective tax rate on income before taxes on income is different from the federal statutory tax rate. The following summary reconciles taxes at the federal statutory tax rate with the effective rate:
YEAR ENDED FEBRUARY 28 OR 29, ----------------------------- 1998 1997 1996 PERCENT PERCENT PERCENT ------- ------- ------- Taxes on income at statutory rate ..................... 34.0 34.0 34.0 Increase (reduction) resulting from: State income taxes, net of federal tax benefit ...... 8.1 2.2 0.3 Fuels and jobs tax credits .......................... (5.8) (3.3) 3.2 Other items ......................................... 2.7 5.9 (1.3) ---- ---- ---- Taxes on income at effective rate ..................... 39.0 38.8 36.2 ==== ==== ====
NOTE 6. EARNINGS PER SHARE AND CAPITAL STOCK Earnings per share of common stock and common stock equivalents have been computed using 8,256,504 shares in 1998, 11,077,372 shares in 1997, and 11,470,173 shares in 1996, which represent the weighted average number of shares of Class A and Class B common stock required to be recognized during the respective periods. As of February 28, 1997, holders of substantially all of the Company's common stock options had agreed not to exercise their options in exchange for an agreed-upon amount of deferred compensation and, therefore, the assumed exercise of the common stock options is not included in the computation of common stock equivalents for 1998, but were included in computing the weighted average number of shares for 1997 due to the fact that the agreements to allow options to expire were not signed until late February 1997. The effect of shares issuable under the stock option plan was excluded for 1996 as the effect would be anti-dilutive. Earnings per share has been calculated using the following weighed average number of shares:
1998 1997 1996 --------- ---------- ---------- Weighted average number of common shares used for Basic EPS ................................... 8,256,504 10,809,929 11,470,173 Effect of dilutive stock options and warrants .......... -- 267,443 -- --------- ---------- ---------- Weighted average number of common shares and dilutive potential common stock used in diluted EPS... 8,256,504 11,077,372 11,470,173 ========= ========== ==========
33 34 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7. LEASES The Company leases certain property, including land used in farming operations, and equipment under noncancellable leases which expire at various dates to 2013. In most cases, management expects that in the normal course of business, leases that expire will be renewed or replaced by other leases. The future minimum lease payments required under operating leases that have initial or remaining noncancellable terms in excess of one year were as follows:
YEAR ENDING FEBRUARY 28 OR 29, ------------------------------ 1999 $ 2,381,000 2000 2,228,000 2001 2,162,000 2002 1,387,000 2003 1,043,000 After 2003 2,066,000 ----------- Total minimum lease payments $11,267,000 ===========
Rent expense under operating leases amounted to $3,588,000, $3,552,000 and $4,066,000 for the years ended February 28, 1998, February 28, 1997 and February 29, 1996, respectively. Certain leases contain renewal options and some have purchase options, and generally provide that the Company shall pay for insurance, taxes and maintenance. NOTE 8. EMPLOYEE BENEFIT PLANS PENSION PLANS The Company had a defined contribution pension plan for hourly non-clerical employees. Contributions to the plan were based upon hours worked during the plan year and participants could make voluntary contributions to the plan of up to 10% of their compensation (as defined). The Company paid all administrative expenses related to the plan. Cost of the plan charged to operations for fiscal 1998, 1997 and 1996 amounted to approximately $499,000, $463,000, and $492,000, respectively. This plan was terminated on February 28, 1998. The Company also provided a defined contribution pension plan for certain salaried employees. Company contributions to the plan were discretionary but could not exceed 15% of participants' compensation. Participants could make voluntary contributions up to 10% of their compensation (as defined) to the plan. Cost of the plan charged to operations for fiscal 1998 and 1997 amounted to approximately $74,000 and $94,000, respectively. No costs were charged to operations for fiscal 1996. This plan was terminated on February 28, 1998. On March 1, 1998, the Company established a defined contribution plan for certain salaried and hourly employees. The plan provides for a dollar for dollar match by the Company of participant contributions up to 3% of compensation (as defined) and for participants to make additional voluntary contributions to the plan of up to 22% of their compensation (as defined). 34 35 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED) INCENTIVE PLANS During fiscal 1996 and 1997 the Company had an incentive compensation plan, now terminated, which computed benefits in accordance with a formula which incorporated net after tax profits, return on average assets and return on equity. Costs of the plan charged to operations for fiscal 1997 and 1996 were approximately $241,000 and $126,000, respectively. The Company adopted incentive compensation plans in fiscal 1998 which cover approximately 33 key employees. Company benefits under the plans are discretionary. Costs of the plans charged to operations for fiscal 1998 were approximately $277,000. The Company has also adopted an incentive compensation plan for the Chairman of the Board which computes benefits in accordance with a formula which incorporates earnings before interest, taxes, depreciation and amortization. Cost of the plan charged to operations for fiscal 1998 was approximately $280,000. A portion of the benefits provided under these plans were credited to deferred compensation accounts which earn a guaranteed interest rate. Interest expense during fiscal 1998, 1997 and 1996 includes approximately $41,500, $36,000 and $36,000, respectively, related to these accounts. OTHER BENEFIT PLANS The Company also has a deferred compensation plan which permits directors and certain management employees to defer portions of their compensation and earn a guaranteed interest rate on the deferred amounts. The salaries, which have been deferred since the inception of the plans, have been accrued and the primary expense, other than salaries, related to this plan is interest on the deferred amounts. Interest is calculated at 8.5%. Interest expense during fiscal 1998, 1997 and 1996 includes $178,000, $139,500 and $103,700, respectively, related to these plans. In February 1997, the Company adopted a non-contributory, unqualified supplemental retirement plan for management employees, whereby an amount specified by the board of directors is held in a deferred compensation account for each covered employee to be paid either in a lump sum or in approximate equal installments over ten years at the date of such employee's retirement from the Company. The board of directors specified that each management employee currently holding the Company's incentive stock options be offered the alternative of receiving deferred compensation under the plan in an amount equal to $1 for each unexercised stock option currently held. Any employee electing to so participate was required to agree not to exercise the related options through the option expiration date in December 1997. Employees holding 829,384 options elected to participate in this deferred compensation plan, resulting in a charge to operations of $829,384 in 1997. Interest is calculated at prime (8.5% at February 28, 1998). Interest expense during fiscal 1998 includes $74,000 related to this plan. 35 36 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED) OTHER BENEFIT PLANS (CONTINUED) During fiscal 1995, the Company approved a non-contributory, unqualified supplemental retirement plan for eight officers whereby a calculated amount is held in a deferred salary account for each covered officer. The calculation provides an amount sufficient to adjust the officers' annual United Foods, Inc.-sourced after income tax earnings for 1993 and each year thereafter to the level it would have been using 1992 federal tax rates, assuming standard deductions and no other income. The deferred salary will be paid in approximate equal installments over ten years at the later of such officer's date of disability as defined, termination from the Company, or 65th birthday. The expense for this plan in fiscal 1998, 1997 and 1996 was $385,000, $330,000 and $378,400, respectively. The Company has included $5,349,000 and $4,435,000 in long-term debt at February 28, 1998 and 1997, respectively, to reflect its liability under these unfunded plans. NOTE 9. COMMITMENTS AND CONTINGENCIES A. SALES AND MAJOR CUSTOMER A large part of the Company's sales are made in the retail market and a significant proportion of the retail grocery trade in the United States is concentrated in the hands of national grocery chains. As such, a large part of the Company's revenue is derived from sales to these chains. Sales to one of the Company's customers totaled $26,374,000, $22,328,000 and $20,977,000, representing 13.5%, 11.4% and 10.9% of total Company revenues in 1998, 1997 and 1996, respectively. Competition results in changes in the Company's customer base over time and it is, therefore, possible that the Company may lose one or more of its largest customers over time and, as a result, operations could be materially impacted. B. PRODUCT PROCUREMENT AND AVAILABILITY Crops have seasonal features and availability is subject to unpredictable changes in growing conditions that are inherent in the agriculture industry. The Company bears part of the growing risks and all of the processing and marketing risks associated with its agricultural products. Weather abnormalities and other adverse growing conditions sometimes result in substantial reductions in the annual volumes processed in the Company's plants. When this occurs, the Company may have to procure raw and processed vegetables from alternative sources at higher than expected costs and the reduced volume of vegetables processed in the Company's plants results in increased unit costs. When growing conditions result in yields that exceed expectations, the Company will generally pack only volumes required by anticipated demand through the next pack season. Additionally, selling prices are impacted by industry-wide production and inventory levels. Bumper crops and resulting increased inventory levels tend to decrease average selling prices, while crop shortages typically do not result in increased selling prices. 36 37 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED) C. LEGAL PROCEEDINGS There are several lawsuits against the Company on a variety of matters. While it is not feasible to predict the ultimate outcome of these matters with certainty, based on evaluations of the facts and on advice of counsel handling the defense of these matters, the Company does not believe their outcome will, in the aggregate, have a material adverse effect on its financial position or its results of operations. D. SUPPLY AGREEMENTS The Company has entered into multi-year reciprocal supply agreements with other food processing companies. Through these agreements the Company procures food products to meet its production and inventory requirements. Also, the Company sells food products processed at the Company's Tennessee and California facilities to the other food processing companies. E. WORKERS' COMPENSATION The Company is self-insured for workers' compensation claims up to $300,000 each. Provisions for expected future payments are accrued based on the Company's estimate of its aggregate liability for all open claims. The Company has secured its liability for potential workers' compensation claims in the states where they are self-insured by obtaining bonds totaling approximately $2,700,000. NOTE 10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments bearing a variable interest rate, it is presumed that recorded book values are reasonable estimates of fair value. For all other financial instruments, the following methods and assumptions are used to estimate fair values: Cash and cash equivalents, receivables, accounts payable and accruals - Recorded book values are a reasonable estimate of fair value. Long-term debt - Current market values for debt instruments with fixed interest rates are estimated based on borrowing rates currently available to the Company for loans with similar terms. At February 28, 1998, the estimated fair value of debt instruments with fixed interest rates was approximately $32,606,000 as compared with the carrying value of such instruments of $31,798,000. The remaining assets and liabilities of the Company are not considered financial instruments and have not been valued differently than is customary under historical cost accounting. 37 38 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) ---------------------------------------------------------------- 1ST 2ND 3RD 4TH ----------- ----------- ----------- ----------- YEAR ENDED FEBRUARY 28, 1998: Revenues .................................. $46,963,000 $42,579,000 $51,407,000 $54,138,000 Gross profit .............................. 8,878,000 6,873,000 9,429,000 11,272,000 Income (loss) before taxes on income (benefit) (a) and (b) ................... 650,000 (1,542,000) 176,000 1,470,000 Net income (loss) ......................... 400,000 (949,000) 108,000 901,000 Basic and diluted earnings (loss) per common share ............................ .04 (.11) .02 .13 YEAR ENDED FEBRUARY 28, 1997: Revenues .................................. 48,708,000 42,628,000 52,669,000 51,815,000 Gross profit .............................. 8,867,000 7,819,000 10,013,000 10,001,000 Income from operations before taxes on income .................................. 159,000 42,000 925,000 382,000 Net income ................................ 98,000 26,000 570,000 228,000 Basic and diluted earnings per common share .01 .00 .05 .02
(a) As discussed in Note 8, the Company recorded a charge to operations of $829,000 ($507,000, or $.05 per share, effect on after-tax net income) in the fourth quarter of 1997 related to a new unqualified supplemental retirement plan. (b) In addition, as discussed under "Product Introduction and Marketing Costs" in the Summary of Accounting Policies, the Company began expensing such costs as incurred in February 1997, the effect of which was to decrease after-tax net income for fiscal 1997 by $551,000, or $.05 per share. 38 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information under the captions "Election of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement to be filed in connection with the July 11, 1998 Annual Meeting of Stockholders is incorporated by reference herein. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Compensation of Directors and Executive Officers" in the Company's Proxy Statement to be filed in connection with the July 11, 1998 Annual Meeting of Stockholders is incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership of Management and Certain Beneficial Owners" in the Company's Proxy Statement to be filed in connection with the July 11, 1998 Annual Meeting of Stockholders is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement to be filed in connection with the July 11, 1998 Annual Meeting of Stockholders is incorporated by reference herein. 39 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS INCLUDED IN PART II OF THIS REPORT Report of Independent Certified Public Accountants. Balance Sheets at February 28, 1998 and February 28, 1997. Statements of Operations for the years ended February 28 or 29, 1998, 1997 and 1996. Statements of Stockholder's Equity for the years ended February 28 or 29, 1998, 1997 and 1996. Statements of Cash Flows for the years ended February 28 or 29, 1998, 1997 and 1996. Summary of Accounting Policies Notes to Financial Statements FINANCIAL STATEMENT SCHEDULES INCLUDED IN PART IV OF THIS REPORT Schedules have not been filed because the conditions requiring the filing do not exist or the required information is given in the financial statements, including the notes thereto. EXHIBITS INCLUDED IN PART IV OF THIS REPORT See "Index to Exhibits." REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended February 28, 1998. 40 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED FOODS, INC. /s/ United Foods, Inc. May 9, 1998 By: /s/ Carl W. Gruenewald, II ------------------------------------- Carl W. Gruenewald, II Director, Senior Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ James I. Tankersley Chairman of the Board May 9, 1998 - --------------------------- James I. Tankersley /s/ Daniel B. Tankersley Vice Chairman of the Board May 9, 1998 - --------------------------- and Secretary Daniel B. Tankersley /s/ B. M. Ennis President May 9, 1998 - --------------------------- B. M. Ennis /s/ Joseph A. Geary Director May 9, 1998 - --------------------------- Joseph A. Geary /s/ Darla T. Darnall Director May 9, 1998 - --------------------------- Darla T. Darnall /s/ Julia T. Wells Director May 9, 1998 - --------------------------- Julia T. Wells /s/ Kelle T. Northern Director May 9, 1998 - --------------------------- Kelle T. Northern /s/ John S. Wilder Director May 9, 1998 - --------------------------- John S. Wilder /s/ James W. Tankersley Director May 9, 1998 - --------------------------- James W. Tankersley /s/ Thomas A. Hopper, Jr. Director May 9, 1998 - --------------------------- Thomas A. Hopper, Jr.
