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Section 1: 10-K (10-K)

Table of Contents

 

 

 

 

 

 

 

ANNUAL REPORT ON FORM 10-K

 

 

HORMEL FOODS CORPORATION

 

 

OCTOBER 29, 2017

 

 

 

 

 

 

 

 

 

 



Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 29, 2017

or

 

[    ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________ to ________________________________________

 

Commission File Number: 1-2402

 

HORMEL FOODS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

41-0319970

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1 Hormel Place

Austin, Minnesota

 

55912-3680

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (507) 437-5611

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.01465 par value

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes X   No    

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes      No X

 

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, and (2) has been subject to such filing requirements for the past 90 days.  Yes X   No    

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months.  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)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer X

Accelerated filer     

Non-accelerated filer           (Do not check if a smaller reporting company)

Smaller reporting company     

 

Emerging growth company     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No X

 

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of April 30, 2017, was $9,415,266,160 based on the closing price of $35.08 on the last business day of the registrant’s most recently completed second fiscal quarter.

 

As of December 1, 2017, the number of shares outstanding of each of the registrant’s classes of common stock was as follows:

 

Common Stock, $0.01465 – Par Value 529,585,006 shares

Common Stock Non-Voting, $0.01 Par Value – 0 shares

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, are incorporated by reference into Part I, Items 1 and 1A and Part II, Items 5-8 and 9A, and included as Exhibit 13.1 filed herewith.  Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held January 30, 2018, are incorporated by reference into Part III, Items 10-14.

 

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Table of Contents

 

HORMEL FOODS CORPORATION

TABLE OF CONTENTS

 

PART I

 

 

 

 

 

Item 1.

BUSINESS

3

 

 

 

Item 1A.

RISK FACTORS

8

 

 

 

Item 1B.

UNRESOLVED STAFF COMMENTS

8

 

 

 

Item 2.

PROPERTIES

8

 

 

 

Item 3.

LEGAL PROCEEDINGS

10

 

 

 

Item 4.

MINE SAFETY DISCLOSURES

10

 

 

 

PART II

 

 

 

 

 

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

11

 

 

 

Item 6.

SELECTED FINANCIAL DATA

11

 

 

 

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

11

 

 

 

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

12

 

 

 

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

12

 

 

 

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

12

 

 

 

Item 9A.

CONTROLS AND PROCEDURES

12

 

 

 

Item 9B.

OTHER INFORMATION

12

 

 

 

PART III

 

 

 

 

 

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

13

 

 

 

Item 11.

EXECUTIVE COMPENSATION

13

 

 

 

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

13

 

 

 

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

13

 

 

 

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

13

 

 

 

PART IV

 

 

 

 

 

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

13

 

 

 

SIGNATURES

 

14

 

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Table of Contents

 

PART I

 

Item 1.  BUSINESS

 

(a)  General Development of Business

 

Hormel Foods Corporation, a Delaware corporation (the Company), was founded by George A. Hormel in 1891 in Austin, Minnesota, as Geo. A. Hormel & Company.  The Company started as a processor of meat and food products and continues in this line of business.  The Company’s name was changed to Hormel Foods Corporation on January 31, 1995.  The Company is primarily engaged in the production of a variety of meat and food products and the marketing of those products throughout the United States and internationally.  Although pork and turkey remain the major raw materials for its products, the Company has emphasized for several years the manufacturing and distribution of branded, value-added consumer items rather than the commodity fresh meat business.  The Company has continually expanded its product portfolio through organic growth, new product development, and acquisitions.

 

Internationally, the Company markets its products through Hormel Foods International Corporation (HFIC), a wholly owned subsidiary.  HFIC has a presence in the international marketplace through joint ventures and placement of personnel in strategic foreign locations such as Australia, Brazil, Canada, China, Japan, and the Philippines.  HFIC has a global presence with a minority position in a food company in the Philippines (The Purefoods-Hormel Company, Inc., 40% holding).

 

On November 27, 2017, subsequent to the end of the fiscal year, the Company completed the acquisition of Columbus Manufacturing, Inc. (Columbus), an authentic premium deli meat and salami company, from Chicago-based Arbor Investments.  The purchase price is approximately $850.0 million.  The transaction was closed in the first quarter of fiscal 2018 and was funded with cash on hand along with borrowing $375.0 million under a term loan facility and $375.0 million under a revolving credit facility.  The allocation of the purchase price will be finalized upon completion of the fair value analysis of Columbus’s assets.  Columbus specializes in authentic premium deli meat and salami and allows the Company to enhance its scale in the deli by broadening its portfolio of products, customers, and consumers.

 

On August 22, 2017, the Company acquired Cidade do Sol (Ceratti) for a preliminary purchase price of approximately $103.5 million, subject to customary working capital adjustments. The transaction was funded by the Company with cash on hand.  The acquisition of the Ceratti® brand allows the Company to establish a full in-country presence in the fast-growing Brazilian market with a premium brand.

 

On August 16, 2017, the Company acquired Fontanini Italian Meats and Sausages (Fontanini), a branded foodservice business, from Capitol Wholesale Meats, Inc. for a preliminary purchase price of $427.9 million, subject to customary working capital adjustments.  The transaction provides a cash flow benefit resulting from the amortization of the tax basis of assets, the net present value of which is approximately $90.0 million.  The transaction was funded by the Company with cash on hand and by utilizing short-term financing.  Fontanini specializes in authentic Italian meats and sausages, as well as a variety of other premium meat products including pizza toppings and meatballs and allows the Company to expand its foodservice business.

 

On January 3, 2017, the Company completed the sale of Clougherty Packing, LLC, parent company of Farmer John and Saag’s Specialty Meats, along with PFFJ, LLC, farm operations in California, Arizona, and Wyoming.  The closing price was $145.0 million in cash.

 

On May 26, 2016, the Company acquired Justin’s, LLC (Justin’s) of Boulder, Colorado, for a purchase price of $280.9 million.  The transaction provides a cash flow benefit resulting from the amortization of the tax basis of assets, the net present value of which is approximately $70.0 million.  The purchase price was funded by the Company with cash on hand and by utilizing short-term financing.  This acquisition allowed the Company to enhance its presence in the specialty natural and organic nut butter category.

 

On May 9, 2016, the Company completed the sale of Diamond Crystal Brands resulting in proceeds, net of selling costs, of closing price of $110.1 million.

 

On July 13, 2015, the Company acquired Applegate Farms, LLC (Applegate) of Bridgewater, New Jersey, for a final purchase price of $774.1 million in cash.  The purchase price was funded by the Company with cash on hand and by utilizing short-term financing.  This acquisition allows the Company to expand the breadth of its protein offerings to provide consumers more choice in this fast growing category.

 

The Company has not been involved in any bankruptcy, receivership, or similar proceedings during its history.  Substantially all the assets of the Company have been acquired in the ordinary course of business.

 

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The Company had no other significant change in the type of products produced or services rendered, or in the markets or methods of distribution, since the beginning of the 2017 fiscal year.

 

(b)  Segments

 

The Company’s business is reported in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store (JOTS), Specialty Foods, and International & Other.  Net sales to unaffiliated customers, operating profit, total assets, and the presentation of certain other financial information by segment, are reported in Note P of the Notes to Consolidated Financial Statements and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, incorporated herein by reference.

 

(c)  Description of Business

 

Products and Distribution

 

The Company’s products primarily consist of meat and other food products.  The meat products are sold fresh, frozen, cooked, and canned.  The percentages of total revenues contributed by classes of similar products for the last three fiscal years are as follows:

 

 

 

Fiscal Year Ended

 

 

 

October 29, 2017

 

October 30, 2016

 

October 25, 2015

 

Perishable

 

 

53.7

%

 

 

 

53.1

%

 

 

 

53.0

%

 

 

Poultry

 

 

20.2

 

 

 

 

18.2

 

 

 

 

18.4

 

 

 

Shelf-stable

 

 

19.1

 

 

 

 

20.5

 

 

 

 

18.6

 

 

 

Miscellaneous

 

 

7.0

 

 

 

 

8.2

 

 

 

 

10.0

 

 

 

 

 

 

100.0

%

 

 

 

100.0

%

 

 

 

100.0

%

 

 

 

Reporting of revenues from external customers is based on similarity of products, as the same or similar products are sold across multiple distribution channels such as retail, foodservice, or international.  Revenues reported are based on financial information used to produce the Company’s general-purpose financial statements.

 

The Perishable category includes fresh meats, frozen items, refrigerated meal solutions, sausages, hams, guacamole, and bacon (excluding JOTS products).  Shelf-stable includes canned luncheon meats, peanut butter, chilies, shelf-stable microwaveable meals, hash, stews, meat spreads, flour and corn tortillas, salsas, tortilla chips, and other items that do not require refrigeration.  The Poultry category is composed primarily of JOTS products.  The Miscellaneous category primarily consists of nutritional food products and supplements, dessert and drink mixes, and industrial gelatin products.

 

Domestically, the Company sells its products in all 50 states.  The Company’s products are sold through its sales personnel, operating in assigned territories or as dedicated teams serving major customers, coordinated from sales offices located in most of the larger U.S. cities. The Company also utilizes independent brokers and distributors.  As of October 29, 2017, the Company had approximately 1,030 sales personnel engaged in selling its products.  Distribution of products to customers is primarily by common carrier.

 

Through HFIC, the Company markets its products in various locations throughout the world.  Some of the larger markets include Australia, Brazil, Canada, China, England, Japan, Mexico, Micronesia, the Philippines, Singapore, and South Korea.  The distribution of export sales to customers is by common carrier, while the China and Brazil operations own and operate their own delivery system.  The Company, through HFIC, has licensed companies to manufacture various Company products internationally on a royalty basis, with the primary licensees being Tulip International of Denmark and CJ CheilJedang Corporation of South Korea.

 

Raw Materials

 

The Company has, for the past several years, been concentrating on branded products for consumers with year-round demand to minimize the seasonal variation experienced with commodity-type products.  Pork continues to be the primary raw material for Company products.  The Company’s expanding line of branded products has reduced, but not eliminated, the sensitivity of Company results to raw material supply and price fluctuations.

 

The majority of the hogs harvested by the Company are purchased under supply contracts from producers located principally in Minnesota, Iowa, Nebraska, and Kansas.  The cost of hogs and the utilization of the Company’s facilities are affected by both the level and the methods of pork production in the United States.  The Company uses supply contracts to ensure a stable supply of raw materials.  The Company’s contracts are based on market-based formulas and/or markets of certain swine production inputs,

 

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to better balance input costs with customer pricing, and all contract costs are fully reflected in the Company’s reported financial statements.  In fiscal 2017, the Company purchased 96 percent of its hogs under supply contracts.  The Company also procures a portion of its hogs through farms it either owns or operates in Colorado.

 

In fiscal 2017, JOTS raised turkeys representing approximately 77 percent of the volume needed to meet its raw material requirements for whole bird and branded turkey products.  Turkeys not sourced within the Company are contracted with independent turkey growers.  JOTS’ turkey-raising farms are located throughout Minnesota and Wisconsin.

 

Production costs in raising hogs and turkeys are subject primarily to fluctuations in feed grain prices and, to a lesser extent, fuel costs.  To manage this risk, the Company hedges a portion of its anticipated purchases of grain using futures contracts.

 

Additionally, the cost and supply of avocados, peanuts, whey, and natural and organic protein are impacted by the changing market forces of supply and demand, which can impact the cost of the Company’s products. The Company uses long-term supply contracts and forward buying in an attempt to manage these risks.

