UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 2010
o 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: 1-14556
INVENTURE FOODS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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86-0786101 |
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(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
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incorporation or organization) |
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5415 East High Street, Suite 350 |
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Phoenix, Arizona 85054 |
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(Address of principal executive offices) (Zip Code) |
Registrant’s telephone number, including area code: (623) 932-6200
Securities registered pursuant to Section 12(b) of the Act:
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Title of Class |
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Name of exchange on which registered |
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Common Stock, $.01 par value |
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Nasdaq |
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 o No x
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 o 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers in response 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting stock (Common Stock, $.01 par value) held by non-affiliates of the Registrant was approximately $41.2 million based upon the closing market price on June 26, 2010, the last business day of the Registrant’s most recently completed second fiscal quarter.
The number of issued and outstanding shares of Common Stock, $.01 par value, as of March 23, 2011 was 18,028,867.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 18, 2011 are incorporated by reference into Part III of this Form 10-K.
EXCHANGE ACT REPORTS AVAILABLE ON COMPANY WEBSITE
Under “SEC Filings” on the “Investors Relations” page of the Company’s website located at www.inventurefoods.com, the following filings are made available as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”): the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statement on Schedule 14A related to the Company’s Annual Shareholders Meeting, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website located at http://www.sec.gov that contains the information we file or furnish electronically with the SEC.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including all documents incorporated by reference, includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and Inventure Foods, Inc. (the “Company”) desires to take advantage of the “safe harbor” provisions thereof. Therefore, the Company is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all of such forward-looking statements. In this Annual Report on Form 10-K, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “will likely result,” “will continue,” “future” and similar terms and expressions identify forward-looking statements. The forward-looking statements in this Annual Report on Form 10-K reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including without limitation general economic conditions, increases in cost or availability of ingredients, packaging, energy and employees, price competition and industry consolidation, ability to execute strategic initiatives, product recalls or safety concerns, disruptions of supply chain or information technology systems, customer acceptance of new products and changes in consumer preferences, food industry and regulatory factors, interest rate risks, dependence upon major customers, dependence upon existing and future license agreements, the possibility that we will need additional financing due to future operating losses or in order to implement the Company’s business strategy, acquisition-related risks, volatility of the market price of the Company’s common stock, par value $.01 per share (the “Common Stock”), and those other risks and uncertainties discussed herein, that could cause actual results to differ materially from historical results or those anticipated. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report on Form 10-K will in fact transpire or prove to be accurate. Readers are cautioned to consider the specific risk factors described herein and in “Risk Factors,” and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph.
General
Inventure Foods, Inc., a Delaware corporation (the “Company”), is a $130+ million leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. The Company is headquartered in Phoenix, Arizona with plants in Arizona, Indiana and Washington. The Company’s executive offices are located at 5415 East High Street, Suite 350, Phoenix, Arizona 85054, and its telephone number is (623) 932-6200.
The Company was formed in 1995 as a holding company to acquire a potato chip manufacturing and distribution business, which had been founded by Donald and James Poore in 1986. In December 1996, the Company completed an initial public offering of its Common Stock. In November 1998, the Company acquired the business and certain assets (including the Bob’s Texas Style® potato chip brand) of Tejas Snacks, L.P. (“Tejas”), a Texas-based potato chip manufacturer. In October 1999, the Company acquired Wabash Foods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®, and Pizzarias® trademarks and the Bluffton, Indiana manufacturing operation and assumed all of Wabash Foods’ liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc. (“Boulder”) and the Boulder CanyonTM brand of totally natural potato chips. The Company changed its name from Poore Brothers, Inc. to The Inventure Group, Inc. on May 23, 2006. In May 2007, the Company acquired Rader Farms, Inc., including a farming operation and a berry processing facility in Lynden, Washington. In May 2010, the Company changed its name from The Inventure Group, Inc. to Inventure Foods, Inc.
Products
In the Company’s healthy/natural category, products include Rader Farms® frozen berries, Jamba® All Natural Smoothies and Boulder CanyonTM Natural Foods brand snack chips including kettle cooked potato chips, Rice & Bean snack chips and Hummus tortilla chips. In the Company’s indulgent specialty category, products include T.G.I. Friday’s® brand snacks, BURGER KING TM brand snack products, Poore Brothers® kettle cooked potato chips, Bob’s Texas Style® kettle cooked chips, Tato Skins® brand potato snacks and O’Boises® potato snacks.
The Company also manufactures and distributes private label and co-branded fruit and snack chip products for several grocery chains and natural stores. While extremely price competitive and often short in duration, the Company believes that such arrangements provide a profitable opportunity for the Company to improve the capacity utilization of its facilities.
In addition to its own products, the Company purchases and resells throughout Arizona snack food products manufactured by others. Such distributed products include pretzels, popcorn, dips and meat snacks.
During 2010, the Company launched a number of new items under its existing brands such as: Boulder CanyonTM Natural Foods Tortilla with Hummus and Sesame Seeds; Multi-Grain Puffs; Red Wine Vinegar, 60% Reduced Sodium and No Salt kettle cooked potato chips; Poore Brothers Habenero potato chips; T.G.I. Friday’s® Jalapeno Cheddar Crunchy Bites; and BURGER KING TM Zesty Ranch. The Company also launched in 2010 the Jamba® Strawberries Wild, Mango-a-go-go, and Razzmatazz at home frozen smoothie kits. These Jamba® branded blend-and-serve smoothie kits contain all natural vitamin and mineral boosts and a variety of fresh-frozen, whole fruit pieces, including raspberries and blueberries from Rader Farms.
For the fiscal years 2010 and 2009, net revenues totaled $134.0 million and $121.0 million, respectively, and T.G.I. Friday’s® brand salted snacks represented 29% of the Company’s total net revenues in 2010 and 33% of the Company’s total net revenues in 2009.
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Percent of Total Net Revenues |
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2010 |
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2009 |
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Branded snack and berry products |
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81 |
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78 |
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Private label products |
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16 |
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19 |
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Distributed products revenues |
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3 |
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3 |
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Total revenues |
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100 |
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100 |
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Business Strategy
The Company’s business strategy is to continue building a diverse portfolio of high quality, competitively priced healthy/natural food brands (Rader Farms® , Boulder CanyonTM Natural Foods, and Jamba®) and indulgent specialty food brands (T.G.I. Friday’s®, BURGER KING TM, Poore Brothers®) with annualized target revenues between $5 million and $50 million each through expansion of existing brands, licensing, acquisition and development. The goals of our strategy are to (i) capitalize on healthy/natural and indulgent specialty food brand opportunities, (ii) deliver incremental category growth for retailers, (iii) provide product innovation targeted to a defined consumer segment, (iv) complement, rather than compete directly against, large national competitors with leading national brands, and (v) build relationships with major retailers in all channels of distribution by providing them higher margins, excellent customer service and constant innovation. The Company plans to mitigate the financial impact of launching new products by introducing them in test markets prior to large scale regional or national introductions, and to continue to improve profit margins through increased operating efficiencies and manufacturing capacity utilization. The primary elements of the Company’s long-term business strategy are as follows:
Develop, Acquire or License Innovative Healthy/Natural and Indulgent Specialty Food Brands. A significant element of the Company’s business strategy is to develop, acquire or license new innovative healthy/natural and indulgent specialty food brands that provide strategic fit with our existing business and possess strong national brand equity in order to expand, complement or diversify the Company’s existing business.
Broaden Distribution of Existing Brands. The Company plans to increase distribution and build the market share of its existing branded products through selected trade activity in various existing or new markets and channels. Marketing efforts may include, among other things, trade advertising and promotional programs with distributors and retailers, in-store advertisements, in-store displays and limited consumer advertising, public relations and coupon programs.
Develop New Products for Existing Brands. The Company plans to continue its innovation activities to identify and develop (i) new line extensions for its brands, such as new flavors or products, and (ii) new food segments in which to expand the brand’s presence.
Leverage Infrastructure and Capacity. The Company’s Indiana, Arizona and Washington facilities are currently operating at approximately 45%, 90% and 60% of their respective manufacturing capacities. The Company continues to secure new manufacturing opportunities in private label and co-packing arrangements, as well as expand upon its own branded product lines. In addition, the Company plans to continue capital investment in its plants and drive operating efficiencies.
Pursue Acquisitions. The Company continues to evaluate acquisition opportunities in the specialty food area where we can use our competencies in Operations, Sales, Marketing and Distribution in order to drive revenue and profit growth.
Improve Profit Margins. The Company plans to increase gross profit margins through increased long-term revenue growth, improved operating efficiencies, and higher margin new products. It believes that additional improvements to its manufactured products’ gross profit margins are possible with the achievement of the business strategies discussed above.
Manufacturing
The Company-owned manufacturing facility in Bluffton, Indiana produces snack products utilizing a sheeting and frying process with three fryer lines that can produce an aggregate of up to approximately 9,000 pounds per hour of Boulder Canyon™ Natural Foods, T.G.I. Friday’s®, BURGER KING™, and Tato Skins® brand products. The Company also produces snacks for customers under private label agreements. The Indiana facility is currently operating at approximately 45% of processing capacity. Recently introduced production capabilities at the Bluffton plant allow the Company to use existing equipment to make additional snacks, including pellet snacks, that are entirely different in appearance and taste from its other product lines. The Company believes this technology will help expand its product lines and facilitate growth. During 2010, the Company invested $3.4 million in equipment to produce extruded product previously produced by third parties and to develop innovative new products.
The Company-owned manufacturing facility in Goodyear, Arizona has the capacity to produce up to approximately 3,300 pounds of potato chips per hour, including 2,000 pounds of batch-fried branded potato chips per hour and 1,300 pounds of continuous-fried private label potato chips per hour. Poore Brothers®, Bob’s Texas Style®, Boulder CanyonTM Natural Foods, co-packing and private label branded potato chips are produced in a variety of flavors utilizing a batch-frying process. While conventional continuous line cooking methods may produce higher production volume, the Company believes that its batch-frying process is superior and produces premium potato chip products with enhanced crispness and distinctive flavor. The Arizona facility is currently operating at approximately 90% of processing capacity. During 2010, the Company spent approximately $1.7 million in capital at the Goodyear facility in order to increase capacity and improve efficiencies. The investment included additional high capacity kettle cooking equipment, increasing our high speed packaging machines, and installing automated case packing machines.
The Company-owned Rader Farms farming facility in Lynden, Washington has the capacity to produce up to eight million pounds of grown raspberries and blueberries per year. Rader Farms grows, processes and markets premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale. The fruit is processed and packaged for sale and distribution nationally to wholesale customers under the Rader Farms® brand, as well as through store brands. The Company also uses third party processors for certain products. The individually quick frozen (“IQF”) processing facilities located at the same location have the capacity to apply the IQF process to forty million pounds of berries annually. Overall, the processing facility is operating at 60% of capacity. The Company has invested in new packaging equipment to accommodate the Jamba® smoothie launch. The 2010 harvest at Rader Farms was of average yield for the season, and less when compared to the exceptional 2009 harvest Rader Farms and the rest of the industry produced as a result of favorable farming and weather conditions.
The Company may not obtain sufficient business to recoup the Company’s investments in its manufacturing facilities or to increase the utilization rates of such facilities.
Marketing and Distribution
The Company sells its products nationally and internationally through a number of channels including: Grocery, Natural, Mass, Drug, Club, Vending, Food Service, Convenience Store (C-Store) and International.
The Company’s licensed T.G.I. Friday’s® brand snack food products have achieved significant market presence across a number of sales channels. The Company has retained various sales and marketing agencies with employees and offices nationwide to represent T.G.I. Friday’s® brand snacks on behalf of the Company in the grocery and convenience store channels. The Company’s own sales organization, as well as brokers, sells T.G.I. Friday’s® brand snacks in the mass, club and drug channels. The Company also obtains significant sales on T.G.I. Friday’s® brand snacks in the vending channel nationwide through an independent network of brokers and distributors.
The Company’s potato chip brands are distributed to grocery and other retailers directly, through brokers, and by a select group of independent distributors in Arizona. The Company’s Boulder CanyonTM Natural Foods brand potato chip products have achieved market presence in natural food stores nationwide as well as other leading national grocery retailers. Poore Brothers® brand potato chip products have achieved significant market presence in the southwest United States. The Company selects brokers and distributors for its branded products primarily on the basis of quality of service, call frequency on customers, financial capability and relationships they have with all of the various channels in which we operate. The Company currently retains a Canadian sales and marketing agency to sell to Canadian customers. The Company has also retained an international broker to expand sales.
The Company’s distribution network throughout Arizona includes approximately 42 independently operated service routes. Each route is operated by an independent distributor who merchandises to major grocery store chains in Arizona, such as Albertson’s, Basha’s, Fry’s and Safeway stores. The Company’s independent distributors also service many smaller independent grocery stores, club stores, and military facilities throughout Arizona. In addition to Poore Brothers® brand products, the Company distributes throughout Arizona a wide variety of snack food items manufactured by other companies, including pretzels, popcorn, dips, and meat snacks.
The Company’s marketing of its berry and smoothie products is essentially performed through company sales force and brokers with whom the Company has relationships. Similar to its snack business, the Company selects brokers primarily on the basis of quality of service, call frequency on customers, financial capability and relationships they have with supermarkets and club stores, including access to freezer space for the berry products.
Successful marketing of the Company’s products depends, in part, upon obtaining adequate shelf or freezer space for such products, particularly in supermarkets, discount stores and the club channel for snacks, berry products and smoothies and C-Stores and vending machines for snacks. Frequently, the Company incurs additional marketing costs in order to obtain additional shelf space. Whether or not the Company will continue to incur such costs in the future will depend upon a number of factors including, demand for the Company’s products, relative availability of shelf space and general competitive conditions. The Company may incur significant shelf space, consumer marketing or other promotional costs as a necessary condition of entering into competition or maintaining market share in particular markets or channels. Any such costs may materially affect the Company’s financial performance.
The Company’s marketing programs are designed to increase product trial and build brand awareness in core markets. Most of the Company’s marketing spending has traditionally been focused on trade advertising and trade promotions designed to attract new consumers to the products at a reduced retail price. The Company’s marketing programs also include selective event sponsorship designed to increase brand awareness and to provide opportunities to mass sample branded products. The Company also invests marketing dollars in brand and category research, coupons, customer consumer programs, Facebook, Twitter, and other social media.
The Company continues to focus on expanding the distribution of our Boulder CanyonTM Natural Foods brand nationally through the natural channel and in the grocery channel, as well as club stores, vending machines, drug, and C-stores. We continue to pursue expansion of our Rader Farms® and Jamba ® branded fruit products in our Berry segment. We continue to evaluate new private label customer expansion. We also continue to evaluate opportunities overseas with the T.G.I. Friday’s® brand as well as
BURGER KING™ and Boulder CanyonTM Natural Foods brands. BURGER KING™ line of ready-to-eat snack chips are already sold in over 40 countries.
Suppliers
The principal raw materials used by the Company are potatoes, potato flakes, wheat flour, corn, oils and berries. The Company believes that the raw materials it needs to produce its products are readily available from numerous suppliers on commercially reasonable terms. Potatoes, potato flakes and corn are widely available year-round, although they are subject to seasonal price fluctuations. The Company uses a variety of oils and seasonings in the production of its snack products and believes that alternative sources for such oils and seasonings, as well as alternative oils and seasonings, are readily abundant and available. The Company may lock in prices for raw materials, such as oils, as it deems appropriate. The Company produces an average of 25% of its total annual berry requirements in its own farms, and augments that production by purchasing additional berries to meet customer demand. The Company purchases both fresh berries from local farmers and already frozen berries for its repackaging business. The Company uses packaging materials in its snack manufacturing and berry distribution business.
The Company chooses its suppliers based primarily on price, quality, availability, and service. Although the Company believes that its required products and ingredients are readily available, and that its business success is not dependent on any single supplier, the failure of certain suppliers to meet the Company’s performance specifications, quality standards or delivery schedules could have a material adverse effect on the Company’s operations. In particular, a sudden scarcity, a substantial price increase, or an unavailability of product ingredients could materially adversely affect the Company’s operations. In such circumstances, alternative ingredients may not be available when needed and on commercially attractive terms, if at all.
Customers
Costco accounted for 27% and 23% of the Company’s 2010 and 2009 net revenues, respectively. The remainder of the Company’s revenues was derived from sales to customers, grocery chains, club stores or regional distributors, none of which individually accounted for more than 10% of the Company’s net revenues in 2010. A decision by any of the Company’s major customers to cease or substantially reduce their purchases could have a material adverse effect on the Company’s business.
The majority of the Company’s revenues are attributable to external customers in the United States. The Company does sell to Canadian and international customers as well, however, the revenues attributable to these customers are immaterial. All of the Company’s assets are located in the United States.
Competition
The Company’s snack products generally compete against other snack foods, including potato chips and tortilla chips. The snack food industry is large and highly competitive and is dominated by large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., Procter and Gamble and General Mills. These companies possess substantially greater financial, production, marketing, distribution and other resources than the Company, and their brands are more widely recognized than the Company’s products. Numerous other companies that are actual or potential competitors of the Company offer products similar to the Company’s, and some of these have greater financial and other resources (including more employees and more extensive facilities) than the Company. In addition, many competitors offer a wider range of products than offered by the Company. Local or regional markets often have significant smaller competitors, many of whom offer products similar to those of the Company. Expansion of the Company’s operations into new markets has and will continue to encounter significant competition from national, regional and local competitors that may be greater than that encountered by the Company in its existing markets. In addition, such competitors may challenge the Company’s position in its existing markets. While the Company believes that it has innovative products and methods of operation that will enable it to compete successfully, it may not be able to do so.
The Company’s berry products generally compete against other packaged berries on the basis of quality and price. Key competitors include Townsend Farms, Sunopta, and Dole. Obtaining freezer space at supermarkets and club stores is critical to successfully compete with other berry products, as supermarkets and club stores will frequently only carry one brand of frozen berry products, contrasted to snack products where multiple brands are carried.
The Company’s smoothie kits generally compete against other packaged smoothie kits on the basis of quality and price. Key competitors include Yoplait, a General Mills brand, Chiquita smoothies and a number of smaller brands. Obtaining freezer space at supermarkets and club stores is critical to successfully compete with other smoothie products, as supermarkets and club stores will frequently only carry one to two brands of frozen smoothie products, contrasted to snack products where multiple brands are carried.
The principal competitive factors affecting the markets of the Company’s products include product quality and taste, brand awareness among consumers, access to shelf or freezer space, price, advertising and promotion, varieties offered, nutritional content,
product packaging and package design. The Company competes in its markets principally on the basis of product quality and taste. Berry products are produced at the Company’s Lynden, Washington farming facility utilizing an individually quick frozen (IQF) technology which the Company does not have exclusive rights for. While products produced at the Company’s Bluffton, Indiana facility involve the use of certain licensed technology and unique manufacturing processes, the taste and quality of products produced at the Company’s Goodyear, Arizona facility are largely due to two elements of the Company’s manufacturing process: its use of batch-frying and its use of distinctive seasonings to produce a variety of flavors. The Company does not have exclusive rights to the use of either element; consequently, competitors may incorporate such elements into their own processes.
Government Regulation
The manufacture, labeling and distribution of the Company’s products are subject to the rules and regulations of various federal, state and local health agencies, including the Food & Drug Administration (“FDA”). There can be no assurance that new laws or regulations will not be passed that could require the Company to alter the taste or composition of its products or impose other obligations on the Company. Such changes could affect sales of the Company’s products and have a material adverse effect on the Company. In addition to laws relating to food products, the Company’s operations are governed by laws relating to environmental matters, workplace safety and worker health, principally the Occupational Safety and Health Act. The Company believes that it presently complies in all material respects with such laws and regulations.
Employees
As of December 25, 2010, the Company had 389 total employees. There are 329 employees in manufacturing and distribution, composed of 303 full-time, 6 part-time, and 20 in temporary positions. There are 27 employees in sales and marketing, and 33 in administration and finance. The Company’s employees are not represented by any collective bargaining organization and the Company has never experienced a work stoppage. The Company believes that its relations with its employees are good.
Patents, Trademarks and Licenses
In 2000, the Company launched its T.G.I. Friday’s® brand snacks pursuant to a license agreement with T.G.I. Friday’s Inc., which expires in 2014. In 2007, the Company launched its BURGER KING™ snack products pursuant to a license agreement with Burger King Corporation, which expires in 2012. In 2009, the Company entered into a license agreement with Bruce Foods Corporation which the Company launched a new line of Hot Fries snacks under the Louisiana Hot Sauce brand. In 2009, the company entered into a license agreement with Jamba Juice Company, which expires in 2035, and launched in 2010 a line of Jamba® branded blend-and-serve smoothie kits with all natural vitamin and mineral boosts and a variety of fresh-frozen, whole fruit pieces, including raspberries and blueberries from Rader Farms.
The Company produces T.G.I. Friday’s® brand snacks, BURGER KING TM brand potato snack products, Tato Skins® brand potato crisps and Boulder CanyonTM Natural Foods Rice and Bean snacks utilizing a sheeting and frying process that includes technology that the Company licenses from a third party. Pursuant to the license agreement between the Company and the third party, the Company has a royalty-bearing, exclusive right license to use the technology in the United States, Canada, and Mexico until such time the parties mutually agree to terminate the agreement. Even though the patents for this technology expired December 26, 2006, in consideration for the use of this technology, the Company is required to make royalty payments on sales of products manufactured utilizing the technology until such termination date. However, should products substantially similar to Tato Skins®, O’Boisies® and Pizzarias® become available for any reason in the marketplace by any manufacturer other than the Company which results in a sales decline of 10% or more, any royalty obligation for the respective product(s) shall cease.
The Company owns the following trademarks in the United States: Poore Brothers®, Rader Farms®, Intensely Different®, Texas Style®, Boulder Canyon®, Canyon Cut®, Tato Skins®, O’Boisies®, Pizzarias®, and Braids®. The Company considers its trademarks to be of significant importance in the Company’s business. The Company is not aware of any circumstances that would have a material adverse effect on the Company’s ability to use its trademarks. From time to time, the Company enters into licenses with owners of distinctive brands to produce branded snack food products. Generally, the licenses require the Company to make royalty payments on sales and to achieve certain minimum sales levels by certain dates during the contract term. Any termination of any of the Company’s license agreements, whether at the expiration of its term or prior thereto, could have a material adverse effect on the Company’s financial condition and results of operations.
Seasonality
The food products industry is seasonal. Consumers tend to purchase our snack products at higher levels during the major summer holidays and also at times surrounding major sporting events throughout the year. Consumers also tend to purchase fresh berries while in season and therefore we see a decline in frozen berry revenue in the summer months. Additionally, we may face seasonal price increases for raw materials.
In addition to the other information in this report, any one of the following factors could materially adversely affect our business, financial condition or operating results. You should read and carefully consider these risk factors, and the entirety of this report, before you invest in our securities.
Risks Related to Our Business
Our performance may be impacted by general economic conditions and an economic downturn.
Recessionary pressures from an overall decline in U.S. economic activity could adversely impact the Company’s results of operations. Economic uncertainty may reduce consumer spending and could result in increased pressure from competitors or customers to reduce the prices of Company products and/or limit the Company’s ability to increase or maintain prices, which could lower revenues and profitability. Instability in the financial markets may impact the Company’s ability or increase the cost to enter into new credit agreements in the future. Additionally, it may weaken the ability of customers, suppliers, distributors, banks, insurance companies and other business partners to perform in the normal course of business, which could expose the Company to losses or disrupt supply of inputs used to conduct the Company’s business. If one or more key business partners fail to perform as expected or contracted, the Company’s operating results could be negatively impacted.
We may incur significant future expenses due to the implementation of our business strategy.
The Company is striving to achieve its long-term vision of being a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. Such action is subject to the substantial risks, expenses and difficulties frequently encountered in the implementation of a business strategy. Even if the Company is successful in developing, acquiring and/or licensing new brands, and increasing distribution and sales volume of the Company’s existing products, this business strategy may require the Company to incur substantial additional expenses, including advertising and promotional costs, “slotting” expenses (i.e., the cost of obtaining shelf or freezer space in certain grocery stores), and integration costs of any future acquisitions. Accordingly, the Company may incur additional losses in the future as a result of the implementation of the Company’s business strategy, even if revenues increase significantly.
We may not be able to obtain the additional financing we need to implement our business strategy.
A significant element of the Company’s business strategy is the development, acquisition and/or licensing of innovative specialty food brands, for the purpose of expanding, complementing and/or diversifying the Company’s business. In connection with each of the Company’s previous acquisitions, the Company borrowed funds or assumed additional indebtedness in order to satisfy a substantial portion of the consideration required to be paid by the Company. The Company may, in the future, require additional third party financing (debt or equity) as a result of any future operating losses, in connection with the expansion of the Company’s business through non-acquisition means, in connection with any additional acquisitions completed by the Company, or to provide working capital for general corporate purposes. Third party financing may not be available when required or, if available, may not be on terms attractive to the Company. Any third party financing obtained by the Company may result in dilution of the equity interests of the Company’s shareholders.
We expect some of our future growth to be derived in part, from acquisitions, but our acquisition strategy may not be successful, or we may not be successful integrating acquisitions.
An element of the Company’s business strategy is the pursuit of selected strategic acquisition opportunities for the purpose of expanding, complementing and/or diversifying the Company’s business. The Company may not be able to identify, finance and complete successful acquisitions on acceptable terms. Any future acquisitions could divert management’s attention from the daily operations of the Company and otherwise require additional management, operational and financial resources. Moreover, the Company may not be able to successfully integrate acquired companies or their management teams into the Company’s operating structure, retain management teams of acquired companies on a long-term basis, or operate acquired companies profitably. Acquisitions may also involve a number of other risks, including adverse short-term effects on the Company’s operating results, dependence on retaining key personnel and customers, and risks associated with unanticipated liabilities or contingencies.
We are subject to ongoing financial covenants under our main credit facility, and if we fail to meet those covenants or otherwise default on our credit facility, our lender may accelerate all unpaid amounts, including interest.
At December 25, 2010, the Company had outstanding indebtedness in the aggregate principal amount of $22.4 million.
Our credit agreement with U.S. Bank National Association (“U.S. Bank”) is secured by substantially all assets of the Company. The Company’s obligations under the Credit Agreement are guaranteed by each of its subsidiaries. The Company is required to comply with certain financial covenants pursuant to the U.S. Bank Credit Agreement so long as borrowings from U.S. Bank remain outstanding. Should the Company be in default under any of such covenants, U.S. Bank shall have the right, upon written notice and after the expiration of any applicable period during which such default may be cured, to demand immediate payment of all of the then unpaid principal and accrued but unpaid interest under the Credit Agreement. At December 25, 2010, the Company was in compliance with all covenants of the Credit Agreement.
As the Company implements its business strategy, the Company may not be able to remain in compliance with its financial covenants. Any acceleration of the borrowings under the Credit Agreement prior to the applicable maturity dates could have a material adverse effect upon the Company’s operating results. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
We may not be able to successfully implement our strategy to expand our business internationally.
The Company plans to expand sales to Canadian customers and is exploring other international market opportunities for its brands. Such expansion may require significant management attention and financial resources and may not produce desired levels of revenue. International business is subject to inherent risks, including longer accounts receivable collection cycles, difficulties in managing operations across disparate geographical areas, difficulties enforcing agreements and intellectual property rights, fluctuations in local economic, market and political conditions, compliance requirements with U.S. and foreign export regulations, potential adverse tax consequences and currency exchange rate fluctuations.
We may incur material losses and costs as a result of product liability claims that may be brought against us or any product recalls we have to make.
As a manufacturer and marketer of food products, the Company may be subjected to various product liability claims. The product liability and product recall insurance maintained by the Company may not be adequate to cover any loss or exposure for product liability, and such insurance may not continue to be available on terms acceptable to the Company. Any product liability claim not fully covered by insurance, as well as any adverse publicity from a product liability claim or product recall, could have a material adverse effect on the Company’s operating results.
Newly adopted governmental regulations could increase our costs or liabilities or impact the sale of our products.
The food industry is highly regulated and subject to change. New or increased government regulation of the food industry, including areas related to production processes, product quality, packaging, labeling, marketing, storage and distribution, and labor unions, could adversely impact the Company’s operating results by increasing production costs or restricting methods of operation and distribution. These regulations may address food industry or society factors, such as obesity, nutritional concerns and diet trends. Sales of the Company’s products could be materially and adversely affected if new laws or regulations are passed that require the Company to alter the taste or composition of its products or impose other obligations on the Company.
We do not own the patents for the technology we use to manufacture our T.G.I. Friday’s®, BURGER KING TM and Tato Skins® brand products.
The Company licenses technology from a third party in connection with the manufacture of its T.G.I. Friday’s®, BURGER KING TM and Tato Skins® brand products and has a royalty-bearing, exclusive right license to use the technology necessary to produce these products in the United States, Canada, and Mexico until such time the parties mutually agree to terminate the agreement. Even though the patents for this technology expired December 26, 2006, in consideration for the use of this technology, the Company is required to make royalty payments to the third party on sales of products manufactured utilizing the technology until such termination date. Since these patents expired, we no longer have exclusive rights to this technology and, as a result, may face additional competition that could adversely affect our revenues. Moreover, competitors of the Company, certain of which may have significantly greater resources than the Company, may utilize different technology in the manufacture of products that are similar to those currently manufactured, or that may in the future be manufactured, by the Company. The entry of any such products into the marketplace could have a material adverse effect on the Company’s sales of T.G.I. Friday’s®, BURGER KING TM and Tato Skins® brand products, as well as any such future products.
The majority of our revenues are derived from a limited number of food brands.
The Company derives a substantial portion of its revenue from a limited number of snack food brands. For the year ended December 25, 2010, 65% of the Company’s net revenues were attributable to the T.G.I. Friday’s® brand products, the Boulder CanyonTM Natural Foods brand products and Rader Farms® brand products. A decrease in the popularity of these brands during any year could have a material adverse effect on the Company’s operating results. Any impact to a licensed brand’s reputation could also lead to an impact on the Company’s other snack food products associated with that brand. Decreased sales from any one of our key food brands without a corresponding increase in sales from other existing or newly introduced products would have a material adverse effect on the Company’s operating results.
We depend on a license agreement for the right to sell our T.G.I. Friday’s® brand.
For the year ended December 25, 2010, 29% of the Company’s net revenues were attributable to the T.G.I. Friday’s® brand products, which are manufactured and sold by the Company pursuant to a license agreement by and between the Company and T.G.I. Friday’s Inc. that expires in 2014. Pursuant to the license agreement, the Company is subject to various requirements and conditions (including, without limitation, minimum sales targets). The failure of the Company to comply with certain of such requirements and conditions could result in the early termination of the license agreement by T.G.I. Friday’s Inc. Any termination of the T.G.I. Friday’s license agreement, whether at the expiration of its term or prior thereto, could have a material adverse effect on the Company’s operating results.
The loss of one of our major customers could have a material adverse effect on our business.
Costco accounted for 27% of the Company’s 2010 net revenues, with the remainder of the Company’s net revenues being derived from sales to a limited number of additional customers, either grocery chains or regional distributors, none of which individually accounted for more than 10% of the Company’s revenues for 2010. A decision by any major customer to cease or substantially reduce its purchases could have a material adverse effect on the Company’s operating results.
The loss of certain key employees could adversely affect our business.
The Company’s success is dependent in large part upon the abilities of its executive officers, including Terry McDaniel, Chief Executive Officer, and Steve Weinberger, Chief Financial Officer. The Company’s business strategy will challenge its executive officers, and the inability of such officers to perform their duties or the inability of the Company to attract and retain other highly qualified personnel could have a material adverse effect upon the Company’s operating results.
Risks Related to the Snack Business
We may not be able to compete successfully in our highly competitive industry.
The market for snack foods, such as those sold by us, including potato chips and meat snacks, is large and intensely competitive. Competitive factors in the snack food industry include product quality and taste, brand awareness among consumers, access to supermarket shelf space, price, advertising and promotion, variety of snacks offered, nutritional content, product packaging and package design. The Company competes in that market principally on the basis of product taste and quality.
The snack food industry is dominated by large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., Procter and Gamble, General Mills and others which have substantially greater financial and other resources than the Company and sell brands that are more widely recognized than are the Company’s products. Numerous other companies that are actual or potential competitors of the Company, many with greater financial and other resources (including more employees and more extensive facilities) than the Company, offer products similar to those of the Company. In addition, many of such competitors offer a wider range of products than that offered by the Company. Local or regional markets often have significant smaller competitors, many of whom offer products similar to those of the Company. With expansion of Company operations into new markets, the Company has and will continue to encounter significant competition from national, regional and local competitors that may be greater than that encountered by the Company in its existing markets. In addition, such competitors may challenge the Company’s position in its existing markets.
Unavailability of our necessary supplies, at reasonable prices, could adversely affect our operations.
The Company’s manufacturing costs are subject to fluctuations in the prices of potatoes, potato flakes, wheat flour, corn and oil as well as other ingredients of the Company’s products. Potatoes, potato flakes, wheat flour and corn are widely available year-
round, and the Company uses a variety of oils in the production of its products. Nonetheless, the Company is dependent on its suppliers to provide the Company with products and ingredients in adequate supply and on a timely basis. The failure of certain suppliers to meet the Company’s performance specifications, quality standards or delivery schedules could have a material adverse effect on the Company’s operating results. To the extent that product ingredients become scarce, substantially increase in price, or become unavailable or unavailable on commercially attractive terms, the Company’s operating results could be materially and adversely affected. From time to time, the Company may lock in prices for raw materials, such as oils, as it deems appropriate, and such strategies may result in the Company paying prices for raw materials that are above market at the time of purchase.
We may incur substantial costs in order to market our snacks.
Successful marketing of snack products generally depends upon obtaining adequate retail shelf space for product display, particularly in supermarkets. Frequently, food manufacturers and distributors, such as the Company, incur additional costs in order to obtain additional shelf space. Whether or not the Company incurs such costs in a particular market is dependent upon a number of factors, including demand for the Company’s products, relative availability of shelf space and general competitive conditions. The Company may incur significant shelf space or other promotional costs as a necessary condition of entering into competition or maintaining market share in particular markets or stores. If incurred, such costs may have a material adverse effect on the Company’s operating results.
Our business may be adversely affected by oversupply of snack products at the wholesale and retail levels and seasonal fluctuations.
Profitability in the food product industry is subject to oversupply of certain snack products at the wholesale and retail levels, which can result in our products going out of date before they are sold. The snack products industry is also seasonal. Consumers tend to purchase our products at higher levels during the major summer holidays and also at times surrounding the major sporting events throughout the year. Consumers also tend to purchase fresh berries while in season and therefore we see a decline in frozen berry revenue in the summer months. Any of these seasonal effects may result in an oversupply or undersupply of our products. Additionally, we may face seasonal price increases for raw materials. Such seasonal costs could materially and adversely affect our operating results in any given quarter.
We may not be able to respond successfully to shifting consumer tastes.
Consumer preferences for snack foods are continually changing and are extremely difficult to predict. The Company’s success depends in part on timely responding to current market trends and anticipating changing consumer tastes and dietary habits by developing and licensing new products and entering new markets. The failure to adequately address changing consumer preferences could result in reduced demand for the Company’s products and have a material adverse affect the Company’s operating results.
Risks Related to the Rader Farms Business
Farming is subject to numerous inherent risks including changes in weather conditions or natural disasters that can have an adverse impact on crop production and materially affect our results of operations.
The Company, through its subsidiary Rader Farms, Inc., is subject to the risks that generally relate to the agricultural industry. Adverse changes in weather conditions and natural disasters, such as earthquakes, droughts, extreme cold or pestilence, may affect the planting, growing and delivery of crops, reduce sales stock, interrupt distribution, and have a material adverse impact on our business, financial condition and results of operations. Our competitors may be affected differently by such weather conditions and natural disasters depending on the location of their supplies or operations.
Revenues are derived from one brand; the loss or impairment of this brand may adversely effect operating results.
Rader Farms derives the majority of its revenue from the sales of one brand. In 2010, 36% of the Company’s net revenues were attributable to the berry products segment. A decrease in the popularity of frozen berries during any year could have a material adverse effect on the Company’s operating results.
Unavailability of purchased berries, at reasonable prices, could adversely affect operations.
The Company’s manufacturing costs are subject to fluctuations in the prices of certain commodity prices. Berries are not readily available year-round, therefore, the Company uses an individual quick frozen (IQF) technique to freeze the berries harvested for use during the year to meet processing demands. In addition to freezing our own home-grown berries, we also purchase a significant amount of berries from outside suppliers to meet customer demands. The Company is dependent on its suppliers to provide the Company with adequate supply and on a timely basis. The failure of certain suppliers to meet the Company’s performance
specifications, quality standards or delivery schedules could have a material adverse effect on the Company’s operating results. To the extent that certain types of berries become scarce, substantially increase in price, or become unavailable or unavailable on commercially attractive terms, the Company’s operating results could be materially and adversely affected.
We may incur losses and costs as a result of product liability claims that may be brought against us or any product recalls we have to make.
The sale of food products for human consumption involves the risk of injury to consumers. Such hazards could result from: tampering by unauthorized third parties; product contamination (such as listeria, e-coli, and salmonella) or spoilage; the presence of foreign objects, substances, chemicals, and other agents; residues introduced during the growing, storage, handling or transportation phases; or improperly formulated products. Product liability and product recall insurance maintained by the Company may not be adequate to cover any loss or exposure for product liability, or such insurance may not continue to be available on terms acceptable to the Company. Any product liability claim not fully covered by insurance, as well as any adverse publicity from a product liability claim or product recall, could have a material adverse effect on the Company’s operating results.
Risks Related to Our Securities
The market price of our Common Stock is volatile.
The market price of our Common Stock has experienced a high level of volatility. During fiscal 2010, the market price of our Common Stock (based on last reported sale price of the Common Stock on the Nasdaq Capital Market) ranged from a high of $4.45 per share to a low of $2.25 per share. The last reported sales price of the Common Stock on the Nasdaq Capital Market on December 25, 2010 was $4.32 per share.
A significant amount of our Common Stock is controlled by a small number of shareholders, and the interests of such shareholders may conflict with those of other shareholders.
As of December 25, 2010, Capital Foods, LLC, an affiliate of our Board of Directors member Larry Polhill (“Capital Foods”), beneficially owned 22.9% of the Company’s outstanding shares, and Heartland Advisors, Inc. (“Heartland”) beneficially owned 16.6% of the Company’s outstanding shares. Capital Foods and Heartland are hereinafter referred to collectively as the “Significant Shareholders.” One or more of the Significant Shareholders could potentially adopt or support a plan to undertake a material change in the management or business of the Company. Apart from transfer restrictions arising under applicable provisions of the securities laws, there are no restrictions on the ability of the Significant Shareholders to transfer any or all of their respective shares of Common Stock at any time. One or more of such transfers could have the effect of transferring effective control of the Company, including to one or more parties not currently known to the Company.
Our Certificate of Incorporation authorizes us to issue preferred stock, and the rights of holders of Common Stock may be adversely affected by the rights of holders of any such preferred stock.
The Company’s Certificate of Incorporation authorizes the issuance of up to 50,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors of the Company. The Company may issue such shares of preferred stock in the future without shareholder approval. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of discouraging, delaying or preventing a change of control of the Company, and preventing holders of Common Stock from realizing a premium on their shares. In addition, under Section 203 of the Delaware General Corporation Law (the “DGCL”), the Company is prohibited from engaging in any business combination (as defined in the DGCL) with any interested shareholder (as defined in the DGCL) unless certain conditions are met. This statutory provision could also have an anti-takeover effect.
The Company owns a 140,000 square foot manufacturing facility located on 15 acres of land in Bluffton, Indiana, approximately 20 miles south of Ft. Wayne, Indiana. The facility is financed by a mortgage with U.S. Bank National Association that matures in December, 2016.
The Company owns a 60,000 square foot manufacturing facility located on 7.7 acres of land in Goodyear, Arizona, approximately 15 miles west of Phoenix, Arizona. The facility is financed by a mortgage with Morgan Guaranty Trust Company of New York that matures in June 2012.
The Company owns a farming, processing and storage facility located on 696 acres of land in Lynden, Washington, which is leased from the Uptrails Group LLC, owned by three members of the Rader family. One of the three, Brad Rader, is a current employee of the Company and one of the others, Sue Rader, was a former owner of Rader Farms. This lease commenced on the acquisition date and is effect until May 17, 2017. Lease payments are $43,500 per month throughout the term of the lease.
The Company leases one-half of a 200,000 square foot facility in Bluffton, Indiana which is used as a distribution center. The Company has entered into a lease, the initial term expiring in November 2006, with respect to the facility and has entered into the second of two three-year renewal options. Current lease payments are approximately $32,500 per month.
The Company leases approximately 15,500 square feet of warehouse space in Phoenix, Arizona, which is used as a distribution center. The lease expires March 31, 2013 and current lease payments are approximately $7,700 per month.