41 42 UNITED FOODS, INC. INDEX TO EXHIBITS
Exhibit Exhibit Number Description - ------- ----------------------------------------------------------------------- 3.1 Certificate of Incorporation of United Foods, Inc., as amended (restated electronically for SEC filing purposes only). 3.2 By-Laws of United Foods, Inc., as amended (restated electronically for SEC filing purposes only) 10.1 Revolving Credit Agreement between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A., "Rabobank Nederland,"dated August 20, 1992, Exhibit 10.2 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1993, is incorporated by reference herein. 10.2 Term Loan Agreement between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A., "Rabobank Nederland,"dated August 20, 1992, Exhibit 10.3 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1993, is incorporated by reference herein. 10.3 First Amendment, dated January 11, 1993, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A., "Rabobank Nederland," Exhibit 10.5 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1993, is incorporated by reference herein. 10.4 Second Amendment, dated October 4, 1993, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A., "Rabobank Nederland, Exhibit 10.7 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1994, is incorporated by reference herein. 10.5 Third Amendment, dated February 14, 1994, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A., "Rabobank Nederland, Exhibit 10.8 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1994, is incorporated by reference herein. 10.6 Fourth Amendment, dated August 19, 1994, to that certain Revolving Credit Agreement, between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland,"dated August 20, 1992, Exhibit 10.11 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1995, is incorporated by reference herein. 10.7 Fifth Amendment, dated June 29, 1995, to that certain Revolving Credit Agreement, between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland,"dated August 29, 1992, Exhibit 10.16 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 20, 1996, is incorporated by reference herein.
42 43
Exhibit Exhibit Number Description - ------- ----------------------------------------------------------------------- 10.8 Amendment, dated August 1, 1995, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B. A., "Rabobank Nederland, Exhibit 10.17 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 20, 1996, is incorporated by reference herein. 10.9 Sixth Amendment, dated October 31, 1996, to that certain Revolving Credit Agreement, between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland,"dated August 20, 1992, Exhibit 10.20 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1997, is incorporated by reference herein. 10.10 Seventh Amendment, dated February 19, 1997, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank-Nederland,"Exhibit 10.21 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1997, is incorporated by reference herein. 10.11 Eighth Amendment, dated May 16, 1997, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A., "Rabobank - Nederland,"Exhibit (b) (19) to the Schedule 13E-4/A-2 of United Foods, Inc. filed on June 18, 1997, is incorporated by reference herein. 10.12 Ninth Amendment, dated June 17, 1997, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen - Borenleenbank B.A., "Rabobank - Nederland,"Exhibit (b) (20) to the Schedule 13E-4/A-2 of United Foods, Inc. filed on June 18, 1997, is incorporated by reference herein. 10.13 Tenth Amendment, dated August 4, 1997, to that certain Revolving Credit Agreement, dated August 20, 1992 between United Foods, Inc. and Cooperatieve Raiffeisen-Boerenleenbank B.A., "Rabobank-Nederland,"Exhibit 10.1 to the Quarterly Report on Form 10-Q of United Foods, Inc., filed for the fiscal quarter ended August 31, 1997, is incorporated by reference herein. 10.14 Loan Agreement, Revolving Credit Note and Security Agreement between First American National Bank and United Foods, Inc., all dated April 7, 1993, Exhibit 10.6 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1993, is incorporated by reference herein. 10.15 First Amendment dated June 29, 1994, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc., dated April 7, 1993, Exhibit 10.10 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1995, is incorporated by reference herein. 10.16 Second Amendment dated June 1, 1995, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc., dated April 7, 1993, Exhibit 10.12 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 29, 1996, is incorporated by reference herein. 10.17 Modification dated June 21, 1995, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc., dated April 7, 1993, Exhibit 10.13 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 29, 1996, is incorporated by reference herein.
43 44
Exhibit Exhibit Number Description - ------- ----------------------------------------------------------------------- 10.18 Third Amendment dated September 1, 1995, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc., dated April 7, 1993, Exhibit 10.14 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 29, 1996, is incorporated by reference herein. 10.19 Modification dated December 31, 1995, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc., dated April 7, 1993, Exhibit 10.15 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 29, 1996, is incorporated by reference herein. 10.20 Fourth Amendment, dated February 7, 1997, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc., dated April 7, 1993, Exhibit 10.19 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1997, is incorporated by reference herein. 10.21 Fifth Amendment, dated May 15, 1997, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc. dated April 7, 1993, Exhibit (b) (8) to the Schedule 13E-4 of United Foods, Inc. filed on May 20, 1997, is incorporated by reference herein. 10.22 Sixth Amendment, dated June 17, 1997, to that certain Revolving Loan Agreement between First American National Bank and United Foods, Inc. dated April 7, 1993, Exhibit (b) (9) to the Schedule 13E-4/A-2 of United Foods, Inc. filed on June 18, 1997, is incorporated by reference herein. 10.23 Note Purchase Agreement between United Foods, Inc. and Northwest National Life Insurance Company, Northern Life Insurance Company, The North Atlantic Life Insurance Company, Washington Square Capital, Inc., Commercial Union Life Insurance Company of America, Minnesota Mutual Life Insurance Company and Commercial Union Life Insurance Company of New York dated September 29, 1995, Exhibit 10.18 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 29, 1996, is incorporated by reference herein. 10.24 Loan Agreement and Secured Promissory Note between United Foods, Inc. and Metropolitan Life Insurance Company all dated January 7, 1997, Exhibit 10.22 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1997, is incorporated by reference herein. 10.25 Consolidation, Renewal, and Restatement of Deed of Trust and Security Agreement, and Consolidation, Renewal, and Restatement of Promissory Notes each between United Foods, Inc. and the Northwestern Mutual Life Insurance Company all dated January 30, 1997, Exhibit 10.23 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1997, is incorporated by reference herein. 10.26* United Foods, Inc. Second Management Retirement Plan dated February 26, 1997, Exhibit 10.24 to the Annual Report on Form 10-K of United Foods, Inc. filed for the fiscal year ended February 28, 1997, is incorporated by reference herein. 10.27* United Foods, Inc. Incentive Compensation Plan for the Chairman of the Board of Directors dated August 12, 1997, Appendix A to the Proxy Statement of United Foods, Inc., filed August 18, 1997, is incorporated by reference herein. 10.28 Eleventh Amendment and Waiver, dated February 1, 1998, to each of that certain Term Loan Agreement and that certain Revolving Credit Agreement, each dated August 20, 1992 between United Foods, Inc. and Cooperatieve Centrale Raiffeisen - Borenleenbank B.A., "Rabobank - Nederland."
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Exhibit Exhibit Number Description - ------- ----------------------------------------------------------------------- 10.29 Master Security Agreement and related Covenant Rider between United Foods, Inc., the Pictsweet Frozen Foods division, and The CIT Group/Equipment Financing, Inc., dated March 18, 1998. 10.30 Master Security Agreement and related Covenant Rider between United Foods, Inc., the Pictsweet Mushroom Farms division, and The CIT Group/Equipment Financing, Inc., dated March 18, 1998. 27 Financial Data Schedule (for SEC use only).
*Compensatory Plan. 45 EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 (Restated electronically for SEC filing purposes) CERTIFICATE OF INCORPORATION OF UNITED FOODS, INC. ARTICLE FIRST The name of the corporation is UNITED FOODS, INC. ARTICLE SECOND The address of the Corporation's registered office in the State of Delaware is 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of the registered agent at such address is The Corporation Trust Company. ARTICLE THIRD The purposes for which the Corporation is organized are as follows: A. To purchase, sell, store, package, manufacture and treat, handle, can, jar, preserve, freeze, or otherwise process or handle or pack or repack vegetables, fruits, meats, fowl, dairy products, and all things incidental or connected therewith, in any capacity. B. To do all things necessary or useful in connection with the purchasing, transportation, storing, warehousing or processing of foods of any kind or description and to buy and sell, pledge, store, or deal with any kind of foodstuffs, in any capacity. C. To acquire, hold, use and lease all machinery, patents and apparatus pertaining to or usable in connection with food products. D. To engage in the farming business, and to raise agricultural products and deal in agricultural products. E. To buy, sell, export, import and generally deal in, as owners, jobbers, factors or consignees, or in any other capacity, all food products, equipment, supplies, and machinery, and, without limitation, all merchandise of every kind and character. F. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. 2 ARTICLE FOURTH A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 28,000,000 shares of capital stock, constituting of Ten Million (10,000,000) shares of Preferred Stock with a par value of one dollar ($1.00) per share, and 18,000,000 shares of Common Stock with a par value of one dollar ($1.00) per share, of which 12,000,000 shares shall be designated "Class A Common Stock" and 6,000,000 shares shall be designated "Class B Common Stock." The number of authorized shares of Preferred Stock and of Common Stock may be increased or decreased from time to time if approved by the holders of a majority of the voting power of the stock of the Corporation entitled to vote thereon. B. The issuance of shares of Preferred Stock and Common Stock shall be governed by the following: (1) Subject to all the provisions of this Article FOURTH, shares of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors, provided that the consideration received for such Common Stock shall not be less than the aggregate par value of the shares to be issued. (2) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors, each of said series to be distinctly designated. (3) All shares of any one series of Preferred Stock shall be identical with each other in every respect, except that shares of any one series of Preferred Stock issued at different times may differ as to the dates from which dividends, if any, thereon shall be cumulative, if made cumulative. (4) The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. (5) Subject to the provisions of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: 2 3 (i) The distinctive designation of such series and the number of shares of Preferred Stock which shall constitute such series; (ii) The amount of the consideration received for the Preferred Stock of such series which shall be capital; (iii) The dividend rate, if any, to which the Preferred Stock of such series shall be entitled; the date or dates from which such dividends, if declared, shall be payable; the terms, conditions, restrictions and limitations upon the payment of such dividends, if any; and whether such dividends, if any, shall be cumulative or non-cumulative; (iv) The right, if any, of the holders of the Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (v) Whether the Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed; (vi) The rights, if any, of the holders of the Preferred Stock of such series upon the voluntary liquidation, merger, consolidation, distribution, or sale of assets, dissolution or winding-up, of the Corporation; (vii) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (viii) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing, include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been default in the payment of dividends on any one or more series of Preferred Stock or under such other circumstances and on such conditions as the Board of Directors may determine. (6) The relative powers, preferences and rights of each series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in Section B of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of any series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a 3 4 parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to Section B of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Sock. (7) The Board of Directors also shall have the authority to change the designation of shares, or the relative rights, preferences and limitations of the shares, of any theretofore established series of Preferred Stock, no shares of which have been issued; and further, the Board shall have authority to increase or decrease the number of shares of any series previously determined by it (provided, however, that the number of shares of any series shall not be decreased to a number than that of the shares of that series then outstanding). C. The Class A Common Stock and the Class B Common Stock shall be identical in all respects and shall have equal rights and privileges, except as otherwise provided in this Article FOURTH. The relative rights, preferences, privileges, and restrictions of the shares of each class are as follows: (1) Holders of the Class A Common Stock and the Class B Common Stock shall have the same rights to dividends and distributions of the Corporation whether paid in cash, property, or stock; except as follows: (a) In any quarter in which a cash dividend is paid, the holders of the Class A Common Stock shall be entitled to $.025 per share ("Preference Dividend") before the holders of the Class B Common Stock shall be entitled to receive any cash dividend for such quarter. In the event that the Board of Directors shall declare and pay, on or after January 1, 1985, any stock dividend, then the Preference Dividend in effect immediately prior to the record date for such payment shall be decreased as of such record date in proportion to the additional aggregate number of shares of Class A Common Stock which are issued and outstanding immediately after the stock dividend. In the event that the shares of Class A Common Stock and Class B Common Stock are subdivided into a greater number of shares or combined into a smaller number of shares on or after January 1, 1985, then the Preference Dividend in effect immediately prior to such subdivision or combination shall be proportionately decreased or increased as of the effective date of such division or combination. (b) The holders of the Class B Common Stock shall not be entitled to any cash dividends during any quarter of the Corporation's fiscal year until the holders of the Class A Common Stock shall have received their Preference Dividend for that quarter and for each preceding quarter in that particular fiscal year. Except as specifically provided in this Section C(1) (b), the Preference Dividend shall not be cumulative. 