 

Manufacturing

 

The Company has two plants that harvest hogs for processing.  Quality Pork Processors, Inc. of Dallas, Texas, operates the harvesting facility in Austin, Minnesota, under a custom harvesting arrangement.  The Company currently has seven turkey harvest and processing operations, and 31 facilities that produce and distribute other manufactured items.  Albert Lea Select Foods, Inc. operates the processing facility in Albert Lea, Minnesota, under a custom manufacturing agreement.  Company products are also custom manufactured by several other companies.  The following are the Company’s larger custom manufacturers: Abbyland Foods, Inc., Abbotsford, Wisconsin; Agropur Division Natrel USA, Maplewood, Minnesota; Algood Food Company, Louisville, Kentucky; Busseto Foods, Inc., Fresno, California; Deitz & Watson, Inc., Philadelphia, Pennsylvania; HP Hood LLC, Lynnfield, Massachusetts; John F. Martin and Sons, Stevens, Pennsylvania; Jones Dairy Farm, Fort Atkinson, Wisconsin; OSI Industries LLC, Chicago, Illinois; Perdue Farms Inc., Salisbury, Maryland; Reichel Foods, Inc., Rochester, Minnesota; Reser’s Fine Foods, Topeka, Kansas; Steuben Foods, Jamaica, New York; and West Liberty Foods, LLC, West Liberty, Iowa.  Exel, Inc., based in Westerville, Ohio, operates distribution centers for the Company in Dayton, Ohio, and Osceola, Iowa.

 

Patents and Trademarks

 

There are numerous patents and trademarks important to the Company’s business.  The Company holds 39 U.S.-issued and 10 foreign patents.  Most of the trademarks are registered.  Some of the more significant owned or licensed trademarks used by the Company or its affiliates are:

 

HORMEL, ALWAYS TENDER, APPLEGATE, AUSTIN BLUES, BACON 1, BLACK LABEL, BREAD READY, CAFÉ H, CERATTI, CHI-CHI’S, COLUMBUS, COMPLEATS, CURE 81, CYTOSPORT, DAN’S PRIZE, DI LUSSO, DINTY MOORE, DON MIGUEL, DOÑA MARIA, EMBASA, EVOLVE, FAST ‘N EASY, FIRE BRAISED, FONTANINI, HERDEZ, HORMEL GATHERINGS, HORMEL VITAL CUISINE, HOUSE OF TSANG, JENNIE-O, JUSTIN’S, LA VICTORIA, LAYOUT, LLOYD’S, MARY KITCHEN, MUSCLE MILK, NATURAL CHOICE, OLD SMOKEHOUSE, PILLOW PACK, RANGE BRAND, REV, ROSA GRANDE, SKIPPY, SPAM, SPECIAL RECIPE, THICK & EASY, VALLEY FRESH, and WHOLLY GUACAMOLE.

 

The Company’s patents expire after a term that is typically 20 years from the date of filing, with earlier expiration possible based on the Company’s decision to pay required maintenance fees.  As long as the Company intends to continue using its trademarks, they are renewed indefinitely.

 

Customers and Backlog Orders

 

During fiscal year 2017, sales to Wal-Mart Stores, Inc. (Wal-Mart) represented approximately 14.4 percent of the Company’s revenues (measured as gross sales less returns and allowances), compared to 13.7 percent in fiscal 2016.  Wal-Mart is a customer for all five segments of the Company.  The five largest customers in each segment make up approximately the following percentage of segment sales: 47 percent of Grocery Products, 40 percent of Refrigerated Foods, 42 percent of JOTS, 49 percent of Specialty Foods, and 20 percent of International & Other.  The loss of one or more of the top customers in any of these segments could have a material adverse effect on the results of such segment.  Backlog orders are not significant due to the perishable nature of a large portion of the products.  Orders are accepted and shipped on a current basis.

 

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Competition

 

The production and sale of meat and food products in the United States and internationally are highly competitive.  The Company competes with manufacturers of pork and turkey products, as well as national and regional producers of other meat and protein sources, such as beef, chicken, fish, peanut butter, and whey.  The Company believes its largest domestic competitors for its Refrigerated Foods segment in 2017 were Tyson Foods, Inc. and Smithfield Foods, Inc.; for its Grocery Products segment, Conagra Brands, Inc., General Mills, Inc., Campbell Soup Co., and J. M. Smucker Co.; and for JOTS, Cargill, Inc. and Butterball, LLC.

 

All segments compete on the basis of price, product quality and attributes, brand identification, breadth of product line, and customer service.  Through aggressive marketing and strong quality assurance programs, the Company’s strategy is to provide higher quality products that possess strong brand recognition, which would then support higher value perceptions from customers.

 

Research and Development

 

Research and development continues to be a vital part of the Company’s strategy to extend existing brands and expand into new branded items.  The expenditures for research and development for fiscal 2017, 2016, and 2015, were approximately $34.2 million, $34.7 million, and $32.0 million, respectively.  There are approximately 145 employees engaged in full-time research and development, 69 in the area of improving existing products and 76 in developing new products.

 

Employees

 

As of October 29, 2017, the Company had approximately 20,200 active domestic and foreign employees.

 

(d) Geographic Areas

 

Financial information about geographic areas, including total revenues attributed to the U.S. and all foreign countries in total for the last three fiscal years of the Company, is reported in Note P of the Notes to Consolidated Financial Statements of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, incorporated herein by reference.

 

(e) Available Information

 

The Company makes available, free of charge on its Web site at www.hormelfoods.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.  These reports are accessible under the caption, “Investors – Filings & Reports – SEC Filings” on the Company’s Web site and are available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

 

The documents noted above are also available in print, free of charge, to any stockholder who requests them.

 

(f) Executive Officers of the Registrant

 

 

 

 

 

CURRENT OFFICE AND PREVIOUS

 

 

NAME

 

AGE

 

FIVE YEARS EXPERIENCE

 

DATES

 

 

 

 

 

 

 

James P. Snee

 

50

 

Chairman of the Board, President and Chief Executive Officer

 

11/20/17 to Present

 

 

 

 

President and Chief Executive Officer

 

10/31/16 to 11/19/17

 

 

 

 

President and Chief Operating Officer

 

10/26/15 to 10/30/16

 

 

 

 

Group Vice President/President Hormel Foods International Corporation

 

10/29/12 to 10/25/15

 

 

 

 

 

 

 

James N. Sheehan

 

62

 

Senior Vice President and Chief Financial Officer

 

10/31/16 to Present

 

 

 

 

Vice President and Chief Accounting Officer

 

05/30/16 to 10/30/16

 

 

 

 

Vice President and Controller

 

05/01/00 to 05/29/16

 

 

 

 

 

 

 

Steven G. Binder

 

60

 

Executive Vice President/President Hormel Business Units

 

10/31/11 to Present

 

 

 

 

 

 

 

Glenn R. Leitch

 

57

 

Executive Vice President (Supply Chain)

 

12/04/17 to Present

 

 

 

 

Group Vice President/President Jennie-O Turkey Store, Inc.

 

10/31/11 to 12/03/17

 

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(f) Executive Officers of the Registrant - Continued

 

 

 

 

 

CURRENT OFFICE AND PREVIOUS

 

 

NAME

 

AGE

 

FIVE YEARS EXPERIENCE

 

DATES

 

 

 

 

 

 

 

Deanna T. Brady

 

52

 

Group Vice President/President Consumer Product Sales

 

10/26/15 to Present

 

 

 

 

Group Vice President (Foodservice)

 

10/28/13 to 10/25/15

 

 

 

 

Vice President Sales (Foodservice Sales)

 

07/30/07 to 10/27/13

 

 

 

 

 

 

 

Thomas R. Day

 

59

 

Group Vice President (Refrigerated Foods)

 

10/28/13 to Present

 

 

 

 

Group Vice President (Foodservice)

 

11/01/10 to 10/27/13

 

 

 

 

 

 

 

Donald H. Kremin

 

57

 

Group Vice President (Specialty Foods Group)

 

10/31/11 to Present

 

 

 

 

 

 

 

Luis G. Marconi

 

51

 

Group Vice President (Grocery Products)

 

10/31/16 to Present

 

 

 

 

Vice President (Grocery Products Marketing)

 

03/05/12/to 10/30/16

 

 

 

 

 

 

 

James M. Splinter

 

55

 

Group Vice President (Corporate Strategy)

 

10/31/16 to Present

 

 

 

 

Group Vice President (Grocery Products)

 

11/01/10 to 10/30/16

 

 

 

 

 

 

 

Larry L. Vorpahl

 

54

 

Group Vice President/President Hormel Foods International Corporation

 

10/26/15 to Present

 

 

 

 

Group Vice President/President Consumer Products Sales

 

10/31/05 to 10/25/15

 

 

 

 

 

 

 

Mark A. Coffey

 

55

 

Senior Vice President (Supply Chain and Manufacturing)

 

03/28/17 to Present

 

 

 

 

Vice President (Supply Chain)

 

02/06/17 to 03/27/17

 

 

 

 

Vice President (Affiliated Businesses)

 

10/31/11 to 02/05/17

 

 

 

 

 

 

 

Janet L. Hogan

 

53

 

Senior Vice President (Human Resources)

 

03/28/17 to Present

 

 

 

 

Vice President (Human Resources)

 

01/18/17 to 03/27/17

 

 

 

 

 

 

 

Steven J. Lykken

 

47

 

Senior Vice President/President Jennie-O Turkey Store, Inc.

 

12/04/17 to Present

 

 

 

 

President Applegate Farms, Inc.

 

04/11/16 to 12/03/17

 

 

 

 

Chief Operating Officer Applegate Farms, Inc.

 

08/17/15 to 04/10/16

 

 

 

 

Senior Vice President Jennie-O Turkey Store, Inc. (Commodity/Supply Chain)

 

06/06/11 to 08/16/15

 

 

 

 

 

 

 

Lori J. Marco

 

50

 

Senior Vice President (External Affairs) and General Counsel

 

03/30/15 to Present

 

 

 

 

Vice President (External Affairs) and General Counsel

 

01/24/11 to 03/29/15

 

 

 

 

 

 

 

Kevin L. Myers, Ph.D.

 

52

 

Senior Vice President (Research and Development and Quality Control)

 

03/30/15 to Present

 

 

 

 

Vice President (Research and Development)

 

10/28/13 to 03/29/15

 

 

 

 

Director Product and Process Development (Research and Development)

 

04/30/12 to 10/27/13

 

 

 

 

 

 

 

Jana L. Haynes

 

45

 

Vice President and Controller

 

05/30/16 to Present

 

 

 

 

Director of Investor Relations

 

10/28/13 to 05/29/16

 

 

 

 

Director of Taxes

 

01/01/07 to 10/27/13

 

 

 

 

 

 

 

Gary L. Jamison

 

52

 

Vice President and Treasurer

 

5/30/16 to Present

 

 

 

 

Vice President and Chief Financial Officer Jennie-O Turkey Store, Inc.

 

12/31/12 to 05/29/16

 

 

 

 

Vice President Finance Clougherty Packing, LLC

 

08/28/06 to 12/30/12

 

No family relationship exists among the executive officers.

 

Executive officers are elected annually by the Board of Directors at the first meeting following the Annual Meeting of Stockholders.  Vacancies may be filled and additional officers elected at any time.