The Company also leases approximately 13,865 square feet of office space in Phoenix, Arizona, which is used as its corporate headquarters. The lease expires April 1, 2017 and there were no required lease payments in 2010. Our first required monthly lease payment of $13,500 is due on April 1, 2011.
The Company is responsible for all insurance costs, utilities and real estate taxes in connection with its facilities. The Company believes that its facilities are adequately covered by insurance.
The Company is periodically a party to various lawsuits arising in the ordinary course of business. Management believes, based on discussions with legal counsel, that the resolution of such lawsuits, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or results of operations.
The Company was one of eight companies sued by the Environmental Law Foundation in August, 2006 in the Superior Court for the State of California for the County of Los Angeles by the Attorney General of the State of California for alleged violations of California Proposition 65. California Proposition 65 is a state law that, in part, requires companies to warn California residents if a product contains chemicals listed within the statute. The matter was resolved in March 2009, at which time the Company incurred a settlement liability of $0.2 million.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Effective February 18, 2011, the Company’s Common Stock is traded on the Nasdaq Global Market tier of the Nasdaq Stock Market under the symbol “SNAK.” There were approximately 200 shareholders of record on March 25, 2011. Prior to February 18, 2011, the Company’s Common Stock was traded on the Nasdaq Capital Market tier of the Nasdaq Stock Market under the symbol “SNAK.” The Company believes the number of beneficial owners is substantially greater than the number of record holders because a large portion of the Common Stock is held of record in broker “street names.”
The Company has never declared or paid any dividends on the shares of Common Stock. Management intends to retain any future earnings for the operation and expansion of the Company’s business and does not anticipate paying any dividends at any time in the foreseeable future. Additionally, certain debt agreements of the Company limit the Company’s ability to declare and pay dividends.
The following table sets forth the range of high and low sale prices of the Company’s Common Stock as reported on the Nasdaq Capital Market for each quarter of the fiscal years ended December 25, 2010 and December 26, 2009.
|
|
|
Sales Prices |
| ||||
|
Period of Quotation |
|
High |
|
Low |
| ||
|
Fiscal 2009: |
|
|
|
|
| ||
|
First Quarter |
|
$ |
1.97 |
|
$ |
1.17 |
|
|
Second Quarter |
|
$ |
2.58 |
|
$ |
1.31 |
|
|
Third Quarter |
|
$ |
3.03 |
|
$ |
2.18 |
|
|
Fourth Quarter |
|
$ |
2.91 |
|
$ |
2.29 |
|
|
Fiscal 2010: |
|
|
|
|
| ||
|
First Quarter |
|
$ |
2.93 |
|
$ |
2.25 |
|
|
Second Quarter |
|
$ |
4.00 |
|
$ |
2.77 |
|
|
Third Quarter |
|
$ |
3.89 |
|
$ |
2.67 |
|
|
Fourth Quarter |
|
$ |
4.45 |
|
$ |
3.63 |
|
The information appearing under the heading “Securities Authorized for Issuance under Equity Compensation Plans” in the Company’s 2011 Proxy Statement is incorporated by reference in this section.
See Note 8 to our Financial Statements in this annual report for a summary of treasury stock repurchases and retirements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1.: Business” and “Item 8.: Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in “Item 1A.: Risk Factors.” Accordingly, the Company’s actual future results may differ materially from historical results or those currently anticipated.
Executive Overview
Inventure Foods, Inc. is a leading specialty food marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. The Company’s products are marketed under a strong portfolio of brands, including T.G.I. Friday’s®, Rader Farms®, Boulder CanyonTM, Poore Brothers®, BURGER KING TM , Jamba®, Bob’s Texas Style® and Tato Skins®. T.G.I. Fridays®, BURGER KING TM and Jamba® are licensed brand names. In 2010, T.G.I. Fridays® revenues comprised 29% of total net revenues, a 0.7% decrease from 2009. We compliment our branded product retail sales with private label sales. The majority of the Company’s revenues are attributable to external customers in the United States. The Company does sell to external customers internationally in over 40 countries worldwide, however the revenues attributable to those customers are immaterial.
All of the Company’s assets are located in the United States and include manufacturing facilities in Arizona, Indiana and Washington. The farming and processing and storage facility is located on 696 acres of land in Lynden, Washington, which is leased from the Uptrails Group, LLC, partially owned by one of the Company’s current employees and a former owner of Rader Farms.
2010 was a record year for the Company with net revenues of $134.0 million, a 10.7% increase over the prior year, and net income of $4.5 million, an 18.2% increase over the prior year. The net income for 2010 equated to $0.25 per basic share and $0.24 per diluted share, compared with $0.21 per basic and diluted share in 2009. Key focus areas are product innovation, including the launch of Jamba® All Natural Smoothies make-at-home kits, a variety of new snack products under the Boulder CanyonTM name, including the Rice and Adzuki Bean Artisan Snack chips and two hummus-flavored tortilla chips, and Rader Farms frozen berry snack packs. These innovative new products are in line with the current consumer trends of healthy, natural foods and convenience packaging.
Key Trends
Consumer Trends
The snack industry has been heavily influenced by a proliferation of new flavors and health focused snacks, with a rapid increase in the number of low-fat, low-carb and all-natural and organic products. Mainstream retailers such as Safeway have now created standalone natural and organic sections in their stores. The Company believes the trend for healthier snacks will continue and will provide revenue growth opportunities for its Rader Farms® and Boulder CanyonTM products. During the year, the Company invested heavily in Jamba® and Boulder CanyonTM brands. The Company expects to increase brand investments, specifically for Jamba®, in 2011 to drive continued sales and earnings growth in the long term. Also, given the current economic environment, more consumers are moving towards the discount channel, which continues to provide revenue growth opportunities for certain of the Company’s snack food brands.
Fluctuations in Commodity Prices and Distribution Costs
During 2011, the Company expects cost increases for raw materials and transportation. The Company attempts to manage cost inflation risks by locking in prices through short-term supply contracts and advance commodity purchase agreements and by implementing cost savings measures.
Retailer Consolidation
The retail food environment continues to be influenced by consolidation as fewer large retailers, including Kroger, Safeway and Wal*Mart, are gaining a larger share of the grocery retail environment. These retailers are also consolidating their regional buying operations into singular national operations to improve efficiency and increasing their emphasis on private label products. These actions create opportunities for the Company because brands like T.G.I. Friday’s® and Boulder CanyonTM brand snack products are brands that can be sold effectively on a national basis and may provide additional private label manufacturing opportunities for the Company.
Results of Operations
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of the Company. This discussion should be read in conjunction with “Item 8.: Financial Statements and Supplementary Data” and the “Cautionary Statement Regarding Forward-Looking Statements” on page 3. The Company’s operations consist of two reportable segments: snack products and berry products. The snack products segment includes manufactured potato chips, kettle chips, potato crisps, potato skins, pellet snacks and extruded product for sale primarily to snack food distributors and retailers. This segment includes a limited number of snack food products purchased and sold through the Company’s local distribution network. The berry product segment produces frozen fruit products, such as berries and smoothies for sale primarily to groceries and mass merchandisers.
Year ended December 25, 2010 compared to the year ended December 26, 2009
|
|
|
2010 |
|
2009 |
|
Difference |
| |||||||||
|
(dollars in millions) |
|
$ |
|
% of Rev |
|
$ |
|
% of Rev |
|
$ |
|
% |
| |||
|
Net revenues |
|
$ |
134.0 |
|
100.0 |
% |
$ |
121.0 |
|
100.0 |
% |
$ |
13.0 |
|
10.7 |
% |
|
Cost of revenues |
|
105.2 |
|
78.5 |
|
97.2 |
|
80.3 |
|
8.0 |
|
8.2 |
| |||
|
Gross profit |
|
28.8 |
|
21.5 |
|
23.8 |
|
19.7 |
|
5.0 |
|
20.9 |
| |||
|
Selling, general and administrative expenses |
|
21.5 |
|
16.0 |
|
16.7 |
|
13.8 |
|
4.7 |
|
28.1 |
| |||
|
Operating income |
|
7.4 |
|
5.5 |
|
7.1 |
|
5.9 |
|
0.3 |
|
3.9 |
| |||
|
Interest expense, net |
|
0.9 |
|
0.7 |
|
0.9 |
|
0.7 |
|
(0.0 |
) |
(0.0 |
) | |||
|
Income before income taxes |
|
6.5 |
|
4.8 |
|
6.2 |
|
5.1 |
|
0.3 |
|
4.5 |
| |||
|
Income tax provision |
|
2.0 |
|
1.5 |
|
2.4 |
|
2.0 |
|
(0.4 |
) |
(16.9 |
) | |||
|
Net income |
|
$ |
4.5 |
|
3.3 |
% |
$ |
3.8 |
|
3.1 |
% |
$ |
0.7 |
|
18.2 |
% |
For the fiscal year ended December 25, 2010, net revenues increased 10.7%, or $13.0 million, to $134.0 million compared with net revenues of $121.0 million for the previous fiscal year. The snack segment revenue was $85.5 million, up $4.9 million and 6.1% from prior year. The snack segment revenue growth was primarily driven by an increase of 61.6% for Boulder CanyonTM as a result of category growth, new distribution, success of new items and investment in marketing and people to support the brand. Total snack segment pounds sold were up 13% for the year. The berry segment revenue was $48.5 million, an increase of $8.1 million or 19.9%. The berry segment revenue increase was a result of strong volume growth in both existing and new customers and the successful launch of our Jamba® All Natural Smoothies make-at-home kits, which contributed $3.4 million of net revenues in 2010. Excluding Jamba® sales, the berry segment was up 11.4%, despite a double-digit price decrease in the fourth quarter of 2009 that remained in effect until we increased prices in the fourth quarter of 2010. Market prices for berry products tend to reset after each harvest; therefore, the Company expects the current pricing to continue at least through the end of the 2011 harvest. Total berry segment pounds sold were up 30% for the year.
Gross profit for 2010 increased $5.0 million or 20.9% to $28.8 million, and increased as a percentage of net revenues to 21.5% as compared to 19.7% in 2009. Snack segment gross profit of $16.3 million increased $0.2 million or 1.0% and decreased as a percentage of net revenues to 19.1% as compared to 20.0% in 2009. The slight increase in snack gross profit dollars was primarily driven by the increase in revenues offset by the increased depreciation expense driven by manufacturing equipment capital additions. The berry segment gross profit of $12.5 million was up $4.8 million or 62.8%, and increased as a percentage of net revenues to 25.8% from 19.0%. The increase in gross profit dollars was a result of increased sales volume and the higher value of our inventory reflecting higher berry market prices after the 2010 harvest.
Selling, general and administrative (“SG&A”) expenses were $21.5 million or 16.0% of net revenues for the year, an increase of $4.7 million versus 2009 and up 2.2 percentage points from 13.8% of net revenue last year. The increase in SG&A expenses were primarily a result of increased sales and marketing expenses of approximately $3.0 million primarily due to investments in Jamba®
and Boulder CanyonTM including additional hiring, marketing and sampling expenses and increased sales commissions. The increase in SG&A expenses is also due to the write off of $0.6 million in old trademarks.
The income tax provision of $2.0 million is $0.4 million and 16.9% less than the prior year. The Company’s effective income tax expense rate was 31.0% in 2010 compared to 39.0% in 2009. The change in the effective rate is due to the impact of research and development tax credits, including a catch-up of prior periods, of $0.4 million, representing a 6% reduction in the effective rate and domestic production activity deductions of $0.2 million, representing a 3% reduction in the effective rate.
Net income for 2010 was $4.5 million, representing a $0.7 million or 18.2% increase when compared to $3.8 million for 2009 as a result of the factors discussed above. The net income for 2010 equated to $0.25 per basic share and $0.24 per diluted share, compared with $0.21 per basic and diluted share in 2009.
Liquidity and Capital Resources
Liquidity represents the Company’s ability to generate sufficient cash flows from operating activities to satisfy obligations as well as the Company’s ability to obtain appropriate financing. Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and debt repayment. Sufficient liquidity is expected to be available to enable us to meet these demands. Net working capital was $20.6 million (a current ratio of 2.3:1) and $17.9 million (a current ratio of 2.3:1) at December 25, 2010 and December 26, 2009, respectively.
Operating Cash Flows
Net cash provided by operating activities was $7.1 million for the fiscal year ended December 25, 2010 and $3.0 million for the fiscal year ended December 26, 2009. The $4.1 million increase in cash provided by operating activities was primarily a result of favorable changes in working capital of $2.5 million and cash from operations of $1.5 million. In 2010, the Company increased inventories by $4.4 million and accounts payable and accrued liabilities by $2.1 million, both primarily as a result of higher berry prices in 2010. In 2010, accounts receivable also increased $0.8 million as a result of the increase in sales compared to the prior year. In 2009, the Company increased inventories by $3.5 million, primarily attributable to the above average 2009 harvest yields at Rader Farms, and accounts receivable by $1.2 million as a result of increase in sales over 2008.
Investing Cash Flows
Net cash used in investing activities was $8.0 million in 2010 compared to $2.6 million in 2009. Capital expenditures of $8.0 million in 2010 primarily relate to the purchase of manufacturing equipment of $6.6 million including the addition of extruder equipment in Bluffton, putting in a new packaging machine and product line at Rader Farms for our Jamba® smoothies and upgrading kettles in our Goodyear facility. Additional capital expenditures in 2010 related to the purchase and preproduction costs of berry plants of $0.8 million and furniture and equipment of $0.6 million. Capital expenditures of $2.6 million in 2009 primarily relate to manufacturing equipment of $1.8 million, building improvements of $0.6 million and office equipment of $0.2 million. In 2011, we plan to spend $9.0 million in capital expenditures, primarily at our manufacturing facilities. Capital expenditures are funded primarily by net cash flow from operating activities, cash on hand, and available credit from our credit facility.
Financing Cash Flows
Net cash provided by financing activities for fiscal year 2010 were $0.8 million compared to being flat in 2009. The $0.8 million increase in net cash provided by financing activities is driven by additional capital lease obligations of $3.0 million to fund our extruder equipment in our Bluffton facility, partially offset by borrowing $2.5 million less on our revolving line of credit year over year. The reduction of borrowings on our credit facility is due to additional cash generated from operations. Furthermore, in 2009 the Company repurchased $0.5 million in treasury stock.
Debt and Capital Resources
The Company’s Goodyear, Arizona manufacturing and distribution facility is subject to a $1.4 million mortgage loan from Morgan Guaranty Trust Company of New York, which bears interest at 9.03% per annum and is secured by the building and the land on which it is located. The loan matures on July 1, 2012; however monthly principal and interest installments of $16,825 are determined based on a twenty-year amortization period.
The Company’s Bluffton, Indiana manufacturing and distribution facility was purchased for $3.0 million in December, 2006. The facility is subject to a $2.2 million mortgage loan from U.S. Bank National Association, (“U.S. Bank”), which bears interest at the 30 day LIBOR plus 165 basis points and is secured by the building and the land on which it is located. The interest rate associated with this debt instrument was fixed to 6.85% via an interest rate swap agreement with U.S. Bank in December 2006. The loan matures in December, 2016; however monthly principal and interest installments of $18,392 are determined based on a twenty-year amortization period.
To fund the acquisition of Rader Farms (the “Acquisition”) the Company entered into a Loan Agreement (the “Loan Agreement”) with U.S. Bank. Each of our subsidiaries is a guarantor of the Loan Agreement, which is secured by a pledge of all of the assets of our consolidated group. The borrowing capacity available to us under the Loan Agreement consists of notes representing:
· a $15,000,000 revolving line of credit maturing on June 30, 2011; based on asset eligibility, there was $5.9 million of borrowing availability under the line of credit at December 25, 2010;
· an equipment term loan, secured by the equipment acquired, subject to a $3.0 million mortgage loan from U.S. Bank, bears interest at the 30 day LIBOR plus 165 basis points. The loan matures in May, 2014 and monthly principal installments are $71,429 plus interest; and
· a real estate term loan, secured by a leasehold interest in the real property we are leasing from the former owners of Rader Farms in connection with the Acquisition, subject to a $3.4 million real estate term loan from U.S. Bank, bears interest at the 30 day LIBOR plus 165 basis points. The interest rate associated with this debt instrument was fixed to 4.28% via an interest rate swap agreement with U.S. Bank in January 2008. The loan matures in July, 2017; however monthly principal and interest installments of $36,357 are determined based on a fifteen-year amortization period.
On March 21, 2011, the Company entered into an amended revolving line of credit with U.S. Bank extending our line from $15.0 million up to $25.0 million, maturing in July 2014. The minimum fixed charge coverage ratio and maximum leverage ratio were modified and the minimum tangible net worth covenant was removed. Aside from the covenant changes, the terms of the equipment term loan and real estate term loan were not materially modified.
All borrowings under the revolving line of credit will bear interest at either (i) the prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note as adjusted). The term loan will bear interest at LIBOR, plus the LIBOR Rate Margin (as defined in the term loan note).
As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. The agreement requires the Company to maintain compliance with certain financial covenants, including a minimum tangible net worth, a minimum fixed charge coverage ratio and a leverage ratio. At December 25, 2010, the Company was in compliance with all of the financial covenants.
Outlook
The Company believes that its current financing arrangement with U.S. Bank will provide adequate ability to finance future capital expenditures. We anticipate 2011 capital expenditures of approximately $9.0 million, funded through working capital and various purchase or leasing arrangements. Our plans are not expected to materially affect our financial ratios or liquidity.In connection with the implementation of the Company’s business strategy, discussed in detail in “Item 1: Business,” the Company may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures). Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods. Management believes that the Company will generate positive cash flow from operations during the next twelve months, which, along with its existing working capital and borrowing facilities, will enable the Company to meet its operating cash requirements for the next twelve months. The belief is based on current operating plans and certain assumptions, including those relating to the Company’s future revenue levels and expenditures, industry and general economic conditions and other conditions. For instance, if current general economic conditions continue or worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food products. Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition. If any of these factors change, the Company may require future debt or equity financings to meet its business requirements. Any required financings may not be available or, if available, may not be on terms attractive to the Company.
Off-Balance Sheet Arrangements
Under SEC regulations, in certain circumstances, the Company is required to make certain disclosures regarding the following off-balance sheet arrangements, if material:
· Any obligation under certain guarantee contracts;
· Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
· Any obligation under certain derivative instruments; and
· Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.
The Company does not have any off-balance sheet arrangements that are required to be disclosed pursuant to these regulations, other than those described in the Notes to Consolidated Financial Statements. The Company does not have, nor does it engage in, transactions with any special purpose entities. Other than an interest rate swap, the Company is not engaged in any derivative activities and had no forward exchange contracts outstanding at December 25, 2010. In the ordinary course of business, the Company enters into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States, and are more fully discussed below.
Critical Accounting Policies and Estimates
The Securities and Exchange Commission indicated that a “critical accounting policy” is one which is both important to the portrayal of the Company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:
Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We record specific allowances for receivable balances that are considered at higher risk due to known facts regarding the customer.
Inventories. The Company’s inventories are stated at the lower of cost (first-in, first-out) or market. The Company identifies slow moving or obsolete inventories and estimates appropriate loss provisions related thereto. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Goodwill and Trademarks. Goodwill and trademarks are reviewed for impairment annually, or more frequently if impairment indicators arise. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value. The Company has concluded from its annual impairment testing performed in December that neither of our two reporting units were at risk of failing the impairment test in the near term, and we believe that there are no known risks for that conclusion to change at either of our reporting units. Intangible assets with indefinite lives are required to be tested for impairment between the annual tests if an event occurs or circumstances change indicating that the asset might be impaired. During 2010, the Company determined that the carrying values of two trademarks were fully impaired, and recorded a $0.6 million charge as a result.
Management believes that each of our remaining trademarks has the continued ability to generate cash flows indefinitely, and therefore each of our trademarks has been determined to have an indefinite life. Management’s determination that these trademarks have indefinite lives includes an evaluation of historical cash flows and projected cash flows for each of these trademarks. The Company continues making investments to market and promote each of these brands, and management continues to believe that the market opportunities and brand extension opportunities will generate cash flows for an indefinite period of time. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the useful life of these trademarks, and management intends to renew each of these trademarks, which can be accomplished at little cost.
Advertising and Promotional Expenses and Trade Spending. The Company offers various sales incentive programs to customers and consumers, such as price discounts and coupons. The recognition of expense for these programs involves the use of judgment related to performance and redemption estimates. Estimates are based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from our estimates. The Company expenses production costs of advertising the first time the advertising takes place, except for cooperative advertising costs
which are expensed when the related sales are recognized. Costs associated with obtaining shelf space (i.e., “slotting fees”) are accounted for as a reduction of revenue in the period in which such costs are incurred by the Company. Anytime the Company offers consideration (cash or credit) as a trade advertising or promotional allowance to a purchaser of products at any point along the distribution chain, the amount is accrued and recorded as a reduction in revenue. Marketing programs that deal directly with the consumer, primarily consisting of in-store demonstrations/samples, are recorded as a marketing expense in selling, general and administrative expenses. Further discussion of these marketing programs is expanded upon below:
· Demonstrations/Samples : The Company periodically arranges in-store product demonstrations with club stores or grocery retailers. Product demonstrations are conducted by independent third party providers designated by the various retailer or club chains. During the in-store demonstrations the consumers in the stores receive small samples of our products, and consumers are not required to purchase our product in order to receive the sample. The cost of product used in the demonstrations, which is insignificant, and the fee we pay to the independent third party providers who conduct the in-store demonstrations are recorded as a sales and marketing expense in selling, general and administrative expenses.
· Sponsorship : The Company is a national co-sponsor of American Rivers, a leading conservation organization protecting and restoring America’s rivers. The Company donates a portion of each Boulder Canyon bag sold and is allowed to use the American Rivers mark on packaging and printed materials as well as directly promote products to members and river cleanup volunteers.
Income Taxes. We estimate valuation allowances on deferred tax assets for the portions that we do not believe will be fully utilized based on projected earnings and usage. Our effective tax rate is based on the level of income of our separate legal entities. Significant judgment is required in evaluating tax positions that affect the annual tax rate. Unrecognized tax benefits for uncertain tax positions are established when, despite the fact that the tax return positions are supportable, we believe these positions may be challenged and the results are uncertain. We adjust these liabilities in light of changing facts and circumstances.
Revenue Recognition. In accordance with accounting principles generally accepted in the United States, the Company recognizes operating revenues upon shipment of products to customers provided title and risk of loss pass to its customers. In those instances where title and risk of loss does not pass until delivery, revenue recognition is deferred until delivery has occurred. In our snack products segment, revenue for products sold through our local distribution network is recognized when the product is received by the retailer. Provisions and allowances for sales returns, promotional allowances, coupon redemption and discounts are also recorded as a reduction of revenues in the Company’s consolidated financial statements. These allowances are estimated based on a percentage of sales returns using historical and current market information.
Stock-Based Compensation. We account for our stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option fair values at the date of grant. Prior to May 2008, all stock option grants had a five year term. The fair value of these stock option grants is amortized to expense over the vesting period, generally three years for employees and one year for the Board of Directors. In May 2008, the Company’s Board of Directors approved a ten year term for all future stock option grants. The stock option grants have vesting periods of five years and one year for employees and Board of Director members, respectively.
Self-Insurance Reserves. The Company is partially self-insured for the purposes of providing health care benefits to employees covered by its insurance plan. The plan covers all full-time employees of the Company on the first day of the month after hiring date for salaried employees, and the first day of the month following the ninetieth day of service for hourly employees. The plan covers the employee’s dependents, if elected by the employee. The Company has contracted with an insurance carrier for stop loss coverage that commences when $75,000 in claims is paid annually for a covered participant. In addition, the Company has contracted for aggregate stop loss insurance which provides coverage after the maximum amount paid by the Company exceeds approximately $1.5 million. Estimated unpaid claims are included in accrued liabilities, and represent management’s best estimate of amounts that have not been paid prior to the year-end dates. It is reasonably possible that the expense the Company will ultimately incur could differ.
The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. See the Company’s audited financial statements and notes thereto included in this Annual Report on Form 10-K which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States.
Item 8. Financial Statements and Supplementary Data
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, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act of 1934 (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
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(i) |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
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(ii) |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and
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(iii) |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or instances of fraud. As such, a control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of December 25, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 25, 2010.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended December 25, 2010 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
On March 21, 2011, the Company entered into an amended revolving line of credit with U.S. Bank extending our line from $15.0 million up to $25.0 million, maturing in July 2014. The minimum fixed charge coverage ratio and maximum leverage ratio were modified and the minimum tangible net worth covenant was removed. Aside from the covenant changes, the terms of the equipment term loan and real estate term loan were not materially modified.
Item 10. Directors, Executive Officers and Corporate Governance
Code of Ethics
Each of the Company’s directors, officers and employees are required to comply with the Inventure Foods, Inc. Code of Business Conduct and Ethics adopted by the Company. The Code of Business Conduct and Ethics sets forth policies covering a broad range of subjects and requires strict adherence to laws and regulations applicable to the Company’s business. The Company has also adopted a Financial Code of Ethics for its Chief Executive Officer, Chief Financial Officer and all other finance managers. The Financial Code of Ethics supplements the Code of Business Conduct and Ethics and is intended to emphasize the importance of honest and ethical conduct in connection with the Company’s financial reporting obligations. The Code of Business Conduct and Ethics and the Financial Code of Ethics are available on the Company’s website at www.inventurefoods.com, under the “Investors Relations” section’s “Governance Documents” caption. Copies of these Codes may also be obtained, without charge, by any shareholder upon written request directed to the Secretary of the Company at 5415 East High Street, Suite 350, Phoenix, Arizona 85054. The Company will post to its website any amendments to these Codes, or waiver from the provisions thereof, applicable to the Company’s directors or any principal executive officer, principal financial officer principal accounting officer or controller, or any person performing similar functions under an “Investors-Governance-Code of Business Conduct-Waivers” caption.
The information regarding Directors and Executive Officers appearing under the headings “Proposal 1: Election of Directors,” “Executive Officers,” “Meetings and Committees of the Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s 2011 Proxy Statement is incorporated by reference in this section.
Item 11. Executive Compensation
The information appearing under the headings “Director Compensation,” “Employment Agreements,” “Compensation Committee Report on Executive Compensation” and “Executive Officer Compensation” of the Company’s 2011 Proxy Statement is incorporated by reference in this section.
Item 12. Security Ownership of Beneficial Owners and Management and Related Stockholder Matters
The information appearing under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” of the Company’s 2011 Proxy Statement is incorporated by reference in this section.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information appearing under the heading “Meetings and Committees of the Board of Directors” and “Certain Relationships and Related Transactions” of the Company’s 2011 Proxy Statement is incorporated by reference in this section.
Item 14. Principal Accounting Fees and Services
Information appearing under the heading “Independent Auditors” of the Company’s 2011 Proxy Statement is incorporated by reference in this section.
Item 15. Exhibits and Financial Statement Schedules:
The following documents are filed as part of this Annual Report on Form 10-K
1. Financial Statements
2. Financial Schedules
Schedules have been omitted because of the absence of conditions under which they are required or because the information required is included in the Company’s consolidated financial statements or notes thereto.
3. Exhibits required by Item 601 of Regulation S-K:
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Exhibit |
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Description |
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3.1 |
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— |
Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on February 23, 1995. (1) |
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3.2 |
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— |
Certificate of Amendment to the Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on March 3, 1995. (1) |
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3.3 |
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— |
Certificate of Amendment to the Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on October 7, 1999. (1) |
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3.4 |
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— |
By-Laws of the Company (as amended and restated on January 11, 2005). (2) |
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3.5 |
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— |
Certificate of Amendment to the Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on May 24, 2006. (1) |
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3.6 |
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— |
Certificate of Amendment to the Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on May 20, 2010. (23) |
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4.1 |
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— |
Specimen Certificate for shares of Common Stock. (3) |
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10.10 |
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— |
Fixed Rate Note dated June 4, 1997, by and between La Cometa Properties, Inc. and Morgan Guaranty Trust Company of New York. (4) |
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10.11 |
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— |
Deed of Trust and Security Agreement dated June 4, 1997, by and between La Cometa Properties, Inc. and Morgan Guaranty Trust Company of New York. (4) |
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10.12 |
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— |
Guaranty Agreement dated June 4, 1997, by and between the Company and Morgan Guaranty Trust Company of New York. (4) |
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10.23 |
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— |
License Agreement, dated April 3, 2000, by and between the Company and T.G.I. Friday’s Inc. (Certain portions of this exhibit have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission.) (7) |
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10.25 |
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— |
First Amendment to License Agreement, dated as of July 11, 2001, by and between the Company and T.G.I. Friday’s Inc. (certain portions of this exhibit have been omitted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission.) (8) |
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10.33 |
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— |
Commercial Lease Agreement, dated May 22, 2003, by and between the Company and Westland Park LLC (9) |
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10.34 |
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— |
Warehouse Services Agreement, dated June 30, 2003, by and between the Company and Customized Distribution Services, Inc. (9) |
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10.37 * |
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— |
Form of Officer Nonstatutory Stock Option Agreement. (10) |
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10.40 |
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— |
Loan Agreement (Revolving Line of Credit Loan and Term Loan) dated August 19, 2005 between the Company and |
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U.S. Bank National Association. (11) |
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10.41 |
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— |
Security Agreement relating to the Loan Agreement dated August 19, 2005 between the Company and U.S. Bank National Association. (11) |
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10.42 |
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— |
$5 Million Promissory Note (Facility 1 — Revolving Line of Credit Loan) dated August 19, 2005 between the Company and U.S. Bank National Association. (11) |
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10.43 |
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— |
$756,603 Promissory Note (Facility 2 — Term Loan) dated August 19, 2005 between the Company and U.S. Bank National Association. (11) |
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10.44* |
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— |
Executive Employment Agreement dated August 1, 2005 between the Company and Steven Sklar. (11) |
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10.45* |
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— |
Restricted Stock Agreement dated August 1, 2005 between the Company and Steven Sklar. (11) |
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10.49* |
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— |
Poore Brothers, Inc. Amended and Restated 2005 Equity Incentive Plan. (12) |
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10.50* |
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— |
Form of Director Nonstatutory Stock Option Agreement — Amended and Restated 2005 Equity Incentive Plan. (13) |
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10.51* |
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— |
Form of Employee Incentive Stock Option Agreement — Amended and Restated 2005 Equity Incentive Plan. (13) |
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10.52* |
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— |
Executive Employment Agreement by and between Poore Brothers, Inc. and Eric J. Kufel, dated as of February 14, 2006. (14) |
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10.53* |
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— |
Executive Employment Agreement by and between Poore Brothers, Inc. and Terry McDaniel, dated as of April 17, 2006. (15) |
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10.54 |
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— |
Commercial Lease Agreement, dated May 8, 2006, by and between the Company and B.G. Associates, Inc. (16) |
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10.57* |
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— |
Executive Employment Agreement by and between the Company and Steve Weinberger, dated as of July 27, 2006. (17) |
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10.58* |
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— |
The Inventure Group, Inc. Deferred Compensation Plan. (18) |
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10.59 |
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— |
Asset Purchase Agreement dated as of May 17, 2007, by and among Rader Farms Acquisition Corp., Rader Farms, Inc. and the Company Shareholders named therein. (19) |
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10.60 |
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— |
Agricultural Ground Lease dated as of May 17, 2007, by and among Lyle Rader, Sue Rader, Brad Rader, Julie Newell and Rader Farms Acquisition Corp. (19) |
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10.61 |
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— |
Loan Agreement (Revolving Line of Credit and Term Loan) dated as of May 16, 2007, by and between The Inventure Group, Inc. and U.S. Bank, National Association. (19) |
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10.62 |
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— |
Promissory Note (Facility 1 — Revolving Line of Credit Loan) dated May 16, 2007, by The Inventure Group, Inc. in favor of U.S. Bank, National Association. (19) |
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10.63 |
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— |
Promissory Note (Facility 2 — Term Loan) dated May 16, 2007, by The Inventure Group, Inc. in favor of U.S. Bank, National Association. (19) |
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10.64 |
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— |
Security Agreement (Blanket — All Business Assets) dated as of May 16, 2007, by and among between The Inventure Group, Inc., La Cometa Properties, Inc., Poore Brothers Bluffton, LLC, Tejas PB Distributing, Inc., Boulder Natural Foods, Inc., BN Foods, Inc., Rader Farms Acquisition Corp. and U.S. Bank, National Association. (19) |
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10.65 |
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— |
Term Loan Agreement dated as of June 28, 2007, by and between The Inventure Group, Inc. and U.S. Bank, National Association. (19) |
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10.66 |
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— |
Promissory Note Secured by Deed of Trust (Term Loan) dated June 28, 2007, by The Inventure Group, Inc. in favor of U.S. Bank, National Association. (19) |
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10.67 |
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— |
Deed of Trust dated June 28, 2007, by and between Rader Farms Acquisition Corp. and U.S. Bank National Association. (19) |
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10.68* |
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— |
Letter Agreement effective as of May 19, 2008, by and between the Company and Eric J. Kufel. (20) |
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10.69* |
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— |
Form of Employee Restricted Stock Award Agreement — Amended and Restated 2005 Equity Incentive Plan. (21) |
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10.70* |
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— |
Form Amendment of Stock Option Agreement. (24) |
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10.71* |
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— |
Form Executive Stock Option Agreement - Amended and Restated 2005 Equity Incentive Plan. (24) |
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10.72* |
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— |
Form Performance Share Restricted Stock Award Agreement — Amended and Restated 2005 Equity Incentive Plan. (25) |
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10.73* |
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— |
2011 Bonus Plan. (26) |
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10.74* |
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Executive Employment Agreement by and between the Company and Richard Suchenski, dated as of June 21, 2010. (27) |
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10.75* |
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— |
Form of Director Restricted Stock Award Agreement — Amended and Restated 2005 Equity Incentive Plan. (27) |
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10.76 |
|
— |
Loan Modification and Extension Agreement (Revolving Line of Credit and Term Loan) dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank, National Association. (27) |
|
10.77 |
|
— |
Amended and Restated Promissory Note (Facility 1 - Revolving Line of Credit Loan) dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank, National Association (27) |
|
10.78 |
|
— |
Amendment to Leasehold Deed of Trust with Assignment of Rents, Security Agreement, and Fixture Filing and Memorandum of Modification dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank, National Association (27) |
|
10.79 |
|
— |
Amended and Restated Security Agreement (Blanket-All Business Assets), dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank, National Association. (27) |
|
|
|
|
|
|
21.1 |
|
— |
List of Subsidiaries of the Company. (22) |
|
23.1 |
|
— |
Consent of Moss Adams LLP (27) |
|
31.1 |
|
— |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a). (27) |
|
31.2 |
|
— |
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (27) |
|
32 |
|
— |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (27) |
* Management compensatory plan or arrangement.
|
(1) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 23, 2006. |
|
(2) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 12, 2005. |
|
(3) |
|
Incorporated by reference to the Company’s Registration Statement on Form SB-2, Registration No. 333-5594-LA. |
|
(4) |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997. |
|
(5) |
|
Incorporated by reference to the Company’s definitive Proxy Statement on Schedule 14A filed with the Commission on September 19, 1999. |
|
(6) |
|
Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999. |
|
(7) |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2001. |
|
(8) |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001. |
|
(9) |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2003. |
|
(10) |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004. |
|
(11) |
|
Incorporated by reference to the to the Company’s Quarterly Report on 10-Q for the quarter ended October 1, 2005. |
|
(12) |
|
Incorporated by reference to the Company’s definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 18, 2008. |
|
(13) |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. |
|
(14) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on February 16, 2006. |
|
(15) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 17, 2006. |
|
(16) |
|
Incorporated by reference to the Company’s Quarterly Report on 10-Q for the quarter ended April 1, 2006. |
|
(17) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K fild on July 27, 2006. |
|
(18) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 23, 2007. |
|
(19) |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|
(20) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 9, 2008. |
|
(21) |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2009. |
|
(22) |
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. |
|
(23) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 24, 2010. |
|
(24) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 22, 2010. |
|
(25) |
|
Incorporated by reference to the Company’s Current Report on Form 10-Q filed on August 10, 2010. |
|
(26) |
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 17, 2011. |
|
(27) |
|
Filed herewith. |
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.
|
Dated: March 25, 2011 |
INVENTURE FOODS, INC. | |
|
|
|
|
|
|
By: |
/s/ Terry McDaniel |
|
|
|
Terry McDaniel |
|
|
|
Chief Executive Officer |
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, in the capacities and on the dates indicated.
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
|
/s/ Terry McDaniel |
|
Chief Executive Officer and Director |
|
March 25, 2011 |
|
Terry McDaniel |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
/s/ Steve Weinberger |
|
Chief Financial Officer, Secretary & Treasurer |
|
March 25, 2011 |
|
Steve Weinberger |
|
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
|
|
/s/ Itzhak Reichman |
|
Chairman and Director |
|
March 25, 2011 |
|
Itzhak Reichman |
|
|
|
|
|
|
|
|
|
|
|
/s/ Larry Polhill |
|
Director |
|
March 25, 2011 |
|
Larry Polhill |
|
|
|
|
|
|
|
|
|
|
|
/s/ Ashton D. Asensio |
|
Director |
|
March 25, 2011 |
|
Ashton D. Asensio |
|
|
|
|
|
|
|
|
|
|
|
/s/ Mark S. Howells |
|
Director |
|
March 25, 2011 |
|
Mark S. Howells |
|
|
|
|
|
|
|
|
|
|
|
/s/ Macon Bryce Edmonson |
|
Director |
|
March 25, 2011 |
|
Macon Bryce Edmonson |
|
|
|
|
|
|
|
|
|
|
|
/s/ Ronald Kesselman |
|
Director |
|
March 25, 2011 |
|
Ronald Kesselman |
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Inventure Foods, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Inventure Foods, Inc. and subsidiaries (the “Company”) as of December 25, 2010 and December 26, 2009 and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for each of the years in the two-year period ended December 25, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inventure Foods, Inc. as of December 25, 2010 and December 26, 2009, and the results of their operations and their cash flows for each of the years in the two-year period ended December 25, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ MOSS ADAMS LLP
Scottsdale, Arizona
March 25, 2011
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
December 25, |
|
December 26, |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
980,547 |
|
$ |
1,102,689 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $109,142 in 2010 and $101,076 in 2009 |
|
11,703,056 |
|
10,884,986 |
| ||
|
Inventories |
|
21,814,930 |
|
17,445,163 |
| ||
|
Deferred income tax asset |
|
621,801 |
|
651,761 |
| ||
|
Other current assets |
|
1,295,837 |
|
1,045,797 |
| ||
|
Total current assets |
|
36,416,171 |
|
31,130,396 |
| ||
|
|
|
|
|
|
| ||
|
Property and equipment, net |
|
28,007,869 |
|
23,734,921 |
| ||
|
Goodwill |
|
11,616,225 |
|
11,616,225 |
| ||
|
Trademarks and other intangibles, net |
|
2,075,160 |
|
2,757,161 |
| ||
|
Other assets |
|
705,442 |
|
596,157 |
| ||
|
Total assets |
|
$ |
78,820,867 |
|
$ |
69,834,860 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
7,707,475 |
|
$ |
6,751,612 |
|
|
Accrued liabilities |
|
6,452,845 |
|
5,314,180 |
| ||
|
Current portion of long-term debt |
|
1,692,193 |
|
1,204,475 |
| ||
|
Total current liabilities |
|
15,852,513 |
|
13,270,267 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt, less current portion |
|
11,567,800 |
|
10,037,902 |
| ||
|
Line of credit |
|
9,096,892 |
|
9,870,590 |
| ||
|
Deferred income tax liability |
|
3,337,290 |
|
3,077,343 |
| ||
|
Interest rate swaps |
|
649,389 |
|
452,292 |
| ||
|
Other liabilities |
|
527,325 |
|
219,903 |
| ||
|
Total liabilities |
|
41,031,209 |
|
36,928,297 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Notes 7 and 11) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Shareholders’ equity: |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Common stock, $.01 par value; 50,000,000 shares authorized; 18,372,824 and 18,255,600 shares issued and outstanding at December 25, 2010 and December 26, 2009, respectively |
|
183,729 |
|
182,557 |
| ||
|
Additional paid-in capital |
|
26,557,191 |
|
26,025,511 |
| ||
|
Accumulated other comprehensive loss |
|
(306,902 |
) |
(188,429 |
) | ||
|
Retained earnings |
|
11,826,835 |
|
7,358,119 |
| ||
|
|
|
38,260,853 |
|
33,377,758 |
| ||
|
Less : treasury stock, at cost: 367,957 shares at December 25, 2010 and December 26, 2009 |
|
(471,195 |
) |
(471,195 |
) | ||
|
Total shareholders’ equity |
|
37,789,658 |
|
32,906,563 |
| ||
|
Total liabilities and shareholders’ equity |
|
$ |
78,820,867 |
|
$ |
69,834,860 |
|
The accompanying notes are an integral part of these consolidated financial statements.