4 5 (c) Subject to the provisions of Section C(1) (b) above, no Preference Dividend shall be payable with respect to any extra dividend, special dividend or dividend payable other than in cash, which shall include without limitation a dividend paid in partial or complete liquidation. The Corporation shall not pay any extra dividend, special dividend or dividend payable other than in cash on any share of either class of common stock without at the same time paying the same dividend to all shares of both classes. (d) After payment of the Preference Dividend to the holders of the Class A Common Stock in respect of any particular quarter and each preceding quarter in the Corporation's then current fiscal year, the Class A Common Stock and Class B Common Stock will participate equally on a share-for-share basis in any and all other cash dividends paid in that quarter. (e) The Corporation shall not pay any stock dividend on either class of common stock and shall not combine or subdivide shares of either class of common stock without at the same time paying an equivalent stock dividend on or making an equivalent combination or subdivision of shares of the other class of common stock. All stock dividends declared by the Board of Directors shall be payable in Class A Common Stock and distributed to the holders of Class A Common Stock and the holders of Class B Common Stock in proportion to the total number of Class A shares and Class B shares that they hold; provided that, if the Board of Directors so directs, the holders of the Class B Common Stock may elect to receive such stock dividend in the form of shares of Class B Common Stock in lieu of shares of Class A Common Stock. (2) Holders of the Class A Common Stock and holders of the Class B Common Stock shall have the following voting rights: (a) With respect to the election of directors and subject to Section C(2) (b) below of this Article FOURTH, the holders of the Class A Common Stock voting as a separate class shall be entitled to elect that number of directors which constitutes 25% of the authorized number of members of the Board of Directors or of the class of directors to be elected in any year; provided that, if such 25% is not a whole number, then the holders of Class A Common Stock shall be entitled to elect the nearest higher whole number of directors that is a least 25% of such membership. Holders of the Class B Common Stock voting as a separate class shall be entitled to elect the remaining directors in any year. (b) The holders of the Class A Common Stock will not have the right to elect directors as set forth in Section C(2) (a) of this Article FOURTH if, on the record date for any shareholder meeting at which directors are to be elected, the total number of issued and outstanding shares of Class A Common Stock (exclusive of any and all such shares held in the Corporation's treasury) is less than 10% of the aggregate number of issued and 5 6 outstanding shares of Class A Common Stock and Class B Common Stock (exclusive of any and all such shares held in the Corporation's treasury). In such event, all the directors to be elected at such meeting shall be elected by the holders of the Class A Common Stock and the holders of the Class B Common Stock voting together as a single class, provided that, with respect to said election, each share of Class A Common Stock shall have one-tenth of a vote and each share of Class B Common Stock shall have one vote. The holders of the Class B Common Stock will not have the right to elect directors as set forth in Section C(2) (a) of this Article FOURTH if, on the record date for any shareholder meeting at which directors are to be elected, the total number of outstanding shares of Class B Common Stock is less than 1,700,000 shares. In such latter event, the holders of the Class A Common Stock will continue to have the right to elect 25% of the Board of Directors (rounded up to the nearest whole number). In addition, the holders of the Class A Common Stock will have the right to vote together with the holders of the Class B Common Stock to elect the remaining 75% of the Board of Directors, provided that each share of Class A Common Stock will have one-tenth of a vote and each share of Class B Common Stock will have one vote. (c) The holders of the Class A Common Stock and the holders of the Class B Common Stock shall be entitled to vote as separate classes: (i) for the election of directors, except as provided in Section C(2) (b) of this Article FOURTH; (ii) for the removal of directors, as provided in Article TENTH hereof; (iii) for the approval of certain business combinations, as provided in Article FOURTEENTH hereof; (iv) to amend or repeal this Certificate of Incorporation, but only as and to the extent provided in Article FIFTEENTH hereof; (v) to make, amend, or repeal the By-Laws of the Corporation, as provided in Article SEVENTH hereof; and (vi) on all matters as to which a class vote is now, or may hereafter be, required by law. (d) The holders of the Class A Common Stock and the holders of the Class B Common Stock shall in all matters not specified in Sections C(2) (a) and C(2) (c) of this Article FOURTH vote together as a single class, provided that the holders of shares of the Class A Common Stock shall have one-tenth vote per share and the holders of shares of the Class B Common Stock shall have one vote per share. If any series of Preferred Stock is issued or any new series of capital stock is authorized in the future, any voting rights granted to such stock shall not exceed one vote per share in connection with any matter and will not 6 7 limit the voting rights of the Class A Common Stock as set forth in Section C(2) (a) and C(2) (c) of this Article FOURTH. (3) Each holder of record of a share of Class B Common Stock may at any time or from time to time, in such holder's sole discretion and at such holder's option, convert any whole number or all of such holder's shares of Class B Common Stock into fully paid and nonassessable shares of Class A Common Stock at the rate of one share of Class A Common Stock for each share of Class B Common Stock surrendered for conversion. Any such conversion may be effected by any holder of Class B Common Stock by surrendering such holder's certificate or certificates for the shares of Class B Common Stock to be converted, duly endorsed, at the office of the Corporation or the office of any transfer agent for the Class A Common Stock, together with a written notice to the Corporation at such office that such holder elects to convert all or a specified number of such shares of Class B Common Stock. Promptly thereafter, the Corporation shall issue and deliver to such holder a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be made at the close of business on the date of such surrender and the person or persons entitled to receive the shares of Class A Common Stock issuable on such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock on such date. D. No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase share of any class or series of stock or of other securities of the corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchanged for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. ARTICLE FIFTH The name and mailing address of the incorporator is United Foods, Inc., 100 Dawson Avenue, City of Bells, State of Tennessee. The powers of the incorporator shall terminate upon the filing of this Certificate of Incorporation. The name and mailing address of each person who shall serve as a director or until the first annual meeting of stockholders or until his respective successor has been elected and qualified is as follows: 7 8 William G. Baker, Jr. 324 South Rimpau, Los Angeles, CA Eugene Boone 127 Park Avenue, Modesto, CA Neil Brogger 21 Twin Oaks Avenue, San Rafael, CA B. M. Ennis 85 Pine Tree Drive, Jackson, TN Carl W. Gruenewald, II 324 North Washington, Brownsville, TN D. B. Tankersley Route 6, Box 365, Jackson, TN James I. Tankersley P. O. Box 509, Bells, TN J. O. Tankersley P. O. Box 253, Bells, TN John S. Wilder Route 2, Mason, TN ARTICLE SIXTH In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend or rescind any or all of the By-Laws of the Corporation. ARTICLE SEVENTH The By-Laws of the Corporation shall not be made, repealed, altered, amended or rescinded, either in whole or in part, by the stockholders of the Corporation except by the affirmative vote of the holders of 75% or more of the total voting power of the outstanding shares of each class of capital stock of the Corporation to vote generally in the election of directors. 8 9 ARTICLE EIGHTH The property, business and affairs of the Corporation shall be managed and controlled by the Board of Directors. The number of directors of the Corporation shall be stated in the By-Laws of the Corporation, and shall neither be less than nine (9) nor more than fifteen (15). ARTICLE NINTH A. The Board if Directors shall be divided into three classes: Class I, Class II and Class III. Such classes shall be as nearly equal in number of directors as possible. Each director shall serve for a term ending on the third annual meeting of the stockholders following the annual meeting at which such director was elected; provided, however, that the directors initially elected to Class I serve for a term ending on the annual meeting next following the end of the calendar year 1983, the directors initially elected to Class II shall serve for a term ending on the second annual meeting next following the end of the calendar year 1983, and the directors initially elected to Class III shall serve for a term ending on the third annual meeting next following the end of the calendar year 1983. The foregoing notwithstanding, each director shall serve until his successor shall have been duly elected and qualified, unless he shall resign, become disqualified or disabled, or shall otherwise be removed. B. At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. C. Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, resignation or removal. If any newly created directorship may, consistently with the rule that the three classes shall be as nearly equal in number of directors as possible, be allocated to one of two or more classes, the Board shall allocate it to that of the available classes whose term of office is due to expire at the earliest date following such allocation. ARTICLE TENTH Notwithstanding any provision of the By-Laws of the Corporation and the fact that some lesser shareholder vote may be permitted by law, any director of the entire Board of Directors of the Corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of 75% or more of the voting power of the outstanding shares of the class of capital stock which elected such director or directors; provided, however, that such outstanding shares would be entitled to vote in the election of directors cast at a meeting of the stockholders called for that purpose. 9 10 ARTICLE ELEVENTH A. Any vacancy in the office of a director elected by the holders of any class of stock shall be filled by the vote of the remaining directors or sole director (notwithstanding any quorum provisions that might be contained in the By-Laws) who are then in office and who were elected by the holders of the same class of stock. In the event that, for any reason, there are no remaining directors then in office elected by such class of stock, then the vacancy shall be filled by the vote of the holders of such class of stock voting as a separate class in a special election which shall promptly be conducted. Any directors so chosen shall hold office until the next election of the class for which such directors have been chosen and until their successors shall be elected and qualified. B. Any newly created directorship resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director; and any directors so chosen shall hold office until the next election of the class for which such directors have been chosen and until their successors shall be elected and qualified. ARTICLE TWELFTH No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. ARTICLE THIRTEENTH Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors or by a majority of the members of the Board of Directors, or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in the By-Laws of the Corporation, include the power to call such meetings, but such special meetings may not be called by any other person or persons. ARTICLE FOURTEENTH A. Except as otherwise expressly provided in Section B of this Article FOURTEENTH, the affirmative vote of the holders of not less than 75% of the total voting power of all issued and outstanding shares of each class of stock of the Corporation entitled to vote in the election of directors shall be required to approve or authorize the following business combinations: (1) Any merger, reorganization, or consolidation of the Corporation or any Subsidiary (as hereinafter defined) of the Corporation with or into (a) any 20% Stockholder (as hereinafter defined) or (b) any other corporation (whether or not it is a 20% Stockholder) 10 11 which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of a 20% Stockholder; (2) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any 20% Stockholder of a substantial amount (as hereinafter defined) of the assets of the Corporation or any Subsidiary thereof; (3) The issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any 20% Stockholder in exchange for a substantial amount (as hereinafter defined) of consideration in the form of cash, securities, or other property (or a combination thereof); and (4) Any plan or proposal for the liquidation or dissolution of the Corporation. The aforesaid 75% affirmative vote shall be required notwithstanding the fact that no vote, or some lesser percentage vote, may be required by law or in any agreement with a national securities exchange. B. The provisions of Section A of this Article FOURTEENTH shall not be applicable to any particular business combination if such business combination is approved by the Board of Directors of the Corporation, but only if three-quarters of the Board consists of continuing directors (as hereinafter defined). C. For purposes of this Article FOURTEENTH: (1) The term "business combination" shall mean any transaction which is described or referred to in Section A of this Article FOURTEENTH. (2) The term "person" shall mean any individual, firm, corporation, or other entity. (3) The term "20% Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation of any Subsidiary) who or which, as of the record date for the determination of stockholders entitled to notice of and vote on such business combination, or immediately prior to the consummation of any such transaction, is: (a) the beneficial owner, directly or indirectly, of not less than 20% of the voting power of all outstanding shares of all classes of stock of the Corporation ("Total Stockholder Voting Power"); or 11 12 (b) an Affiliate of the Corporation and at any time within 5 years prior thereto was the beneficial owner, directly or indirectly, or not less than 20% of the then-outstanding Total Stockholder Voting Power; or (c) an assignee of or has otherwise succeeded to any shares of capital stock of the Corporation which were at any time within 5 years prior thereto beneficially owned by any 20% Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (4) a person shall be the "beneficial owner" of shares of capital stock of the Corporation: (a) which shares such person or any of its Affiliates and Associates (as hereinafter defined) beneficially own, directly or indirectly, or (b) which shares such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, or options, or otherwise, or, (ii) the right to vote pursuant to any agreement, arrangement or understanding or, (c) which shares are beneficially owned, directly or indirectly, by any other person with which such first-mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (5) The term "substantial amount" of assets or consideration shall mean an amount of assets (determined at the greater of their fair market value or book value) or consideration (determined at fair market value) which is equal 25% or more of the total assets of the Corporation or Subsidiary thereof as reflected on its balance sheet as of a date no earlier than 45 days prior to the date that any proposed business combination affecting such assets or the receipt of such consideration is first presented in writing to the Corporation or Subsidiary thereof. (6) The term "continuing director" shall mean any director who was a member of the Board of Directors prior to the date as of which any 20% Stockholder first acquired in excess of 10% of the total voting power of the then-issued and outstanding shares of all 12 13 classes of capital stock of the Corporation and any director who has served for 3 or more consecutive years on the Board of Directors. (7) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on April 1, 1982. (8) The term "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on April 1, 1982) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of 20% Stockholder set forth in Section C(3) of this Article FOURTEENTH, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly, or indirectly, by the Corporation. D. A majority of the continuing directors shall have the power and duty to determine, for purposes of this Article FOURTEENTH and on the basis of information known to them: (1) Whether the proposed business combination is within the scope of this Article FOURTEENTH; and (2) Whether the acquiring party in the proposed business combination owns beneficially 20% or more of the Total Stockholder Voting Power. Such determinations, if made in good faith, shall be conclusive and binding upon all parties. E. The stockholder vote, if any, required for business combinations not expressly provided for in this Article FOURTEENTH shall be such as may be required by applicable law. ARTICLE FIFTEENTH A. Notwithstanding any other provision of this Certificate of Incorporation or of the ByLaws of the Corporation (and notwithstanding the fact that some lesser voting percentage may be specified by law, by this Certificate of Incorporation, or by the By-Laws of the Corporation), the provisions set forth in this Section A of this Article FIFTEENTH and in Articles FOURTH (but only Sections B and C thereof dealing with the provisions relating to the Preferred Stock and the Common Stock of the Corporation), SIXTH (dealing with the amendment of By-Laws by directors), SEVENTH (dealing with the alteration of By-Laws by stockholders), EIGHTH (dealing with the number of directors of the Corporation), NINTH (dealing with the classified board), TENTH (dealing with the removal of directors), ELEVENTH (dealing with filling vacancies on the Board of Directors and newly created directorships), TWELFTH (dealing with the prohibition against stockholder action without a meeting), and THIRTEENTH (dealing with the power to call special meetings of the stockholders) may not be repealed or amended in any respect, unless such repeal or amendment is 13 14 approved by the affirmative vote of the holders of not less than 75% of the total voting power of all outstanding shares of each class of stock of the Corporation entitled to vote in the election of directors. B. Notwithstanding any other provision of this Certificate of Incorporation or of the ByLaws of the Corporation (and notwithstanding the fact that some lesser voting percentage may be specified by law, by this Certificate of Incorporation, or by the By-Laws of the Corporation), the provisions set forth in this Section B of this Article FIFTEENTH and in Article FOURTEENTH (dealing with the 75% vote of each class of stock required for approval of certain business combinations) may not be repealed or amended in any respect unless such repeal or amendment is approved by the affirmative vote of the holders of not less than 75% of the total voting power of all outstanding shares of each class of stock of the Corporation entitled to vote in the election of directors. ARTICLE SIXTEENTH The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles FOURTH (but only Sections B and C thereof), SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH, TWELFTH, THIRTEENTH, FOURTEENTH, and FIFTEENTH hereof may not be repealed or amended in any respect unless such repeal or amendment is approved as specified in Article FIFTEENTH hereof. ARTICLE SIXTEENTH A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation or law, (iii) under Section 174 of the Delaware General Corporation Law, as the same exists or hereafter may be amended, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further elimination of limitation of the liability of directors, then the liability of a director of the corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of this paragraph by the stockholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the corporation existing at the time of such repeal or modification. 