 

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Item 1A.  RISK FACTORS

 

Information on the Company’s risk factors included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 32 through 34 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.

 

Item 1B.  UNRESOLVED STAFF COMMENTS

 

None.

 

Item 2.  PROPERTIES

 

Location

 

Principal Segment (1)

 

Approximate Area
(Square Feet,
Unless Noted)

 

Owned or
Leased

 

Lease
Expiration Date

 

 

 

 

 

 

 

 

 

 

Harvest and Processing Plants

 

 

 

 

 

 

 

 

 

Austin, Minnesota

 

Refrigerated Foods

Grocery Products

Specialty Foods

International & Other

 

1,406,000

 

 

Owned

 

 

Barron, Wisconsin

 

JOTS

 

425,000

 

 

Owned

 

 

Faribault, Minnesota

 

JOTS

 

191,000

 

 

Owned

 

 

Fremont, Nebraska

 

Refrigerated Foods

Grocery Products

Specialty Foods

International & Other

 

700,000

 

 

Owned

 

 

Melrose, Minnesota

 

JOTS

 

133,000

 

 

Owned

 

 

Willmar, Minnesota

 

JOTS

 

339,000

 

 

Owned

 

 

 

 

 

 

 

 

 

 

 

 

Processing Plants

 

 

 

 

 

 

 

 

 

Albert Lea, Minnesota

 

Refrigerated Foods

 

80,000

 

 

Owned

 

 

Algona, Iowa

 

Refrigerated Foods

 

154,000

 

 

Owned

 

 

Alma, Kansas

 

Refrigerated Foods

 

66,000

 

 

Owned

 

 

Aurora, Illinois

 

Specialty Foods

Grocery Products

 

147,000

 

 

Owned

 

 

Beijing, China

 

International & Other

 

95,000

 

 

80% Owned

 

 

Beloit, Wisconsin

 

Grocery Products

Specialty Foods

 

346,000

 

 

Owned

 

 

 

 

Grocery Products

Specialty Foods

 

5,000

 

 

Leased

 

Monthly

Browerville, Minnesota

 

Refrigerated Foods

 

108,000

 

 

Owned

 

 

Dubuque, Iowa

 

Grocery Products

 

344,000

 

 

Owned

 

 

Hayward, California

 

Refrigerated Foods

 

128,000

 

 

Leased

 

April 2021

Hayward, California

 

Refrigerated Foods

 

67,000

 

 

Leased

 

September 2032

Jiaxing, China

 

International & Other

 

1,256,000

 

 

Owned

 

 

Knoxville, Iowa

 

Refrigerated Foods

 

131,000

 

 

Owned

 

 

Lathrop, California

 

Refrigerated Foods

 

87,000

 

 

Owned

 

 

Little Rock, Arkansas

 

Grocery Products

 

167,000

 

 

Owned

 

 

Long Prairie, Minnesota

 

Refrigerated Foods

 

96,000

 

 

Owned

 

 

McCook, Illinois

 

Refrigerated Foods

 

176,000

 

 

Owned

 

 

Mendota Heights, Minnesota

 

Refrigerated Foods

 

76,000

 

 

Owned

 

 

Montevideo, Minnesota

 

JOTS

 

89,000

 

 

Owned

 

 

Nevada, Iowa

 

Refrigerated Foods

 

226,000

 

 

Owned

 

 

Osceola, Iowa

 

Refrigerated Foods

 

376,000

 

 

Owned

 

 

Pelican Rapids, Minnesota

 

JOTS

 

375,000

 

 

Owned

 

 

Quakertown, Pennsylvania

 

Specialty Foods

 

13,000

 

 

Owned

 

 

Rochelle, Illinois

 

Refrigerated Foods
Grocery Products

Specialty Foods

 

406,000

 

 

Owned

 

 

Shanghai, China

 

International & Other

 

41,000

 

 

Leased

 

September 2018

 

8



Table of Contents

 

Item 2. PROPERTIES – Continued

 

 

 

 

 

Approximate Area

 

 

 

 

 

 

 

 

(Square Feet,

 

Owned or

 

Lease

Location

 

Principal Segment (1)

 

Unless Noted)

 

Leased

 

Expiration Date

 

 

 

 

 

 

 

 

 

 

Processing Plants (continued)

 

 

 

 

 

 

 

 

 

Sparta, Wisconsin

 

Specialty Foods

 

385,000

 

 

Owned

 

 

Tucker, Georgia

 

Grocery Products

 

259,000

 

 

Owned

 

 

 

 

Refrigerated Foods

 

 

 

 

 

 

 

 

 

Specialty Foods

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vinhedo, Brazil

 

International & Other

 

422,000

 

 

Leased

 

Monthly

Weifang, China

 

International & Other

 

117,000

 

 

Owned

 

 

Wichita, Kansas

 

Refrigerated Foods

 

89,000

 

 

Owned

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse/Distribution Centers

 

 

 

 

 

 

 

 

 

Austin, Minnesota

 

Refrigerated Foods

Grocery Products

 

72,000

 

 

Owned

 

 

Beijing, China

 

International & Other

 

24,000

 

 

Leased

 

June 2018

Dayton, Ohio

 

Refrigerated Foods

Grocery Products

Specialty Foods

 

140,000

 

 

Owned

 

 

Eldridge, Iowa

 

Grocery Products

Specialty Foods

 

424,000

 

 

Leased

 

July 2019

Hayward, California

 

Refrigerated Foods

 

41,000

 

 

Leased

 

September 2032

Hayward, California

 

Refrigerated Foods

 

8,000

 

 

Leased

 

April 2021

Osceola, Iowa

 

Refrigerated Foods

 

233,000

 

 

Owned

 

 

Sparta, Wisconsin

 

Specialty Foods

 

50,000

 

 

Leased

 

June 2019

Willmar, Minnesota

 

JOTS

 

123,000

 

 

Owned

 

 

 

 

 

 

5,000

 

 

Leased

 

November 2018

 

 

 

 

 

 

 

 

 

 

Hog Production Facilities

 

 

 

 

 

 

 

 

 

Las Animas, Colorado

 

Refrigerated Foods

 

815,000

 

 

Owned

 

 

 

 

 

 

 

 

 

 

 

 

Hatcheries

 

 

 

 

 

 

 

 

 

Barron, Wisconsin

 

JOTS

 

29,000

 

 

Owned

 

 

Detroit Lakes, Minnesota

 

JOTS

 

27,000

 

 

Owned

 

 

Henning, Minnesota

 

JOTS

 

22,000

 

 

Owned

 

 

 

 

 

 

 

 

 

 

 

 

Feed Mills

 

 

 

 

 

 

 

 

 

Atwater, Minnesota

 

JOTS

 

19,000

 

 

Owned

 

 

Barron, Wisconsin

 

JOTS

 

26,000

 

 

Owned

 

 

Dawson, Minnesota

 

JOTS

 

37,000

 

 

Owned

 

 

Faribault, Minnesota

 

JOTS

 

25,000

 

 

Owned

 

 

Henning, Minnesota

 

JOTS

 

5,000

 

 

Owned

 

 

Northfield, Minnesota

 

JOTS

 

17,000

 

 

Owned

 

 

Perham, Minnesota

 

JOTS

 

26,000

 

 

Owned

 

 

Swanville, Minnesota

 

JOTS

 

29,000

 

 

Owned

 

 

 

 

 

 

 

 

 

 

 

 

Turkey Farms

 

 

 

 

 

 

 

 

 

Minnesota and Wisconsin

 

JOTS

 

14,500 (2)

 

 

Owned

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development

 

 

 

 

 

 

 

 

 

Austin, Minnesota

 

All Segments

 

135,000

 

 

Owned

 

 

Shanghai, China

 

International & Other

 

4,000

 

 

Leased

 

September 2018

Willmar, Minnesota

 

JOTS

 

10,000

 

 

Owned

 

 

 

9



Table of Contents

 

Item 2. PROPERTIES – Continued

 

 

 

 

 

Approximate Area

 

 

 

 

 

 

 

 

(Square Feet,

 

Owned or

 

Lease

Location

 

Principal Segment (1)

 

Unless Noted)

 

Leased

 

Expiration Date

 

 

 

 

 

 

 

 

 

 

Administrative Offices

 

 

 

 

 

 

 

 

 

Austin, Minnesota

 

All Segments

 

299,000

 

 

Owned

 

 

Beijing, China

 

International & Other

 

4,000

 

 

Leased

 

June 2018

Boulder, Colorado

 

Grocery Products

 

6,000

 

 

Leased

 

August 2019

Bridgewater, New Jersey

 

Refrigerated Foods

 

29,000

 

 

Leased

 

January 2024

Gainesville, Georgia

 

Refrigerated Foods

 

5,000

 

 

Leased

 

November 2019

Hayward, California

 

Refrigerated Foods

 

17,000

 

 

Leased

 

September 2032

Hayward, California

 

Refrigerated Foods

 

12,000

 

 

Leased

 

April 2021

Las Animas, Colorado

 

Refrigerated Foods

 

2,000

 

 

Leased

 

July 2019

Moorabbin, Australia

 

International & Other

 

3,000

 

 

Leased

 

September 2018

Shanghai, China

 

International & Other

 

20,000

 

 

Leased

 

September 2018

Walnut Creek, California

 

Specialty Foods

 

22,000

 

 

Leased

 

April 2023

Willmar, Minnesota

 

JOTS

 

56,000

 

 

Owned

 

 

 

(1)        Many of the Company’s properties are not exclusive to any one segment, and a few of the properties are utilized in all five segments. For locations that support multiple segments, but with a substantial percentage of activity attributable to certain segments, only the principal segments have been
listed.

(2)        Acres.

 

The Company believes its operating facilities are well maintained and suitable for current production volumes, and expansion plans are either completed or in process to accommodate all volumes anticipated in the foreseeable future.

 

Item 3.  LEGAL PROCEEDINGS

 

The Company is a party to various legal proceedings related to the on-going operation of its business, including claims both by and against the Company.  At any time, such proceedings typically involve claims related to product liability, contract disputes, wage and hour laws, employment practices, or other actions brought by employees, consumers, competitors, or suppliers.  Resolution of any currently known matters, either individually or in the aggregate, is not expected to have a material effect on the Company’s financial condition, results of operations, or liquidity.

 

Item 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

10



Table of Contents

 

PART II

 

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The high and low sales price of the Company’s common stock and the dividends per share declared for each quarter of fiscal 2017 and fiscal 2016 are shown below (as adjusted for the two-for-one stock split distributed on February 9, 2016):

 

2017

 

High

 

Low

 

Dividend

First Quarter

 

$38.840

 

$33.180

 

$0.170

Second Quarter

 

  37.960

 

  33.970

 

  0.170

Third Quarter

 

  35.480

 

  32.260

 

  0.170

Fourth Quarter

 

  34.530

 

  29.750

 

  0.170

 

 

 

 

 

 

 

2016

 

High

 

Low

 

Dividend

First Quarter

 

$40.390

 

$32.920

 

$0.145

Second Quarter

 

  45.720

 

  37.490

 

  0.145

Third Quarter

 

  40.535

 

  33.700

 

  0.145

Fourth Quarter

 

  40.000

 

  35.870

 

  0.145

 

Additional information about dividends, principal market of trade, and number of stockholders on pages 68 and 69 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.  The Company’s common stock has been listed on the New York Stock Exchange since January 16, 1990.