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
December 25, |
|
December 26, |
| ||
|
|
|
|
|
|
| ||
|
Net revenues |
|
$ |
133,987,442 |
|
$ |
121,011,309 |
|
|
|
|
|
|
|
| ||
|
Cost of revenues |
|
105,181,340 |
|
97,189,028 |
| ||
|
|
|
|
|
|
| ||
|
Gross profit |
|
28,806,102 |
|
23,822,281 |
| ||
|
|
|
|
|
|
| ||
|
Selling, general and administrative expenses |
|
21,452,007 |
|
16,746,148 |
| ||
|
|
|
|
|
|
| ||
|
Operating income |
|
7,354,095 |
|
7,076,133 |
| ||
|
|
|
|
|
|
| ||
|
Interest expense, net |
|
(877,624 |
) |
(878,807 |
) | ||
|
|
|
|
|
|
| ||
|
Income before income tax provision |
|
6,476,471 |
|
6,197,326 |
| ||
|
|
|
|
|
|
| ||
|
Income tax provision |
|
(2,007,755 |
) |
(2,415,687 |
) | ||
|
|
|
|
|
|
| ||
|
Net income |
|
$ |
4,468,716 |
|
$ |
3,781,639 |
|
|
|
|
|
|
|
| ||
|
Earnings per common share: |
|
|
|
|
| ||
|
Basic |
|
$ |
0.25 |
|
$ |
0.21 |
|
|
Diluted |
|
$ |
0.24 |
|
$ |
0.21 |
|
|
|
|
|
|
|
| ||
|
Weighted average number of common shares: |
|
|
|
|
| ||
|
Basic |
|
17,923,685 |
|
17,955,165 |
| ||
|
Diluted |
|
18,546,486 |
|
18,239,380 |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|
| ||||||
|
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
|
| ||||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Stock, at Cost |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Balance, December 27, 2008 |
|
18,252,386 |
|
$ |
182,525 |
|
$ |
25,740,911 |
|
$ |
3,576,480 |
|
$ |
(448,610 |
) |
$ |
— |
|
$ |
29,051,306 |
|
|
Net income |
|
|
|
|
|
|
|
3,781,639 |
|
|
|
|
|
3,781,639 |
| ||||||
|
Other comprehensive income, net of tax |
|
— |
|
— |
|
— |
|
— |
|
260,181 |
|
— |
|
260,181 |
| ||||||
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,041,820 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Restricted stock and related compensation expense |
|
— |
|
— |
|
41,360 |
|
— |
|
— |
|
— |
|
41,360 |
| ||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
242,382 |
|
— |
|
— |
|
— |
|
242,382 |
| ||||||
|
Purchase of treasury stock, at cost |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(471,195 |
) |
(471,195 |
) | ||||||
|
Exercise of stock options and issuance of restricted stock |
|
3,214 |
|
32 |
|
858 |
|
|
|
|
|
|
|
890 |
| ||||||
|
Balance, December 26, 2009 |
|
18,255,600 |
|
$ |
182,557 |
|
$ |
26,025,511 |
|
$ |
7,358,119 |
|
$ |
(188,429 |
) |
$ |
(471,195 |
) |
$ |
32,906,563 |
|
|
Net income |
|
|
|
|
|
|
|
4,468,716 |
|
|
|
|
|
4,468,716 |
| ||||||
|
Other comprehensive loss, net of tax |
|
— |
|
— |
|
— |
|
— |
|
(118,473 |
) |
— |
|
(118,473 |
) | ||||||
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,350,243 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Restricted stock and related compensation expense |
|
— |
|
— |
|
288,401 |
|
— |
|
— |
|
— |
|
288,401 |
| ||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
244,451 |
|
— |
|
— |
|
— |
|
244,451 |
| ||||||
|
Exercise of stock options and issuance of restricted stock |
|
117,224 |
|
1,172 |
|
(1,172 |
) |
|
|
|
|
|
|
— |
| ||||||
|
Balance, December 25, 2010 |
|
18,372,824 |
|
$ |
183,729 |
|
$ |
26,557,191 |
|
$ |
11,826,835 |
|
$ |
(306,902 |
) |
$ |
(471,195 |
) |
$ |
37,789,658 |
|
The accompanying notes are an integral part of these consolidated financial statements.
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
December 25, |
|
December 26, |
| ||
|
Cash flows provided by operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
4,468,716 |
|
$ |
3,781,639 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation |
|
3,862,095 |
|
3,413,943 |
| ||
|
Amortization |
|
62,442 |
|
62,442 |
| ||
|
Impairment of trademark |
|
640,000 |
|
— |
| ||
|
Provision for bad debts |
|
8,067 |
|
95,994 |
| ||
|
Deferred income taxes |
|
289,907 |
|
728,095 |
| ||
|
Share-based compensation expense |
|
244,451 |
|
242,382 |
| ||
|
Restricted stock compensation expense |
|
288,401 |
|
41,360 |
| ||
|
Loss on disposition of equipment |
|
25,380 |
|
— |
| ||
|
Change in assets and liabilities: |
|
|
|
|
| ||
|
Accounts receivable |
|
(826,136 |
) |
(1,213,230 |
) | ||
|
Inventories |
|
(4,369,767 |
) |
(3,465,637 |
) | ||
|
Other assets and liabilities |
|
290,551 |
|
(545,787 |
) | ||
|
Accounts payable and accrued liabilities |
|
2,094,528 |
|
(119,356 |
) | ||
|
Net cash provided by operating activities |
|
7,078,635 |
|
3,021,845 |
| ||
|
Cash flows used in investing activities: |
|
|
|
|
| ||
|
Purchase of land, building and equipment |
|
(8,030,153 |
) |
(2,600,805 |
) | ||
|
Net cash used in investing activities |
|
(8,030,153 |
) |
(2,600,805 |
) | ||
|
Cash flows provided by (used in) financing activities: |
|
|
|
|
| ||
|
Net borrowings on line of credit |
|
(773,698 |
) |
1,681,600 |
| ||
|
Proceeds from issuance of restricted stock |
|
— |
|
890 |
| ||
|
Payments made on capital lease obligations |
|
(143,801 |
) |
— |
| ||
|
Proceeds from lender for capital lease financing |
|
2,953,315 |
|
— |
| ||
|
Payments made on long term debt |
|
(1,206,440 |
) |
(1,213,213 |
) | ||
|
Treasury stock purchases |
|
— |
|
(471,195 |
) | ||
|
Net cash provided by (used in) financing activities |
|
829,376 |
|
(1,918 |
) | ||
|
Net (decrease) increase in cash and cash equivalents |
|
(122,142 |
) |
419,122 |
| ||
|
Cash and cash equivalents at beginning of year |
|
1,102,689 |
|
683,567 |
| ||
|
Cash and cash equivalents at end of year |
|
$ |
980,547 |
|
$ |
1,102,689 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
|
Cash paid during the period for interest |
|
$ |
889,533 |
|
$ |
864,725 |
|
|
Cash paid during the period for income taxes |
|
1,597,330 |
|
2,115,600 |
| ||
|
|
|
|
|
|
| ||
|
Supplemental disclosures of non-cash investing and financing transactions: |
|
|
|
|
| ||
|
Capital lease obligations incurred for the acquisition of property and equipment |
|
$ |
129,303 |
|
$ |
— |
|
The accompanying notes are an integral part of these consolidated financial statements.
INVENTURE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Business and Summary of Significant Accounting Policies:
Inventure Foods, Inc., a Delaware corporation (the “Company”), is a $130+ million leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. The Company changed its name in May 2010 to Inventure Foods, Inc. from The Inventure Group, Inc. to emphasize its focus as an innovative food maker and manufacturer. The Company is headquartered in Phoenix, Arizona with plants in Arizona, Indiana and Washington. The Company’s executive offices are located at 5415 East High Street, Suite 350, Phoenix, Arizona 85054, and its telephone number is (623) 932-6200.
The Company was formed in 1995 as a holding company to acquire a potato chip manufacturing and distribution business, which had been founded by Donald and James Poore in 1986. In December 1996, the Company completed an initial public offering of its Common Stock. In November 1998, the Company acquired the business and certain assets (including the Bob’s Texas Style® potato chip brand) of Tejas Snacks, L.P. (“Tejas”), a Texas-based potato chip manufacturer. In October 1999, the Company acquired Wabash Foods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®, and Pizzarias® trademarks and the Bluffton, Indiana manufacturing operation and assumed all of Wabash Foods’ liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc. (“Boulder”) and the Boulder CanyonTM brand of totally natural potato chips. In May 2007, the Company acquired Rader Farms, Inc., including a farming operation and a berry processing facility in Lynden, Washington.
The Company’s goal is to build a rapidly growing specialty brand company that specializes on evolving consumer eating habits in two primary product segments: 1) healthy/natural food products 2) indulgent specialty snack food brands. The Company sells its products nationally through a number of channels including: Grocery, Natural, Mass, Drug, Club, Vending, Food Service, Convenience Stores and International.
In the healthy/natural portfolio, products include Rader Farms frozen berries, Boulder Canyon Natural Foods™ brand kettle cooked potato chips, and Jamba® branded blend-and-serve smoothie kits under license from Jamba Juice Company. In the Indulgent Specialty category, products include TGI Friday’s® brand snacks under license from TGI Friday’s Inc., BURGER KING™ brand snack products under license from Burger King Corporation, Poore Brothers® kettle cooked potato chips, Bob’s Texas Style® kettle cooked chips, and Tato Skins® brand potato snacks. The Company also manufactures private label snacks for certain grocery retail chains and distributes snack food products in Arizona that are manufactured by others.
The Company’s frozen berry products are manufactured by Rader Farms, Inc. (“Rader Farms”) a Washington corporation located in Whatcom County, and acquired by the Company in May of 2007. Rader Farms grows, processes and markets premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution to wholesale customers. The Company also uses third party processors for certain products.
The Company’s snack products are manufactured at the Arizona and Indiana plants as well as some third party plants for certain products.
The Company’s fiscal year ends on the last Saturday occurring in the month of December of each calendar year. Accordingly, fiscal 2010 commenced December 27, 2009 and ended December 25, 2010. The fiscal year end dates result in an additional week of results every five or six years.
Business
The Company is engaged in the development, production, marketing and distribution of innovative snack food products and frozen berry products that are sold primarily through grocery retailers, mass merchandisers, club stores, convenience stores and vend distributors across the United States and internationally. The Company currently manufactures and sells nationally T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. and BURGER KING TM brand snack products under license from Burger King Corporation. The Company currently (i) manufactures and sells its own brands of snack food products, including Poore Brothers®, Bob’s Texas Style® and Boulder CanyonTM Natural Foods brand batch-fried potato chips, Tato Skins® brand potato snacks and O’Boises® potato snacks (ii) manufactures private label snacks for grocery and various other retail chains and (iii) distributes in Arizona snack food products that are manufactured by others. The Company sells its T.G.I. Friday’s® brand snack products and BURGER KING TM brand snack products to mass merchandisers, grocery, club and drug stores directly and to primarily convenience
stores and vend operators through independent distributors. The Company’s other brands are also sold through independent distributors.
In addition, the Company grows, processes and markets premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries, and other fruits from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution nationally to wholesale customers under the Rader Farms® brand, as well as through store brands. In 2009, the Company entered into a license agreement with Jamba Juice Company and launched in 2010 a line of Jamba® branded blend-and-serve smoothie kits with all natural vitamin and mineral boosts and a variety of fresh-frozen, whole fruit pieces, including raspberries and blueberries from Rader Farms.
Principles of Consolidation
The consolidated financial statements include the accounts of Inventure Foods, Inc. and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company routinely evaluates its estimates, including those related to accruals for customer programs and incentives, product returns, bad debts, income taxes, long-lived assets, inventories, stock based compensation, interest rate swap valuations, accrued broker commissions and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Reclassifications
Certain 2009 amounts have been reclassified to conform to the 2010 presentation. Specifically, we reclassified $9.9 million line of credit balance from current liabilities to long-term liabilities on the Company’s consolidated balance sheets. In addition, the Company’s previously reported distributed products segment is now included in the Company’s Snack Products segment. See Footnote 10 “Business Segments and Significant Customers.”
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The Company classifies its investments based upon an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
|
Level 1 |
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
|
|
|
|
|
Level 2 |
|
Quoted prices in markets that are not considered to be active or financial instruments without quoted market prices, but for which all significant inputs are observable, either directly or indirectly; |
|
|
|
|
|
Level 3 |
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
At December 25, 2010 and December 26, 2009, the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values since they are short-term in nature. The carrying value of the long-term debt approximates fair-value based on the borrowing rates currently available to the Company for long-term borrowings with similar terms.
|
|
|
Fair Value at December 25, 2010 |
| ||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||
|
Interest rate swaps |
|
|
|
$ |
649,389 |
|
|
|
$ |
649,389 |
|
Considerable judgment is required in interpreting market data to develop the estimate of fair value of our derivative instruments. Accordingly, the estimate may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
Derivative Financial Instruments
The Company utilizes interest rate swaps in the management of its variable interest rate exposure and does not enter into derivatives for trading purposes. All derivatives are measured at fair value. The Company’s interest rate swaps are classified as cash flow hedges.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable consist primarily of receivables from customers and distributors for products purchased. Receivable are past due when they are unpaid greater than thirty days. The Company determines any required reserves by considering a number of factors, including the length of time the accounts receivable have been outstanding, and the Company’s loss history. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. The Company identifies slow moving or obsolete inventories and estimates appropriate write-down provisions related thereto. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. In the ordinary course of business, the Company manages price and supply risk of commodities by entering into various short-term purchase arrangements with its vendors.
Property and Equipment
Property and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements. Maintenance and repairs are charged to operations when incurred. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the appropriate accounts, and the resulting gain or loss is recognized. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, ranging from two to thirty years. We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis when placed into service over three years.
The Company evaluates the recoverability of property and equipment not held for sale by comparing the carrying amount of the asset or group of assets against the estimated undiscounted future cash flows expected to result from the use of the asset or group of assets and their eventual disposition, in accordance with relevant authoritative guidance. If the undiscounted future cash flows are less than the carrying value of the asset or group of assets being evaluated, an impairment loss is recorded. The loss is measured as the difference between the fair value and carrying value of the asset or group of assets being evaluated. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less cost to sell. The estimated fair value would be based on the best information available under the circumstances, including prices for similar assets or the results of valuation techniques, including the present value of expected future cash flows using a discount rate commensurate with the risks involved.
Intangible Assets
Goodwill and trademarks are reviewed for impairment annually or more frequently if impairment indicators arise. Goodwill, by reporting unit, is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduces the fair value of a reporting unit below its carrying value. The Company has concluded from its annual impairment testing performed in December that neither of our two reporting units were at risk of failing the impairment test in the near term, and we believe that there are no known risks for that conclusion to change at either of our reporting units. Intangible assets with indefinite lives are required to be tested for impairment between the annual tests if an event occurs or circumstances change indicating
that the asset might be impaired. Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives, which is the estimated period over which economic benefits are expected to be provided.
Management believes that each of our trademarks has the continued ability to generate cash flows indefinitely, and therefore each of our trademarks has been determined to have an indefinite life. Management’s determination that our trademarks have indefinite lives includes an evaluation of historical cash flows and projected cash flows for each of these trademarks. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the useful life of these trademarks, and management intends to renew each of these trademarks, which can be accomplished at little cost.
During 2010, the Company determined that the carrying values of two trademarks were fully impaired, and recorded a $0.6 million charge as a result.
See Footnote 2 “Goodwill, Trademarks, and Other Intangible Assets” for additional information.
Self-Insurance Reserves
The Company is partially self-insured for the purposes of providing health care benefits to employees covered by its insurance plan. The plan covers all full-time employees of the Company on the first day of the month after hiring date for salaried employees, and the first day of the month following the ninetieth day of service for hourly employees. The plan covers the employee’s dependents, if elected by the employee. The Company has contracted with an insurance carrier for stop loss coverage that commences when $75,000 in claims is paid annually for a covered participant. In addition, the Company has contracted for aggregate stop loss insurance which provides coverage after the maximum amount paid by the Company exceeds approximately $1.5 million. Estimated unpaid claims included in accrued liabilities amount to $221,742 and $187,774 at December 25, 2010 and December 26, 2009 respectively. These amounts represents management’s best estimate of amounts that have not been paid prior to the year-end dates. It is reasonably possible that the expense the Company will ultimately incur could differ.
Revenue Recognition
In accordance with accounting principles generally accepted in the United States, the Company recognizes operating revenues upon shipment of products to customers provided title and risk of loss pass to its customers. In those instances where title and risk of loss does not pass until delivery, revenue recognition is deferred until delivery has occurred. Revenue for direct store delivery distributed products is recognized when the product is received by the retailer. Provisions and allowances for sales returns, promotional allowances and discounts are recorded as a reduction of revenues in the Company’s consolidated financial statements.
Advertising and Promotional Expenses and Trade Spending.
The Company expenses production costs of advertising the first time the advertising takes place, except for cooperative advertising costs which are expensed when the related sales are recognized. Costs associated with obtaining shelf space (i.e., “slotting fees”) are accounted for as a reduction of revenue in the period in which such costs are incurred by the Company. Anytime the Company offers consideration (cash or credit) as a trade advertising or promotional allowance to a purchaser of products at any point along the distribution chain, the amount is accrued and recorded as a reduction in revenue when the transaction occurs. Marketing programs that deal directly with the consumer, primarily consisting of in-store demonstration/samples, are recorded as a marketing expense in selling, general and administrative expenses. Further discussion of these marketing programs is expanded upon below:
· Demonstrations/Samples: The Company will periodically arrange in-store product demonstrations with club stores or grocery retailers. Product demonstrations are conducted by independent third party providers designated by the various retailer or club chains. During the in-store demonstrations the consumers in the stores receive small samples of our products, and consumers are not required to purchase our product in order to receive the sample. The cost of product used in the demonstrations, which is insignificant, and the fee paid to the independent third party providers who conduct the in-store demonstrations are recorded as a sales and marketing expense in selling, general and administrative expenses.
· Sponsorships : The Company is a national co-sponsor of American Rivers, a leading conservation organization protecting and restoring America’s rivers. The Company donates a portion of each Boulder Canyon bag sold and is allowed to use the American Rivers mark on packaging and printed materials as well as directly promote products to members and river cleanup volunteers.
Shipping and Handling
Shipping and handling costs are included in cost of revenues. The Company does not bill customers for freight.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The authoritative guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
It is the Company’s policy to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest or penalties recorded during the years ended December 25, 2010 and December 26, 2009.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company’s U.S. federal income tax returns for years 2007 through 2010 remain open to examination by the Internal Revenue Service. The Company’s state tax returns for years 2006 through 2010 remain open to examination by the state jurisdictions.
Stock Options and Stock-Based Compensation
Stock options and other stock based compensation awards expense are adjusted for estimated forfeitures and are recognized on a straight-line basis over the requisite period of the award, which is currently five to ten years for stock options, and one to three years for restricted stock. The Company estimates future forfeiture rates based on its historical experience.
Compensation costs related to all share-based payment arrangements, including employee stock options, are recognized in the financial statements based on the fair value method of accounting. Excess tax benefits related to share-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities.
See Footnote 8 “Shareholder’s Equity” for additional information.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by including all dilutive common shares such as stock options and restricted stock. The total stock options outstanding of 2,145,500 and restricted shares outstanding of 364,353 were excluded from the weighted average per share calculation for the year ended December 25, 2010 because inclusion of such would be anti-dilutive. The total stock options outstanding of 2,130,500 and restricted shares outstanding of 124,353 were excluded from the weighted average per share calculation for the year ended December 26, 2009 because inclusion of such would be anti-dilutive. Exercises of outstanding stock options or warrants are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive. Earnings per common share was computed as follows for the years ended December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Basic Earnings Per Common Share: |
|
|
|
|
| ||
|
Net income |
|
$ |
4,468,716 |
|
$ |
3,781,639 |
|
|
|
|
|
|
|
| ||
|
Weighted average number of common shares |
|
17,923,685 |
|
17,955,165 |
| ||
|
Earnings per common share |
|
$ |
0.25 |
|
$ |
0.21 |
|
|
|
|
|
|
|
| ||
|
Diluted Earnings Per Common Share: |
|
|
|
|
| ||
|
Net income |
|
$ |
4,468,716 |
|
$ |
3,781,639 |
|
|
|
|
|
|
|
| ||
|
Weighted average number of common shares |
|
17,923,685 |
|
17,955,165 |
| ||
|
Incremental shares from assumed conversions - stock options and restricted stock |
|
622,801 |
|
284,215 |
| ||
|
Adjusted weighted average number of common shares |
|
18,546,486 |
|
18,239,380 |
| ||
|
|
|
|
|
|
| ||
|
Earnings per common share |
|
$ |
0.24 |
|
$ |
0.21 |
|
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued.
Recent Accounting Pronouncements
In January 2010, the FASB issued an amendment to require new disclosures for fair value measurements and provide clarification for existing disclosure requirements. More specifically, this update requires (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The Company adopted this standard at the beginning of its 2010 fiscal year and it did not have a material impact on the Consolidated Financial Statement note disclosures.
In June 2009, the FASB issued a new standard that changed the definition of a variable interest entity (“VIE”), contained new criteria for determining the primary beneficiary of a VIE, required enhanced disclosures to provide more information about a company’s involvement in a VIE and increased the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. The adoption of this standard at the beginning of the fiscal 2010 had no impact on the Company’s financial position, results of operations or cash flows.
In August 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on the measurement of liabilities at fair value. The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted this guidance in the quarter ended September 26, 2009 and there was no material impact on the Company’s financial position, results of operations or liquidity.
2. Goodwill, Trademarks, and Other Intangible Assets:
Goodwill, trademarks and other intangibles, net consisted of the following as of December 25, 2010 and December 26, 2009:
|
|
|
Estimated |
|
December 25, |
|
December 26, |
| ||
|
Goodwill: |
|
|
|
|
|
|
| ||
|
Inventure Foods, Inc. |
|
|
|
$ |
5,986,252 |
|
$ |
5,986,252 |
|
|
Rader Farms, Inc. |
|
|
|
5,629,973 |
|
5,629,973 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total goodwill |
|
|
|
$ |
11,616,225 |
|
$ |
11,616,225 |
|
|
|
|
|
|
|
|
|
| ||
|
Trademarks: |
|
|
|
|
|
|
| ||
|
Inventure Foods, Inc. |
|
|
|
$ |
895,659 |
|
$ |
1,535,659 |
|
|
Rader Farms, Inc. |
|
|
|
1,070,000 |
|
1,070,000 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Other intangibles: |
|
|
|
|
|
|
| ||
|
Rader - Covenant-not-to-compete, gross carrying amount |
|
5 years |
|
160,000 |
|
160,000 |
| ||
|
Rader - Covenant-not-to-compete, accum. amortization |
|
|
|
(114,681 |
) |
(82,676 |
) | ||
|
Rader - Customer relationship, gross carrying amount |
|
10 years |
|
100,000 |
|
100,000 |
| ||
|
Rader - Customer relationship, accum. amortization |
|
|
|
(35,818 |
) |
(25,822 |
) | ||
|
|
|
|
|
|
|
|
| ||
|
Total trademarks and other intangibles, net |
|
|
|
$ |
2,075,160 |
|
$ |
2,757,161 |
|
The weighted average useful life of amortizable intangible assets is 6.92 years. The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely. Amortization expense for the years ending December 25, 2010 and December 26, 2009 was $42,001 and $41,999, respectively. As of December 25, 2010, we expect amortization expense on these intangible assets over the next five years to be as follows:
|
2011 |
|
$ |
42,000 |
|
|
2012 |
|
$ |
23,319 |
|
|
2013 |
|
$ |
10,000 |
|
|
2014 |
|
$ |
10,000 |
|
|
2015 |
|
$ |
10,000 |
|
Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduces the fair value of a reporting unit below its carrying value. Intangible assets with indefinite lives are required to be tested for impairment between the annual tests if an event occurs or circumstances change indicating that the asset might be impaired. During the fourth quarter of 2010, the Company determined the carrying values of two trademarks were impaired utilizing a discounted cash flow analysis, and recorded a $0.6 million charge to write off the trademarks. This expense is recorded in “Selling, general, and administrative expenses” on the Company’s Consolidated Statements of Income. The Company believes the carrying values of its intangible assets are appropriate after recognition of the trademark impairment.
3. Accrued Liabilities:
Accrued liabilities consisted of the following as of December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Accrued payroll and payroll taxes |
|
$ |
1,697,932 |
|
$ |
1,635,564 |
|
|
Accrued royalties and commissions |
|
732,817 |
|
809,095 |
| ||
|
Accrued advertising and promotion |
|
1,049,888 |
|
1,327,021 |
| ||
|
Accrued other |
|
2,972,208 |
|
1,542,500 |
| ||
|
|
|
$ |
6,452,845 |
|
$ |
5,314,180 |
|
4. Inventories:
Inventories consisted of the following as of December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Finished goods |
|
$ |
6,576,130 |
|
$ |
5,558,696 |
|
|
Raw materials |
|
15,238,800 |
|
11,886,467 |
| ||
|
|
|
$ |
21,814,930 |
|
$ |
17,445,163 |
|
5. Property and Equipment:
Property and equipment consisted of the following as of December 25, 2010 and December 26, 2009:
|
|
|
Useful Lives |
|
2010 |
|
2009 |
| ||
|
Buildings and improvements |
|
20 – 30 years |
|
$ |
12,341,082 |
|
$ |
11,371,130 |
|
|
Equipment |
|
7 – 15 years |
|
31,759,078 |
|
25,278,715 |
| ||
|
Land |
|
— |
|
346,506 |
|
346,506 |
| ||
|
Vehicles |
|
5 years |
|
46,128 |
|
61,689 |
| ||
|
Furniture and office equipment |
|
2 – 5 years |
|
5,035,441 |
|
4,382,689 |
| ||
|
|
|
|
|
49,528,235 |
|
41,440,729 |
| ||
|
Less accumulated depreciation and amortization |
|
|
|
(21,520,366 |
) |
(17,705,808 |
) | ||
|
|
|
|
|
$ |
28,007,869 |
|
$ |
23,734,921 |
|
The total cost of equipment and furniture and office equipment included in the table above held under capital lease obligations was $3.6 million and $0.04 million as of December 25, 2010 and December 26, 2009, respectively. Depreciation expense, including amortization of property under capital leases, for fiscal years 2010 and 2009 was $3.9 million and $3.4 million, respectively.
6. Long-Term Debt and Line of Credit:
Long-term debt consisted of the following as of December 25, 2010 and December 26, 2009:
|
|
|
December 25, |
|
December 26, |
| ||
|
Mortgage loan due monthly through July, 2012; interest at 9.03%; collateralized by land and building in Goodyear, AZ |
|
$ |
1,447,228 |
|
$ |
1,515,079 |
|
|
Mortgage loan due monthly through December, 2016; interest rate at 30 day LIBOR plus 165 basis points, fixed through a swap agreement to 6.85%; collateralized by land and building in Bluffton, IN |
|
2,152,254 |
|
2,220,877 |
| ||
|
Equipment term loan due monthly through May, 2014; interest at LIBOR plus 165 basis points; collateralized by equipment at Rader Farms in Lynden, WA |
|
3,000,000 |
|
3,857,143 |
| ||
|
Real Estate term loan due monthly through July, 2017; interest at LIBOR plus 165 basis points; fixed through a swap agreement to 4.28%; secured by a leasehold interest in the real property in Lynden, WA |
|
3,430,943 |
|
3,612,125 |
| ||
|
Capital lease obligations |
|
3,224,056 |
|
— |
| ||
|
Vehicle term loan and other miscellaneous loans due in various monthly installments through February, 2011; collateralized by vehicles |
|
1,141 |
|
29,868 |
| ||
|
Office Equipment leases due June 2012 |
|
4,371 |
|
7,285 |
| ||
|
|
|
13,259,993 |
|
11,242,377 |
| ||
|
Less current portion of long-term debt |
|
(1,692,193 |
) |
(1,204,475 |
) | ||
|
Long-term debt, less current portion |
|
$ |
11,567,800 |
|
$ |
10,037,902 |
|
Annual maturities of long-term debt as of December 25, 2010 are as follows:
|
Year |
|
Capital Lease |
|
Debt |
| ||
|
2011 |
|
$ |
565,609 |
|
$ |
1,203,390 |
|
|
2012 |
|
565,609 |
|
2,517,998 |
| ||
|
2013 |
|
565,609 |
|
1,165,315 |
| ||
|
2014 |
|
561,687 |
|
759,186 |
| ||
|
2015 |
|
533,714 |
|
354,632 |
| ||
|
Thereafter |
|
934,000 |
|
4,035,416 |
| ||
|
Subtotal |
|
3,726,228 |
|
10,035,937 |
| ||
|
Less: Amount representing interest |
|
(502,172 |
) |
— |
| ||
|
Total |
|
$ |
3,224,056 |
|
$ |
10,035,937 |
|
To fund the acquisition of Rader Farms the Company entered into a Loan Agreement (the “Loan Agreement”) with U.S. Bank. Each of our subsidiaries is a guarantor of the Loan Agreement, which is secured by a pledge of all of the assets of our consolidated group. The borrowing capacity available to us under the Loan Agreement consists of notes representing:
· a $15.0 million revolving line of credit maturing on June 30, 2011; $9.1 million was outstanding at December 25, 2010. Based on eligible assets, there was $5.9 million of borrowing availability under the line of credit at December 25, 2010. All borrowings under the revolving line of credit will bear interest at either (i) the prime rate of interest announced by U.S.
Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note as adjusted). The rate was 3.86% at December 25, 2010.
· Equipment term loan due May 2014 noted above.
· Real estate term loan due July 2017 noted above.
On March 21, 2011, the Company entered into an amended revolving line of credit with U.S. Bank extending our line from $15.0 million up to $25.0 million, maturing in July 2014. The minimum fixed charge coverage ratio and maximum leverage ratio were modified and the minimum tangible net worth covenant was removed. Aside from the covenant changes, the terms of the equipment term loan and real estate term loan were not materially modified.
As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. The agreement requires the Company to maintain compliance with certain financial covenants, including a minimum tangible net worth, a minimum fixed charge coverage ratio and a leverage ratio. At December 25, 2010, the Company was in compliance with all of the financial covenants. Deferred financing fees totaling $119,744, which are included in Other Assets, were recorded in connection with the Loan Agreement and are being amortized over the life of the loan.
Interest income (expense), net consisted of the following for the fiscal years ended December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Interest expense |
|
$ |
(881,171 |
) |
$ |
(879,332 |
) |
|
|
|
|
|
|
| ||
|
Interest income |
|
3,547 |
|
525 |
| ||
|
|
|
|
|
|
| ||
|
Interest expense, net |
|
$ |
(877,624 |
) |
$ |
(878,807 |
) |
Interest Rate Swaps
To manage exposure to changing interest rates, the Company selectively enters into interest rate swap agreements. The Company’s interest rate swaps qualify for and are designated as cash flow hedges. Changes in the fair value of a swap that is highly effective and that is designated and qualifies as a cash flow hedge to the extent that the hedge is effective, are recorded in other comprehensive income (loss).
The Company entered into an interest rate swap in 2006 to convert the interest rate of the mortgage to purchase the Bluffton, Indiana plant from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. On September 28, 2008, the Company’s first day of its fiscal fourth quarter, the Company prospectively redesignated the hedging relationship to a cash flow hedge. The swap has a fixed pay-rate of 6.85% and a notional amount of approximately $2.2 million at December 25, 2010 and expires in December 2016. We evaluate the effectiveness of the hedge on a quarterly basis and at December 25, 2010 the hedge is highly effective. The interest rate swap had fair value of ($317,243) at December 25, 2010, which is recorded as a liability on the accompanying consolidated balance sheet. The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on December 25, 2010. An unrealized loss of $138,528 was recorded as interest expense in the Company’s condensed, consolidated statement of operations during the three quarters ending September 27, 2008, associated with this swap.
The Company entered into another interest rate swap in January 2008 to effectively convert the interest rate on the real estate term loan to a fixed rate of 4.28%. The interest rate swap is structured with decreasing notional amounts to match the expected pay down of the debt. The notional value of the swap at December 25, 2010 was $3.4 million. The interest rate swap is accounted for as a cash flow hedge derivative and expires in July 2017. We evaluate the effectiveness of the hedge on a quarterly basis and during the year ended December 25, 2010 the hedge is highly effective. The interest rate swap had fair value of ($332,146) at December 25, 2010, which is recorded as a liability on the accompanying consolidated balance sheet, and was recorded in “Accumulated other comprehensive income,” all of which represents the change in fair value for the year ended December 25, 2010. This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on December 25, 2010.
The only component of other comprehensive income/loss for the periods presented is the change in fair value of the interest rate swaps. For the years ending December 25, 2010 and December 26, 2009, the effect of such is as follows:
|
|
|
2010 |
|
2009 |
| ||
|
|
|
|
|
|
| ||
|
Net income |
|
$ |
4,468,716 |
|
$ |
3,781,639 |
|
|
|
|
|
|
|
| ||
|
Change in fair value of interest rate swaps (net of tax) |
|
(118,473 |
) |
260,181 |
| ||
|
|
|
|
|
|
| ||
|
Comprehensive income |
|
$ |
4,350,243 |
|
$ |
4,041,820 |
|
7. Commitments and Contingencies:
The Company is periodically a party to various lawsuits arising in the ordinary course of business. Management believes, based on discussions with legal counsel, that the resolution of such lawsuits, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or results of operations. See Note 11, “Litigation”.
The Company leases one-half of a 200,000 square foot facility in Bluffton, Indiana which is used as a distribution center. The Company entered into an operating lease, the initial term expiring in November 2006, with respect to the facility and has entered into the second of two three-year renewal options. Current lease payments are approximately $32,500 per month. The Company also has entered into a service agreement expiring in December 2011 with a third party for warehousing services. The service agreement includes certain minimum monthly usage commitments amounting to $1,188,000 in each of 2009 and 2010.
The Company owns a farming, processing and storage facility located on 696 acres of land in Lynden, Washington, which is leased from the Uptrails Group LLC, owned by three members of the Rader family. One of the three, Brad Rader, is a current employee of the Company and one of the others, Sue Rader, was a former owner of Rader Farms. This operating lease commenced on the acquisition date and is effect until May 17, 2017. Lease payments are $43,500 per month throughout the term of the lease.
In addition to the Company’s facility and land leases, the Company has entered into a variety of operating leases for equipment, vehicles, and office space. Rental expense under all operating leases was $2.3 million and $2.2 million for fiscal 2010 and 2009, respectively. Minimum future rental commitments under non-cancelable leases as of December 25, 2010 are as follows:
|
Year |
|
Operating |
| |
|
2011 |
|
$ |
1,517,000 |
|
|
2012 |
|
1,382,000 |
| |
|
2013 |
|
946,000 |
| |
|
2014 |
|
870,000 |
| |
|
2015 |
|
862,000 |
| |
|
Thereafter |
|
1,251,000 |
| |
|
Total |
|
$ |
6,828,000 |
|
The Company produces T.G.I. Friday’s® brand snacks, BURGER KING TM brand potato snack products, Tato Skins® brand potato crisps and Boulder CanyonTM Natural Foods Rice and Bean snacks utilizing a sheeting and frying process that includes technology that the Company licenses from a third party. Pursuant to the license agreement between the Company and the third party, the Company has a royalty-bearing, exclusive right license to use the technology in the United States, Canada, and Mexico until such time the parties mutually agree to terminate the agreement. Even though the patents for this technology expired December 26, 2006, in consideration for the use of this technology, the Company is required to make royalty payments on sales of products manufactured utilizing the technology until such termination date. However, should products substantially similar to Tato Skins®, O’Boisies® and Pizzarias® become available for any reason in the marketplace by any manufacturer other than the Company which results in a sales decline of 10% or more, any royalty obligation for the respective product(s) shall cease.
The Company licenses the T.G.I. Friday’s® brand snacks trademark from T.G.I. Friday’s Inc. under a license agreement with a term expiring in 2014. Pursuant to the license agreement, the Company is required to make royalty payments on sales of T.G.I. Friday’s® brand snack products and is required to achieve certain minimum sales levels by certain dates during the contract term.
The Company licenses the BURGER KING TM brand snacks trademark from Burger King Corporation under a license agreement with a term expiring in 2012. Pursuant to the license agreement, the Company is required to make royalty payments on
sales of BURGER KING TM brand snack products and is required to achieve certain minimum sales levels by certain dates during the contract term.
The Company licenses the Jamba® brand trademark from Jamba Juice Company under a license agreement with a term expiring in 2035. Pursuant to the license agreement, the Company is required to make royalty payments on sales of Jamba® products, and is required to achieve certain minimum sales levels by certain dates during the contract term.
8. Shareholders’ Equity:
Common Stock
The Company may grant restricted shares and restricted share units to eligible employees. Such restricted shares and restricted share units are subject to forfeiture if certain employment conditions are not met. Restricted share units generally vest in equal annual increments over a three year period with no performance criteria for employees, and a one year vesting period for Board of Director members. However, the restricted stock units granted to all officers and senior management of the Company during the fiscal year ending December 25, 2010 contain performance restrictions which are required to be achieved at each vesting period in order for the shares to be awarded. The fair value of the restricted stock units is equal to the market price of our stock at the date of the grant. Share-based compensation expense related to restricted stock awards is recognized on the straight-line method over the requisite vesting period, and the related share-based compensation expense is included in selling, general and administrative expenses.
During fiscal years 2009 and 2010, restricted share activity was as follows:
|
|
|
Plan Restricted Shares |
| |||
|
|
|
Number of |
|
Weighted Average |
| |
|
Balance, December 27, 2008 |
|
— |
|
$ |
— |
|
|
Granted |
|
89,000 |
|
$ |
2.40 |
|
|
Vested |
|
— |
|
$ |
— |
|
|
Forfeited |
|
— |
|
$ |
— |
|
|
Balance, December 26, 2009 |
|
89,000 |
|
$ |
3.20 |
|
|
Granted |
|
240,000 |
|
$ |
3.40 |
|
|
Vested |
|
(29,666 |
) |
$ |
2.40 |
|
|
Forfeited |
|
— |
|
$ |
— |
|
|
Balance, December 25, 2010 |
|
299,334 |
|
$ |
3.20 |
|
During the years ended December 25, 2010 and December 26, 2009, the total share-based compensation expense from restricted stock recognized in the financial statements was $0.3 million and $0.04 million respectively. There were no share-based compensation costs which were capitalized. As of December 25, 2010 and December 26, 2009 the total unrecognized costs related to non-vested restricted stock awards granted were $0.7 million and $0.2 million respectively. The Company expects to recognize such costs in the financial statements over a weighted-average period of three years.
Preferred Stock
The Company has authorized 50,000 shares of $100 par value Preferred Stock, none of which is outstanding. The Company may issue such shares of Preferred Stock in the future without shareholder approval.
Stock Options
The Company’s 1995 Stock Option Plan (the “1995 Plan”), as amended, provided for the issuance of options to purchase 3,500,000 shares of Common Stock. The options granted pursuant to the 1995 Plan expire over a five-year period and generally vest over three years. In addition to options granted under the 1995 Plan, the Company also issued non-qualified options (non-plan options) to purchase Common Stock to certain Directors and Officers which are exercisable and expire either five or ten years from date of grant. All options are issued at an exercise price of fair market value at the date of grant and are non-compensatory. The 1995 Plan expired in May 2005 with 410,518 reserved but unissued shares of Common Stock available for issuance under the 1995 Plan, and was replaced by the Inventure Foods, Inc. 2005 Equity Incentive Plan (the “2005 Plan”) as described below.
The 2005 Plan was approved at the Company’s 2005 Annual Meeting of Shareholders and reserved for issuance that number of shares of Common Stock determined by adding (a) 410,518, which is the number of reserved but unissued shares available for
issuance under the 1995 Plan, (b) 500,000, which is the number of additional shares approved by the stockholders on May 23, 2006 to be added to the 2005 Plan, (c) 500,000, which is the number of additional shares approved by the stockholders on May 19, 2008 to be added to the 2005 Plan and (d) 500,000, which is the number of additional shares approved by the stockholders on May 19, 2009 to be added to the 2005 Plan. If any shares of Common Stock subject to awards granted under the 1995 Plan or the 2005 Plan are canceled, those shares will be available for future awards under the 2005 Plan. The 2005 Plan expires in May 2015, and awards granted under the 2005 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and stock-reference awards. Prior to May 2008, all stock option grants had a five year term. The fair value of these stock option grants is amortized to expense over the vesting period, generally three years for employees and one year for the Board of Directors.