14 EX-3.2 3 BY-LAWS 1 EXHIBIT 3.2 (Restated electronically for SEC filing purposes) BYLAWS OF UNITED FOODS, INC. ARTICLE I. OFFICES Section 1.1. Registered Office. The registered office of United Foods, Inc. (hereinafter referred to as "the Corporation") in the State of Delaware shall be located at 100 West Tenth Street, City of Wilmington, County of New Castle, and the name of the registered agent at that address shall be The Corporation Trust Company. Section 1.2. Principal Office. The principal office for the transaction of the business of the Corporation shall be located at 100 Dawson Avenue, City of Bells, State of Tennessee 38006. The Board of Directors (hereinafter referred to as "the Board") is granted full power and authority to change, from time to time, the principal office of the Corporation from one location to another. Section 1.3. Other Offices. The Corporation may have such other office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time designate or as the business of the Corporation may require. ARTICLE II. STOCKHOLDERS Section 2.1. Annual Meeting. An annual meeting of stockholders shall be held for the election of directors at such date, time, and place, either within or without the State of Delaware, as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. If, for any reason, the annual meeting for the election of directors is not held on the date designated therefor, the Board shall cause the meeting to be held as soon thereafter as convenient. Section 2.2. Special Meetings. Special meeting of stockholders may be called at any time by the principal executive officer of the Corporation, by the Board, or by a majority of the members of the Board, or by a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in the By-laws, include the power to call such meetings. A special meeting of stockholders may not be called by any other person or persons. A special meeting shall be held at such date, time, and place either within or without the State of Delaware as may be stated in the notice of the meeting. Section 2.3. Adjournments. Any annual or special meeting of the stockholders may adjourn from time to time to reconvene at the same or some other place. Notice need not be given of any such adjourned meeting provided that the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. A notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting if the adjournment is for more than thirty days, or if, after the adjournment, a new record date is fixed for the adjourned meeting. 2 Section 2.4. Place of Meetings. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual or for any special meeting of the stockholders. Section 2.5. Notice of Meetings. Whenever the stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall also be stated in the notice. Unless otherwise provided by law, the written notice of any meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days prior to the date of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Section 2.6. Closing of Transfer Books or Fixing Date for Determination of Stockholders of Record. The Board of Directors may provide that the stock transfer books shall be closed for a stated period not to exceed, in any case, fifty days in order that the Corporation may determine the stockholders (a) entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, (b) entitled to receive payment of any dividend or other distribution or allotment of any rights, or (c) for the purpose of any other lawful action. If the stock transfer books shall be closed to determine the stockholders of record for any such purpose, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, then the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and the record date for determining stockholders for any other purpose shall be at the close of business on the date on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 2.7. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. 2 3 Section 2.8. Quorum. At each meeting of stockholders, except where otherwise provided by law, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 2.3 of these By-laws until a quorum shall attend. Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall not be counted for quorum purposes. Section 2.9. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, or, in his absence or inability to act, by the Vice Chairman of the Board, or, in his absence or inability to act by a chairman designated by the Board of Directors, or, in the absence of such designation, by a chairman chosen at the meeting. The Secretary of the Corporation shall act as secretary of the meeting. In the absence or inability of the Secretary of the Corporation to act, the chairman of the meeting shall designate an acting secretary for such meeting. Section 2.10. Voting of Shares. Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share of the stock of the Corporation having voting rights on the matter in question which shall have been held by him and registered in his name on the books of the Corporation as of the record date determined in accordance with Section 2.6 of these By-laws. Each share of stock of the Corporation shall have such vote or fraction of a vote, with respect to any matter in question, as is provided in the Certificate of Incorporation of the Corporation. The Corporation shall not be entitled to vote shares of its own stock belonging to the Corporation or shares of its own stock belonging to another corporation if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons who have pledged their stock in the Corporation shall be entitled to vote such stock, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. Section 2.11. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke 3 4 any proxy which is not irrevocable by attending the meeting and voting in person or by filing with the Secretary of the Corporation an instrument in writing revoking the proxy or another duly executed proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot. ARTICLE III. BOARD OF DIRECTORS Section 3.1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 3.2. Number and Qualifications. The Board of Directors shall have eleven (11) members. Directors need not be stockholders. Section 3.3. Election of Directors. The directors shall be elected by the stockholders of the Corporation, subject to the provisions of Articles FOURTH, EIGHTH, and NINTH of the Certificate of Incorporation. Section 3.4. Resignation. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall be effective at the time specified in said notice; if no time is specified therein, it shall be effective immediately upon its receipt. Unless otherwise specified in said notice, acceptance of such resignation shall not be necessary to make it effective. If acceptance of such resignation is expressly required by said notice, the acceptance shall be effective upon the date that is personally delivered or mailed. Section 3.5. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this By-law at such time and place, either within or without the State of Delaware, as announced at a prior meeting of the Board or determined by resolution of the Board. Section 3.6. Special Meetings. Special meetings of the Board of Directors may be held at any time or place, within or without the State of Delaware, whenever called by the principal executive officer of the Corporation or any director. Notice of any special meeting shall be given at least ten days previous thereto by written notice delivered personally or sent by United States mail or by telegram to each director at his business or home address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any special meeting by signing a written waiver of notice of, or written consent to, such meeting. The attendance of a director at a special meeting shall also constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 3.7. Quorum and Manner of Acting. A majority of the number of the total number of directors shall constitute a quorum for the transaction of business at any meeting of the Board of 4 5 Directors. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. In the event that a quorum shall not be present at any meeting of the Board, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 3.8. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board, designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board also may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee shall have and may exercise, to the extent provided in the resolution of the Board, all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that no such committee shall have power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, removing or indemnifying directors, or amending these By-laws; and, unless the resolution of the Board expressly provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Such committee or committees shall keep detailed minutes of their proceedings and report same to the Board of Directors at the Board's request. Section 3.9. Telephone Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this By-law shall constitute presence in person at such meeting. Section 3.10. Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed fee for attendance at each meeting of the Board of Directors or a stated fee as director, or both. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.11. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken, unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment or shall forward such dissent by registered mail to the Secretary of 5 6 the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any director who voted in favor of such action. Section 3.12. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his absence or inability to act by the Vice Chairman of the Board, or in his absence or inability to act by a chairman chosen at the meeting. The Secretary of the Corporation shall act as secretary of the meeting, but in his absence or inability to act, the chairman of the meeting may appoint any person to act as secretary of the meeting. ARTICLE IV. OFFICERS Section 4.1. Number. The officers of the Corporation shall be a Chairman of the Board, a President, two or more Vice-Presidents (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer. Each officer shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except that the offices of Chairman of the Board and Secretary, and President and Secretary, shall not be held by the same person. Section 4.2. Election and Term of Offices. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors, held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Section 4.3. Removal and Resignation. Any officer or agent elected or appointed by the Board of Directors may be removed at any time by the Board of Directors whenever, in its judgment, the best interests of the Corporation would be served thereby; provided, however, that such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment to any office shall not, of itself, create contract rights. Any officer chosen by the Board of Directors may resign at any time by giving written notice of said resignation to the Corporation. Unless a different time is specified therein, such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary, or the Board of Directors. Section 4.4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 4.5. Other Officers or Agents. The Board of Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 6 7 Section 4.6. The Chairman of the Board. The Chairman of the Board shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. He shall, when present, preside at all meetings of the stockholders and shall preside at all meetings of the Board of Directors. He may sign, with the Secretary or other proper officer of the Corporation thereupon authorized by the Board of Directors, certificates for shares of the Corporation. The Chairman of the Board shall be authorized to enter into any contract in the name of and on behalf of the Corporation and to execute and deliver any deeds, mortgages, bonds, contracts or other instruments in the name of and on behalf of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws exclusively to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The Chairman of the Board shall be authorized to delegate in writing to any employee or class of employees the aforesaid power to enter into any contract or class of contracts in the name of and on behalf of the Corporation and to execute and deliver any and all instruments which may be required with respect to such contract or contracts; provided, however, that such contract or contracts are in the ordinary course of the Corporation's business. Each such written delegation by the Chairman of the Board shall identify the employee or class of employees to whom such power is delegated; shall state the duration for which such delegation shall be effective, which duration may be definite or indefinite; and shall state the limitations, if any, on the power delegated. The Chairman of the Board shall perform such other duties as may be described by the Board of Directors from time to time. Section 4.7. The Vice Chairman. The Vice Chairman shall have such powers and perform such duties as shall be assigned to him by the Chairman of the Board, or the Board of Directors. In the absence of the Chairman of the Board, in the event of his inability to act, the Vice Chairman shall perform the duties of the Chairman of the Board and, when so acting, shall have all the powers of and be subject to all restrictions upon the Chairman of the Board. Section 4.8. The President. The President shall be the principal operating officer of the Corporation. He shall assist the Chairman of the Board in the general supervision and control of the business and affairs of the Corporation. He shall have such powers and shall perform such duties as from time to time may be declared by the Chairman of the Board or by the Board of Directors. The President may sign with the Secretary of the Corporation certificates for shares of the corporation. In the absence of the Chairman of the Board and the Vice Chairman of the Board or in the event of his inability to act, the President shall perform the duties of the Chairman of the Board and, when so acting, shall have all the powers of and be subject to all restrictions upon the Chairman of the Board. Section 4.9. The Vice Presidents. The Vice Presidents shall have such powers and perform such duties as shall be assigned to them by the Chairman of the Board, the President or the Board of Directors. In the absence of the Chairman of the Board, the Vice Chairman of the Board the President or in the event of their inability to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the 7 8 Chairman of the Board and, when so acting, shall have all the powers of and be subject to all restrictions upon the Chairman of the Board. Section 4.10. The Secretary. The Secretary shall: (a) keep the minutes of the stockholders' meetings and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (e) sign with the Chairman of the Board, or the President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the Corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chairman of the Board or by the Board of Directors. Section 4.11. The Treasurer. The Treasurer shall (a) have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article VI, Section 6.4 of these By-laws; and (b) in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board shall determine. Section 4.12. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or Treasurer, respectively, or by the Chairman of the Board, the President or the Board of Directors. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the Chairman of the Board or the President certificates for shares of the Corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. Section 4.13. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE V. INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 5.1. Actions, Etc. Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, 8 9 administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section 5.2. Actions, Etc. by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 5.3. Determination That Indemnification Is Proper. Any indemnification under Section 5.1 or Section 5.2 above of these By-laws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 5.1 and 5.2 of these By-laws. Such determination shall be made (i) by the Board by a majority vote of the directors who were not parties to such action, suit or proceeding, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 5.4. Successful Defense. Notwithstanding the other provisions of this Article V, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 5.1 or Section 5.2 above of these By-laws, or in defense of any claim, issue or matter therein, he shall be indemnified 9 10 against expenses (including attorney's fees) actually and reasonably incurred by him in connection therewith. Section 5.5. Expenses. Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article V. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 5.6. Nonexclusivity; Continuation. The indemnification or advancement of expenses provided by this Article V shall not be deemed exclusive and is declared expressly to be nonexclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 5.7. Indemnification Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article V. Section 5.8. Definitions. For the purposes of this Article V, references to "the Corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such 10 11 director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article V. Section 5.9. Amendment or Repeal. Any repeal or modification of any of the foregoing provisions of this Article V shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.1. Contracts and Other Written Instruments. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Except as may otherwise be provided by resolution of the Board of Directors or in these By-laws, any contract or other written instrument will be binding upon the Corporation if signed on its behalf by the Chairman of the Board or by any other officer of the Corporation to whom such power has been specifically delegated in writing by the Chairman of the Board. Section 6.2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 6.3. Checks, Drafts, Etc.. All checks, drafts or other orders for the payment of money, notes or other evidences or indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may select. Section 6.5. Guarantees of Debts of Subsidiaries. Each guarantee proposed to be granted by the Corporation, or by any officer thereof, to pledge the credit of the company for the debt of a subsidiary, shall be separately considered and voted upon. No general authorization shall be granted to any officer to pledge the credit of the Corporation for the payment of a debt of a subsidiary. Each authorization for such guarantee shall be particularized in a prior supporting resolution which names the subsidiary, the creditor sought to be so secured, and the limit of such guarantee as to amount. A signed copy of such guarantee shall be placed in the permanent minute book of the Corporation as part of such enabling resolution. 11 12 ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1. Certificates for Shares. Every holder of stock of the Corporation shall be entitled to have a certificate certifying the number and class of shares of stock owned by holder thereof. Certificates representing shares of stock of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board or the President and by the Secretary or an Assistant Secretary. Where, however, such certificate is signed by a transfer agent, or by an assistant transfer agent, or by a transfer clerk acting on behalf of a corporation, and a registrar, the signatures of any of the above officers may be facsimile. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. ARTICLE VIII. MISCELLANEOUS Section 8.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 8.2. Seal. The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the State of incorporation. Section 8.3. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Certificate of Incorporation. Section 8.4. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the Certificate of Incorporation or these By-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person 12 13 attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 8.5. Interested Directors: Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have financial interest, shall be void or voidable solely for this reason or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known, to the Board or the committee, and the Board or committee in good faith unauthorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. Section 8.6. Representation of Shares in Other Corporations. Shares of other corporations standing in the name of this Corporation may be voted or represented and all incidents thereto may be exercised on behalf of the Corporation by the Chairman of the Board, the President or any Vice President and the Treasurer or the Secretary or an Assistant Secretary. Section 8.7. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.8. Amendment of By-laws. These By-laws may be amended or repealed, and new By-laws adopted, by the Board of Directors, but the stockholders entitled to vote may adopt additional By-laws and may amend or repeal any By-law whether or not adopted by them, provided that such stockholder action is approved by the affirmative vote of the holders of not less than 75% of the total voting power of all outstanding shares of each class of stock of the Corporation entitled to vote in the election of directors. Section 8.9. The Corporation expressly elects not to be governed by Section 203 of Subchapter VI, Chapter I, Title 8 of the Delaware Code. 13 EX-10.28 4 11TH AMENDMENT & WAIVER 1 EXHIBIT 10.28 AMENDMENT NO. 11 AND WAIVER Dated as of February 1, 1998 This ELEVENTH AMENDMENT and WAIVER between UNITED FOODS, INC., a Delaware corporation (the "Borrower"), and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH (the "Bank"). PRELIMINARY STATEMENTS. The Borrower and the Bank have entered into (i) a Revolving Credit Agreement (as amended prior to the date hereof and as may be further amended, supplemented or otherwise modified from time to time, the "Revolving Credit Agreement") and (ii) a Term Loan Agreement (as amended, supplemented or otherwise modified from time to time, the "Term Loan Agreement"; together with the Revolving Credit Agreement, the "Credit Agreements"; the terms defined in the Credit Agreements being used herein as therein defined), each dated as of August 20, 1992. Each of the Borrower and the Bank wish that certain provisions of the Credit Agreements be amended or waived as hereinafter set forth. NOW, THEREFORE, the Borrower and the Bank hereby agree as follows: SECTION 1. Amendments to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) Section 4.01(d) is hereby amended and restated in its entirety to read as follows: "(d) Working Capital. Maintain on a consolidated basis an excess of current assets over current liabilities of not less than $25,000,000 as of the last day of the first, second and third fiscal quarters in each of its fiscal years and as of the last day of each of its fiscal years. The Borrower shall cause its Mushroom Division to maintain, as of the end of each fiscal quarter of the Borrower, an excess of current assets over current liabilities of not less than $1,500,000 exclusive of current maturities of the Term Note and the Revolving Credit Note. Current assets and current liabilities are each to be determined in accordance with generally accepted accounting principles consistent with those applied in the preparation of the Borrower's financial statements pursuant to Section 4.01(c) hereof ("GAAP")." (b) Section 4.01(h) is hereby amended by adding a proviso to the end thereto to read as follows: "; and except that, in its 1998 - 1999 fiscal year, such amount shall be increased by an amount not in excess of $10,000,000 for the purchase of rolling stock." (c) Section 4.01 is hereby amended by adding subsection 4.01(i) hereto to read as follows: 2 "(i) Year 2000. The Borrower shall take all action necessary to assure that the Borrower's computer based systems are able to effectively process data including dates on and after January 1, 2000. At the request of the Bank, the Borrower shall provide the Bank with assurance acceptable to the Bank of the Borrower's year 2000 capability." SECTION 2. Waiver to the Credit Agreements. The Bank waives on a one-time basis the Borrower's non-compliance with Section 4.01(d) of the Credit Agreements by reason of the Working Capital described therein being at $34,200,000 at November 30, 1997. SECTION 3. Conditions of Effectiveness. This Amendment No. 11 and Waiver shall become effective when, and only when, the Bank shall have received counterparts of this Amendment and Waiver executed by the Borrower. SECTION 4. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The representations and warranties contained in Section 3 of the Credit Agreements, are true and correct on and as of the date hereof as though made on and as of the date hereof. (b) The execution, delivery and performance by the Borrower of this Amendment No. 11 and Waiver, and the Credit Agreements, as amended hereby, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) the Borrower's charter or by-laws, or (ii) any law or contractual restriction binding on or affecting the Borrower, or result in, or require, the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Amendment No. 11 and Waiver or the Credit Agreements, as amended hereby. (d) This Amendment No. 11 and Waiver and the Credit Agreements, as amended hereby, constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject, however, to the effect on such enforceability of (i) any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless whether such enforceability is considered in a proceeding in equity or at law). (e) There is no pending or threatened action or proceeding affecting the Borrower or any of its subsidiaries before any court, governmental agency or arbitrator, which may materially adversely affect the condition, financial or otherwise, or operations of the Borrower. 2 3 (f) No event has occurred and is continuing which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. SECTION 5. Reference to and Effect on the Credit Agreements. (a) Upon the effectiveness of Section 1 hereof, on and after the date hereof, each reference in the Credit Agreements to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreements as amended hereby, and each reference in the Term Note and the Revolving Credit Note to the Credit Agreements shall mean and be a reference to the Credit Agreements as amended hereby. (b) Except as specifically amended above, the Credit Agreements and the Term Note and the Revolving Credit Note shall remain in full force and effect and are hereby ratified and confirmed in all respects. (c) The execution, delivery and effectiveness of this Amendment No. 11 and Waiver shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Bank under the Credit Agreements, nor constitute a waiver of any provision of the Credit Agreements. SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all costs and expenses of the Bank in connection with the preparation, execution and delivery of this Amendment No. 11 and Waiver and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel (who may be in-house counsel) for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities hereunder and thereunder. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment No. 11 and Waiver and the other instruments and documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 7. Execution in Counterparts. This Amendment No. 11 and Waiver may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 8. Governing Law. This Amendment No. 11 and Waiver shall be governed by, and construed in accordance with, the laws (without giving effect to the conflicts of laws principles thereof) of the State of New York. SECTION 9. Final Agreement. This Amendment No. 11 and Waiver represents the final agreement between the Borrower and the Bank as to the subject matter hereof and may not be 3 4 contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 11 and Waiver to be executed by their respective officers thereunto duly authorized, as of the date first above written. UNITED FOODS, INC. By /s/ Carl W. Gruenewald, II ------------------------------------------- Title: Sr. Vice President - Finance, Treasurer COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH By /s/ Dana W. Hemenway ------------------------------------------- Vice President Authorized Officer By /s/ W. Pieter C. Kodde ------------------------------------------- Vice President Authorized Officer 4 EX-10.29 5 MASTER SECURITY AGREEMENT / PICTSWEET FROZEN FOODS 1 EXHIBIT 10.29 MASTER SECURITY AGREEMENT This Master Security Agreement provides a set of terms and conditions that the parties hereto intend to be applicable to various loan transactions secured by personal property. Each such loan and security agreement shall be evidenced by a schedule of indebtedness and collateral ("Schedule") executed by Secured Party and Debtor that explicitly incorporates the provisions of this Master Security Agreement and that sets forth specific terms of that particular loan and security contract. Where the provisions of a Schedule conflict with the terms hereof, the provisions of the Schedule shall prevail. Each Schedule shall constitute a complete and separate loan and security agreement, independent of all other Schedules, and without any requirement of being accompanied by an originally executed copy of this Master Security Agreement. The term "Security Agreement" when used herein shall refer to an individual Schedule. One originally executed copy of the Schedule shall be denominated "Originally Executed Copy No. 1 of 2 originally executed copies" and such copy shall be retained by Secured Party. If more than one copy of the Schedule is executed by Secured Party and Debtor, all such other copies shall be numbered consecutively with numbers greater than 1. Only transfer of possession by Secured Party of Originally Executed Copy No. 1 shall be effective for purposes of perfecting an interest in such Schedule by possession. 1. Grant of Security Interest; Description of Collateral. Debtor grants to Secured Party a security interest in the property described in the Schedules now or hereafter executed by or pursuant to the authority of the Debtor and accepted by Secured Party in writing, along with all present and future attachments and accessories thereto and replacements and proceeds thereof, including amounts payable under any insurance policy, all hereinafter referred to collectively as "Collateral." Replacements shall only be included as part of the Collateral to the extent that Secured Party has not received payment in full hereunder from Debtor with regard to the Collateral being replaced. Each Schedule shall be serially numbered. Unless and only to the extent otherwise expressly provided in a Schedule, no Schedule shall replace any previous Schedule but shall be supplementary to all previous Schedules. As long as no event of default has occurred and is continuing hereunder, upon partial prepayment of a Schedule, Secured Party shall release that part of the Collateral to which such partial prepayment applies as determined by Secured Party based upon the original cost of such Collateral and upon prepayment in full of a specific Schedule, Secured Party shall release all of the Collateral described in such specific Schedule. Secured Party shall file the necessary UCC amendments, partial releases or terminations, as the case may be, to evidence either of the foregoing. 2. What Obligations the Collateral Secures. Each item of Collateral shall secure the specific amount which Debtor promises to pay in the Schedule in which such Collateral is described, plus all other present and future indebtedness or obligations of Debtor to Secured Party of every kind and nature under such Schedule. Required release of Collateral by Secured Party shall be controlled by the last two (2) sentences of Section 1 above. 2 3. Promise to Pay; Terms and Place of Payment. Debtor promises to pay Secured Party the amounts set forth on each Schedule at the rate and upon such terms as provided therein. Whenever used herein, the term " indebtedness " shall include (i) the unpaid principal amount of any loan advanced hereunder by Secured Party, (ii) all earned, accrued and unpaid interest (specifically excluding interest not yet earned hereunder), and (iii) all other unpaid obligations that Debtor has to Secured Party under the terms of this Master Security Agreement. Attached to each Schedule is an amortization table which sets forth as of the date of the advance of the loan by Secured Party, (i) the principal amount of each loan initially advanced by Secured Party and (ii) the amount of precomputed unearned interest, provided however, such amortization table assumes that Debtor shall make each and every monthly payment on the actual monthly due date set forth in such Schedule and in the event Debtor does not comply therewith, the indebtedness owed at time of prepayment, acceleration or otherwise shall be different than as reflected in such amortization table. 