 

Issuer purchases of equity securities in the fourth quarter of fiscal year 2017 are shown below:

 

Period

 

Total
Number of
Shares
Purchased

 

Average
Price Paid
Per Share

 

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
1

 

Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
1

July 31, 2017 –

 

 

 

 

 

 

 

 

September 3, 2017

 

-

 

$  -

 

              -

 

10,452,337

September 4, 2017 –
October 1, 2017

 

-

 

-

 

              -

 

10,452,337

October 2, 2017 –
October 29, 2017

 

-

 

-

 

              -

 

10,452,337

Total

 

-

 

$  -

 

              -

 

 

 

1On January 31, 2013, the Company announced its Board of Directors had authorized the repurchase of 10,000,000 shares of its common stock with no expiration date.  The repurchase program was authorized at a meeting of the Company’s Board of Directors on January 29, 2013.  On November 23, 2015, the Board of Directors authorized a two-for-one split of the Company’s common stock.  As part of the resolution to approve that stock split, the number of shares remaining to be repurchased was adjusted proportionately.  The stock split was subsequently approved by stockholders at the Company’s Annual Meeting on January 26, 2016, and effected January 27, 2016.  All numbers in the table above reflect the impact of this stock split.

 

 

Item 6.  SELECTED FINANCIAL DATA

 

Selected Financial Data for the five fiscal years ended October 29, 2017, on page 14 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.

 

 

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Information in the Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 15 through 35 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.

 

11



Table of Contents

 

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Information on the Company’s exposure to market risk included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 34 and 35 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.

 

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Consolidated Financial Statements, including unaudited quarterly data, on pages 39 through 67 and the Report of Independent Registered Public Accounting Firm on page 38 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, are incorporated herein by reference.

 

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

Item 9A.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As of the end of the period covered by this report (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)).  In designing and evaluating the disclosure controls and procedures, management recognized any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance the information we are required to disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission  rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Internal Control over Financial Reporting

 

(a)               The report entitled “Management’s Report on Internal Control Over Financial Reporting” on page 36 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.

 

(b)               The report entitled “Report of Independent Registered Public Accounting Firm” on page 37 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, is incorporated herein by reference.

 

(c)                During the fourth quarter of fiscal year 2017, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B.  OTHER INFORMATION

 

None.

 

12



Table of Contents

 

PART III

 

Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Information under “Item 1 – Election of Directors” on pages 2 through 6, information under “Board Independence” on pages 8 and 9, and information under “Board of Director and Committee Meetings” on pages 9 and 10 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 30, 2018, is incorporated herein by reference.

 

Information concerning Executive Officers is set forth in Part I, Item 1(f) of this Annual Report on Form 10-K, pursuant to Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K.

 

Information under “Section 16(a) Beneficial Ownership Reporting Compliance,” on page 43 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 30, 2018, is incorporated herein by reference.

 

The Company has adopted a Code of Ethical Business Conduct in compliance with applicable rules of the Securities and Exchange Commission that applies to its principal executive officer, its principal financial officer, and its principal accounting officer or controller, or persons performing similar functions.  A copy of the Code of Ethical Business Conduct is available on the Company’s Web site at www.hormelfoods.com, free of charge, under the caption, “Investors –Governance – Governance Documents.”  The Company intends to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethical Business Conduct by posting such information on the Company’s Web site at the address and location specified above.

 

Item 11.  EXECUTIVE COMPENSATION

 

Information commencing with “Executive Compensation” on page 16 through “Potential Payments Upon Termination at Fiscal 2017 Year End” on pages 31 and 32, and information under “Compensation of Directors” on pages 11 through 13 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 30, 2018, is incorporated herein by reference.

 

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Information under “Equity Compensation Plan Information” on page 43, and information under “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” on pages 14 through 16 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 30, 2018, is incorporated herein by reference.

 

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Information under “Related Party Transactions” on page 43 and “Board Independence” on pages 8 and 9 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 30, 2018, is incorporated herein by reference.

 

Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Information under “Independent Registered Public Accounting Firm Fees” and “Audit Committee Preapproval Policies and Procedures” on page 14 of the definitive proxy statement for the Annual Meeting of Stockholders to be held January 30, 2018, is incorporated herein by reference.

 

 

 

PART IV

 

Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

The response to Item 15 is submitted as a separate section of this report.

 

13



Table of Contents

 

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.

 

 

 HORMEL FOODS CORPORATION

 

 

 

 

 

 

 

By:

/s/ JAMES P. SNEE

December 20, 2017

 

 

 

JAMES P. SNEE, Chairman of the Board,

Date

 

 

 

President, Chief Executive Officer, and Director

 

 

 

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.

 

Name

 

Date

 

Title

/s/ JAMES P. SNEE

 

12/20/17

 

Chairman of the Board, President, Chief Executive

JAMES P. SNEE

 

 

 

Officer, and Director

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

/s/ JAMES N. SHEEHAN

 

12/20/17

 

Senior Vice President and Chief Financial Officer

JAMES N. SHEEHAN

 

 

 

(Principal Financial Officer)

 

 

 

 

 

/s/ JANA L. HAYNES

 

12/20/17

 

Vice President and Controller

JANA L. HAYNES

 

 

 

(Principal Accounting Officer)

 

 

 

 

 

/s/ GARY C. BHOJWANI*

 

12/20/17

 

Director

GARY C. BHOJWANI

 

 

 

 

 

 

 

 

 

/s/ TERRELL K. CREWS*

 

12/20/17

 

Director

TERRELL K. CREWS

 

 

 

 

 

 

 

 

 

/s/ GLENN S. FORBES*

 

12/20/17

 

Director

GLENN S. FORBES

 

 

 

 

 

 

 

 

 

/s/ STEPHEN M. LACY*

 

12/20/17

 

Director

STEPHEN M. LACY

 

 

 

 

 

 

 

 

 

/s/ JOHN L. MORRISON*

 

12/20/17

 

Director

JOHN L. MORRISON

 

 

 

 

 

 

 

 

 

/s/ ELSA A. MURANO*

 

12/20/17

 

Director

ELSA A. MURANO

 

 

 

 

 

 

 

 

 

/s/ ROBERT C. NAKASONE*

 

12/20/17

 

Director

ROBERT C. NAKASONE

 

 

 

 

 

 

 

 

 

/s/ SUSAN K. NESTEGARD*

 

12/20/17

 

Director

SUSAN K. NESTEGARD

 

 

 

 

 

 

 

 

 

/s/ DAKOTA A. PIPPINS*

 

12/20/17

 

Director

DAKOTA A. PIPPINS

 

 

 

 

 

 

 

 

 

/s/ CHRISTOPHER J. POLICINSKI*

 

12/20/17

 

Director

CHRISTOPHER J. POLICINSKI

 

 

 

 

 

 

 

 

 

/s/ SALLY J. SMITH*

 

12/20/17

 

Director

SALLY J. SMITH

 

 

 

 

 

 

 

 

 

/s/ STEVEN A. WHITE*

 

12/20/17

 

Director

STEVEN A. WHITE

 

 

 

 

 

 

 

 

 

*By: /s/ JANA L. HAYNES

 

12/20/17

 

 

JANA L. HAYNES

 

 

 

 

as Attorney-In-Fact

 

 

 

 

 

F-1

 

14



Table of Contents

 

ANNUAL REPORT ON FORM 10-K

 

 

 

 

 

ITEM 15

 

 

 

LIST OF FINANCIAL STATEMENTS

 

 

 

FINANCIAL STATEMENT SCHEDULE

 

 

 

LIST OF EXHIBITS

 

 

 

 

 

FISCAL YEAR ENDED OCTOBER 29, 2017

 

 

 

HORMEL FOODS CORPORATION

 

 

 

Austin, Minnesota

 

15



Table of Contents

 

F-2

 

Item 15.

 

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

 

HORMEL FOODS CORPORATION

 

FINANCIAL STATEMENTS

 

The following consolidated financial statements of Hormel Foods Corporation included in the Annual Stockholders’ Report for the fiscal year ended October 29, 2017, are incorporated herein by reference in Item 8 of Part II of this report:

 

Consolidated Statements of Financial Position–October 29, 2017, and October 30, 2016.

 

Consolidated Statements of Operations–Fiscal Years Ended October 29, 2017, October 30, 2016, and October 25, 2015.

 

Consolidated Statements of Comprehensive Income–Fiscal Years Ended October 29, 2017, October 30, 2016, and October 25, 2015.

 

Consolidated Statements of Changes in Shareholders’ Investment–Fiscal Years Ended October 29, 2017, October 30, 2016, and October 25, 2015.

 

Consolidated Statements of Cash Flows–Fiscal Years Ended October 29, 2017, October 30, 2016, and October 25, 2015.

 

Notes to Consolidated Financial Statements–October 29, 2017.

 

Report of Independent Registered Public Accounting Firm

 

 

FINANCIAL STATEMENT SCHEDULES

 

The following consolidated financial statement schedule of Hormel Foods Corporation required pursuant to Item 15(c) is submitted herewith:

 

Schedule II – Valuation and Qualifying Accounts and Reserves…F-3

 

FINANCIAL STATEMENTS AND SCHEDULES OMITTED

 

All other financial statements and schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

 

16



Table of Contents

 

F-3

 

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

 

HORMEL FOODS CORPORATION

 

(In Thousands)

 

 

 

 

 

 

 

Additions/(Benefits)

 

 

 

 

 

 

 

 

Balance at

 

 

Charged to

 

 

Charged to

 

 

 

 

Balance at

 

 

 

 

Beginning

 

 

Costs and

 

 

Other Accounts-

 

 

Deductions-

 

End of

 

Classification

 

 

of Period

 

 

Expenses

 

 

Describe

 

 

Describe

 

Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation reserve deduction from assets account:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal year ended October 29, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts receivable

 

 

$

4,045

 

 

$

561

 

 

$

261 (1)

 

 

$

 

677

(56)

 (2)

 (3)

 

$

4,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal year ended October 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts receivable

 

 

$

4,086

 

 

$

611

 

 

$

-

 

 

$

 

652

-

 (2)

 (3)

 

$

4,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal year ended October 25, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts receivable

 

 

$

4,050

 

 

$

(24)

 

 

$

36 (4)

 

 

$

 

52

(77)

 (2)

 (3)

 

$

4,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note (1) – Increase in the reserve due to the inclusion of Fontanini accounts receivable.

 

Note (2) – Uncollectible accounts written off.

 

Note (3) – Recoveries on accounts previously written off.

 

Note (4) – Increase in the reserve due to the inclusion of Applegate accounts receivable.

 

17



Table of Contents

 

LIST OF EXHIBITS

HORMEL FOODS CORPORATION

 

NUMBER

 

DESCRIPTION OF DOCUMENT

2.1(2)

 

Purchase Agreement by and among 1492 Acquisition LLC, Columbus Manufacturing, Inc., and Hormel Foods Corporation, dated October 30, 2017. Exhibits and schedules identified in the agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be furnished to the Securities and Exchange Commission upon request.

 

 

 

3.1(1)

 

Restated Certificate of Incorporation as amended January 27, 2016. (Incorporated by reference to Exhibit 3.1 to Hormel’s Report on Form 10-K dated December 21, 2016, File No. 001-02402.)

 

 

 

3.2(1)

 

Bylaws as amended to date. (Incorporated by reference to Exhibit 3(ii) to Hormel’s Report on Form 8-K dated September 26, 2016, File No. 001-02402.)