In May 2008, the Company’s Board of Directors approved a ten year term for all future stock option grants . The vesting periods for these stock option grants are five years and one year for employees and Board of Director members, respectively. As of December 25, 2010, there were 5,892 shares of Common Stock available for Awards under the 2005 Plan.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the years ended:
|
|
|
2010 |
|
2009 |
|
|
Expected dividend yield |
|
0 |
% |
0 |
% |
|
Expected volatility |
|
72 |
% |
73 |
% |
|
Risk-free interest rate |
|
2.4% - 3.7 |
% |
2.9% - 3.7 |
% |
|
Expected life — Employees options |
|
6.5 years |
|
6.5 years |
|
|
Expected life — Board of directors options |
|
6.5 years |
|
3.0 years |
|
The expected dividend yield was based on the Company’s expectation of future dividend payouts. The volatility assumption was based on historical volatility during the time period that corresponds to the expected life of the option. The expected life (estimated period of time outstanding) of stock options granted was estimated based on historical exercise activity. The risk-free interest rate assumption was based on the interest rate of U.S. Treasuries on the date the option was granted.
During fiscal years 2009 and 2010, stock option activity was as follows:
|
|
|
Plan Options |
| |||
|
|
|
Options |
|
Weighted |
| |
|
Balance, December 27, 2008 |
|
2,223,833 |
|
$ |
2.34 |
|
|
Granted |
|
375,000 |
|
2.20 |
| |
|
Canceled |
|
(427,860 |
) |
2.60 |
| |
|
Forfeited |
|
(35,000 |
) |
2.50 |
| |
|
Exercised |
|
(5,473 |
) |
2.10 |
| |
|
Balance, December 26, 2009 |
|
2,130,500 |
|
$ |
2.26 |
|
|
Granted |
|
280,000 |
|
3.46 |
| |
|
Canceled |
|
(14,000 |
) |
2.15 |
| |
|
Forfeited |
|
(10,000 |
) |
5.00 |
| |
|
Exercised |
|
(241,000 |
) |
2.56 |
| |
|
Balance, December 25, 2010 |
|
2,145,500 |
|
$ |
2.37 |
|
The total share-based compensation expense from stock options recognized in the financial statements was $0.2 million for the years ended December 25, 2010 and December 26, 2009 respectively, which reduced income from operations accordingly. There were no share-based compensation costs which were capitalized. As of December 25, 2010 and December 26, 2009 the total unrecognized costs related to non-vested stock options granted were $0.6 million and $0.5 million, respectively. The Company expects to recognize such costs in the financial statements over a weighted average period of five years. This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future. Generally, the Company issues new shares upon the exercise of stock options, as opposed to reissuing treasury shares.
The following table summarizes information about stock options outstanding and exercisable at December 25, 2010:
|
Range of |
|
Options |
|
Weighted Average |
|
Weighted |
|
Options |
|
Weighted |
| ||
|
$ 1.24 - $1.94 |
|
956,000 |
|
5.5 |
|
$ |
1.79 |
|
485,333 |
|
$ |
1.83 |
|
|
$ 2.26 - $2.82 |
|
853,500 |
|
3.3 |
|
$ |
2.61 |
|
665,500 |
|
$ |
2.66 |
|
|
$ 3.12 - $3.78 |
|
336,000 |
|
8.1 |
|
$ |
3.40 |
|
56,000 |
|
$ |
3.12 |
|
|
|
|
2,145,500 |
|
5.0 |
|
$ |
2.37 |
|
1,206,833 |
|
$ |
2.35 |
|
The following table summarizes information about stock options outstanding and exercisable at December 26, 2009:
|
Range of |
|
Options |
|
Weighted Average |
|
Weighted |
|
Options |
|
Weighted |
| ||
|
$ 1.24 - $1.94 |
|
990,000 |
|
6.6 |
|
$ |
1.79 |
|
280,667 |
|
$ |
1.84 |
|
|
$ 2.26 - $2.82 |
|
1,050,500 |
|
3.9 |
|
$ |
2.60 |
|
573,833 |
|
$ |
2.70 |
|
|
$ 3.12 - $5.00 |
|
90,000 |
|
2.2 |
|
$ |
3.33 |
|
70,000 |
|
$ |
3.39 |
|
|
|
|
2,130,500 |
|
5.1 |
|
$ |
2.26 |
|
924,500 |
|
$ |
2.49 |
|
The weighted average grant-date fair value of options granted during the years ending December 25, 2010 and December 26, 2009 was $2.34 and $1.44 respectively.
The intrinsic value related to total stock options outstanding was $4,188,175 as of December 25, 2010 and $527,500 as of December 26, 2009. The intrinsic value related to vested stock options outstanding was $2,401,148 as of December 25, 2010 and $134,273 as of December 26, 2009. The aggregate intrinsic value is based on the exercise price and the Company’s closing stock price of $4.32 as of December 25, 2010 and $2.32 as of December 26, 2009.
Treasury Stock
In September 2008, the Company’s Board of Directors approved a stock re-purchase program whereby up to $2 million of common stock could be purchased from time to time at the discretion of management (the “2008 program”). The repurchased shares were held as treasury stock and are available for general corporate purposes. The program expired August 23, 2009 and the Company continues to evaluate its share repurchase opportunities. During 2009, a total of 367,957 shares were repurchased pursuant to open market transactions at a weighted average price of $1.28 per share. Common stock held in the Company’s treasury has been recorded at cost.
9. Income Taxes:
The provision for income taxes consisted of the following for the years ended December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Current: |
|
|
|
|
| ||
|
Federal |
|
$ |
(1,396,748 |
) |
$ |
(1,508,876 |
) |
|
State |
|
(244,232 |
) |
(355,425 |
) | ||
|
|
|
(1,640,980 |
) |
(1,864,301 |
) | ||
|
Deferred: |
|
|
|
|
| ||
|
Federal |
|
(319,753 |
) |
(619,478 |
) | ||
|
State |
|
(47,022 |
) |
68,092 |
| ||
|
|
|
(366,775 |
) |
(551,386 |
) | ||
|
Total provision for income taxes |
|
$ |
(2,007,755 |
) |
$ |
(2,415,687 |
) |
The following table provides reconciliation between the amount determined by applying the statutory federal income tax rate to the pretax income amount for the years ended December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Provision at statutory rate |
|
$ |
(2,202,000 |
) |
$ |
(2,107,091 |
) |
|
State tax provision, net |
|
(255,589 |
) |
(242,567 |
) | ||
|
Research Credits |
|
387,570 |
|
— |
| ||
|
Domestic Production benefits |
|
212,940 |
|
— |
| ||
|
Nondeductible expenses and other |
|
(150,676 |
) |
(66,029 |
) | ||
|
Income tax provision |
|
$ |
(2,007,755 |
) |
$ |
(2,415,687 |
) |
The income tax effects of loss carryforwards and temporary differences between financial and income tax reporting that give rise to the deferred income tax asset and liability are as follows as of December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Deferred Tax Asset — current |
|
|
|
|
| ||
|
Allowance for doubtful accounts |
|
$ |
42,565 |
|
$ |
39,419 |
|
|
Accrued liabilities |
|
464,648 |
|
492,289 |
| ||
|
Other |
|
114,588 |
|
120,053 |
| ||
|
|
|
621,801 |
|
651,761 |
| ||
|
Deferred Tax Liability — noncurrent |
|
|
|
|
| ||
|
Depreciation and amortization |
|
(3,673,142 |
) |
(3,253,737 |
) | ||
|
Unrealized loss on interest rate swap |
|
199,236 |
|
122,368 |
| ||
|
Other |
|
136,616 |
|
54,026 |
| ||
|
|
|
(3,337,290 |
) |
(3,077,343 |
) | ||
|
Net deferred tax liability |
|
$ |
(2,715,489 |
) |
$ |
(2,425,582 |
) |
The Company experienced significant net losses in prior fiscal years resulting in regular and alternative minimum tax (“AMT”) net operating loss (“NOL”) carryforwards for federal income tax purposes of approximately $0.6 million at December 26, 2009. The Company used all remaining NOL carryforwards during 2009. The Company had federal income taxes receivable of $139,218 and $399,571 as of December 25, 2010 and December 26, 2009, respectively. The Company had a state income tax receivable of $74,908 and a state income tax payable of $110,506 as of December 25, 2010 and December 26, 2009, respectively.
Generally accepted accounting principles require that a valuation allowance be established when it is more-likely-than-not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account all positive and negative evidence with regard to the utilization of a deferred tax asset including our past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of a deferred tax asset, carryback and carryforward periods and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.
The effective tax rate for fiscal year 2010 was 31.0% compared with 39.0% for fiscal year 2009. The change in the effective rate is due to the impact of research and development tax credits, including a catch-up of prior periods, of $0.4 million, representing a 6% reduction in the effective rate and domestic production activity deductions of $0.2 million, representing a 3% reduction in the effective rate.
10. Business Segments and Significant Customers:
For the years ended December 25, 2010 and December 26, 2009, Costco was the only customer accounting for more than 10% of total Company net revenue. Costco accounted for $36.7 million or 27% and $27.5 million or 23%, for fiscal years 2010 and 2009, respectively.
The Company’s operations consist of two reportable segments: snack products and berry products. The snack products segment produces potato chips, potato crisps, potato skins, pellet snacks, kettle chips, and extruded product for sale primarily to snack food distributors and retailers. The segment also sells a limited number of snack products manufactured by other companies to the Company’s Arizona snack food distributors. The berry products segment produces frozen fruit products, such as berries and smoothies, for sale primarily to groceries and mass merchandisers. The Company’s reportable segments offer different products and services. The majority of the Company’s revenues are attributable to external customers in the United States. The Company does sell to external customers internationally in over 40 countries worldwide, however the revenues attributable to those customers are immaterial. All of the Company’s assets are located in the United States.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (Note 1). The Company does not allocate assets, selling, general and administrative expenses, income taxes or other income and expense to segments.
|
|
|
Snack |
|
Berry |
|
Consolidated |
| |||
|
2010 |
|
|
|
|
|
|
| |||
|
Net revenues from external customers |
|
$ |
85,479,237 |
|
$ |
48,508,205 |
|
$ |
133,987,442 |
|
|
Depreciation and amortization included in segment gross profit |
|
1,297,207 |
|
802,605 |
|
2,099,812 |
| |||
|
Segment gross profit |
|
16,306,917 |
|
12,499,185 |
|
28,806,102 |
| |||
|
Goodwill |
|
5,986,252 |
|
5,629,973 |
|
11,616,225 |
| |||
|
|
|
|
|
|
|
|
| |||
|
2009 |
|
|
|
|
|
|
| |||
|
Net revenues from external customers |
|
$ |
80,556,331 |
|
$ |
40,454,978 |
|
$ |
121,011,309 |
|
|
Depreciation and amortization included in segment gross profit |
|
1,086,517 |
|
601,158 |
|
1,687,675 |
| |||
|
Segment gross profit |
|
16,145,103 |
|
7,677,178 |
|
23,822,281 |
| |||
|
Goodwill |
|
5,986,252 |
|
5,629,973 |
|
11,616,225 |
| |||
The following table reconciles reportable segment gross profit to the Company’s consolidated income before income tax provision for the years ended December 25, 2010 and December 26, 2009:
|
|
|
2010 |
|
2009 |
| ||
|
Segment gross profit |
|
$ |
28,806,102 |
|
$ |
23,822,281 |
|
|
Unallocated amounts: |
|
|
|
|
| ||
|
Operating expenses |
|
(21,452,007 |
) |
(16,746,148 |
) | ||
|
Interest expense, net |
|
(877,624 |
) |
(878,807 |
) | ||
|
Income before income tax provision |
|
$ |
6,476,471 |
|
$ |
6,197,326 |
|
11. Litigation:
The Company is periodically a party to various lawsuits arising in the ordinary course of business. Management believes, based on discussions with legal counsel, that the resolution of any such lawsuits, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or results of operations.
Inventure Foods, Inc. was one of eight companies sued by the Environmental Law Foundation in August, 2006 in the Superior Court for the State of California for the County of Los Angeles by the Attorney General of the State of California for alleged violations of California Proposition 65. California Proposition 65 is a state law that, in part, requires companies to warn California residents if a product contains chemicals listed within the statute. The matter was resolved in March 2009, and the Company incurred a settlement liability of $0.2 million.
12. Related Party Transactions:
The Company owns the farming operations and the processing and storage facility located on 696 acres of land in Lynden, Washington, which is leased from the Uptrails Group LLC, owned by three members of the Rader family. One of the three, Brad Rader, is a current employee of the Company and one of the others, Sue Rader, was a former owner of Rader Farms. This operating lease commenced on the acquisition date and is effect until May 17, 2017. Lease payments are $43,500 per month throughout the term of the lease.
13. Accounts Receivable Allowance:
Changes to the allowance for doubtful accounts during the each of the two fiscal years ended December 25, 2010 and December 26, 2009 are summarized below:
|
|
|
Balance at |
|
Charges |
|
(Write-offs) |
|
Balance at end |
| ||
|
Fiscal 2010 |
|
$ |
101,076 |
|
22,990 |
|
(14,924 |
) |
$ |
109,142 |
|
|
Fiscal 2009 |
|
$ |
80,740 |
|
95,994 |
|
(75,658 |
) |
$ |
101,076 |
|
14. Concentrations of Credit Risk:
The Company maintains most of its cash with one financial institution. As of November 1, 2008 the FDIC introduced the transaction guarantee program which guaranteed non-interest bearing accounts without limit. The FDIC program is temporary and only offered through participating financial institutions. The Company’s primary financial institution participated in this program and therefore all cash balances held with this institution as of December 25, 2010 are insured.
The Company’s primary concentration of credit risk is related to certain trade accounts receivable. In the normal course of business, the Company extends unsecured credit to its customers. In 2010 and 2009, substantially all of the Company’s customers were distributors or retailers whose sales were concentrated in the grocery industry, throughout the United States. The Company investigates a customer’s credit worthiness before extending credit. At December 25, 2010 and December 26, 2009, three customers accounted for 36% and 29% of accounts receivable, respectively.
15. Deferred Compensation Plans
The Company has contributory 401(k) plans covering substantially all employees. The Company may contribute amounts not in excess of the lesser of the maximum deductions allowable for income tax purposes or a specific percentage of the of the operating profits of the Company, as defined in the plan. The Company made contributions totaling $0.4 million and $0.3 million during the year ended December 25, 2010 and December 26, 2009, respectively.
The Company also sponsors a trusteed, nonqualified savings plan for employees whose contributions to a tax qualified 401(k) plan would be limited by provisions of the Internal Revenue Code. The plan allows participants to defer receipt of a portion of their salary and incentive compensation. The plan was amended in 2009 and the Company no longer matches any employee contributions to this plan. Participants earn a return on their deferred compensation based on investment earnings of participant-selected mutual funds. Deferred compensation, including accumulated earnings on the participant-directed investment selections, is distributable in cash at participant-specified dates or upon retirement, death, disability or termination of employments. At December 25, 2010 and December 26, 2009, the plan’s assets and the Company’s liability to participants of the deferred compensation plans was $0.3 million and $0.2 million, respectively, and is recorded in other assets and other liabilities in the Consolidated Balance Sheets.
16. Quarterly Financial Data (Unaudited):
The results for any single quarter are not necessarily indicative of the Company’s results for any other quarter or the full year. The sum of quarterly earnings per share information may not agree to the annual amount due to rounding and use of the treasury stock method of calculating earnings per share.
|
(in 000’s, except for share and |
|
First |
|
Second |
|
Third |
|
Fourth |
|
Full Year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Fiscal 2010 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net revenues |
|
$ |
31,396 |
|
$ |
34,913 |
|
$ |
34,072 |
|
$ |
33,606 |
|
$ |
133,987 |
|
|
Gross profit |
|
6,793 |
|
7,834 |
|
7,059 |
|
7,120 |
|
28,806 |
| |||||
|
Operating income |
|
2,286 |
|
2,416 |
|
1,612 |
|
1,040 |
|
7,354 |
| |||||
|
Net income |
|
$ |
1,246 |
|
$ |
1,376 |
|
$ |
1,213 |
|
$ |
634 |
|
$ |
4,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic |
|
$ |
0.07 |
|
$ |
0.08 |
|
$ |
0.07 |
|
$ |
0.04 |
|
$ |
0.25 |
|
|
Diluted |
|
$ |
0.07 |
|
$ |
0.07 |
|
$ |
0.07 |
|
$ |
0.03 |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic |
|
17,875,693 |
|
17,897,724 |
|
17,936,356 |
|
17,973,017 |
|
17,923,685 |
| |||||
|
Diluted |
|
18,149,228 |
|
18,516,077 |
|
18,559,515 |
|
18,668,407 |
|
18,546,486 |
| |||||
|
(in 000’s, except for share and |
|
First |
|
Second |
|
Third |
|
Fourth |
|
Full Year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net revenues |
|
$ |
29,719 |
|
$ |
33,420 |
|
$ |
29,937 |
|
$ |
27,935 |
|
$ |
121,011 |
|
|
Gross profit |
|
6,094 |
|
6,350 |
|
6,723 |
|
4,655 |
|
23,822 |
| |||||
|
Operating income |
|
1,649 |
|
1,960 |
|
2,440 |
|
1,027 |
|
7,076 |
| |||||
|
Net income |
|
$ |
887 |
|
$ |
1,037 |
|
$ |
1,304 |
|
$ |
554 |
|
$ |
3,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic |
|
$ |
0.05 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.03 |
|
$ |
0.21 |
|
|
Diluted |
|
$ |
0.05 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.03 |
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic |
|
18,164,223 |
|
17,884,429 |
|
17,885,440 |
|
17,887,580 |
|
17,955,165 |
| |||||
|
Diluted |
|
18,164,223 |
|
17,955,071 |
|
18,041,679 |
|
18,007,819 |
|
18,239,380 |
| |||||
EXHIBIT INDEX
10.74 — Executive Employment Agreement by and between the Company and Richard Suchenski, dated as of June 21, 2010.
10.75 — Form of Director Restricted Stock Award Agreement — Amended and Restated 2005 Equity Incentive Plan
10.76 — Loan Modification and Extension Agreement (Revolving Line of Credit and Term Loan) dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank National Association
10.77 — Amended and Restated Promissory Note (Facility 1 - Revolving Line of Credit Loan) dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank National Association
10.78 — Amendment to Leasehold Deed of Trust with Assignment of Rents, Security Agreement, and Fixture Filing and Memorandum of Modification dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank National Association
10.79 — Amended and Restated Security Agreement (Blanket-All Business Assets), dated as of March 21, 2011, by and between Inventure Foods, Inc. and U.S. Bank National Association.
23.1 — Consent of Moss Adams LLP.
31.1 — Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
31.2 — Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
32 — Certification of Chief Executive Officer and Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 10.74
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of Executive’s date of hire, June 21, 2010 (the “Effective Date”), by and between Inventure Foods, Inc., a Delaware corporation, (the “Company”), and Rick Suchenski, (the “Executive”).
WITNESSETH:
WHEREAS, Executive is not currently employed with the Company and the Company desires to attract and retain the services of Executive, and Executive desires to become employed by the Company, on the terms and conditions of this Agreement.
NOW, THERFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the Company and Executive, intending to be legally bound, hereby agree as follows:
1. Employment. The Company agrees to employ Executive as Senior Vice President of Sales & Marketing of the Company, and Executive accepts such employment and agrees to perform full-time employment services for the Company, subject always to resolutions of the Board of Directors of the Company (the “Board”), for the period and upon the other terms and conditions set forth in this Agreement.
2. Term. The term of Executive’s employment hereunder (the “Term”) shall commence on the Effective Date, and shall continue until this Agreement is terminated upon written notice by either party as set forth in Section 5 below, for any reason whatsoever, this being an “at will” employment agreement. Sections 6 and 7 of this Agreement shall govern the amount of any compensation to be paid to Executive upon termination of this Agreement and his employment.
3. Position and Duties.
3.1 Service with the Company. During the Term of this Agreement, Executive agrees to perform such executive employment duties as the President or Chief Executive Officer shall reasonably assign to him from time to time.
3.2 No Conflicting Duties. Executive hereby confirms that he is under no contractual commitments inconsistent with his obligations set forth in the Agreement, and that during the Term of this Agreement, he will not render or perform services, or enter into any contract to do so, for any other corporation, firm, entity or person that are inconsistent with the provisions of this Agreement or Executive’s fiduciary obligations to the Company.
4. Compensation and Benefits.
4.1 Annual Review and Base Salary. The Executive will receive annual performance and merit reviews effective at or around April each year. As compensation for all
services to be rendered by Executive under this Agreement, the Company shall pay to Executive an annual salary of $280,000.00 (the “Base Salary”). The Base Salary shall be subject to review and change at the discretion of the President or the Board (or its Compensation Committee), however, the Base Salary may not be decreased without the written consent of the Executive. The Company shall pay the Base Salary to Executive on the Company’s regularly scheduled paydays in accordance with the Company’s normal payroll procedures and policies.
4.2 Bonuses. Executive will be eligible for annual bonuses as determined by the Board (or its Compensation Committee) in its discretion.
4.3 Participation in Benefit Plan. Executive shall be included to the extent eligible thereunder in any and all plans of the Company providing general benefits for the Company’s executive employees, including, without limitation, medical, dental, vision, disability, life insurance, 401(k) plan, NQDC plan, sick days, vacation, and holidays. Executive’s participation in any such plan or program shall be subject to the provisions, rules, and regulations applicable thereto. In addition, Executive shall be eligible to participate in all non-qualified deferred compensation and similar compensation, bonus and stock plans offered, sponsored or established by the Company on substantially the same basis as other executives of the Company.
4.4 Business Expenses. In accordance with the Company’s policies established from time to time, the Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment of appropriate supporting documentation.
4.5 Automobile Allowance. The Company shall pay Executive $900.00 per month as an automobile allowance, less any required withholdings for tax purposes (the “Monthly Car Allowance”). Executive shall procure and maintain adequate insurance coverage on the automobile he uses for Company purposes. Executive acknowledges that he may recognize taxable income in connection with these payments and that these amounts will be reflected on Executive’s W-2, if required by law.
4.6 Relocation. Inventure Foods will pay or reimburse up to $70,000 for reasonable and necessary out-of-pocket relocation expenses. Taxes will be withheld from the relocation expenses as required by applicable law on those items that are subject to those appropriate taxes.
5. Termination.
5.1 Disability. At the Company’s election, Executive’s employment and this Agreement shall terminate upon Executive’s becoming totally or permanently disabled for a period of ninety (90) days or more in any twelve (12) month period. For purposes of this Agreement, the term “totally or permanently disabled” or “total or permanent disability” means Executive’s inability on account of sickness or accident, whether or not job-related, to engage in regularly or to perform adequately his assigned duties under this Agreement. A reasonable determination by the Company of the existence of a disability shall be conclusive for all
purposes hereunder. In making such determination of disability, the Company may utilize such advice and consultation as the Company deems appropriate, but there is no requirement of procedure or formality associated with the making of a determination of disability.
5.2 Death of Executive. Executive’s employment and this Agreement shall terminate immediately upon the death of Executive.
5.3 Termination for Cause. The Company may terminate Executive’s employment and this Agreement at any time for “Cause” (as hereinafter defined) immediately upon written notice to Executive. As used herein, the term “Cause” shall mean a determination in good faith by the Company of one or more of the following by Executive:
5.3.1 Committed a criminal act or a single act of fraud, embezzlement, theft, breach of trust, or other act of gross misconduct;
5.3.2 Been arraigned, indicted, formally charged, or convicted of any felony or any crime involving dishonesty, fraud, theft, or moral turpitude, whether or not related to Executive’s employment with the Company;
5.3.3 Been arraigned, indicted, formally charged, or convicted of any crime or offense that, in the reasonable good faith judgment of the Company, has or could materially damage the reputation of the Company or would materially interfere with Executive’s performance of services to the Company;
5.3.4 Willful misconduct or gross negligence with regard to the Company having a material adverse affect on the Company;
5.3.5 Violated any material written Company policy or rules of the Company, after written notice from the Company and a reasonable opportunity to cure (if deemed curable by the Company in its sole discretion) not to exceed fifteen (15) days;
5.3.6 Willful and material violation of, or noncompliance with, any securities laws or stock exchange listing rules, including, without limitation, the Sarbanes-Oxley Act of 2002, as amended, provided that such violation or noncompliance resulted in material economic harm to the Company;
5.3.7 Refused to, or failed to attempt in good faith to, perform the Executive’s duties or to follow the written directions given to Executive by the Board or the Chief Executive Officer after written notice from the Company and a reasonable opportunity to cure (if deemed curable by the Company in its sole discretion) not to exceed fifteen (15) days; or
5.3.8 Breached any covenant or obligation under this Agreement or other agreement with the Company, after written notice from the Company and a reasonable opportunity to cure (if deemed curable by the Company in its sole discretion) not to exceed fifteen (15) days.
5.4 Resignation. Executive’s employment and this Agreement shall terminate on the earlier of the date that is one (1) month following the written submission of Executive’s resignation to the Company or the date such resignation is accepted by the Company.
5.5 Termination Without Cause. The Company may terminate Executive’s employment and the Agreement without cause upon written notice to Executive. Termination “without cause” shall mean termination of employment on any basis (including no reason or no cause) other than termination of Executive’s employment hereunder pursuant to Sections 5.1, 5.2, 5.3, or 5.4.
5.6 Surrender of Records and Property. Upon termination of his employment with the Company or when requested at any time by the Company, Executive shall deliver promptly to the Company all credit cards, computer equipment, cellular telephone, records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data tables, calculations or copies thereof, that are the property of the Company and that relate in any way to the business, strategies, products, practices, processes, policies, or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents that in whole or in part contain any trade secrets or confidential information of the Company that in any of these cases are in his possession or under his control, and Executive shall also remove all such information from any personal computers and other data devices that he owns or controls.
6. Compensation Upon the Termination of Executive’s Employment.
6.1 In the event that Executive’s employment and this Agreement are terminated pursuant to Section 5.1 (Disability), 5.3 (Cause) or 5.4 (Resignation), then the Executive shall be entitled to receive Executive’s then current Base Salary through the date his employment is terminated, but no other compensation of any kind or amount.
6.2 In the event Executive’s employment and this Agreement are terminated pursuant to Section 5.2 (Death), Executive’s beneficiary or a beneficiary designated by Executive in writing to the Company, or in the absence of such beneficiary, Executive’s estate, shall be entitled to receive Executive’s then current Base Salary through the end of the month in which his death occurs, but no other compensation of any kind or amount.
6.3 Unless Section 7 applies, in the event Executive’s employment and this Agreement are terminated by the Company pursuant to Section 5.5 (Without Cause), the Company shall pay to Executive, as a severance allowance, the following amounts, but no other compensation or benefits of any kind or amount:
6.3.1 Executive’s then current monthly Base Salary and Executive’s Monthly Car Allowance for the five (5) month period following the date of termination, paid on the Company’s regular paydays throughout that 5-month period; and
6.3.2 Reimbursement on a fully taxable basis for the cost of COBRA continuation coverage for the five (5) month period; provided, however, that (a) this obligation
will immediately terminate upon Executive becoming eligible for health insurance coverage with a new employer (and Executive must provide prompt written notice to the Company of Executive’s obtaining new employment) and (b) to the extent that the provision of health benefits or reimbursement of premiums and other out-of-pocket costs for health benefits would trigger federal excise tax payable by the Company pursuant to Section 2716 of the Public Health Service Act, such benefits and reimbursements will not be provided.
7. Change of Control. In the event of both a Change in Control (as defined below) and the occurrence of Good Reason (as defined below), this Agreement and Executive’s employment will hereunder will terminate and the Company shall, within thirty (30) days after occurrence of the last of these conditions, pay Executive a lump sum amount equal to fifty percent (50%) of Executive’s then current annual Base Salary. Executive shall be entitled to receive this payment only if he complies with his continuing obligations to the Company as set forth in this Agreement.
7.1 Definition of Change in Control. As used herein, a “Change in Control” means both: (a) a change in the composition of the Board, as a result of which less than a majority of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the “original directors”) or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; and (b) one of the following events has occurred: (i) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 30% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation, or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation, or other reorganization; or (ii) the sale, transfer, or other disposition of all or substantially all of the Company’s assets. A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
7.2 Definition of Good Reason. As used herein, “Good Reason” means:
7.2.1 Termination by the Company of Executive’s employment and this Agreement without cause (as that term is defined in Section 5.5) within three (3) months before, or within twelve (12) months after, a Change in Control; or
7.2.2 If any of the following events occurs and the Company fails to cure such occurrence prior to the expiration of a period of thirty (30) days after delivery by Executive to the Company of a written notice setting forth the nature and extent of such occurrence: (a) a material reduction in Executive’s title, status, authority, or responsibility at the Company within twelve (12) months after a Change in Control; (b) within twelve (12) months after a Change in Control, there is a material reduction in the benefits that were in effect for the
Executive immediately prior to the Change in Control, and comparable reductions have not been made in the benefits of the other members of senior management of the Company; (c) except with Executive’s prior written consent, relocation of Executive’s principal place of employment to a location outside Maricopa County, Arizona within twelve (12) months following a Change in Control; or (d) any material breach by the Company of its material obligations under this Agreement within twelve (12) months following a Change in Control.
8. Release. Each obligation of the Company to provide Executive with the severance allowance and benefits set forth in Section 6.3 and Section 7 shall be subject to the satisfaction of both of the following conditions precedent:
8.1 Prior to the expiration of any applicable statutory period during which Executive is entitled to revoke such release (not to exceed 60 days), Executive must execute and deliver to the Company a legal release in the form attached as Exhibit A (as the same may be revised from time to time on advice of counsel to comply with changes in applicable law), by which Executive releases the Company and its affiliates, directors, officers, employees, agents and others affiliated with the Company from any and all obligations and liabilities of any type whatsoever under this Agreement or in connection with Executive’s employment with the Company, the termination of Executive’s employment, or the termination of this Agreement, including but not limited to any rights to receive equity or other compensation or benefits from the Company, except for the Company’s obligations with respect to the severance allowance and benefits set forth in Section 6.3 and Section 7. If Executive’s date of termination and the last day of any applicable statutory revocation period could fall in two separate taxable years, regardless of when Executive actually executes and delivers the release, payments will not commence until the later taxable year.
8.2 Executive shall have been, be and remain in compliance with each of Executive’s obligations under Section 10 below.
9 Ventures. If, during the Term of this Agreement, Executive is engaged in or associated with the planning or implementing of any project, program, or venture involving the Company and a third party or parties, all rights in the project, program, or venture shall belong to the Company and shall constitute a corporate opportunity belonging exclusively to the Company. Except as approved in writing by the Board, Executive shall not be entitled to any interest in such project, program, or venture or to any commission, finder’s fee, or other compensation in connection therewith other than the Base Salary to be paid to Executive as provided in this Agreement.
10 Restrictions.
10.1 Definitions. For the purposes of the Agreement, the following terms shall have the following meanings:
10.1.1 “Trade Secrets” means information that is not generally known about the Company or its business, including without limitation about its products, recipes, projects, designs, development or experimental work, computer programs, data bases, know-
how, processes, customers, suppliers, business plans, marketing plans and strategies, financial or personnel information, and information obtained from third parties under confidentiality agreements. “Trade Secrets” also means formulas, patterns, compilations, programs, devices, methods, techniques, or processes that derive independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In particular, the parties agree and acknowledge that the following list, which is not exhaustive and is to be broadly construed, enumerates some of the Company’s Trade Secrets, the disclosure of which would be wrongful and would cause irreparable injury to the Company; (i) recipes for the Company’s specialty potato chips, other salted snack foods, and other food products; (ii) manufacturing processes for the foregoing products (iii) pricing information; (iv) product development, marketing, sales, customer, and supplier information related to any Company product or service available commercially or in any stage of development during Executive’s employment with the Company; and (v) Company marketing and business strategies, ideas, and concepts. Executive acknowledges that the Company’s Trade Secrets were and are designed and developed by the Company at great expense and over lengthy periods of time, are secret, confidential, and unique, and constitute the exclusive property of the Company.
10.1.2 “Restricted Field” means the business of manufacturing, developing, marketing, and/or selling specialty potato chips or other salted snack foods or other business activities in which the Company engages during the Term. The Company is in the business of developing, manufacturing, and selling these products in the Business Territory.
10.1.3 “Non-Competition Period” means a period of 12 months after the termination of Executive’s employment with the Company unless a court of competent jurisdiction determines that the Period is unenforceable under applicable law because it is too long, in which case the Non-Competition Period shall be for the longest of the following periods that the court determines that the court determines is reasonable under the circumstances: 11 months, 10 months, 9 months, 8 months, 7 months, or 6 months, after the termination of Executive’s employment with the Company.
10.1.4 “Business Territory” means the entire United States, unless a court of competent jurisdiction determines that that geographic scope is unenforceable under applicable law because it is too broad, in which case the Business Territory shall be amended by eliminating geographical areas and states from the following list until the Business Territory is determined to be reasonable: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, Maricopa County, Arizona, Phoenix, Arizona. The parties acknowledge and agree that if any of the geographic areas or States listed above are required by law to be eliminated, it would be fair and appropriate to do so in the inverse order of the volume
or revenue received in the prior twelve (12) months by the Company from such area or State at the time of determination.
10.1.5 “Non-Solicitation Period” means a period of 12 months after the termination of Executive’s employment with the Company.
10.2 Non-Disclosure Obligations. Executive shall not at any time, during or after the Term of this Agreement, without the express written consent of an officer of the Company, publish, disclose, or divulge to any person, firm or corporation, or use directly or indirectly for the Executive’s own benefit or for the benefit or any person, firm, corporation or entity other than the Company, any Trade Secrets of the Company.
10.3 Non-Competition Obligations. Executive acknowledges the substantial amount of time, money and effort that the Company has spent and will spend in developing its products and other strategically important information (including Trade Secrets), and agrees that during the Non-Competition Period, Executive will not, alone or with others, directly or indirectly, as an employee, agent, consultant, advisor, owner, manager, lender, officer, director, employee, partner, stockholder, or otherwise, engage in any Restricted Field activities in the Business Territory, nor have any such relationship with any person or entity that engages in Restricted Field activities in the Business Territory; provided, however, that nothing in this Agreement will prohibit Executive from owning a passive investment of less than one percent of the outstanding equity securities of any company listed on any national securities exchange or traded actively in any national over-the-counter market so long as Executive has no other relationship with such company in violation of this Agreement. The Non-Competition Period set forth in this Section 10.3 shall be tolled during any period in which the Executive is in breach of the restrictions set forth herein.
10.4 Agreement Not to Solicit Customers. Executive agrees that during Executive’s employment with the Company hereunder and during the Non-Solicitation Period, Executive will not, either directly or indirectly, on Executive’s own behalf or in the service or on behalf of others, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any business that engages in Restricted Field activities in the Business Territory (i) any person or entity whose account with the Company was sold or serviced by or under the supervision of Executive during the twelve (12) months preceding the termination of such employment, or (ii) any person or entity whose account with the Company has been directly solicited at least twice by the Company within the year preceding the termination of employment (the “Customers”). The Non-Solicitation Period set forth in this Section 10.4 shall be tolled during any period in which the Executive is in breach of the restrictions set forth herein.
10.5 Agreement Not to Solicit Employees. Executive agrees that during Executive’s employment with the Company hereunder and during the Non-Solicitation Period, Executive will not, either directly or indirectly, on Executive’s own behalf or in the service or on the behalf of others solicit, divert, or hire away, or attempt to solicit, divert, or hire away any person then employed by the Company, nor encourage anyone to leave the Company’s employ. The Non-Solicitation Period set forth in the Section 10.5 shall be tolled during any period in which the Executive is in breach of the restrictions set forth herein.
10.6 Non-Disparagement. Executive agrees that during Executive’s employment with the Company hereunder and thereafter, he will not, either directly or indirectly, disparage, defame, or besmirch the reputation, character, or image of the Company or its products, services, employees, directors, or officers.
10.7 Reasonableness. Executive and the Company agree that the covenants set forth in this Agreement are appropriate and reasonable when considered in light of the nature and extent of the Company’s business. Executive further acknowledges and agrees that (i) the Company has a legitimate interest in protecting the Company’s business activities and its current, pending, and potential Trade Secrets; (ii) the covenants set forth herein are not oppressive to Executive and contain reasonable limitations as to time, scope, geographical area, and activity; (iii) the covenants do not harm in any manner whatsoever the public interest; (iv) Executive’s chosen profession, trade or business is in manufacturing, developing, and selling retail food products (the “Profession”); (v) the Restricted Field is only a very small or limited part of the Profession, and Executive can work in many different jobs in Executive’s Profession besides those in the Restricted Field; (vi) the covenants set forth herein do not completely restrain Executive from working in Executive’s Profession, and Executive can earn a livelihood in Executive’s Profession without violating any of the covenants set forth herein; (vii) Executive has received and will receive substantial consideration for agreeing to such covenants, including without limitation the consideration to be received by Executive under this Agreement; (viii) if Executive were to work for a competing company that engages in activities in the Restricted Field, there would be a substantial risk that Executive would inevitably disclose Trade Secrets to that company; (ix) the Company competes with other companies that engage in Restricted Field Activities in the Business Territory, and if Executive were to engage in prohibited activities in the Restricted Field within the Business Territory, it would harm the Company; (x) the Company expends considerable resources on hiring, training, and retaining its employees and if Executive were to engage in prohibited activities during the Non-Solicitation Period, it would harm the Company; and (xi) the Company expends considerable resources acquiring, servicing, and retaining its Customers and if Executive were to engage in prohibited activities during the Non-Solicitation Period it would harm the Company.
11. Assignment. This Agreement shall not be assignable, in whole or in part, by either party without the written consent of the other party, except that the Company may, without the consent of Executive, assign its rights and obligations under this Agreement to any corporation, firm or other business entity (i) with or into which the Company may merge or consolidate, (ii) to which the Company may sell or transfer all or substantially all of its assets or (iii) of which 30% or more of the equity investment and of the voting control is owned, directly or indirectly, by, or is under common ownership with, the Company. Upon such assignment by the Company, the Company shall attempt to obtain the assignee’s written agreement enforceable by Executive to assume and perform, from and after the date of such assignment, the terms, conditions, and provisions imposed by this Agreement upon the Company. After any such assignment by the Company and such written agreement by the assignee, the Company shall be discharged from all further liability hereunder and such assignee shall thereafter be deemed to be the Company for the purposes of all provisions of this Agreement including this Section 11.
12. Other Provisions.
12.1 Governing Law. This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Arizona without reference to conflicts of law provisions thereof.
12.2 Injunctive Relief. Executive agrees that it would be difficult to compensate the Company fully for damages for any violation of the provisions of this Agreement. Accordingly, Executive specifically agrees that the Company shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this Agreement. This provision with respect to injunctive relief shall not, however, diminish the right of the Company to claim and recover damages in addition to injunctive relief.
12.3 Prior Agreements. This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes all prior agreements and understanding with respect to such subject matter, and the parties hereto have made no agreements, representations, or warranties relating to the subject matter of this Agreement which are not set forth herein.
12.4 Taxes.
12.4.1 Withholding Taxes and Right of Offset. The Company may withhold from all payments and benefits under this Agreement all federal, state, city, or other taxes as are required pursuant to any law or governmental regulation or ruling. Executive agrees that the Company may offset any payments owed to Executive pursuant to this Agreement or otherwise against any amounts owed by the Executive to the Company.
12.4.2 Section 409A of Internal Revenue Code. Executive acknowledges and agrees that the Company has not provided any tax advice to Executive in connection with this Agreement and Executive has been advised by the Company to seek tax advice from Executive’s own tax advisors regarding this Agreement and payments and benefits that may be made to Executive pursuant to this Agreement, including specifically, the application of the provisions of Section 409A of the Code to such payments. While the payments and benefits provided hereunder are intended to be structured in a manner to avoid the implication of any penalty taxes under Section 409A of the Code, in no event whatsoever shall the Company or any of its affiliates be liable for any additional tax, interest or penalties that may be imposed on Executive as a result of Section 409A of the Code or any damages for failing to comply with Section 409A of the Code (other than for withholding obligations or other obligations applicable to employers, if any, under Section 409A of the Code). Notwithstanding any provision in this Agreement to the contrary:
(a) If any payment under this Agreement is determined to be subject to Section 409A of the Code, this Agreement shall be interpreted and administered such that such payments comply to the fullest extent possible with Section 409A of the Code. The payment (or commencement of a series of payments) of any nonqualified deferred compensation (within the meaning of Section 409A of the Code) upon a termination of employment shall be
delayed until such time as Executive have also undergone a “separation from service” as defined in Treas. Reg. 1.409A-1(h), at which time such nonqualified deferred compensation (calculated as of the date of Executive’s termination of employment) shall be paid (or commence to be paid) to Executive on the schedule set forth in this Agreement as if Executive had undergone such termination of employment (under the same circumstances) on the date of Executive’s ultimate “separation from service.”
(b) Any payment otherwise required to be made to Executive hereunder at any date as a result of the termination of Executive’s employment shall be delayed for such period of time as may be necessary to meet the requirements of Section 409A(a)(2)(B)(i) of the Code (the “Delay Period”). On the first business day following the expiration of the Delay Period, Executive shall be paid, in a single cash lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule set forth herein.
(c) Each payment hereunder shall be deemed to be a separate and distinct payment for purposes of Section 409A of the Code.
(d) To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A of the Code), (i) any such expense reimbursement shall be made by the Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.