4. Use and Location of Collateral. Debtor warrants and agrees that the Collateral is to be used primarily for: business or commercial purposes (other than agricultural), - --- agricultural purposes (see definition on the final page), or - --- x both agricultural and business or commercial purposes. - --- Location: SEE EACH RESPECTIVE SCHEDULE - -------------------------------------------------------------------------------- Address City County State Zip Code Debtor and Secured Party agree that regardless of the manner of affixation, the Collateral shall remain personal property and not become part of the real estate. Debtor agrees to keep the Collateral at the location set forth above, and will notify Secured Party promptly in writing of any change in the location of the Collateral within such State, but will not remove the collateral from such State without the prior written consent of Secured Party (except that in the State of Pennsylvania, the Collateral will not be moved from the above location without such prior written consent). For Collateral which consists of titled vehicles, the location set forth on the Schedule shall be the principal garage location for such Collateral. 5. Late Charges and Other Fees. Any payment not made when due shall, at the option of Secured Party, bear late charges thereon calculated at the rate of 1 1/2% per month, but in no event greater than the highest rate permitted by relevant law. Debtor shall be responsible for and pay to Secured Party a returned check fee, not to exceed the maximum permitted by law, which fee will be equal to the sum of 3 (i) the actual bank charges incurred by Secured Party plus (ii) all other actual costs and expenses incurred by Secured Party. The returned check fee is payable upon demand as indebtedness secured by the Collateral under this Security Agreement. 6. Debtor's Warranties and Representations. Debtor warrants and represents: (a) that Debtor is justly indebted to Secured Party for the full amount of the indebtedness set forth on each Schedule; (b) that except for the security interest granted hereby, the Collateral is free from and will be kept free from all liens, claims, security interests and encumbrances; (c) that no financing statement covering the Collateral or any proceeds thereof is on file in favor of anyone other than Secured Party, but if such other financing statement is on file, it will be terminated or subordinated; (d) that all information supplied and statements made by Debtor in any financial, credit or accounting statement or application for credit prior to, contemporaneously with or subsequent to the execution of this Security Agreement with respect to this transaction are and shall be true, correct, valid and genuine; and (e) that Debtor has full authority to enter into this agreement and in so doing it is not violating its charter or by-laws, any law or regulation or agreement with third parties, and it has taken all such action as may be necessary or appropriate to make this Security Agreement binding upon it. 7. Debtor's Agreements. Debtor agrees: (a) to defend at Debtor's own cost any action, proceeding, or claim affecting the Collateral; (b) to pay reasonable attorneys' fees (at least 15% of the unpaid balance if not prohibited by law) and other expenses incurred by Secured Party in enforcing its rights against Debtor under this Security Agreement; (c) to pay promptly all taxes, assessments, license fees and other public or private charges when levied or assessed against the Collateral or this Security Agreement, and this obligation shall survive the termination of this Security Agreement; (d) that if a certificate of title be required or permitted by law, Debtor shall obtain such certificate with respect to the Collateral, showing the security interest of Secured Party 4 thereon and in any event do everything necessary or expedient to preserve or perfect the security interest of Secured Party; (e) that Debtor will not misuse, fail to keep in good repair, secrete or without the prior written consent of Secured Party, sell, rent, lend, encumber or transfer any of the Collateral notwithstanding Secured Party's right to proceeds; (f) that Secured Party may enter upon Debtor's premises or wherever the Collateral may be located at any reasonable time to inspect the Collateral and Debtor's books and records pertaining to the Collateral, and Debtor shall assist Secured Party in making such inspection; and (g) that the security interest granted by Debtor to Secured Party shall continue effective irrespective of any retaking or redelivery of any Collateral and irrespective of the payment of the amount described in any Schedule provided however, as long as no event of default has occurred and is continuing hereunder, then upon prepayment, in whole or in part of a Schedule, Collateral will be released in accordance with the last two (2) sentences of Section 1, and provided further however, upon any assignment of this Security Agreement the Assignee shall thereafter be deemed for the purpose of this Paragraph the Secured Party under this Security Agreement. 8. Insurance and Risk of Loss. All risk of loss, damage to or destruction of the Collateral shall at all times be on Debtor. Debtor will procure forthwith and maintain at Debtor's expense insurance against all risks of loss or physical damage to the Collateral for the full insurable value thereof for the life of this Security Agreement, and shall promptly deliver to Secured Party a Certificate of Insurance reflecting the aforesaid and showing loss payable to Secured Party; and providing Secured Party with not less than 30 days written notice of cancellation; each such policy shall be with insurance carriers satisfactory to Secured Party; Secured Party's acceptance of policies in lesser amounts or risks shall not be a waiver of Debtor's foregoing obligations. As to Secured Party's interest in such policy, no act or omission of Debtor or any of its officers, agents, employees or representatives shall affect the obligations of the insurer to pay the full amount of any loss. Debtor hereby assigns to Secured Party any monies which may become payable under any such policy of insurance and if an event of default has occurred and is continuing hereunder, then Debtor irrevocably constitutes and appoints Secured Party as Debtor's attorney in fact (a) to make, settle and adjust claims under each policy of insurance, (b) to make claims for any monies which may become payable under such and other insurance on the Collateral including returned or unearned premiums, and (c) to endorse Debtor's name on any check, draft or other instrument received in payment of claims or returned or unearned premiums under each policy and to apply the funds to the payment of the indebtedness owing to Secured Party; provided, however, Secured Party is under no obligation to do any of the foregoing; and provided further however, if an event of default has not occurred and is not continuing hereunder, then Debtor is permitted to handle all insurance claims. Debtor shall provide to Secured Party a true copy of each insurance policy. 5 Should Debtor fail to maintain such policy in full force and provide evidence thereof to Secured Party, or to pay any premium in whole or in part relating thereto, then Secured Party, without waiving or releasing any default or obligation by Debtor, may (but shall be under no obligation to) obtain and maintain insurance and pay the premium therefor on behalf of Debtor and charge the premium to Debtor's indebtedness under this Security Agreement. The full amount of any such premium paid by Secured Party shall be payable by Debtor upon demand, and failure to pay same shall constitute an event of default under this Security Agreement. 9. Events of Default; Acceleration. A very important element of this Security Agreement is that Debtor make all its payments promptly as agreed upon. It is essential that the Collateral remain in good condition and adequate security for the indebtedness. The following are events of default under this Security Agreement which will allow Secured Party to take such action under this Paragraph and under Paragraph 10 as it deems necessary: (a) any of Debtor's obligations to Secured Party under any agreement with Secured Party is not paid promptly when due and the aforesaid is not cured within 10 days of written notice thereof; (b) Debtor breaches any warranty or provision hereof, or of any note or of any other instrument or agreement delivered by Debtor to Secured Party in connection with this or any other transaction and such breach is not cured within 30 days of written notice thereof (the aforesaid cure period shall not apply to Debtor's obligation to maintain insurance in accordance with Section 8 above); (c) Debtor dies, becomes insolvent or ceases to do business as a going concern; (d) it is determined that Debtor has given Secured Party materially misleading information regarding its financial condition; (e) any of the Collateral is lost or destroyed unless such lost or destroyed Collateral is either (i) prepaid by Debtor or (ii) replaced by Debtor with like kind Collateral of equal or greater value as determined by Secured Party; (f) a complaint in bankruptcy or for arrangement or reorganization or for relief under any insolvency law is filed by or against Debtor and in the event of an involuntary filing against Debtor, such is not dismissed within 60 days of such involuntary filing, or Debtor admits its inability to pay its debts as they mature; (g) property of Debtor (with a value as determined by Secured Party in excess of $500,000) is attached or a receiver is appointed for Debtor and either of the aforesaid is not cured within 30 days of such occurrence. 6 If Debtor shall be in default hereunder, the indebtedness described in each Schedule and all other indebtedness then owing by Debtor to Secured Party under this or any other present or future agreement shall, if Secured Party shall so elect, become immediately due and payable. After acceleration: (a) the unpaid principal balance of the indebtedness described in any Schedule in which interest has been precomputed shall bear interest at the rate of 18% per annum (or, if less, the maximum rate permitted by law) until paid in full; and (b) the unpaid principal balance of the indebtedness described in any Schedule in which interest has not been precomputed shall bear interest at the same rate as before acceleration until paid in full. In no event shall the Debtor upon demand by Secured Party for payment of the indebtedness, by acceleration of the maturity thereof or otherwise, be obligated to pay any interest in excess of the amount permitted by law. Any acceleration of the indebtedness, if elected by Secured Party, shall be subject to all applicable laws, including laws relating to rebates and refunds of unearned charges. 10. Secured Party's Remedies After Default; Consent to Enter Premises. Upon Debtor's default and at any time thereafter, Secured Party shall have all the rights and remedies of a secured party under the Uniform Commercial Code and any other applicable laws, including the right to any deficiency remaining after disposition of the Collateral for which Debtor hereby agrees to remain fully liable. Debtor agrees that Secured Party, by itself or its agent, may either (i) with the consent of Debtor after notice or (ii) after Court order upon judicial process, enter into any premises or upon any land owned, leased or otherwise under the real or apparent control of Debtor or any agent of Debtor where the Collateral may be or where Secured Party believes the Collateral may be, and disassemble, render unusable and/or repossess all or any item of the Collateral, disconnecting and separating all Collateral from any other property and using all force necessary. Debtor expressly waives all further rights to possession of the Collateral after default and all claims for injuries suffered through or loss caused by such entering and/or repossession. Secured Party may require Debtor to assemble the Collateral and return it to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may sell or lease the Collateral at a time and location of its choosing provided that the Secured Party acts in good faith and in a commercially reasonable manner. Secured Party will give Debtor reasonable notice of the time and place of any public sale of the Collateral or of the time after which any private sale or any other intended disposition of the Collateral is to be made. Unless otherwise provided by law, the requirement of reasonable notice shall be met if such notice is mailed, postage prepaid, to the address of Debtor shown herein at least ten days before the time of the sale or disposition. Expenses of retaking, holding, preparing for sale, selling and the like shall include reasonable attorneys' fees (at least 15% of the 7 outstanding principal balance if not prohibited by law) and other legal expenses. Debtor understands that Secured Party's rights are cumulative and not alternative. 11. Waiver of Defaults; Agreement Inclusive. Secured Party may in its sole discretion waive a default, or cure, at Debtor's expense, a default. Any such waiver in a particular instance or of a particular default shall not be a waiver of other defaults or the same kind of default at another time. No modification or change in this Security Agreement or any related note, instrument or agreement shall bind Secured Party unless in writing signed by Secured Party. No oral agreement shall be binding. 12. Financing Statements; Certain Expenses. If permitted by law, Debtor authorizes Secured Party to file a financing statement with respect to the Collateral signed only by Secured Party, and to file a carbon, photograph or other reproduction of this Security Agreement or of a financing statement. At the request of Secured Party, Debtor will execute any financing statements, agreements or documents, in form satisfactory to Secured Party which Secured Party may deem necessary or advisable to establish and maintain a perfected security interest in the Collateral and will pay the cost of filing or recording the same in all public offices deemed necessary or advisable by Secured Party. Debtor also agrees to pay all costs and expenses incurred by Secured Party in conducting UCC, tax or other lien searches against the Debtor or the Collateral and such other fees as may be agreed. As long as no event of default has occurred and is continuing hereunder, Collateral will be released and UCC-1 Financing Statements amended, partially released, or terminated upon prepayment in accordance with the last two (2) sentences of Section 1 above. 13. Waiver of Defenses Acknowledgment. If Secured Party assigns this Security Agreement to a third party ("Assignee"), then after such assignment: (a) Debtor will make all payments directly to such Assignee at such place as Assignee may from time to time designate in writing; (b) Debtor agrees that it will settle all claims, defenses, setoffs and counterclaims it may have against Secured Party directly with Secured Party and will not set up any such claim, defense, setoff or counterclaim against Assignee, Secured Party hereby agreeing to remain responsible therefor; (c) Secured Party shall not be Assignee's agent for any purpose and shall have no authority to change or modify this Security Agreement or any related document or instrument; and (d) Assignee shall have all of the rights and remedies of Secured Party hereunder but none of Secured Party's obligations. 8 14. Miscellaneous. Secured Party may correct patent errors herein and fill in such blanks as serial numbers, date of first payment and the like. Any provisions hereof contrary to, prohibited by or invalid under applicable laws or regulations shall be inapplicable and deemed omitted herefrom, but shall not invalidate the remaining provisions hereof. Debtor and Secured Party each hereby waive any right to a trial by jury in any action or proceeding with respect to, in connection with, or arising out of this Security Agreement, or any note or document delivered pursuant to this Security Agreement. Debtor's only right to prepay the indebtedness described in any Schedule shall be in accordance with the prepayment rider attached to such Schedule. Debtor acknowledges receipt of a true copy and waives acceptance hereof. If Debtor is a corporation, this Security Agreement is executed pursuant to authority of its Board of Directors. Except where the context otherwise requires, "Debtor" and "Secured Party" include the heirs, executors or administrators, successors or assigns of those parties; nothing herein shall authorize Debtor to assign this Security Agreement or its rights in and to the Collateral. If more than one Debtor executes this Security Agreement, their obligations under this Security Agreement shall be joint and several. Notwithstanding any provision contained in this Security Agreement, in no event shall Debtor, upon demand by Secured Party for payment of any of the indebtedness hereunder, upon acceleration of the Indebtedness due and to become due, upon maturity of this Security Agreement, upon prepayment, or otherwise, be obligated to pay any amount in excess of that permitted by law. 15. Special Provisions. See Special Provisions Instructions (a) See Financial Covenants Rider attached hereto and made a part hereof. (b) Upon execution of this Security Agreement, and upon compliance by Debtor with all of Secured Party's documentation requirements, as listed below, the form and substance of the aforesaid to be mutually satisfactory to Secured Party and Debtor, Secured Party shall advance to the Debtor loans under this Security Agreement and loans under the second Master Security Agreement with Debtor's Pictsweet Mushroom Farms Division, the aggregate principal amount of the loans to be advanced by Secured Party under both Master Security Agreements not to exceed ten million ($10,000,000.00). On request by Debtor, Secured Party shall review Debtor's creditworthiness and, if warranted after such review, as determined by Secured Party, within its sole discretion, Secured Party shall increase the amount available to be loaned to Debtor by the amount that Debtor previously has borrowed and repaid. /s/ CWG (Please initial). (i) Schedules of Indebtedness and Collateral 9 (ii) Delivery and Installation Certificates (iii) Commodity check, only if applicable (iv) Prepayment Rider (v) Financial Covenants Rider (vi) Confirmation of Good Standing (vii) Pay Proceeds Letter (viii) Evidence of Insurance (in accordance with this Security Agreement) (ix) Board Resolution of Debtor (x) All documents or instruments necessary to provide to Secured Party a perfected first priority security interest in the Collateral including without limitation, the following (only as applicable): - UCC-1 Financing Statements (Collateral location and Debtor's location); - MSO's; - Title Applications; - Original Certificates of Title with CIT's lien noted thereon; - Subordinations; - Partial Releases; and - Terminations (xi) Evidence of ownership, including, without limitation, invoices and/or profit of payment by Debtor, as applicable. (xii) Landlord's and Mortagee's Waivers, only if applicable. 