 

 

 

4.1(1)

 

Indenture dated as of April 1, 2011, between the Company and U.S. Bank National Association. (Incorporated by reference to Exhibit 4.3 to Hormel’s Registration Statement on Form S-3 filed on April 4, 2011, File No. 333-173284.)

 

 

 

4.2(1)

 

Form of 4.125% Notes due 2021. (Incorporated by reference to Exhibit 4.1 to Hormel’s Current Report on Form 8-K dated April 11, 2011, File No. 001-02402.)

 

 

 

4.3

 

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of holders of certain long-term debt are not filed. Hormel agrees to furnish copies thereof to the Securities and Exchange Commission upon request.

 

 

 

10.1(1)(3)

 

Hormel Foods Corporation Operators’ Shares Incentive Compensation Plan. (Incorporated by reference to Appendix A to Hormel’s definitive Proxy Statement filed on December 19, 2012, File No. 001-02402.)

 

 

 

10.2(1)(3)

 

Hormel Foods Corporation Supplemental Executive Retirement Plan (2007 Restatement). (Incorporated by reference to Exhibit 10.2 to Hormel’s Current Report on Form 8-K dated November 21, 2011, File No. 001-02402.)

 

 

 

10.3(1)(3)

 

First Amendment of Hormel Foods Corporation Supplemental Executive Retirement Plan (2007 Restatement). (Incorporated by reference to Exhibit 10.3 to Hormel’s Current Report on Form 8-K dated November 21, 2011, File No. 001-02402.)

 

 

 

10.4(1)(3)

 

Second Amendment of Hormel Foods Corporation Supplemental Executive Retirement Plan (2007 Restatement). (Incorporated by reference to Exhibit 10.4 to Hormel’s Current Report on Form 8-K dated November 21, 2011, File No. 001-02402.)

 

 

 

10.5(1)(3)

 

Third Amendment of Hormel Foods Corporation Supplemental Executive Retirement Plan (2007 Restatement). (Incorporated by reference to Exhibit 10.5 to Hormel’s Current Report on Form 8-K dated November 21, 2011, File No. 001-02402.)

 

 

 

10.6(1)(3)

 

Hormel Foods Corporation 2000 Stock Incentive Plan (Amended 1-31-2006). (Incorporated by reference to Exhibit 10.1 to Hormel’s Current Report on Form 8-K dated January 31, 2006, File No. 001-02402.)

 

 

 

10.7(1)(3)

 

Hormel Foods Corporation Executive Deferred Income Plan II (November 21, 2011 Restatement). (Incorporated by reference to Exhibit 10.1 to Hormel’s Current Report on Form 8-K dated November 21, 2011, File No. 001-02402.)

 

 

 

10.8(1)(3)

 

Form of Indemnification Agreement for Directors and Officers. (Incorporated by reference to Exhibit 10.1 to Hormel’s Quarterly Report on Form 10-Q for the quarter ended April 29, 2012, File No. 001-02402.)

 

 

 

10.9(1)(3)

 

Hormel Foods Corporation Nonemployee Director Deferred Stock Plan (Plan Adopted October 4, 1999; Amended and Restated Effective January 1, 2008). (Incorporated by reference to Exhibit 10.6 to Hormel’s Annual Report on Form 10-K for the fiscal year ended October 26, 2008, File No. 001-02402.)

 

18



Table of Contents

 

LIST OF EXHIBITS (CONTINUED)
HORMEL FOODS CORPORATION

 

NUMBER

 

DESCRIPTION OF DOCUMENT

 

 

 

10.10(1)(3)

 

Hormel Foods Corporation 2009 Nonemployee Director Deferred Stock Plan (Plan Adopted November 24, 2008). (Incorporated by reference to Exhibit 10.2 to Hormel’s Quarterly Report on Form 10-Q for the quarter ended January 25, 2009, File No. 001-02402.)

 

 

 

10.11(1)(3)

 

Hormel Foods Corporation 2009 Long-Term Incentive Plan. (Incorporated by reference to Appendix A to Hormel’s definitive Proxy Statement filed on December 18, 2013, File No. 001-02402.)

 

 

 

10.12(1)(3)

 

Hormel Survivor Income Plan for Executives (1993 Restatement). (Incorporated by reference to Exhibit 10.11 to Hormel’s Annual Report on Form 10-K for the fiscal year ended October 29, 2006, File No. 001-02402.)

 

 

 

10.13(1)

 

Underwriting Agreement, dated as of April 4, 2011, by and between the Company and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner, & Smith Incorporated as representatives of the several underwriters named in Schedule 1 thereto. (Incorporated by reference to Exhibit 1.1 to Hormel’s Current Report on Form 8-K dated April 11, 2011, File No. 001-02402.)

 

 

 

11.1(2)

 

Statement re: computation of per share earnings. (Included in Exhibit 13.1 filed with this Annual Report on Form 10-K for the fiscal year ended October 29, 2017.)

 

 

 

13.1(2)

 

Pages 14 through 70 of the Annual Stockholders’ Report for the fiscal year ended October 29, 2017.

 

 

 

21.1(2)

 

Subsidiaries of the Registrant.

 

 

 

23.1(2)

 

Consent of Independent Registered Public Accounting Firm.

 

 

 

24.1(2)

 

Power of Attorney.

 

 

 

31.1(2)

 

Certification Required Under Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2(2)

 

Certification Required Under Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1(2)

 

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

99.3(1)

 

U.S. $700,000,000 Amended and Restated Credit Agreement, dated as of June 24, 2015, between the Company, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders identified on the signature pages thereof. (Incorporated by reference to Exhibit 99 to Hormel’s Current Report on Form 8-K dated June 24, 2015, File No. 001-02402.)

 

 

 

101.INS(2)

 

XBRL Instance Document

 

 

 

101.SCH(2)

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL(2)

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF(2)

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB(2)

 

XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE(2)

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

(1)

 

Document has previously been filed with the Securities and Exchange Commission and is incorporated herein by reference.

(2)

 

These exhibits transmitted via EDGAR.

(3)

 

Management contract or compensatory plan or arrangement.

 

19


(Back To Top)

Section 2: EX-2.1 (EX-2.1)

 

EXHIBIT 2.1

Execution Version

 

SECURITIES PURCHASE AGREEMENT

 

by and among

 

1492 ACQUISITION LLC,

 

COLUMBUS MANUFACTURING, INC.,

 

and

 

HORMEL FOODS CORPORATION

 

 

 

Dated as of October 30, 2017

 

 

 

 



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

ARTICLE I DEFINITIONS

1

 

 

 

ARTICLE II SALE AND PURCHASE

1

 

 

 

2.1

Purchase and Sale of Equity Securities; Purchase Price

1

 

 

 

2.2

Closing Payments

3

 

 

 

2.3

Post-Closing Purchase Price Adjustments

3

 

 

 

2.4

Withholding

6

 

 

 

ARTICLE III CLOSING AND DELIVERIES

6

 

 

 

3.1

Closing

6

 

 

 

3.2

Deliveries by the Company

7

 

 

 

3.3

Deliveries by Buyer

7

 

 

 

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY

8

 

 

 

4.1

Organization and Standing

8

 

 

 

4.2

Capitalization

8

 

 

 

4.3

Subsidiaries

9

 

 

 

4.4

Authority, Validity and Effect; No Conflict; Required Filings and Consents

9

 

 

 

4.5

Financial Statements

10

 

 

 

4.6

Taxes

10

 

 

 

4.7

Title to Personal Property

12

 

 

 

4.8

Real Property

12

 

 

 

4.9

Compliance with Laws

13

 

 

 

4.10

Permits

13

 

 

 

4.11

Employee Benefit Plans

13

 

 

 

4.12

Material Contracts

15

 

 

 

4.13

Legal Proceedings

17

 

 

 

4.14

Intellectual Property

17

 

 

 

4.15

Insurance

19

 

 

 

4.16

Personnel

20

 

 

 

4.17

Environmental Matters

20

 

 

 

4.18

Conduct of Business in Ordinary Course

21

 

i



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

4.19

No Brokers

21

 

 

 

4.20

Vendors

21

 

 

 

4.21

Related Persons Transactions

22

 

 

 

4.22

No Undisclosed Liabilities

22

 

 

 

4.23

Product Liabilities; Food Safety and Regulatory Compliance Matters

22

 

 

 

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLER

23

 

 

 

5.1

Organization and Standing

23

 

 

 

5.2

Authority; Enforceability; Title

23

 

 

 

5.3

Legal Proceedings

24

 

 

 

5.4

Consents

24

 

 

 

5.5

No Brokers

24

 

 

 

5.6

No Conflicts

24

 

 

 

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER

25

 

 

 

6.1

Securities Matters

25

 

 

 

6.2

Organization and Standing

25

 

 

 

6.3

Authorization, Validity and Effect

25

 

 

 

6.4

No Conflict; Required Filings and Consents

25

 

 

 

6.5

Legal Proceedings

26

 

 

 

6.6

Financial Capability

26

 

 

 

6.7

No Brokers

26

 

 

 

6.8

Acknowledgments

26

 

 

 

6.9

Solvency

26

 

 

 

6.10

R&W Insurance

27

 

 

 

ARTICLE VII COVENANTS AND AGREEMENTS

27

 

 

 

7.1

Interim Operations

27

 

 

 

7.2

Reasonable Access; Confidentiality

29

 

 

 

7.3

Publicity

30

 

 

 

7.4

Records

31

 

 

 

7.5

Continuing Indemnification for Company Actors

31

 

 

 

7.6

Certain Notices; Supplemental Disclosure

32

 

ii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

7.7

Commercially Reasonable Efforts; Cooperation

32

 

 

 

7.8

Employment and Benefit Arrangements

33

 

 

 

7.9

No Shop

34

 

 

 

7.10

Antitrust and Other Closing Matters

34

 

 

 

7.11

Non-Solicit

36

 

 

 

7.12

Tax Matters

36

 

 

 

7.13

Data Room

37

 

 

 

ARTICLE VIII CONDITIONS TO CLOSING

37

 

 

 

8.1

Conditions to Obligations of the Parties

37

 

 

 

8.2

Conditions to Obligations of the Seller and the Company

37

 

 

 

8.3

Conditions to Obligations of Buyer

38

 

 

 

8.4

Frustration of Closing Conditions

38

 

 

 

ARTICLE IX TERMINATION OF AGREEMENT

38

 

 

 

9.1

Termination

39

 

 

 

9.2

Effect of Termination

39

 

 

 

ARTICLE X REMEDIES

39

 

 

 

10.1

Survival

39

 

 

 

10.2

Indemnification

40

 

 

 

10.3

Exclusive Remedy

41

 

 

 

10.4

Limitations on Liability

41

 

 

 

10.5

Notice and Determination of Claims

44

 

 

 

10.6

Third Party Claims

44

 

 

 

10.7

Escrow

46

 

 

 

ARTICLE XI TAX MATTERS

46

 

 

 

11.1

Administration of Tax Matters

46

 

 

 

11.2

Allocation of Liability for Taxes

46

 

 

 

11.3

Cooperation; Tax Actions

47

 

 

 

11.4

Amended Tax Returns

47

 

 

 

11.5

Transfer Taxes

47

 

 

 

11.6

Refunds and Credits

48

 

iii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

ARTICLE XII MISCELLANEOUS AND GENERAL

48

 

 

 

12.1

Disclaimer; No Additional Representations; No Reliance

48

 

 

 

12.2

Expenses

49

 

 

 

12.3

Successors and Assigns

50

 

 

 

12.4

Third Party Beneficiaries

50

 

 

 

12.5

Further Assurances

50

 

 

 

12.6

Notices

50

 

 

 

12.7

Complete Agreement

51

 

 

 

12.8

Captions

51

 

 

 

12.9

Amendment

51

 

 

 

12.10

Waiver

51

 

 

 

12.11

Governing Law; Jurisdiction; WAIVER OF JURY TRIAL

51

 

 

 

12.12

Severability

52

 

 

 

12.13

Counterparts

52

 

 

 

12.14

Enforcement of Agreement

53

 

 

 

12.15

Other Definitional and Interpretive Matters

53

 

 

 

12.16

Disclosure Schedules

54

 

 

 

12.17

Independent Legal Counsel; Continuing Representation

55

 

iv



 

Exhibits and Schedules

 

EXHIBITS

 

 

 

Exhibit A

 

Definitions

Exhibit B

 

Accounting Principles

Exhibit C

 

R&W Insurance Policy

Exhibit D

 

Example Calculation of Net Working Capital

Exhibit E

 

Form of Escrow Agreement

 

v



 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of October 30, 2017, and is entered into by and among Columbus Manufacturing, Inc., a Delaware corporation (the “Company”), 1492 Acquisition LLC, a Delaware limited liability company (“Seller”), and Hormel Foods Corporation, a Delaware corporation (“Buyer”). The Company, Seller and Buyer are sometimes collectively referred to herein as the “Parties” and individually as a “Party.”