12.5 Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by Executive and the Company.
12.6 No Waiver. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
12.7 Severability. To the extent any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted from this Agreement and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect.
12.8 Survivability. Sections 6, 7, 8, 10, 11, and 12 of this Agreement shall survive the termination of this Agreement and the termination of Executive’s employment with the Company.
[Signature Page to Follow]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set for above.
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“Company”: | ||
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Inventure Foods, Inc | ||
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By: |
/s/ Kirk Roles | |
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Kirk Roles | |
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Title: |
SVP - Human Resources | |
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“Executive”: | ||
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/s/ Rick Suchenski | ||
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Rick Suchenski | ||
EXHIBIT A
RELEASE OF CLAIMS
As used in this Release of Claims (this “Release”), the term “claims” will include all claims, covenants, warranties, promises, undertakings, actions, suits, causes of action, obligations, debts, accounts, attorneys’ fees, judgments, losses, and liabilities, of whatsoever kind or nature, in law, in equity, or otherwise.
For and in consideration of the severance allowance and benefits set forth in Section 6.3 and Section 7 of that certain Executive Employment Agreement dated June 21, 2010 between Inventure Foods, Inc. (the “Company”) and me, as amended from time to time in accordance with its terms (the “Employment Agreement”), and other good and valuable consideration, for and on behalf of myself and my heirs, administrators, executors, and assigns, effective on the date on which this release becomes effective pursuant to its terms, do fully and forever release, remise, and discharge each of the Company and each of its direct and indirect subsidiaries and affiliates, together with their respective officers, directors, partners, stockholders, employees, and agents (collectively, the “Group”) from any and all claims whatsoever up to the date hereof which I had, may have had, or now have against the Group, for or by reason of any matter, cause, or thing whatsoever, including without limitation any claim arising out of or attributable to any rights to receive equity or other compensation or benefits from the Company, my Employment Agreement or the termination of my Employment Agreement (except for the Company’s obligations with respect to the severance allowance and benefits set forth in Section 6.3 and Section 7 of the Employment Agreement), or my employment or the termination of my employment with the Company, whether for tort, breach of express or implied employment contract, intentional infliction of emotional distress, wrongful termination, unjust dismissal, defamation, libel, or slander, or under any federal, state, or local law dealing with discrimination based on age, race, sex, national origin, handicap, religion, disability, or sexual orientation. This release of claims includes, but is not limited to, all claims arising under the Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Civil Rights Act of 1991, the Employee Retirement Income Security Act, the Family Medical Leave Act, the Equal Pay Act, the Older Workers’ Benefit Protection Act, the Worker Adjustment and Retraining Notification Act, the Labor Management Relations Act, the Employee Polygraph Protection Act, the Arizona Employment Protection Act, the Arizona Wage Act, and the Arizona Civil Rights Act, each as may be amended from time to time, and all other federal, state, and local laws, the common law, and any other purported restriction on an employer’s right to terminate the employment of employees. The release contained herein is intended to be a general release of any and all claims to the fullest extent permissible by law. Notwithstanding the foregoing, this Release shall not affect any right to indemnification, if any, I may otherwise have for actions taken within the scope of my employment.
I acknowledge and agree that as of the date I execute this Release, I have no knowledge of any facts or circumstances that give rise or could give rise to any claims under any of the laws listed in the preceding paragraph.
By executing this Release, I specifically release all claims relating to my employment and its termination under ADEA, a United States federal statute that, among other things, prohibits discrimination on the basis of age in employment and employee benefit plans.
I expressly acknowledge and agree that I —
· Am able to read the language, and understand the meaning and effect, of this Release;
· Have no physical or mental impairment of any kind that has interfered with my ability to read and understand the meaning of this Release or its terms, and that I am not acting under the influence of any medication, drug, or chemical of any type in entering into this Release;
· Am specifically agreeing to the terms of the release contained in this Release because the Company has agreed to pay me the severance allowance and benefits set forth in Section 6.3 and Section 7 of the Employment Agreement in consideration for my agreement to accept it in full settlement of all possible claims I might have or ever had, and because of my execution of this Release;
· Acknowledge that but for my execution of this Release, I would not be entitled to the payments described in the Employment Agreement;
· Understand that, by entering into this Release, I do not waive rights or claims under ADEA that may arise after the date I execute this Release;
· Had or could have [twenty-one (21)][forty-five (45)](1) days from the date of my termination of employment (the “Release Expiration Date”) in which to review and consider this Release, and that if I execute this Release prior to the Release Expiration Date, I have voluntarily and knowingly waived the remainder of the Review Period;
· Was advised to consult with my attorney regarding the terms and effect of this Release; and
· Have signed this Release knowingly and voluntarily.
I represent and warrant that I have not previously filed, and to the maximum extent permitted by law agree that I will not file, a complaint, charge, or lawsuit against any member of the Group regarding any of the claims released herein. If, notwithstanding this representation and warranty, I have filed or file such a complaint, charge, or lawsuit, I agree that I shall cause such complaint, charge, or lawsuit to be dismissed with prejudice and shall pay any and all costs required in obtaining dismissal of such complaint, charge, or lawsuit, including without limitation the attorneys’ fees of any member of the Group against whom I have filed such a complaint, charge, or lawsuit. This paragraph shall not apply, however, to a claim of age discrimination under ADEA.
(1) To be selected based on whether applicable termination was “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967).
Notwithstanding anything contained herein to the contrary, this Release will not become effective or enforceable prior to the expiration of the period of seven (7) calendar days following the date of its execution (the “Revocation Period”), during which time I may revoke my acceptance of this Release by notifying the Company in writing. To be effective, such revocation must be received by such the Company no later than 5:00 p.m. on the seventh (7th) calendar day following its execution. Provided that the Release is executed and I do not revoke it during the Revocation Period, the eighth (8th) day following the date on which this Release is executed shall be its effective date. I acknowledge and agree that if I revoke this Release during the Revocation Period, this Release will be null and void and of no effect, and neither the Company nor any other member of the Group will have any obligations to pay me the severance allowance and benefits set forth in Section 6.3 and Section 7 of the Employment Agreement.
The provisions of this Release shall be binding upon my heirs, executors, administrators, legal personal representatives, and assigns. If any provision of this Release shall be held by any court of competent jurisdiction to be illegal, void, or unenforceable, such provision shall be of no force and effect. The illegality or unenforceability of such provision, however, shall have no effect upon and shall not impair the enforceability of any other provision of this Release.
EXCEPT WHERE PREEMPTED BY FEDERAL LAW, THIS RELEASE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF ARIZONA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE. I HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING UNDER OR IN CONNECTION WITH THIS RELEASE.
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/s/ Rick Suchenski | ||
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Print Name: |
Rick Suchenski | |
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Date: |
June 21, 2010 | |
Exhibit 10.75
INVENTURE FOODS, INC.
RESTRICTED STOCK AGREEMENT
(Directors)
Inventure Foods, Inc. (the “Company”) hereby grants you, (“Director”), a grant of restricted stock. The date of this Agreement is . Subject to the provisions set forth in this Agreement and the provisions of the Company’s Amended and Restated 2005 Equity Incentive Plan, a copy of which is attached hereto as Exhibit A (the “Plan”), the principal features of this grant are as follows:
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NUMBER OF SHARES OF RESTRICTED STOCK: |
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PURCHASE PRICE PER SHARE: |
$0.01 |
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PURCHASE DATE: |
On or before |
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VESTING DATE: |
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Director understands that under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), as the Shares vest, the fair value of such Shares will be reportable as ordinary income at that time. Director further understands that instead of being taxed when and as the Shares vest, Director may elect to be taxed as of the Purchase Date of the Shares with respect to the fair value of all Shares on such date less the purchase price paid for the Shares. Such election may only be made under Section 83(b) of the Code with the I.R.S. within thirty (30) days after the Purchase Date. The form for making this election may be provided by the Company for Director’s convenience only. Director understands that failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income as the Shares vest. DIRECTOR ACKNOWLEDGES THAT IT IS DIRECTOR’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF DIRECTOR REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON DIRECTOR’S BEHALF. DIRECTOR IS RELYING SOLELY ON DIRECTOR’S ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE AN 83(b) ELECTION.
Your signature below indicates your agreement and understanding that this grant is subject to all of the terms and conditions contained in this Agreement and the Plan attached hereto as Exhibit A, including without limitation provisions relating to vesting and forfeiture of shares covered by this grant. PLEASE BE SURE TO READ THIS AGREEMENT AND THE PLAN IN THEIR ENTIRETY.
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TERMS AND CONDITIONS
1. Incorporation of the Plan. The Plan attached hereto is incorporated by reference into this Agreement, and any capitalized term not defined in this Agreement shall have the meaning ascribed to such term under the Plan. To the extent that any provisions of this Agreement violates or is inconsistent with the Plan, the Plan shall govern and any inconsistent provision in this Agreement shall be of no force or effect.
2. Grant. The Company hereby grants to the Director shares (the “Shares”) of the Company’s Common Stock, $0.01 par value per share (the “Common Stock”) at a purchase price of $0.01 per Share, subject to all of the terms and conditions in this Agreement. The Director has until to make such purchase after which date Director will have no further right to purchase the Shares under this Agreement. The date on which Director timely purchases the Shares hereunder shall be referred to as the “Purchase Date”.
3. Shares Held in Escrow. Unless and until the Shares have vested in the manner set forth in paragraphs 4 or 5, such Shares will be issued in the name of the Director and held by the Secretary of the Company as escrow agent (the “Escrow Agent”), and cannot be sold, transferred or otherwise disposed of, nor pledged or otherwise hypothecated. The Company may instruct the transfer agent for its Common Stock to place a legend on the certificates representing the Shares or otherwise note its records as to the restrictions on transfer set forth in this Agreement. The certificate or certificates representing such Shares will not be delivered by the Escrow Agent to the Director unless and until the Shares have vested and all other terms and conditions in this Agreement have been satisfied.
4. Vesting Schedule. Except as provided in Section 5, and subject to Section 6, all Shares subject to this grant will vest on ; provided, however, that vesting will occur only if the Director remains on the Company’s Board of Directors through the vesting date.
5. Accelerated Vesting. The Board, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Shares at any time. If so accelerated, such Shares will be considered as having vested as of the date specified by the Board. Notwithstanding the foregoing, all Shares subject to this grant shall vest immediately, and without further action of any party, upon a “change of control” of Company. When used herein, the term “change of control” shall mean the change of hands, within any consecutive one-month period, of more than thirty percent (30%) of the voting stock of the Company, with the concomitant result that the new owner or owners of such stock exercise their voting rights to “control” the identities of the members of the Board, as the term “control” is defined, or to which reference is made, in the regulations promulgated under the Securities Exchange Act of 1934.
6. Forfeiture. Notwithstanding any contrary provision of this Agreement, all Shares that have not vested pursuant to paragraphs 4 or 5 will thereupon be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company if the Director does not remain on the Company’s Board of Directors through the vesting date. The Director will not be entitled to a refund of the price paid for any Shares returned to the Company pursuant to this paragraph 6. The Director hereby appoints the Escrow Agent with full power of substitution, as the Director’s true and lawful attorney-in-fact with irrevocable power and authority in the name and on behalf of the Director to take any action and execute all documents and instruments, including, without limitation, stock powers which may be necessary to transfer the certificate or certificates evidencing such unvested Shares to the Company upon such termination.
7. Death of Director. Any distribution or delivery to be made to the Director under this Agreement will, if the Director is then deceased, be made to the Director’s designated beneficiary, or if no beneficiary survives the Director, to the administrator or executor of the Director’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
9. Rights as Shareholder. Director shall have all rights of a shareholder prior to the vesting of the Shares, including the right to vote the Shares and receive all dividends and other distributions paid or made with respect thereto.
10. No Effect on Term of Board Service. This Agreement is not an assurance of continued engagement as a director for any period of time, including any period of time necessary to permit vesting of the Shares subject to this grant under Section 4 above.
11. Entire Agreement; Amendment. This Agreement embodies the entire understanding and agreement of the parties in relation to the subject matter hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind either party hereto. This Agreement may be amended only by a writing executed by the Company and Director that specifically states that it is amending this Agreement. Notwithstanding the foregoing, this Agreement may be amended solely by the Board by a writing which specifically states that it is amending this Agreement, so long as a copy of such amendment is delivered to Director, and provided that no such amendment adversely affects the rights of Director hereunder without Director’s written consent. Without limiting the foregoing, the Board reserves the right to change, by written notice to Director, the provisions of the Shares or this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, ruling or judicial decisions, provided that any such change shall be applicable only to the Shares which are then subject to restrictions as provided herein.
12. Severability. If all or any part of this Agreement is declared by any court or government authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement not declared to be unlawful or invalid. Any Section of this Agreement so declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to the terms of such Section to the fullest extent possible while remaining lawful and valid.
13. Binding Effect and Benefit. This Agreement shall be binding upon and, subject to the conditions hereof, inure to the benefit of the Company, its successors and assigns, and Director and Director’s successors and assigns.
14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arizona without regard to principles of conflicts of law.
Exhibit 10.76
MODIFICATION AND EXTENSION AGREEMENT
(Long Form)
This Modification and Extension Agreement (the “Agreement”) is dated for reference purposes as of March 21, 2011, between INVENTURE FOODS, INC., a Delaware corporation f/k/a THE INVENTURE GROUP, INC. (the “Borrower”) and U.S. BANK NATIONAL ASSOCIATION, a national banking association, its successors and assigns (the “Bank”).
Unless defined elsewhere in this Agreement, terms used herein have the meanings given them in the Definitions Section hereof.
Factual Background
A. Bank and Borrower are parties to that certain Loan Agreement (Revolving Line of Credit Loan and Term Loan) dated as of May 16, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “RLOC/Term Loan Agreement”). The RLOC/Term Loan Agreement establishes (1) a revolving line of credit loan (“RLOC Loan” or “Facility 1”) to Borrower in the maximum principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00) (the “RLOC Loan Maximum Committed Amount”), and (2) a term loan (“Term Loan” or “Facility 2”) to Borrower in the principal amount of Six Million and No/100 Dollars ($6,000,000.00) (the “Term Loan Amount”). Bank also made a term loan (the “RE Loan”) to Borrower in the principal amount of Four Million and No/100 Dollars ($4,000,000.00) (the “RE Loan Amount”), pursuant to that certain Term Loan Agreement dated as of June 28, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “RE Loan Agreement”). The RLOC Loan, the Term Loan, and the RE Loan are hereinafter collectively, referred to as the “Credit Facilities” or “Loans” as applicable, each, individually, a “Credit Facility,” or “Loan,” as applicable). All capitalized terms used herein and not defined shall have the meanings set forth in the RLOC/Term Loan Documents or the RE Loan Documents (as such term is defined below), as applicable.
B. The RLOC Loan is evidenced by a Promissory Note Secured by Deed of Trust (Revolving Line of Credit Loan) made payable to Bank in the RLOC Loan Maximum Committed Amount (as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, the “RLOC Loan Note”). The Term Loan is evidenced by a Promissory Note Term Loan - Interim Draw Period Converting to Term (Term Loan - Interim Draw Period Converting to Term) made payable to Bank in the Term Loan Amount (as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, the “Term Loan Note”). The RE Loan is evidenced by a Promissory Note Secured by Deed of Trust (Term Loan) made payable to Bank in the RE Loan Amount (as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, the “RE Loan Note”). The RLOC Loan Note, the Term Loan Note, and the RE Loan Note, as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, are hereinafter collectively, referred to as the “Notes,” each, individually, a “Note,” as applicable.
C. The Notes are secured by, among other things, (i) that certain Business Security Agreement (Blanket - All Business Assets) dated as of May 16, 2007, covering all business assets of the Obligated Group (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Business Security Agreement”), (ii) that certain Leasehold Deed of Trust with Assignment of Rents, Security Agreement, and Fixture Filing (Washington) by RADER FARMS, INC., a Delaware corporation (“Rader”), as grantor, and CHICAGO TITLE INSURANCE COMPANY, as trustee, and Bank, as beneficiary and secured party dated as of June 28, 2007, and recorded July 2, 2007, as Recording Number 2070700138 in the Official Records of Whatcom County, Washington (the “Deed of Trust”) covering certain real and personal property, as therein described (all collectively, the “Property”). The Property encumbered by the Deed of Trust includes, without limitation, Rader’s Lessee’s Rights under the Ground Lease.
D. The following parties have each agreed to guarantee all or certain of Borrower’s obligations to Bank in accordance with one or more Guaranties:
(1) BN FOODS INC., a Colorado corporation (“BN Foods”);
(2) BOULDER NATURAL FOODS, INC., an Arizona corporation (“Boulder”);
(3) LA COMETA PROPERTIES, INC., an Arizona corporation (“La Cometa”);
(4) POORE BROTHERS - BLUFFTON, LLC, a Delaware limited liability company (the “PBC”);
(5) RADER FARMS, INC., a Delaware corporation (“Rader”); and
(6) TEJAS PB DISTRIBUTING, INC., an Arizona corporation (“Tejas”);
Each of the Guarantors described above is an Obligated Group Party (as such term is defined below). It is intended (i) that each Obligated Group Party shall be liable for the Credit Facilities, directly or indirectly, as a Borrower or as a Guarantor, (ii) that all business assets of each Obligated Group Party shall be pledged to Bank as collateral for the Credit Facilities, (iii) that the financial statements and other information required of Borrower under this Agreement shall be prepared on a consolidated basis to include all Obligated Group Parties, (iv) that all covenants of Borrower shall be covenants of the Obligated Group Parties as applicable to the appropriate Obligated Group Party(ies), and (v) that all representations and warranties of Borrower shall be representations and warranties of the Obligated Group Parties as applicable to the appropriate Obligated Group Party(ies). Borrower is a holding company for several affiliated entities, and each of the Obligated Group Parties (other than Borrower) is an Affiliate, and a wholly owned subsidiary, of Borrower.
E. U.S. BANCORP EQUIPMENT FINANCE, INC. (“USBEF”), and Borrower are parties to that certain Master Lease Agreement dated April 19, 2010 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Lease”). All of the Lease documents which evidence, guarantee, secure, or otherwise pertain to the Lease are hereinafter collectively referred to as the “Lease Documents”).
F. The RLOC Loan is due and payable on June 30, 2011 (the “RLOC Maturity Date”). The Term Loan is due and payable on May 31, 2014 (the “Term Loan Maturity Date”). The RE Loan is due and payable on July 1, 2017 (the “RE Maturity Date”).
G. As of March 16, 2011, Borrower was indebted to Bank (1) under the RLOC Loan Note in the total principal amount of Seven Million Eight Hundred Six Thousand Six Hundred Ninety-One and 50/100 Dollars ($7,806,691.50), plus accrued interest; (2) under the Term Loan Note in the total principal amount of Two Million Seven Hundred Eighty-Five Thousand Seven Hundred Fourteen and 35/100 Dollars ($2,785,714.35), plus accrued interest, and (3) under the RE Loan Note in the total principal amount of Three Million Three Hundred Eighty-Three Thousand One Hundred Seventy-One and 78/100 Dollars ($3,383,171.78), plus accrued interest (these amounts are collectively referred to herein as the “Present Debt”). The Present Debt is calculated without regard to any principal payments which are required or allowed under this Agreement, if any.
H. Borrower has requested that Bank modify and extend the RLOC Loan as set forth below. Bank, although under no obligation to do so, is willing to so modify the RLOC Loan, subject to the terms and conditions set forth below.
THEREFORE, Bank and Borrower agree as follows:
Definitions: The following capitalized words and terms shall have the following meanings when used in this Agreement. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. The terms “Guarantor” as used in this Agreement and the other the RLOC/Term Loan Documents and the RE Loan Documents shall apply only if any such parties exist, and should be ignored if inapplicable. Capitalized terms used and not defined herein have the meanings given in the Loan Agreement.
“Affiliate of” or “affiliated with” means in control of, controlled by or under common control with.
“Agreement” means this modification agreement between Borrower and Bank.
“Bank” has the meaning set forth in the introductory paragraph to this Agreement.
“BN Foods” has the meaning set forth in Recital D above.
“Borrower” has the meaning set forth in the introductory paragraph to this Agreement.
“Boulder” has the meaning set forth in Recital D above.
“Business Security Agreement” has the meaning set forth in Recital C above.
“Continuing Guaranty” and “Continuing Guaranties” have the meanings set forth in Section 3.11 below.
“Credit Facility” and “Credit Facilities” have the meanings set forth in Recital A above.
“Deed of Trust” has the meaning set forth in Recital C above.
“Facility 1” have the meanings set forth in Recital A above.
“Facility 2” have the meanings set forth in Recital A above.
“Facility Fee” has the meaning set forth in Section 4.2.
“Ground Lease” means that certain Ground Lease wherein Lyle Rader, Sue Rader, Brad Rader and Julie Newell (formerly known as Julie Rader) are the current lessors (collectively, “Ground Lessor”) and RADER FARMS, INC., a Delaware corporation, is the current ground lessee, dated May 15, 2007. The Ground Lease is also described in that certain Memorandum of Lease and Purchase Agreement, and recorded May 17, 2007, as Instrument No. 2070502840, Official Records of Whatcom County, Washington.
“Ground Lessor’s Consent” means that certain Ground Lessor’s Consent Agreement between Ground Lessor, Rader, Borrower, and Bank dated May 17, 2007 as Instrument No. 2070700139, Official Records of Whatcom County, Washington.
“Guarantor” means, each person or entity guaranteeing all or any portion of Borrower’s obligations under the RLOC/Term Loan Documents and/or the RE Loan Documents, or all or any portion of any other party’s obligations under the RLOC/Term Loan Documents and/or the RE Loan Documents, pursuant to a Guaranty, including those parties described in Recital D above (collectively, the “Guarantor” or “Guarantors”).
“Guaranty” means, each guaranty executed or required to be executed in favor of Bank in connection with any Loan, including each continuing guaranty, payment guaranty, payment and performance guaranty, completion guaranty, completion agreement, or indemnity agreement (collectively, the “Guaranty” or “Guaranties”).
“La Cometa” has the meaning set forth in Recital D above.
“Lease” has the meaning set forth in Recital E above.
“Lease Documents” has the meaning set forth in Recital E above.
“Lessee’s Rights” means all of the Rader’s right, title, and interest under the Ground Lease, including all possessory rights to the land, and all rights and interests of the Rader in all improvements now existing or hereafter located on the land.
“Note” and “Notes” have the meanings set forth in Recital B above.
“Obligated Group” and “Obligated Group Parties” shall mean, collectively, (a) Borrower, (b) La Cometa, (c) PBC, (d) Tejas, (e) Boulder, (f) BN Foods, and (g) Rader (each, individually, an “Obligated Group Party”).
“PBC” has the meaning set forth in Recital D above.
“Present Debt” has the meaning set forth in Recital F above.
“Property” means all or any part of the property affected by the Deed of Trust, or any interest in all or any part of it, as the context requires, which includes but is not limited to all of the Lessee’s Rights and all now existing or hereafter acquired interests of Rader in and to the land described therein, together with all improvements now or hereafter located on it.
“Rader” has the meaning set forth in Recital D above.
“RE Loan” has the meaning set forth in Recital A above.
“RE Loan Agreement” has the meaning set forth in Recital A above.
“RE Loan Amount” has the meaning set forth in Recital A above.
“RE Loan Documents” means all documents which evidence, guarantee, secure, or otherwise pertain to the RE Loan, including but not limited to the RE Loan Agreement, the RE Loan Note, the Business Security Agreement, the Deed of Trust, and any other security instrument or agreement securing the RE Loan.
“RE Loan Note” has the meaning set forth in Recital B above.
“Restated Business Security Agreement” has the meaning set forth in Section 3.10 below.
“Restated RLOC Loan Note” has the meaning set forth in Section 3.8 below.
“RLOC Loan” has the meaning set forth in Recital A above. The RLOC Loan is referred to in the RLOC/Term Loan Agreement as “Facility 1.”
“RLOC Loan Amount” has the meaning set forth in Recital A above.
“RLOC Loan Maximum Committed Amount” has the meaning set forth in Recital A above.
“RLOC Loan Note” has the meaning set forth in Recital B above. The RLOC Loan Note will be amended, restated, and replaced in connection with the modification contemplated hereunder in accordance with Section 3.9 above
“RLOC/Term Loan Agreement” has the meaning set forth in Recital A above.
“RLOC/Term Loan Documents” means all documents which evidence, guarantee, secure, or otherwise pertain to the RLOC/Term Loans, including but not limited to the RLOC/Term Loan Agreement, the Business Security Agreement, the Deed of Trust, and any other security instrument or agreement securing the RLOC/Term Loans.
“RLOC/Term Loans” means, collectively, RLOC Loan and Term Loan, which Credit Facilities were made available by Bank to Borrower pursuant to and as described in the RLOC/Term Loan Agreement. The RLOC Loan, the Term Loan and the RE Term Loans are and shall remain be cross-collateralized and cross-defaulted.
“RLOC Loan Maximum Committed Amount” has the meaning set forth in Recital A above.
“Tejas” has the meaning set forth in Recital D above.
“Term Loan” has the meaning set forth in Recital A above. The Term Loan is referred to in the RLOC/Term Loan Agreement as “Facility 2.”
“Term Loan Amount” has the meaning set forth in Recital A above.
“Term Loan Note” has the meaning set forth in Recital C above.
“Title Company” means CHICAGO TITLE INSURANCE COMPANY, its successors and assigns, and/or any title company that provides title insurance in favor of Bank in connection with the Loan.
“Title Policy” means Title Policy No. 301980 issued on July 2, 2007, by the Title Company insuring the Deed of Trust for the benefit of Bank.
Agreement
1. Recitals. The recitals set forth above in the Factual Background are true, accurate and correct.
2. Reaffirmation/No Impairment. Borrower reaffirms all of its obligations under the RLOC/Term Loan Documents and the RE Loan Documents and under the Loans. Except as specifically hereby amended or restated, the RLOC/Term Loan Documents and the RE Loan Documents shall each remain in full force and effect. Borrower’s payment and performance obligations pursuant to the RLOC/Term Loan Documents and the RE Loan Documents, including all extensions, amendments, renewals or replacements thereof, shall continue to be secured by the security interests and liens arising under the RLOC/Term Loan Documents and the RE Loan Documents.
3. Modification of Loan Documents. The RLOC/Term Loan Documents and the RE Loan Documents are hereby modified and amended as described below, certain RLOC/Term Loan Documents and certain RE Loan Documents are required to be modified, amended, and or restated as described below, and certain additional documents or items are required as set forth below. In the event of a conflict between the terms of the RLOC/Term Loan Documents or the RE Loan Documents and the terms of this Agreement, this Agreement shall control.
3.1 Maturity Date of Loan. The maturity date of the RLOC Loan is hereby extended to July 31, 2014 (the “Extended Maturity Date”). All sums owing on the RLOC Loan shall be due and payable no later than this Extended Maturity Date. Borrower acknowledges that concurrently with the execution of this Agreement, Borrower shall execute and/or cause Guarantor to execute, as applicable, certain other documents as may be required by Bank. The Extended Maturity Date of the RLOC Loan is reflected in the Restated RLOC Loan Note being executed by Borrower pursuant to Section 3.9 below.
3.2 Increase in RLOC Loan Amount. The RLOC Loan Amount is hereby increased from Fifteen Million and No/100 Dollars ($15,000,000.00) to Twenty-Five Million and No/100 Dollars ($25,000,000.00).
3.3 Name Changes.
(a) Effective May 20, 2010, Borrower changed its name from “THE INVENTURE GROUP, INC., a Delaware corporation” to “INVENTURE FOODS, INC., a Delaware corporation.” Any and all references to “Borrower” under the RLOC/Term Loan Documents and the RE Loan Documents shall mean “INVENTURE FOODS, INC., a Delaware corporation.”
(b) Effective May 11, 2007, RFAC changed its name from “RADER FARMS ACQUISITION CORP., a Delaware corporation” to “RADER FARMS, INC., a Delaware corporation.” Any and all references to “RFAC” or “RDI” or “RFI” under the RLOC/Term Loan Documents and the RE Loan Documents shall now mean “Rader,” which shall hereafter refer to RADER FARMS, INC., a Delaware corporation.
3.4 Modifications to Section 2.2 of RLOC Loan Agreement.
(a) The expiration date of the RLOC Loan being hereby modified to be July 31, 2014. Therefore, Section 2.2(a) of the RLOC/Term Loan Agreement is hereby amended and modified to read as follows:
“(a) Availability; Borrowing Base. Availability under the Facility 1 line of credit will be governed by a borrowing base formula, and is available between the date of this Agreement and July 31, 2014 (the “Facility 1 Expiration Date”) unless Borrower is in default. The outstanding principal balance of Facility 1 plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed under Facility 1, shall not exceed the Borrowing Base. Borrower will provide Bank with information regarding the Borrowing Base in such form and at such times as Bank may request.”
(b) The maturity date of the RLOC Loan being hereby modified to be July 31, 2014. Therefore, Section 2.2(c) of the RLOC/Term Loan Agreement is hereby amended and modified to read as follows:
“(c) Maturity Date. The maturity date of Facility 1 is July 31, 2014 (the “Facility 1 Maturity Date”). All sums owing under Facility 1 shall be due and payable no later than the Facility 1 Maturity Date.”
(c) The Unused Commitment Fee for the RLOC Loan is being hereby modified, and therefore. Section 2.2(f) of the RLOC/Term Loan Agreement is hereby amended and modified to read as follows:
“(f) Unused Commitment Fee. Borrower shall pay to Bank an unused commitment fee (the “Unused Commitment Fee”) on the average daily unused portion of Facility 1 at the rate of twenty-five hundredths of one percent (0.25%) (25 basis points) per annum, such fee calculated quarterly and payable in arrears by Borrower, in immediately available funds, within fifteen (15) days after the end of each calendar quarter for which the fee is owing.”
(d) The Fee and Rate Schedule attached as Exhibit C of the RLOC/Term Loan Agreement (i) is no longer applicable to the RLOC Loan, and (ii) will continue to be applicable to the Term Loan.
(e) Subsection (iii) of as Section 2.2(h) of the RLOC/Term Loan Agreement is hereby deleted and in it’s stead, the following is added:
(iii) For each letter of credit issued hereunder, Borrower shall pay to Bank annual non-refundable letter of credit fees, payable quarterly in advance, calculated at the beginning of each calendar quarter and based upon (1) the then existing per annum Note Rate (as such term is defined in the RLOC Loan Note), and (2) the face amount of the applicable letter of credit.
3.5 Definitions Modified or Added to, or Deleted from RLOC/Term Loan Documents.
(a) The definition of “Borrowing Base” in the RLOC/Term Loan Documents is hereby modified and amended to read as follows:
““Borrowing Base” means an amount equal to:
(a) the sum of (i) eighty five percent (85%) of Net Eligible Accounts, plus (ii) sixty percent (60%) of the applicable Obligated Group Party’s(ies’) cost (determined on a lower of cost or market basis or on such other basis as may be designated by Bank from time to time) of Eligible Raw Material Inventory, as such cost may be diminished as a result of any event causing loss or depreciation in value of Eligible Raw Material
Inventory, plus (iii) sixty-five percent (65%) of the applicable Obligated Group Party’s(ies’) cost (determined on a lower of cost or market basis or on such other basis as may be designated by Bank from time to time) of Eligible Finished Goods Inventory, as such cost may be diminished as a result of any event causing loss or depreciation in value of Eligible Finished Goods Inventory; provided, however, that in no event shall total Eligible Inventory exceed fifty percent (50%) of the Borrowing Base (excepting, at the request of Borrower, a seasonal adjustment of sixty percent (60%) will be allowed for the period of August through January), less
(b) the Rent Reserve Amount, less
(c) undrawn amounts of outstanding letters of credit issued by Bank or any Affiliate thereof.”
(b) The introductory portion of the definition of “Eligible Finished Goods Inventory” in the RLOC/Term Loan Documents is hereby modified and amended to read as follows:
““Eligible Finished Goods Inventory” means, collectively, the value of each Obligated Group Party’s, finished goods inventory so long as it meets the following conditions:…”
(c) The definition of “Eligible Inventory” in the RLOC/Term Loan Documents is hereby modified and amended to read as follows:
““Eligible Inventory” means, collectively, all Eligible Raw Materials Inventory and all Eligible Finished Goods Inventory.”
(d) The introductory portion of the definition of “Eligible Raw Materials” in the RLOC/Term Loan Documents is hereby modified and amended to read as follows:
““Eligible Raw Materials Inventory” means, collectively, the value of each Obligated Group Party’s raw materials inventory so long as it meets the following conditions:…”
(e) The definition of “Rent Reserve Amount” in the RLOC/Term Loan Documents is hereby added as follows:
““Rent Reserve Amount” means One Hundred Fourteen Thousand and No/100 Dollars ($114,000.00).”
(f) Subparagraphs (ix) and (x) within the definition of “Eligible Accounts” in the RLOC/Term Loan Documents under are hereby modified and amended to read as follows:
“(ix) Receivables Concentration. “Eligible Accounts” shall not include (a) that portion of the account(s) due from any single account debtor, other than Costco, Kroger, Safeway, Target, or Walmart/Sam’s Club, which exceeds ten percent (10%) of such Obligated Group Party’s aggregate accounts, or (b) that portion of the account(s) due from Costco which exceeds fifty percent (50%) of such Obligated Group Party’s aggregate accounts, or (c) that portion of the account(s) due from Kroger, Safeway, Target, or Walmart/Sam’s Club which exceeds twenty percent (20%) of such Obligated Group Party’s aggregate accounts.
(x) Cross-Age. If the dollar amount of accounts of an account debtor, other than Costco, Walmart/Sam’s Club Kroger, Safeway, or Target, which are not Eligible Accounts under subparagraph (ii) above exceeds ten percent (10%) of the total dollar amount due from such account debtor (which percentage limitation may change from time to time at Bank’s discretion), all of such account debtor’s accounts shall be excluded from Eligible Accounts.”
3.6 Definitions Modified or Added to or Deleted from the RLOC/Term Loan Documents AND the RE Loan Documents.
(a) The definitions set forth in the RLOC/Term Loan Documents and the RE Loan Documents is hereby modified, amended, and/or added to read as follows:
““Base Rate” shall mean the greater of (a) the Prime Rate, and (b) the Federal Funds Rate plus one half of one percent (0.5%).
“Base Rate Loan” shall mean a Loan that bears interest at the Base Rate.
“Federal Funds Rate” shall mean, for any day, the rate of interest per annum (rounded upward, if necessary, to the nearest whole multiple of 1/100th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on such day, or if no such rate is so published on such day, on the most recent day preceding such day on which such rate is so published.
“Governmental Authority” shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation, any arbitration panel, any court, any commission, any agency or any instrumentality of the foregoing.
“Maintenance Capital Expenditures” has the meaning of 50% of depreciation expense.”
“Prime Rate” shall mean the prime rate announced by Bank from time to time, which is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans which make reference thereto. The Prime Rate is not necessarily the lowest rate offered by Bank. With respect to Base Rate Loans, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced by Bank or with each change in the Federal Funds Rate, as the case may be.”
(b) The definitions “Initial Minimum TNW Amount,” “Minimum TNW Amount,” and “Tangible Net Worth” set forth in the RLOC/Term Loan Documents and the RE Loan Documents are hereby deleted in their entirety.
3.7 Modifications to Financial Covenants to RLOC/Term Loan Documents and RE Loan Documents.
(a) Section 3.5(d) of the RLOC/Term Loan Agreement is hereby amended and modified to read as follows:
“(d) Compliance Certificate. Within forty-five (45) days after the end of each fiscal quarter, a certificate in the form attached hereto as Exhibit A (each, a “Compliance Certificate”), executed by Borrower’s chief financial officer or other officer or person acceptable to Bank, certifying (1) that the Obligated Group is in compliance with the financial covenants set forth in this agreement, including (i) the minimum Fixed Charge Coverage Ratio required under Section 3.17, and (ii) the maximum Leverage Ratio required under Section 3.17, (2) that the representations and warranties set forth in the Agreement are true and correct as of the date of the certificate, and (3) that, as of the date of the certificate, no default or Event of Default, or Unmatured Event of Default, has occurred and is continuing under this Agreement.”
(b) Section 3.5(d) of the RE Loan Agreement is hereby amended and modified to read as follows:
“(d) Compliance Certificate. Within forty-five (45) days after the end of each fiscal quarter, a certificate in the form attached hereto as Exhibit C (each, a “Compliance Certificate”), executed by Borrower’s chief financial officer or other officer or person acceptable to Bank, certifying (1) that the Obligated Group is in compliance with the financial covenants set forth in this agreement, including (i) the minimum Fixed Charge Coverage Ratio required under Section 3.17, and (ii) the maximum Leverage Ratio required under Section 3.17, (2) that the representations and warranties set forth in the Agreement are true and correct as of the date of the certificate, and (3) that, as of the date of the certificate, no default or Event of Default, or Unmatured Event of Default, has occurred and is continuing under this Agreement.”
(c) Exhibit A “Compliance Certificate” to the RLOC/Term Loan Agreement and Exhibit C “Compliance Certificate” of the RE Loan Agreement, and the Compliance Certificate attached to the Lease and Lease Documents are hereby modified, amended, restated, and replaced by the attached Exhibit A.
(d) Section 3.17(a) of the RLOC/Term Loan Agreement and the RE Loan Agreement is hereby amended and modified to read as follows;
“(a) Fixed Charge Coverage Ratio. The Obligated Group shall maintain, and Borrower shall cause the Obligated Group to maintain, a Fixed Charge Coverage Ratio of at least 1.20 to 1.00. This Fixed Charge Coverage Ratio shall be tested quarterly (i) on a cumulative consolidated basis for the first four quarters ending after the Closing Date, and (ii) thereafter, on a rolling four (4) quarter basis, calculated at the end of each fiscal quarter, using the results of that fiscal quarter and each of the three (3) immediately preceding fiscal quarters.
(e) Section 3.17(b) of the RLOC/Term Loan Agreement and the RE Loan Agreement is hereby amended and modified to read as follows;
“(b) Leverage Ratio. The Obligated Group shall maintain, and Borrower shall cause the Obligated Group to maintain, a Leverage Ratio as of the last day of each fiscal quarter beginning with fiscal quarter ended March 31, 2011, of not more than 3.00 to 1.00.”
(f) Section 3.17(c) of the RLOC/Term Loan Agreement and the RE Loan Agreement is hereby deleted in its entirety.
(g) The following language is added to the end of Section 3.2 of the RLOC/Term Loan Agreement and Section 3.2 of the RE Loan Agreement.
“Without limiting the generality of the foregoing, the issuance of a request or directive regarding capital adequacy (whether or not having the force of law) that has the effect of reducing the rate of return on Bank’s capital as a consequence of its obligations under this Agreement to a level below that which Bank could have achieved but for such adoption, Change or compliance (taking into consideration Bank’s policies with respect to capital adequacy), then in any such event, Borrower shall pay to Bank such additional amounts as will compensate Bank for such costs or lost income resulting thereby as reasonably determined by Bank. The term “Change” shall include (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) or in the interpretation, promulgation, implementation or administration thereof after the date of this Agreement which affects the amount of capital required or expected to be maintained by Bank or any corporation controlling Bank. Notwithstanding the foregoing, for purposes of this Agreement, all requests, rules, guidelines or directives in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act shall be deemed to be a Change regardless of the date enacted, adopted or issued and all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority) or the United States financial regulatory authorities shall be deemed to be a Change regardless of the date adopted, issued, promulgated or implemented. “Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement.”
(h) Section 6.1(p) of the RLOC/Term Loan Agreement is hereby amended and modified to read as follows:
“(p) Borrower or the Obligated Group or any Obligated Group Party, as the case may be, has failed to timely deliver to Bank any Compliance Certificate or Borrowing Base Certificate, or (i) fails to maintain at least the minimum Fixed Charge Coverage Ratio required under Section 3.17, or (ii) exceeds the maximum Leverage Ratio required under Section 3.17; or”
(i) Section 7.1(q) of the RE Loan Agreement is hereby amended and modified to read as follows:
“(q) Borrower or the Obligated Group or any Obligated Group Party, as the case may be, has failed to timely deliver to Bank any Compliance Certificate or Borrowing Base Certificate, or (i) fails to maintain at least the minimum Fixed Charge Coverage Ratio required under Section 3.17, or (ii) exceeds the maximum Leverage Ratio required under Section 3.17; or”
(j) Exhibit C “Fee and Rate Schedule” attached to the RLOC/Term Loan Agreement is hereby modified to be the Fee and Rate Schedule attached hereto as Exhibit C.