10 Dated: March 18, 1998 -------------- Debtor: UNITED FOODS, INC., the Pictsweet Frozen Foods Division - ---------------------------------------------- Name of individual, corporation or partnership By: /s/Carl W. Gruenewald ------------------------------------------- Title: Senior Vice President, CFO & Treasurer --------------------------------------- If corporation, have signed by President, Vice President or Treasurer, and give official title. If owner or partner, state which. Ten Pictsweet Drive - ---------------------------------------------- Address Bells, TN 38006 - ---------------------------------------------- City State Zip Code Secured Party: THE CIT GROUP\EQUIPMENT FINANCING, INC. - ---------------------------------------------- Name of individual, corporation or partnership By /s/Barry L. Blailock - ---------------------------------------------- Title Senior Credit Operations Manager If corporation, give official title. If owner or partner, state which. 900 Ashwood Parkway - 6th Floor - ---------------------------------------------- Address Atlanta GA 30338 - ---------------------------------------------- City State Zip Code If debtor is a partnership, enter:
Partners' names Home addresses - --------------- --------------
11 NOTICE: Do not use this form for transactions for personal, family or household purposes. For agricultural and other transactions subject to Federal or State regulations, consult legal counsel to determine documentation requirements. Agricultural purposes generally means farming, including dairy farming, but it also includes the transportation, harvesting, and processing of farm, dairy, or forest products if what is transported, harvested, or processed is farm, dairy, or forest products grown or bred by the user of the equipment itself. It does not apply, for instance, to a logger who harvests someone else's forest, or a contractor who prepares land or harvests products on someone else's farm. SPECIAL PROVISIONS INSTRUCTIONS - The notations to be entered in the Special Provisions section of this document for use in ALABAMA, FLORIDA, GEORGIA, IDAHO, NEVADA, NEW HAMPSHIRE, OREGON, SOUTH DAKOTA and WISCONSIN are shown in the applicable State pages of the Loans and Motor Vehicles Manual. 12 COVENANT RIDER TO MASTER SECURITY AGREEMENT DATED MARCH 18, 1998 BETWEEN UNITED FOODS, INC. the Pictsweet Frozen Foods Division AS DEBTOR AND THE CIT GROUP/EQUIPMENT FINANCING, INC. AS SECURED PARTY ("CIT") (a) Debtor represents, warrants and agrees that as long as there is any indebtedness owing by the Debtor to CIT: (i) The tangible net worth of the Debtor at the end of any fiscal year will not be less than $40,000,000.00. (ii) The ratio of the Debtor's total liabilities to tangible net worth on the last day of any of the Debtor's fiscal years shall not exceed 2.0:1.0. (iii) The working capital of the Debtor at the end of any fiscal year will not be less than $20,000,000.00. (b) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements submitted by the Debtor to CIT. (c) The Debtor represents, warrants and agrees that, as long as there is any indebtedness owing to CIT, it will furnish to CIT: (i) within 120 days after the end of each fiscal year of the Debtor, a balance sheet of the Debtor as at the end of such fiscal year and statements of profit and loss and surplus, all prepared in accordance with generally accepted principles and practices of accounting consistently applied, and certified by independent public accountants selected by the Debtor and satisfactory to CIT; (ii) within 90 days after the end of each of the first three quarters of each fiscal year of the Debtor, a balance sheet of the Debtor as at the end of such quarter and statements of profit and loss and surplus for such period, all prepared in accordance with generally accepted principles and practices of accounting consistently applied and certified by the chief financial officer of the Debtor; and (iii) from time to time, such further information regarding the business affairs and financial condition of the Debtor as CIT may reasonably require. 13 Debtor: UNITED FOODS, INC., the Pictsweet Frozen Foods Division By:/s/ Carl W. Gruenewald --------------------------------------------- Title: Senior Vice President - Finance Treasurer ----------------------------------------- Date: March 18, 1998 Secured Party: THE CIT GROUP/EQUIPMENT FINANCING, INC. By: /s/ Barry L. Blailock --------------------------------------------- Name: Senior Credit Operations Manager ------------------------------------------ Title: March 31, 1998 ----------------------------------------- EX-10.30 6 MASTER SECURITY AGREEMENT/PICTSWEET MUSHROOM FARMS 1 EXHIBIT 10.30 MASTER SECURITY AGREEMENT This Master Security Agreement provides a set of terms and conditions that the parties hereto intend to be applicable to various loan transactions secured by personal property. Each such loan and security agreement shall be evidenced by a schedule of indebtedness and collateral ("Schedule") executed by Secured Party and Debtor that explicitly incorporates the provisions of this Master Security Agreement and that sets forth specific terms of that particular loan and security contract. Where the provisions of a Schedule conflict with the terms hereof, the provisions of the Schedule shall prevail. Each Schedule shall constitute a complete and separate loan and security agreement, independent of all other Schedules, and without any requirement of being accompanied by an originally executed copy of this Master Security Agreement. The term "Security Agreement" when used herein shall refer to an individual Schedule. One originally executed copy of the Schedule shall be denominated "Originally Executed Copy No. 1 of 2 originally executed copies" and such copy shall be retained by Secured Party. If more than one copy of the Schedule is executed by Secured Party and Debtor, all such other copies shall be numbered consecutively with numbers greater than 1. Only transfer of possession by Secured Party of Originally Executed Copy No. 1 shall be effective for purposes of perfecting an interest in such Schedule by possession. 1. Grant of Security Interest; Description of Collateral. Debtor grants to Secured Party a security interest in the property described in the Schedules now or hereafter executed by or pursuant to the authority of the Debtor and accepted by Secured Party in writing, along with all present and future attachments and accessories thereto and replacements and proceeds thereof, including amounts payable under any insurance policy, all hereinafter referred to collectively as "Collateral." Replacements shall only be included as part of the Collateral to the extent that Secured Party has not received payment in full hereunder from Debtor with regard to the Collateral being replaced. Each Schedule shall be serially numbered. Unless and only to the extent otherwise expressly provided in a Schedule, no Schedule shall replace any previous Schedule but shall be supplementary to all previous Schedules. As long as no event of default has occurred and is continuing hereunder, upon partial prepayment of a Schedule, Secured Party shall release that part of the Collateral to which such partial prepayment applies as determined by Secured Party based upon the original cost of such Collateral and upon prepayment in full of a specific Schedule, Secured Party shall release all of the Collateral described in such specific Schedule. Secured Party shall file the necessary UCC amendments, partial releases or terminations, as the case may be, to evidence either of the foregoing. 2. What Obligations the Collateral Secures. Each item of Collateral shall secure the specific amount which Debtor promises to pay in the Schedule in which such Collateral is described, plus all other present and future indebtedness or obligations of Debtor to Secured Party of every kind and nature under such Schedule. Required release of Collateral by Secured Party shall be controlled by the last two (2) sentences of Section 1 above. 2 3. Promise to Pay; Terms and Place of Payment. Debtor promises to pay Secured Party the amounts set forth on each Schedule at the rate and upon such terms as provided therein. Whenever used herein, the term " indebtedness " shall include (i) the unpaid principal amount of any loan advanced hereunder by Secured Party, (ii) all earned, accrued and unpaid interest (specifically excluding interest not yet earned hereunder), and (iii) all other unpaid obligations that Debtor has to Secured Party under the terms of this Master Security Agreement. Attached to each Schedule is an amortization table which sets forth as of the date of the advance of the loan by Secured Party, (i) the principal amount of each loan initially advanced by Secured Party and (ii) the amount of precomputed unearned interest, provided however, such amortization table assumes that Debtor shall make each and every monthly payment on the actual monthly due date set forth in such Schedule and in the event Debtor does not comply therewith, the indebtedness owed at time of prepayment, acceleration or otherwise shall be different than as reflected in such amortization table. 4. Use and Location of Collateral. Debtor warrants and agrees that the Collateral is to be used primarily for: usiness or commercial purposes (other than agricultural), - --- agricultural purposes (see definition on the final page), or - --- x both agricultural and business or commercial purposes. - --- Location: SEE EACH RESPECTIVE SCHEDULE - ---------------------------- Address City County State Zip Code Debtor and Secured Party agree that regardless of the manner of affixation, the Collateral shall remain personal property and not become part of the real estate. Debtor agrees to keep the Collateral at the location set forth above, and will notify Secured Party promptly in writing of any change in the location of the Collateral within such State, but will not remove the collateral from such State without the prior written consent of Secured Party (except that in the State of Pennsylvania, the Collateral will not be moved from the above location without such prior written consent). For Collateral which consists of titled vehicles, the location set forth on the Schedule shall be the principal garage location for such Collateral. 5. Late Charges and Other Fees. Any payment not made when due shall, at the option of Secured Party, bear late charges thereon calculated at the rate of 1 1/2% per month, but in no event greater than the highest rate permitted by relevant law. Debtor shall be responsible for and pay to Secured Party a returned check fee, not to exceed the maximum permitted by law, which fee will be equal to the sum of (i) the actual bank charges incurred by Secured Party plus (ii) all other actual costs and expenses incurred by Secured Party. The returned check fee is payable upon demand as indebtedness secured by the Collateral under this Security Agreement. 3 6. Debtor's Warranties and Representations. Debtor warrants and represents: (a) that Debtor is justly indebted to Secured Party for the full amount of the indebtedness set forth on each Schedule; (b) that except for the security interest granted hereby, the Collateral is free from and will be kept free from all liens, claims, security interests and encumbrances; (c) that no financing statement covering the Collateral or any proceeds thereof is on file in favor of anyone other than Secured Party, but if such other financing statement is on file, it will be terminated or subordinated; (d) that all information supplied and statements made by Debtor in any financial, credit or accounting statement or application for credit prior to, contemporaneously with or subsequent to the execution of this Security Agreement with respect to this transaction are and shall be true, correct, valid and genuine; and (e) that Debtor has full authority to enter into this agreement and in so doing it is not violating its charter or by-laws, any law or regulation or agreement with third parties, and it has taken all such action as may be necessary or appropriate to make this Security Agreement binding upon it. 7. Debtor's Agreements. Debtor agrees: (a) to defend at Debtor's own cost any action, proceeding, or claim affecting the Collateral; (b) to pay reasonable attorneys' fees (at least 15% of the unpaid balance if not prohibited by law) and other expenses incurred by Secured Party in enforcing its rights against Debtor under this Security Agreement; (c) to pay promptly all taxes, assessments, license fees and other public or private charges when levied or assessed against the Collateral or this Security Agreement, and this obligation shall survive the termination of this Security Agreement; (d) that if a certificate of title be required or permitted by law, Debtor shall obtain such certificate with respect to the Collateral, showing the security interest of Secured Party thereon and in any event do everything necessary or expedient to preserve or perfect the security interest of Secured Party; 4 (e) that Debtor will not misuse, fail to keep in good repair, secrete or without the prior written consent of Secured Party, sell, rent, lend, encumber or transfer any of the Collateral notwithstanding Secured Party's right to proceeds; (f) that Secured Party may enter upon Debtor's premises or wherever the Collateral may be located at any reasonable time to inspect the Collateral and Debtor's books and records pertaining to the Collateral, and Debtor shall assist Secured Party in making such inspection; and (g) that the security interest granted by Debtor to Secured Party shall continue effective irrespective of any retaking or redelivery of any Collateral and irrespective of the payment of the amount described in any Schedule provided however, as long as no event of default has occurred and is continuing hereunder, then upon prepayment, in whole or in part of a Schedule, Collateral will be released in accordance with the last two (2) sentences of Section 1, and provided further however, upon any assignment of this Security Agreement the Assignee shall thereafter be deemed for the purpose of this Paragraph the Secured Party under this Security Agreement. 8. Insurance and Risk of Loss. All risk of loss, damage to or destruction of the Collateral shall at all times be on Debtor. Debtor will procure forthwith and maintain at Debtor's expense insurance against all risks of loss or physical damage to the Collateral for the full insurable value thereof for the life of this Security Agreement, and shall promptly deliver to Secured Party a Certificate of Insurance reflecting the aforesaid and showing loss payable to Secured Party; and providing Secured Party with not less than 30 days written notice of cancellation; each such policy shall be with insurance carriers satisfactory to Secured Party; Secured Party's acceptance of policies in lesser amounts or risks shall not be a waiver of Debtor's foregoing obligations. As to Secured Party's interest in such policy, no act or omission of Debtor or any of its officers, agents, employees or representatives shall affect the obligations of the insurer to pay the full amount of any loss. Debtor hereby assigns to Secured Party any monies which may become payable under any such policy of insurance and if an event of default has occurred and is continuing hereunder, then Debtor irrevocably constitutes and appoints Secured Party as Debtor's attorney in fact (a) to make, settle and adjust claims under each policy of insurance, (b) to make claims for any monies which may become payable under such and other insurance on the Collateral including returned or unearned premiums, and (c) to endorse Debtor's name on any check, draft or other instrument received in payment of claims or returned or unearned premiums under each policy and to apply the funds to the payment of the indebtedness owing to Secured Party; provided, however, Secured Party is under no obligation to do any of the foregoing; and provided further however, if an event of default has not occurred and is not continuing hereunder, then Debtor is permitted to handle all insurance claims. Debtor shall provide to Secured Party a true copy of each insurance policy. Should Debtor fail to maintain such policy in full force and provide evidence thereof to Secured Party, or to pay any premium in whole or in part relating thereto, then Secured Party, without waiving or releasing any default or obligation by Debtor, may (but shall be under no obligation to) obtain and maintain insurance and pay the premium therefor on behalf of Debtor and 5 charge the premium to Debtor's indebtedness under this Security Agreement. The full amount of any such premium paid by Secured Party shall be payable by Debtor upon demand, and failure to pay same shall constitute an event of default under this Security Agreement. 