 

RECITALS

 

WHEREAS, Seller owns 100% of the issued and outstanding stock of the Company (the “Equity Securities”).

 

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all of the Equity Securities for the consideration described herein.

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby confirmed, and subject to the terms and conditions set forth herein, the Parties intending to be legally bound hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

The terms defined in Exhibit A, whenever used herein, shall have the meanings set forth on Exhibit A for all purposes of this Agreement. The definitions on Exhibit A are incorporated into this Agreement as if fully set forth at length herein and all references to a section in such Exhibit A are references to such section of this Agreement.

 

ARTICLE II
SALE AND PURCHASE

 

2.1                            Purchase and Sale of Equity Securities; Purchase Price

 

(a)                               Closing Date Consideration. Subject to the terms and conditions of this Agreement, at Closing, Seller shall sell, transfer, assign, and convey the Equity Securities, free and clear of all Liens, to Buyer, and Buyer shall purchase and accept the Equity Securities from Seller. Buyer shall pay to Seller, in respect of the Equity Securities, the Closing Date Consideration. The “Closing Date Consideration” shall be equal to Eight Hundred and Fifty Million Dollars ($850,000,000.00) (the “Base Purchase Price”), as increased or decreased as follows (and as further adjusted pursuant Section 2.3):

 

(i)                                                                                  Increases in the Closing Date Consideration. The Closing Date Consideration shall be increased by the following amounts:

 

(A)                          the Closing Cash Balance, if any; and

 

1



 

(B)                           the Working Capital Overage, if any.

 

(ii)                                                                              Decreases in the Closing Date Consideration. The Closing Date Consideration shall be decreased by the following amounts:

 

(A)                          the Working Capital Underage, if any;

 

(B)                           the aggregate amount of the Company Debt;

 

(C)                           the aggregate amount of the Selling Expenses; and

 

(D)                          the aggregate amount of the Closing Taxes Payable.

 

(b)                              Estimated Closing Date Statement. Not later than the third (3rd) Business Day prior to the Closing Date, the Company shall prepare and deliver, or cause to be prepared and delivered, to Buyer an estimated closing statement (the “Estimated Closing Date Statement”) setting forth an unaudited balance sheet of the Company as of the Effective Time (the “Estimated Closing Balance Sheet”) together with the Company’s good faith calculation of the Estimated Closing Date Consideration, and detailing each of the following: (i) the estimated Net Working Capital as of the Effective Time (the “Estimated Closing Date Net Working Capital”), (ii) the estimated Closing Cash Balance as of the Effective Time (the “Estimated Closing Cash Balance”), (iii) the estimated Company Debt (the “Estimated Company Debt”), together with an itemization of each item of Company Debt, identification of each Person to whom Company Debt is owing and the amount of Company Debt owing to such Person, (iv) the estimated Selling Expenses (the “Estimated Selling Expenses”), together with an itemization of each Selling Expense, identification of each Person to whom such Selling Expense is owing, the amount of Selling Expense owing to such Person, and the wire transfer instructions of such Person to be used to pay such Selling Expense (if any Selling Expense is to be paid to an employee of the Company, the Estimated Closing Date Statement will identify the wire transfer instructions of the Company as the recipient of the amount of such Selling Expense, and such Selling Expense will be paid to the employee through normal payroll processes of the Company), and (v) the estimated Closing Taxes Payable (the “Estimated Closing Taxes Payable”). The Estimated Closing Balance Sheet, the Estimated Closing Date Net Working Capital, the Estimated Closing Cash Balance, the Estimated Company Debt, the Estimated Selling Expenses and the Estimated Closing Taxes Payable set forth in the Estimated Closing Date Statement will be prepared in accordance with the principles set forth on Exhibit B (the “Accounting Principles”). Additionally, not later than the third (3rd) Business Day prior to the Closing Date, the Company shall deliver, or cause to be delivered, to Buyer the Payoff Letters reflecting the Company Debt set forth on Schedule 2.1(b).

 

(c)                               Closing Date Net Working Capital Adjustment. If the Estimated Closing Date Net Working Capital is less than the bottom of the Company Net Working Capital Range, then the Closing Date Consideration will be reduced by an amount equal to the absolute value of the difference between the midpoint of the Company Net Working Capital Range and the Estimated Closing Date Net Working Capital (such amount, if any, a “Working Capital Underage”). If the Estimated Closing Date Net Working Capital is greater than the top of the Company Net Working Capital Range, then the Closing Date Consideration will be increased by

 

2



 

an amount equal to the difference between the Estimated Closing Date Net Working Capital and the midpoint of the Company Net Working Capital Range (such amount, if any, a “Working Capital Overage”). If the Estimated Closing Date Net Working Capital is within the Company Net Working Capital Range, then the Closing Date Consideration will not be adjusted for any Working Capital Underage or Working Capital Overage pursuant to this Section 2.1(c), but may be subject to adjustment for a Working Capital Underage or Working Capital Overage following the Closing as provided in Section 2.3.

 

2.2                            Closing Payments. At the Closing, Buyer shall: (a) (i) on behalf of the Company, cause the Estimated Company Debt set forth in the Payoff Letters to be paid pursuant to the corresponding Payoff Letters, and (ii) on behalf of the Company, pay to each Person identified in the Estimated Closing Date Statement as being entitled to a Selling Expense, the Selling Expense amount set forth in the Estimated Closing Date Statement with respect to such Person, pursuant to the wire transfer instructions with respect to such Person set forth in the Estimated Closing Date Statement, (b) deposit with the Escrow Agent, pursuant to wire transfer instructions received by Buyer from the Escrow Agent no later than three (3) Business Days prior to Closing, (i) the Indemnity Escrow Amount to be deposited in an escrow account (the “Indemnity Escrow Account”), and (ii) the Adjustment Escrow Amount to be deposited in an escrow account (the “Adjustment Escrow Account”), and (c) pay to Seller (pursuant to Seller’s wire transfer instructions set forth in the Estimated Closing Date Statement) the Estimated Closing Date Consideration minus the Aggregate Escrow Amount (such amounts contemplated by (a), (b) and (c) above, collectively, the “Settlement Amounts”).

 

2.3                            Post-Closing Purchase Price Adjustments.

 

(a)                               Final Closing Date Statement. Within seventy-five (75) days after the Closing Date, Buyer shall cause to be prepared and delivered to Seller an unaudited balance sheet of the Company as of the Effective Time (the “Final Closing Balance Sheet”), together with a statement (the “Final Closing Date Statement”), setting forth Buyer’s good faith calculation of the Closing Date Consideration, and detailing each of the following: (i) the Net Working Capital as of the Effective Time (the “Final Closing Date Net Working Capital”), (ii) the Closing Cash Balance as of the Effective Time (the “Final Closing Cash Balance”), (iii) the Company Debt (the “Final Company Debt”), (iv) the Selling Expenses (the “Final Selling Expenses”), and (v) the Closing Taxes Payable (the “Final Closing Taxes Payable”). The Final Closing Date Statement is to be prepared in accordance with the Accounting Principles. The Parties agree that the purpose of preparing the Final Closing Date Statement and determining the Final Closing Date Net Working Capital, Final Closing Cash Balance, Final Company Debt, Final Selling Expenses and Final Closing Taxes Payable and the related purchase price adjustment contemplated by this Section 2.3 is to measure the amount of change between (i) the Estimated Closing Date Net Working Capital and the Final Closing Date Net Working Capital, (ii) the Estimated Closing Cash Balance and the Final Closing Cash Balance, (iii) the Estimated Company Debt and the Final Company Debt, (iv) the Estimated Selling Expenses and the Final Selling Expenses, and (v) the Estimated Closing Taxes Payable and the Final Closing Taxes Payable and such processes are not intended to permit the introduction of different judgments, accounting methods, policies, principles, practices, procedures, classifications or estimation methodologies for the purpose of preparing the Final Closing Date Statement or determining the Final Closing Date Net Working Capital, Final Closing Cash Balance, Final Company Debt, the

 

3



 

Final Selling Expenses, and the Final Closing Taxes Payable except, in each case, to the extent such an introduction is necessary to comply with the Accounting Principles.

 

(b)                              Dispute. Within thirty (30) days following receipt by Seller of the Final Closing Balance Sheet and the Final Closing Date Statement (the “Dispute Period”), Seller shall deliver written notice (a “Dispute Notice”) to Buyer of any disagreement Seller has with respect to the preparation or content of the Final Closing Balance Sheet or the Final Closing Date Statement. Such Dispute Notice must describe in reasonable detail the items contained in the Final Closing Balance Sheet or Final Closing Date Statement with which Seller disagrees and, to the extent available, the basis for any such disagreement. If Seller does not provide Buyer with a Dispute Notice within the Dispute Period, the Final Closing Balance Sheet and Final Closing Date Statement delivered by the Buyer pursuant to Section 2.3(a) will be final, conclusive and binding on the Parties. Any item in, or omitted from, the Final Closing Date Statement that Seller does not disagree with in the Dispute Notice shall be final, binding, and conclusive for all purposes hereunder in the manner stated in, or omitted from, the Final Closing Date Statement.  In the event Seller provides Buyer with a Dispute Notice, Buyer and Seller shall negotiate in good faith to resolve all disagreements related thereto. If Buyer and Seller, notwithstanding such good faith effort, fail to resolve any of the disagreements contained in the Dispute Notice within thirty (30) days after Seller provides Buyer with such Dispute Notice (which thirty (30)-day period may be extended by written agreement of Buyer and Seller), then Buyer and Seller jointly shall engage the accounting firm of Grant Thornton LLP or such other nationally recognized accounting firm as may be mutually acceptable to Buyer and Seller (the “Accounting Firm”) to resolve any such disagreement(s).

 

(c)                               Method of Dispute Resolution. Seller and Buyer will enter into a customary engagement agreement with the Accounting Firm and agree to cooperate in good faith with the Accounting Firm during the term of its engagement. Seller and Buyer shall jointly instruct the Accounting Firm that it: (i) shall review only the unresolved disputed items contained in the Dispute Notice; (ii) shall make its determination based solely upon the written submissions of Seller and Buyer (i.e., not by independent review), and the terms and conditions of this Agreement, including the definitions set forth herein; (iii) shall render its decision within thirty (30) days after the tender of the written submissions of Seller and Buyer (described in further detail below) to the Accounting Firm for a decision pursuant hereto; and (iv) shall not assign a value to any item greater than the greatest value for such item claimed by either Party or less than the smallest value for such item claimed by either Party. As promptly as practicable following the Accounting Firm’s engagement (the timeline for which shall be agreed to by Buyer and Seller or, if Buyer and Seller cannot reach agreement on such timeline, set by the Accounting Firm), Buyer and Seller shall each prepare and submit simultaneously a written presentation to the Accounting Firm. Following the delivery of the written presentations, Buyer and Seller may each submit a response to the other Party’s presentation (again, on a timeline to be agreed to by Buyer and Seller or, if Buyer and Seller cannot reach agreement on such timeline, set by the Accounting Firm). Neither Buyer nor Seller may take a position in any written presentation or response that is more adverse to the other Party than the position taken in the Final Closing Date Statement (with respect to Buyer) or the Dispute Notice (with respect to Seller). As soon as practicable thereafter, the Accounting Firm shall choose one of the Parties’ positions for each disputed item based solely on their respective presentations. Neither Seller nor Buyer (and none of their respective representatives) shall have any ex parte conversation(s) or

 

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meeting(s) with the Accounting Firm without the prior consent of (x) with respect to Seller, Buyer and (y) with respect to Buyer, Seller. The fees, costs and expenses of the Accounting Firm shall be allocated to and borne by Buyer, on the one hand, and Seller, on the other hand, based on the inverse of the percentage that the Accounting Firm’s determination (before such allocation) bears to the total amount of the total items in dispute as originally submitted to the Accounting Firm. For example, should the items in dispute total in amount to $1,000 and the Accounting Firm award $600 in favor of Buyer’s position, 60% of the costs of its review would be borne by Seller and 40% of the costs would be borne by Buyer. All determinations made by the Accounting Firm shall be final, conclusive and binding on the Parties. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the Party against which such determination is to be enforced.

 

(d)                             Access. For purposes of complying with the terms set forth in this Section 2.3, each Party shall promptly and reasonably cooperate with and make reasonably available to the other Parties and their respective representatives all information, records, data and working papers, including reasonable access to its applicable accounting and finance personnel during normal business hours, as may be reasonably requested in connection with the preparation and analysis of the Estimated Closing Date Statement and the Final Closing Date Statement and the resolution of any disagreement related thereto (except that no Party will be required to make available or give access to or otherwise disclose any information if such access or disclosure would jeopardize any attorney-client or other privilege or contravene any applicable Law).  The written submissions described in Section 2.3(c) may not be required to be submitted to the Accounting Firm until such reasonable cooperation and reasonable access to information and applicable personnel have been granted.

 

(e)                               Post-Closing Adjustment. Not later than the third (3rd) Business Day after the date on which all of the items on the Final Closing Balance Sheet and the Final Closing Date Statement are finally determined pursuant to this Section 2.3, Seller and Buyer shall jointly determine the amount by which the Estimated Closing Date Consideration would have been adjusted pursuant to Section 2.1 had the Final Closing Date Net Working Capital, the Final Closing Cash Balance, the Final Company Debt, the Final Selling Expenses, and the Final Closing Taxes Payable, in each case, as finally determined pursuant to this Section 2.3, been substituted for the Estimated Closing Date Net Working Capital, the Estimated Closing Cash Balance, the Estimated Company Debt, the Estimated Selling Expenses, and the Estimated Closing Taxes Payable respectively, as of the Closing.

 

(i)                                                                                  If such substitution would have resulted in a Closing Date Consideration that is greater than the Estimated Closing Date Consideration (any such excess, the “Price Increase”), then Buyer shall pay or cause to be paid to Seller, within three (3) Business Days from the date on which the Final Closing Date Statement is finally determined pursuant to this Section 2.3, by wire transfer of immediately available funds pursuant to Seller’s wire transfer instructions set forth in the Estimated Closing Date Statement, an aggregate amount in cash equal to the Price Increase and Buyer and Seller shall execute joint written instructions directing the Escrow Agent to release to Seller all funds in the Adjustment Escrow Account.

 

(ii)                                                                              If such substitution would have resulted in a Closing Date Consideration that is less than the Estimated Closing Date Consideration (the absolute value of such deficit, the

 

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Price Decrease”), then Buyer and Seller shall execute joint written instructions directing the Escrow Agent to, (x) if the Price Decrease is less than funds held in the Adjustment Escrow Account, release to Buyer the amount of the Price Decrease from the Adjustment Escrow Account and release the amounts remaining in the Adjustment Escrow Account to Seller, or (y) if the Price Decrease is greater than the funds in the Adjustment Escrow Account, release to Buyer all amounts in the Adjustment Escrow Account and funds from the Indemnity Escrow Account equal to the remaining balance of the Price Decrease.  Such joint written instructions shall be executed and delivered within three (3) Business Days from the date on which the Final Closing Date Statement is finally determined pursuant to this Section 2.3.

 

(iii)                                                                          If such substitution would have resulted in a Closing Date Consideration equal to the Estimated Closing Date Consideration, then no adjustment shall be made to the consideration payable hereunder pursuant to this Section 2.3 and Buyer and Seller shall execute joint written instructions directing the Escrow Agent to release to Seller all funds in the Adjustment Escrow Account.

 

2.4                            Withholding. Seller, Buyer, and the Company (as appropriate) shall be entitled to deduct and withhold from amounts otherwise payable pursuant to this Agreement to any Person such amounts as are required by applicable Tax Law to be deducted and withheld with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law.  If any amounts are to be withheld pursuant to the preceding sentence (other than in connection with compensatory payments), Buyer or the Company (as appropriate) shall provide any such person with adequate notice of and justification for such deduction and withholding; provided, however, that in no event will such obligation prevent Buyer or the Company from making a timely payment of such deducted or withheld amounts to the relevant Governmental Authority.  To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to such Person in respect of which such deduction and withholding was made.

 

ARTICLE III

CLOSING AND DELIVERIES

 

3.1                            Closing. The closing and consummation of the transactions contemplated hereby (the “Closing”) shall take place remotely via electronic transmission of documentation (such as by use of .pdf), on the first Monday that is a Business Day after the second (2nd) Business Day following the satisfaction or waiver by the Party entitled to the benefit of such condition of each of the conditions set forth in Article VIII (other than those conditions that by their terms or nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or on such other date or at such other time and place or by any such other method as the Parties mutually agree in writing; provided, for accounting purposes, the Closing shall be deemed to have occurred as of 12:01 a.m. local time on the Closing Date (except as contemplated by the definitions of Selling Expenses and Company Debt) (such time, the “Effective Time”). The date on which the Closing occurs is herein referred to as the “Closing Date.” All proceedings to be taken and all documents to be executed and delivered by all the Parties at the Closing shall be deemed to have been taken and executed simultaneously and no proceedings shall be deemed to have been taken nor documents executed or delivered until all have been taken, executed and delivered.

 

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3.2                            Deliveries by the Company.

 

At the Closing, the Company shall deliver or cause to be delivered to Buyer the following items:

 

(a)                               the certificate for the Equity Securities duly endorsed or accompanied by a duly executed instrument of assignment thereof in a form reasonably acceptable to Buyer;

 

(b)                              a certificate (the “Company Secretary Certificate”) dated as of the Closing Date, duly executed by the Secretary of the Company, given by him or her on behalf of the Company and not in his or her individual capacity, certifying as to: (i) an attached copy of the resolutions of the Governing Body of the Company authorizing and approving the execution, delivery and performance of, and the consummation of the transactions contemplated by, this Agreement, and stating that such resolutions have not been amended, modified, revoked or rescinded; and (ii) true and complete copies of the Organizational Documents of the Company;

 

(c)                               a certificate of the Delaware Secretary of State as to the good standing of the Company in such jurisdiction as of a reasonably recent date;

 

(d)                             a certificate of an executive officer of the Company, dated as of the Closing Date, and duly executed by him or her on behalf of the Company and not in his or her individual capacity, certifying that the conditions set forth in Sections 8.3(a), 8.3(b), and 8.3(c) have been satisfied (the “Company Closing Certificate”);

 

(e)                               copies of the minute books and stock or equity record books, as applicable, of the Company to the extent not in the possession of the Company;

 

(f)                                the Consents set forth on Schedule 3.2(f);

 

(g)                              a statement duly executed by Seller conforming to the requirements of Treasury Regulation Section 1.1445-2(b) stating that no withholding on amounts payable under this Agreement is required pursuant to Section 1445 of the Code and the Treasury Regulations thereunder (the “FIRPTA Affidavit”);

 

(h)                    evidence, in form and substance reasonably satisfactory to Buyer, of the termination of the Contracts set forth on Schedule 3.2(h), without further obligations or liabilities of the Company, effective as of the Closing;

 

(i)                                  the Escrow Agreement, duly executed by Seller; and

 

(j)                                  the written resignations, in form and substance reasonably satisfactory to Buyer, of each of the officers and directors of the Company, except as requested otherwise by Buyer in writing not less than five (5) Business Days prior to the Closing Date.

 

3.3                            Deliveries by Buyer. At the Closing, Buyer shall deliver or cause to be delivered the following items:

 

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(a)                               to the Persons entitled thereto, by wire transfer of immediately available funds to the account designated in the Estimated Closing Date Statement, such recipient’s portion of the Settlement Amounts pursuant to Section 2.2;

 

(b)                              to Seller, a certificate of an executive officer of Buyer, dated as of the Closing Date and given by him or her on behalf of Buyer and not in his or her individual capacity, certifying that the conditions set forth in Sections 8.2(a) and 8.2(b) have been satisfied (the “Buyer Closing Certificate”);

 

(c)                               to Seller, evidence reasonably satisfactory to Seller of the continuation of the insurance coverage required to be maintained by the Company after the Closing Date, or (as applicable) of the extended reporting period endorsement, pursuant to Section 7.5(b);

 

(d)                             the Escrow Agreement, duly executed by the Escrow Agent and Buyer; and

 

(e)                               to Seller, evidence reasonably satisfactory to Seller that Buyer has entered into a binding agreement to obtain the R&W Insurance Policy.

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the Schedules referenced in this Article IV (collectively, the “Company Disclosure Schedules”), which shall qualify the corresponding representations and warranties of the Company set forth in this Article IV, the Company represents and warrants to and for the benefit of Buyer that the following statements are true:

 

4.1                            Organization and Standing. The Company is a corporation and is duly organized, validly existing and in good standing under the laws of Delaware. The Company is duly qualified to do business, and in good standing, in each jurisdiction in which the character of the properties owned or leased by it or in which the conduct of its business requires it to be so qualified, except where the failure to be so qualified or to be in good standing would not have a Material Adverse Effect. The Company has full corporate power and authority to own and lease its properties and assets and conduct its business.  The Company has made available to Buyer a true, correct and complete copy of the Organizational Documents of the Company.  The Company has made available to Buyer a complete list the officers and directors of the Company.

 

4.2                            Capitalization. Seller holds, beneficially and of record, one hundred percent (100%) of the outstanding Equity Securities free and clear of all Liens, and such Equity Securities (i) are duly authorized, validly issued, fully paid and nonassessable, (ii) represent the only issued and outstanding Equity Interests of the Company, (iii) have not been issued, sold, transferred or otherwise acquired in violation of any option, right of first refusal or first offer, subscription right, preemptive right or any similar right or transfer restriction, and (vi) consist of 100 shares of common stock having par value of $0.001 per share, which shares are represented by certificate number two. There are no: (i) outstanding securities convertible or exchangeable into Equity Interests of the Company; (ii) options, warrants, calls, subscriptions, phantom equity rights, stock appreciation rights, profit participation rights (or other similar rights), conversion rights, exchange rights, preemptive rights, rights of first refusal or first offer, or other rights,

 

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agreements or commitments obligating the Company to issue, transfer or sell any Equity Interests; or (iii) voting trusts, proxies, stockholder agreements or other agreements or understandings to which the Company or Seller is a party or by which the Company is bound with respect to the voting, transfer or other disposition of the Company’s Equity Interests. The Company does not have any liability or obligation to pay any dividend or other distribution in respect of any of the Company’s Equity Interests. The Company’s only authorized Equity Interests are 1,000 shares of common stock having par value of $0.001 per share.

 

4.3                            Subsidiaries. The Company does not own or control, directly or indirectly, any Equity Interests of any Person.

 

4.4                            Authority, Validity and Effect; No Conflict; Required Filings and Consents.

 

(a)                               The Company has all corporate power and authority to enter into and perform its obligations under this Agreement and the other agreements, documents, instruments and certificates contemplated hereby to which it is a party (the “Company Documents”) and to consummate the transactions contemplated hereby and thereby, and this Agreement and the Company Documents have been, or (as applicable) will be as of the Closing, duly and validly executed and delivered by the Company pursuant to all necessary corporate authorizations and are the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as limited by (a) applicable bankruptcy, reorganization, insolvency, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally from time to time in effect, and (b) the availability of equitable remedies (regardless of whether enforceability is considered in a proceeding at Law or in equity) (collectively (a) and (b) together, the “General Enforceability Exceptions”).

 

(b)                              Neither the execution, delivery or performance of this Agreement or the Company Documents by the Company, nor the consummation by the Company of the transactions contemplated hereby or thereby, nor compliance by the Company with any of the provisions hereof or thereof, will (i) conflict with or result in a breach of any provisions of any Organizational Document of the Company, (ii) except as set forth on Schedule 4.4(b), constitute or result in the breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation, modification, amendment or acceleration with respect to, or material loss of benefit under (in each case, with or without notice or lapse of time or both), any Material Contract, Lease or material Permit, or result in the creation or imposition of a Lien upon the Equity Securities or any property or assets of the Company, or (iii) subject to receipt of the requisite approvals referred to on Schedule 4.4(c) and the expiration or termination of the waiting period under the HSR Act, violate any Order or Law applicable to the Company or any of its properties or assets.

 

(c)                               Other than as set forth on Schedule 4.4(c) and any filings as may be required under the HSR Act, no Consent is required to be obtained by the Company in connection with the execution, delivery or performance of or the consummation by the Company of the transactions contemplated by this Agreement and the Company Documents, other than any Consent which, if not obtained, would not be material to the Company or would not reasonably be expected to prevent, materially delay or materially impede the ability of the Company to

 

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perform its obligations under this Agreement and the Company Documents or to consummate the transactions contemplated hereby or thereby.

 

4.5                            Financial Statements.

 

(a)                               Copies of the following financial statements have been delivered to Buyer or have been made available to Buyer for its review: (i) the audited balance sheet of the Company as of December 31, 2015 and December 31, 2016 and the related audited statements of income, stockholder’s equity, and cash flows for the fiscal years then ended, together with the notes and reports related thereto (the “Financial Statements”), and (ii) the unaudited balance sheet of the Company as of August 31, 2017 (the “Balance Sheet Date”), and the related unaudited statements of income, stockholder’s equity, and cash flows for the 8-month period then ended (the “Interim Financial Statements” and together with the Financial Statements, the “Company Financial Statements”).

 

(b)                              The Company Financial Statements were prepared in accordance with (i) GAAP (except, with respect to the Interim Financial Statements, for the absence of footnote disclosure and immaterial customary year-end adjustments) applied on a consistent basis throughout the periods covered thereby, and (ii) the books of account and financial records of the Company, and are consistent therewith (which books and records are complete and correct in all material respects). The Company Financial Statements fairly present in all material respects the financial position, results of operations, stockholder’s equity and cash flows of the Company as of the respective dates and for the periods indicated therein.

 

4.6                            Taxes. Except as set forth on Schedule 4.6:

 

(a)                               The Company has timely filed (taking into account available extensions) all Tax Returns that are required to be filed by it and paid all Taxes (whether or not shown on any Tax Returns) which are due and payable. All such Tax Returns are true, correct and complete in all material respects.

 

(b)                              The Company has complied in all material respects with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes and has, within the time and in the manner prescribed by Law, withheld and paid over to the proper Taxing Authorities all amounts required to be so withheld and paid over in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, under applicable Laws.

 

(c)                     The Company has not agreed to any extension or waiver of the statute of limitations applicable to any Tax Return or Taxes, or agreed to any extension of time with respect to a Tax assessment or deficiency, which period (after giving effect to such extension or waiver) has not yet expired.

 

(d)                             The Company has never been a member of any Affiliated Group or has been included or required to be included in any Tax Return related to any such Affiliated Group (other than an Affiliated Group the common parent of which was the Company). Other than liabilities for Taxes as a result of being a member of an Affiliated Group the common parent of which was the Company, the Company is not liable for the Taxes of another Person (i) under

 

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Treasury Regulations Section 1.1502-6 (or comparable provisions of state, local or foreign Law) or (ii) as a transferee or successor or by contract (other than commercial contracts with a primary purpose unrelated to Tax). The Company is not a party to or bound by any Tax sharing or Tax allocation agreement.

 

(e)                               There are no Liens for unpaid Taxes on the assets of the Company other than for Taxes that are not yet due and payable.

 

(f)                                There are no Actions currently pending or, to the Company’s Knowledge, being conducted with respect to the Company in respect of any Tax. The Company has not received from any Taxing Authority any written (i) request for information related to Tax matters or (ii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted or assessed by any Taxing Authority against the Company.

 

(g)                              No claim has ever been made or threatened in writing by a Taxing Authority in a jurisdiction where the Company has not filed Tax Returns asserting that the Company is or may be subject to Taxes imposed by that jurisdiction, nor to the Companys Knowledge, is there any factual basis for any such claim.

 

(h)                              The Company is not, nor has it been, a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

(i)                                  The Company has not executed or entered into with, or received from any Taxing Authority (i) any closing agreement pursuant to Section 7121 of the Code, or any predecessor provision thereof or any similar state, local, or foreign law that relates to the assets or operations of the Company or (ii) any private letter ruling or private letter ruling request.

 

(j)                                  The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period ending after the Closing Date as a result of any (i) change in accounting method for any taxable period ending on or before the Closing Date under Section 481 of the Code (or any similar state, local, or foreign Tax Legal Requirement), (ii) written agreement with a Taxing Authority with regard to any Tax liability for any period ending on or before the Closing Date, (iii) installment sale or open transaction disposition made prior to the Closing on the Closing Date, (iv) prepaid amount received on or prior to the Closing Date, or (v) election pursuant to Code Section 108(i).

 

(k)                              The Company is not a distributing corporation or a controlled corporation (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of shares described in Section 355 (i) of the Code in the two (2) years prior to the date of this Agreement or (ii) in a distribution that could otherwise be reasonably expected to constitute part of a plan or series of related transactions (within the meaning of Section 355(e) of the Code.

 

(l)                                  The Company is not resident nor does it have a permanent establishment (within the meaning of an applicable Tax treaty) or an office or fixed place of business in a country other than the one in which it is organized.

 

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4.7                            Title to Personal Property. The Company has (in the case of personal property owned or purported to be owned by the Company) good title to, or (in the case of personal property leased or purported to be leased by the Company) a valid leasehold interest in all of the tangible assets reflected in the Interim Financial Statements or thereafter acquired by the Company, free and clear of all Liens except for Permitted Liens, excluding inventory sold or disposed of by the Company in the Ordinary Course of Business since the Balance Sheet Date. The Company’s material tangible assets or properties are in good operating condition (normal wear and tear excepted) and are fit, in all material respects, for use in the Ordinary Course of Business. The Company owns, or has a valid leasehold or license interest in, all material properties and assets necessary for the conduct of its business as presently conducted, and such properties and assets constitute all of the properties and assets necessary for continued conduct of its business after Closing in the same manner as presently conducted.

 

4.8                            Real Property.

 

(a)                               Schedule 4.8(a)(i) sets forth a complete list of the Leased Real Property and the Company’s interest therein, including a true and complete list of all Leases for each parcel of Leased Real Property. The Company does not own any real property. Schedule 4.8(a)(ii) sets forth a complete list of each purchase option, right of first refusal, right of first offer or other similar right held by the Company with respect to any real property. The Leased Real Property listed on Schedule 4.8(a)(i) comprises all real property interests used in the conduct of the business and operations of the Company as now conducted (other than any Contracts with any vendor that is a co-packer). With respect to each of the Leases the Company has not subleased, licensed or otherwise granted any Person the right to use or occupy such Leased Real Property or any portion thereof except as set forth on Schedule 4.8(a)(i). The Company has delivered to Buyer a true and complete copy of each Lease and, to the extent in the Companys possession, copies of all extension notices, written notices of default, estoppel certificates and subordination, non-disturbance and attornment agreements delivered pursuant to each Lease.

 

(b)                              There are no development agreements or other Contracts that limit the ability of the Company to protest real property taxes or assessments, establish minimum real estate taxes, or require the Company to continue business operations at any parcel of Leased Real Property.

 

(c)                               None of the Leased Real Property rely on any facilities (other than the facilities of the public utility and community water and sewer companies) not located on the applicable Leased Real Property to fulfill any zoning, building code or other legal requirement.  To the Companys Knowledge, there is no material defect in any of the structural components of any improvement on any or Leased Real Property or its electrical, plumbing, HVAC, life safety or other building systems.

 

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(d)                             The Company has a valid leasehold interest under each of the Leases, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).  The Company is not in default under any Lease and to the Companys Knowledge, no other party is in default thereof, and no party to any Lease has exercised any termination rights with respect thereto.  The Company has good title to the leasehold estate and other rights of the tenant in respect of the property affected by any Lease, free and clear of all Liens of any nature whatsoever except (A) Permitted Liens, and (B) Liens and other encumbrances on the fee title, the payment or performance of which are not the responsibility of the Company as tenant under the applicable Lease.

 

(e)                               There are no pending or, to the Companys Knowledge, threatened or contemplated condemnation or other eminent domain actions or proceedings affecting the Leased Real Property or any part thereof, or any sale or other disposition of the Leased Real Property or any part thereof in lieu of condemnation.  No portion of the Leased Real Property has suffered any material damage by fire or other casualty which has not heretofore been completely repaired and restored.

 

4.9                            Compliance with Laws. Except as set forth on Schedule 4.9:

 

(a)                               The Company is, and since the Lookback Date, has been, in compliance in all material respects with all Laws and Orders applicable to it or its business.