(k) The following is hereby added as a new Section 8.24 to the RLOC/Term Loan Agreement and as a new Section 9.24 to the RE Loan Agreement,
“8.24 [9.24] LIBOR Rate Loans. Without limiting the generality of anything in this Agreement or any Note to the contrary notwithstanding, if: (i) the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for Bank to fund or maintain Loans based on the LIBOR rate as set forth in the Notes (“LIBOR Rate Loans”) (whether or not such assertion carries the force of law), (ii) deposits in U.S. Dollars (in the applicable amounts) are not being offered to Bank in the applicable markets, (iii) by reason of circumstances affecting the applicable markets, adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate; (iv) that the applicable LIBOR Rate will not adequately and fairly reflect the cost to Bank of funding LIBOR Rate Loans or (v) that the making or funding of LIBOR Rate Loans is impracticable for Bank, the obligation of Bank to make, LIBOR Rate Loans shall be suspended until Bank shall notify Borrower that the circumstances causing such suspension no longer exist, and the existing LIBOR Rate Loans shall automatically convert, on and as of the date of such notification, into Base Rate Loans.”
3.8 Modification to Negative Covenants in RLOC/Term Loan Document and RE Loan Documents.
(a) Section 3.15(d) of the RLOC/Term Loan Agreement and the RE Loan Agreement are both hereby amended and modified to read as follows:
“(d) entered into any consolidated, merger, pool, joint venture, syndicate or other combination; provided that Borrower may merge or combine with any other Obligated Group Party, and each Obligated Group Party may merge or combine with any other Obligated Group Party.”
3.9 Restated RLOC Loan Note. Concurrently with the execution of this Agreement, Borrower shall execute and deliver to Bank an amended and restated promissory note in a form acceptable to Bank in its sole and absolute discretion (the “Restated RLOC Loan Note”), which Restated RLOC Loan Note shall reflect the modifications set forth in this Agreement and certain other modifications by operation of the Restated RLOC Loan Note, which shall control. The Restated RLOC Loan Note amends, restates, and replaces the RLOC Loan Note, as such may have been amended or restated from time to time prior to the date of this Agreement, and any credit outstanding under thereunder shall be deemed to be outstanding under the Restated Note. To the extent of any inconsistencies between the provisions of the Restated RLOC Loan Note and this Agreement or any other RLOC/Term Loan Documents, the provisions of the Restated RLOC Loan Note shall control.
3.10 Restated Business Security Agreement. Concurrently with the execution of this Agreement, Borrower shall execute and deliver to Bank an amended and restated Business Security Agreement in a form acceptable to Bank in its sole and absolute discretion (the “Restated Business Security Agreement”), which Restated Business Security Agreement shall secure Borrower’s obligations to Bank under the Loans as described therein, as modified hereby, in such form as is acceptable to Bank in its sole and absolute discretion. To the extent of any inconsistencies between the provisions of Restated Business Security Agreement and this Agreement or any other RLOC/Term Loan Documents or RE Loan Documents, the provisions of the Restated Business Security Agreement shall control.
3.11 Continuing Guaranties. Concurrently with the execution of this Agreement, each Guarantor shall execute and deliver to Bank a new Continuing Guaranty, guaranteeing Borrower’s obligations to Bank under the Loans as described therein, as modified hereby, in such form as is acceptable to Bank in its sole and absolute discretion (each, a “Continuing Guaranty” and collectively, the “Continuing Guaranties”). To the extent of any inconsistencies between the provisions of any Continuing Guaranty and this Agreement or any other RLOC/Term Loan Documents or RE Loan Documents, the provisions of each such Continuing Guaranty shall control.
3.12 Amendment of Deed of Trust. Concurrently with the execution of this Agreement, Borrower shall execute and deliver to Bank, an Amendment to Deed of Trust, Assignment of Rents and Security Agreement (Financing Statement) and Memorandum of Modification regarding the Deed of Trust in a form acceptable to Bank in its sole and absolute discretion (the “Deed of Trust Amendment”).
3.13 Consents. Concurrently with the execution of this Agreement, each Guarantor shall execute and deliver to Bank a consent to this Agreement and the modifications set forth herein in such form as is acceptable to Bank in its sole and absolute discretion.
4. Conditions Precedent to Closing. Before this Agreement becomes effective and any party becomes obligated under it, all of the following conditions shall have been satisfied at Borrower’s sole cost and expense in a manner acceptable to Bank in the exercise of Bank’s sole judgment and discretion:
4.1 Receipt of Documents and Other Items. Borrower shall have duly executed or obtained the due execution of, and delivered to Bank, all documents and other items required by Bank to be executed in connection with this Agreement and the modification contemplated hereunder, all in form and content required by Bank or its counsel, including but not limited to Bank shall have received fully executed, and where appropriate, acknowledged originals of all documents required pursuant to Section 3 above.
4.2 Facility Fee. In connection with the RLOC Loan, Bank shall have received a fully earned and non-refundable facility fee in the amount of Fifteen Thousand and No/100 Dollars ($15,000.00) (the “Facility Fee”).
4.3 Title Endorsement. Bank shall have received such assurance as Bank may require that the validity and priority of the Deed of Trust has not been and will not be impaired by this Agreement or the transactions contemplated by it, which may include but not be limited to an unconditional commitment of the Title Company to issue an additional advance endorsement (CLTA 108.8, or equivalent) and a modification endorsement (CLTA Endorsement No. 110.5 or equivalent) to be attached to the Title Policy, insuring the Deed of Trust to the same extent as the Title Policy without any additional exceptions or exclusions thereto with the premium and all costs associated therewith to have been paid in full by Borrower.
4.4 Reimbursement of Bank’s Costs and Expenses. Bank shall have received reimbursement, in immediately available funds, of all costs and expenses incurred by Bank in connection with this Agreement, including charges for recording, filing, appraisal and legal fees, costs and expenses of Bank’s counsel. Such costs and expenses may include the allocated costs for services for Bank’s in-house staffs, such as legal and appraisal. Borrower acknowledges that the Facility Fee payable in connection with this transaction do not include the amounts payable by Borrower under this subsection.
4.5 Recording of Documents. All documents required by Bank to be recorded or filed in connection with this modification shall have been duly recorded in the county in which the Property is located and/or filed in the appropriate governmental office.
5. Representations, Warranties and Acknowledgments. Borrower and Guarantor jointly and severally represent, warrant and acknowledge to Bank as follows:
5.1 Loan Documents. All representations and warranties made and given by Borrower or any Guarantor in the RLOC/Term Loan Documents and the RE Loan Documents are true, complete, accurate and correct, as if given as of the date of this Agreement.
5.2 Property. Borrower lawfully possesses and holds fee simple title to all of the Property which is real property, and the Deed of Trust is a first-priority lien on that Property. Borrower owns all of the Property which is personal property, and all other personal property pledged by Borrower to Bank as collateral for the Loans, free and clear of any reservations of title and conditional sales contracts, and also of any security interests other than the Deed of Trust and/or other security agreement(s) in favor of Bank. There is no financing statement affecting any of the Property or any other personal property pledged by Borrower to Bank as collateral for the Loans on file in any public office except for financing statements in favor of Bank, or its predecessors in interest.
5.3 No Default. No event has occurred and is continuing which would constitute a default or Event of Default (as defined in the applicable document), and no event has occurred and is continuing which, with notice or the passage of time or both, would be an Event of Default, under any of the RLOC/Term Loan Documents and the RE Loan Documents.
5.4 Enforceable Documents. The RLOC/Term Loan Documents and the RE Loan Documents, including this Agreement, to which Borrower is a party are legal, valid, and binding agreements of Borrower enforceable in accordance with their respective terms, and any instrument or agreement required hereunder or thereunder, when executed and delivered, will be similarly legal, valid, binding, and enforceable.
5.5 Financial Information. All financial and other information that has been or will be supplied to Bank is: (i) sufficiently complete to give Bank accurate knowledge of Borrower’s and any Guarantor’s financial condition; (ii) in form and content required by Bank; and (iii) in compliance with all applicable government regulations. No material adverse change has occurred in the business assets, or financial condition of Borrower or any Guarantor since Borrower and any such Guarantor last supplied financial statements or information to Bank.
5.6 No Claims or Defenses. The Present Debt is due and payable to Bank, and Borrower has no claims, offsets, counterclaims or defenses with respect to: (i) the payment of the Present Debt; (ii) the payment of any other sums due under the RLOC/Term Loan Documents and the RE Loan Documents; (iii) the performance of Borrower’s obligations under the RLOC/Term Loan Documents and the RE Loan Documents; or (iv) any liability under any of the RLOC/Term Loan Documents and the RE Loan Documents.
5.7 No Breach By Bank. Bank (including all of its predecessors) has not breached any duty to Borrower in connection with the Loans, and Bank (including all of its predecessors) has fully performed all obligations it may have had or now has to Borrower.
5.8 Interest and Other Charges. All interest or other fees or charges which have been imposed, accrued or collected by Bank (including all of its predecessors) under the RLOC/Term Loan Documents and the RE Loan Documents or in connection with the Loans through the date of this Agreement, and the method of computing the same, were and are proper and agreed to by Borrower and were properly computed and collected.
5.9 Claims, Disputes, Impairments. Borrower has no pending litigation, tax claims, proceedings, or disputes that may adversely affect Borrower’s financial condition or impair Borrower’s ability to perform under the RLOC/Term Loan Documents and the RE Loan Documents.
5.10 Borrowing Entity. Borrower is a corporation which is duly organized validly existing and in good standing under the laws of the State of Delaware. There have been no changes in the organization, composition, ownership, structure or formation documents of Borrower since the inception of the Loans. In each state in which Borrower does business, it is properly licensed and in good standing. This Agreement, and any instrument or agreement required hereunder are within Borrower’s powers, have been duly authorized, and do not conflict with any of Borrower’s organizational papers.
6. Release of Bank. In consideration of the agreements and of Bank set forth in this Agreement, Borrower and each Guarantor that signs a consent to this Agreement and all of its/their respective heirs, personal representatives, predecessors, successors and assigns (individually and collectively, the “Releasors”), hereby fully release, remise, and forever discharge Bank, its parent, subsidiary, and any affiliated companies, any assignees of any of Bank’s interest in the Loans or the RLOC/Term Loan Documents and the RE Loan Documents, any owners of participation or other interests in the Loans or the RLOC/Term Loan Documents and the RE Loan Documents, any purchasers of all or any portion of the Property at any foreclosure sale or from Bank or any of its affiliates, and all past and present officers, directors, employees, agents servants, partners, shareholders, attorneys, and managers of each of them, and all of their respective heirs, personal representatives, predecessors, successors, and assigns, for, from, and against any and all claims, liens, demands, actions, causes of action, controversies, offsets, obligations, losses, costs or expenses, damages including any foreseeable or unforeseeable consequential damages, and liabilities of every kind and character whatsoever, including, without limitation, any action, omission, misrepresentation or other basis of liability founded either in tort or contract and the duties arising thereunder, that the Releasors, or any one of more of them, has had in the past, or now has, whether known or unknown, whether asserted or unasserted, by reason of any matter, cause or thing set forth in, relating to or arising out of, of in any way connected with or resulting from, the Loans or the RLOC/Term Loan Documents and the RE Loan Documents.
7. Miscellaneous.
7.1 Incorporation. This Agreement shall form a part of each RLOC/Term Loan Documents and the RE Loan Documents, and all references to a given RLOC/Term Loan Documents and the RE Loan Documents shall mean that document as hereby modified.
7.2 No Prejudice; Reservation of Rights. This Agreement shall not prejudice any rights or remedies of Bank under the RLOC/Term Loan Documents and the RE Loan Documents. Bank reserves, without limitation, all rights which it has against any indemnitor, guarantor, or endorser of the Note.
7.3 Purpose and Effect of Bank Approval. Bank’s approval of any matter in connection with the Loans are for the sole purpose of protecting Bank’s security and rights. No such approval shall result in a waiver of any default of Borrower. In no event shall Bank’s approval be a representation of any kind with regard to the matter being approved.
7.4 Disclosure to Title Company. Without notice to or the consent of Borrower, Bank may disclose to any title insurance company insuring any interest of Bank under the Deed of Trust (whether as primary insurer, coinsurer or reinsurer) any information, data, or material in Bank’s possession relating to Borrower, the Loans, or the Property.
7.5 No Waiver; Consents. No alleged waiver by Bank shall be effective unless in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from Bank’s delay in exercising or failure to exercise any right or remedy against any other party. All rights and remedies of Bank are cumulative.
7.6 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their permitted successors and assigns.
7.7 Notices. All notices given under this Agreement shall be in writing and be given by personal delivery, overnight receipted courier (such as UPS, Airborne, or Federal Express) or by registered or certified United States mail, postage prepaid, sent to the party at its address appearing below its signature. Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section. If Borrower is a partnership, service of any notice on any general partner of Borrower is effective service on Borrower for all purposes. If more than one person or entity executes this Agreement as Borrower, service of any notice on any one Borrower shall be effective service on all Borrower parties for all purposes.
7.8 Dispute Resolution; Attorneys’ Fees. Disputes under this Agreement must be resolved in the manner specified in the RLOC Loan/Term Loan Agreement and RE Loan Agreement, with attorneys’ fees and costs to be recovered as set forth in the RLOC Loan/Term Loan Agreement and RE Loan Agreement.
7.9 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arizona, without regard to the choice of law rules of that State, except to the extent that any of such laws may now or hereafter be preempted by Federal law. Borrower consents to the jurisdiction of any Federal or State court within the State of Arizona, submits to venue in such state, and also consents to service of process by any means authorized by Federal law or the law of such state. Without limiting the generality of the foregoing, Borrower hereby waives and agrees not to assert by way of motion, defense, or otherwise in such suit, action, or proceeding, any claim that (i) Borrower is not subject to the jurisdiction of the courts of the above-referenced state or the United States District Court for such state, or (ii) such suit, action, or proceeding is brought in an inconvenient forum, or (iii) the venue of such suit, action, or proceeding is improper.
7.10 Successors and Assigns. The terms of this Agreement shall bind and benefit the heirs, legal representatives, successors, and assigns of the parties; provided, however, that Borrower may not assign this Agreement, or assign or delegate any of its rights or obligations, without the prior written consent of Bank in each instance. Bank in its sole and absolute discretion may sell or assign the Loans or participations or other interests in all or part of the Loans on the terms and subject to the conditions of the RLOC/Term Loan Documents and the RE Loan Documents, all without notice to or the consent of Borrower. Also without notice to or the consent of Borrower, Bank or its affiliates may disclose to any actual or prospective purchaser of any securities issued or to be issued by Bank and to any actual or prospective purchaser or assignee of any participation or other interest in the Loans or any other loans made by Bank to Borrower (whether under this Agreement or otherwise), any financial or other information, data or material in Bank’s possession relating to Borrower, any partners of Borrower, the Loans, or the Property.
7.11 Severability. The invalidity or unenforceability of any one or more provisions of this Agreement shall in no way affect any other provision. If any court of competent jurisdiction determines any provision of this Agreement to be invalid, illegal or unenforceable, that portion shall be deemed severed from the rest, which shall remain in full force and effect as though the invalid, illegal or unenforceable portion had never been a part of this Agreement.
7.12 Interpretation. Whenever the context requires, all words used in the singular shall be construed to have been used in the plural, and vice versa, and each gender shall include any other gender. The captions of the sections of this Agreement are for convenience only and do not define or limit any terms or provisions. The word “include(s)” means “include(s), without limitation,” and the word “including” means “including, but not limited to.” No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Agreement.
7.13 Amendments. This Agreement may not be modified or amended except by a written agreement signed by the parties.
7.14 Language of Agreement. The language of this Agreement shall be construed as a whole according to its fair meaning and not strictly for or against any party.
7.15 Survival. The representations, warranties, acknowledgments, and agreements set forth herein shall survive the date of this Agreement.
7.16 Time is of the Essence. Time is of the essence in the performance of this Agreement, and each and every term thereof.
7.17 Recitals; Exhibits. The recitals to this Agreement set forth above in the “Factual Background” are true, complete, accurate, and correct, and such recitals are incorporated hereby by reference. The exhibits to this Agreement, if any, are incorporated hereby by reference.
7.18 Exchange of Information. Borrower agrees that Bank may exchange or disclose financial and other information about Borrower or the Property with or to any of Bank’s affiliates or other related entities.
7.19 Integration. This Agreement (a) integrates all the terms and conditions mentioned in or incidental to this Agreement; (b) supersedes all oral negotiations and prior writings with respect to their subject matter, and (c) is intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth herein and as the complete and exclusive statement of the terms agreed to by the parties. No representation, understanding, promise or condition shall be enforceable against any party unless it is contained in this Agreement.
7.20 No Amendment to Loans Documents. Except as specifically provided herein, this Agreement does not amend, modify, waive or limit any provision, term, or condition of the RLOC/Term Loan Documents and the RE Loan Documents or the Loans.
7.21 Counterparts. This Agreement and any attached consents or exhibits requiring signatures may be executed in counterparts, and all counterparts constitute but one and the same document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of the date first above written.
“BORROWER”
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INVENTURE FOODS, INC., a Delaware corporation f/k/a THE INVENTURE GROUP, INC. |
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Address for notices to Borrower:
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Inventure Foods, Inc. | |
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5415 East High Street, Suite 350 | |
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By: |
/s/ Steve Weinberger |
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Phoenix, AZ 85054 |
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Steve Weinberger, Chief Financial Officer |
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Attention: Steve Weinberger |
“BANK”
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U.S. BANK NATIONAL ASSOCIATION, a national banking association |
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Address for notices to Bank: | ||
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U.S. Bank National Association | ||
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101 North First Avenue, Suite 1600 | ||
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By: |
/s/ Timothy R. Coffey |
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Phoenix, AZ 85003 |
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Timothy R. Coffey, Vice President |
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Attention: Commercial Banking | |
Exhibit “A”
COMPLIANCE CERTIFICATE
The undersigned, being the being the Chief Financial Officer and Treasurer of INVENTURE FOODS, INC., a Delaware corporation (the “Borrower/Lessee”) hereby certifies to U.S. BANK NATIONAL ASSOCIATION, a national banking association (the “Bank”) and to U.S. BANCORP EQUIPMENT FINANCE, INC., an Oregon corporation (“USBEF” or the “Lessor”) (the “Bank” and the “Lessor” hereinafter collectively, the “Credit Parties,” each, a “Credit Party”), for itself and each of the other Obligated Group Parties, as follows:
Definitions: The following capitalized words and terms shall have the following meanings when used in this Compliance Certificate (the “Compliance Certificate”). All references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Capitalized terms used and not defined herein have the meanings given in the RLOC/Term Loan Agreement or the Master Lease Agreement, as applicable.
“Credit Facilities” collectively mean, the RLOC Loan, the Term Loan, and the RE Loan (as such terms are defined in the Modification Agreement) and the Master Lease Agreement (each, individually, a “Credit Facility,” as applicable).
“Lease Documents” means all documents which evidence, guarantee, secure, or otherwise pertain to the Master Lease Agreement.
“Obligated Group” and “Obligated Group Parties” shall mean, collectively, (a) Borrower, (b) La Cometa, (c) PBC, (d) Tejas, (e) Boulder, (f) BN Foods, and (g) Rader (each, individually, an “Obligated Group Party”).
“Modification Agreement” means that certain Modification and Extension Agreement dated as of March 21, 2011, between Borrower/Lessor and Bank.
“RE Loan Documents” means all documents which evidence, guarantee, secure, or otherwise pertain to the RE Loan, including but not limited to the RE Loan Agreement, the RE Loan Note, the Business Security Agreement, the Deed of Trust, and any other security instrument or agreement securing the RE Loan.
“RLOC/Term Loan Documents” means all documents which evidence, guarantee, secure, or otherwise pertain to the RLOC/Term Loans, including but not limited to the RLOC/Term Loan Agreement, the Business Security Agreement, the Deed of Trust, and any other security instrument or agreement securing the RLOC/Term Loans.
1. This certificate (the “Compliance Certificate”) is being provided pursuant to (i) Sections 3.5 and 3.17 of that certain Loan Agreement (Revolving Line of Credit Loan and Term Loan) dated as of May 16, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “RLOC/Term Loan Agreement”), by and between Bank and Borrower, (ii) Sections 3.5 and 3.17 of that certain Term Loan Agreement dated as of June 28, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “RE Loan Agreement”), and (iii) Section 22 of that certain Master Lease Agreement dated as of April 19, 2010 (including any schedules thereto, and as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Lease”). This Compliance Certificate is made with the acknowledgment and agreement of the other Obligated Group Parties.
2. As of the effective date set forth below, the undersigned has/have reviewed the transactions and conditions of Borrower/Lessee, and such has not disclosed any condition or event which would constitute, and the undersigned has/have no knowledge of any event which constitutes, or which, with the giving of notice or the passage of time, or both, would constitute a default or an Event of Default under (a) any of the RLOC/Term Loan Documents, (b) any of the RE Loan Documents, or the (c) Lease or any other Lease Document.
3. As of the effective date set forth below, the financial condition of Borrower/Lessee, and each other Obligated Group Party, remains essentially the same as it was the date of the last financial statement submitted by Borrower/Lessee to any Credit Party and that no material adverse change has occurred in the financial condition of Borrower/Lessee or the other Obligated Group Parties that affects the any collateral securing any Credit Facilities or the Lease, or Borrower/Lessee’s or any Obligated Group Party’s ability to pay or performs any or its obligations under any of the Credit Facilities or the Lease pursuant to the terms of (a) the RLOC/Term Loan Documents, (b) the RE Loan Documents, and/or the (c) Lease or any other Lease Document, as applicable.
4. As of the effective date set forth below, the Obligated Group is in compliance with the financial covenants set forth in (i) Sections 3.5 and 3.17 of the RLOC/Term Loan Agreement, (ii) Sections 3.5 and 3.17 of the RE Loan Agreement, and (iii) Section 22 of the Lease (collectively the “Financial Covenant Provisions”):
(a) On , 201 , the Obligated Group’s Fixed Charge Coverage Ratio was to . The Obligated Group’s Fixed Charge Coverage Ratio is required to be at least 1.20 to 1.00, tested quarterly, on a rolling four (4) quarter basis, calculated at the end of each fiscal quarter, using the results of that fiscal quarter and each of the three (3) immediately preceding fiscal quarters, pursuant to the Financial Covenant Provisions.
(b) On , 201 , the Obligated Group’s Leverage Ratio was to . The Obligated Group’s Leverage Ratio is required to be not more than 3.00 to 1.00, as of the last day of each fiscal quarter beginning with fiscal quarter ended March 31, 2011, pursuant to the Financial Covenant Provisions
Upon the request of Bank or Lessor, Borrower/Lessee shall provide financial covenant analyses and information in form and substance acceptable to Bank and Lessor showing Borrower/Lessee’s compliance with the financial covenants set forth in the (i) the RLOC/Term Loan Agreement, (ii) the RE Loan Agreement, and (iii) the Lease, which shall be true and accurate on and as of the effective date of this Compliance Certificate.
5. As of the effective date set forth below, neither Borrower/Lessee nor any other Obligated Group Party has any claim against Bank or Lessor, or any defenses or offsets to payment of any Credit Facility or any other amounts due under (a) any of the RLOC/Term Loan Documents, (b) any of the RE Loan Documents, or (c) the Lease or any other Lease Document.
6. As of the effective date set forth below, the representations and warranties contained in the (a) the RLOC/Term Loan Documents, (b) the RE Loan Documents, or (c) the Lease and any other Lease Documents are true and correct in all material respects as of the date of this Compliance Certificate to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date.
7. As Chief Financial Officer and Treasurer of Borrower/Lessee, I am authorized to execute and deliver this Compliance Certificate to Bank and Lessor on behalf of Borrower/Lessee.
IN WITNESS WHEREOF, this Compliance Certificate has been executed to be effective as of , 201 .
“BORROWER/LESSEE”
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INVENTURE FOODS, INC., |
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Address for notices to Borrower/Lessee: Inventure Foods, Inc. | |
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By: |
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5050 N. 40th Street, Suite 300 |
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Name: |
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Phoenix, Arizona 85018 |
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Title: |
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Attention: Steve Weinberger |
Exhibit 10.77
AMENDED AND RESTATED PROMISSORY NOTE
(Facility 1 - Revolving Line of Credit Loan)
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$25,000,000.00 |
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March 21, 2011 |
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Phoenix, Arizona |
1. Borrower’s Promise To Pay.
FOR VALUE RECEIVED, INVENTURE FOODS, INC., a Delaware corporation f/k/a THE INVENTURE GROUP, INC. (the “Borrower”), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION, a national banking association (the “Bank”), at 101 N. First Avenue, Suite 1600, Phoenix, Arizona 85003, Attention: Commercial Banking, or at such other place as the holder of this Note may from time to time designate, the principal sum of Twenty-Five Million and No/100 Dollars ($25,000,000.00) (“Maximum Loan Amount”), or such lesser amount as may be advanced and outstanding under this promissory note (the “Note”), plus interest as specified in this Note. Bank shall not be required to make any advance if that would cause the outstanding principal of this Note to exceed the Maximum Loan Amount. This Note evidences a revolving line of credit loan (“Loan”) made by Bank to Borrower pursuant to the terms of a loan agreement (the “Loan Agreement”) between Bank and Borrower dated as of May 16, 2007. During the availability period described in the Loan Agreement, Borrower may repay principal amounts and reborrow them upon the terms and conditions set forth in the Loan Agreement.
This Note is secured by a certain Amended and Restated Security Agreement (Blanket - All Business Assets) being executed by Borrower in favor of Bank dated of even date herewith (as the same may from time to time be extended, amended, restated, supplemented, or otherwise modified, the “Security Agreement”) and may be secured by other collateral. This Note and the Loan Agreement, together with all other documents which evidence, guaranty, secure, or otherwise pertain to the Loan collectively constitute the “Loan Documents.” Some or all of the Loan Documents, including the Loan Agreement, contain provisions for the acceleration of the maturity of this Note. This Note is subject to the terms and conditions of the Loan Agreement. Capitalized terms used but not defined herein shall have the meanings set forth in the Loan Agreement.
2. Maturity Date. All principal and all accrued and unpaid interest and other sums due hereunder shall be due and payable on July 31, 2014 (the “Maturity Date”).
3. Interest Rate and Payment Terms.
3.1 Interest Rate. Interest on each advance hereunder shall accrue at an annual rate equal to one and forty-five hundredths percent (1.45%) (145 basis points) plus the one-month LIBOR rate quoted by Bank from Reuters Screen LIBOR01 Page or any successor thereto, which shall be that one-month LIBOR rate in effect and reset each New York Banking Day, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation. The term “New York Banking Day” means any day (other than a Saturday or Sunday) on which commercial banks are open for business in New York, New York. Bank’s internal records of applicable interest rates shall be determinative in the absence of manifest error.
3.2 Separate Principal Plus Interest Payments.
(a) Interest Payments. Interest is payable beginning April 1, 2011, and on the same date of each CONSECUTIVE month thereafter, with a final interest payment with the final payment of principal.
(b) Principal Payment on Maturity Date. If not sooner paid, all principal shall be due and payable on the Maturity Date.
3.3 Principal Prepayments. Borrower may prepay some or all of the principal under any Prime Rate Loan, from time to time, without payment of any prepayment premium or fee.
4. General Interest and Payment Terms.
4.1 Note Rate. The interest rate in effect from time to time under this note is herein referred to as the “Note Rate.”
4.2 Effective Contracted Rate. Borrower agrees to pay an effective contracted for rate of interest equal to the rate of interest resulting from all interest payable as provided in this Note plus the additional rate of interest resulting from (a) any loan or facility fee(s) or other similar fees described or defined in the Loan Documents, and (b) all Other Sums. For purposes hereof, the “Other Sums” shall mean all fees, charges, goods, things in action, or any other sums or things of value (other than interest payable as provided in this Note and any loan or facility fee) paid or payable by Borrower, whether pursuant to this Note, any of the other Loan Documents, or any other document or instrument in any way pertaining to this lending transaction, that may be deemed to be interest for the purpose of any law of the State of Arizona, or any other applicable law, that may limit the maximum amount of interest to be charged with respect to this lending transaction. The Other Sums shall be deemed to be interest and part of the “contracted for rate of interest” for the purposes of any such law only.
4.3 Usury Savings Clause. It is expressly stipulated and agreed to be the intent of Borrower and Bank at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Bank to contract for, charge, take, reserve, or receive greater amount of interest than under state law) and that this Section shall control every other covenant and agreement in this Note and the other Loan Documents. If applicable state or federal law should at any time be judicially interpreted so as to render usurious any amount charged, taken, reserved, or received with respect to the Loan, or if Bank’s exercise of the option to accelerate the Maturity Date, or if any prepayment by Borrower, results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Bank’s express intent that all such excess amounts theretofore collected by Bank shall be credited to the principal balance of this Note and all other indebtedness, and that the provisions of this Note and the other Loan Documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Bank for the use, forbearance, or detention of the Loan shall, to the extent not prohibited by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the maximum lawful rate from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.
4.4 Calculation of Interest. Interest will be computed for the actual days elapsed on the basis of a three hundred sixty (360) day year, which results in more interest than if a three hundred sixty-five (365) day year method were used.
4.5 Payments. Except as otherwise provided herein, all amounts payable under this Note are payable in lawful money of the United States during normal business hours on a Banking Day. For purposes hereof, “Banking Day” means a day, other than a Saturday or Sunday, on which Bank is open for business for all banking functions in Phoenix, Arizona. Checks and drafts constitute payment only when collected. All payments made under this Note shall be made without offset, demand, counter-claim, deduction or recoupment (each of which is hereby waived), and acceptance by Bank of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, notwithstanding any notation on or accompanying such partial payment to the contrary, and shall not constitute a waiver by Bank of any Event of Default. Except as otherwise set forth herein or in any other Loan Document, payments shall be applied in such order and manner as Bank may determine in its sole and absolute discretion.
5. Late Payments; Default Rate
5.1 Late Charge for Overdue Payments. If Bank has not received the full amount of any payment scheduled to be made under this Note, other than the final principal payment, by the end of ten (10) calendar days after the date it is due, Borrower shall pay a late charge to Bank in the amount of five percent (5%) of the overdue payment; provided, however, in no event shall any late charge be payable hereunder without Bank first having provided Borrower with any notice required by applicable law. Borrower shall pay this late charge only once on any late payment. This late charge shall not be construed as in any way extending the due date of any payment, and is in addition to, and not in lieu of, any other remedy Bank may have.
5.2 Default Rate. Upon the occurrence of any Event of Default (subject to any applicable notice and cure periods), the unpaid balance of the Loan shall bear interest at the rate which is five percent (5%) above the then applicable Note Rate as it may thereafter change pursuant to the terms of this Note (the “Default Rate”). Additionally, from and after the Maturity Date, or such earlier date as all sums owing on this Note become due and payable by acceleration or otherwise, the Loan shall bear interest at the Default Rate. Accrued interest, at the Note Rate, if not paid when due, shall accrue interest at the Default Rate, as hereinabove provided, which may result in compounding of interest. Except as otherwise set forth herein or in any other Loan Document, payments under this Note or under any other Loan Document that are due on demand, shall bear interest at the Default Rate (i) from the date costs or expenses are incurred by Bank that give rise to the demand or (ii) if there is no such date, then from the date of demand, until Borrower pays the full amount of such payment, including interest.
6. Events of Default. If any of the following “Events of Default” occur, any obligation of the holder to make advances under this Note terminates and, at the holder’s option, exercisable in its sole and absolute discretion, all sums of principal and interest under this note immediately become due and payable without notice of default, presentment, demand for payment, protest, or notice of nonpayment or dishonor, or other notices or demands of any kind or character:
6.1 Borrower fails to perform any obligation under this Note to pay principal or interest within ten (10) days after the date when due; or
6.2 Borrower fails to perform any other obligation under this Note to pay money within ten (10) days after the date when due; or
6.3 Under any of the Loan Documents, a default or Event of Default occurs, except as provided in Section 7 below.
7. Insolvency. It is an “Event of Default” under this Note if Borrower becomes the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships (“Insolvency Proceeding”), and as to any involuntary Insolvency Proceeding, it either: (i) is consented to or (ii) has not been dismissed within ninety (90) days. Upon such an Event of Default, all sums of principal and interest under this Note automatically become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. If Borrower becomes the subject of any Insolvency Proceeding, any obligation of the holder to make advances under this Note shall automatically terminate, and in the case of an involuntary Insolvency Proceeding which is dismissed
within ninety (90) days, the holder’s obligation to make advances under this Note shall resume upon the dismissal thereof.
8. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH BORROWER AND BANK MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO, THIS NOTE, THE LOAN AGREEMENT, OR ANY OF THE OTHER LOAN DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTION OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER, AND BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
9. Miscellaneous.
9.1 Waivers. Borrower hereby waives presentment, demand, notice of dishonor, notice of default or delinquency, notice of acceleration, notice of nonpayment, notice of costs, expenses, or losses and interest thereon; and notice of interest on interest and late charges.
9.2 Delay In Enforcement. If Bank delays in exercising or fails to exercise any of its rights under this Note, that delay or failure does not constitute a waiver of any of Bank’s rights, or of any breach, default or failure of condition of or under this Note. No waiver by Bank of any of its rights, or of any breach, default or failure of condition is effective, unless the waiver is expressly stated in writing by Bank.
9.3 Joint and Several Liability. If more than one person or entity is signing this Note as Borrower, their obligations under this Note shall be joint and several. As to any Borrower that is a partnership, the obligations of Borrower under this Note are the joint and several obligations of each general partner thereof. Any married person signing this Note agrees that recourse may be had against community property assets and against his or her separate property for the satisfaction of all obligations contained herein.
9.4 Heirs, Successors, and Assigns; Participations. This Note inures to and binds the heirs, legal representatives, successors and assigns of Borrower and Bank; provided, however, Borrower may not assign this Note or any Loan funds, or assign or delegate any of its rights or obligations, without the prior written consent of Bank in each instance, which consent is at the sole and absolute discretion of Bank. Bank, in its sole and absolute discretion, may transfer this Note, and may sell or assign participations or other interests in all or part of the Loan, on the terms and subject to the conditions of the Loan Documents, all without notice to or the consent of Borrower. Without notice to or the consent of Borrower, Bank may disclose to any actual or prospective purchaser of any securities issued or to be issued by Bank or its affiliates, and to any actual or prospective purchaser or assignee of any participation or other interest in this Note, the Loan, or any other loans made by Bank to Borrower (whether evidenced by this Note or otherwise), any financial or other information, data or material in Bank’s possession relating to Borrower, or the Loan. If Bank so requests, Borrower shall sign and deliver a new note, in the form and substance of this Note, to be issued in exchange for this Note.
9.5 Cumulative Remedies. All of Bank’s remedies in connection with this Note or under applicable law are cumulative, and Bank’s exercise of any one or more of those remedies shall not constitute an election of remedies.
9.6 Governing Law. This Note shall be governed by, and construed in accordance with, the laws of the State of Arizona, without regard to the choice of law rules of that State, except to the extent that any of such laws may now or hereafter be preempted by Federal law. Borrower consents to the jurisdiction of any Federal or State court within the State of Arizona, submits to venue in such state, and also consents to service of process by any means authorized by Federal law or the law of such state. Without limiting the generality of the foregoing, Borrower hereby waives and agrees not to assert by way of motion, defense, or otherwise in such suit, action, or proceeding, any claim that (i) Borrower is not subject to the jurisdiction of the courts of the above-referenced state or the United States District Court for such state, or (ii) such suit, action, or proceeding is brought in an inconvenient forum, or (iii) the venue of such suit, action, or proceeding is improper.
9.7 Attorney’s Fees and Costs. In any lawsuit or arbitration arising out of or relating to this Note, the Loan Documents or the Loan, the prevailing party will be entitled to recover from each other party such sums as the court or arbitrator adjudges to be reasonable attorneys’ fees in the action or arbitration, in addition to costs and expenses otherwise allowed by law. In all other actions or proceedings, including any matter arising out of or relating to any Insolvency Proceeding, Borrower agrees to pay all of Bank’s costs and expenses, including reasonable attorneys’ fees, incurred in enforcing or protecting Bank’s rights or interests. From the time(s) incurred until paid in full to Bank, all such sums shall bear interest at the Default Rate. Whenever Borrower is obligated to pay or reimburse Bank for any attorneys’ fees, those fees shall include the allocated costs for services of in-house counsel.
9.8 Holder’s Rights. Borrower agrees that the holder of this Note may accept additional or substitute security for this Note, or release any security or any party liable for this Note, or extend or renew this Note, all without notice to Borrower and without affecting the liability of Borrower.
9.9 Interpretation. As used in this Note, the terms “Bank,” “holder” and “holder of this Note” are interchangeable. As used in this Note, the word “include(s)” means “include(s), without limitation,” and the word “including” means “including, but not limited to.”
9.10 Time of the Essence. Time is of the essence with regard to all payment obligations under this Note.
9.11 Amendments. This Note may not be modified or amended except by a written agreement signed by the parties.
9.12 Counterparts. This Note may be executed in counterparts, and all counterparts constitute but one and the same document.
10. Prior Note. This Note amends, restates, and replaces that certain a certain Promissory Note (Facility 1 - Revolving Line of Credit Loan) in the original maximum principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00) dated as of May 16, 2007, executed by Borrower, in favor of Bank (the “Prior Note”). This Note supersedes the Prior Note as such may have been amended from time to time prior to the date hereof, and any credit outstanding thereunder shall be deemed to be outstanding under this Note.
IN WITNESS WHEREOF, Borrower has duly executed and delivered this Note to Bank as of the date first above written.
BORROWER:
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INVENTURE FOODS, INC., |
Address for notices to Borrower: | ||
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a Delaware corporation |
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Inventure Foods, Inc. | ||
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5415 East High Street, Suite 350 | |
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By: |
/s/ Steve Weinberger |
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Phoenix, AZ 85054 |
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Steve Weinberger, Chief Financial Officer |
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Attention: Steve Weinberger |
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Tax I.D. #: 86-0786101 | ||
Exhibit 10.78
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Recording Requested By U.S. Bank National Association |
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Space Above For Recorder’s Use |
WASHINGTON STATE COUNTY AUDITOR’S/RECORDER’S INFORMATION (RCW 65.04):
GRANTOR: RADER FARMS, INC. (“GRANTOR” and “LESSEE”)
GRANTEE: U.S. BANK NATIONAL ASSOCIATION (“BENEFICIARY”)
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ABBREVIATED |
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LEGAL DESCRIPTION: |
Ptn. of Sections 1, 3, 4, 9, 10, 31, 33, Township 40 North, Range 3 East of W.M., Ptn. of Sections 6 and 31, Township 40 North, Range 4 East of W.M. |
[SEE ATTACHED EXHIBIT A FOR FULL LEGAL DESCRIPTION]
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ASSESSOR’S PROPERTY TAX PARCEL ACCOUNT NUMBER(S): |
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400406 235480 0000 and 400310 258263 0000 and 400309 466060 0000 and 400405 096537 0000 and 410333 205232 0000 and 400310 121045 0000 and 400309 475078 0000 and 400309 476112 0000 and 400310 024030 0000 and 400310 067020 0000 and 400406 198523 0000 and 410431 019031 0000 and 410431 019090 0000 and 400310 207022 0000 and 400309 490232 0000 and 410431 019156 0000 and 400310 038225 0000 and 400309 505035 0000 and 400310 105237 0000 and 400309 441228 0000 and 400303 449478 0000 and 400406 037482 0000 and 400309 305089 0000 and 400310 070169 0000 and 400301 235478 0000 and 400310 187087 0000 and 400310 070085 0000 and 400309 470490 0000 and 400301 363356 0000 and 400405 104471 0000 and 400406 250460 0000 and 400304 344458 0000 and 410431 086075 0000 and 400310 213195 0000 and 400304 209456 0000 and 400303 487407 0000 and 400309 395110 0000 and 400301 402485 0000 |
AMENDMENT TO LEASEHOLD DEED OF TRUST
WITH ASSIGNMENT OF RENTS, SECURITY AGREEMENT, AND
FIXTURE FILING AND MEMORANDUM OF MODIFICATION
(Washington)
This Document Serves as a Fixture Filing under the Washington Uniform Commercial Code.
Grantor’s Organizational Identification Number is: DE-4351069.
This Amendment to Leasehold Deed of Trust with Assignment of Rents, Security Agreement, and Fixture Filing and Memorandum of Modification (the “Amendment”) is dated for reference purposes as of March 21, 2011, by and between RADER FARMS, INC., a Delaware corporation, as trustor (the “Grantor”), CHICAGO TITLE INSURANCE COMPANY, as trustee (the “Trustee”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as beneficiary and secured party (the “Beneficiary”).
Factual Background
A. Beneficiary and INVENTURE FOODS, INC., a Delaware corporation f/k/a THE INVENTURE GROUP, INC. (the “Borrower”), are parties to that certain Loan Agreement (Revolving Line of Credit Loan and Term Loan) dated as of May 16, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “RLOC/Term Loan Agreement”). The RLOC/Term Loan Agreement establishes (1) a revolving line of credit loan (“RLOC Loan”) to Borrower in the maximum principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00) (the “RLOC Loan Maximum Committed Amount”), and (2) a term loan (“Term Loan”) to Borrower in the principal amount of Six Million and No/100 Dollars ($6,000,000.00) (the “Term Loan Amount”). Bank also made a term loan (the “RE Loan”) to Borrower in the principal amount of Four Million and No/100 Dollars ($4,000,000.00) (the “RE Loan Amount”), pursuant to that certain Term Loan Agreement dated as of June 28, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “RE Loan Agreement”). The RLOC Loan, the Term Loan, and the RE Loan are hereinafter collectively, referred to as the “Credit Facilities” or “Loans” as applicable, each, individually, a “Credit Facility,” or “Loan,” as applicable). All capitalized terms used herein and not defined shall have the meanings set forth in the RLOC/Term Loan Documents and/or the RE Loan Documents, as applicable.