9. Events of Default; Acceleration. A very important element of this Security Agreement is that Debtor make all its payments promptly as agreed upon. It is essential that the Collateral remain in good condition and adequate security for the indebtedness. The following are events of default under this Security Agreement which will allow Secured Party to take such action under this Paragraph and under Paragraph 10 as it deems necessary: (a) any of Debtor's obligations to Secured Party under any agreement with Secured Party is not paid promptly when due and the aforesaid is not cured within 10 days of written notice thereof; (b) Debtor breaches any warranty or provision hereof, or of any note or of any other instrument or agreement delivered by Debtor to Secured Party in connection with this or any other transaction and such breach is not cured within 30 days of written notice thereof (the aforesaid cure period shall not apply to Debtor's obligation to maintain insurance in accordance with Section 8 above); (c) Debtor dies, becomes insolvent or ceases to do business as a going concern; (d) it is determined that Debtor has given Secured Party materially misleading information regarding its financial condition; (e) any of the Collateral is lost or destroyed unless such lost or destroyed Collateral is either (i) prepaid by Debtor or (ii) replaced by Debtor with like kind Collateral of equal or greater value as determined by Secured Party; (f) a complaint in bankruptcy or for arrangement or reorganization or for relief under any insolvency law is filed by or against Debtor and in the event of an involuntary filing against Debtor, such is not dismissed within 60 days of such involuntary filing, or Debtor admits its inability to pay its debts as they mature; (g) property of Debtor (with a value as determined by Secured Party in excess of $500,000) is attached or a receiver is appointed for Debtor and either of the aforesaid is not cured within 30 days of such occurrence. If Debtor shall be in default hereunder, the indebtedness described in each Schedule and all other indebtedness then owing by Debtor to Secured Party under this or any other present or future agreement shall, if Secured Party shall so elect, become immediately due and payable. After acceleration: 6 (a) the unpaid principal balance of the indebtedness described in any Schedule in which interest has been precomputed shall bear interest at the rate of 18% per annum (or, if less, the maximum rate permitted by law) until paid in full; and (b) the unpaid principal balance of the indebtedness described in any Schedule in which interest has not been precomputed shall bear interest at the same rate as before acceleration until paid in full. In no event shall the Debtor upon demand by Secured Party for payment of the indebtedness, by acceleration of the maturity thereof or otherwise, be obligated to pay any interest in excess of the amount permitted by law. Any acceleration of the indebtedness, if elected by Secured Party, shall be subject to all applicable laws, including laws relating to rebates and refunds of unearned charges. 10. Secured Party's Remedies After Default; Consent to Enter Premises. Upon Debtor's default and at any time thereafter, Secured Party shall have all the rights and remedies of a secured party under the Uniform Commercial Code and any other applicable laws, including the right to any deficiency remaining after disposition of the Collateral for which Debtor hereby agrees to remain fully liable. Debtor agrees that Secured Party, by itself or its agent, may either (i) with the consent of Debtor after notice or (ii) after Court order upon judicial process, enter into any premises or upon any land owned, leased or otherwise under the real or apparent control of Debtor or any agent of Debtor where the Collateral may be or where Secured Party believes the Collateral may be, and disassemble, render unusable and/or repossess all or any item of the Collateral, disconnecting and separating all Collateral from any other property and using all force necessary. Debtor expressly waives all further rights to possession of the Collateral after default and all claims for injuries suffered through or loss caused by such entering and/or repossession. Secured Party may require Debtor to assemble the Collateral and return it to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may sell or lease the Collateral at a time and location of its choosing provided that the Secured Party acts in good faith and in a commercially reasonable manner. Secured Party will give Debtor reasonable notice of the time and place of any public sale of the Collateral or of the time after which any private sale or any other intended disposition of the Collateral is to be made. Unless otherwise provided by law, the requirement of reasonable notice shall be met if such notice is mailed, postage prepaid, to the address of Debtor shown herein at least ten days before the time of the sale or disposition. Expenses of retaking, holding, preparing for sale, selling and the like shall include reasonable attorneys' fees (at least 15% of the outstanding principal balance if not prohibited by law) and other legal expenses. Debtor understands that Secured Party's rights are cumulative and not alternative. 11. Waiver of Defaults; Agreement Inclusive. Secured Party may in its sole discretion waive a default, or cure, at Debtor's expense, a default. Any such waiver in a particular instance or of a particular default shall not be a waiver of other defaults or the same kind of default at another time. No modification or change in this Security 7 Agreement or any related note, instrument or agreement shall bind Secured Party unless in writing signed by Secured Party. No oral agreement shall be binding. 12. Financing Statements; Certain Expenses. If permitted by law, Debtor authorizes Secured Party to file a financing statement with respect to the Collateral signed only by Secured Party, and to file a carbon, photograph or other reproduction of this Security Agreement or of a financing statement. At the request of Secured Party, Debtor will execute any financing statements, agreements or documents, in form satisfactory to Secured Party which Secured Party may deem necessary or advisable to establish and maintain a perfected security interest in the Collateral and will pay the cost of filing or recording the same in all public offices deemed necessary or advisable by Secured Party. Debtor also agrees to pay all costs and expenses incurred by Secured Party in conducting UCC, tax or other lien searches against the Debtor or the Collateral and such other fees as may be agreed. As long as no event of default has occurred and is continuing hereunder, Collateral will be released and UCC-1 Financing Statements amended, partially released, or terminated upon prepayment in accordance with the last two (2) sentences of Section 1 above. 13. Waiver of Defenses Acknowledgment. If Secured Party assigns this Security Agreement to a third party ("Assignee"), then after such assignment: (a) Debtor will make all payments directly to such Assignee at such place as Assignee may from time to time designate in writing; (b) Debtor agrees that it will settle all claims, defenses, setoffs and counterclaims it may have against Secured Party directly with Secured Party and will not set up any such claim, defense, setoff or counterclaim against Assignee, Secured Party hereby agreeing to remain responsible therefor; (c) Secured Party shall not be Assignee's agent for any purpose and shall have no authority to change or modify this Security Agreement or any related document or instrument; and (d) Assignee shall have all of the rights and remedies of Secured Party hereunder but none of Secured Party's obligations. 14. Miscellaneous. Secured Party may correct patent errors herein and fill in such blanks as serial numbers, date of first payment and the like. Any provisions hereof contrary to, prohibited by or invalid under applicable laws or regulations shall be inapplicable and deemed omitted herefrom, but shall not invalidate the remaining provisions hereof. 8 Debtor and Secured Party each hereby waive any right to a trial by jury in any action or proceeding with respect to, in connection with, or arising out of this Security Agreement, or any note or document delivered pursuant to this Security Agreement. Debtor's only right to prepay the indebtedness described in any Schedule shall be in accordance with the prepayment rider attached to such Schedule. Debtor acknowledges receipt of a true copy and waives acceptance hereof. If Debtor is a corporation, this Security Agreement is executed pursuant to authority of its Board of Directors. Except where the context otherwise requires, "Debtor" and "Secured Party" include the heirs, executors or administrators, successors or assigns of those parties; nothing herein shall authorize Debtor to assign this Security Agreement or its rights in and to the Collateral. If more than one Debtor executes this Security Agreement, their obligations under this Security Agreement shall be joint and several. Notwithstanding any provision contained in this Security Agreement, in no event shall Debtor, upon demand by Secured Party for payment of any of the indebtedness hereunder, upon acceleration of the Indebtedness due and to become due, upon maturity of this Security Agreement, upon prepayment, or otherwise, be obligated to pay any amount in excess of that permitted by law. 15. Special Provisions. See Special Provisions Instructions (a) See Financial Covenants Rider attached hereto and made a part hereof. (b) Upon execution of this Security Agreement, and upon compliance by Debtor with all of Secured Party's documentation requirements, as listed below, the form and substance of the aforesaid to be mutually satisfactory to Secured Party and Debtor, Secured Party shall advance to the Debtor loans under this Security Agreement and loans under the second Master Security Agreement with Debtor's Pictsweet Mushroom Farms Division, the aggregate principal amount of the loans to be advanced by Secured Party under both Master Security Agreements not to exceed ten million ($10,000,000.00). On request by Debtor, Secured Party shall review Debtor's creditworthiness and, if warranted after such review, as determined by Secured Party, within its sole discretion, Secured Party shall increase the amount available to be loaned to Debtor by the amount that Debtor previously has borrowed and repaid. /s/ CWG (Please initial). (i) Schedules of Indebtedness and Collateral (ii) Delivery and Installation Certificates (iii) Commodity check, only if applicable (iv) Prepayment Rider (v) Financial Covenants Rider (vi) Confirmation of Good Standing (vii) Pay Proceeds Letter (viii) Evidence of Insurance (in accordance with this Security Agreement) (ix) Board Resolution of Debtor 9 (x) All documents or instruments necessary to provide to Secured Party a perfected first priority security interest in the Collateral including without limitation, the following (only as applicable): -UCC-1 Financing Statements (Collateral location and Debtor's location); -MSO's; -Title Applications; -Original Certificates of Title with CIT's lien noted thereon; -Subordinations; -Partial Releases; and -Terminations (xi) Evidence of ownership, including, without limitation, invoices and/or profit of payment by Debtor, as applicable. (xii) Landlord's and Mortgagee's Waivers, only if applicable. 10 Dated: March 18, 1998 Debtor: UNITED FOODS, INC. the Pictsweet Mushroom Farms Division --------------------------------------------- Name of individual, corporation or partnership By: /s/Carl W. Gruenewald --------------------------------------------- Title: Senior Vice President, CFO & Treasurer ----------------------------------------- If corporation, have signed by President, Vice President or Treasurer, and give official title. If owner or partner, state which. Ten Pictsweet Drive - ------------------------------------------------ Address Bells, TN 38006 - ------------------------------------------------ City State Zip Code Secured Party: THE CIT GROUP\EQUIPMENT FINANCING, INC. - ------------------------------------------------ Name of individual, corporation or partnership By: /s/Barry L. Blailock -------------------------------------------- Title: Senior Credit Operations Manager ----------------------------------------- If corporation, give official title. If owner or partner, state which. 900 Ashwood Parkway - 6th Floor - ------------------------------------------------ Address Atlanta GA 30338 - ------------------------------------------------ City State Zip Code If debtor is a partnership, enter:
Partners' names Home addresses - --------------- --------------
NOTICE: Do not use this form for transactions for personal, family or household purposes. For agricultural and other transactions subject to Federal or State regulations, consult legal counsel to determine documentation requirements. 11 Agricultural purposes generally means farming, including dairy farming, but it also includes the transportation, harvesting, and processing of farm, dairy, or forest products if what is transported, harvested, or processed is farm, dairy, or forest products grown or bred by the user of the equipment itself. It does not apply, for instance, to a logger who harvests someone else's forest, or a contractor who prepares land or harvests products on someone else's farm. SPECIAL PROVISIONS INSTRUCTIONS - The notations to be entered in the Special Provisions section of this document for use in ALABAMA, FLORIDA, GEORGIA, IDAHO, NEVADA, NEW HAMPSHIRE, OREGON, SOUTH DAKOTA and WISCONSIN are shown in the applicable State pages of the Loans and Motor Vehicles Manual. 12 COVENANT RIDER TO MASTER SECURITY AGREEMENT DATED MARCH 18, 1998 BETWEEN UNITED FOODS, INC. the Pictsweet Mushroom Farms Division AS DEBTOR AND THE CIT GROUP/EQUIPMENT FINANCING, INC. AS SECURED PARTY ("CIT") (a) Debtor represents, warrants and agrees that as long as there is any indebtedness owing by the Debtor to CIT: (i) The tangible net worth of the Debtor at the end of any fiscal year will not be less than $40,000,000.00. (ii) The ratio of the Debtor's total liabilities to tangible net worth on the last day of any of the Debtor's fiscal years shall not exceed 2.0:1.0. (iii) The working capital of the Debtor at the end of any fiscal year will not be less than $20,000,000.00. (b) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements submitted by the Debtor to CIT. (c) The Debtor represents, warrants and agrees that, as long as there is any indebtedness owing to CIT, it will furnish to CIT: (i) within 120 days after the end of each fiscal year of the Debtor, a balance sheet of the Debtor as at the end of such fiscal year and statements of profit and loss and surplus, all prepared in accordance with generally accepted principles and practices of accounting consistently applied, and certified by independent public accountants selected by the Debtor and satisfactory to CIT; (ii) within 90 days after the end of each of the first three quarters of each fiscal year of the Debtor, a balance sheet of the Debtor as at the end of such quarter and statements of profit and loss and surplus for such period, all prepared in accordance with generally accepted principles and practices of accounting consistently applied and certified by the chief financial officer of the Debtor; and (iii) from time to time, such further information regarding the business affairs and financial condition of the Debtor as CIT may reasonably require. 13 Debtor: UNITED FOODS, INC., the Pictsweet Mushroom Farms Division By: /s/ Carl W. Gruenewald --------------------------------------------- Title: Senior Vice President - Finance Treasurer ----------------------------------------- Date: March 18, 1998 Secured Party: The CIT Group/Equipment Financing, Inc By: /s/ Barry L. Blailock --------------------------------------------- Title: Senior Credit Operations Manager ----------------------------------------- Date: March 31, 1998 ------------------------------------------ EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UNITED FOODS INC. FOR THE YEAR ENDED FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-28-1998 FEB-28-1998 646 0 19,548 285 37,344 62,437 126,237 74,151 115,884 23,258 46,878 0 0 6,810 38,938 115,884 195,087 195,087 158,635 158,635 31,663 81 4,141 754 294 460 0 0 0 460 .06 .06
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