B. The RLOC Loan is evidenced by a Promissory Note Secured by Deed of Trust (Revolving Line of Credit Loan) made payable to Bank in the RLOC Loan Maximum Committed Amount (as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, the “RLOC Loan Note”). The Term Loan is evidenced by a Promissory Note Term Loan - Interim Draw Period Converting to Term (Term Loan - Interim Draw Period Converting to Term) made payable to Bank in the Term Loan Amount (as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, the “Term Loan Note”). The RE Loan is evidenced by a Promissory Note Secured by Deed of Trust (Term Loan) made payable to Bank in the RE Loan Amount (as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, the “RE Loan Note”). The RLOC Loan Note, the Term Loan Note, and the RE Loan Note, as amended, restated, renewed, replaced, supplemented or otherwise modified from time to time, are hereinafter collectively, referred to as the “Notes,” each, individually, a “Note,” as applicable.
C. The Notes are secured by, among other things, (i) that certain Business Security Agreement (Blanket - All Business Assets) dated as of May 16, 2007, covering all business assets of the Obligated Group (as amended, restated, replaced, supplemented or otherwise modified from time to time,
the “Business Security Agreement”), (ii) that certain Leasehold Deed of Trust with Assignment of Rents, Security Agreement, and Fixture Filing (Washington) by RADER FARMS, INC., a Delaware corporation (“Rader”), as grantor, and CHICAGO TITLE INSURANCE COMPANY, as trustee, and Bank, as beneficiary and secured party dated as of June 28, 2007, and recorded July 2, 2007, as Recording Number 2070700138 in the Official Records of Whatcom County, Washington (the “Deed of Trust”) covering certain real and personal property, as therein described (all collectively, the “Property”). The Property encumbered by the Deed of Trust includes, without limitation, Rader’s Lessee’s Rights under the Ground Lease.
D. Grantor has requested that Beneficiary modify certain terms and conditions of the Loans, including but not limited to, increasing the amount of the RLOC Loan by Ten Million and No/100 Dollars ($10,000,000.00) and extending the Maturity Date of the Loan to July 31, 2014, upon the terms and conditions set forth in that certain Modification and Extension Agreement, dated of even date herewith, by and between Beneficiary and Grantor (the “Modification Agreement”). Beneficiary, although under no obligation to do so, is willing to modify the Loans in accordance with the terms and conditions of the Modification Agreement, provided that the following amendments are made to the Deed of Trust. All capitalized terms not defined herein shall have the meaning set forth in the Modification Agreement, or if not defined in the Modification Agreement, shall have the meaning set forth in the RLOC/Term Loan Agreement and/or the RE Loan Agreement, as applicable.
E. Together with the execution hereof and pursuant to the terms of the Modification Agreement, Grantor has executed an Amended and Restated Promissory Note dated of even date herewith (the “Restated RLOC Loan Note”), made payable to Beneficiary in the stated principal amount of amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), which amends, restates, replaces, and supersedes the original RLOC Note.
F. This Amendment, the Modification Agreement, the RLOC/Term Loan Agreement, the RE Loan Agreement, the Restated RLOC Loan Note, and the Deed of Trust (as amended hereby, together with all of their exhibits, and all other documents which evidence, guaranty, secure, or otherwise pertain to the Loans, as any or all of them may have been amended, modified, or restated from time to time, collectively constitute the “Loan Documents.”
Agreement
THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor and Beneficiary agree as follows:
1. Accuracy of Recitals/Reaffirmation. Grantor acknowledges the accuracy of the Recitals, and reaffirms all of its obligations under the Deed of Trust and the Loans. Except as specifically hereby amended, the Deed of Trust shall remain in full force and effect. Grantor’s payment and performance obligations pursuant to the Deed of Trust and the Loan Documents executed in connection with the Loans, including all extensions, amendments, renewals or replacements thereof, shall continue to be secured by the security interests and liens arising out of the Loan Documents and the Deed of Trust.
2. Modification of Loan. The Loans and the Loan Documents, including the indebtedness secured by the Deed of Trust, have been modified by the Modification Agreement and related documents thereto.
3. Modifications to Deed of Trust. The Deed of Trust is hereby modified and amended as described below. In the event of a conflict between the terms of the RLOC/Term Loan Documents or the RE Loan Documents, and the terms of this Amendment, this Amendment shall control:
3.1 Modification to Deed of Trust. Section 1.2(a)(ii) of the Deed of Trust is amended and modified to read as follows:
“(ii) Payment of all obligations at any time owing under that certain Promissory Note Secured By Deeds of Trust (Facility 1 - Revolving Line of Credit Loan) (the “Facility 1 Note”) dated as of March 21, 2011, payable by Borrower as maker to the order of Beneficiary in the stated principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00); and”
3.2 Restated RLOC Loan Note. Concurrently with the execution of this Amendment, Borrower shall execute and deliver to Bank an amended and restated promissory note in a form acceptable to Bank in its sole and absolute discretion (the “Restated RLOC Loan Note”), which Restated RLOC Loan Note shall reflect the modifications set forth in this Modification Agreement and certain other modifications by operation of the Restated RLOC Loan Note, which shall control. The Restated RLOC Loan Note amends, restates, and replaces the RLOC Loan Note, as such may have been amended or restated from time to time prior to the date of this Amendment, and any credit outstanding under thereunder shall be deemed to be outstanding under the Restated Note. The stated amount of the Restated RLOC Loan Note is Twenty-Five Million and No/100 Dollars ($25,000,000).
4. Miscellaneous.
4.1 Further Assurances. At its sole cost and without expense to the Trustee or the Beneficiary, Grantor shall do, execute, acknowledge and deliver any and all such further acts, deeds, conveyances, notices, requests for notices, financing statements and/or continuation statements (if applicable), certificates, assignments, notices of assignments, agreements, instruments and further assurances as the Trustee or the Beneficiary shall from time to time require, for the better assuring, conveying, assigning, transferring confirming and perfecting unto the Trustee and the Beneficiary the property and rights conveyed or assigned by the Deed of Trust, as supplemented hereby, or which the Grantor may be or may hereafter become bound to convey or assign to the Trustee or Beneficiary, or for carrying out the intention or facilitating the performance of the terms of the Deed of Trust, as supplemented hereby. Grantor shall, upon the execution and delivery of this Amendment and thereafter from time to time, cause this Amendment and each instrument of further assurance to be filed, registered, recorded, given, or delivered in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien of the Deed of Trust, as amended hereby, upon the Property, and the title of the Trustee and/or the Beneficiary to the Property, and/or leases, rents, income and profits.
4.2 Changes and Priority Over Intervening Liens. As set forth in the Deed of Trust and Modification, this Amendment shall be and remain superior to the rights of the holder of any subordinate lien or encumbrance.
4.3 Governing Law. This Amendment is governed by the laws of the State of Arizona, without regard to the choice of law rules of that state, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than the State of Arizona are governed by the laws of such other jurisdiction.
4.4 Successors in Interest. The terms, covenants, and conditions of this Amendment and the Deed of Trust, as modified hereby, shall be binding upon and inure to the benefit of the heirs, and permitted successors, and assigns of the parties.
4.5 Severability. If any provision of this Amendment should be held unenforceable or void, that provision shall be deemed severable from the remaining provisions and shall in no way affect the validity of
this Amendment or the Deed of Trust, except that if such provision relates to the payment of any monetary sum, then Beneficiary may, at its option, declare all Secured Obligations (as such term is defined in the Deed of Trust, as modified hereby) immediately due and payable.
4.6 Counterparts. This Amendment and any attached consents or exhibits requiring signatures may be executed in counterparts, and all counterparts constitute but one and the same document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, Grantor has executed this Amended Leasehold Deed of Trust the date first above written.
“GRANTOR”
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RADER FARMS, INC., a Delaware corporation |
Address for notices to Grantor: | ||
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Rader Farms, Inc. | ||
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By: |
/s/ Steve Weinberger |
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c/o Inventure Foods, Inc. |
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Steve Weinberger, Chief Financial Officer |
5415 East High Street, Suite 350 | |
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Phoenix, AZ 85054 | ||
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Attention: Steve Weinberger | ||
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STATE OF |
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County of |
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On this day of , 2011, before me, , a Notary Public in and for said State, personally appeared Steve Weinberger, as Chief Financial Officer of RADER FARMS, INC., a Delaware corporation, o personally known or me or o proved to me on basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal the day and year in this certificate first above written.
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“BENEFICIARY”
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U.S. BANK NATIONAL ASSOCIATION, |
Address for notices to Beneficiary: | ||
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a national banking association |
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U.S. Bank National Association | ||
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101 North First Avenue, Suite 1600 | ||
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By: |
/s/ Timothy R. Coffey |
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Phoenix, AZ 85003 |
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Timothy R. Coffey, Vice President |
Attention: Commercial Banking | |
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STATE OF ARIZONA |
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County of Maricopa |
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On this day of , 2011, before me, , a Notary Public in and for said State, personally appeared Timothy R. Coffey, a Vice President of U.S. BANK NATIONAL ASSOCIATION, a national banking association, o personally known or me or o proved to me on basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal the day and year in this certificate first above written.
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Exhibit A to AMENDMENT TO LEASEHOLD DEED OF TRUST WITH ASSIGNMENT OF RENTS, SECURITY AGREEMENT, AND FIXTURE FILING AND MEMORANDUM OF MODIFICATION (Washington) dated for reference purposes as of March 21, 2011, by RADER FARMS, INC., a Delaware corporation, as “Grantor” to CHICAGO TITLE INSURANCE COMPANY, as “Trustee” for the benefit of U.S. BANK NATIONAL ASSOCIATION, a national banking association, as “Beneficiary.”
Description of Property
PARCEL A:
The North half of the West half of the East half of the Northwest quarter (also known as Government Lot 3) of Section 6, Township 40 North, Range 4 East of W.M.; Except the North 420 feet of the East 332 feet thereof and except right of way for Halverstick Road tying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL B:
The West three-fourths of Government Lot 2 in Section 6, Township 40 North, Range 4 East of W.M., excepting a strip 16 feet wide along the West side thereof for road, and except right of way for Halverstick Road No. 257, lying along the North line thereof. Also, the East half of the Northeast quarter of the Northwest quarter (also known as Government Lot 3) of Section 6, Township 40 North, Range 4 East of W.M.; (East half of Government Lot 3). Except right of way for Halverstick Road No. 257, lying along the North line thereof;
Also, except that portion of the East half of the Northeast quarter of the Northwest quarter (also known as Government Lot 3) described as follows:
Beginning at the Northwest corner of the East half of the Northeast quarter of the Northwest quarter (also known as Government Lot 3); thence East 600 feet; thence South 363 feet; thence West 600 feet; thence North 363 feet to the point of beginning; Less road.
Except also a tract of land within Government Lot 2, also known as the Northwest quarter of the Northeast quarter of Section 6, Township 40 North, Range 4 East of W.M., said tract being more particularly described as follows:
Commencing at the Northwest corner of said Government Lot 2; thence South 88°13’57” East along the North line of said Government Lot 2 a distance of 313.45 feet to the true point of beginning; thence South 02°40’29” West along an existing fence line and its Southerly extension a distance of 642.79 feet; thence South 88°13’57” East a distance of 681.43 feet to the West line of the East half of said Government Lot 2; thence North 02°03’24” East along said West line a distance of 642.72 feet to the North line of said Government Lot 2; thence North 88°13’57” West along said North line a distance of 674.74 feet to the true point of beginning;
Except the right-of-way for Halverstick Road No. 257, lying along the Northerly line thereof.
Situate in Whatcom County, Washington.
PARCEL C:
Government Lot 4 (the Northwest quarter of the Northwest quarter) in Section 6, Township 40 North, Range 4 East of W.M., excepting the East 20 acres thereof, and except right of way for Halverstick Road, lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL D:
The West half of the West half of the Southeast quarter of the Northeast quarter of Section 1, Township 40 North, Range 3 East of W.M.
Also Government Lots 1 and 2, except right of way for Halverstick Road, lying along the North line thereof;
Also the Southwest quarter of the Northeast quarter, except that portion of Government Lot 2, described as follows:
Beginning at the Northeast corner of Government Lot 2; thence West 161 feet to the true point of beginning; thence West 537 feet; thence South 140 feet; thence East 537 feet; thence North 140 feet to the true point of beginning.
Except the South half of the Southwest quarter of the Northeast quarter;
Except the Northeast quarter of the Southwest quarter of the Northeast quarter;
Except the Southeast quarter of the Northwest quarter of the Northeast quarter;
Also, except that portion of Government Lot 2, described as follows:
The West 600 feet of the North 363 feet of Government Lot 2:
Together with the South 200 feet of the South half of the Southwest quarter of the Northeast quarter;
And also except that portion of Government Lot 2 of Section 1, Township 40 North, Range 3 East of W.M., described as follows:
Beginning at the Northeast corner of said Government Lot 2; thence West 161 feet to the point of beginning; thence South 140 feet; thence West 268.5 feet; thence South 33 feet; thence East 304.5 feet; thence North 173 feet; thence West 36 feet to the true point of beginning.
All situate in Whatcom County, Washington.
PARCEL E:
The South half of the Southwest quarter of the Northeast quarter, except the South 200 feet. Together with the Northeast quarter of the Southwest quarter of the Northeast quarter. Also together with the Southeast quarter of the Northwest quarter of the Northeast quarter.
Also the East half of Government Lot 3 and a tract 50 feet square in the Northeast corner of the South half of the Northwest quarter, all in Section 1, Township 40 North, Range 3 East of W.M.
Except that portion of the East half of Government Lot 3, described as follows:
The North 363 feet of the East half of Government Lot 3, less roads.
Situate in Whatcom County, Washington.
PARCEL F:
Beginning at the Northwest corner of the East half of the Northeast quarter of the Northwest quarter (also known as Government Lot 3) Section 6, Township 40 North, Range 4 East, W.M.; thence East 600 feet; thence South 363 feet; thence West 600 feet; thence North 363 feet to the point of beginning.
Except the right-of-way for Halverstick Road, lying along the Northerly line thereof.
Situate in Whatcom County, Washington.
PARCEL G:
The East 20 acres of Government Lot 4, except the West 165 feet of the East 330 feet of the Worth 264 feet thereof, in Section 6, Township 40 North, Range 4 East of W.M.
Except right of way for Halverstick Road, lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL H:
The West 16 feet of Government Lot 2 of Section 6, Township 40 North, Range 4 East of WM, except the right-of-way for Halverstick Road, lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL I:
The West 600 feet of the North 363 feet of Government Lot 2 of Section 1, Township 40 North, Range 3 East of W.M.;
Except the right-of-way for Halverstick Road, lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL J:
The North 363 feet of the East half of Government Lot 3 of Section 1, Township 40 North, Range 3 East of W.M.
Except the right-of-way for Halverstick Road, lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL K:
The West 165 feet of the East 330 feet of the North 264 feet of the East 20 acres of Government Lot 4, Section 6, Township 40 North, Range 4 East of W.M., Whatcom County, Washington, except right of way for Halverstick Road, lying along the Northerly line thereof.
Situate in Whatcom County, Washington.
PARCEL L:
The South 555 feet of the following described tract:
A tract of land situated in the Northeast quarter of the Northeast quarter of Section 3, Township 40 North, Range 3 East of W.M., described as follows:
Commencing at a point 40 feet of the Northwest corner of the Northeast quarter of the Northeast quarter of said Section 3; running thence East, a distance of 50 rods; thence South, a distance of 48 rods; thence West, a distance of 50 rods; thence North, a distance of 48 rods to the point of beginning. Except right-of-way for Halverstick Road.
Situate in Whatcom County, Washington.
PARCEL M:
The East half of the Northeast quarter of Section 3, Township 40 North, Range 3 East of W.M.; Except the North 48 rods thereof; Except 40 feet of the West 50 rods thereof; And also except the South half of the Southeast quarter of the Northeast quarter thereof; And except right-of-way for Halverstick Road No. 419 lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL N:
The North 15 acres of the West 20 acres of the South half of the Southeast quarter of Section 9, Township 40 North, Range 3 East of W.M.; Except right-of-way for county road over the East 20 feet as conveyed to Whatcom County by deed recorded August 14, 1908, under Auditors File No. 123163; Except the right-of-way for East Badger Road lying along the Southerly line thereof.
Situate in Whatcom County, Washington.
PARCEL N-1:
An easement for ingress, egress and utilities as disclosed by that certain instrument recorded December 29, 1975. under Whatcom County Auditor’s File No. 1205059.
This easement is for the benefit of Parcel N alone.
Situate in Whatcom County, Washington.
PARCEL O:
The South half of the Northwest quarter of the Southeast quarter of Section 9, Township 40 North, Range 3 East of W.M.; Except right-of-way for county road over the South 40 feet conveyed to Whatcom County by deed recorded August 14, 1908, under Auditors File No. 123760.
Also, the Southwest quarter of the Southeast quarter, except the West 20 acres thereof; And the West half of the Southeast quarter of the Southeast quarter, except the East 3 acres of the Northwest quarter of the Southeast quarter of the Southeast quarter; And except the North 150 feet of the East 150 feet of the Southwest quarter of the Southeast quarter of the Southeast quarter; And except the East 16 feet of the Southwest quarter of the Southeast quarter of the Southeast quarter; And except right-of-way for East Badger Road No. 408 lying along the South line thereof. All in said Section 9.
Situate in Whatcom County, Washington.
PARCEL P:
The West 10 acres of the following described tract:
The North half of the Northeast quarter of the Southeast quarter, and the North 30 feet of the South half of the Northeast quarter of the Southeast quarter of Section 9, Township 40 North, Range 3 East of W.M., also, excepting therefrom the right-of-way for Haveman Road lying along the Northerly line thereof.
Situate in Whatcom County, Washington.
PARCEL Q:
The North 150 feet of the East 150 feet of the Southwest quarter of the Southeast quarter of the Southeast quarter, and the East 16 feet of the Southwest quarter of the Southeast quarter of the Southeast quarter; Except right-of-way for East Badger Road No. 408 lying along the South line thereof, in Section 9, Township 40 North, Range 3 East of W.M. Except that portion conveyed to the State of Washington for highway purposes by deed recorded July 27, 1989, under Auditor’s File No. 1641973.
Situate in Whatcom County, Washington.
PARCEL R:
The South 203 feet of the Northeast quarter of the Southeast quarter of the Southeast quarter and the South 203 feet of the East 3 acres of the Northwest quarter of the Southeast quarter of the Southeast quarter, all in Section 9, Township 40 North, Range 3 East of W.M., except the East 450 feet thereof.
Situate in Whatcom County, Washington.
PARCEL S:
The Northeast quarter of the Southeast quarter of the Southeast quarter and the East 3 acres of the Northwest quarter of the Southeast quarter of the Southeast quarter, all in Section 9, Township 40 North, Range 3 East of W.M., excepting therefrom the South 203 feet of the Northeast quarter of the Southeast quarter of the Southeast quarter, and the South 203 feet of the East 3 acres of the Northwest quarter of the Southeast quarter of the Southeast quarter of said section. Except the East 450 feet thereof, Except the right-of-way for Line Road tying along the Easterly line thereof.
Situate in Whatcom County, Washington.
PARCEL S-1:
An easement for the perpetual benefit of the present and successive owners of the above-described property for ingress, egress and utilities over, under and across the following described property:
The North 60 feet of the East 450 feet of the following described property:
The Northeast quarter of the Southeast quarter of the Southeast quarter, and the East 3 acres of the Northwest quarter of the Southeast quarter of the Southeast quarter, all in Section 9, Township 40 North, Range 3 East of W.M., excepting therefrom the South 203 feet of the Northeast quarter of the Southeast quarter of the Southeast quarter, and the South 203 feet of the East 3 acres of the Northwest quarter of the Southeast quarter of the Southeast quarter of said section. Except right-of-way for Line Road lying along the East line thereof.
Situate in Whatcom County, Washington.
PARCEL T:
That portion of the following described tract of land lying West of a line being a Northerly extension of the West line of the tract of land conveyed by deed recorded April 12, 1988, under Auditors File No. 1599600, more particularly described as follows:
The North half of the Northeast quarter of the Southeast quarter, and the North 30 feet of the South half of the Northeast quarter of the Southeast quarter of Section 9, Township 40 North, Range 3 East of W.M., excepting therefrom those parcels of land conveyed to deeds on May 11, 1972, April 29, 1977, February 20, 1980, March 13, 1986, and April 12, 1988, under Auditor’s File Nos. 1114731, 1250007, 1350015, 1531510 and 1599600, respectively. Also excepting thereof the rights-of-way for Haveman Road lying along the Northerly line thereof, and Line Road lying along the Easterly line thereof. Also, except the West 10 acres thereof.
Situate in Whatcom County, Washington.
PARCEL U:
The Southeast quarter of the Southeast quarter of the Southeast quarter of Section 9, Township 40 North, Range 3 East of W.M., except right-of-way for East Badger Road No. 408 lying along the South line thereof, and except right-of-way for Line Road No. 149 lying along the East line thereof. Also, except those portions deeded to the State of Washington for highway purposes recorded June 27, 1989 under Auditor’s File Nos. 1641973 and 1641974, respectively.
Situate in Whatcom County, Washington.
PARCEL V:
Beginning at the Southwest corner of Section 10, Township 40 North, Range 3 East of W.M.; thence East 365 feet; thence North 600 feet; thence West 365 feet to the West section line; thence South 600 feet along the West section line to the point of beginning. Except the right-of-way for East Badger Road lying along the Southerly line thereof, and also except the right-of-way for Line Road lying along the Westerly line thereof. Except that portion deeded to the State of Washington for road purposes by deed recorded April 18, 1989, under Whatcom County Auditor’s File No. 1634072.
Situate in Whatcom County, Washington.
PARCEL W:
The Northwest quarter of the Northwest quarter of the Southwest quarter and the South one-half of the Northwest quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., excluding that portion of the Northwest quarter of the Southwest quarter of that section described as follows:
Beginning at the Southwest corner of the Northwest quarter of the Southwest quarter; thence North along the West line, 899 feet, 4 inches East, parallel with the North section tine, 200.0 feet; thence South, parallel with the West section line, 339.4 feet; thence East, parallel with the North section line, 460.0 feet; thence North, parallel with the West section line, 100.0 feet; thence East, parallel with the North section line to the East line of the Northwest quarter of the
Southwest quarter; thence South along the East line of the Northwest quarter of the Southwest quarter to the Northeast corner of the Northwest quarter of the Southwest quarter; thence West along the South line of the Northwest quarter of the Southwest quarter to the point of beginning. Except the right-of-way of County Road 149 (commonly referred to as Line Road) lying along the West line thereof, and except the right-of-way of the County Road 649 (commonly referred to as Haveman Road) along the North line thereof. Except the West 200,0 feet of the North 220.0 feet thereof.
Situate in Whatcom County, Washington.
PARCEL X:
Beginning 365 feet East of the Southwest corner of Section 10, Township 40 North, Range 3 East, the true point of beginning; thence continuing East 600 feet; thence North 365 feet; thence West 600 feet; thence South 365 feet to the true point of beginning. Except the right-of-way for East Badger Road lying along the Southerly line thereof. Except that portion deeded to the State of Washington for road purposes by deed recorded April 18, 1989, under Whatcom County Auditor’s File No. I 634072.
Situate in Whatcom County, Washington.
PARCEL Y:
The Southwest quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., except the South 571.28 feet of the East 305.00 feet thereof. Except a tract beginning 365.00 feet East of the Southwest corner of said Section 10, the true point of beginning; thence continuing East 600.00 feet; thence North 365.00 feet; thence West 600.00 feet; thence South 365.00 feet to the true point of beginning. Also except a tract beginning at the Southwest corner of said Section 10; thence East 365.00 feet; thence North 600.00 feet; thence West 365.00 feet to the West section line; thence South 600.00 feet along the West section line to the point of beginning. And except right-of-way for East Badger Road lying along the Southerly line thereof, and also except the right-of-way for Line Road lying along the Westerly line thereof.
Situate in Whatcom County, Washington.
PARCEL Z:
The portion of the Northwest quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., described as follows:
Beginning at the Southwest corner of the Northwest quarter of the Southwest quarter of said section; thence North along the West line, 899 feet, 4 inches; thence East, parallel with the North line of said section, 200.0 feet; thence South, parallel with the West line of said section 339.4 feet; thence East, parallel with the North line of said section, 460.0 feet; thence North, parallel with the West line of said section, 100.0 feet; thence East, parallel with the North line of said section to the East line of the Northwest quarter of the Southwest quarter of said section; thence South along the East line of the Northwest quarter of the Southwest quarter to the Southeast corner of the Northwest quarter of the Southwest quarter of said section; thence West along the South line of the Northwest quarter of the Southwest quarter to the true point of beginning. Except the South 264.0 feet of the West 160.0 feet of the Southwest quarter of the Northwest quarter of the Southwest quarter of said Section 10; and except the North 335 feet, 4 inches of the South 599 feet, 4 inches of the West 130.0 feet of the Southwest quarter of the Northwest quarter of the Southwest quarter of said Section 10; and except right-of-way for Line Road No. 149 lying along the West line thereof; and except right-of-way for Haveman Road No. 649 lying along
the North line thereof.
Situate in Whatcom County, Washington.
PARCEL AA:
The Northeast quarter of the Northwest quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., except right-of-way for Haveman Road (County Road No. 649) lying along the North line thereof.
Situate in Whatcom County, Washington.
PARCEL BB:
The South 571.28 feet of the East 305.00 feet of the Southwest quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., except right-of-way for East Badger Road lying along the South line thereof, and except the South 325.00 feet thereof.
Situate in Whatcom County, Washington.
PARCEL CC:
The West half of the East half of the Southeast quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., also the West half of the Southeast quarter of the Southwest quarter of said Section 10; except the South 325 feet of the West 400 feet thereof; also, except a tract beginning 400 feet East of the Southwest corner of the Southeast quarter of the Southwest quarter of said Section 10, the true point of beginning; thence North 400 feet; thence East 625 feet, more or less, to the East line of the West half of the East half of the Southeast quarter of the Southwest quarter; thence South 400 feet; thence West 625 feet, more or less, to the point of beginning. All except East Badger Road lying along the Southerly line thereof.
Situate in Whatcom County, Washington.
PARCEL DD:
Beginning 400 feet East of the Southwest corner of the Southeast quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., the true point of beginning; thence North 400 feet; thence East 625 feet, more or less, to the East line of the West half of the East half of the Southeast quarter of the Southwest quarter; thence South 400 feet; thence West 625 feet, more or less, to the point of beginning. Except the right-of-way for East Badger Road lying along the Southerly line thereof.
Situate in Whatcom County, Washington.
PARCEL EE:
The Northeast quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., except the North 5 rods of the East 16 rods of the Northeast quarter of the Southwest quarter of said Section 10, and except right-of-way for Haveman Road No. 649 lying along the Northerly line thereof, and except right-of-way for Northwood Road (County Road No. 185) lying along the Easterly line thereof.
Situate in Whatcom County, Washington.
PARCEL FF:
The North 5 rods of the East 16 rods of the Northeast quarter of the Southwest quarter of Section 10, Township 40 North, Range 3 East of W.M., and except right-of-way for Haveman Road No. 649 lying along the North line thereof, and except right-of-way for Northwood Road (County Road No. 185) lying along the Easterly line thereof.
Situate in Whatcom County, Washington.
PARCEL GG:
Government Lot 3, except the South 366 feet of the West 165 feet thereof, Section 33, Township 41 North, Range 3 East of W.M., except East Boundary Road lying along the Northerly line thereof, and except right-of-way for Assink Road lying along the Easterly line thereof.
Also except the following described tract:
Beginning at the Northwest corner of said Government Lot 3; thence South 327 feet, more or less, to the North line of the South 366 feet of said Government Lot 3; thence East 165 feet; thence South 23 feet; thence East 497 feet; thence North 350 feet, more or less, to the North line of said Government Lot 3; thence West to the point of beginning.
Together with the Northeast quarter of the Southwest quarter (except the West 10 rods thereof), in Section 33, except right-of-way for Assink Road.
Situate in Whatcom County, Washington.
PARCEL GG-1:
A perpetual non-exclusive easement for the existing poles and overhead power lines now in place (and the right to enter the premises for maintenance, repair and replacement of the same) under, over, through and across the property described as follows:
The West 70 feet of the East 110 feet of a tract of land described as follows:
Beginning at the Northwest corner of Government Lot 3 of Section 33, Township 41 North, Range 3 East of W.M.; thence South 327 feet, more or less, to the North line of the South 386 feet of said Government Lot 3; thence East 165 feet; thence South 23 feet; thence East 497 feet; thence North 350 feet, more or less, to the North line of said Government Lot 3; thence West to the point of beginning.
The easement is for the benefit of Parcel GG above.
Situate in Whatcom County, Washington.
PARCEL GG-2:
An easement, 15 feet in width, for the purposes of installing, utilizing and maintaining a pressurized underground pipeline as disclosed by that certain instrument recorded January 10, 2003, under Whatcom
County Auditor’s File No.2030101660.
The easement is for the benefit of Parcel GG above.
Situate in Whatcom County, Washington.
PARCEL HH:
Government Lots Sand 6 of Section 31, Township 41 North, Range 4 East of the Willamette Meridian, except that portion thereof lying within Holmquist Road and Halverstick Road;
Also, except that portion of Government Lots 5 and 6, described as follows:
The West 363 feet of Government Lots 5 and 6, except the South 1200 feet thereof;
And except that portion lying North of the South line of Judson Lake; less roads;
Also, except that portion of Government Lot 6, described as follows:
The West 353 feet of the South 600 feet; less roads;
Also, except that portion of Government Lot 6, described as follows:
The West 363 feet of the South 1200 feet of Government Lot 6, except the South 600 feet thereof;
less roads;
Situate in Whatcom County, Washington.
PARCEL II:
The West 363 feet of Government Lots 5 and 6 of Section 31, Township 41 North, Range 4 East of W.M.;
Except the South 1200 feet thereof;
And except that portion lying North of the South line of Judson Lake: less roads. Situate in Whatcom County, Washington.
PARCEL JJ:
The West 363 feet of the South 600 feet of Government Lot 6 of Section 31, Township 41 North, Range 4 East of W,M.; Less roads;
Situate in Whatcom County, Washington.
PARCEL KK:
The West 363 feet of the South 1200 feet of Government Lot 6 of Section 31, Township 41 North, Range 4 East of W.M.;
Except the South 600 feet thereof; Less roads;
Situate in Whatcom County, Washington.
Parcel LL:
Government Lot 2, except the South 49 1/2 feet thereof of Section 4, Township 40 North, Range 3 East of W.M.;
Except right of way for Assink Road lying along the West line thereof;
Also
Government Lot 3, Section 4, Township 40 North, Range 3 East of W.M., EXCEPT 30 feet off the East side deeded to Whatcom County for road; except Assink Road.
Situate in Whatcom County, Washington.
Parcel MM:
The Northeast quarter of the Northeast quarter of Section 9, Township 40 North, Range 3 East of W.M., except therefrom the South half of the Southwest quarter of the Northeast quarter of the Northeast quarter of said Section 9 and excepting therefrom the South half of the Southeast quarter of the Northeast quarter of the Northeast quarter of Section 9, Township 40 North, Range 3 East of W.M., except Pangborn Road.
Situate in Whatcom County, Washington.
Street Address of Property
1270 East Badger Road
Lynden, Washington
Exhibit 10.79
AMENDED AND RESTATED SECURITY AGREEMENT
(Blanket - All Business Assets)
This Amended and Restated Security Agreement (Blanket - All Business Assets) (as the same may from time to time be extended, amended, restated, supplemented, or otherwise modified, the “Agreement”) is dated for reference purposes as of March 21, 2011 by INVENTURE FOODS, INC., a Delaware corporation f/k/a THE INVENTURE GROUP, INC. (the “Borrower”), and LA COMETA PROPERTIES, INC., an Arizona corporation (“La Cometa”), POORE BROTHERS - BLUFFTON, LLC, a Delaware limited liability company (the “PBC”), TEJAS PB DISTRIBUTING, INC., an Arizona corporation (“Tejas”), BOULDER NATURAL FOODS, INC., an Arizona corporation (“Boulder”), BN FOODS INC., a Colorado corporation (“BN Foods”), RADER FARMS, INC., a Delaware corporation f/k/a RADER FARMS ACQUISITION CORP. (“Rader”) in favor of U.S. BANK NATIONAL ASSOCIATION, a national banking association (the “Bank”). For purposes hereof, “Obligated Group” and “Obligated Group Parties” shall mean, collectively, (a) Borrower, (b) La Cometa, (c) PBC, (d) Tejas, (e) Boulder, (f) BN Foods, and (g) Rader (each, individually, an “Obligated Group Party”). This Agreement amends and restates that certain Amended and Restated Business Security Agreement (Blanket - All Business Assets) dated May 16, 2007.
Borrower ‘s Organizational Identification Number is: DE-2483575.
La Cometa’s Organizational Identification Number is: AZ-08064380.
PBC’s Organizational Identification Number is: DE-2867321.
Tejas’ Organizational Identification Number is: AZ-08541660.
Boulder’s Organizational Identification Number is: AZ-09522220.
BN Foods’ Organizational Identification Number is: CO-19971102791.
Rader’s Organizational Identification Number is: DE-4351069.
Unless defined elsewhere in this Agreement, defined terms used herein have the meanings given them in the Definitions Section hereof.
Factual Background
A. Bank is extending credit and/or other financial accommodations to Borrower, now and/or in the future, including (i) a revolving line of credit loan in the maximum principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), (ii) a term loan in the principal amount of Six Million and No/100 Dollars ($6,000,000.00), and (iii) a term loan in the principal amount of Four Million and No/100 Dollars ($4,000,000.00) (each, individually, a “Loan” and collectively, the “Loans”). The Loans are made under a loan agreement (each, individually, a “Loan Agreement” and collectively, the “Loan Agreements”) between Bank and Borrower. Each Loan is evidenced by a promissory note (the “Notes”) made payable to Bank in the principal amount of such Loan, is secured by the collateral described below, and may also be secured by other collateral. Borrower is a holding company for several affiliated entities, and each of the Obligated Group Parties (other than the Borrower) is an Affiliate of, and a wholly owned subsidiary of Borrower.
B. Each of the Obligated Group Parties other than the Borrower is a Guarantor or the Loans. It is intended (i) that each Obligated Group Party shall be liable for the Credit Facilities, directly or indirectly, as a Borrower or as a Guarantor, and (ii) that all business assets of each Obligated Group Party shall be pledged to Bank as collateral for the Credit Facilities and other Obligations.
C. This Agreement, and all other documents which evidence, secure, or otherwise pertain to any of the Obligations, including the Loans, collectively constitute the “Loan Documents.” Capitalized terms used in this Agreement without definition have the meanings given them in the Loan Agreement.
All terms not defined herein or in the Loan Agreement shall have the meaning given them in the Uniform Commercial Code, as enacted in the state of formation of the Borrower and as enacted in the state of formation of each of the other Obligated Group Parties, or under the Uniform Commercial Code in any other state to the extent the same is applicable law (collectively, as amended, recodified, and in effect from time to time, the “UCC”). If a term is defined differently in Article 9 of the UCC than in another Article, Article 9 shall control.
D. As a material condition to Bank extending credit and/or other financial accommodations to Borrower, including but not limited to the Loans, Bank has required that Borrower and the other Obligated Group Parties pledge to Bank, and create a security interest in favor of Bank, in and to all of the Collateral described below, pursuant to the terms and conditions set forth below.
NOW THEREFORE, in consideration of Bank’s agreement to extend credit and/or other financial accommodations to Borrower, now and/or in the future, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the other Obligated Group Parties and Bank hereby agree as follows:
AGREEMENT
Definitions: The following capitalized words and terms shall have the meanings set forth in the “Factual Background” section above, or if not defined therein, shall have the following meanings when used in this Agreement. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require.
“Credit Facilities” means all extensions of credit from the Bank to Borrower or any other Obligated Party, whether now existing or hereafter arising, including but not limited to the Loans described in Recital A above.
“Insolvency Obligations” means all monetary obligations incurred or accrued during the pendency of any Insolvency Proceeding regardless of whether allowed or allowable in such proceeding.
“Insolvency Proceeding” means any bankruptcy, receivership, or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships
“Obligations” means, collectively, all obligations, indebtedness, and liabilities of Borrower or any other Obligated Party to Bank, or any of Bank’s Affiliates, successors or assigns, of every kind and nature, including but not limited to all loans, advances, interest, costs, drafts, overdrafts, checks, credit card indebtedness, lease obligations, obligations under any Rate Management Agreement, and all other debts, liabilities, and obligations of every kind owning by the Borrower or any other Obligated Party to the Bank, whether direct or indirect, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated, of the same or a different nature, whether now existing or hereafter incurred or created, or whether incurred directly or acquired by Bank by assignment or otherwise, together with all renewals, extensions, modifications, consolidations, and substitutions of any of the them, including interest thereon and all costs, expenses, and reasonable attorney’s fees paid or incurred by Bank at any time before or after judgment in attempting to collect any of the foregoing, to realize on any collateral securing any of the foregoing, to realize on any guaranty or indemnity executed in connection with the foregoing, and to enforce this Agreement. The “Obligations” specifically include, but are not limited to, all indebtedness of Borrower to Bank under the Credit Facilities, and all advances made by Bank to or for the benefit of Borrower thereunder. The “Obligations” also specifically include all Insolvency Obligations and all Surrendered Payments. . Unless Borrower or any other Obligated Party shall have otherwise agreed in writing, for the
purposes of this Agreement, “Obligations” shall not include “consumer credit” subject to the disclosure requirements of the Federal Truth in Lending Act or any regulations promulgated thereunder.
“Rate Management Agreement” means any rate lock agreement or interest rate protection agreement (such as any interest rate swap agreement, International Swaps and Derivatives Association, Inc. Master Agreement, or similar agreement or arrangements now existing or hereafter entered into by Borrower or any other Obligated Party and Bank in connection with any Credit Facility to hedge the risk of variable rate interest volatility or fluctuations in interest rates as any such agreement or arrangement may be modified, supplemented and in effect from time to time).
“Surrendered Payments” means, collectively, the amount of any payments made to Bank or any other party on behalf of Borrower or any other Obligated Party (including payments resulting from liquidation of collateral) which are recovered from the Bank by a trustee, receiver, creditor, or other party pursuant to applicable federal or state law.
1. Assignment and Grant of Security. For the purpose of securing payment and performance of the Obligations, including the prompt payment and performance of all obligations and indebtedness of Borrower to Bank under the Loan Documents, and all renewals, extensions, modifications, amendments, and/or supplements thereto, in such order of priority as Bank may determine in its sole and absolute discretion, the Obligated Parties each hereby irrevocably and unconditionally assign, grant, pledge, transfer, and set over to Bank, and there is hereby created a security interest in favor of Bank, in and to all of each Obligated Party’s right, title, and interest in, to, and under all of the following, whether now or hereafter existing, or now owned or hereafter acquired (all or any part of such property, or any interest in all or any part of it, as the context may require, the “Collateral”):
1.1 All assets of each such Obligated Party, including all personal and fixture property of every kind and nature including but not limited to those specifically described below.
1.2 All of the following, whether now owned or hereafter acquired by each such Obligated Party: accounts (including health-care-insurance receivables) and other rights of such Obligated Party to the payment of money no matter how evidenced, including but not limited to accounts receivable, pledges receivable, grants receivable, capital campaign receivables, and any other receivables, contract rights, instruments, documents, promissory notes, certificates of deposit, chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), supporting obligations, and general intangibles of every nature, all permits, regulatory approvals, copyrights, copyright applications, patents, trademarks, trademark applications, service marks, trade names, software, symbols, mask works, engineering drawings, customer lists, goodwill, licenses, permits, all agreements of any kind or nature by which such Obligated Party possesses, uses, or has authority to possess or use property (whether tangible or intangible) of others or others possess, use, or have authority to possess or use property (whether tangible or intangible) of such Obligated Party, all recorded data of any kind or nature (regardless of the medium of recording) including but not limited to all software, writings, plans, specifications, and schematics, and all other intellectual property owned by such Obligated Party or used in such Obligated Party’s business.
1.3 All fixed assets, machinery, furniture, fixtures, and other equipment of every type now owned or hereafter acquired by each such Obligated Party.
1.4 All inventory now owned or hereafter acquired by each such Obligated Party, including, without limitation, all raw materials, work in process, materials used or consumed in such Obligated Party’s business, finished goods, and supplies.
1.5 All other property of each such Obligated Party now or hereafter in the possession, custody, or control of Bank, including, without limitation, all deposit accounts of each such Obligated Party with Bank, and all property of each such Obligated Party in which Bank now has or hereafter acquires a security interest.
1.6 All investment property, including all investment securities and investment securities accounts (each, and “ISA”), now owned or hereafter acquired, together with all assets and investment of any kind or nature now or hereafter held in each ISA, including cash, certificated or uncertificated securities, notes, instruments, documents, general intangibles, and commercial paper, together with (a) all new substituted and additional documents, instruments, and general intangibles issued with respect thereto, (b) all voting and rights to and interest in all cash, non-cash dividends and all other property now or hereafter distributable on account of or receivable with respect thereto, (c) interest thereon, stock and subscription rights; dividends and dividend rights; and new securities or other property such Obligated Party receives in connection therewith, which such Obligated Party agrees to deliver to the Bank immediately, and (d) all proceeds thereof, including, without limitation, proceeds consisting of cash, dividends (including dividends consisting of stock), stock splits, distributions, interest, certificated or uncertificated securities, notes, instruments, documents, general intangibles, commercial paper, and any other earnings of whatever nature.
1.7 All tort claims and insurance claims and proceeds, including commercial tort claims.
1.8 All software embedded within or used in connection with any of the above-described property.
1.9 All negotiable and nonnegotiable documents of title now owned or hereafter acquired by each such Obligated Party covering any of the above-described property.
1.10 All rights under contracts of insurance now owned or hereafter acquired by each such Obligated Party covering any of the above-described property.
1.11 All books and records now owned or hereafter acquired by each such Obligated Party pertaining to any of the above-described property, including but not limited to any computer-readable memory and any computer hardware or software (including embedded software) necessary to process such memory (collectively, the “Books and Records”).
1.12 All products, rents, and profits now owned or hereafter acquired by each such Obligated Party of any of the above-described property.
1.13 All cash and non-cash proceeds of, additions and accretions to, substitutions and replacements for, and changes in any of the above-described property (collectively, “Proceeds”), including without limitation (i) all interest and dividends earned on the Proceeds; (ii) all monies and other tangible or intangible property received upon a sale or other disposition of any of the Proceeds; (iii) all rights to payment in connection with any cause of action with respect to any Proceeds and all proceeds of any voluntary or involuntary disposition or claim respecting any of the foregoing (arising out of any judgment or award, or otherwise arising) and (iv) all goods, documents, general intangibles, chattel paper and accounts, wherever located, acquired with cash proceeds of any of the foregoing or its proceeds, and all supporting obligations ancillary to or arising in any way in connection with any of the above-described property.
2. Further Assurances; Authorization to File Financing Statements; Attorney-in-Fact.
2.1 Further Assurances. Each Obligated Party agrees that, from time to time, at its own expense, it will:
(a) Protect and defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein, and preserve and protect Bank’s security interest in the Collateral.
(b) Promptly execute and deliver to Bank all instruments and documents, and take all further action necessary or desirable, as Bank may reasonably request to (i) correct any defect, error, or omission which may be discovered in the contents, execution, or acknowledgment of this Agreement; (ii) continue, perfect, or protect any security interest granted or purported to be granted hereby, and (iii) enable Bank to exercise and enforce any of its rights and remedies hereunder with respect to any Collateral. Such actions may include but not be limited to executing, authenticating, authorizing, acknowledging, delivering, procuring, and recording and/or filing such further documents (including, without limitation, further security agreements, financing statements, financing statement amendments, and continuation statements), and doing such further acts as may be necessary, desirable, or proper to (A) carry out more effectively the purposes of this Agreement or (B) more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, or replacements, of or to the Collateral), (C) protect the lien or the security interest hereunder against the rights or interests of third persons, and/or (D) enable Bank to exercise and enforce any of its rights and remedies hereunder with respect to any Collateral.
(c) Permit Bank’s representatives to inspect and make copies of all Books and Records relating to the Collateral, wherever such Books and Records are located, and to conduct an audit relating to the Collateral at any reasonable time or times.
(d) Provide, promptly on request of Bank, such certificates, documents, reports, information, affidavits, and other instruments to Bank, and do such further acts as may be necessary, desirable, or proper in the reasonable determination of Bank, to enable Bank to comply with the requirements or requests of any agency having jurisdiction over Bank, and/or any examiners of such agencies, with respect to the Obligations, Borrower, each other Obligated Party, or the Collateral.
2.2 Authorization to File Financing Statements. Each Obligated Party hereby irrevocably authorizes Bank at any time, and from time to time, to file in any Uniform Commercial Code jurisdiction, any initial financing statements, amendments thereto, and continuation statements with or without signature of such Obligated Party as authorized by applicable law, as applicable to the Collateral. Except to the extent expressly prohibited by applicable law, a carbon, photographic, facsimile, or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. For purposes of such filings, each Obligated Party agrees to furnish any information requested by Bank promptly upon request by Bank. Each Obligated Party also ratifies its authorization for Bank to have filed any like initial financing statements, amendments thereto, or continuation statements if filed prior to the date of this Agreement.
2.3 Attorney-in-Fact; Exercise of Rights. Each Obligated Party hereby irrevocably constitutes and appoints Bank, including any officer or agent of Bank, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Obligated Party, or in such Obligated Party’s own name, to execute any such documents and to otherwise carry out the purposes of this Agreement, to the extent that such Obligated Party’s authorization above is not sufficient. To the extent not expressly prohibited by law, each Obligated Party hereby ratifies and
affirms all acts said attorneys-in-fact shall lawfully do, have done in the past or cause to be done in the future by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. Additionally, effective upon the occurrence of a Event of Default under this Agreement, each Obligated Party hereby irrevocably appoints Bank as its attorney-in-fact, to demand, receive, and enforce such Obligated Party’s rights with respect to the Collateral, including the protection thereof, and to give appropriate receipts, releases, and satisfactions for and on behalf of, and in the name of, such Obligated Party. Such powers are deemed to be coupled with an interest, and are therefore irrevocable. Any third party may rely on representations of Bank that an Event of Default exists hereunder or that the power of attorney hereby granted by each Obligated Party to Bank is effective, without further inquiry. In addition to the foregoing facilitate Bank’s exercise of the rights and remedies set forth herein, each Obligated Party authorizes Bank to (a) enter any premises where any Books or Records relating to the Collateral may be located, at reasonable times and following reasonable notice, for the purpose of inspecting, and/or copying any documents, files, and records relating to the Collateral, and to use such supplies and space of such Obligated Party at its places of business as may be reasonably necessary to administer and control the Collateral or the handling of collections and realizations thereon, (b) give notices to and to communicate with any party in possession or control of any of the Collateral with respect to such Collateral, and (c) take all steps and to institute (in Bank’s name or such Obligated Party’s name) all actions and proceedings deemed necessary or advisable by Bank to effect the collection or realization upon any of the Collateral.
3. Obligated Party’s Representations and Warranties. Each Obligated Party promises that each representation and warranty set forth below is and will be true, accurate, and correct:
3.1 Authority; Enforceability. Each Obligated Party’s exact legal name and correct organizational identification number is correctly set forth in the introductory paragraph of this Agreement. Each Obligated Party has complied with any and all laws and regulations concerning its organization, existence, and the transaction of its business. Each Obligated Party has the right, power, and authority to make this Agreement and to grant the security interests granted hereunder. When fully executed, this Agreement will create a valid and enforceable first-priority security interest in the Collateral, excepting the Approved Existing Lien Assets, which are subject only to the Approved Existing Liens, and except to the extent previously disclosed in writing to Bank.
3.2 No Violation; Compliance With Law. The execution and delivery of this Agreement and performance by each Obligated Party of its obligations hereunder will not result in a default under any other material agreement to which such Obligated Party is a party. To the best of each Obligated Party’s knowledge and belief, such Obligated Party is in full compliance with all applicable federal, state, and local statutes, rules, and regulations pertaining to the Collateral.
3.3 No Consent of Action Required. To the best of each Obligated Party’s knowledge and belief, no authorization, consent, approval, other action by, notice to, or filing with, any governmental authority, regulatory body, or any other person or entity is required for the execution of this Agreement or the grant or perfection of the security interests granted herein, except any written consent attached hereto or otherwise previously provided by such Obligated Party to Bank. There exist no restrictions on each Obligated Party’s ability to pledge and assign such Collateral to Bank by virtue of any arrangement or agreement with any other third party.
3.4 No Other Pledge. Except as previously disclosed in writing to Bank, and specifically excepting the Approved Existing Liens on the Approved Existing Lien Assets, the Obligated Parties are collectively the sole legal and equitable owners and holders of all right, title, and interest in and to all of the Collateral, free and clear of any liens, encumbrances, or interests of third parties, other than those in favor of Bank, specifically allowed pursuant to the terms of the Loan Documents, or otherwise agreed to in writing by Bank. The Obligated Parties have not pledged or assigned any of its right, title, or interest in or
to all or any portion of the Collateral to any other person or entity, except for the Approved Existing Liens on the Approved Existing Lien Assets.
3.5 Use of Secured Obligations. The Obligations, including all loans secured hereby, are solely for business and/or investment purposes, and are not intended for personal, family, household, or agricultural purposes. All loans secured hereby are considered and construed for all purposes as commercial loans. The proceeds of the Obligations shall be used for commercial purposes.
3.6 Collateral Attributes. Except as previously disclosed in writing to Bank, (i) none of the account debtors or other persons obligated on any of the Collateral is a governmental authority subject to the Federal Assignment of Claims Act or any similar federal, state, or local law, rule, or regulation with respect to such Collateral, and (ii) to the best of each Obligated Group Party’s knowledge and belief, each Obligated Group Party holds no commercial tort claims. To the best of each Obligated Group Party’s knowledge and belief, except as otherwise disclosed to Bank in writing prior to the execution of this Agreement, each of the presently existing Collateral Documents (as such term is defined below) is genuine, valid, in full force and effect, and enforceable against all applicable parties in accordance with its terms (except to the extent that enforceability is limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors’ rights generally).
3.7 Obligated Party’s Location and Information. Each Obligated Group Party is an organization of the type and (if not an unregistered entity) is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Agreement. Each Obligated Group Party’s principal place of business and chief executive office, and the place where such Obligated Group Party keeps its books and records, has for the preceding four (4) months (or, if less, the entire period of the existence of such Obligated Group Party) been and will continue to be (unless such Obligated Group Party notifies Bank of any change in writing at least thirty (30) days prior to the date of such change) at the address or addresses specified on the signature page of this Agreement, and (d) if such Obligated Group Party is an unregistered entity (including, without limitation, a general partnership) it is organized under the laws of the state specified in the introductory paragraph of this Agreement.
4. Obligated Party’s Covenants. Each Obligated Group Party covenants and warrants that unless compliance is waived by Bank in writing:
4.1 Collateral Preservation. Each Obligated Group Party will properly preserve the Collateral, keep the Collateral in good order and repair, keep accurate Books and Records, protect and defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein, and preserve and protect Bank’s security interest in the Collateral.
4.2 No Liens. Each Obligated Group Party has not granted and will not grant any security interest in any of the Collateral except to Bank and except for any other security interests specifically allowed pursuant to the terms of Loan Documents or otherwise agreed to in writing by Bank, and will keep the Collateral free of all liens, claims, security interests, and encumbrances of any kind or nature, except the security interest of Bank and other security interests specifically allowed pursuant to the terms of Loan Documents or otherwise agreed to in writing by Bank.
4.3 Restriction on Assignment or Transfer. Each Obligated Group Party will not sell, convey, lease, assign, encumber, pledge, or otherwise transfer or dispose of all or any portion of the Collateral, or any interest therein, whether such transfer is voluntary, involuntary, by operation of law, or otherwise, except for (a) those transfers of Collateral, if any, specifically allowed pursuant to the terms of Loan Documents or otherwise agreed to in writing by Bank, and (b) so long as no Event of Default has occurred and is continuing hereunder, inventory sold or supplies used in the ordinary course of such Obligated Group Party’s business. The foregoing restriction on transfer specifically includes transfers to any
trust. Any attempted transfer of any Collateral, or any interest therein, which is not specifically authorized pursuant to the terms of this Agreement or otherwise consented to by Bank in writing shall be null and void and of no force or effect for any purpose whatsoever.
4.4 Collateral Documents; Actions Without Consent. Each Obligated Group Party will not (i) amend, supplement, terminate, or otherwise modify any contract or other document or instrument now or hereafter included in the Collateral (each, a “Collateral Document” and collectively, the “Collateral Documents”); (ii) release, relinquish, or waive any right, or grant any approval or consent, with respect to any Collateral Document; (iii) enter into any new agreement with respect to any Collateral; or (iv) take any other action with respect to any Collateral which is inconsistent with this Agreement or which could impair Bank’s interests hereunder, except as may be specifically allowed pursuant to the terms of Loan Documents or otherwise agreed to in writing by Bank. Any such termination, modification, waiver, approval, or other action taken which is not specifically authorized pursuant to the terms of this Agreement shall, at Bank’s option, be null and void and of no force or effect for any purpose whatsoever.
4.5 Defense of Proceedings; Payments of Taxes, Assessments, and Charges. Each Obligated Group Party shall, at such Obligated Group Party’s sole expense, defend all actions, proceedings and other claims affecting the Collateral owned by it, including without limitation actions, proceedings, and claims challenging such Obligated Group Party’s title to the Collateral or the validity or priority of Bank’s rights hereunder. Each Obligated Group Party shall promptly pay all taxes and other governmental charges, and all license fees, and other public and private charges, levied or assessed upon or against any of the Collateral owned by it (if any) or upon or against the creation, perfection or continuance of the Bank’s security interest created hereunder, as well as all other claims of any kind against or with respect to the Collateral, except to the extent (a) such taxes, charges or claims are being contested in good faith by appropriate proceedings, (b) such proceedings do not involve any material danger of the sale, forfeiture or loss of any of the Collateral or any interest therein, and (c) such taxes, charges or claims are adequately reserved against on such Obligated Group Party’s books in accordance with generally accepted accounting principles.
4.6 Location and Identification. Each Obligated Group Party will not cause or permit any change to be made in (a) its name, identity, or corporate, partnership, limited liability company, or other entity structure, (b) its jurisdiction on organization (c) its organizational identification number, (d) its place of business or, if more than one, its chief executive office, or (e) its mailing address, or (f) any change in the location of any Collateral, including the Books and Records, unless such Obligated Group Party shall have notified Bank in writing of such change at least thirty (30) days prior to the effective date of such change, and shall have first taken all action required by Bank for the purpose of further perfecting or protecting the lien and security interest of Bank in the Collateral. If such Obligated Group Party does not have an organizational identification number and later obtains one, such Obligated Group Party shall promptly notify Bank of such organizational identification number.
4.7 Books and Records; Collateral. Each Obligated Group Party will keep accurate and complete Books and Records with respect to the Collateral owned by it, and shall, if required by Bank from time to time, promptly deliver reports to Bank with respect to the Collateral in form and substance satisfactory to Bank in its sole and absolute discretion. Each Obligated Group Party will permit Bank’s representatives to inspect the Collateral owned by it and/or make copies of, and /or extracts from, all Books and Records, wherever such Books and Records are located, and to conduct an audit relating to the Collateral owned by it at any reasonable time or times. Upon the request of Bank, each Obligated Group Party will deliver to Bank (a) copies of or extracts from the Books and Records, and (b) information on any matters affecting the Collateral owned by it.
4.8 Compliance With Law; Notice of Material Events. Each Obligated Group Party will not use any of the Collateral in violation of any applicable law or regulation, or in violation of any policy of
insurance thereon. Each Obligated Group Party will promptly notify Bank in writing of any event which affects the value of the Collateral, the ability of such Obligated Group Party or Bank to dispose of the Collateral, or the rights and remedies of Bank in relation thereto, including but not limited to, the levy of any legal process against any Collateral and the adoption of any marketing order, arrangement, or procedure affecting the Collateral, whether governmental or otherwise.
4.9 Attachment. Each Obligated Group Party will not attach any Collateral to any real property or fixture in a manner which might cause such Collateral to become a part thereof unless such Obligated Group Party first obtains the written consent of any owner, holder of any lien on the real property or fixture, or other person having an interest in such property to the removal by Bank of the Collateral from such real property or fixture. Such written consent shall be in form and substance acceptable to Bank and shall provide that Bank has no liability to such owner, holder of any lien, or any other person.
4.10 Insurance. Each Obligated Group Party will maintain and keep in force insurance covering Collateral owned by it designated by Bank against fire and extended coverages. Such insurance shall require losses to be paid on a replacement cost basis, be issued by insurance companies acceptable to Bank and include Bank’s standard form Certification and Material Change Endorsement and Commodity Loss Payable Endorsement, or such other material change and/or loss payable endorsements in favor of Bank requested by Bank, all in a form and substance acceptable to Bank in its sole and absolute discretion.
4.11 Delivery of Documents; Collection. If any Collateral is or becomes the subject of any registration certificate or negotiable document of title including any warehouse receipt or bill of lading, the applicable Obligated Group Party shall immediately deliver such document to Bank. If requested by Bank, each Obligated Group Party will deliver to Bank any instruments, certificates of deposit, or chattel paper. If requested by Bank, each Obligated Group Party will segregate all collections and proceeds of the Collateral so that they are capable of identification and deliver daily such collections and proceeds to Bank in kind, and/or direct all account debtors to forward all payments and proceeds of the Collateral to a post office box under Bank’s exclusive control. To the extent that any of the Collateral consists of accounts, promissory notes, instruments, or other items for which payments are due or coming due, unless otherwise agreed in writing by Bank, until Bank exercises its rights to make collection, the applicable Obligated Group Party will diligently collect such Collateral.
5. Obligations of Bank with Respect to Collateral. Neither Bank’s acceptance of the assignment and security interests granted hereunder nor any exercise by Bank of its rights and remedies hereunder shall be deemed to be an assumption by Bank of any obligation or liability of any Obligated Group Party with respect to any Collateral or under the terms of any Collateral Document, and each Obligated Group Party shall indemnify, defend, and hold Bank harmless for, from, and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations, and costs or expenses, including litigation costs and reasonable attorneys’ fees, arising from or in any way connected with any such obligation or liability. Bank’s obligations with respect to Collateral in its possession shall be limited to the duty to exercise reasonable care in the custody and preservation of such Collateral; provided, however, that Bank shall have no duty to take any steps to preserve the rights of any Obligated Group Party against other persons, or to initiate any action to protect any Collateral. Upon any transfer by Bank of any or all of the Obligations, Bank may transfer any or all of the Collateral and shall thereupon be fully discharged of liability and responsibility with respect to the Obligations and/or Collateral so transferred; but Bank shall retain all applicable rights and interest hereunder with respect to any Obligations and/or Collateral not then transferred.
6. Defaults and Remedies.
6.1 Events of Default. Each Obligated Group Party will be in default under this Agreement upon the occurrence of any one or more of the following events (each an “Event of Default”):
(a) A default or Event of Default occurs under any of the Loan Documents (as defined in the applicable document, subject to applicable notice and cure periods).
(b) Any Obligated Group Party fails to comply with any of the terms and conditions of this Agreement within ten (10) days after Bank’s written demand.
(c) Any representation or warranty made or given by any Obligated Group Party in this Agreement proves to be false or misleading in any material respect.
(d) Any involuntary lien of any kind or character attaches to any Collateral.
(e) Any Obligated Group Party becomes insolvent or the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships (an “Insolvency Proceeding”), or any Obligated Group Party consents to the appointment or taking of possession by a receiver (or similar official) of any Obligated Group Party, or its property, or any Obligated Group Party makes an assignment for the benefit of creditors; provided, however, that an involuntary Insolvency Proceeding shall not be considered an Event of Default hereunder if it is either (i) consented to in writing by Bank, or (ii) has been dismissed within ninety (90) days of the filing thereof.
6.2 Remedies. If an Event of Default occurs under this Agreement, Bank may exercise any right or remedy available at law or in equity or by statute, including but not limited to all rights, powers and remedies of an owner and as a secured party under the UCC, and all of Bank’s rights and remedies shall be cumulative. Bank’s rights and remedies, each of which may be exercised with or without further notice to any Obligated Group Party, shall specifically include, without limitation, the right to: (a) exercise all rights and remedies available upon the occurrence of an Event of Default under any Loan Document, including without limitation the right to declare any and/or all Obligations immediately due and payable and to foreclose Bank’s security interests in any and/or all Collateral by any means allowed by law, with or without judicial process; (b) notify any person obligated with respect to any Collateral that the same has been assigned to Bank and that all payments thereon are to be made to Bank, and (c) renew, extend, amend, or otherwise modify any Collateral Document (subject to any required consents of third parties required pursuant to the terms thereof) and to otherwise exercise rights and remedies and act with respect to any Collateral as if it were the owner thereof.
Without limiting the foregoing, Bank’s rights after an Event of Default hereunder specifically include it’s right, at its option to: (i) declare any Obligations, including any Credit Facility, immediately due and payable, without notice or demand, (ii) enforce the security interest given hereunder pursuant to the UCC and/or any other applicable law, (iii) enforce the security interest of Bank, or exercise any right of setoff, in any deposit account of any Obligated Group Party by applying such account to the Obligations in such order and manner as Bank shall determine, (iv) grant extensions and compromise or settle claims with respect to the Collateral for less than face value, all without prior notice to any Obligated Group Party, (v) have a receiver appointed by any court of competent jurisdiction to take possession of all or any portion of the Collateral, and/or (vi) take such measures as Bank may deem necessary or advisable to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of any Collateral (each a “Collateral Disposition”).
6.3 Other Rights of Bank.
(a) The remedies provided herein in favor of Bank are not exclusive, but are cumulative and in addition to all other remedies in favor of Bank existing under the Loan Documents, and at law or in equity. Without limiting the foregoing, Bank may exercise its rights with respect to a portion of the Collateral without exercising its rights with respect to any other portion of the Collateral, and may exercise any of its rights under this Agreement without any obligation to enforce any of its rights to any other security for the Obligations.
(b) Bank may comply with any applicable federal, state, or local law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral. Bank may sell the Collateral without giving any warranties as to the Collateral, and specifically disclaim any warranties of title, merchantability, fitness for a specific purpose or the like, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the. Each Obligated Group Party acknowledges that a private sale of the Collateral may result in less proceeds than a public sale. Each Obligated Group Party acknowledges that the Collateral may be sold at a loss to such Obligated Group Party, and that, in such event, Bank shall have no liability or responsibility to such Obligated Group Party or any other Obligated Group Party for such loss.
(c) Upon any public or private sale of all or any portion of the Collateral, (i) Bank may bid for and purchase the Collateral being sold, and, upon compliance with the terms of sale, may hold, retain, possess, and dispose of such Collateral in its own absolute right without further accountability, and (i) all rights, title, interests, claims, and demands whatsoever, either at law or in equity, of any Obligated Group Party of, in, and to the property so sold will be divested; such sale will be a perpetual bar both at law and in equity against each Obligated Group Party and its respective successors and assigns. Each Obligated Group Party shall make and deliver to the purchaser or purchasers a good and sufficient deed, certificate, bill of sale, and instrument of assignment and transfer of the Collateral sold. To the extent it may do so lawfully, Each Obligated Group Party agrees not to insist upon, plead, claim, or take the benefit or advantage of, at any time, or in any manner whatsoever, any appraisement, valuation, stay, extension, or redemption laws, or any law permitting them to direct the order in which the Collateral or any portion thereof will be sold, now or at any time hereafter in force, which may delay, prevent, or otherwise affect the performance or enforcement of the this Agreement, and each Obligated Group Party hereby expressly waives all benefit or advantage of any such laws, and covenant that it will not hinder, delay, or impede the execution of any power granted or delegated to Bank in this Agreement, but will suffer and permit the execution of every such power as though no such laws were in force.
(d) Following an Event of Default, Bank is expressly granted the right, at its option, to transfer the Collateral, or any part thereof, to itself, or its nominee, and to receive the payments, collections, monies, income, proceeds, attributable or accruing thereto, and to hold same as security for the Obligations, or to apply same to the Obligations secured by this Agreement in such order and manner as Bank shall determine in its sole and absolute discretion. Except to the extent expressly prohibited by law, the right of Bank to take possession of the Collateral following an Event of Default hereunder may be exercised without resort to any court proceeding or judicial process, and without any hearing, whatsoever. Each Obligated Group Party expressly waives any and all rights (i) with regard to judicial process or hearing prior to the exercise of Bank’s right to take possession and control of the Collateral after an Event of Default, and (ii) to marshalling of assets, including such right with respect to the Collateral.
(e) Each Obligated Group Party agrees that Bank may at its option at any time, whether or not any Obligated Group Party is in default, notify any account debtors, any buyers of the Collateral, or any other persons of Bank’s interest in the Collateral. Bank is expressly granted the right, at its option, following an Event of Default, to demand and collect any payments and proceeds of the
Collateral. In connection with the foregoing, each Obligated Group Party irrevocably authorizes Bank, and irrevocably appoints Bank as such Obligated Group Party’s attorney-in-fact, with full power of substitution, to endorse or sign such Obligated Group Party’s name on all checks, drafts, collections, receipts, and other documents, and to take possession of and open the mail addressed to such Obligated Group Party and remove therefrom any payments and proceeds of the Collateral, such appointment being a power coupled with an interest.
(f) In connection with any Collateral Disposition, Bank may (A) require the applicable Obligated Group Party to assemble all of any portion of the Collateral and make it available to Bank at a place designated by Bank, and/or enter upon the property where any such Collateral is located and take possession of such Collateral, and use such property (including any buildings and facilities) and any of such Obligated Group Party ‘s equipment, if Bank deems such use necessary or advisable for or in connection with such Collateral Disposition, and/or (B) use or transfer, without any additional consideration to any Obligated Group Party, any of such Obligated Group Party’s rights and interests in any Intellectual Property now owned or hereafter acquired by such Obligated Group Party, including, but not limited to, all trade secrets, computer software, service marks, trademarks, trade names, trade styles, copyrights, patents, applications for any of the foregoing, customer lists, working drawings, instructional manuals, and rights in processes for technical manufacturing, packaging and labeling in which such Obligated Group Party has any right or interest, whether by ownership, license, contract or otherwise, if Bank deems such use or transfer necessary or advisable for or in connection with such Collateral Disposition. Each Obligated Group Party hereby irrevocably constitutes and appoints Bank as such Obligated Group Party’s attorney-in-fact, with full power of substitution, to perform all acts and execute all documents in connection with any Collateral Disposition, such appointment being a power coupled with an interest.
(g) Each Obligated Group Party agrees to take all steps necessary to avoid the violation of any current and future securities laws, and consents to any steps Bank takes to avoid violation of the same. Each Obligated Group Party further agrees to enter into any amendments hereto that Bank may reasonably request to avoid the violation of such laws. Each Obligated Group Party recognizes that, due to certain prohibitions contained in the Securities Act of 1933, as amended, or other applicable securities laws, Bank may, with respect to any securities, consider it advisable to resort to one or more private sales to a restricted group of purchasers who will agree to acquire any securities for their own accounts for investment and not to engage in a distribution of resale thereof, and that private sales so made may be at prices and on other terms less favorable to the seller than if such securities were sold at public sale. Each Obligated Group Party acknowledges that the price received for the purchase of such Collateral may be substantially lower than such Obligated Group Party might have negotiated under other circumstances, and each Obligated Group Party agrees that such procedures are commercially reasonable. If a deficiency remains due, the Borrower or applicable Obligated Group Party, as the case may be, must pay the same promptly to Bank.
6.4 Setoff. As additional security for the Obligations, including the payment and performance of all obligations of Borrower under the Loan Documents, each Obligated Group Party hereby grants Bank a security interest in, a lien on, and an express contractual right to set off against each account (including all deposit accounts), including all depository account balances, cash, and any other property of such Obligated Group Party, now or hereafter in the possession of Bank and the right to refuse to allow withdrawals from any account. Bank may, at any time upon the occurrence of any default or Event of Default, or an event that, with notice or the passage of time, or both, could become an Event of Default, under this Agreement or any other Loan Document, setoff against any amounts outstanding under the Obligations, whether or not any of the Obligations are then due or have been accelerated, all without any advance or contemporaneous notice of demand of any kind to any Obligated Group Party, such notice and demand being expressly waived.
6.5 Surrendered Payments. In the event that Bank makes any Surrendered Payment, including pursuant to a negotiated settlement, the Surrendered Payments, the Surrendered Payments shall immediately and automatically without any further action required on behalf of Bank or any other party, be reinstated as Obligations, regardless of whether this Agreement has been terminated, cancelled, or released pursuant to its terms or otherwise and regardless of whether Bank has surrendered, terminated, cancelled, or released this Agreement prior to returning any Surrendered Payments
7. Miscellaneous Provisions.
7.1 No Waiver; Consents. Each waiver by Bank shall be in writing, and no waiver may be construed as a continuing waiver. No waiver will be implied from Bank’s delay in exercising or failure to exercise any right or remedy against any party or any security. Bank’s consent to any act or omission by any Obligated Group Party may not be construed as a consent to any other or subsequent act or omission or as a waiver of the requirement for Bank’s consent to be obtained in any future or other instance.
7.2 Purpose and Effect of Bank Approval. Bank’s approval of any matter in connection with this Agreement is for the sole purpose of protecting Bank’s security and rights. No such approval will result in a waiver of any default of any Obligated Group Party. In no event may Bank’s approval be a representation of any kind with regard to the matter being approved.
7.3 Notices. All notices given under this Agreement shall be in writing and be given by personal delivery, overnight receipted courier (such as Airborne or Federal Express) or by registered or certified United States mail, postage prepaid, sent to the party at its address appearing below its signature. Notices shall be effective upon the first to occur of receipt, when proper delivery is refused, or the expiration of forty-eight (48) hours after deposit in registered or certified United States mail as described above. Addresses for notice may be changed by any party by notice to any other party in accordance with this Section.
7.4 Actions. If any Obligated Group Party fails to perform any agreement contained herein, Bank may itself perform, or cause the performance of, such agreement, and the reasonable expenses of Bank incurred in connection therewith shall be payable by the applicable non-performing party. Bank also shall have the right, but not the obligation, to commence, appear in, and defend any action or proceeding that might affect its security hereunder. The applicable Obligated Group Party shall pay promptly on demand all of Bank’s reasonable out-of-pocket costs, expenses and legal fees and expenses of Bank’s counsel incurred in those actions or proceedings.
7.5 Dispute Resolution. Disputes under this Agreement shall be resolved in the manner specified in the Loan Agreement.
7.6 Attorneys’ Fees. In any lawsuit or arbitration arising out of or relating to this Agreement, the Loan Documents, or the Loans, the prevailing party will be entitled to recover from each other party such sums as the court or arbitrator adjudges to be reasonable attorneys’ fees in the action or arbitration, in addition to costs and expenses otherwise allowed by law. In all other actions or proceedings, including any matter arising out of or relating to any Insolvency Proceeding, Borrower and each other applicable Obligated Party agrees to pay all of Bank’s costs and expenses, including reasonable attorneys’ fees, incurred in enforcing or protecting Bank’s rights or interests. From the time(s) incurred until paid in full to Bank, all such sums shall bear interest at the Default Rate. Whenever any Obligated Group Party is obligated to pay or reimburse Bank for any attorneys’ fees, those fees include the allocated costs for services of in-house counsel, to the extent not prohibited by applicable law.
7.7 Governing Law. This Agreement shall be governed by and construed according to the laws of the State of Arizona, without regards to the choice of law rules of that state, except (a) to the
extent that any of such laws may now or hereafter be preempted by Federal law, and (a) as otherwise required by mandatory provisions of law, and (c) to the extent that remedies provided by the laws of any jurisdiction other than the such state are governed by the laws of such other jurisdiction. Each Obligated Group Party consents to the jurisdiction of any Federal or State court within such state, submits to venue in such state, and also consents to service of process by any means authorized by Federal law or the law of such state. Without limiting the generality of the foregoing, each Obligated Group Party hereby waives and agrees not to assert by way of motion, defense, or otherwise in such suit, action, or proceeding, any claim that (i) such Obligated Group Party is not subject to the jurisdiction of the courts of the above-referenced state or the United States District Court for such state, or (ii) such suit, action, or proceeding is brought in an inconvenient forum, or (iii) the venue of such suit, action, or proceeding is improper.
7.8 Heirs, Successors and Assigns. The terms of this Agreement will bind and benefit the heirs, legal representatives, successors and assigns of the parties; provided, however, that no Obligated Group Party may assign this Agreement, or assign or delegate any of their rights or obligations, without the prior written consent of Bank in each instance.
7.9 Severability. The invalidity or unenforceability of any one or more provisions of this Agreement in no way affects any other provision.
7.10 Interpretation. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender. The captions of the sections of this Agreement are for convenience only and do not define or limit any terms or provisions. The word “include(s)” means “include(s), without limitation,” and the word “including” means “including, but not limited to.” No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Agreement.
7.11 Amendments. This Agreement may not be modified or amended except by a written agreement signed by the parties.
7.12 Counterparts. This Agreement and any attached consents or exhibits requiring signatures may be executed in counterparts, and all counterparts constitute but one and the same document.
7.13 Language of Agreement. The language of this Agreement will be construed as a whole according to its fair meaning and not strictly for or against any party.
7.14 Exchange of Information. Each Obligated Group Party agrees that the Bank may exchange or disclose financial information and other information about Borrower and any other Obligated Party with or to any of Bank’s affiliates or other related entities and with any party that acquires a participation or other interest in all or part of any Credit Facility..
7.15 Survival. The representations, warranties, acknowledgments, and agreements set forth herein shall survive the date of this Agreement.
7.16 Time is of the Essence. Time is of the essence in the performance of this Agreement, and each and every term thereof, by each Obligated Group Party.
7.17 Relationship of Parties. This Agreement is intended to be and is deemed for all purposes to constitute additional security granted to Bank for the repayment of the Loan. The execution and delivery of this Agreement and the enforcement of this Agreement by Bank does not alter or expand
upon the debtor and creditor relationship between any Obligated Group Party and Bank, and nothing contained herein is to be construed to constitute Bank a partner of or a joint venturer with any party.
7.18 Continuing Agreement. This is a continuing agreement and all the rights, powers and remedies hereunder shall apply to all past, present, and future Obligations of Borrower and the other Obligated Group Parties, including those arising under successive transactions which shall either continue some or all the Obligations, increase or decrease any of them, or from time to time create new Obligations after all or any prior Obligations have been satisfied, and notwithstanding the bankruptcy of any Obligated Group Party, or any other event or proceeding affecting any Obligated Group Party.
7.19 Recitals; Exhibits. The Recitals to this Agreement set forth above are true, complete, accurate, and correct, and such recitals are incorporated hereby by reference. The exhibits to this Agreement are incorporated hereby by reference.
7.20 Integration. This Agreement integrates all the terms and conditions mentioned in or incidental to the subject matter contained herein, supersede all oral negotiations and prior writings with respect to such subject matter, and is intended by the parties as the final expression of their agreement with respect to the terms and conditions set forth in herein.
7.21 Patriot Act Provisions. The following notification is provided to each Obligated Group Party pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318 (as such maybe amended or recodified from time to time, the “Patriot Act”):
(a) Important Information About Procedures for Opening a New Account. To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. Each Obligated Group Party is hereby notified that when such party opens an account, including but not limited to any deposit account or other account that may be required pursuant to the terms of this Agreement, (i) if such party is not an individual, Bank will ask for such party’s name, taxpayer identification number, business address, and other information that will allow Bank to identify such party, and may also ask to see such party’s legal organizational documents or other identifying documents, and (ii) if such party is an individual, Bank will ask for such party’s name, taxpayer identification number, residential address, date of birth, and other information that will allow Bank to identify Borrower, and may also ask to see such party’s driver’s license or other identifying documents.
(b) Government Regulation. Each Obligated Group Party shall not (a) be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from making any advance or extension of credit to such party or from otherwise conducting business with such party, or (b) fail to provide documentary and other evidence of such party’s identity as may be requested by Bank at any time to enable Bank to verify such party’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the Patriot Act.
[REMAINDER OF PAGE BLANK.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
“BORROWER”
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INVENTURE FOODS, INC., |
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Address for notices to Borrower: | |
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a Delaware corporation |
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Inventure Foods, Inc. | |
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5415 East High Street, Suite 350 | |
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By: |
/s/ Steve Weinberger |
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Phoenix, AZ 85054 |
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Steve Weinberger, Chief Financial Officer |
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Attention: Steve Weinberger |
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“OBLIGATED GROUP” |
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BN FOODS, INC., a Colorado corporation |
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Address for notices to PBC: | |
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BN Foods, Inc. | |
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By: |
/s/ Steve Weinberger |
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c/o Inventure Foods, Inc. |
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Steve Weinberger, Chief Financial Officer |
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5415 East High Street, Suite 350 |
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Phoenix, AZ 85054 | |
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Attention: Steve Weinberger | |
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BOULDER NATURAL FOODS, INC., |
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Address for notices to Boulder: | |
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an Arizona corporation |
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Boulder Natural Foods, Inc. | |
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c/o Inventure Foods, Inc. | |
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By: |
/s/ Steve Weinberger |
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5415 East High Street, Suite 350 |
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Steve Weinberger, Chief Financial Officer |
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Phoenix, AZ 85054 |
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Attention: Steve Weinberger | |
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LA COMETA PROPERTIES, INC., an Arizona corporation |
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Address for notices to La Cometa: | |
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Poore Brothers - Bluffton, LLC | |
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c/o Inventure Foods, Inc. | |
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By: |
/s/ Steve Weinberger |
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5415 East High Street, Suite 350 |
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Steve Weinberger, Chief Financial Officer |
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Phoenix, AZ 85054 |
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Attention: Steve Weinberger | |
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POORE BROTHERS - BLUFFTON, LLC, |
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Address for notices to PBC: | |
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a Delaware limited liability company |
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Poore Brothers - Bluffton, LLC | |
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c/o Inventure Foods, Inc. | |
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By: |
/s/ Steve Weinberger |
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5415 East High Street, Suite 350 |
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Steve Weinberger, Chief Financial Officer |
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Phoenix, AZ 85054 |
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Attention: Steve Weinberger | |
“OBLIGATED GROUP” (continued)
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RADER FARMS, INC., a Delaware corporation |
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Address for notices to Rader: | |
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f/k/a RADER FARMS ACQUISITION CORP. |
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Rader Farms, Inc. | |
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c/o Inventure Foods, Inc. | |
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By: |
/s/ Steve Weinberger |
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5415 East High Street, Suite 350 |
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Steve Weinberger, Chief Financial Officer |
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Phoenix, AZ 85054 |
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Attention: Steve Weinberger | |
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TEJAS PB DISTRIBUTING, INC., |
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Address for notices to Tejas: | |
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an Arizona corporation |
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Tejas PB Distributing, Inc. | |
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c/o Inventure Foods, Inc. | |
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By: |
/s/ Steve Weinberger |
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5415 East High Street, Suite 350 |
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Steve Weinberger, Chief Financial Officer |
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Phoenix, AZ 85054 |
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Attention: Steve Weinberger | |
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Address for notices to Bank: | |
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U.S. Bank National Association | |
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101 North First Avenue, Suite 1600 | |
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Phoenix, AZ 85003 | |
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Attention: Commercial Banking | |
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our report dated March 25, 2011 on the consolidated financial statements of Inventure Foods, Inc. (the “Company”) for the year ended December 25, 2010 appearing in this Annual report on Form 10-K , into the Company’s Registration Statements on Form S-8 (Registration Statement Nos. 333-26117, 333-48692, 333-87028, 333-127144, 333-127145, 333-137778, 333-151618, 333-159833).
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/s/ MOSS ADAMS LLP |
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Scottsdale, Arizona |
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March 25, 2011 |
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EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Securities and Exchange Commission Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934
CERTIFICATION
I, Terry McDaniel certify that:
1. I have reviewed this Annual Report on Form 10-K of Inventure Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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March 25, 2011 |
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/s/ Terry McDaniel |
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Terry McDaniel |
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Chief Executive Officer |
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(Principal Executive Officer) |
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EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Securities and Exchange Commission Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934
CERTIFICATION
I, Steve Weinberger, certify that:
1. I have reviewed this Annual Report on Form 10-K of Inventure Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 25, 2011
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/s/ Steve Weinberger |
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Steve Weinberger |
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Chief Financial Officer, Secretary & Treasurer |
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(Principal Financial and Accounting Officer) |
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EXHIBIT 32
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CERTIFICATION
Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Inventure Foods, Inc. (the “Company”), that, to his knowledge, the Annual Report of the Company on Form 10-K for the period ended December 25, 2010, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-K. A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Date: |
March 25, 2011 |
By: |
/s/ Terry McDaniel |
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Terry McDaniel |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: |
March 25, 2011 |
By: |
/s/ Steve Weinberger |
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Steve Weinberger |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |