<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1997
REGISTRATION NO. 333-20155
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GORGES/QUIK-TO-FIX FOODS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2013 58-2263508
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
9441 LBJ FREEWAY, SUITE 214
DALLAS, TEXAS 75243
PHONE: (972) 690-7675
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
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A. SCOTT LETIER
CHIEF FINANCIAL OFFICER
GORGES/QUIK-TO-FIX FOODS, INC.
9441 LBJ FREEWAY, SUITE 214
DALLAS, TEXAS 75243
PHONE: (972) 690-7675
FACSIMILE: (972) 907-9658
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
BRYAN E. DAVIS
W. THOMAS CARTER, III
SCOTT D. DICKINSON
ALSTON & BIRD
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
PHONE: (404) 881-7000
FACSIMILE: (404) 881-7777
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon
commencement of the Exchange Offer referred to herein.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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If this form is filed to register additional Securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1993, please check the
following box. [_]
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If this form is a post-effective amendment filed pursuant to Rule 462(a)
under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [_]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
GORGES/QUIK-TO-FIX FOODS, INC.
OFFER TO EXCHANGE ITS [LOGO
11 1/2% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B OF
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 QUIK-TO
FOR ANY AND ALL OUTSTANDING FIX
11 1/2% SENIOR SUBORDINATED NOTES DUE 2006 APPEARS
HERE]
-----------
EACH EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON , 1997,
UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE").
Gorges/Quik-To-Fix Foods, Inc., a Delaware corporation (the "Company") and a
wholly owned subsidiary of Gorges Holding Corporation, a Delaware corporation
("GHC"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
up to $100,000,000 aggregate principal amount of its 11 1/2% Senior
Subordinated Notes Due 2006, Series B (the "Exchange Notes") for equal
principal amounts of its outstanding 11 1/2% Senior Subordinated Notes Due 2006
(the "Senior Notes"). The Exchange Notes are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the Senior
Notes for which they may be exchanged pursuant to this offer, except that (i)
the offering and sale of the Exchange Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of
Exchange Notes will not be entitled to certain rights of holders of Senior
Notes under a Registration Rights Agreement of the Company dated as of November
25, 1996 (as defined herein). The Senior Notes have been, and the Exchange
Notes will be, issued under an Indenture dated as of November 25, 1996 (the
"Indenture"), between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"). The Company will not receive any proceeds from this
Exchange Offer; however, pursuant to the Registration Rights Agreement, the
Company will bear certain offering expenses. See "Description of Notes" and
"Senior Notes Registration Rights." The Senior Notes together with the Exchange
Notes are referred to herein as the "Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Senior Notes. Consequently, interest on the Exchange Notes will be
payable semi-annually in arrears on June 1 and December 1 of each year,
commencing June 1, 1997. The Exchange Notes will mature on December 1, 2006,
and may be redeemed at the option of the Company, in whole or in part, on or
after December 1, 2001, at the redemption prices set forth herein, plus accrued
and unpaid interest thereon and Liquidated Damages (as defined herein), if any,
to the applicable redemption date. Notwithstanding the foregoing, any time on
or before December 1, 1999, the Company may redeem up to 35% of the original
aggregate principal amount of the Notes with the net proceeds of a Public
Equity Offering (as defined herein) at the redemption prices set forth herein,
plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the
applicable redemption date. Upon a Change of Control (as defined herein), each
holder of Notes will have the right to require the Company to repurchase all or
any part of such holder's Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of repurchase. See "Description of Notes."
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company, which will include borrowings under the
Credit Facilities (as defined herein). At December 28, 1996, the Company had
$49.0 million of outstanding Senior Indebtedness. The terms of the Indenture
will permit the Company to incur additional indebtedness, including additional
Senior Indebtedness, subject to certain limitations. See "Risk Factors--
Subordination of Exchange Notes" and "Description of Notes--Certain Covenants."
The Company will accept for exchange any and all Senior Notes validly
tendered by eligible holders and not withdrawn prior to 5:00 P.M. Eastern time
on , 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Senior Notes may be withdrawn at any time prior
to the Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Senior Notes may be tendered only in integral multiples of
$1,000. See "The Exchange Offer."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
(as defined herein) provides that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time-to-time, may be used by a broker-
dealer in connection with resales of the Exchange Notes received in exchange
for Senior Notes where such Senior Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, beginning on the Expiration Date and ending on the close of
business 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Explanatory Note," "The Exchange Offer--Terms of the Exchange" and "Plan of
Distribution."
The Senior Notes are not listed on any securities exchange and are not traded
on the National Association of Securities Dealers Automated Quotation System,
Inc. ("Nasdaq"). The Senior Notes are traded through the National Association
of Securities Dealers, Inc.'s ("NASD") PORTAL trading system under the symbol
"GQTFNP06." The Company does not intend to list the Exchange Notes on any
national securities exchange or to seek admission thereof to trading on Nasdaq.
NationsBanc Capital Markets, Inc. has advised the Company that it has made a
market in the Senior Notes, and that it may make a market in the Senior Notes
and in the Exchange Notes; however, it is not obligated to do so and any
market-making activity may be discontinued at any time. As a result, there is
no assurance that an active public market will develop or continue for the
Exchange Notes, and that the market, if any, that develops for its Exchange
Notes will be similar to the limited market that currently exists for the
Senior Notes. See "Risk Factors--Absence of Public Market for the Exchange
Notes."
Except as specifically requested by a holder on the Letter of Transmittal,
the Exchange Notes will be issued only in the form of a Global Note (as defined
herein). Beneficial interests in the Global Note representing the Exchange Note
will be shown on, and transfers thereof will be effected through, records
maintained by The Depository Trust Company and its participants. See
"Explanatory Note."
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS WITH RESPECT TO THE SENIOR NOTES AND THE
EXCHANGE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers $100,000,000 aggregate principal amount
of 11 1/2% Senior Subordinated Notes Due 2006, Series B of the Company to be
offered in exchange for equal principal amounts of the Company's outstanding
11 1/2% Senior Subordinated Notes Due 2006. This Registration Statement is
being filed to satisfy certain requirements of a Registration Rights Agreement
dated as of November 25, 1996 between the Company and NationsBanc Capital
Markets, Inc., as the initial purchaser (the "Initial Purchaser") of the
Senior Notes (the "Registration Rights Agreement").
Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission") set forth in no-action letters
issued to unrelated third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Senior Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder which is (i) a broker-dealer that holds Notes
acquired for its own account as a result of market-making or other trading
activities, (ii) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or (iii) a broker-dealer that acquired Senior Notes
directly from the Company) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
The Company hereby notifies each holder of Senior Notes that any broker-
dealer that holds Senior Notes acquired for its own account as a result of
market-making activities or other trading activities and who receives Exchange
Notes pursuant to the Exchange Offer may be a statutory underwriter, and must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of the Exchange Notes. Any broker-dealer that holds
Senior Notes acquired for its own account as a result of market-making or
other trading activities, acknowledges and agrees as a term of the Exchange
Offer, that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes received
pursuant to the Exchange Offer. However, by so doing, the broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Such broker-dealer will also be deemed to represent and
warrant to the Company that it is not participating in, and has no intent to
participate in, any distribution of Exchange Notes, and has not entered into
any arrangement or understanding with any person to distribute the Exchange
Notes.
In the event that any holder of Senior Notes is prohibited by law or any
policy of the Commission from participating in the Exchange Offer or any
holder may not resell the Exchange Notes without delivering a prospectus and
the Prospectus contained in this Registration Statement is inappropriate or
unavailable for such resales by such holder or if such holder is a broker-
dealer and holds Senior Notes acquired directly from the Company or one of its
affiliates, and such holder satisfies certain other requirements, the Company
has agreed, pursuant to the Registration Rights Agreement, to file a
registration statement in respect of such Exchange Notes and Senior Notes
pursuant to Rule 415 under the Securities Act. See "Prospectus Summary--The
Exchange Offer;" "The Exchange Offer;" and "Plan of Distribution."
Any Senior Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent any Senior Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered and unregistered Senior
Notes could be adversely affected. Following consummation of the Exchange
Offer, the holders of Senior Notes will continue to be subject to the existing
restrictions upon transfer thereof and the Company will have fulfilled certain
of its obligations under the Registration Rights Agreement. Holders of Senior
Notes who do not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement or otherwise. See
"Risk Factors--Consequences of Exchange and Failure to Exchange" and "The
Exchange Offer."
The Company expects that similar to the Senior Notes, and except as
specifically requested by a holder on the Letter of Transmittal, the Exchange
Notes will be issued only in the form of a Global Note (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
(the "Depository") and
2
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registered in its name or in the name of the Depository's nominee, Cede & Co.
Beneficial interests in the Global Note representing the Exchange Notes will
be shown on, and transfers thereof will be effected through, records
maintained by the Depository and its participants. After the initial issuance
of the Global Note, Exchange Notes in certificated form may be issued in
exchange for the Global Note on the terms and conditions set forth in the
Indenture (as defined herein). See "Description of Notes--Book Entry, Delivery
and Form."
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Exchange Notes, the Company will become subject
to the informational requirements of the Exchange Act. So long as the Company
is subject to the periodic reporting requirements of the Exchange Act, it is
required to furnish the information required to be filed with the Commission
to the Trustee and the holders of the Senior Notes and the Exchange Notes. The
Company has agreed that, even if it is not required under the Exchange Act to
furnish such information to the Commission, it will nonetheless continue to
furnish information that would be required to be furnished by the Company by
Section 13 of the Exchange Act to the Trustee and the holders of the Senior
Notes or Exchange Notes as if it were subject to such periodic reporting
requirements. See "Available Information."
In addition, the Company has agreed that, for so long as any of the Senior
Notes are "restricted securities" within the meaning of Rule 144(a)(3) under
the Securities Act, it will make available to any prospective purchaser of the
Senior Notes or holder of the Senior Notes upon the request of such
prospective purchaser or holder the information required by Rule 144A(d)(4)
under the Securities Act.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company, the Senior Notes and the Exchange
Notes reference is hereby made to the Registration Statement, including the
exhibits and schedules filed or incorporated as a part thereof. Statements
contained herein concerning the provisions of any document are not necessarily
complete and in each instance reference is made to the copy of the document
filed as an exhibit or schedule to the Registration Statement. Each such
statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the Commission. In addition, after
effectiveness of the Registration Statement, the Company will file periodic
reports and other information with the Commission under the Exchange Act. The
Registration Statement, including the exhibits and schedules thereto, and the
periodic reports and other information filed in connection therewith, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: Seven World Trade Center, New
York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Such reports, proxy and information statements and other
information may be found on the Commission's site address, http://www.sec.gov.
Copies of such material also can be obtained from the Company upon request by
writing to Gorges/Quik-to-Fix Foods, Inc., 9441 LBJ Freeway, Suite 214,
Dallas, Texas 75243, Attention: President.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Prospectus Summary;"
"Risk Factors;" "Unaudited Pro Forma Financial Information;" "Management's
Discussion and Analysis of Financial Condition and Results of Operations;"
"Business" and elsewhere in this Prospectus may constitute forward-looking
statements and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Important factors that could cause the actual results, performance or
achievements of the Company to differ materially from the Company's
expectations are disclosed in this Prospectus ("Cautionary Statements"),
including, without limitation, those statements made in conjunction with the
forward-looking statements included under "Risk Factors" and otherwise herein.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Statements.
4
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXPLANATORY NOTE......................................................... 2
AVAILABLE INFORMATION.................................................... 4
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS........... 4
PROSPECTUS SUMMARY....................................................... 6
RISK FACTORS............................................................. 17
USE OF PROCEEDS.......................................................... 24
THE ACQUISITION, FINANCING AND RELATED TRANSACTIONS...................... 24
CAPITALIZATION........................................................... 26
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................ 26
SELECTED FINANCIAL DATA.................................................. 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 33
BUSINESS................................................................. 39
MANAGEMENT............................................................... 49
CERTAIN TRANSACTIONS..................................................... 51
PRINCIPAL STOCKHOLDER.................................................... 52
THE EXCHANGE OFFER....................................................... 53
DESCRIPTION OF NOTES..................................................... 60
DESCRIPTION OF CREDIT FACILITIES......................................... 85
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................ 88
SENIOR NOTES REGISTRATION RIGHTS......................................... 90
PLAN OF DISTRIBUTION..................................................... 91
LEGAL MATTERS............................................................ 92
EXPERTS.................................................................. 92
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>
5
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and should
be read in conjunction with the more detailed information and financial data,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context requires otherwise, as used herein, the "Company" refers to
Gorges/Quik-to-Fix Foods, Inc. following the completion of the Transactions (as
defined herein) and the processed beef operations of Tyson Foods, Inc. prior to
the completion of the Transactions. Historically, the Company's fiscal year has
ended on the Saturday closest to September 30, and references to particular
fiscal years of the Company refer to the 12 months ended on the Saturday
closest to September 30 of the year indicated. See the Financial Statements and
the Notes thereto.
THE COMPANY
The Company is a leading producer of value added processed beef products for
the foodservice industry and is one of the few companies in this segment of the
industry that markets and distributes nationally. The Company's products are
marketed under the nationally recognized Quik-to-Fix and Gorges brand names, as
well as the private labels of leading national foodservice distributors. The
Company believes that its products are well positioned to take advantage of
what it believes is a trend within the foodservice industry towards greater
outsourcing of the food preparation process. For the fiscal year ended
September 28, 1996, the Company had sales of $232.8 million.
The Company purchases fresh and frozen beef and, to a lesser extent, pork and
poultry, which it processes into a broad range of fully cooked and ready to
cook products. The Company's two product categories are value added processed
products ("value added products") and ground beef. Value added product
offerings include (i) breaded beef items, such as country fried steak and beef
fingers, (ii) charbroiled beef, such as fully cooked hamburger patties, fajita
strips, meatballs, meatloaf and taco meat and (iii) other specialty products,
such as fully cooked and ready to cook pork sausage, breaded pork and turkey,
cubed steaks and Philly steak slices. Ground beef product offerings consist
primarily of uncooked individually quick frozen ("IQF") hamburger patties. The
Company's products are sold primarily to the foodservice industry, which
encompasses all aspects of away-from-home food preparation, including
commercial establishments such as fast food restaurants and family dining
restaurants and non-commercial establishments such as healthcare providers,
schools and corporations. The Company sells its products principally through
broadline and specialty foodservice distributors.
The Company acquired the Gorges/Quik-to-Fix Foods operations (the "Business")
of Tyson Foods, Inc. ("Tyson") on November 25, 1996 (the "Acquisition"). The
Company's principal business objective is to build its higher margin value
added business. Value added products address many of the concerns within the
foodservice industry, including cost reduction, food safety and product quality
and consistency. The Company also intends to utilize its ground beef
manufacturing capabilities to target higher volume multi-unit accounts,
especially where opportunities exist to cross-sell its higher margin value
added products. Management believes that by operating as an integrated, stand
alone enterprise, the Company will be better able to capitalize on its
strengths and favorable industry trends, including the following.
. Favorable Trends in the Foodservice Industry. Purchases of food prepared
away from home have grown consistently for over forty years and currently
represent approximately 45% of total food purchases. Demand has risen due
to various demographic changes, including increases in personal
disposable income, the increasing number of single-parent households and
the rising number of dual income families. Driven by the continuing
consumer trend toward purchasing food prepared away from home, the
foodservice industry is projected to grow at a nominal rate of 5.0% in
1996, superior to the growth prospects of the food industry in general,
according to Technomic Inc.
The Company believes that there is also an increasing trend within the
foodservice industry toward outsourcing more of the food preparation
process to reduce preparation costs and to ensure product safety, quality
and consistency. The Company addresses these outsourcing needs by
producing products that are precooked or ready to cook (e.g., breaded,
portioned and seasoned) and require little "back-of-the-house"
preparation.
6
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. Strong Brand Names. The Gorges and Quik-to-Fix brands have been
established for over 50 and 30 years, respectively. The Company believes
its charbroiled beef and country fried steak customers associate the
Gorges and Quik-to-Fix brand names with products that are high quality,
safe and reasonably priced. The Company intends to capitalize on this
brand recognition to increase the market penetration of its breaded beef
and charbroiled beef products and to promote additional products under
the Gorges and Quik-to-Fix brand names.
. Focused Sales and Marketing Team. The Company's sales and marketing team
consists of 16 experienced professionals, most of whom worked with Gorges
Foodservice, Inc. ("Gorges, Inc.") or Quik-to-Fix Foods, Inc. ("Quik-to-
Fix, Inc.") prior to their acquisition by Tyson. Until May 1996, these
sales professionals marketed substantially all of the Tyson product line.
With volume based incentives, sales were dominated by high volume chicken
products. The Company's sales force, now selling only the Company's
product line, continues to be compensated based on sales volume and
growth based incentive programs, all of which are tied to sales of the
Company's predominantly beef based product lines.
. Extensive Foodservice Broker Network. Management believes that the
Company's extensive independent foodservice broker network, consisting of
51 brokers covering 49 states, is one of its most valuable assets. The
brokers act as extensions of the Company's in-house sales force,
providing sales and marketing support and an intensive sales effort
focused on the major foodservice distributors in each of their respective
regions. Management anticipates that the existing strong broker
relationships will continue because of the revenue stream created by the
Company's products, the continuity of the Company's sales and marketing
team and the increased responsiveness to broker and customer needs
resulting from the Company's exclusive focus on its own products.
. Strong and Diverse Customer Base. The Company has a strong and diverse
customer base, anchored by 48 of the 50 largest broadline foodservice
distributors. The Company's products are purchased by 28 of the 50
largest multi-unit restaurant chains in the United States, including
Shoney's, Chili's, Ponderosa and Cracker Barrel, as well as by
institutional customers such as Marriott Corporation and school districts
through the USDA Commodity Reprocessing Program. The Company's products
are also purchased by wholesale club stores.
. Modern Facilities With Excess Capacity. The Company operates four modern
facilities using state-of-the-art equipment with capacity that will allow
significant volume increases without major additional capital
expenditures. Until recently, several plants had duplicative
capabilities, creating production inefficiencies. During late fiscal 1995
and the first half of fiscal 1996, Tyson reconfigured the facilities (the
"Reconfiguration"), significantly enhancing the operating efficiency of
the facilities, increasing capacity and reducing the Company's overall
labor expenditures. The Company believes the full benefits of the
Reconfiguration will first be realized in fiscal 1997.
. Experienced and Focused Management Team. Prior to the Acquisition, the
Company's four plants operated primarily as independent facilities rather
than as an integrated unit. Furthermore, strategic decisions were made by
corporate level managers whose principal focus was on Tyson's core
poultry business. The Company is now operated by a team of managers
almost all of whom have spent the majority of their careers in the beef
processing industry. Most members of the management team were employed by
Gorges, Inc., Quik-to-Fix, Inc. or Harker's, Inc. ("Harker's") prior to
their acquisition by Tyson. The management team has developed valuable
industry relationships and has extensive experience in key aspects of the
Company's operations, including procurement, production, sales and
marketing, research and development and distribution.
Beef is the most consumed protein in the United States on the basis of
boneless, per capita consumption. Although per capita beef consumption in the
United States declined through the late 1980s as consumers became more
concerned about the level of fat in their diet, the beef industry has taken
steps to maintain beef as the nation's number one protein. Beef is now leaner
than ever, with the average cut of beef 27% leaner than in 1985,
7
<PAGE>
due to closer trimming of fat, new leaner cuts of beef and the use of leaner
cattle. According to the National Livestock and Meat Board, U.S. beef
consumption is projected to be 65.2 boneless pounds per capita in 1996, up
slightly from 64.1 pounds in 1990 and representing 32.5% of projected total
meat consumption. Furthermore, according to the Beef Industry Council, within
the foodservice industry, beef consumption increased from 6.22 billion beef
servings in commercial restaurants in 1991 to 6.68 billion servings in 1994, a
7.4% increase.
In fiscal 1996, the Company's sales decreased to $232.8 million from $304.5
million in fiscal 1995, primarily reflecting (i) the Company's decision to
discontinue production of frozen portion-controlled steak products resulting in
a decrease in sales of $24.7 million, (ii) the completion of a temporary
contract to supply IQF hamburger patties to a national fast food chain (the
"IQF Contract") related to a product promotion by the chain resulting in a
decrease in sales of $21.2 million and (iii) decreases in selling prices for
certain of the Company's products as a result of lower raw materials prices.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE ACQUISITION, FINANCING AND RELATED TRANSACTIONS
On November 25, 1996, the Company acquired the Business (the "Acquisition
Closing"). The purchase price for the Acquisition was $184.3 million (the "Cash
Consideration"). The Company assumed no liabilities or obligations of Tyson
associated with the Business, other than future obligations under non-binding
executory contracts of the Business, such as agreements to purchase inventory
or to supply products, accrued vacation pay and certain property tax
obligations. Tyson agreed to indemnify the Company for any and all liabilities
and obligations relating to the Business prior to the Acquisition Closing,
other than the aforementioned liabilities assumed by the Company. In addition,
the Company and Tyson agreed, subject to certain exceptions and limitations,
not to compete with each other in the production and/or sale of beef and pork
products, in the case of Tyson, or certain poultry products, in the case of the
Company, for a period of two years from the Acquisition Closing. Pursuant to a
Transition Services Agreement (the "Transition Services Agreement"), Tyson
currently is providing certain services to the Company with respect to the
operation of the Business, such as computer processing services, and will
continue to provide such services for up to twelve months after the Acquisition
Closing. Such services will be provided at no cost to the Company for the first
six months. Thereafter, the Company will pay Tyson $120,000 per month for
services rendered under the Transition Services Agreement. It is the Company's
current intention to begin providing such services for itself within six months
following the Acquisition Closing or as soon thereafter as practicable. See
"The Acquisition, Financing and Related Transactions."
In connection with the establishment of its administrative structure, the
Company is in the process of hiring employees for its headquarters, making
certain capital expenditures and leasing additional facilities. Management
estimates that the Company's fiscal 1997 stand-alone general and administrative
expenses will be approximately $3.4 million. Capital expenditures of
approximately $2.0 million, principally for computer equipment and software, as
well as office furniture, fixtures and equipment, will be required in fiscal
1997 to establish the Company's administrative structure. Additionally, the
Company has leased office space for its headquarters. The Company expects total
fiscal 1997 capital expenditures to be approximately $4.4 million, primarily
related to capital maintenance of current facilities and equipment and the
purchase of the computer equipment and software. See "Risk Factors--Lack of
Operating History" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The $184.3 purchase price for the Acquisition, together with approximately
$9.5 million of related fees and expenses (of which $900,000 has been allocated
to the Equity Private Placement (as defined herein)), was financed (the
"Financing") with the proceeds of: (i) the offering of the Senior Notes; (ii)
the borrowing of $40.0 million pursuant to a term loan (the "Term Loan
Facility") and the borrowing of $8.0 million under a $30.0 million revolving
credit facility (the "Revolving Credit Facility" and, together with the Term
Loan Facility, the "Credit Facilities"); and (iii) an equity contribution by
GHC of $45.0 million. The Acquisition, Financing and related transactions are
referred to herein as the "Transactions." See "Certain Transactions."
8
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... $100 million aggregate principal amount of 11
1/2% Senior Subordinated Notes Due December 1,
2006, Series B.
The Exchange Offer.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Senior Notes. As of the date hereof, all of the
aggregate principal amount of Senior Notes are
outstanding. The Company will issue the Exchange
Notes to eligible holders on or promptly after
the Expiration Date of the Exchange Offer.
Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to unrelated third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Senior Notes may
be offered for resale, resold and otherwise
transferred by any holder thereof (other than any
holder which is (i) a broker-dealer that holds
Notes acquired for its own account as a result of
market-making or other trading activities,
(ii) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act or
(iii) a broker-dealer that acquired Senior Notes
directly from the Company) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
such Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in a distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes
for its own account pursuant to the Exchange
Offer may be a statutory underwriter and must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from to time, may be used
for 180 days after the Expiration Date by a
broker-dealer in connection with resales of
Exchange Notes received in exchange for Senior
Notes where such Senior Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The
Company has agreed that for a period of 180 days
after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of
Distribution."
Any holder who is an affiliate of the Company and
any person who intends to, or is participating in
a distribution of the Exchange Notes, will not be
able to rely on the position of the staff of the
9
<PAGE>
Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan
Stanley & Co., Inc. (available June 5, 1991), and
Shearman & Sterling (available July 2, 1993) or
similar no-action letters and, in the absence of
an exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the
resale of the Exchange Notes. Failure to comply
with such requirements in such instance may
result in such holder incurring liability under
the Securities Act for which the holder will not
be indemnified by the Company.
Expiration Date............. 5:00 p.m., Eastern Time, on , 1997, unless
the Exchange Offer is extended by the Company in
its sole discretion, in which case the term
"Expiration Date" means the latest date and time
to which the Exchange Offer is extended.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer...................... customary conditions, which may be waived, to the
extent permitted by law, by the Company. See "The
Exchange Offer--Terms of the Exchange" and "--How
to Tender."
Procedures for Tendering Each eligible holder of Senior Notes wishing to
Notes...................... accept the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Senior Notes and any other required documentation
to the Exchange Agent (as defined herein) at the
address set forth in the Letter of Transmittal.
By executing the Letter of Transmittal, each
holder will represent to the Company that, among
other things, the holder or the person receiving
such Exchange Notes, whether or not such person
is the holder, is acquiring the Exchange Notes in
the ordinary course of business and that neither
the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes, that neither the holder nor any such
person is an "affiliate" (as defined under Rule
405 of the Securities Act) of the Company, and if
such holder is a broker-dealer that holds the
Senior Notes as a result of market-making or
other trading activities, it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales of
the Exchange Notes. In lieu of physical delivery
of the certificates representing Senior Notes,
tendering holders may transfer Senior Notes
pursuant to the procedure for book-entry transfer
as set forth under "The Exchange Offer--How to
Tender."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Senior Notes are held
in book-entry form or are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to
exchange
such Senior Notes for the Exchange Notes should
contact such
10
<PAGE>
registered holder promptly and instruct such
registered holder to tender the Senior Notes for
exchange on such beneficial owner's behalf. See
"The Exchange Offer--How to Tender."
Guaranteed Delivery
Procedures................. Holders of Senior Notes who wish to tender their
Senior Notes and whose Senior Notes are not
immediately available or who cannot deliver their
Senior Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Senior
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--How
to Tender--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., Eastern Time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer--Withdrawal Rights."
Acceptance of Notes and
Delivery of Exchange The Company will accept for exchange any and all
Notes...................... Senior Notes that are properly tendered in the
Exchange Offer, and not withdrawn, prior to 5:00
p.m., Eastern Time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest
practicable date following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange."
Federal Income Tax
Consequences...............
The issuance of the Exchange Notes to holders of
the Senior Notes pursuant to the terms set forth
in this Prospectus should not constitute an
exchange for federal income tax purposes.
Consequently, no gain or loss should be
recognized by holders of the Senior Notes upon
receipt of the Exchange Notes. See "Certain
Federal Income Tax Considerations."
Effect on holders of the As a result of the making of this Exchange Offer,
Senior Notes............... the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and holders of Senior Notes who do not
tender their Senior Notes will generally not have
any further registration rights under the
Registration Rights Agreement or otherwise. Such
holders will continue to hold the untendered
Senior Notes and will be entitled to all the
rights and subject to all the limitations,
including,
without limitation, transfer restrictions,
applicable thereto under the Indenture dated as
of November 25, 1996 (the "Indenture"), between
the Company and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"), except to
the extent such rights or limitations, by their
terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
Accordingly, if any Senior Notes are tendered and
accepted in the Exchange Offer, the trading
market, if any, for the untendered Senior Notes
could be adversely affected.
Exchange Agent..............
IBJ Schroder Bank & Trust Company is serving as
exchange agent (the "Exchange Agent") with
respect to the Senior Notes.
11
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are substantially identical to the
form and terms of the Senior Notes which they replace except that (i) the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof and (ii) the holders of
Exchange Notes generally will not be entitled to further registration rights
under the Registration Rights Agreement, which rights generally will have been
satisfied when the Exchange Offer is consummated. The Exchange Notes will
evidence the same indebtedness as the Senior Notes which they replace and will
be issued under, and be entitled to the benefits of the Indenture. See
"Description of Notes."
Maturity Date............... December 1, 2006
Interest Payment Dates...... June 1 and December 1, commencing June 1, 1997.
Subordination............... The Exchange Notes will be general unsecured
obligations of the Company, subordinated in right
of payment to all existing and future Senior
Indebtedness of the Company, which will include
borrowings under the Credit Facilities. At
December 28, 1996, as a result of the
Transactions and additional borrowings under the
Credit Facilities to finance working capital
needs, the Company had $49.0 million of
outstanding Senior Indebtedness, which would rank
senior in right of payment to the Notes. See
"Description of Notes--Subordination."
Optional Redemption......... On or after December 1, 2001, the Company may
redeem the Exchange Notes, in whole or in part,
at the redemption prices set forth herein, plus
accrued and unpaid interest thereon and
Liquidated Damages, if any, to the applicable
redemption date. Notwithstanding the foregoing,
any time on or before December 1, 1999, the
Company may redeem up to 35% of the original
aggregate principal amount of the Notes with the
net proceeds of a Public Equity Offering (as
defined herein) at the redemption prices set
forth herein, plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the
applicable redemption date, provided that at
least 65% of the original aggregate principal
amount of the Notes remains outstanding
immediately after such redemption.
Mandatory Redemption........ None, except at maturity on December 1, 2006.
Change in Control........... Upon a Change in Control (as defined herein),
each holder will have the right to require the
Company to repurchase all or any part of such
holder's Exchange Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the
date of repurchase. The Credit Agreement
prohibits the Company from purchasing or
redeeming the Exchange Notes upon a Change of
Control. The Credit Agreement also prohibits the
prepayment or redemption of the Exchange Notes
for any other reason except with respect to
certain prepayments from the net proceeds of an
initial Public Equity Offering. Accordingly,
prior to any repurchase of Exchange Notes upon a
Change of Control, the Company would be required
to either (i) repay all
12
<PAGE>
outstanding Senior Indebtedness or (ii) obtain
the requisite consents, if any, of the holders of
outstanding Senior Indebtedness to permit the
repurchase of Exchange Notes upon such Change of
Control.
A "change of control" under the Credit Agreement
may, but does not necessarily, constitute a
Change of Control under the Indenture.
Conversely, a Change of Control under the
Indenture would constitute a "change in control"
under the Credit Agreement and therefore an
"event of default" under the Credit Agreement.
Upon the occurrence of such an "event of default"
under the Credit Agreement, the lenders
thereunder would be permitted to accelerate the
entire amount of the Senior Indebtedness and any
such acceleration would constitute an Event of
Default under the Indenture. In addition, the
Indenture contains cross-default and cross-
acceleration provisions relating to other
Indebtedness for money borrowed by the Company or
its Subsidiaries. See "Description of Notes--
Repurchase at Option of Holders" and "--Certain
Covenants--Events of Default and Remedies" and
"Description of Credit Facilities--Events of
Default."
Asset Sale.................. The Company is required to purchase certain
Exchange Notes upon the consummation of an Asset
Sale(s) (as defined herein) in which the
aggregate amount of Excess Proceeds (as defined
herein) exceeds $5.0 Million. Under the Credit
Agreement, the Company is prohibited from
purchasing or redeeming any of the Exchange Notes
as a result of an Asset Sale. The obligation of
the Company to purchase certain Exchange Notes as
a result of an Asset Sale is further subject to
the subordination provisions contained in the
Indenture. Accordingly, prior to any repurchase
of Exchange Notes as a result of an Asset Sale,
the Company would be required to either (i) repay
all outstanding Senior Indebtedness or (ii)
obtain the requisite consents, if any, of the
holders of outstanding Senior Indebtedness to
permit the repurchase of Exchange Notes as a
result of such Asset Sale. See "Description of
Notes--Repurchase at Option of Holders."
Covenants................... The Indenture pursuant to which the Exchange
Notes will be issued restricts, among other
things, the Company's ability to incur additional
indebtedness, pay dividends or make certain other
restricted payments, incur liens to secure pari
passu or subordinated indebtedness, engage in any
sale and leaseback transaction, sell stock of
subsidiaries, apply net proceeds from certain
asset sales, merge or lease, convey or otherwise
dispose of substantially all of the assets of the
Company, enter into certain transactions with
affiliates or incur indebtedness that is
subordinate in right of payment to any Senior
Indebtedness and senior in right of payment to
the Exchange Notes. See "Description of Notes--
Certain Covenants."
Exchange Offer;
Registration Rights........ If (i) the Exchange Offer is not permitted by
applicable law or (ii) any holder of Notes
notifies the Company that (A) it is prohibited by
law or Commission policy from participating in
the
13
<PAGE>
Exchange Offer, (B) it may not resell the
Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a
prospectus and this Prospectus is not appropriate
or available for such resales or (C) it is a
broker-dealer and holds Senior Notes acquired
directly from the Company or an affiliate of the
Company, and such holders timely notify the
Company of such facts, the Company will be
required to provide a shelf registration
statement (the "Shelf Registration Statement") to
cover resales of the Notes by the holders
thereof. If the Company fails to satisfy these
registration obligations, it will be required to
pay liquidated damages ("Liquidated Damages") to
such holders of Notes under certain
circumstances. See "Senior Notes Registration
Rights"
certain circumstances. See "Senior Notes
Registration Rights"
Limitation on Liability..... No director, officer, employee, incorporator or
stockholder of the Company, as such, shall have
any liability for any obligations of the Company
under the Exchange Notes or the Indenture for any
claim based on, in respect of, or by reason of,
such obligations or their creation. See
"Description of Notes--No Personal Liabilities of
Directors, Officers, Employees and Stockholders."
RISK FACTORS
See "Risk Factors" as well as other information and data included in this
Prospectus for a discussion of certain factors that should be considered in
evaluating the Exchange Offer and an investment in the Notes.
14
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents (i) summary selected historical financial
information of the Business, as of the dates and for the periods indicated, and
(ii) summary pro forma financial information of the Company, as of the date and
for the period indicated, adjusted for the completion of the Acquisition, the
application of the net proceeds of the Financing and the events described in
"Unaudited Pro Forma Financial Information." The historical financial
information for each of the three years in the period ended September 28, 1996
has been derived from the Business' financial statements, which have been
audited by Ernst & Young LLP. The historical financial information for each of
the two years in the period ended October 2, 1993 has been derived from
unaudited financial statements and, in the opinion of management, includes all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of results of operations for these periods. The summary pro forma
financial information does not purport to represent what the Company's results
of operations would have been if such events had occurred at the dates
indicated, nor does such information purport to project the results of the
Company for any future period. The summary financial information should be read
in conjunction with "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THE COMPANY
THE BUSINESS ------------------------
THE COMPANY HISTORICAL HISTORICAL PRO FORMA
PRO FORMA ------------ ------------ ------------
THE BUSINESS HISTORICAL FISCAL YEAR 8 WEEKS 5 WEEKS 13 WEEKS
FISCAL YEAR ENDED ENDED ENDED ENDED ENDED
------------------------------------------------------------ ------------- ------------ ------------ ------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 28, NOVEMBER 25, DECEMBER 28, DECEMBER 28,
1992 1993 1994 1995 1996 1996 1996 1996 1996
---------- ---------- ---------- ------------- ------------- ------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Sales............ $295,835 $294,468 $331,969 $304,474 $232,761 $226,394 $31,966 $17,118 $49,084
Cost of goods
sold............ 252,544 246,630 278,600 250,787 189,559 179,662 25,917 14,445 40,992
-------- -------- -------- -------- -------- -------- ------- ------- -------
Gross profit.... 43,291 47,838 53,369 53,687 43,202 46,732 6,049 2,673 8,092
Selling, general
and administra-
tive............ 25,066 30,768 33,880 31,514 26,414 22,445 4,153 1,659 5,267
Amortization..... 1,239 1,239 1,528 1,624 1,624 2,782 250 287 638
Plant reloca-
tion............ -- -- -- 1,036 -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- ------- -------
Total operating
expenses....... 26,305 32,007 35,408 34,174 28,038 25,227 4,403 1,946 5,905
-------- -------- -------- -------- -------- -------- ------- ------- -------
Operating in-
come............ 16,986 15,831 17,961 19,513 15,164 21,505 1,646 727 2,187
Interest ex-
pense........... -- -- -- -- -- 17,428 -- 1,538 4,227
Other expenses... -- -- 4 678 796 796
-------- -------- -------- -------- -------- -------- ------- ------- -------
Earnings before
taxes on in-
come............ 16,986 15,831 17,957 18,835 14,368 3,281 1,646 (811) (2,040)
Provision for in-
come taxes...... 7,134 6,649 7,508 7,931 6,205 1,280 731 -- --
-------- -------- -------- -------- -------- -------- ------- ------- -------
Net income...... $ 9,852 $ 9,182 $ 10,449 $ 10,904 $ 8,163 $ 2,001 $ 915 $ (811) $(2,040)
======== ======== ======== ======== ======== ======== ======= ======= =======
OTHER DATA(2):
EBITDA(1)(3)..... $ 26,118 $ 24,909 $ 28,579 $ 29,877 $ 24,080 $ 33,153 2,238 1,696 5,042
Capital expendi-
tures........... 4,600 3,300 6,580 2,792 735 735 141 395 395
Cost of goods
sold as a % of
sales........... 85.4% 83.8% 83.9% 82.4% 81.4% 79.4% 81.1% 84.4% 83.5%
Selling and gen-
eral and admin-
istrative ex-
penses as a % of
sales........... 8.5% 10.4% 10.2% 10.4% 11.3% 9.9% 13.0% 9.7% 10.7%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 28, 1996
----------------------
THE COMPANY HISTORICAL
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET AND OTHER DATA:
Working capital.......................................... $ 25,921
Total assets............................................. 204,077
Total liabilities........................................ 159,888
Total liabilities and stockholders' equity............... 204,077
</TABLE>
- -------
(1) EBITDA represents the sum of income before interest expense and provision
for income taxes, plus depreciation, amortization and other expenses, which
consist of losses on dispositions of property, plant and equipment. EBITDA
should not be construed as a substitute for operating income, net income or
cash flow from operating activities for purposes of analyzing the Company's
operating performance, financial position and cash flows. The Company has
presented EBITDA because it is commonly used by investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt.
EBITDA as defined herein is calculated as follows:
<TABLE>
<CAPTION>
THE
BUSINESS
HISTORICAL THE COMPANY
---------- -----------------
8 WEEKS 5 WEEKS 13 WEEKS
ENDED ENDED ENDED
---------- -------- --------
PRO-FORMA
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 28, NOVEMBER DECEMBER DECEMBER
1992 1993 1994 1995 1996 1996 25, 1996 28, 1996 28, 1996
---------- ---------- ---------- ------------- ------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income
(loss)......... $ 9,852 $ 9,182 $10,449 $10,904 $ 8,163 $ 2,001 $ 915 $ (811) $(2,040)
Adjustments to
calculate
EBITDA
Taxes........... 7,134 6,649 7,508 7,931 6,205 1,280 731 -- --
Interest........ -- -- -- -- -- 17,428 -- 1,538 4,227
Amortization.... 1,239 1,239 1,528 1,624 1,624 2,782 250 287 638
Depreciation.... 7,893 7,839 9,090 8,740 7,292 8,866 342 682 2,217
(Gain) Loss on
Disposal of
Property, Plant
and Equipment.. -- -- 4 678 796 796 -- -- --
------- ------- ------- ------- ------- ------- ------ ------ -------
EBITDA.......... $26,118 $24,909 $28,579 $29,877 $24,080 $33,153 $2,238 $1,696 $ 5,042
======= ======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
(2) The historical financial statements of the Business do not reflect any
interest expense as Tyson did not allocate any such expense to the
Business. The only fixed charge that the Business incurred in fiscal 1996
was $15,000, which represents the estimated interest component of rent
expense, resulting in a ratio of earnings to fixed charges of 958.9x.
(3) The historical financial statements of the Business for the fiscal year
ended September 28, 1996 include various non-recurring costs incurred in
connection with problems with the Reconfiguration, which have since been
resolved. These costs consisted of increased production costs resulting
from inefficient yields, increased labor and overhead conversion costs,
including the costs of operating a temporary production facility, as well
as certain customer discounts and other non-recurring expenses. The effect
of these costs has not been eliminated in the Pro Forma Income Statement
and Pro Forma EBITDA, but has been eliminated in determining Adjusted Pro
Forma EBITDA as set forth below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 28, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro Forma EBITDA......................................... $33,153
Adjustments described above.............................. 4,315
-------
Adjusted Pro Forma EBITDA................................ $37,468
=======
</TABLE>
16
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Senior Notes for the Exchange Notes offered hereby, holders of
Senior Notes should consider carefully the following factors, which (other
than "Consequences of Exchange and Failure to Exchange" and "Absence of Public
Market") are generally applicable to the Senior Notes as well as the Exchange
Notes. Certain statements in this Prospectus that are not historical fact may
constitute "forward-looking statements." Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results of the Company to be materially different from
results expressed or implied by such forward-looking statements.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Senior Notes who do not exchange their Senior Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Notes as set forth in the legend
thereon as a consequence of the issuance of the Senior Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Senior Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register the Senior Notes under the Securities Act. In
addition, any holder of Senior Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. To the extent Senior Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for
the Senior Notes could be adversely affected. See "The Exchange Offer" and
"Senior Notes Registration Rights."
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Upon consummation of the Transactions, the Company became highly leveraged.
At December 28, 1996, the Company has total outstanding debt of $149.0
million. After giving pro forma effect to the Transactions, the Company's
ratio of earnings to fixed charges would have been 958.9 to 1.0 for fiscal
1996. Pro forma net income (loss) for fiscal 1996 would have been $2.0
million, as compared to $8.2 million on a historical basis, and pro forma
interest expense for fiscal 1996 would have been $17.4 million as compared to
none on a historical basis. In addition, subject to the restrictions in the
Indenture, the Company may incur additional indebtedness (including additional
Senior Indebtedness) from time to time to finance acquisitions or capital
expenditures or for other purposes. At the Acquisition Closing, the Company
had unused capacity of $22.0 million under the Revolving Credit Facility and
as of December 28, 1996 the Company had drawn down approximately an additional
$1.0 million under the Revolving Credit Facility to finance working capital
needs. In addition, the Company expects to draw down an additional $11.0
million under the Revolving Credit Facility during the first six months of
calendar 1997 to finance working capital needs.
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures,
research and development, acquisitions or other corporate purposes may be
limited; (iii) the borrowings of the Company under the Credit Facilities
accrue interest at variable rates, which could cause the Company to be
vulnerable to increased interest expense in the event of higher interest
rates; and (iv) the Company's level of indebtedness could limit its
flexibility in reacting to changes in its industry or economic conditions
generally.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond its control, as well as the
availability of borrowings under the Revolving Credit Facility or successor
facilities. The Company anticipates that its operating cash flow and
borrowings under the Revolving Credit Facility or successor facilities will be
sufficient to meet its operating expenses and to service its debt requirements
as they become due. However, if the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
capital expenditures, selling assets,
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restructuring or refinancing its indebtedness or seeking additional equity
capital. There can be no assurance that any of these remedies can be effected
on satisfactory terms, if at all. In addition, the Company's ability to repay
the principal amount of the Notes at maturity may depend on its ability to
refinance the Notes. There can be no assurance that the Company will be able
to refinance the Notes at maturity, if necessary, on satisfactory terms, if at
all.
SUBORDINATION OF NOTES
The Senior Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company subordinated in right of payment to all existing
and future Senior Indebtedness of the Company, including borrowings under the
Credit Facilities. In the event of bankruptcy, liquidation or reorganization
of the Company, the assets of the Company will be available to pay obligations
on the Notes only after all Senior Indebtedness has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on any or all
of the Notes then outstanding. In addition, under certain circumstances the
Company will not be able to make payment of its obligations under the Notes in
the event of a default under certain Senior Indebtedness. The aggregate
principal amount of Senior Indebtedness of the Company, as of September 28,
1996, would have been $48.0 million on a pro forma basis after giving effect
to the Transactions. As of December 28, 1996, the Company had borrowed
approximately an additional $1.0 million of Senior Indebtedness under the
Revolving Credit Facility to finance working capital needs. In addition, the
Company expects to draw down an additional $11.0 million under the Revolving
Credit Facility during the first six months of calendar 1997 to finance
working capital needs. Additional Senior Indebtedness may be incurred by the
Company from time to time, subject to certain restrictions. See "Description
of Notes--Subordination."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur liens to secure pari passu or subordinated indebtedness,
engage in any sale and leaseback transactions, sell stock of subsidiaries,
apply net proceeds from certain asset sales, merge or consolidate with any
other person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company, enter into certain
transactions with affiliates, or incur indebtedness that is subordinate in
right of payment to any Senior Indebtedness and senior in right of payment to
the Notes. In addition, the Credit Facilities contain other and more
restrictive covenants and prohibit the Company from prepaying other
indebtedness (including the Notes). As a result of these covenants, the
ability of the Company to respond to changing business and economic conditions
and to secure additional financing, if needed, may be significantly
restricted, and the Company may be prevented from engaging in transactions
that might otherwise be considered beneficial to the Company. See "Description
of Credit Facilities" and "Description of Notes--Certain Covenants."
The Credit Facilities also require the Company to maintain specified
financial ratios and satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those tests. A breach of any of these covenants could result in a default
under the Credit Facilities. Upon the occurrence of an event of default under
the Credit Facilities, the lenders could elect to declare all amounts
outstanding under the Credit Facilities, together with any accrued interest,
to be immediately due and payable. If the Company were unable to repay those
amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness. If the Credit Facilities were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient
to repay in full that indebtedness and the other indebtedness of the Company,
including the Notes. Substantially all the assets of the Company are pledged
as security under the Credit Facilities. Such assets may also be pledged in
the future to secure other Indebtedness. See "Description of Credit
Facilities."
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if among other things, the
Company, at the time it incurred its indebtedness in connection with the
offering of the Senior Notes, (i) (a) was or is insolvent or rendered
insolvent by reason of such incurrence or (b) was or is engaged in a business
or transaction for which the assets remaining with the Company constituted
unreasonably small capital or (c) intended or intends to incur, or believed or
believes that it would incur, debts
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beyond its ability to pay such debts as they mature, and (ii) the Company
received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, the Notes, and any
pledge or other security interest securing such indebtedness, could be voided,
or claims in respect of the Notes could be subordinated to all other debts of
the Company. The voiding or subordination of any of such pledges or other
security interests or of any such indebtedness could result in an Event of
Default (as defined in the Indenture) with respect to such indebtedness, which
could result in acceleration thereof. In addition, the payment of interest and
principal by the Company pursuant to the Notes could be voided and be required
to be returned to the person making such payment or to a fund for the benefit
of the creditors of the Company.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company would be considered insolvent if
(i) the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets at a fair valuation or if the
present fair saleable value of its assets were less than the amount that would
be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could
not pay its debts as they become due.
GENERAL RISKS OF FOOD INDUSTRY
The industry in which the Company competes is subject to various risks,
including: adverse changes in general economic conditions; adverse changes in
local markets; evolving consumer preferences; nutritional and health-related
concerns; federal, state and local food processing controls; consumer product
liability claims; risks of product tampering; limited shelf life of food
products; and the availability and expense of liability insurance.
RAW MATERIALS
The Company uses large quantities of meat proteins, including beef, pork and
poultry. Approximately 70% of the Company's beef needs are sourced from three
major suppliers: IBP; Montford (ConAgra); and Excel (Cargill). The Company's
pork and poultry needs also are sourced from three major suppliers.
Historically, market prices for meat proteins have fluctuated in response to a
number of factors, including changes in United States government farm support
programs, changes in international agricultural and trading policies, weather
and other conditions during the growing and harvesting seasons. While the
Business historically has been able to pass through changes in the price of
meat proteins to end users, there can be no assurance that the Company will be
able to pass the effects of future changes to end users. Furthermore, large,
abrupt changes in the price of meat proteins could adversely affect the
Company's operating margins, although such adverse effects historically have
been only temporary. There is no assurance that significant changes in meat
protein prices would not have a material adverse effect on the Company's
business, results of operations and debt service capabilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Suppliers."
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent, to a significant extent, on the
continued efforts of J. David Culwell, Richard E. Mitchell, and Randall H.
Collins with whom it has entered into employment agreements containing non-
compete provisions. If any of these people becomes unable to continue in his
present role, or if the Company is unable to attract and retain other skilled
employees, the Company's business could be adversely affected. See
"Management."
COMPETITION
The value added beef processing industry is highly competitive with a large
number of competitors offering similar products. Certain of the Company's
suppliers, such as Cargill, IBP and ConAgra, produce ground beef products that
compete directly with certain of the Company's products. The Company seeks to
successfully compete with these suppliers by providing a diversity of product
offerings and custom order packaging to meet its customers needs. However,
there can be no assurance that such suppliers will not further expand their
presence in the value added beef processing industry in the future or that any
such expansion will not have a material adverse effect on the Company's
business, results of operations and debt service capabilities. These suppliers
and one of the Company's significant competitors are larger and have greater
resources than the Company. The Company also faces significant price
competition from its competitors and may encounter competition from new market
entrants. See "Business--Competition."
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CHANGE OF CONTROL
Upon a Change of Control (as defined herein), each holder will have the
right to require the Company to repurchase all or any part of such holder's
Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the date of repurchase.
The source of funds for any such repurchase will be the Company's available
cash or cash generated from operating or other sources, including borrowings,
sales of equity or funds provided by a new controlling person. However, there
can be no assurance that sufficient funds will be available at the time of any
Change of Control to make any required repurchases of Notes tendered, or that
restrictions in the Credit Facilities will allow the Company to make such
required repurchases. Notwithstanding these provisions, the Company could
enter into certain transactions, including certain recapitalizations, that
would not constitute a Change of Control but would increase the amount of debt
outstanding at such time. In addition, the Company could enter into certain
transactions that would constitute a "change of control" under the Credit
Agreement without constituting a Change in Control under the Indenture. If the
Company entered into such a transaction and, as a result thereof, was required
to repay the Senior Indebtedness, the Company's ability to repurchase any of
the Notes as required under the Indenture could be impaired. See "Description
of Notes."
GOVERNMENTAL REGULATION
The Company's production facilities and products are subject to numerous
federal, state and local laws and regulations concerning, among other things,
health and safety matters, food manufacture, product labeling, advertising and
the environment. Compliance with existing federal, state and local laws and
regulations is not expected to have a material adverse effect on the Company's
business, results of operations or debt service capabilities. However, the
Company cannot predict the effect, if any, of laws and regulations that may be
enacted in the future, or of changes in the enforcement of existing laws and
regulations that are subject to extensive regulatory discretion. There can be
no assurance that the Company will not incur expenses or liabilities for
compliance with such laws and regulations in the future, including those
resulting from changes in health laws and regulations, that may have a
material adverse effect on the Company's business, results of operations and
debt service capabilities. See "Business--Governmental Regulation."
As a participant in the USDA Commodity Reprocessing Program for schools, the
Company must adhere to certain rules, regulations and guidelines. Such rules,
regulations and guidelines include financial surety bonding in the state of
operation, product inspection and grading and certain reporting requirements.
Should the Company fail to remain in compliance with such rules, regulations
and guidelines, it could be excluded from the USDA Commodity Reprocessing
Program which could have a material adverse effect on the Company's business,
results of operations and debt service capabilities. See "Business--
Governmental Regulation."
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The operations of the Company and the ownership and operation of real
property by the Company are subject to extensive and changing federal, state
and local environmental laws and regulations. As a result, the Company may be
involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. The Company cannot predict what
environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted or
what environmental conditions may be found to exist. Compliance with more
stringent laws or regulations, stricter interpretation of existing laws or
discovery of unknown conditions may require additional expenditures by the
Company, some of which may be material. The Company believes it is currently
in material compliance with all known material and applicable environmental
regulations.
Prior to the Acquisition, Tyson incurred monthly surcharges of approximately
$40,000 to the city of Garland, Texas as a result of effluent wastewater
discharges from the Garland, Texas facility. Tyson elected to pay the monthly
surcharges rather than modify the facility to allow its operation without
incurring such surcharges. Since the Acquisition, the Company has continued to
incur the monthly surcharges and the Company currently does not intend to
modify the facility to allow its operation without incurring such surcharges.
Management does not believe that the incurrence of the aforementioned
surcharges will have a material adverse effect on the Company's business,
results of operation and debt service capabilities. There can be no assurance,
however, that such
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surcharges will not be increased or that the Company will not be required to
modify its operations, which may result in significant expenses or material
capital expenditures. See "Business--Environmental Matters."
SEASONALITY
Certain of the end uses for some of the Company's products are seasonal.
Demand in many markets is generally higher in the period from July to
September due to higher demand for beef products during the summer months and
increased purchasing by schools in anticipation of the commencement of the
school year. As a result, Company sales and profits are generally higher in
the Company's fourth quarter than in any other quarter during its fiscal year.
In addition, demand in many markets is generally lowest in the period from
January to March, resulting in lower sales and profits in the Company's second
quarter.
IMPORTANCE OF KEY CUSTOMERS
Historically, one of the Company's largest customers has been Sam's Club
("Sam's"), a subsidiary of Wal-Mart Stores, Inc. The Company supplies Sam's
with ground beef patties pursuant to two contracts (the "Sam's Contracts")
which became effective in November 1995. Pursuant to the Sam's Contracts, the
Company agreed to sell and Sam's agreed to purchase an aggregate of 28.0
million pounds of ground beef. As of September 28, 1996, the Company had
delivered approximately 21.7 million pounds of ground beef under the Sam's
Contracts. The Company anticipates it will fulfill its obligations under the
Sam's Contracts by April 1997. During fiscal 1995 and fiscal 1996, the Sam's
Contracts accounted for 14.4% and 13.2% of the Company's sales, respectively.
The Sam's Contracts are fixed price contracts, do not allow the Company to
adjust its prices in response to changing raw material prices or market
conditions and do not contain renewal provisions. Sam's typically awards
contracts annually during the Company's fourth fiscal quarter. The Company
expects to bid on a replacement contract with Sam's during fiscal 1997,
however, there can be no assurance the Company's bid will be successful.
Although Sam's has not informed the Company whether it will enter into a new
contract with the Company, total sales to this customer are likely to be
significantly lower in fiscal 1997 than in fiscal 1996 due to Sam's decision
to increase its purchases from one of the Company's competitors. The Company
will attempt to secure replacement contracts with other customers, but there
can be no assurance that such efforts will be successful or that any contracts
secured will provide the Company with revenues or gross profits comparable to
the Sam's Contracts. See "--Reliance on Sales of Ground Beef."
The Company's second largest customer is Harker's. The Company supplies
Harker's with ground beef and value added products pursuant to a supply
agreement that will remain in effect until 1999 (the "Harker's Contract"). The
Harker's Contract requires Harker's to purchase minimum amounts of the
Company's products. The Harker's Contract provides that amounts charged by the
Company thereunder may be adjusted in response to fluctuations in the
Company's costs. During fiscal 1995 and fiscal 1996, the Harker's Contract
accounted for 12.5% and 12.6% of sales, respectively. At the Acquisition
Closing, Tyson assigned to the Company its rights and obligations related to
the supply of ground beef and value added products pursuant to the Harker's
Contract. Tyson will continue to supply poultry products to Harker's pursuant
to the Harker's Contract. The Company is currently negotiating a replacement
agreement with Harker's to supply ground beef and value added products. There
can be no assurance, however, that any such replacement agreement will be
secured on terms that will provide the Company with revenues or gross profits
comparable to the Harker's Contract.
In addition to Sam's and Harker's, the Company sells a significant amount of
its products to affiliates of Sysco Corp. ("Sysco"). Each local Sysco
affiliate is responsible for its own purchasing decisions. Management believes
that the loss of an individual Sysco affiliate as a customer would not have a
material adverse effect on the Company's business, results of operations or
debt service capabilities. However, there can be no assurance that Sysco will
not elect to employ a system whereby purchasing decisions are centralized.
Should Sysco elect to employ a centralized system, there can be no assurance
that Sysco will continue to purchase the Company's products at historical
volumes, if at all. The loss of all or a significant portion of the Company's
sales to Sysco, regardless of the cause of such loss, would have a material
adverse effect on the Company's business, results of operations and debt
service capabilities. During fiscal 1995 and fiscal 1996, total sales to Sysco
affiliates accounted for 15.2% and 17.8% of sales, respectively.
Sam's, Harker's and affiliates of Sysco collectively accounted for
approximately 42.1% and 43.6% of sales during fiscal 1995 and fiscal 1996,
respectively. The loss of the Sam's Contracts or the Harker's Contract or
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reduced sales to affiliates of Sysco without offsetting sales to other
customers could have a material adverse effect on the Company's business,
results of operations and debt service capabilities. See Note 8 of the Notes
to Financial Statements.
RELIANCE ON SALES OF GROUND BEEF
Although the Company's strategy is to maximize sales of higher margin value
added products, the Company has historically relied on sales of lower margin
ground beef products to generate a significant portion of its revenues. The
Company anticipates that such reliance will continue in the future. In recent
years, however, the Company's sales of ground beef have been declining, and it
is expected that one customer that purchased approximately 21.7 million pounds
of ground beef in fiscal 1996 will purchase a significantly lower amount in
fiscal 1997. Any substantial decline in ground beef sales below the fiscal
1996 level, unless replaced by sales of other products, could have a material
adverse effect on the Company's business, results of operations and debt
service capabilities. See "--Importance of Key Customers."
RISKS RELATED TO UNIONIZED EMPLOYEES
The Company's business is labor intensive. The Company's ability to operate
profitably is dependent on its ability to recruit and retain employees while
controlling labor costs. Currently, certain of the Company's employees at the
Garland, Texas facility are represented by the United Food & Commercial
Workers International Union, AFL-CIO, CLC, Local 540 (the "Union"). The
Company and the Union have not entered into a collective bargaining agreement.
The Garland, Texas facility is being operated pursuant to the terms and
conditions specified by the Company at the time of the Acquisition Closing.
The Company is not obligated to enter into the collective bargaining agreement
agreed upon by Tyson and the Union or to continue to operate the Garland,
Texas facility pursuant to the terms of such agreement. Management is
currently negotiating a replacement collective bargaining agreement with the
Union, although there can be no assurance that it will be successful in doing
so. Except for employees at the Garland, Texas facility, none of the Company's
employees are represented by a union. If unionized employees were to engage in
a strike or other work stoppage or if additional employees were to become
unionized, the Company could experience a significant disruption of operations
and higher labor costs, either of which could have a material adverse effect
on the Company's business, results of operations and debt service
capabilities. See "Business--Employees."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Senior Notes are currently owned by a relatively small number of
beneficial owners. The Senior Notes have not been registered under the
Securities Act and will continue to be subject to restrictions on
transferability to the extent that they are not exchanged for the Exchange
Notes. The Exchange Notes will constitute a new issue of securities with no
established trading market. Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by holders who are not
affiliates of the Company without compliance with the registration
requirements under the Securities Act, the Company does not intend to list the
Exchange Notes on any national securities exchange or for trading on Nasdaq.
The Senior Notes are traded through NASD's PORTAL trading system under the
Symbol "GQTFNP06." NationsBanc Capital Markets, Inc. has advised the Company
that it has made a market in the Senior Notes; however, it is not obligated to
do so and any market-making activity with respect to the Senior Notes and the
Exchange Notes may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act. Accordingly, there is no assurance that
an active public or other market will develop or continue for the Exchange
Notes, and it is expected that the market, if any, that develops for the
Exchange Notes will be similar to the limited market that currently exists for
the Senior Notes.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Senior Notes pursuant to
the Exchange Offer will be made only after timely receipt by the Exchange
Agent of properly completed and duly executed Letters of Transmittal and all
other required documents from holders eligible to participate in the Exchange
Offer. Therefore, holders of the Senior Notes desiring to tender such Senior
Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of
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defects or irregularities with respect to the tenders of Senior Notes for
exchange. Senior Notes that are not tendered or are tendered but not accepted
will, following the consummation of the Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof and, upon consummation of
the Exchange Offer, certain of the registration rights under the Registration
Rights Agreement will terminate. In addition, any holder of Senior Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale which will not be satisfied by delivery of this Prospectus. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Senior Notes, where such Senior Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a copy of this Prospectus in connection with
any resale of such Exchange Notes. To the extent that Senior Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Senior Notes could be adversely affected. See
"Explanatory Note;" "Prospectus Summary--The Exchange Offer;" and "The
Exchange Offer."
RESTRICTIONS ON TRANSFER OF SENIOR NOTES
Except for persons that are ineligible to participate in the Exchange Offer
under positions taken by the Commission Staff, holders of Senior Notes who do
not tender their Senior Notes in the Exchange Offer generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any holder of Senior Notes that does not exchange that
holder's Senior Notes for Exchange Notes will continue to hold unregistered
Senior Notes and will be entitled to all the rights and limitations applicable
thereto under the Indenture and the Securities Act, except to the extent that
such rights or limitations, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer. The failure to participate in
the Exchange Offer may adversely affect the ability of eligible holders to
resell unregistered Senior Notes in the future.
LACK OF OPERATING HISTORY
Prior to the Acquisition, the Business was operated as a division of Tyson
and relied upon Tyson for many administrative and logistical functions,
including computer, accounting, treasury and human resources support,
warehouse space and distribution services. There can be no assurance that the
Company can successfully develop and implement infrastructure necessary to
address these and other matters related to the operation of the Business as a
stand-alone entity. In addition, the development and implementation of such
infrastructure could divert management's attention from other concerns, which
could have a material adverse effect on the Company's business, results of
operations and debt service capabilities. Upon the consummation of the
Transactions, the Company entered into the Transition Services Agreement,
pursuant to which Tyson has agreed to provide certain services with respect to
the operation of the Business for up to twelve months following the
Acquisition. Such services will be provided at no cost to the Company for the
first six months. Thereafter, the Company will pay Tyson an agreed upon rate.
Subsequent to the Acquisition Closing, the Company entered into new broker
agreements. The Company expects to enter into new warehouse agreements in the
first six months of fiscal 1997. Although the Company believes it will be able
to enter into such agreements on substantially the same terms as those
currently provided to Tyson, there can be no assurance that it will be able to
do so. See "The Acquisition, Financing and Related Transactions;"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources;" and "Business--Growth Strategy."
CONTROL BY INVESTORS
All of the outstanding shares of the Company's $.01 par value common stock
("Common Stock") are beneficially owned by GHC. GHC has no business other than
holding the stock of the Company, which is the sole source of GHC's financial
resources. GHC is controlled by CGW Southeast Partners, III, L.P. ("CGW"). CGW
Southeast III, L.L.C. (the "General Partner") is the general partner of CGW.
CGW beneficially owns shares representing 52.9% of the voting interest in GHC
on a fully diluted basis and which has the right to designate all of the
directors of GHC. Accordingly, CGW, through its control of GHC, controls the
Company and has the power to elect all of its directors, appoint new
management and approve any action requiring the approval of the holders of the
Company's Common Stock, including adopting amendments to the Company's
Certificate of Incorporation and approving mergers or sales of substantially
all of the Company's assets. The directors elected by GHC have the authority
to make decisions affecting the capital structure of the Company, including
the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends. See "Management;"
"Certain Transactions" and "Principal Stockholder."
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USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer. The net proceeds to the Company from the
sale of the Senior Notes on November 25, 1996 were approximately $94.5 million
(after deducting estimated expenses and commissions), all of which was applied
to the purchase price for the Acquisition and to pay additional related fees
and expenses. See "Prospectus Summary--The Acquisition, Financing and Related
Transactions;" "Capitalization;" Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE ACQUISITION, FINANCING AND RELATED TRANSACTIONS
THE ACQUISITION
General
On November 25, 1996, pursuant to the Asset Purchase Agreement (the "Asset
Purchase Agreement") with Tyson and certain Tyson affiliated entities, the
Company purchased substantially all of the assets of the Business. The Company
did not assume any liabilities or obligations of Tyson relating to the
Business, other than future obligations under executory contracts of the
Business, such as agreements to purchase inventory or to supply products,
accrued vacation pay and certain property tax obligations.
Purchase Price
The aggregate purchase price paid by the Company for the assets was $183.5
million.
Indemnification
Tyson is required to indemnify, defend and hold harmless the Company and
certain affiliated persons, against and for any and all Losses (as defined in
the Asset Purchase Agreement) resulting from, based upon or arising out of,
among other things: (i) breaches of representations, warranties or covenants
of Tyson contained in or made pursuant to the Asset Purchase Agreement; (ii)
any liability or obligation of Tyson arising out of or relating to the
operation of the Business at any time prior to the Acquisition Closing, other
than the liabilities assumed by the Company. Tyson's obligation to provide
such indemnification with respect to the liabilities and obligations relating
to the Business prior to the Acquisition Closing is not limited by any time
period or by any minimum or maximum dollar amount. With respect to
indemnification for a breach of any of the representations or warranties made
by Tyson pursuant to the Asset Purchase Agreement, Tyson is obligated to
provide such indemnity generally for a period of two years following the
Acquisition Closing. Tyson is not obligated to provide such indemnity until
the total of all Losses with respect thereto exceeds $1,000,000, and Tyson
will only be liable for the amount by which such Losses exceed $500,000.
Transition Services
Pursuant to the Transition Services Agreement, which was executed and
delivered by the parties at the Acquisition Closing, Tyson agreed to provide
certain services to the Company with respect to the operation of the Business,
and to assist the Company in transferring the Business from Tyson to the
Company. Such services include, among other things, computer processing and
related services, order entry, transportation and storage scheduling services,
the Company's use of Tyson's product development and research test facilities,
the Company's limited use of the "Tyson" name, and certain payroll and
accounting administrative functions. Tyson will provide the transition
services to the Company for a period of up to twelve months following the
Acquisition Closing. For the first six months, Tyson will provide the services
at no additional cost to the Company as part of its consideration for the
purchase price paid by the Company. Thereafter, the Company will pay Tyson
$120,000 per calendar month for services rendered under the Transition
Services Agreement. It is the Company's current intention to begin providing
such services for itself within six months following the Acquisition Closing
or as soon thereafter as practicable.
In connection with the establishment of its administrative structure, the
Company is in the process of hiring employees for its headquarters, making
certain capital expenditures and leasing additional facilities. Management
estimates that the Company's fiscal 1997 stand-alone general and
administrative expenses will be approximately
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$3.4 million. Capital expenditures of approximately $2.0 million, principally
for computer equipment and software, as well as office furniture, fixtures and
equipment, will be required in fiscal 1997 to establish the Company's
administrative structure. Additionally, the Company has leased office space
for its headquarters. The Company expects total fiscal 1997 capital
expenditures to be approximately $4.4 million, primarily related to capital
maintenance of current facilities and equipment and the purchase of the
computer equipment and software. See "Risk Factors--Lack of Operating History"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
Non-Competition Agreement
The Company and Tyson have agreed, subject to certain exceptions and
limitations, not to compete with each other in the production and/or sale of
beef and pork products, in the case of Tyson, or certain poultry products, in
the case of the Company, for a period of two years from the Acquisition
Closing.
The Company believes that the aforementioned non-competition agreement will
allow it to develop its business as a stand-alone entity with less risk of
decreased revenues or operating results that could result from competition
from Tyson in the Company's primary markets.
FINANCING OF THE ACQUISITION
The purchase price for the Acquisition, approximately $184.3 million,
together with an estimated $9.5 million of related fees and expenses (of which
$900,000 has been allocated to the Equity Private Placement (as defined
herein)), was funded through (i) a $45.0 million equity contribution from GHC
funded by a private equity placement (the "Equity Contribution" and the
"Equity Private Placement," respectively) (ii) the net proceeds of the
offering of the Senior Notes (the "Initial Offering") and (iii) borrowings
under the Credit Facilities. Of the $45.0 million of GHC capital stock sold
through the Equity Private Placement, CGW purchased $25.0 million of Class A
common stock (voting), NationsBanc Investment Corp. ("NBIC"), an affiliate of
the Initial Purchaser, purchased $9.0 million of Class B common stock (non-
voting) and Mellon Bank, N.A., as trustee of First Plaza Group Trust, a
General Motors pension plan ("FPGT") purchased $11.0 million of Class A common
stock (voting). GHC made the Equity Contribution by contributing such funds to
the Company at the Acquisition Closing.
The following table sets forth the amounts of sources and uses of the funds
for the Acquisition in connection with the Financings.
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS
The Credit Facilities(1).............................. $ 48,849
The Initial Offering.................................. 100,000
Equity Contribution(2)................................ 45,000
--------
Total Sources of Funds.............................. $193,849
========
USES OF FUNDS
The Acquisition....................................... $184,349
Fees and Transaction Expenses......................... 9,500
--------
Total Uses of Funds................................. $193,849
========
</TABLE>
- --------
(1) Consists of the $40.0 million Term Loan Facility and an $8.8 million
drawdown under the $30.0 million Revolving Credit Facility. Immediately
after consummation of the Acquisition and the Financing, approximately
$22.0 million was available to the Company for borrowing under the
Revolving Credit Facility. As of December 28, 1996, the Company had
borrowed approximately an additional $1.0 million of Senior Indebtedness
under the Revolving Credit Facility to finance working capital needs. In
addition, the Company expects to draw down an additional $11.0 million
under the Revolving Credit Facility during the first six months of
calendar 1997 to finance working capital needs. See "Unaudited Pro Forma
Financial Information;" "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources;" and
"Description of Credit Facilities."
(2) Consists of a cash equity contribution by GHC to the Company.
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
28, 1996. This information should be read in conjunction with "Unaudited Pro
Forma Financial Information" and the Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 28, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Revolving Credit Facility(1)........................ $ 9,000
Term Loan Facility.................................. 40,000
Notes............................................... 100,000
--------
Total long-term debt.................................. 149,000
Stockholder's equity.................................. 44,189
--------
Total capitalization.................................. $193,189
========
</TABLE>
- --------
(1) In addition, the Company expects to draw down an additional $11.0 million
under the Revolving Credit Facility during the first six months of
calendar 1997 to finance working capital needs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Credit Facilities."
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Acquisition has been accounted for by the purchase method of accounting
and, accordingly, the purchase price of $184.3 million plus approximately $9.5
million of related fees and expenses (of which $900,000 has been allocated to
the Equity Private Placement), has been allocated on a preliminary basis to
the assets acquired and liabilities assumed based upon their estimated fair
value at the Acquisition Closing. The excess of such purchase price over the
estimated fair values at the Acquisition Closing has been preliminarily
recognized as goodwill, which will be amortized over 30 years.
The unaudited pro forma income statement does not purport to represent what
the Company's results of operations actually would have been if the events
described above had occurred as of the date indicated or what results will be
for any future periods. The unaudited pro forma financial information is based
upon assumptions that the Company believes are reasonable and should be read
in conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
The following unaudited pro forma income statement for the year ended
September 28, 1996 and the three month period ended December 28, 1996 gives
effect to the completion of the Acquisition, the application of the net
proceeds of the Financing and the events described in the notes below, as
though they had occurred on October 1, 1995.
26
<PAGE>
GORGE'S/QUIK-TO-FIX FOODS, INC.
UNAUDITED PROFORMA INCOME STATEMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- --------------
8 WEEKS ENDED 5 WEEKS ENDED 3 MONTHS ENDED
------------- ------------- --------------
NOVEMBER 25, DECEMBER 28, DECEMBER 28,
1996 1996 ADJUSTMENTS 1996
------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Sales: $31,966 $17,118 $49,084
Cost of goods sold...... 25,917 14,445 (563)(d) 40,992
1,193 (c)
------- ------- ------- -------
Gross Profit........... 6,049 2,673 (630) 8,092
Selling, general and ad-
ministrative........... 4,153 1,659 (543)(e) 5,267
(582)(f)
525 (g)
55 (h)
Amortization............ 250 287 101 (j) 638
Plant relocation........ -- -- --
------- ------- ------- -------
Total operating ex-
penses................ 4,403 1,946 (444) 5,905
Operating Income 1,646 727 (186) 2,187
Interest expense........ -- 1,538 2,689 (k) 4,227
Other expenses.......... --
------- ------- ------- -------
Earnings before taxes on
income................. 1,646 (811) (2,875) (2,040)
Provision for Income
Taxes.................. 731 -- (731)(l) --
------- ------- ------- -------
Net Income............. $ 915 $ (811) $(2,144) $(2,040)
======= ======= ======= =======
</TABLE>
27
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
UNAUDITED PRO FORMA INCOME STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 28, 1996
-----------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales....................................... $232,761 $ (8,527)(a) $226,394
2,160 (b)
Cost of goods sold.......................... 189,559 (9,611)(a) 179,662
1,800 (b)
1,574 (c)
(3,660)(d)
-------- -------- --------
Gross profit.............................. 43,202 3,530 46,732
Operating expenses:
Selling..................................... 22,452 (3,782)(e) 18,670
General and administrative.................. 3,962 (430)(a) 3,775
(3,532)(f)
3,415 (g)
360 (h)
Amortization................................ 1,624 500 (i) 2,782
658 (j)
-------- -------- --------
Total operating expenses.................. 28,038 (2,811) 25,227
-------- -------- --------
Operating income............................ 15,164 6,341 21,505
Interest expense............................ -- 17,428 (k) 17,428
Other expenses.............................. 796 -- 796
-------- -------- --------
Earnings before taxes on income............. 14,368 (11,087) 3,281
Provision for income taxes.................. 6,205 (4,925)(l) 1,280
-------- -------- --------
Net income................................ $ 8,163 $ (6,162) $ 2,001
======== ======== ========
OPERATING AND OTHER DATA:
EBITDA(m)................................... $ 24,080 $ 8,573 $ 33,153
Depreciation and amortization............... 8,916 1,263 11,648
Capital expenditures........................ 735 -- 735
Cash interest expense....................... -- 16,257 16,257
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA INCOME STATEMENT
(a) Represents the elimination of operating results for the discontinuation of
the Company's frozen portion controlled steak business.
(b) Represents the increase in sales and cost of sales resulting from beef
sales to Tyson which by agreement will be executed at a markup of
approximately 20% on the cost of the products commencing upon the
consummation of the Acquisition and which are not reflected in the
historical financial statements of the Business. The agreement with Tyson
is for a one year period commencing on the date of the Acquisition
Closing, and has no commitments as to timing or quantity of purchases.
However, the Company believes that Tyson will continue to purchase beef at
levels similar to quantities purchased in previous periods.
(c) To record the increase in annual depreciation expense relating to the
increase in fair market value of property, plant and equipment acquired.
(d) The adjustment represents the elimination of approximately 106 plant
personnel that were not employed by the Company following the Acquisition
Closing.
(e) Certain indirect selling and administrative expenses incurred at Tyson
which are not actually incurred for programs specific to the Business have
been allocated in the historical financial statements of the Business
primarily based on net sales. The pro forma adjustments described herein
and in note (f) reflect the removal of the allocated costs from the
historical financial statements. This adjustment represents the
elimination of certain indirect selling expenses allocated from Tyson and
included in the historical financial statements.
(f) Represents the elimination of the corporate overhead expenses allocated
from Tyson and included in the historical financial statements.
(g) Represents the addition of the estimated actual costs expected to be
incurred, which are based on estimated personnel head counts and estimated
expenses necessary to maintain administration, sales and marketing.
(h) Represents amounts to be paid by the Company to the General Partner (as
defined herein) for annual consulting services to be rendered to the
Company. The General Partner may also receive additional compensation not
reflected in the pro forma income statement (not to exceed $500,000
annually) at the end of the Company's fiscal year, based on the overall
performance of the Company if approved by the Board of Directors of the
Company.
(i) To reflect the amortization of the estimated value assigned to the
Transition Services Agreement between Tyson and the Business.
(j) To reflect the increase in amortization expense and the excess of the
investment over estimated fair market value of the net assets acquired
under the terms of the Asset Purchase Agreement as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Total purchase price................................ $184,349
Less: Inventory..................................... 30,927
Property, plant and equipment..................... 90,000
Trademarks........................................ 2,000
Plus: Liabilities assumed........................... 578
Estimated fees and expenses related to the Equity
Private Placement................................ 900
--------
Excess of investment over estimated fair market
value of the net assets acquired................... $ 62,900
========
</TABLE>
Pro forma amortization expense has been calculated based on the excess of
the investment over estimated fair market value of the net assets acquired
being amortized over a 30 year period.
(k) Pro forma adjustment to record interest expense for additional interest
costs and amortization of debt issuance cost related to the Revolving
Credit Facility, the Term Loan Facility and the Notes.
29
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Interest expense on the Revolving Credit Facility... $ 1,702
Interest expense on Term Loan Facility.............. 3,055
Interest expense on the Notes....................... 11,500
Amortization of Debt Issuance Cost.................. 1,171
-------
Total Interest Expense.............................. $17,428
=======
</TABLE>
Interest on the Revolving Credit Facility and the Term Loan Facility is
based on LIBOR plus 2.5% (an average of 8% for the year ended September 28,
1996). However, if the one year LIBOR rate on the date of borrowing is
used, interest on the Revolving Credit Facility and the Term Loan Facility
would be $1.7 million and $3.1 million, respectively. Interest on the Notes
is based on the rate of 11.5% per annum. An increase of .125% in the
interest rate on the Revolving Credit Facility and the Term Loan Facility
would have caused interest expense to increase by approximately $73,000.
Pro forma interest expense on the Revolving Credit Facility has been
calculated based on the $8.0 million that was drawn down at the Acquisition
Closing plus approximately an additional $12.0 million that the Company
expects to borrow after the Acquisition Closing through the first six
months of calendar 1997 to finance working capital needs.
(l) Reflects adjustment necessary to state estimated income tax expense on pro
forma earnings before taxes on income at an effective rate of 39%.
(m) EBITDA represents the sum of income before interest expense and income
taxes, plus depreciation, amortization and other expenses which consist of
losses on dispositions of property, plant and equipment. EBITDA should not
be construed as a substitute for operating income, net income or cash flow
from operating activities for the purpose of analyzing the Company's
operating performance, financial position and cash flows. The Company has
presented EBITDA because it is commonly used by investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt.
<TABLE>
<CAPTION>
THE BUSINESS
HISTORICAL
------------
8 WEEKS
ENDED
------------
PRO-FORMA
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 28, NOVEMBER 25,
1992 1993 1994 1995 1996 1996 1996
---------- ---------- ---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income....... $ 9,852 $ 9,182 $10,449 $10,904 $ 8,163 $ 2,001 $ 915
Adjustments to
calculate EBITDA
Taxes........... 7,134 6,649 7,508 7,931 6,205 1,280 731
Interest........ -- -- -- -- -- 17,428 --
Amortization.... 1,239 1,239 1,528 1,624 1,624 2,782 250
Depreciation.... 7,893 7,839 9,090 8,740 7,292 8,866 342
Loss on Disposal
of Property,
Plant and
Equipment...... -- -- 4 678 796 796 --
------- ------- ------- ------- ------- ------- ------
EBITDA........... $26,118 $24,909 $28,579 $29,877 $24,080 $33,153 $2,236
======= ======= ======= ======= ======= ======= ======
<CAPTION>
THE COMPANY
-------------------------
HISTORICAL PRO FORMA
------------ ------------
5 WEEKS 13 WEEKS
ENDED ENDED
------------ ------------
DECEMBER 28, DECEMBER 28,
1996 1996
------------ ------------
<S> <C> <C>
Net income....... $ (811) $(2,040)
Adjustments to
calculate EBITDA
Taxes........... -- --
Interest........ 1,538 4,227
Amortization.... 287 638
Depreciation.... 682 2,217
Loss on Disposal
of Property,
Plant and
Equipment...... --
------------ ------------
EBITDA........... $1,696 $ 5,042
============ ============
</TABLE>
30
<PAGE>
SELECTED FINANCIAL DATA
The following table presents (i) selected historical financial information
of the Business, as of the dates and for the periods indicated, and (ii)
summary pro forma financial information of the Company, as of the date and for
the period indicated, adjusted for the completion of the Acquisition, the
application of the net proceeds of the Financing and the events described in
"Unaudited Pro Forma Financial Information." The historical financial
information for each of the three years in the period ended September 28, 1996
has been derived from the Business' financial statements, which have been
audited by Ernst & Young LLP. The historical financial information for each of
the two years in the period ended October 2, 1993 has been derived from
unaudited financial statements and, in the opinion of management, includes all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of results of operations for these periods. The summary pro forma
information does not purport to represent what the Company's results of
operations would have been if such events had occurred at the dates indicated,
nor does such information purport to project the results of the Company for
any future period. The summary financial information should be read in
conjunction with "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THE BUSINESS
THE COMPANY HISTORICAL
PRO FORMA ------------
THE BUSINESS HISTORICAL FISCAL YEAR 8 WEEKS
FISCAL YEAR ENDED ENDED ENDED
------------------------------------------------------------ ------------- ------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 28, NOVEMBER 25,
1992 1993 1994 1995 1996 1996 1996
---------- ---------- ---------- ------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Sales............. $295,835 $294,468 $331,969 $304,474 $232,761 $226,394 $31,966
Cost of goods
sold............. 252,544 246,630 278,600 250,787 189,559 179,662 25,917
-------- -------- -------- -------- -------- -------- -------
Gross profit.... 43,291 47,838 53,369 53,687 43,202 46,732 6,049
Selling, general
and administra-
tive............. 25,066 30,768 33,880 31,514 26,414 22,445 4,153
Amortization...... 1,239 1,239 1,528 1,624 1,624 2,782 250
Plant relocation.. -- -- -- 1,036 -- -- --
-------- -------- -------- -------- -------- -------- -------
Total operating
expenses....... 26,305 32,007 35,408 34,174 28,038 25,227 4,403
-------- -------- -------- -------- -------- -------- -------
Operating income.. 16,986 15,831 17,961 19,513 15,164 21,505 1,646
Interest expense.. -- -- -- -- -- 17,428 --
Other expenses.... -- -- 4 678 796 796
-------- -------- -------- -------- -------- -------- -------
Earnings before
taxes on income.. 16,986 15,831 17,957 18,835 14,368 3,281 1,646
Provision for in-
come taxes....... 7,134 6,649 7,508 7,931 6,205 1,280 731
-------- -------- -------- -------- -------- -------- -------
Net income...... $ 9,852 $ 9,182 $ 10,449 $ 10,904 $ 8,163 $ 2,001 $ 915
======== ======== ======== ======== ======== ======== =======
OTHER DATA(2):
EBITDA(1)(3)...... $ 26,118 $ 24,909 $ 28,579 $ 29,877 $ 24,080 $ 33,153 2,238
Capital expendi-
tures............ 4,600 3,300 6,580 2,792 735 735 141
Cost of goods sold
as a % of sales.. 85.4% 83.8% 83.9% 82.4% 81.4% 79.4% 81.1%
Selling and gen-
eral and adminis-
trative expenses
as a % of sales.. 8.5% 10.4% 10.2% 10.4% 11.3% 9.9% 13.0%
<CAPTION>
THE COMPANY
-------------------------
HISTORICAL PRO FORMA
------------ ------------
5 WEEKS 13 WEEKS
ENDED ENDED
------------ ------------
DECEMBER 28, DECEMBER 28,
1996 1996
------------ ------------
<S> <C> <C>
INCOME STATEMENT
DATA:
Sales............. $17,118 $49,084
Cost of goods
sold............. 14,445 40,992
------------ ------------
Gross profit.... 2,673 8,092
Selling, general
and administra-
tive............. 1,659 5,267
Amortization...... 287 638
Plant relocation.. -- --
------------ ------------
Total operating
expenses....... 1,946 5,905
------------ ------------
Operating income.. 727 2,187
Interest expense.. 1,538 4,227
Other expenses....
------------ ------------
Earnings before
taxes on income.. (811) (2,040)
Provision for in-
come taxes....... -- --
------------ ------------
Net income...... $ (811) $(2,040)
============ ============
OTHER DATA(2):
EBITDA(1)(3)...... 1,696 5,042
Capital expendi-
tures............ 395 395
Cost of goods sold
as a % of sales.. 84.4% 83.5%
Selling and gen-
eral and adminis-
trative expenses
as a % of sales.. 9.7% 10.7%
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 28, 1996
----------------------
THE COMPANY HISTORICAL
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET AND OTHER DATA:
Working capital.......................................... $ 25,921
Total assets............................................. 204,077
Total liabilities........................................ 159,888
Total liabilities and stockholders' equity............... 204,077
</TABLE>
- --------
(1) EBITDA represents the sum of income before interest expense and provision
for income taxes, plus depreciation, amortization and other expenses, which
consist of losses on dispositions of property, plant and equipment. EBITDA
should not be construed as a substitute for operating income, net income,
or cash flow from operating activities for purposes of analyzing the
Company's operating performance, financial position and cash flows. The
Company has presented EBITDA because it is commonly used by investors to
analyze and compare companies on the basis of operating performance and to
determine a company's ability to service debt.
<TABLE>
<CAPTION>
THE THE COMPANY
BUSINESS --------------------
HISTORICAL HISTORICAL PRO FORMA
---------- ---------- ---------
8 WEEKS 5 WEEKS 13 WEEKS
ENDED ENDED ENDED
PRO-FORMA ---------- ---------- ---------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 28, NOVEMBER DECEMBER DECEMBER
1992 1993 1994 1995 1996 1996 25, 1996 28, 1996 28, 1996
---------- ---------- ---------- ------------- ------------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income
(loss)......... $ 9,852 $ 9,182 $10,449 $10,904 $ 8,163 $ 2,592 $ 915 $ (811) $(2,667)
Adjustments to
calculate
EBITDA
Taxes........... 7,134 6,649 7,508 7,931 6,205 1,658 731 -- --
Interest........ -- -- -- -- -- 17,428 -- 1,538 4,227
Amortization.... 1,239 1,239 1,528 1,624 1,624 2,782 250 356 638
Depreciation.... 7,893 7,839 9,090 8,740 7,292 7,897 342 682 2,321
(Gain) Loss on
Disposal of
Property, Plant
and Equipment.. -- -- 4 678 796 796 -- -- --
------- ------- ------- ------- ------- ------- ------ ------ -------
EBITDA.......... $26,118 $24,909 $28,579 $29,877 $24,080 $32,653 $2,238 $1,765 $ 4,519
======= ======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
(2) The historical financial statements of the Business do not reflect any
interest expense as Tyson did not allocate any such expense to the
Business. The only fixed charge that the Business incurred in fiscal 1996
was $15,000, which represents the estimated interest component of rent
expense, resulting in a ratio of earnings to fixed charges of 958.9x.
(3) The historical financial statements of the Business for the fiscal year
ended September 28, 1996 include various non-recurring costs incurred in
connection with problems with the Reconfiguration, which have since been
resolved. These costs consisted of increased production costs resulting
from inefficient yields, increased labor and overhead conversion costs,
including the costs of operating a temporary production facility, as well
as certain customer discounts and other non-recurring expenses. The effect
of these costs has not been eliminated in the Pro Forma Income Statement
and Pro Forma EBITDA, but has been eliminated in determining Adjusted Pro
Forma EBITDA as set forth below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 28, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro Forma EBITDA...................................... $33,153
Adjustments described above........................... 4,315
-------
Adjusted Pro Forma EBITDA............................. $37,468
=======
</TABLE>
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In the Acquisition, the Company acquired the Business from Tyson. Prior to
the Acquisition, (i) Gorges/Quik-to-Fix Foods, Inc. had no significant assets
or liabilities and had not conducted any business, other than in connection
with the Transactions, and (ii) the Business was not operated by Tyson as a
distinct legal entity.
The following discussion should be read in conjunction with the audited and
unaudited Financial Statements and the Notes thereto, and the Unaudited Pro
Forma Financial Statements and the Notes thereto of the Company, included
elsewhere in this Prospectus.
RESULTS OF OPERATIONS
PRO FORMA THREE MONTHS ENDED DECEMBER 28, 1996 COMPARED TO THREE MONTHS ENDED
DECEMBER 30, 1995
Discussion of the results of operations for the Company as they relate to
the fiscal three month period are made in reference to the pro forma Statement
of Income, which represents an adjusted combination of the two stub periods,
one of the Business, and one of the Company, which together completes coverage
of the time of the three month period ended December 28, 1996.
The Company has experienced an overall decrease in net sales during the past
two years and continuing into the three month period ended December 28, 1996
(the first quarter of fiscal 1997). The decreases are primarily due to reduced
sales volumes, and to a lesser extent, decreases in average selling prices.
The decreases in average selling prices are primarily due to lower prices for
two key raw materials, 90% lean beef trimmings and rib lifter meat, which the
Company has passed on, in part, to customers. Overall, the lower sales volumes
in the current periods are related to the uncertainties which surrounded the
Company when Tyson announced its intent to sell the Business in early 1996. As
a result of the uncertainties and the activity surrounding the acquisition the
Company did not have the benefit of aggressively selling during the bid
programs for the 1996-1997 fiscal school year, and also as a direct result of
uncertainties related to the sale prior to its consummation, some national
customers did not place larger contracts with the Company which it had
garnered in prior years, primarily a large account which in the past has
purchased a significant amount of ground beef from the Company. Also
responsible for sales declines are the reduced sales of ground beef, primarily
related to the completion of a temporary contract with a national fast food
chain, and lower volumes for frozen portion steaks, a business which the
Company discontinued in fiscal 1996. Sales volumes for the Company's value
added products have generally increased during the past two years due to
overall market growth for these products and the introduction of new products.
These increases in sales volumes for value added products were partially
offset by the loss of some business with several national accounts.
Gross profit declined in the three month period ended December 28, 1996, as
compared to the three month period ended December 30, 1995, continuing a trend
from fiscal 1996. The decline in gross profit in fiscal 1996 is attributable
primarily to the lower sales volumes described above. As a percentage of
sales, gross profits declined from 18.2% in the first quarter of 1996 to 16.5%
in the first quarter of 1997 (pro forma). The decline in gross profit as a
percentage of sales is attributable to the declines in the raw materials
costs, changes in product mix as the Company's sales of lower margin ground
beef and portion steaks decreased, and a reduction of variable overhead offset
by an overall increase in depreciation expense due to the write-up of fixed
assets. The decrease in gross profit as a percentage of sales was also
partially due to several factors, including inefficiencies and costs related
to the Company's efforts to hold down production in an effort to increase
cycle times and reduce inventory levels.
The Company's operating income decreased in the first quarter of 1997 due
primarily to the overall decrease in the level of sales due to the product
discontinuations and the negative effects of the announced sale of the
Business and the subsequent eight month period of uncertainty until the
completion of the Acquisition, as well as the effects on overhead of the
Acquisition as amortization and depreciation expenses have increased.
33
<PAGE>
Sales for the three month period ended September 30, 1996 were $49.1 million
as compared to sales for the three months ended September 30, 1995 of $59.1
million, a decrease of 16.9%. The decrease as discussed above are primarily
related to the discontinuance of certain products, as well as the restructure
and sale of the business as some sales in product lines which require contract
or annual bid processes were limited during the acquisition period, and certain
national and ground beef customers were lost during the second half of 1996.
Operating expenses were $5.9 million and $7.2 million for the three month
periods ended December 28, 1996 and December 30, 1995, respectively. The $1.3
million decrease was attributable to the differences in the method of
operations between the Company and the Business, as selling, general and
administrative costs decreased by $1.5 million (1997--$5.3 million; 1996--$6.8
million) as a result of the differences in the actual costs incurred by the
Company as compared to the costs previously allocated to the Business. Also, as
a direct result of the Acquisition, amortization expense increased by $0.2
million (1997--$0.6 million; 1996--$0.4 million).
Interest and Other (income) expense increased from income of $0.02 million in
1996 to expense of $4.2 million in 1997, primarily due to the interest on
subordinated notes and the term and revolving notes incurred a a direct result
of the Acquisition, and amortization of debt issuance costs related to the
issuance of the Notes totaling $4.2 million, with no comparable amount in 1996.
Tyson did not allocate interest expense to the Business.
The $2.0 million pro forma net loss for the three months ended December 28,
1996 compares to net income of $2.0 million for the same period of fiscal 1996.
The $4.0 million increase in net loss resulted primarily from the decreased
sales and gross margin dollars, partially offset by a decrease in operating
expenses along with a significant increase in interest expense related to the
acquisition, and the related effects of the above on income taxes (a reduction
from $1.6 million in fiscal 1996 due to the incurrence of a net loss).
COMPARISON OF THE YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND
OCTOBER 1, 1994
The following tables set forth, for the fiscal periods indicated, (i) sales
and categories of expenses in dollars and as a percentage of sales and (ii)
production volumes.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
-------------- -------------- --------------
(DOLLARS AND POUNDS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales......................... $331,969 100.0% $304,474 100.0% $232,761 100.0%
Cost of goods sold............ 278,600 83.9 250,787 82.4 189,559 81.4
-------- ----- -------- ----- -------- -----
Gross profit.................. 53,369 16.1 53,687 17.6 43,202 18.6
Operating expenses............ 35,408 10.7 34,174 11.2 28,038 12.0
-------- ----- -------- ----- -------- -----
Operating income.............. 17,961 5.4 19,513 6.4 15,164 6.5
Other expenses................ 4 0.0 678 0.2 796 0.3
-------- ----- -------- ----- -------- -----
Earnings before taxes on
income....................... 17,957 5.4 18,835 6.2 14,368 6.2
Provision for income taxes.... 7,508 2.3 7,931 2.6 6,205 2.7
-------- ----- -------- ----- -------- -----
Net income.................... $ 10,449 3.1% $ 10,904 3.6% $ 8,163 3.5%
======== ===== ======== ===== ======== =====
Volumes (in pounds)........... 224,809 215,289 173,821
</TABLE>
The Company has experienced an overall decrease in net sales during the past
two years primarily due to reduced sales volumes, and to a lesser extent,
decreases in average selling prices. The decreases in average selling prices
are primarily due to lower prices for two key raw materials, 90% lean beef
trimmings and rib lifter meat, which the Company has passed on, in part, to
customers. The lower sales volumes are principally attributable to reduced
sales of ground beef, primarily related to the completion of a temporary
contract with a national fast
34
<PAGE>
food chain, and lower volumes for frozen portion steaks, a business which the
Company discontinued in fiscal 1996. Sales volumes for the Company's value
added products have generally increased during the two year period due to
overall market growth for these products and the introduction of new products.
These increases in sales volumes for value added products were partially offset
by the loss of some business with several national accounts.
Gross profit declined in fiscal 1996 relative to fiscal 1995 and was
unchanged in fiscal 1995 relative to fiscal 1994. The decline in gross profit
in fiscal 1996 is attributable primarily to the lower sales volumes described
above. However, as a percentage of sales, gross profits improved from 16.1% in
fiscal 1994 to 17.6% in fiscal 1995 and to 18.6% in fiscal 1996. The
improvement in gross profit as a percentage of sales is attributable to the
declines in the raw materials costs and changes in product mix, with the
Company's sales of lower margin ground beef and portion steaks decreasing. The
increase in gross profit as a percentage of sales was partially offset by
several factors, including inefficiencies and costs related to the
Reconfiguration and losses incurred in disposing of portion steak inventory in
connection with the discontinuation of that product.
In late fiscal 1995 and the first half of fiscal 1996, the Company relocated
the production lines for several products in order to take advantage of lower
labor costs and to segregate production between cooked and uncooked products to
assure high standards for food safety preparation. The Company had significant
problems related to the Reconfiguration, including product quality and order
fulfillment issues. The Company estimates that non-recurring costs totaling
approximately $4.3 million were incurred in connection with the
Reconfiguration, which adversely affected gross profit and operating income in
fiscal 1996.
The Company decided to exit the frozen portion steak business in March 1996
due to increased consumer preference for fresh cut steaks resulting in a
decrease in sales of $24.7 million. This change in the marketplace had resulted
in a steady deterioration in the Company's sales volumes for frozen portion
steaks. Subsequent to the decision to exit this business, the Company was
forced to sell inventory at significant discounts, with this product generating
negative gross profit of approximately $1.1 million and an operating loss of
approximately $1.5 million in fiscal 1996. The portion steak business had
operating income of approximately $1.0 million in fiscal 1995 and approximately
$3.7 million in fiscal 1994.
The Company's operating income increased in fiscal 1995 due primarily to the
positive impact of the lower raw material prices. In fiscal 1996, operating
income decreased approximately 22% from fiscal 1995 due primarily to lower
gross profit partially offset by a reduction in indirect selling expenses and
general and administrative expenses allocated by Tyson.
Sales
The following table outlines sales by product category for fiscal 1994,
fiscal 1995 and fiscal 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS AND POUNDS IN THOUSANDS,
EXCEPT PER POUND AMOUNTS)
<S> <C> <C> <C>
DOLLARS
Value added products..................... $138,745 $154,124 $149,564
Ground beef.............................. 150,740 117,118 74,670
Frozen portion steaks.................... 42,484 33,232 8,527
-------- -------- --------
$331,969 $304,474 $232,761
======== ======== ========
VOLUMES (IN POUNDS)
Value added products..................... 80,493 95,113 93,631
Ground beef.............................. 132,545 111,429 77,604
Frozen portion steaks.................... 11,771 8,747 2,586
-------- -------- --------
224,809 215,289 173,821
======== ======== ========
SALES PER POUND
Value added products..................... $ 1.72 $ 1.62 $ 1.60
Ground beef.............................. 1.14 1.05 0.96
Frozen portion steaks.................... 3.61 3.80 3.30
-------- -------- --------
Overall average.......................... $ 1.48 $ 1.41 $ 1.34
======== ======== ========
</TABLE>
35
<PAGE>
Value Added Products. Sales of value added products decreased approximately
3% in fiscal 1996 after increasing approximately 11% in fiscal 1995. The
decrease in fiscal 1996 was due to a slight decrease in both sales volumes and
selling prices. Sales volumes decreased due to the loss of some business with
national account customers and the elimination of certain less profitable
products, partially offset by sales of newly introduced products. Additionally,
fiscal 1996 sales were adversely affected by order fulfillment and quality
problems resulting from the Reconfiguration. Sales volumes in fiscal 1995
increased due to growth in the market for certain of the Company's products,
such as country fried steak and fully cooked charbroiled patties, and due to
the inclusion of Gorges, Inc.'s products for a full year in fiscal 1995 as
compared to only nine months in fiscal 1994. Selling prices for value added
products were slightly lower in both fiscal 1996 and fiscal 1995 primarily due
to lower prices for two key raw materials, 90% lean beef trimmings and rib
lifter meat. Additionally, with the acquisition of Gorges, Inc. the Company
entered the commodity reprocessing market whereby the Company receives meat
from the federal government which is then processed and sold to school
districts. The Company does not purchase the meat used in commodity
reprocessing and only charges the school system customers for the conversion
costs, plus related margin, incurred during the reprocessing.
Ground Beef. Ground beef sales decreased 36% in fiscal 1996 versus fiscal
1995 and 22% in fiscal 1995 versus fiscal 1994 due to decreases in sales
volumes and average selling prices. A major reason for the decrease in sales
volumes in fiscal 1996 was the completion in late fiscal 1995 of a temporary
contract with a national fast food chain related to a product promotion by the
chain resulting in a decrease in sales of $21.2 million. The Company's sales
volumes with this customer were approximately 34.4 million pounds in fiscal
1994, 21.2 million pounds in fiscal 1995 and 0.5 million pounds in fiscal 1996.
This loss was partially offset in fiscal 1996 by increases in ground beef sales
to a national club store, with sales volumes to this customer increasing to
approximately 21.0 million pounds from approximately 16.2 pounds in fiscal
1995. Sales volumes with this customer were approximately 23.0 million pounds
in fiscal 1994. Although the Company will continue to fulfill its present
commitments to this customer in fiscal 1997, total sales to this customer are
likely to be significantly lower in fiscal 1997 than in fiscal 1996 due to the
customer's decision to increase its purchases from one of the Company's
competitors. Average selling prices per pound decreased in fiscal 1996 and
fiscal 1995 primarily due to the decreases in raw material costs. The Company's
ground beef contracts with its national account customers are generally based
on the market price of the raw materials used in manufacturing the product and,
therefore, changes in the costs of raw materials are generally passed along to
customers.
Gross Profit
The following table outlines gross profit by product category for fiscal
1994, fiscal 1995 and fiscal 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------------- ----------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER POUND AMOUNTS)
<S> <C> <C> <C>
DOLLARS
Value added products.... $ 34,853 $ 38,971 $ 37,543
Ground beef............. 11,783 11,153 6,743
Frozen portion steaks... 6,733 3,563 (1,084)
---------------- ---------------- ----------------
$ 53,369 $ 53,687 $ 43,202
================ ================ ================
PERCENTAGE OF SALES
Value added products.... 25.1% 25.3% 25.1%
Ground beef............. 7.8 9.5 9.0
Frozen portion steaks... 15.8 10.7 (12.7)
---------------- ---------------- ----------------
Overall gross profit
percentage............. 16.1% 17.6% 18.6%
================ ================ ================
PER POUND
Value added products.... $ 0.43 $ 0.41 $ 0.40
Ground beef............. 0.09 0.10 0.09
Frozen portion steaks... 0.57 0.41 (0.42)
---------------- ---------------- ----------------
Overall gross profit per
pound.................. $ 0.24 $ 0.25 $ 0.25
================ ================ ================
</TABLE>
36
<PAGE>
Value Added Products. Gross profit from value added products decreased 4% in
fiscal 1996 from fiscal 1995, after increasing approximately 12% from fiscal
1994. As a percentage of sales, gross profit remained relatively constant for
all three years at approximately 25%, but decreased slightly on a per pound
basis in each of the years. The decrease in gross profit in fiscal 1996 was due
primarily to the decrease in sales volumes and non-recurring costs incurred in
connection with the order fulfillment and quality problems related to the
Reconfiguration. These decreases were partially offset by the decreases in raw
material costs and the favorable effects of a higher margin sales mix. The non-
recurring costs related to the Reconfiguration were approximately $4.3 million,
the absence of which would have increased gross profit as a percentage of sales
to approximately 27.5%.
Gross profit increased in fiscal 1995 due primarily to higher sales volumes.
Lower selling prices were effectively offset by the lower costs of raw
materials in fiscal 1995.
Ground Beef. Gross profit from ground beef sales fell approximately 40% in
fiscal 1996 compared to fiscal 1995, after being flat relative to fiscal 1994.
The decrease in fiscal 1996 was primarily due to the reduction in sales volumes
discussed above. Additionally, gross profit as a percentage of sales and gross
profit per pound fell to 9.0% and $0.09 per pound, respectively, in fiscal 1996
from 9.5% and $0.10, respectively, in fiscal 1995. The decrease in volumes
resulted in reduced plant utilization and increased the conversion costs per
pound for ground beef in fiscal 1996. Meat costs continued to decrease in
fiscal 1996; however, the Company passed along the majority of the benefit
resulting from the lower meat prices due to the formula based pricing contained
in many of the sales contracts with the Company's national account customers.
In fiscal 1995, the Company's gross profit as a percentage of sales and gross
profit per pound from the ground beef business increased to 9.5% and $0.10 per
pound, respectively, from 7.8% and $0.09 per pound, respectively, in fiscal
1994. These improvements were generally attributable to a reduction in the
average cost of ground beef sold of approximately $0.10 per pound. This
decrease was due primarily to lower costs for 90% lean beef trimmings.
Operating Expenses
The following table shows the components of the Company's operating expenses
for fiscal 1994, fiscal 1995 and fiscal 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Direct selling........................ $17,083 $18,546 $18,670
Indirect selling...................... 10,430 6,582 3,782
------- ------- -------
Total selling......................... 27,513 25,128 22,452
General and administrative............ 6,367 6,386 3,962
Amortization.......................... 1,528 1,624 1,624
Plant relocation...................... -- 1,036 --
------- ------- -------
$35,408 $34,174 $28,038
======= ======= =======
</TABLE>
Total direct selling expenses, principally consisting of freight and freezer,
market development and brokerage expenses, increased approximately 1% in fiscal
1996 and approximately 9% in fiscal 1995 even though sales volumes and dollars
decreased in both periods. As a result, direct selling expenses as a percentage
of sales and on a per pound basis increased in both years. The increase in
these costs as a percentage of sales and on a per pound basis in both years is
due, in part, to decreases in sales of ground beef which has lower selling
expenses. Additionally, in fiscal 1996 the Company experienced increases in
freight and freezer expenses due to increased usage of more expensive third
party outside freezer storage space as a result of the Reconfiguration of the
Garland plant; higher inventory levels as a result of reduced sales volumes and
opportunistic purchases of raw materials; and the added costs of servicing a
national account customer. Additionally, brokerage costs were
37
<PAGE>
higher due to increases in the brokerage rates on certain products. Total
market development expenses, which include direct payments and discounts to
customers made to promote products, were down approximately 13% in fiscal
1996. Market development expenses are relatively discretionary in nature and
do not directly correlate with sales volumes or dollars. The decrease in
market development expenses in fiscal 1996 is due to conscious decisions by
management to reduce these items, partially offset by increased discounts
offered to customers in connection with the sales of certain products
manufactured during the period of the product line Reconfiguration.
The increase in direct selling expenses in fiscal 1995 is due to increased
brokerage rates effected for certain products in mid-fiscal 1995 and increased
market development expenses. As noted above, market development expenses are
relatively discretionary and management elected to maintain these at levels
consistent with fiscal 1994.
Indirect selling expenses for all years represent Tyson sales and marketing
department expenses allocated to the Company, principally based on the
Company's sales relative to Tyson's consolidated sales. This allocation
decreased in both fiscal 1995 and fiscal 1996.
General and administrative expenses are allocations of Tyson's corporate
expenses. For all periods, the allocation of Tyson's general and
administrative expenses has been made based on the Company's sales relative to
Tyson's consolidated sales. The allocation decreased in fiscal 1996 due to the
decrease in the Company's relative sales and decreases in Tyson's total
general and administrative costs.
Amortization expense represents the amortization of the excess of the
purchase price over the fair value of the assets related to the acquisitions
of Holly Farms and Gorges, Inc. The increase in fiscal 1995 is due to the
inclusion of a full year of amortization expense related to the Gorges, Inc.
acquisition which occurred at the beginning of the second quarter of fiscal
1994.
Plant relocation expenses relate to the closure of the LeMars, Iowa facility
and relocation of the production line to other Company facilities.
Other Expenses
Other expenses are non-recurring items consisting of losses on the disposal
of fixed assets.
Provision for Income Taxes
The Company's results of operations have historically been included in
Tyson's consolidated federal income tax return. However, the provision for
income taxes for fiscal years 1994 through 1996 has been computed as though
the Company had operated on a stand-alone basis. The Company's effective
income tax rate was approximately 42%, 42% and 43% for fiscal 1994, fiscal
1995 and fiscal 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Transactions, the Company has a significant annual
principal and interest obligations. Borrowings under the Credit Facilities
which totaled $49.0 million at December 28, 1996 ($40.0 million under the Term
Loan Facility and $9.0 million under the Revolving Credit Facility) accrued
interest at an average rate of 8.15% in the five week period ended December
28, 1996. Borrowings under the Senior Notes totaled $100.0 million at December
28, 1996, and accrued interest at 11.5%.
In addition to its debt service obligations, the Company will need liquidity
for working capital and capital expenditures. For the fiscal year ended
September 28, 1996 the Company spent $0.7 million on capital projects. In the
three month period ended December 28, 1996, the Company spent $0.4 million on
capital projects, and expects to spend an additional $4.4 million in fiscal
1997, with as much as $2.0 million being spent on the establishment of a
corporate administrative function, principally for computer software and
hardware, as well as office furniture, fixtures and equipment. The remaining
capital expenditures are primarily for the capital maintenance of the
Company's facilities as well as the establishment of a research and
development facility. The Company is in the process of creating an
administrative structure to provide services some of which are currently being
provided by Tyson under the Transition Services Agreement. In connection with
the effort to establish an administrative structure the Company is hiring
additional personnel into its newly leased Dallas corporate office. The
Company estimates that fiscal 1997 expenses for its stand-alone administrative
functions will be approximately $3.4 million.
38
<PAGE>
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Revolving Credit Facility. The Company had additional
credit availability of $21.0 million under the Revolving Credit Facility at
December 28, 1996. In the five week period ended December 28, 1996, net cash
from financing activities of $185.1 million ($194.0 million net of $8.9
million in financing related expenditures) was partially used by investing
activities of $184.7 million in connection with the Acquisition and normal
capital expenditures. Also, the Company had cash used by operating activities
of $0.4 million, primarily in connection with the increases of working capital
assets. At December 28, 1996, the Company had cash and cash equivalents of
approximately $15,000. The Company anticipates that its working capital
requirements, capital expenditures and scheduled repayments for fiscal 1997
will be satisfied through a combination of cash flows generated from
operations together with funds available under the Revolving Credit Facility.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the operations of the
Business. However, in the event of increases in inflation or commodity prices
from recent levels, the Company could experience sudden and significant
increases in beef costs. Over periods of 90 days or less, the Company may be
unable to completely pass these price increases on to its customers.
Management currently believes that over longer periods of time, it generally
will be able to pass on price increases to its customers. See "Risk Factors--
Raw Materials" and "Business--Suppliers."
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not plan to adopt the fair value-based measurement
methodology for employees stock options contemplated by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," for
financial reporting purposes. Accordingly, this Standard is not expected to
have a significant effect on the Company's financial position or results of
operations.
BUSINESS
GENERAL
The Company is a leading producer of value added processed beef products for
the foodservice industry and is one of the few companies in this segment of
the industry that markets and distributes nationally. The Company's products
are marketed under the nationally recognized Quik-to-Fix and Gorges brand
names, as well as the private labels of leading national foodservice
distributors. The Company believes that its products are well positioned to
take advantage of what it believes is a trend within the foodservice industry
towards greater outsourcing of the food preparation process. Outsourcing
provides many benefits to foodservice operators including consistent product
quality, reduced preparation costs and increased food safety. For the fiscal
year ended September 28, 1996, the Company had sales of $232.8 million.
The Company purchases fresh and frozen beef and, to a lesser extent, pork
and poultry, which it processes into a broad range of fully cooked and ready
to cook products. The Company's two product categories are value added
products and ground beef. Value added product offerings include (i) breaded
beef items, such as country fried steak and beef fingers, (ii) charbroiled
beef, such as fully cooked hamburger patties, fajita strips, meatballs,
meatloaf and taco meat and (iii) other specialty products, such as fully
cooked and ready to cook pork sausage, breaded pork and turkey, cubed steaks
and Philly steak slices. Ground beef product offerings consist primarily of
uncooked IQF hamburger patties. The Company operates four manufacturing
facilities, three of which are dedicated to value added products and one of
which produces ground beef products. The Company's products are sold primarily
to the foodservice industry, which encompasses all aspects of away-from-home
food preparation, including commercial establishments such as fast food
restaurants and family dining restaurants and non-commercial establishments
such as healthcare providers, schools and corporations. The Company sells its
products principally through broadline and specialty foodservice distributors.
39
<PAGE>
The Company was formed in 1996 in connection with the Acquisition. Prior to
the Acquisition, the Business operated as part of Tyson, the world's largest
vertically integrated poultry processor. Tyson acquired a portion of the
Business in 1989 through its acquisition of Holly Farms. In doing so, Tyson
acquired two separate beef processing companies, Harker's and Quik-to-Fix,
Inc., each of which had been acquired by Holly Farms in 1986. In 1990, Tyson
sold the Harker's brand name and route sales division to Harker's Distribution,
Inc., a company formed by former members of Harker's management. In January
1994, Tyson expanded its beef further processing operations by acquiring
Gorges, Inc. a leading producer of charbroiled beef products. In April 1996,
Tyson announced its intention to sell the Business in order to concentrate on
its core poultry business. The Acquisition was consummated on November 25,
1996.
INDUSTRY
The Foodservice Industry
Purchases of food prepared away from home have grown consistently for over
forty years and currently represent approximately 45% of total food purchases.
Demand has risen due to various demographic changes, including increases in
personal disposable income, the increasing number of single-parent households
and the rising number of dual income families. Driven by the continuing
consumer trend toward purchasing food prepared away from home, the foodservice
industry is projected to grow at a nominal rate of 5.0% in 1996, superior to
the growth prospects of the food industry in general, according to Technomic
Inc. The Company believes it has strengthened its relationships with broadline
and specialty foodservice distributors over the last decade, a period of
industry consolidation. Furthermore, management believes that the Company is
well positioned to continue to identify and capitalize on certain segments of
the foodservice industry that are growing at a faster rate than the foodservice
industry overall.
The Company believes that restaurants and other foodservice providers are
seeking to outsource more of the "back-of-the-house" food preparation process
in order to reduce preparation costs and to ensure product safety, quality and
consistency. Management believes the growth in the foodservice industry,
combined with the trend of outsourcing food preparation, will enhance the
growth of value added food processors.
The Beef Industry
Beef is the most consumed protein in the United States on the basis of
boneless, per capita consumption. Although per capita beef consumption in the
United States declined through the late 1980s as consumers became more
concerned about the level of fat in their diet, the beef industry has taken
steps to maintain beef as the nation's number one protein. Beef is now leaner
than ever, with the average cut of beef 27% leaner than in 1985, due to closer
trimming of fat, new leaner cuts of beef and the use of leaner cattle.
According to the National Livestock and Meat Board, U.S. beef consumption is
projected to be 65.2 boneless pounds per capita in 1996, up slightly from 64.1
pounds in 1990 and representing 32.5% of projected total meat consumption.
According to the Beef Industry Council, within the foodservice industry, beef
consumption increased from 6.22 billion beef servings in commercial restaurants
in 1991 to 6.68 billion servings in 1994, a 7.4% increase. Furthermore,
according to NPD/CREST, ground beef represents 79% of all beef served away from
home. Fueled by high value "combo" meals in the fast food segment, ground beef
sales in the restaurant industry grew by 3% in 1995.
A number of national associations conduct research on consumer preferences
for beef, run programs to promote the consumption of beef and conduct research
on improvement of the beef product. These associations, which provide valuable
category promotion, include The National Cattlemen's Association, The Beef
Industry Council and the National Livestock and Meat Board.
40
<PAGE>
Value Added Beef Processors
Value added beef processors such as the Company purchase fresh and frozen
beef and process it into a broad range of fully cooked and ready to cook
products sold primarily to the foodservice industry, including fast food and
family dining restaurants, wholesale clubs, healthcare providers, schools and
corporations. The Company believes that foodservice operators' priorities are
quality, product consistency, food safety, ease of preparation and price and
that its products satisfy these priorities.
GROWTH STRATEGY
The Company's business was acquired from Tyson on November 25, 1996. Prior to
the Acquisition, Tyson's management modified its strategy of providing a full
range of center of the plate meat proteins in addition to chicken. Accordingly
Tyson returned its focus to its core poultry business, as evidenced by its
adoption of the "We're Chicken" campaign in early 1996.
The Company's principal business objective is to build its higher margin
value added business. Value added products address many of the concerns within
the foodservice industry, including cost reduction, food safety and product
quality and consistency. The Company also intends to utilize its ground beef
manufacturing capabilities to target higher volume multi-unit accounts,
especially where opportunities exist to cross-sell its higher margin value
added products. Management believes that by operating as an integrated, stand
alone enterprise, the Company will be better able to capitalize on its
strengths and industry trends, including the following.
. Favorable Trends in the Foodservice Industry. Purchases of food prepared
away from home have grown consistently for over forty years and
currently represent approximately 45% of total food purchases. Demand
has risen due to various demographic changes, including increases in
personal disposable income, the increasing number of single-parent
households and the rising number of dual income families.
The Company believes that there is also an increasing trend within the
foodservice industry toward outsourcing more of the food preparation
process to reduce preparation costs and to ensure product safety,
quality and consistency. The Company addresses these outsourcing needs
by producing products that are precooked or ready to cook (e.g. breaded,
portioned and seasoned) and require little "back-of-the-house"
preparation.
. Strong Brand Names. The Gorges and Quik-to-Fix brands have been
established for over 50 and 30 years, respectively. The Company believes
its charbroiled beef and country fried steak customers associate the
Gorges and Quik-to-Fix brand names with products that are high quality,
safe and reasonably priced. The Company intends to capitalize on this
brand recognition to increase the market penetration of its breaded beef
and charbroiled beef products and to promote additional products under
the Gorges and Quik-to-Fix brand names.
. Focused Sales and Marketing Team. The Company's sales and marketing team
consists of 16 experienced professionals, most of whom worked with
Gorges, Inc. or Quik-to-Fix, Inc. prior to their acquisition by Tyson.
Until May 1996, these sales professionals marketed substantially all of
the Tyson product line. With volume based incentives, sales were
dominated by high volume chicken products. The Company's sales force,
now selling only the Company's product line, continues to be compensated
based on sales volume and growth based incentive programs, all of which
are tied to sales of the Company's predominantly beef based product
lines.
. Extensive Foodservice Broker Network. Management believes that the
Company's extensive independent foodservice broker network, consisting
of 51 brokers covering 49 states, is one of its most valuable assets.
The brokers act as extensions of the Company's in-house sales force,
providing sales and marketing support and an intensive sales effort
focused on the major foodservice distributors in each of their
respective regions. Management anticipates that the existing strong
broker relationships will continue because of the revenue stream created
by the Company's products, the continuity of the
41
<PAGE>
Company's sales and marketing team and the increased responsiveness to
broker and customer needs resulting from the Company's exclusive focus
on its own products.
. Strong and Diverse Customer Base. The Company has a strong and diverse
customer base, anchored by 48 of the 50 largest broadline foodservice
distributors. The Company's products are purchased by 28 of the 50
largest multi-unit restaurant chains in the United States, including
Shoney's, Chili's, Ponderosa and Cracker Barrel, as well as by
institutional customers such as Marriott Corporation and school
districts through the USDA Commodity Reprocessing Program. The Company's
products are also purchased by wholesale club stores.
. Modern Facilities With Excess Capacity. The Company operates four modern
facilities using state-of-the-art equipment with capacity that will
allow significant volume increases without major additional capital
expenditures. Until recently, several plants had duplicative
capabilities, creating production inefficiencies. During late fiscal
1995 and the first half of fiscal 1996, Tyson reconfigured the
facilities, significantly enhancing the operating efficiency of the
facilities, increasing capacity and reducing the Company's overall labor
expenditures. The Company believes the full benefits of the
Reconfiguration will first be realized in fiscal 1997.
. Experienced and Focused Management Team. Prior to the Acquisition, the
Company's four plants operated primarily as independent facilities
rather than as an integrated unit. Furthermore, strategic decisions were
made by corporate level managers whose principal focus was on Tyson's
core poultry business. The Company is now operated by a team of managers
almost all of whom have spent the majority of their careers in the beef
processing industry. Most members of the management team were employed
by Gorges, Inc., Quik-to-Fix, Inc. or Harker's prior to their
acquisition by Tyson. The management team has developed valuable
industry relationships and has extensive experience in key aspects of
the Company's operations, including procurement, production, sales and
marketing, research and development and distribution.
PRODUCT CATEGORIES
The Company manufactures and markets an extensive variety of IQF, fully
cooked and ready to cook beef, pork and poultry products. The Company's
products are marketed under the nationally recognized Quik-to-Fix and Gorges
brand names as well as the private labels of leading national foodservice
distributors.
Value Added Products
The Company's breaded beef products are sold primarily under the Quik-to-Fix
brand. The flagship product of the Quik-to-Fix brand is country fried steak.
The primary customers for breaded beef products are commercial foodservice
operators, including Shoney's, Cracker Barrel, Chili's, Steak and Ale and
Marriott Corporation.
Charbroiled beef products are the flagship items of the Gorges brand. Under
the Gorges brand, the Company offers an extensive variety of fully cooked
charbroiled beef products, including charbroiled steak burgers, meatballs,
meatloaf, taco meat and chili. Customers for charbroiled beef products include
a wide variety of commercial users such as Ponderosa, Ryan's, Subway, Golden
Corral and Marriott Corporation, along with non-commercial users such as
hospitals, schools and corporations. Growth in charbroiled beef products has
been driven by customers' desire to minimize preparation time and concerns
about the food safety issues surrounding the handling of raw beef products. The
USDA Commodity Reprocessing Program for schools has also played an important
role in the growth of these products, as it allows the Company to couple the
processing of federally donated commodity products with the sale of other value
added products, thereby increasing penetration in the important school
foodservice program segment.
Other value added products include a wide variety of fully cooked and ready
to cook items such as pork sausage, beef luncheon steaks, cubed steaks, pre-
cooked rib patties, meatloaf, stew beef and breaded turkey
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products. In March 1996, Quik-to-Fix Beef Steak Slices were introduced for use
in Philly steak sandwiches, stir-fry and other sliced steak dishes. Customers
for these specialty items include Stouffer's, Steak and Ale, Sam's Club and
Subway.
Value added products accounted for $149.6 million (66.7%), $154.1 million
(56.8%) and $138.7 million (47.9%) of sales (excluding frozen portion steak
sales) in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. Value added
products accounted for $37.5 million (84.8%), $39.0 million (77.7%) and $34.9
million (74.7%) of total gross profits (excluding frozen portion steak sales)
in fiscal 1996, fiscal 1995 and fiscal 1994, respectively.
Ground Beef
The Company serves the ground beef market principally through the sale of
IQF patties. The ground beef market is very competitive and is served by a
large number of national and regional suppliers. The Company's quality
standards allow the Company to position its ground beef products as safer,
healthier and more consistent. Ground beef customers include Sonic, Harker's,
Sam's Club and Sysco.
Ground beef accounted for $74.7 million (33.3%), $117.1 million (43.2%) and
$150.7 million (52.1%) of sales (excluding frozen portion steak sales) and in
fiscal 1996, fiscal 1995 and fiscal 1994, respectively. Ground beef products
accounted for $6.7 million (15.2%), $11.2 million (22.3%) and $11.8 million
(25.3%) of gross profits (excluding frozen portion steak sales) in fiscal
1996, fiscal 1995 and fiscal 1994, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SALES AND MARKETING
Sales and Marketing Team
The Company's sales and marketing team consists of 16 experienced
professionals, most of whom worked with Gorges, Inc. or Quik-to-Fix, Inc.
prior to their respective acquisitions by Tyson. Until May 1996, these sales
professionals marketed substantially all of the Tyson product line. With
volume based incentives, sales were dominated by high volume chicken products.
The Company's sales force, now selling only the Company's product lines,
continues to be compensated based on sales volume and growth based incentive
programs, all of which are tied to sales of the Company's predominantly beef
based product lines.
Foodservice Broker Network
Management believes that the Company's extensive independent foodservice
broker network consisting of 51 brokers covering 49 states, is one of its most
valuable assets. The brokers act as extensions of the Company's in-house sales
force, providing sales and marketing support and an intensive sales effort
focused on the major foodservice distributors in each of their respective
regions. Most brokers sell a wide variety of products produced by other
manufacturers. However, the brokers generally do not carry products that
compete directly with those produced by the Company. The brokers are
compensated on a commission basis and do not take title to the Company's
products. Management anticipates that the existing strong broker relationships
will continue because of the revenue stream created by the Company's products,
the continuity of the Company's sales and marketing team and the increased
responsiveness to broker and customer needs resulting from the Company's
exclusive focus on its own products.
The brokers perform the following functions: (i) sell the Company's products
to foodservice distributors; (ii) provide administrative support for the
Company and its foodservice distributors; and (iii) sell the Company's
products to foodservice operators through product presentations, participation
in broadline foodservice distributor food shows, training seminars for key
foodservice operators, training seminars for distributor sales representatives
and introduction and execution of new product rollout and promotional
activities.
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CUSTOMERS AND END USERS
Overview
Commercial and non-commercial foodservice operators are the primary end users
of the Company's products. Commercial foodservice operators include fast food
and family dining restaurants, multi-unit national chain accounts, regional
chain accounts and wholesale clubs. Non-commercial foodservice operators
include hospitals, corporations and schools (including through the USDA
Commodity Reprocessing Program). The Company's sales force, in conjunction with
the Company's independent foodservice brokers, markets the Company's products
to broadline and specialty distributors, multi-unit chains and wholesale clubs.
The majority of sales to foodservice distributors are effected through the
Company's independent broker network. Foodservice distributors are the
principal suppliers of the Company's products to the end users.
During fiscal 1996, Sysco, Sam's Club and Harker's accounted for 17.8%, 13.2%
and 12.6% of gross sales, respectively. See "Risk Factors--Importance of Key
Customers."
Foodservice Distributors
Broadline foodservice distributors distribute a full line of dry,
refrigerated and frozen food products to commercial and non-commercial
foodservice operators. A majority of the Company's sales are made to broadline
and specialty foodservice distributors which resell the Company's products to
end users under the Gorges and Quik-to-Fix brand names or under the
distributor's private label using items produced and packaged for the
distributor. The Company has established strong relationships with 48 of the
top 50 broadline foodservice distributors in the United States, including
Sysco, Alliant Foodservice, Inc. and PYA/Monarch, Inc.
End Users
The four primary end users of the Company's products are: (i) independent
commercial foodservice operators, including fast food, family dining and fine
dining restaurants, snack bars and caterers, most of which purchase their
products through broadline foodservice distributors; (ii) national accounts,
concentrated in the rapidly growing fast food and family dining category, which
generally have centralized buying organizations served by either broadline or
specialty foodservice distributors; (iii) wholesale clubs such as Sam's Club
and Price/Cost Co.; and (iv) non-commercial foodservice operators, including
corporate cafeterias and health care and educational institutions, most of
which purchase their products primarily through broadline foodservice
distributors.
USDA Commodity Reprocessing
The Company participates in the USDA Commodity Reprocessing Program. Under
this federal program, the Company takes USDA-donated commodity beef and further
processes it for schools. The Company charges a fee for processing the beef
into value-added further processed products such as charbroiled beef patties
and fully cooked breaded beef patties. The program has complex administrative
requirements with which the Company has significant experience. These complex
administrative requirements make it difficult for competitors to enter the
business on a casual basis. The majority of demand for products under the
program arises each spring and fall; however, the frozen nature of the product
allows production to be scheduled throughout the year to keep plant utilization
high.
DISTRIBUTION
The Company is one of the few value added beef processors that distributes
its products nationally. Prior to the Acquisition, all of the Company's
products were shipped frozen to customers, to public warehouses for
distribution or to a Tyson warehouse for distribution with other Tyson
products. Historically, two thirds of the Company's shipping requirements have
been met by independent shippers and trucking lines with the remainder being
shipped in Tyson-owned trucks with charges to the Company at market rates.
Between 1994 and the
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Acquisition Closing, Tyson required the Business to stock inventory at four
separate warehouses to accommodate Tyson's poultry shipping needs, thereby
resulting in higher inventory levels. The Company is now in the process of
establishing its own distribution network using one or more public warehouses
and common carriers. Management believes that this network will allow the
Company to maintain its national distribution capability while reducing
inventory levels.
SUPPLIERS
The three major components of the Company's products are: (i) meat proteins;
(ii) batter, breading, spices and other ingredients; and (iii) packaging
material.
The Company has long standing relationships with numerous major beef
suppliers and operates a centralized procurement group which is responsible for
sourcing beef for all of its facilities. Approximately 70% of the Company's
beef needs are sourced from three major suppliers: IBP; Montfort (ConAgra); and
Excel (Cargill). The Company's pork and poultry needs also are sourced
primarily from these major suppliers. Although the supply of meat proteins is
concentrated, it is a commodity market and supplies at USDA standards are
readily available from a variety of sources. The Company typically purchases
raw materials from its suppliers using short-term purchase orders. The Company
does not speculate in the markets for its raw materials and generally does not
enter into long-term contractual arrangements with its suppliers. As a matter
of policy, the Company performs its own quality assurance testing of its raw
materials. See "Risk Factors--Raw Materials."
Batters, breading, spices and other ingredients, once specified, are
purchased at the plant level, typically from regional suppliers.
Virtually all packaging material requirements for the Company's products,
which consist of corrugated boxes, plastic bags and labels, are sourced on a
local basis for each of the plants.
RESEARCH AND DEVELOPMENT
Over the past three years, the Company has introduced a variety of new
products or product extensions, including Beef TastyRib, charbroiled meatballs,
cooked taco meat, breakfast country fried steaks, beef steak slices, Quik-to-
Fix homestyle country fried steaks, breaded turkey and cooked babyback ribs.
Research and development activities for the Business have historically been
carried out at centralized Tyson facilities in Arkansas, and these facilities
will be available for use by the Company for up to twelve months after the
Acquisition Closing. The Company's Garland, Texas facility has space which was
specifically designed and used for conducting food related research and
development prior to its acquisition by Tyson. Such space will eventually be
utilized by the Company for research and development of new and existing
products. The Company currently employs four research and development
professionals dedicated to product development, headed by a team leader with a
Ph.D. in animal science. The Company's research and development team works
closely with the sales force to respond to changing customer needs.
ENVIRONMENTAL MATTERS
The operations of the Company and the ownership of real property by the
Company are subject to extensive and changing federal, state and local
environmental laws and regulations. The Company believes it is currently in
material compliance with all known material and applicable environmental
regulations and currently does not expect to make material capital expenditures
with respect to environmental control facilities during fiscal 1997. The
Company did not assume any liabilities for environmental matters relating to
the operation of the Business prior to the Acquisition Closing. In the future,
the Company may be involved from time to time in administrative and judicial
proceedings and inquiries relating to environmental matters and may be required
to make capital expenditures to comply with environmental laws.
Prior to the Acquisition, Tyson incurred monthly surcharges of approximately
$40,000 to the city of Garland, Texas as a result of effluent wastewater
discharges from the Garland, Texas facility. Tyson elected to
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pay the monthly surcharges rather than modify the facility to allow its
operation without incurring such surcharges. Since the Acquisition, the
Company has continued to incur the monthly surcharges and the Company
currently does not intend to modify the facility to allow its operation
without incurring such surcharges. The amount of the surcharge is calculated
based on the amount of effluent discharge and the total amount of water used
by the Garland, Texas plant. Management does not believe that the incurrence
of the aforementioned surcharges will have a material adverse effect on the
Company's business, results of operations and debt service capabilities. There
can be no assurance, however, that such surcharges will not be increased or
that the Company will not be required to modify its operations, which may
result in significant expenses or material capital expenditures. See "Risk
Factors--Compliance with Environmental Regulations."
PROPERTIES
The Company's properties consist of the following manufacturing facilities:
<TABLE>
<CAPTION>
LOCATION PRODUCT CATEGORY SQUARE FOOTAGE
-------- ---------------- --------------
<S> <C> <C>
Garland, Texas.............................. Value added products 122,166
Harlingen, Texas............................ Value added products 111,412
Orange City, Iowa........................... Ground beef 135,600
Sioux Center, Iowa.......................... Value added products 72,211
</TABLE>
All of the manufacturing facilities are owned by the Company. The Company's
principal executive offices are located at 9441 LBJ Freeway, Suite 214,
Dallas, Texas 75243.
EMPLOYEES
The Company employs approximately 1,100 people. Currently, approximately 200
employees of a total of 253 union-eligible employees at the Garland, Texas
facility are represented by the Union. The Company and the Union have not
entered into a collective bargaining agreement. The Garland, Texas Facility is
being operated pursuant to the terms and conditions specified by the Company
at the time of the Acquisition Closing. The Company is not obligated to enter
into the collective bargaining agreement agreed upon by Tyson and the Union or
to continue to operate the Garland, Texas Facility pursuant to the terms of
such agreement. Management is currently negotiating a replacement collective
bargaining agreement with the Union, although there can be no assurance that
it will be successful in doing so. Except for employees at the Garland, Texas
facility, none of the Company's employees are represented by a union. The
Company believes that its employee relationships are generally good.
PATENTS AND TRADEMARKS
The Company utilizes a number of U.S. trademarks, the most important of
which are Gorges(R) and Quik-to-Fix(R). Certain of the Company's products are
marketed under additional trademarks, such as Crispntender(R), Tenderbroil(R)
and TastyRib(R). Although the Company's management considers all such
intellectual property to be valuable assets, management believes that the loss
or expiration of any patents or trademarks, other than the Gorges or Quik-to-
Fix trademarks, would not have a material adverse effect on the Company's
business, results of operations and debt service capabilities.
In addition, pursuant to a license agreement entered into in connection with
the Acquisition, the Company has a limited right to use the name "Tyson" to
the extent it appears on packaging materials obtained in the Acquisition. The
Company may use such materials until its supply of such materials is
exhausted, but in no event for more than six months after the date of the
Acquisition Closing. The Company considers protecting its intellectual
property rights to be important to its business.
Various trademarks, service marks and trade names to which reference is made
in this Prospectus are the property of owners other than the Company. Such
owners have all applicable rights with respect to their respective trademarks,
service marks and trade names.
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SEASONALITY
Certain of the end uses for some of the Company's products are seasonal.
Demand in many markets is generally higher in the period from July to
September due to higher demand for beef products during the summer months and
increased purchasing by schools in anticipation of the commencement of the
school year. As a result, Company sales and profits are generally higher in
the Company's fourth quarter than in any other quarter during its fiscal year.
In addition, demand in many markets is generally lowest in the period from
January to March, resulting in lower sales and profits in the Company's second
quarter.
COMPETITION
The value added beef processing industry is highly competitive, with a large
number of competitors offering similar products. The Company's most
significant competitors in its primary markets are Advance Meats, King's
Command, Penthouse Meats, Hudson Specialty Foods, Travis Meats and Zartic. In
addition, certain of the Company's suppliers, such as Cargill, IBP and
ConAgra, produce ground beef products that compete directly with certain of
the Company's products. The Company seeks to successfully compete with these
suppliers by providing a diversity of product offerings and custom order
packaging to meet its customers' needs. However, there can be no assurance
that such suppliers will not expand their presence in the value added beef
processing industry in the future. These suppliers and Hudson Specialty Foods
are larger and have greater resources than the Company. The Company also faces
significant price competition from its competitors and may encounter
competition from new market entrants. See "Risk Factors--Competition."
GOVERNMENTAL REGULATION
The Company is subject to federal, state and local health laws and
regulations that establish standards for the manufacture, storage, labeling
and transport of foodstuffs. The USDA is the regulatory body which is
primarily responsible for oversight of the Company's operations. Beef, pork
and poultry inspection is mandatory, under the jurisdiction of the Food Safety
and Inspection Service (a division of the USDA), for meat that is transported
across state lines or is otherwise placed in interstate commerce. Tyson has
made, and the Company may be required to make, capital expenditures in
response to changing compliance standards and production, storage, and
transportation technology.
The Company operates a USDA-approved Total Quality Control program at each
facility. The Company's programs assure that the Company's products are
manufactured under conditions that meet or exceed all applicable government
standards. Such programs are monitored by federal inspectors and include: (i)
inspection of meat at various stages of processing; (ii) temperature
monitoring for both fresh and cooked meat; (iii) review of packaging and
labels used for fresh and processed meat; and (iv) controlling and monitoring
the use of additives.
As a participant in the USDA Commodity Reprocessing Program for schools, the
Company must adhere to certain rules, regulations and guidelines. Such rules,
regulations and guidelines include financial surety bonding in the state of
operation, product inspection and grading and certain reporting requirements.
Should the Company fail to remain in compliance with such rules, regulations
and guidelines, it could be excluded from the USDA Commodity Reprocessing
Program which could have a material adverse effect on the Company's business,
results of operations and debt service capabilities. See "Risk Factors--
Governmental Regulation."
The operations and the products of the Company are also subject to state and
local regulation through such measures as licensing of plants, enforcement of
health standards and inspection of the facilities. Enforcement actions for
violations of federal, state and local regulations may include seizure and
condemnation of violative products, cease and desist orders, injunctions
and/or monetary penalties. Management believes that the Company's facilities
and practices are sufficient to maintain compliance with applicable government
regulations, although there can be no assurances in this regard.
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LEGAL PROCEEDINGS
The Company did not assume any litigation relating to the Business that was
pending as of the Acquisition Closing. Tyson agreed to indemnify the Company
with respect to any litigation that may arise in the future to the extent such
litigation relates to the conduct of the Business prior to the Acquisition
Closing. The Company is not a party to nor are any of its properties subject to
any lawsuit or proceeding which, in the opinion of management of the Company,
is likely, individually or in the aggregate,to have a material adverse effect
on the Company.
The Company is likely to be subject to claims arising from time to time in
the ordinary course of its business. In certain of such actions, plaintiffs may
request punitive or other damages that may not be covered by insurance and,
accordingly, no assurance can be given with respect to the ultimate outcome of
any such possible future claims or litigation or their effect on the Company.
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MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
Set forth below are the names and positions of the directors, officers and
significant employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. David Culwell.................... 45 Chief Executive Officer and Director
Richard E. Mitchell................. 55 President and Director
Randall H. Collins.................. 49 Vice President--Sales and Marketing
A. Scott Letier..................... 35 Chief Financial Officer
Robert M. Powers.................... 55 Vice President--Operations
Hernando Aviles..................... 40 Vice President--Human Resources
Stuart Alan Ensor................... 39 Director of Research and Development
Richard L. Cravey................... 51 Director
William A. Davies................... 50 Director
James A. O'Donnell.................. 43 Director
</TABLE>
J. DAVID CULWELL became Chief Executive Officer and a Director of the Company
at the time of the Acquisition Closing. Mr. Culwell has been an independent
food industry consultant since January 1991.
RICHARD E. MITCHELL joined Tyson in January 1994 as a Non-Commercial Division
Manager and in April 1996, was promoted to Vice President/General Manager for
the Business, where he was responsible for the Sales and Marketing, Operations,
Research and Development and Quality Assurance, and Human Resources
departments. Mr. Mitchell formerly was Vice President of Sales of Gorges, Inc.
and served on the Board of Directors of Gorges, Inc. from July 1991 until
Tyson's acquisition of Gorges, Inc. in 1994. He became a director of the
Company at the time of the Acquisition Closing.
RANDALL H. COLLINS was employed by Tyson as Vice President of Sales and
Marketing for the Business since April 1996, where he is responsible for a 16
member sales and marketing staff. Prior to holding this position, Mr. Collins
held a number of positions at Tyson, including Division Manager for Tyson
Foodservice, Division Sales Manager for Tyson Beef and Pork, and Division
Manager for Beef Sales. Prior to joining Tyson in 1989 as a result of Tyson's
acquisition of Holly Farms, he held a number of general management and sales
positions at Harker's/Holly Farms and Kraft/General Foods.
A. SCOTT LETIER has been Vice President and Chief Financial Officer since
joining the Company on December 10, 1996. Prior to joining the Company Mr.
Letier served as the Senior Vice President and Chief Financial Officer of CS
Wireless Systems, Inc. from July 1996 until December 1996. Mr. Letier also
served as the Vice President of Finance and Chief Financial Officer of
AmeriServ Food Company from July 1993 until June 1996. Mr. Letier served as the
Vice President and Corporate Controller of AmeriServ Food Company from February
1992 until July 1993. Mr. Letier is a certified public accountant.
ROBERT M. POWERS was employed by Tyson as Vice President of Operations for
the Business since April 1996. Prior to that time, Mr. Powers was Director of
Commodity Procurement for Tyson, a position to which he was promoted in 1991.
HERNANDO AVILES was employed by Tyson as Vice President--Human Resources,
Beef and Pork Division since February 1994, where he was responsible for
overseeing six personnel location directors, with responsibility over all human
resources practices and policies. Mr. Aviles joined Tyson in 1989 as the
Complex Personnel Manager for the New Holland, Pennsylvania complex of Tyson.
Prior to 1989, Mr. Aviles held various positions at Holly Farms.
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STUART ALAN ENSOR was named Director of Research and Development and Quality
Assurance for the Business in April 1996. Previously, Mr. Ensor served as
Senior Food Scientist since December 1993. Prior to that time, Mr. Ensor held
the position of Senior Food Scientist at Cargill, Inc. from April 1992 until
November 1993 and a similar position at Pilgrim's Pride Corporation from July
1990 until March 1992.
RICHARD L. CRAVEY has been a director of the Company since October 1996. Mr.
Cravey is a member of CGW Southeast III, L.L.C., the general partner of CGW
(the "General Partner"), and is jointly responsible for all major decisions of
the General Partner. Mr. Cravey is also a member of CGW Southeast Management
III, L.L.C., (the "Management Company"), an affiliate of CGW. In addition, Mr.
Cravey is a member of Le Select III, L.L.C. (the "Limited Partner"), a limited
partner of CGW. Mr. Cravey has been a member of the General Partner, the
Management Company or affiliated entities for more than five years. He is a
director of AMRESCO, Inc. and Cameron Ashley Building Products, Inc.
WILLIAM A. DAVIES has been a director of the Company since October 1996. Mr.
Davies is a member of each of the General Partner and the Limited Partner, and
is responsible for sourcing, structuring and negotiating transactions,
participating in strategic planning with portfolio company managements to
maximize value and managing exit strategies. In addition, Mr. Davies is
involved in managing the administrative functions of the General Partner. Mr.
Davies has been a member of the General Partner or an employee of affiliates of
the General Partner for more than five years.
JAMES A. O'DONNELL has been a director of the Company since October 1996. Mr.
O'Donnell has been a member of the General Partner since 1995, and is
responsible for sourcing, structuring and negotiating transactions,
participating in strategic planning with portfolio company managements to
maximize value and managing exit strategies. Mr. O'Donnell is also a member of
the Limited Partner. Mr. O'Donnell has been a general partner of Sherry Lane
Partners, a private equity investment firm based in Dallas, Texas, since 1992.
Also, Mr. O'Donnell has been a general partner of O'Donnell & Masur, a private
equity investment firm based in Dallas, Texas, since 1989. He is a director of
Bestway Rental, Inc.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements (the "Employment Agreements")
with Messrs. Culwell, Mitchell, Collins, Powers, Letier, Aviles and Ensor (each
a "Senior Manager" and collectively the "Senior Management") for terms expiring
on the fifth anniversary of the Acquisition Closing, subject to automatic one-
year renewals unless either party gives 60 days notice not to renew. The
Company has the right to terminate the Employment Agreements at any time prior
to expiration. However, if a Senior Manager is terminated other than for cause,
death or disability, such Senior Manager will receive, in addition to earned
salary and bonus, a severance payment equal to 12 months base salary. If a
Senior Manager is terminated for cause, death or disability, such Senior
Manager will receive only earned salary and bonus due as of the date of
termination. The Employment Agreements will also contain non-competition, non-
solicitation and confidentiality provisions.
Mr. Culwell's Employment Agreement provides for a base salary of $175,000,
and Mr. Culwell is eligible to receive a bonus of up to 50% of his base salary
at the discretion of the Company's Board of Directors. Mr. Mitchell's
Employment Agreement provides for a base salary of $159,000, and Mr. Mitchell
eligible to receive a bonus of up to 50% of his base salary at the discretion
of the Company's Board of Directors. Mr. Collins' Employment Agreement provides
for a base salary of $142,500, and Mr. Collins is eligible to receive a bonus
of up to 50% of his base salary at the discretion of the Company's Board of
Directors. Mr. Powers' Employment Agreement provides for a base salary of
$115,000, and Mr. Powers will be eligible to receive a bonus of up to 40% of
his base salary at the discretion of the Company's Board of Directors.
Mr. Letier's Employment Agreement provides for a base salary of $130,000, and
Mr. Letier is eligible to receive a bonus of up to 40% of his base salary at
the discretion of the Company's Board of Directors. Mr. Aviles' and Mr. Ensor's
Employment Agreements are substantially similar in form to those of the other
Senior Managers.
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STOCK INCENTIVE PLAN
At the Acquisition Closing, GHC adopted a Stock Incentive Plan (the "Plan")
pursuant to which options to purchase up to 112,500 shares of restricted GHC
common stock (the "Options") may be granted to the Senior Management or other
employees selected for participation in the Plan by the Company's Board of
Directors (each an "Optionee"). The Options are subject to a five year vesting
period and will be exerciseable at the same price per share as the GHC stock
sold through the Equity Private Placement ("Cost"). The Options will
immediately and fully vest in the event of a change in control of GHC or the
Company or the sale of substantially all of the Company's assets. The Options
will provide that Optionees may not transfer shares acquired pursuant thereto
except to the extent that any transferee agrees to be bound by the same
restrictions as the Optionee. The Plan also provides for other equity-based
forms of incentive compensation in addition to the Options. See "Certain
Transactions--Securities Purchase and Stockholders Agreement."
CERTAIN TRANSACTIONS
SECURITIES PURCHASE AND STOCKHOLDERS AGREEMENT
At the Acquisition Closing, CGW, NBIC, FPGT and the Senior Managers (except
for Mr. Letier) (the "Stockholders") entered into a Securities Purchase and
Stockholders Agreement (the "Securities Purchase and Stockholders Agreement")
with regard to GHC. All future purchasers of GHC common stock will be required
to enter into the Securities Purchase and Stockholders Agreement. The
Securities Purchase and Stockholders Agreement contains provisions concerning
the governance of GHC and the Company, restrictions on the transferability of
the securities of GHC and the Company and registration rights for the
securities of GHC held by the Stockholders.
The governance provisions of the Securities Purchase and Stockholders
Agreement provide that the Board of Directors of GHC will consist of up to five
members all of whom shall be designated by CGW, and that the Board of Directors
of the Company shall be comprised of the directors of GHC. The Securities
Purchase and Stockholders Agreement requires holders of voting securities of
GHC to vote their shares in favor of such designees of CGW for election as
directors of GHC. The Securities Purchase and Stockholders Agreement also
grants to each of NBIC and FPGT the right, except in certain circumstances, to
have a representative in attendance at all meetings of the Board of Directors
of GHC or the Company.
The Securities Purchase and Stockholders Agreement grants to the stockholder
parties thereto pre-emptive rights, exercisable pro rata in accordance with
their respective ownership of common stock of GHC, to purchase shares of common
stock or other equity securities of GHC (other than shares of common stock
issued upon exercise of options, rights, awards or grants pursuant to the Plan
and common stock issued in exchange for common stock of another class), and
further provides for certain co-sale rights and obligations in the event CGW
elects to sell all or a portion of its shares of GHC's common stock.
Additionally, GHC has a right of first refusal in connection with any proposed
sale by NBIC, FPGT or any Senior Manager of its or his investment in GHC.
The Securities Purchase and Stockholders Agreement provides that if a Senior
Manager's employment is terminated for any reason other than for cause, GHC
will have the right to repurchase any shares owned by such Senior Manager at
the greater of cost or fair value. If a Senior Manager's employment is
terminated for cause, GHC will have the right to repurchase any shares owned by
such Senior Manager at the lesser of fair value or cost. Such right is
exercisable within 180 days following such termination of employment of the
Senior Manager. Fair value of the repurchased shares shall be determined by
agreement between GHC and the Senior Manager whose shares are being repurchased
or, failing such agreement, by an independent investment banking firm.
If GHC is unable to exercise either its right of first refusal or right to
repurchase shares of common stock from a Senior Manager whose employment is
terminated, it may assign such right to the other Stockholders who are parties
to the Securities Purchase and Stockholders Agreement (other than the
Stockholder whose shares are subject to such rights), who may exercise such
rights in accordance with their respective ownership of common stock.
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TRANSACTIONS WITH CGW AND ITS AFFILIATES
At the Acquisition Closing, the General Partner entered into a consulting
agreement (the "Consulting Agreement") with the Company whereby the Company
will pay the General Partner a monthly retainer fee of $30,000 for financial
and management consulting services. The General Partner may also receive
additional compensation (not to exceed an aggregate of $500,000 annually) if
approved by the Board of Directors of the Company at the end of the Company's
fiscal year, based upon the overall performance of the Company. The Consulting
Agreement expires five years from the Acquisition Closing. At the Acquisition
Closing, the General Partner will delegate its rights and obligations under the
Consulting Agreement to the Management Company, an affiliate of CGW.
At the Acquisition Closing, the Company paid to the Management Company, an
affiliate of CGW, a fee of $2.65 million for its services in assisting the
Company in structuring and negotiating the Transactions.
The Company believes that the terms and conditions of the Consulting
Agreement, the fees paid to the General Partner thereunder and the fees paid to
the Management Company are consistent with arms-length transactions with
unaffiliated parties. In addition, the terms and conditions of the Credit
Agreement and the Indenture restrict the Company's ability to enter into
certain transactions with Affiliates. See "Description of Notes--Certain
Transactions--Transactions with Affiliates."
TRANSACTIONS WITH NBIC AND ITS AFFILIATES
NationsBank of Texas, N.A. (the "Bank"), an affiliate of NBIC and the Initial
Purchaser, was paid usual and customary fees for underwriting, structuring,
syndicating and administering the Credit Facilities. The Initial Purchaser
received a portion of the fees related to underwriting, structuring and
syndicating the Credit Facilities. The Initial Purchaser received $3.0 million
in discounts and commissions in connection with the Initial Offering. See
"Description of Credit Facilities."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificates of Incorporation of the Company and GHC contain provisions
eliminating the liability of directors for monetary damages for breaches of
their duty of care to the Company or GHC, as applicable, except in certain
prescribed circumstances. The Certificates of Incorporation and Bylaws of the
Company and GHC also provide that directors and officers of the Company and GHC
will be indemnified by the Company and GHC, respectively, to the fullest extent
authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of the Company or GHC, as appropriate. The Certificate
of Incorporation and Bylaws of the Company and GHC provide that the right of
directors and officers to indemnification is not exclusive of any other right
now possessed or hereinafter acquired under any statute, agreement or
otherwise.
PRINCIPAL STOCKHOLDER
GHC owns 100% of the issued and outstanding capital stock of the Company. GHC
is owned 55.6% by CGW, 20.0% by NBIC and 24.4% by FPGT, without taking into
consideration any shares that may be owned by the Optionees pursuant to the
Plan. Pursuant to the Securities Purchase and Stockholders Agreement, the
Senior Managers entered into subscription agreements to purchase an aggregate
of 1.2% of the capital stock of the Company at Cost (the "Management Stock")
without taking into consideration any shares that may be owned by the Optionees
pursuant to the Plan. The closings for the purchase of the Management Stock
will be held approximately 100 days after the Acquisition Closing, at which
time GHC will be owned 54.9% by CGW, 19.8% by NBIC, 24.1% by FPGT and 1.2% by
the Senior Managers without taking into consideration any shares that may be
owned by the Optionees pursuant to the Plan. Additionally, the Options will
permit the Optionees to purchase up to an aggregate of 20% of the capital stock
of the Company on a fully diluted basis. The Limited Partner and affiliated
entities of each of NBIC and FPGT are limited partners of CGW. See "The
Acquisition, Financing and Related Transactions;" "Management;" "Certain
Transactions;" and "Description of Credit Facilities--Security."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Registration Rights Agreement.
The Senior Notes were originally issued and sold on November 25, 1996 (the
"Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A of the Securities Act. In connection with the sale of the Senior
Notes, the Company agreed to file with the Commission a registration statement
relating to an exchange offer (the "Exchange Offer Registration Statement")
pursuant to which another series of notes of the Company covered by such
registration statement and containing the same terms as the Senior Notes,
except as set forth in this Prospectus, would be offered in exchange for Senior
Notes tendered at the option of the holders thereof. If (i) any changes in law
or applicable interpretations of the Commission Staff do not permit the Company
to effect the Exchange Offer, or (ii) for any reason the Exchange Offer is not
consummated by April 30, 1997, or (iii) in certain other circumstances, the
Company will, at its expense, (a) as promptly as practicable, and in any event
no more than 60 days after such filing obligation arises or requested by
eligible holders of Notes, file with the Commission a Shelf Registration
Statement covering resales of the Notes, (b) use its best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
on or prior to 45 days after such filing occurs and (c) keep the Shelf
Registration Statement continuously effective until three years after its
effective date (or such shorter period that will terminate when all the Notes
covered thereby have been sold pursuant thereto or in certain other
circumstances). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Notes covered by the
Shelf Registration Statement copies of the prospectus that is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Notes. In
the event that either (w) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to January 31, 1997 or the Shelf
Regiatration Statement is not filed within 60 days after the such filing
obligation arises or requested by holders of such Notes, (x) either the
Exchange Offer Registration Statement is not declared effective prior to March
31, 1997, or the Shelf Registration Statement is not declared effective on or
prior to 45 days after the filing of the Shelf Registration Statement, (y) the
Exchange Offer is not consummated on or prior to April 30, 1997, or (z) either
the Exchange Offer Registration Statement or the Shelf Registration Statement
is filed and declared effective but thereafter ceases to be effective during
the 180-day period following the consummation of the Exchange Offer or the
three-year period following the effective date of the Shelf Registration
Statement, as appropriate, the Company will be required to pay liquidated
damages as described in the Registration Rights Agreement. See "Senior Notes
Registration Rights."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal"), $1,000 in principal amount of
Exchange Notes for each $1,000 in principal amount of Senior Notes. The terms
of the Exchange Notes are identical in all respects to the terms of the Senior
Notes for which they may be exchanged pursuant to this Exchange Offer, except
that (i) the Exchange Notes will generally be freely transferable by holders
thereof and (ii) the holders of the Exchange Notes will generally not be
entitled to registration rights under the Registration Rights Agreement. The
Exchange Notes will evidence the same debt as the Senior Notes and will be
entitled to the benefits of the Indenture. See "Description of the Notes" and
"Senior Notes Registration Rights."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange.
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Based on its view of interpretations set forth in no-action letters issued by
the Commission Staff to unrelated third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Senior
Notes may be offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder which is (i) a broker-dealer that holds
Notes acquired for its own account as a result of market-making or other
trading activities, (ii) any holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or (iii) a broker-
dealer that acquired Senior Notes directly from the Company) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes. Each broker-
dealer that holds Senior Notes acquired for its own account as a result of
market-making activities or other trading activities and who receives Exchange
Notes pursuant to the Exchange Offer may be a statutory underwriter, and must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging,
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. Broker-
dealers who acquired Senior Notes as a result of market making or other trading
activities may use this Prospectus, as supplemented or amended, in connection
with resales of the Exchange Notes. The Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale for a period of no more than 180 days after the Expiration Date.
Any holder that cannot rely upon such interpretations will be ineligible, under
Commission policy, to participate in the Exchange Offer, and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction involving the Notes.
Tendering holders of Senior Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Senior Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Senior Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Senior Notes accrued after the issuance of the Exchange Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997 unless the Company in
its sole discretion extends the period during which the Exchange Offer is open,
in which event the term "Expiration Date" means the latest time and date on
which the Exchange Offer, as so extended by the Company, expires. The Company
reserves the right to extend the Exchange Offer at any time and from time to
time prior to the Expiration Date by giving written notice to IBJ Schroder Bank
& Trust Company (the "Exchange Agent") and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following the
Expiration Date, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Senior Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Senior Notes for any reason,
including if any of the events set forth below under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Senior Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and
will either issue a press release or give
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written notice to the holders of the Senior Notes as promptly as practicable.
Unless the Company terminates the Exchange Offer prior to 5:00 p.m., Eastern
time, on the Expiration Date, the Company will exchange the Exchange Notes for
the Senior Notes on the Exchange Date.
If the Company waives any material condition to the Exchange Offer, or amends
the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to holders
of Senior Notes in the manner specified above, the Exchange Offer is scheduled
to expire at any time earlier than the expiration of a period ending on the
fifth business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Senior Notes and
will be finished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Notes.
HOW TO TENDER
The tender to the Company of Senior Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of a Senior Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) and delivering the same, together
with the certificate or certificates representing the Senior Notes being
tendered and any required signature guarantees (or a timely confirmation of a
book-entry transfer (a "Book Entry Confirmation") pursuant to the procedure
described below), to the Exchange Agent at its address set forth on the back
cover of this Prospectus on or prior to the Expiration Date or (ii) complying
with the guaranteed delivery procedures described below.
If tendered Senior Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Senior Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Senior Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Senior Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Senior Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Senior Notes should contact such holder promptly and instruct such
holder to tender Senior Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Senior Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Notes at The Depository Trust Company (the "Book-
Entry Transfer Facility") for purpose of the Exchange Offer within two business
days after receipt of this Prospectus, and any financial institution that is a
participant
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in the Book-Entry Transfer Facility's systems may make book-entry delivery of
Senior Notes by causing the Book Entry Transfer Facility to transfer such
Senior Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with the Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Senior Notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address specified on the back cover page of this Prospectus on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
THE METHOD OF DELIVERY OF SENIOR NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Senior Notes to reach
the Exchange Agent before the Expiration Date, a tender may be effected if the
Exchange Agent has received at its office listed on the back cover hereof on or
prior to the Expiration Date a letter, telegram or facsimile transmission from
an Eligible Institution setting forth the name and address of the tendering
holder, the principal amount of the Senior Notes being tendered, the names in
which the Notes are registered and, if possible, the certificate numbers of the
Senior Notes to be tendered, and stating that the tender is being made thereby
and guaranteeing that within three New York Stock Exchange trading days after
the date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, the Senior Notes, in proper form for transfer, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Senior Notes being tendered by the above-described method (or a timely, Book-
Entry Confirmation) are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Senior Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Senior Notes
(or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Senior Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company,
the Exchange Agent nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or shall incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
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The party tendering Senior Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Senior Notes to be assigned, transferred and exchanged. The
Transferor represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Senior Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Senior Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Senior Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Senior Notes. The
Transferor further agrees that acceptance of any tendered Senior Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company shall have no further
obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the
death or incapacity of the Transferor and every obligation of the Transferor
shall be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of such Transferor.
By tendering Senior Notes and executing the Letter of Transmittal, the
Transferor certifies that (a) it is not an affiliate of the Company within the
meaning of Rule 405 under the Securities Act, it is not a broker-dealer that
owns Senior Notes acquired directly from the Company or an affiliate of the
Company, it is acquiring the Exchange Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no
arrangement with any person to participate in the distribution of such Exchange
Notes or (b) it is an affiliate of the Company or of the Initial Purchaser of
the Senior Notes in the Initial Offering and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
WITHDRAWAL RIGHTS
Senior Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Senior Notes to be withdrawn, the certificate
numbers of Senior Notes to be withdrawn, the principal amount of Senior Notes
to be withdrawn, a statement that such holder is withdrawing his election to
have such Senior Notes exchanged and the name of the registered holder of such
Senior Notes, and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the Company
that the person withdrawing the tender has succeeded to the beneficial
ownership of the Senior Notes being withdrawn. The Exchange Agent will return
the properly withdrawn Senior Notes promptly following receipt of notice of
withdrawal. All questions as to the validity of notices of withdrawal,
including time of receipt, will be determined by the Company, and such
determination will be final and binding on all parties.
ACCEPTANCE OF SENIOR NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Notes validly tendered and not withdrawn and the
issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted
for exchange validly tendered Senior Notes when, as and if the Company has
given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Senior
Notes for the purposes of receiving Exchange Notes from the Company and causing
the Senior Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in
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exchange for accepted Senior Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Senior Notes. Senior Notes not accepted for
exchange by the Company will be returned without expense to the tendering
holders (or in the case of Senior Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to
the procedures described above, such non-exchanged Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) promptly following
the Expiration Date or, if the Company terminates the Exchange Offer prior to
the Expiration Date, promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Senior Notes not previously accepted and
may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News
Service) or, at its option, modify or otherwise amend the Exchange Offer, if
(a) there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any court
or governmental agency or other governmental regulatory or administrative
agency or commission, (i) seeking to restrain or prohibit the making or
consummation of the Exchange Offer or any other transaction contemplated by the
Exchange Offer, (ii) assessing or seeking any damages as a result thereof, or
(iii) resulting in a material delay in the ability of the Company to accept for
exchange or exchange some or all of the Senior Notes pursuant to the Exchange
Offer; (b) any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the Exchange
Offer or any of the transactions contemplated by the Exchange Offer by any
government or governmental authority, domestic or foreign, or any action shall
have been taken, proposed or threatened, by any government, governmental
authority, agency or court, domestic or foreign, that in the sole judgment of
the Company might directly or indirectly result in any of the consequences
referred to in clauses (a)(i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of Exchange Notes having obligations with
respect to resales and transfers of Exchange Notes which are greater than those
described in the interpretations of the Commission referred to on the cover
page of this Prospectus and under the heading "Explanatory Note" or would
otherwise make it inadvisable to proceed with the Exchange Offer, or (c) a
material adverse change shall have occurred in the business, condition
(financial or otherwise), operations, or prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time. In addition, the
Company has reserved the right, notwithstanding the satisfaction of each of the
foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Senior Notes
tendered and no Exchange Notes will be issued in exchange for any such Senior
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act").
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the back cover page of this
Prospectus.
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Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
the Company and are estimated at approximately $500,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the respective dates as of
which information is given herein. The Exchange Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of Senior Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. However,
the Company may at its discretion, take such action as it may deem necessary to
make the Exchange Offer in any such jurisdiction and extend the Exchange Offer
to holders of Senior Notes in such jurisdiction. In any jurisdiction the
securities laws or blue sky laws of which require the Exchange Offer to be made
by a licensed broker or dealer, the Exchange Offer is being made on behalf of
the Company by one or more registered brokers or dealers which are licensed
under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
OTHER
Participation in the Exchange Offer is voluntary, and holders should
carefully consider whether to accept the Exchange Offer and tender their Senior
Notes. Holders of the Senior Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all validly
tendered Senior Notes pursuant to the terms of this Exchange Offer, the Company
will have fulfilled certain covenants contained in the terms of the Senior
Notes and the Registration Rights Agreement. Holders of the Senior Notes who do
not tender their certificates in the Exchange Offer will continue to hold such
certificates and will be entitled to all the rights, and subject to all the
limitations applicable thereto, under the Indenture, except for any such rights
under the Registration Rights Agreement, which by their terms terminate or
cease to have further effect as a result of the making of this Exchange Offer.
See "Description of Notes." All untendered Senior Notes will continue to be
subject to the restriction on transfer set forth in the Indenture. To the
extent that Senior Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Senior Notes could be adversely affected. See
"Risk Factors--Consequences of Exchange and Failure to Exchange."
The Company may in the future seek to acquire untendered Senior Notes in the
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Senior
Notes which are not tendered in the Exchange Offer.
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DESCRIPTION OF NOTES
GENERAL
The Exchange Notes will be issued, and the Senior Notes were issued, pursuant
to an Indenture (the "Indenture") between the Company, as issuer, and IBJ
Schroder Bank & Trust Company, as trustee (the "Trustee"), in a private
transaction that is not subject to the registration requirements of the
Securities Act. The terms of the Exchange Notes will, and the Senior Notes
currently, include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The Exchange Notes will be,
and the Senior Notes are, subject to all such terms, and holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture does not purport
to be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Indenture and the Registration Rights Agreement are available as set forth
under "Additional Information." The definitions of certain terms used in the
following summary are set forth below under the caption "Certain Definitions."
The Exchange Notes will be, and the Senior Notes are, unsecured senior
subordinated general obligations of the Company. The Company, subject to
certain exceptions, will cause each future Subsidiary of the Company that
guarantees the Company's obligations under the Credit Agreement or any other
Senior Indebtedness to enter into a supplemental indenture providing for the
unconditional guarantee of the Notes on a senior subordinated and unsecured
basis (a "Note Guarantee") by such Subsidiary (a "Guarantor") as required in
the Indenture; provided that any Guarantor that is released from its guarantee
of the Company's obligations under the Credit Agreement and any other Senior
Indebtedness shall also be released from its Note Guarantee.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100 million and
will mature on December 1, 2006. Interest on the Notes will accrue at the rate
of 11 1/2% per annum and will be payable semiannually in arrears on June 1 and
December 1, commencing on June 1, 1997, to holders of record on the immediately
preceding May 15, and November 15. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date on which the Notes were originally issued. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, interest and Liquidated Damages on the Notes will
be payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest and Liquidated Damages may be made by check mailed to the holders
of the Notes at their respective addresses set forth in the register of holders
of Notes; provided that all payments with respect to Global Notes and
Certificated Notes (as such terms are defined below under the caption "Book
Entry, Delivery and Form") the holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
Until otherwise designated by the Company, the Company's office or agency in
New York will be in the office of the Trustee maintained for such purpose. The
Notes will be issued only in fully registered form, without coupons and in
denominations of $1,000 and integral multiples thereof; provided that
Certificated Notes originally purchased by or transferred to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) will be subject to a minimum denomination
of $250,000.
POTENTIAL NOTE GUARANTEES
The Company currently has no Subsidiaries, and there are no Note Guarantees.
Under any Note Guarantee that may exist in the future, the Guarantor will
irrevocably and unconditionally, jointly and severally, guarantee the
performance and punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all Obligations of the Company under the
Indenture and the Notes. The Guarantor will agree to pay, in addition to any
amount stated above, any and all expenses (including reasonable counsel fees
and expenses) incurred by the Trustee in enforcing any rights under the Note
Guarantee. Each Note Guarantee will be limited in amount to an
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amount not to exceed the maximum amount that can be guaranteed by the relevant
Guarantor without rendering such Note Guarantee as it relates to such Guarantor
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. See "Risk
Factors--Fraudulent Conveyance Statutes."
Each Note Guarantee that may exist in the future will be a continuing
guarantee and shall (a) remain in full force and effect until payment in full
of all of the Company's Obligations under the Indenture and the Notes or until
such Guarantor is released from its guarantee of Indebtedness of the Company
under the Credit Agreement and any other Senior Indebtedness and (b) inure to
the benefit of and be enforceable by the Trustee, the holders and their
successors, transferees and assigns. Each Note Guarantee shall be a guarantee
of payment and not of collection.
SUBORDINATION
The payment of principal of, and premium, if any, interest and Liquidated
Damages, if any, on the Senior Notes are, and the Exchange Notes will be,
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Obligations in respect of Senior Indebtedness,
which will include borrowings under the Credit Agreement, whether outstanding
on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash of all Obligations due with respect to Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness regardless of
whether such interest is an allowed claim in such proceeding) before the
holders of Notes will be entitled to receive any payment with respect to the
Notes, and until all Obligations with respect to Senior Indebtedness are paid
in full in cash, any distribution to which the holders of Notes would be
entitled shall be made to the holders of Senior Indebtedness (except that
holders of Notes may receive securities that are subordinated at least to the
same extent as the Notes to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness and holders of Notes may recover payments made
from the trust described under the caption "Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or with respect to the Notes
(except in such subordinated securities or from the trust described under the
caption "Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, the premium, if any, or the interest on, or of any
regularly accruing fees constituting, Obligations in respect of Designated
Senior Indebtedness occurs and is continuing beyond any applicable period of
grace or (ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness which permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Agent Bank or the holders or the representative of the holders of any
Designated Senior Indebtedness. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Indebtedness has been accelerated. No new
period of payment blockage may be commenced by a Payment Blockage Notice unless
and until 360 days have elapsed since the first day of the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice, unless such default has been cured or waived for a period of not less
than 90 days.
The Indenture requires that the Company promptly notify holders of Senior
Indebtedness if payment of the Notes is accelerated because of any Event of
Default.
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As a result of the subordination provisions described above, in the event of
an insolvency, bankruptcy, reorganization or liquidation of the Company, or
upon the occurrence of a Change of Control or an Asset Sale requiring
repurchase by the Company of any Notes, there may not be sufficient assets
remaining to satisfy the claims of the holders after satisfying the claims of
creditors of the Company who are holders of Senior Indebtedness and claims of
creditors of the Company's Subsidiaries. See "Risk Factors--Subordination of
Notes." On a pro forma basis, after giving effect to the Acquisition and the
Financing, including the application of the net proceeds from the issuance of
the Notes, the principal amount of Senior Indebtedness outstanding at
September 28, 1996 would have been approximately $48.0 million. As of December
28, 1996, the Company had borrowed approximately an additional $1.0 million of
Senior Indebtedness under the Revolving Credit Facility to finance working
capital needs. In addition, the Company expects to draw down an additional
$11.0 million under the Revolving Credit Facility during the first six months
of calendar 1997 to finance working capital needs. Additional Senior
Indebtedness may be incurred by the Company from time to time, subject to
certain restrictions. The terms of the Indenture permit the Company and its
Subsidiaries to incur additional Indebtedness, subject to certain limitations,
including additional Senior Indebtedness and Indebtedness that may be secured
by Liens on property of the Company and its Subsidiaries. See the discussion
below under the captions "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" and "Certain Covenants--Liens."
SUBORDINATION OF ANY FUTURE NOTE GUARANTEES; RELEASE OF ANY FUTURE NOTE
GUARANTEES
Any Note Guarantees that may exist in the future will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full
in cash of all Obligations in respect of Senior Indebtedness of the Company
and of the relevant Guarantor, which will include guarantees of each Guarantor
of Indebtedness of the Company under the Credit Agreement, whether outstanding
on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of a Guarantor in a liquidation or
dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Guarantor or its property,
an assignment for the benefit of creditors or any marshaling of such
Guarantor's assets and liabilities, the holders of Senior Indebtedness of such
Guarantor or Senior Indebtedness of the Company will be entitled to receive
payment in full in cash of all Obligations due in respect of Senior
Indebtedness of such Guarantor or Senior Indebtedness of the Company
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness of such Guarantor or Senior
Indebtedness of the Company regardless of whether such interest is an allowed
claim in such proceeding) before the holders of Notes will be entitled to
receive any payment with respect to the relevant Note Guarantee, and until all
Obligations with respect to Senior Indebtedness of such Guarantor or Senior
Indebtedness of the Company are paid in full in cash, any payment that would
have been made under such Note Guarantee shall be made to the holders of
Senior Indebtedness of such Guarantor or Senior Indebtedness of the Company
(except that holders of Notes may receive securities that are subordinated at
least to the same extent as such Note Guarantee to Senior Indebtedness of such
Guarantor and to any securities issued in exchange for Senior Indebtedness of
such Guarantor).
Such Guarantor also may not make any payment upon or in respect of its Note
Guarantee (except in such subordinated securities of such Guarantor) if (i) a
default in the payment of the principal of, the premium, if any, or interest
on, or of any regularly accruing fees constituting, Obligations in respect of
Designated Senior Indebtedness of the relevant Guarantor or of the Company
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior
Indebtedness of such Guarantor or of the Company which permits holders of the
Designated Senior Indebtedness of such Guarantor or of the Company as to which
such default relates to accelerate its maturity and the Trustee receives a
Payment Blockage Notice from the holders or the representative of the holders
of any Designated Senior Indebtedness of such Guarantor or of the Company.
Payments under any Note Guarantee may and shall be resumed (a) in the case of
a payment default, upon the date on which such default is cured or waived and
(b) in the case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Indebtedness of the relevant Guarantor or of the Company has
been accelerated. No new period of payment blockage may be commenced by a
Payment Blockage Notice unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that
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existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice, unless such default has been cured or waived for a period of
not less than 90 days.
As a result of the subordination provisions described above, in the event
that any Guarantor is required to make a payment under a Note Guarantee, there
may not be sufficient assets remaining to satisfy the claims of the holders
with respect to such Note Guarantee after satisfying the claims of creditors of
such Guarantor who are holders of Senior Indebtedness of such Guarantor. The
terms of the Indenture permit Subsidiaries of the Company to incur
Indebtedness, subject to certain limitations, including additional Senior
Indebtedness and Indebtedness that may be secured by Liens on property of the
Subsidiaries. See the discussion below under the captions "Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock" and "Certain
Covenants--Liens."
The Indenture provides that any Guarantor that is released from its guarantee
of the Company's obligations under the Credit Agreement and any other Senior
Indebtedness shall also be released from its Note Guarantee. One of the
circumstances in which this could occur is in the event of a sale or other
disposition of all or substantially all of the assets of any Guarantor or a
sale or other disposition of all of the Capital Stock of any Guarantor;
provided, in each case, that such transaction is carried out in accordance with
the covenants described below under the captions "Repurchase at the Option of
Holders--Asset Sales" and "Certain Covenants--Merger, Consolidation or Sale of
Assets."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to December 1,
2001. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon and Liquidated
Damages, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.............................................................. 105.750%
2002.............................................................. 103.833%
2003.............................................................. 101.917%
2004 and thereafter............................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to December 1, 1999, the
Company, at its option, may redeem the Notes, in part, with the net proceeds of
a Public Equity Offering made by the Company or of a capital contribution made
by GHC to the common equity capital of the Company with the net proceeds of a
Public Equity Offering made by GHC, at the redemption prices (expressed as
percentages of the principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 1 of the years
indicated below; provided, however, that after any such redemption the
aggregate principal amount of the Notes outstanding must equal at least 65% of
the aggregate principal amount of the Notes originally issued in this Offering.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1996.............................................................. 111.50%
1997.............................................................. 110.75%
1998.............................................................. 110.00%
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the Nasdaq National Market or the principal national securities
exchange, if any, on which the Notes are listed, or, if the Notes are not so
listed, on a pro rata basis; provided that no Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed
in part only, the notice of redemption that relates to such Note shall state
the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon
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cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon (the "Change of Control Purchase Price") to the date
of purchase (the "Change of Control Payment Date"). Within 30 days after the
date of any Change of Control, the Company will mail a notice to each holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
the Indenture and described in such notice. The Change of Control Payment Date
shall be a business day not less than 30 days nor more than 60 days after such
notice is mailed.
On the Change of Control Payment Date, the Company will (1) accept for
payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (2) deposit with the Paying Agent an amount equal to the
Change of Control Purchase Price in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Notes so
tendered together with an officers' certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to each holder of Notes so tendered the Change of
Control Payment for such Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if
any; provided that each such new Note will be in a principal amount of $1,000
or an integral multiple thereof. The Indenture will provide that, prior to
complying with the provisions of this covenant, but in any event within 30 days
following a Change of Control, the Company will either repay all outstanding
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Indebtedness to permit the repurchase
of Notes required by this covenant. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. Although the existence of a holder's
right to require the Company to repurchase the Notes in respect of a Change of
Control may deter a third party from acquiring the Company in a transaction
that constitutes a Change of Control, the provisions of the Indenture relating
to a Change of Control in and of themselves may not afford holders of the Notes
protection in the event of a highly leveraged transaction, reorganization,
recapitalization, restructuring, merger or similar transaction involving the
Company that may adversely affect holders, if such transaction is not the type
of transaction included within the definition of a Change of Control.
The Credit Agreement provides that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain
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prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the holders of Notes.
The meaning of the phrase "all or substantially all," as used in the
definition of "Change of Control" with respect to a sale of assets, varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company
and its Subsidiaries to incur additional Indebtedness, to grant Liens on its or
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. In
certain circumstances, such restrictions and the restrictions on transactions
with Affiliates may make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries. While such restrictions cover a variety
of arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, engage in an Asset Sale except an
Exempt Asset Sale, as defined below, unless (i) the Company (or such
Subsidiary) receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of, and
in the case of a lease of assets, a lease providing for rent and other
conditions which are no less favorable to the Company (or such Subsidiary) in
any material respect than the then prevailing market conditions (evidenced in
each case by a resolution of the Board of Directors of the Company set forth in
an officers' certificate delivered to the Trustee), and (ii) at least 75% (100%
in the case of lease payments) of the consideration therefor received by the
Company or such Subsidiary is in the form of cash, Cash Equivalents or Eligible
Assets. An "Exempt Asset Sale" means an Asset Sale on or after the date of the
Indenture, the Net Proceeds of which, plus the Net Proceeds of all other Asset
Sales concurrently or previously made in the same fiscal year do not exceed
$1.0 million. "Eligible Assets" means another business or any substantial part
of another business or other long-term assets, in each case, in, or used or
useful in, the same or a similar line of business as the Company or any of its
Subsidiaries was engaged in on the date of the Indenture or any reasonable
extensions or expansions thereof (including the Capital Stock of another Person
engaged in such business, provided such other Person is, or immediately after
giving effect to any such acquisition shall become, a Wholly Owned Subsidiary
of the Company).
The Company may apply, and may permit its Subsidiaries to apply, Net Proceeds
of an Asset Sale (other than an Exempt Asset Sale), at its option, within 365
days after the consummation of such an Asset Sale (a) to permanently reduce
Senior Indebtedness other than Senior Revolving Debt, (b) to permanently reduce
Senior Revolving Debt (and to correspondingly reduce the commitments, if any,
with respect thereto), (c) to acquire Eligible Assets or to reimburse the
Company or its Subsidiaries for expenditures previously made to acquire
Eligible Assets, provided that any such expenditures were made not more than
180 days prior to the consummation of such Asset Sale and were made in
contemplation of such Asset Sale and for the purpose of replacing the assets to
be disposed of in such Asset Sale, or (d) to reimburse the Company or its
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of insurance proceeds received on account of such
loss, damage
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or taking. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce Senior Revolving Debt or otherwise invest such Net
Proceeds temporarily in Cash Equivalents. Any Net Proceeds from Asset Sales
(other than Exempt Asset Sales) that are not applied within 365 days after the
consummation of an Asset Sale as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $5.0 million, the Company will be required to
make an offer to all holders of Notes (an "Asset Sale Offer") to purchase, on a
pro rata basis, the principal amount of Notes equal in amount to the Excess
Proceeds (and not just the amount thereof that exceeds $5.0 million), at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
If the aggregate principal amount of Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero, subject to any subsequent
Asset Sale.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under the caption "Certain Covenants--Merger,
Consolidation or Sale of Assets" below, the successor corporation shall be
deemed to have sold the properties and assets of the Company and its
Subsidiaries not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or its Subsidiaries deemed to be sold shall be deemed to
be Net Proceeds for purposes of this covenant.
If at any time any non-cash consideration received by the Company or any
Subsidiary in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall
be applied in accordance with this covenant.
The Company will comply with the requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control or an Asset
Sale.
The Company may use Net Proceeds from Exempt Asset Sales for general
corporate purposes (subject to the other provisions of the Indenture).
CERTAIN COVENANTS
Ownership of and Liens on Capital Stock
The Indenture provides that the Company (i) will not permit any Person (other
than the Company or any Wholly Owned Subsidiary of the Company) to own any
Capital Stock of any Subsidiary of the Company, and (ii) will not permit any
Subsidiary of the Company to issue Capital Stock (except to the Company or to a
Wholly Owned Subsidiary) or create, incur, assume or suffer to exist any Lien
thereon, in each case except (a) directors' qualifying shares, (b) Capital
Stock issued prior to the time such Person became a Subsidiary of the Company,
provided that such Capital Stock was not issued in anticipation of such
transaction, (c) if such Subsidiary merges with another Subsidiary of the
Company, (d) if such Subsidiary ceases to be a Subsidiary of the Company (as a
result of the sale of 100% of the shares of such Subsidiary, the Net Proceeds
from which are applied in accordance with "Repurchase at the Option of
Holders--Asset Sales"), (e) Liens on Capital Stock of any Subsidiary of the
Company to secure Indebtedness incurred under the Credit Agreement or other
Senior Indebtedness incurred in compliance with the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" or (f)
Liens on Capital Stock of any Subsidiary of the Company granted in accordance
with the provisions of the Indenture described below under the caption "Liens."
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Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution of any kind or character (whether in cash, securities or
other property) on account of any class of the Company's or any of its
Subsidiaries' Equity Interests or to holders thereof (including, without
limitation, any payment to stockholders of the Company in connection with a
merger or consolidation involving the Company), other than (a) dividends or
distributions payable solely in Equity Interests (other than Disqualified
Stock) of the Company or (b) dividends or distributions payable solely to the
Company or any Wholly Owned Subsidiary of the Company; (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company, any
Subsidiary of the Company, or any other Affiliate of the Company (other than
any such Equity Interests owned by the Company or any Wholly Owned Subsidiary
of the Company); (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is pari passu with or subordinated to the Notes
or the Note Guarantees prior to any scheduled repayment date, mandatory sinking
fund payment date or final maturity date (other than the Notes), other than
through the purchase, redemption or acquisition by the Company of Indebtedness
of the Company or any of its Subsidiaries through the issuance in exchange
therefor of Equity Interests (other than Disqualified Stock) of the Company or
(iv) make any Investment (other than Permitted Investments) (all such payments
and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, the Company would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its
Subsidiaries on or after the date of the Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii) and (iv) of the second sentence
of the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale after the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock).
The foregoing clauses (b) and (c) will not prohibit (i) the payment of any
dividend on any class of Capital Stock of the Company or any Subsidiary of the
Company within 60 days after the date of declaration thereof, if on the date on
which such dividend was declared such payment would have complied with the
provisions of the Indenture; (ii) the making of any Investment in exchange for,
or out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized for
any such Investment, and any Net Income resulting therefrom, shall be excluded
from clause (c) of the preceding paragraph; (iii) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (other than any Disqualified Stock); provided that any net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition, and any Net Income resulting
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therefrom, shall be excluded from clause (c) of the preceding paragraph; (iv)
the defeasance, redemption or repurchase of pari passu or subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized for
any such defeasance, redemption or repurchase, and any Net Income resulting
therefrom, shall be excluded from clause (c) of the preceding paragraph; (v)
any payment by the Company or any of its Subsidiaries directly or through any
direct or indirect parent company (A) in connection with the repurchase of
outstanding shares of Capital Stock of the Company or GHC following the death,
disability or termination of employment of Management Stockholders and (B) of
amounts required to be paid to participants or former participants in employee
benefit plans upon any termination of employment by such participants as
provided in the documents related thereto, in an aggregate amount (for both
clauses (A) and (B)) not to exceed $1.0 million in any fiscal year (provided
that any unused amount may be carried over to any subsequent fiscal year
subject to a maximum amount of $1.5 million in any fiscal year); (vi) payments
to GHC pursuant to a tax sharing agreement under which the Company is allocated
its proportionate share of the tax liability of the affiliated group of
corporations that file consolidated federal income tax returns (or that file
state or local income tax returns on a consolidated basis); (vii) loans,
advances, dividends or distributions by the Company or any of its Subsidiaries
to GHC to pay for corporate, administrative and operating expenses in the
ordinary course of business, including payment of directors' and officers'
liability insurance premiums, directors' fees, and fees, expenses and
indemnities in connection with the Acquisition and Financing Transactions and
related transactions, in an aggregate amount not to exceed $1.0 million in any
fiscal year; and (viii) (A) loans, advances, dividends or distributions by the
Company or any of its Subsidiaries to GHC not to exceed an amount necessary to
permit GHC to pay (1) its costs (including all professional fees and expenses)
incurred to comply with its reporting obligations under federal or state laws
or in connection with reporting or other obligations under the Credit Agreement
or any related collateral documents or guarantees, (2) its expenses incurred in
connection with any public offering of equity securities which has been
terminated by the board of directors of GHC, the net proceeds of which were
specifically intended to be received by or contributed or loaned to the Company
and (B) loans or advances by the Company or any of its Subsidiaries to GHC not
to exceed an amount necessary to permit GHC to pay its interim expenses
incurred in connection with any public offering of equity securities the net
proceeds of which are specifically intended to be received by or contributed or
loaned to the Company, which, unless such offering shall have been terminated
by the board of directors of GHC, shall be repaid to the Company promptly out
of the proceeds of such offering.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an officers' certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an officers' certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant described under this caption were computed, which calculations may
be based upon the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company may incur Indebtedness
(including Acquired Indebtedness) and the Company may issue shares of
Disqualified Stock if: (i) the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0 with respect to any incurrence on or before
December 31, 1997, or 2.25 to 1.0 with respect to any incurrence thereafter,
determined on a pro forma basis (including a pro
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forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period; and (ii) no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof.
The foregoing limitations on the incurrence of Indebtedness will not apply
to:
(i) the incurrence by the Company of Indebtedness under the Credit
Agreement (and the incurrence by Subsidiaries of the Company of guarantees
thereof) in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Subsidiaries thereunder)
not to exceed $80.0 million, less the aggregate amount of all Net Proceeds
of Asset Sales applied to permanently reduce the outstanding amount or the
commitments with respect to such Indebtedness pursuant to the covenant
described above under the caption "--Asset Sales" and less any amount
incurred pursuant to clause (vii) below;
(ii) the incurrence by the Company and any Guarantors of Indebtedness
represented by the Notes and the Note Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations (whether or not
incurred pursuant to Sale and Leaseback Transactions), mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary or any Permitted Refinancing Indebtedness thereof (provided that
the requirements of clause (ii) of the definition of Permitted Refinancing
Indebtedness need not be met for the purposes of this clause (iii)), in an
aggregate principal amount not to exceed $5.0 million at any time
outstanding;
(iv) the incurrence by the Company of Permitted Refinancing Indebtedness
in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, any Indebtedness permitted
under the Fixed Charge Coverage Ratio test described in the first paragraph
of this caption;
(v) the incurrence by the Company or any of its Wholly Owned Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided, however, that (a) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Subsidiary of the
Company and (b) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary of the
Company shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging Obligations; and
(vii) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph other than
Indebtedness incurred pursuant to clause (i) above in excess of $70.0
million) in an aggregate principal amount at any time outstanding not to
exceed $10.0 million.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any of its assets, now owned or hereafter acquired, securing
any Indebtedness other than Senior Indebtedness or Indebtedness specified in
clauses (w) or (y) of the second sentence of the definition of "Senior
Indebtedness," unless the Notes, in the case of the Company, or the Note
Guarantees, in the case of any Guarantors, are secured equally and ratably with
such other Indebtedness; provided that, if such Indebtedness is by its terms
expressly subordinate to the Notes or the Note Guarantees, the Lien securing
such subordinate or junior Indebtedness shall be subordinate and junior to the
Lien securing the Notes or the Note Guarantees with the same relative priority
as such subordinated or junior Indebtedness shall have with respect to the
Notes or the Note Guarantees.
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Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary of the Company to
(i) pay dividends or make any other distributions to the Company or any
of its Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits;
(ii) pay any Indebtedness or other obligation owed to the Company or any
of its Subsidiaries;
(iii) make loans or advances to the Company or any of its Subsidiaries;
(iv) sell, lease or transfer any of its properties or assets to the
Company or any of its Subsidiaries; or
(v) guarantee the obligations of the Company evidenced by the Notes or
any renewals, refinancings, exchanges, refundings or extensions thereof,
except for such encumbrances or restrictions existing under or by reason of (A)
the Indenture and the Notes, (B) applicable law, (C) any instrument governing
Acquired Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Acquired Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
the Consolidated EBITDA of such Person is not taken into account in determining
whether such acquisition was permitted by the terms of the Indenture, (D) any
document or instrument governing Indebtedness incurred pursuant to clause (iii)
of the second paragraph under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock," provided that any such restriction contained
therein relates only to the asset or assets constructed or acquired in
connection therewith, (E) Permitted Refinancing Indebtedness of Indebtedness
described in clause (C) hereof, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, or (F) any provision of the Credit Agreement as such
provision is in effect on the date of initial issuance of the Notes.
Limitation on Layering Debt
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness and senior
in any respect in right of payment to the Notes.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company will not, and the Company will not
permit any Subsidiary of the Company to, in a single transaction or series of
related transactions, consolidate or merge with or into (other than the
consolidation or merger of a Wholly Owned Subsidiary of the Company with
another Wholly Owned Subsidiary of the Company or into the Company) (whether or
not the Company or such Subsidiary is the surviving corporation), or directly
and/or indirectly through its Subsidiaries sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company and its Subsidiaries (determined on a consolidated basis
for the Company and its Subsidiaries taken as a whole) in one or more related
transactions to, another corporation, Person or entity unless
(i) either (a) the Company, in the case of a transaction involving the
Company, or such Subsidiary, in the case of a transaction involving a
Subsidiary of the Company, is the surviving corporation or (b) in the case
of a transaction involving the Company or a Guarantor, the entity or the
Person formed by or surviving any such consolidation or merger (if other
than the Company or such Guarantor) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States of
America, any state thereof or the District of Columbia
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and expressly assumes all the obligations of the Company under the Notes
and the Indenture or such Guarantor under the relevant Note Guarantee and
the Indenture, as the case may be, pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee;
(ii) immediately after such transaction no Default or Event of Default
exists;
(iii) in the case of a transaction involving the Company, the Company or,
if other than the Company, the corporation formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction; provided, however that in the case of a
transaction involving a merger or consolidation between GHC and the Company
in contemplation of an underwritten primary public offering of the common
stock of the corporation formed by or surviving any such merger or
consolidation, the Consolidated Net Worth of such corporation immediately
after the transaction may be up to $1.0 million less than the Consolidated
Net Worth of the Company immediately preceding the transaction, and (B)
will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock";
(iv) if, as a result of any such transaction, property or assets of the
Company or a Guarantor would become subject to a Lien securing Indebtedness
not excepted from the provisions of the Indenture described above under the
caption "--Liens," the Company, any such Guarantor or the surviving entity,
as the case may be, shall have secured the Notes and the relevant Note
Guarantee, as required by such provisions; and
(v) the Company shall have delivered to the Trustee an officers'
certificate and, except in the case of a merger of a Subsidiary of the
Company into the Company or into a Wholly Owned Subsidiary of the Company,
an opinion of counsel, each stating that such consolidation, merger,
conveyance, lease or disposition and any supplemental indenture with
respect thereto, comply with all of the terms of this covenant and that all
conditions precedent provided for in this provision relating to such
transaction or series of transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
the Company the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not cause or
permit any of its Subsidiaries to, enter into any Sale and Leaseback
Transaction. Notwithstanding the foregoing, the Company or any Subsidiary may
enter into a Sale and Leaseback Transaction if: (i) after giving pro forma
effect to any such Sale and Leaseback Transaction, the Company shall be in
compliance with the covenants described under the captions "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and "--Liens" above; (ii) the
gross cash proceeds of such Sale and Leaseback Transaction are at least equal
to the fair market value of such property (as determined by the Board, whose
determination shall be conclusive if made in good faith and evidenced by a
Board Resolution); (iii) the aggregate rent payable by the Company in respect
of such Sale and Leaseback Transaction is not in excess of the fair market
rental value of the property leased pursuant to such Sale and Leaseback
Transaction; and (iv) the Company shall apply the net cash proceeds of the sale
as provided under "Repurchase at the Option of Holders--Asset Sales" above, to
the extent required therein.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, in any one transaction or a series
of related transactions, sell, lease, transfer or otherwise dispose of
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any of its properties, assets or services to, or make any payment to, or
purchase any property, assets or services from, or enter into or make any
agreement, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), other than
Exempt Affiliate Transactions, unless (i) such Affiliate Transaction is on
terms that are no less favorable to the Company or the relevant Subsidiary than
those that would have been obtained in a comparable arm's length transaction by
the Company or such Subsidiary with a Person that is not an Affiliate and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction entered into after the date of the Indenture involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
of the Company set forth in an officers' certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors of the Company and (b) with respect to any Affiliate
Transaction involving aggregate consideration equal to or in excess of $5.0
million, a written opinion issued by an investment banking firm of recognized
national standing that such Affiliate Transaction is fair to the Company or
such Subsidiary, as the case may be, from a financial point of view.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the holders of Notes, and file with the Trustee, within
15 days after it is or would have been required to file such with the
Commission all information, documents and reports specified in Section 13 and
Section 15(d) of the Exchange Act; provided, however, that the Company will not
be required to furnish to the holders of Notes or file with the Commission a
report on Form 10-K for fiscal 1996. In addition, whether or not required by
the rules and regulations of the Commission, at any time after the Company
files an Exchange Offer Registration Statement or a Shelf Registration
Statement, the Company will file a copy of all such information, documents and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, it will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information specified in Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company to
comply with the provisions described under the captions "Repurchase at Option
of Holders--Change of Control," "Repurchase at Option of Holders--Asset Sales,"
"--Ownership of and Liens on Capital Stock," "--Restricted Payments," "--
Incurrence of Indebtedness and Issuance of Preferred Stock" or "--Merger,
Consolidation or Sale of Assets"; (iv) failure by the Company to comply with
any of its other agreements or covenants in the Indenture or the Notes for 60
days after written notice by the Trustee or holders of at least 25% of the
aggregate principal amount of the Notes outstanding; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of such Indebtedness at final maturity
thereof (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness as to which there has been a Payment Default or the
maturity of which has been so accelerated, exceeds in the aggregate $10.0
million; (vi) failure by the Company or any of its Subsidiaries to pay final
judgments (not fully covered by insurance) which exceed in the aggregate $10.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any of its Subsidiaries; and
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(viii) the Note Guarantee of any Guarantor is held in any judicial proceeding
to be unenforceable or invalid or ceases for any reason to be in full force and
effect (other than in accordance with the terms of the Indenture) or any
Guarantor or any Person acting on behalf of any Guarantor denies or disaffirms
such Guarantor's obligations under its Note Guarantee (other than by reason of
a release of such Guarantor from its Note Guarantee in accordance with the
terms of the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of all of the then outstanding
Notes may declare all the Notes to be due and payable immediately. After such
acceleration, but before a judgment or decree based on acceleration, the
holders of a majority in aggregate principal amount of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of principal, interest, premium or
Liquidated Damages that have become due solely because of such acceleration,
have been cured or waived as provided in the Indenture. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Subsidiary of the
Company, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Indenture
provides that if a Default occurs and is continuing, generally the Trustee must
give notice of such Default to the holders within 90 days after the occurrence
of such Default. The Trustee may withhold from holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or premium, if any, or interest or
Liquidated Damages) if it determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium or Liquidated Damages on, or the principal of, any Note
(except a payment default resulting from an acceleration that has been
rescinded) or in respect of a provision that cannot be amended or waived
without the consent of the holder affected. See "Amendment, Supplement and
Waiver."
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon becoming aware of any Default
or Event of Default, the Company is required to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. No director, officer, employee,
incorporator or stockholder of any Guarantor, as such, shall have any liability
for any obligations of such Guarantor under its Note Guarantee or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of Notes by accepting a Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Notes and the Note Guarantees. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the Commission that such waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
At its option and at any time, the Company may elect to have all of the
obligations of the Company and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest and Liquidated Damages on such Notes when such payments
are due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
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mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
Company's obligations under the Registration Rights Agreement, (iv) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (v) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, bankruptcy and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in U.S. dollars, U.S. Government Obligations, or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Liquidated Damages on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
(or the granting of a Lien as security therefor) to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 123rd day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under the Credit Agreement or
any other material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound; (vi) the Company must deliver to the Trustee
an officers' certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of Notes over other creditors of the
Company or the Guarantors or with the intent of defeating, hindering, delaying
or defrauding creditors of the Company, the Guarantors or others; (vii) such
Legal Defeasance or Covenant Defeasance shall not result in the trust arising
from such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; and (viii)
the Company must deliver to the Trustee an officers' certificate and a opinion
of counsel, each stating that all conditions precedent relating to Legal
Defeasance or Covenant Defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture. The
Trustee will act as paying agent and registrar for the Notes. The Company, the
registrar and the Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents as well as certifications,
legal opinions and other information and the Company may require a holder to
pay any taxes and fees required by law or permitted
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by the Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), and any existing default or failure to comply with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of each holder, an amendment or waiver may not (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or premium on or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages on the Notes (except a
rescission of acceleration of the Notes by the holders of at least a majority
in aggregate principal amount of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of holders of Notes to receive payments of principal of or premium, if
any, or interest or Liquidated Damages on the Notes, (vii) waive a redemption
payment with respect to any Note (other than a payment required by one of the
covenants described above under the caption "Repurchase at the Option of
Holders"), (viii) modify the ranking or priority of the Notes or the Note
Guarantee of any Guarantor, (ix) release any Guarantor from any of its
obligations under its Note Guarantee or the Indenture other than in accordance
with the terms of the Indenture or (x) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of Certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the holders of Notes or that does not adversely affect
the interests of the holders of the Notes in any material respect, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Without the consent of the holders of Senior Indebtedness (or any group or
representative thereof authorized to give a consent), no amendment or
supplement to the subordination or defeasance provisions of the Indenture shall
be effective if such amendment or supplement adversely affects the rights of
any holder of Senior Indebtedness.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the Notes,
unless such consideration is offered to be paid or agreed to be paid to all
holders of the Notes which so consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
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CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture. The
Trustee's current address is One State Street, New York, New York 10004.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not have been cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Gorges/Quik-to-Fix
Foods, Inc., 9441 LBJ Freeway, Suite 214, Dallas, Texas 75243, Attn: President.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form and may, if agreed by the Company and the holder, be issued in
the form of a permanent global certificate in fully registered form (the
"Global Note") and will be deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of a nominee of
DTC.
Global Note. The Company expects that upon the issuance of the Global Note,
DTC or its custodian will credit, on its book entry registration and transfer
system, the respective principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Note to the accounts of Persons
who have accounts with such depositary. Ownership of beneficial interests in
the Global Notes will be limited to Persons who have accounts with DTC
("participants") or Persons who hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee (with respect to interest of participants) and the records of
participants (with respect to interests of Persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner of
an interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal, of premium (if any), and interest and Liquidated
Damages (if any) on, the Global Note will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. Neither the Company, the Trustee
nor any Paying Agent will have any responsibility or liability for any aspect
of the record relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
record relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium (if any) or interest or Liquidated Damages (if any) in
respect of the Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Note as shown on the records of DTC or its nominee. The
Company also expects that payments by participants to owners of beneficial
interests in such Global Note held through such participants will be governed
by standing instructions and customary practice, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
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The Company expects that transfers between participants in DTC will be
effected in the ordinary way in accordance with DTC rules and will be settled
in clearinghouse funds. If a holder requires physical delivery of a
Certificated Note for any reason, including to sell Exchange Notes to Persons
in states which require physical delivery of such Exchange Notes or to pledge
such Exchange Notes, such holder must transfer its interest in the Global Note
in accordance with the normal procedures of DTC and the procedures set forth in
the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Note is credited
and only in respect of such portion of the aggregate principal amount of
Exchange Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Exchange
Notes or the Indenture, DTC will exchange the Global Note for Exchange Notes in
definitive form, which it will distribute to its participants.
To the Company's knowledge, DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers
(including the Initial Purchaser), banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC system
is available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC customarily agrees to the foregoing procedures in order to
facilitate transfers of interests in global notes among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. Subject to certain conditions, any person having a
beneficial interest in a Global Note may, upon request to the Trustee, exchange
such beneficial interest for the Exchange Notes in the form of Certificated
Notes. Upon any such issuance, such Trustee is required to register such
Certificated Notes in the name of, and cause the same to be delivered to, such
person or persons (or the nominee of any thereof). All such Certificated Notes,
other than the registered Exchange Notes, will continue to be subject to the
restrictive legend requirements presently in effect. If DTC is at any time
unwilling or unable to continue as a depositary for the Global Note and a
successor depositary is not appointed by the Company within 90 days, Exchange
Notes in definitive form will be issued in exchange for the Global Note.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means with respect to any specified Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time
such other Person is merged with or into or becomes a Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Subsidiary of such specified Person, and (ii) Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person, and
in either case for purposes of the Indenture shall be deemed to be incurred by
such specified Person at the time such other Person is merged with or into or
becomes a Subsidiary of such specified Person or at the time such asset is
acquired by such specified Person, as the case may be.
"Affiliate" of any specified Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director
or executive officer of (a) such specified Person or (b) any Person described
in the preceding clause (i).
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For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise, provided that beneficial ownership of 10% or more of
any class, or any series of any class, of equity securities of a Person,
whether or not voting, shall be deemed to be control; and provided, however,
that NBIC or any affiliate (as determined without giving effect to this
proviso) of NBIC shall not be deemed to be an Affiliate of any Person solely by
reason of its ownership of non-voting equity securities of such Person.
"Agent Bank" means NationsBank of Texas, N.A. and its successors under the
Credit Agreement.
"Asset Sale" means with respect to any Person, the sale, lease, conveyance or
other disposition, that does not constitute a Restricted Payment or an
Investment, by such Person of any of its assets (including, without limitation,
by way of a Sale and Leaseback Transaction and including the issuance, sale or
transfer of any Equity Interests in any Subsidiary of the Company) other than
to the Company (including the receipt of proceeds of insurance paid on account
of the loss of or damage to any asset and awards of compensation for any asset
taken by condemnation, eminent domain or similar proceeding, and including the
receipt of proceeds of business interruption insurance), in each case, in one
or a series of related transactions; provided, that notwithstanding the
foregoing the term "Asset Sale" shall not include: (a) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company, in accordance with the terms of the covenant described
under the caption "Certain Covenants--Merger, Consolidation or Sale of Assets,"
(b) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business consistent with past practice, (c) a
transfer of assets by the Company to a Wholly Owned Subsidiary of the Company
or by a Wholly Owned Subsidiary of the Company to the Company or to another
Wholly Owned Subsidiary of the Company, (d) an issuance of Equity Interests by
a Wholly Owned Subsidiary of the Company to the Company or to another Wholly
Owned Subsidiary of the Company, provided that the consideration paid by the
Company or such Wholly Owned Subsidiary of the Company for such Equity
Interests shall be deemed to be an Investment, or (e) the sale or other
disposition of cash or Cash Equivalents.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, capital stock, (ii)
in the case of an association or business entity, any and all shares,
interests, participations, rights, or other equivalents (however designated) of
capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $500
million or (ii) any bank whose short-term commercial paper rating from S&P is
at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Lender"), in each case
with maturities of not more than twelve months from the date of acquisition,
and (c) commercial paper issued by any Approved Lender (or by the parent
company thereof) or any variable rate notes issued by, or guaranteed by, any
domestic corporation rated A-2 (or the equivalent thereof) or better by S&P or
P-2 (or the equivalent thereof) or better by Moody's and maturing within twelve
months of the date of acquisition.
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"Change of Control" means such time as either:
(i) prior to the initial Public Equity Offering by the Company or GHC of
its common stock, the Initial Shareholders cease to be, directly or
indirectly, the beneficial owners, in the aggregate, of more than 50% of
the voting power of the Voting Stock of the Company and of GHC, in each
case on a fully-diluted basis, after giving effect to the conversion and
exercise of all outstanding warrants, options and other securities of the
Company or GHC, as the case may be, convertible into or exercisable for
Voting Stock of the Company or GHC, as the case may be (whether or not such
securities are then currently convertible or exercisable); or
(ii) after the initial Public Equity Offering by the Company or GHC of
its common stock, (a) any "person" or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) (other than one or more of the
Initial Shareholders) has become, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), by way of
merger, consolidation or otherwise, of 35% or more of the voting power of
the Voting Stock of the Company or GHC on a fully-diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of the Company or GHC, as the case may be,
convertible into or exercisable for Voting Stock of the Company or GHC, as
the case may be (whether or not such securities are then currently
convertible or exercisable) and (b) such person or group is or becomes,
directly or indirectly, the beneficial owner of a greater percentage of the
voting power of the Voting Stock of the Company or of GHC, as the case may
be, calculated on such fully-diluted basis, than the percentage then
beneficially owned by the Initial Shareholders; or
(iii) the Company merges with or into another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially
all of its assets to any Person, or any Person merges with or into the
Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where
(x) the outstanding Voting Stock of the Company is converted into or
exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation and/or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (y) immediately after such transaction no
"person" or "group" (within the meaning of Section 13(d) and 14(d) of the
Exchange Act) (other than one or more of the Initial Shareholders) is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of (1) 35% or more of the voting power of the
Voting Stock of the surviving or transferee corporation on a fully diluted
basis, after giving effect to the conversion and exercise of all
outstanding warrants, options and other securities of such surviving or
transferee corporation, convertible into or exercisable for Voting Stock of
such surviving or transferee corporation (whether or not such securities
are then currently convertible or exercisable) and (2) a greater percentage
of the voting power of the Voting Stock of such surviving or transferee
corporation calculated on such fully diluted basis, than the percentage
then beneficially owned by the Initial Shareholders; or
(iv) during any period of two consecutive calendar years, individuals who
at the beginning of such period constituted either the board of directors
of the Company or of GHC, as the case may be, together with any new members
of such board of directors (a) whose election by such board of directors or
whose nomination for election by the stockholders of the Company or the
stockholders of GHC, as the case may be, was approved by a vote of a
majority of the members of such board of directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved or (b) elected by the
Initial Shareholders, cease for any reason to constitute a majority of the
directors of the Company or of GHC, as the case may be, then in office.
"Consolidated EBITDA" means, with respect to any Person for any period, the
sum of, without duplication, (i) the Consolidated Net Income of such Person and
its Subsidiaries for such period, plus (ii) the Fixed Charges
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for such period, plus (iii) amortization of deferred financing charges for such
period, plus (iv) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (v) consolidated depreciation,
amortization and other noncash charges of such Person and its Subsidiaries
required to be reflected as expenses on the books and records of such Person,
minus (vi) cash payments with respect to any nonrecurring, noncash charges
previously added back pursuant to clause (v), and excluding (vii) the impact of
foreign currency translations. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and other noncash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Subsidiary without any prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income
of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained), or, directly or indirectly,
by operation of the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, and (iv) the cumulative effect
of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that
by its terms is not entitled to the payment of dividends unless such dividends
may be declared and paid only out of net earnings in respect of the year of
such declaration and payment, but only to the extent of any cash received by
such Person upon issuance of such preferred stock, less (x) all write-ups
subsequent to the date of the Indenture in the book value of any asset owned by
such Person or a consolidated Subsidiary of such Person (other than purchase
accounting adjustments made, in connection with any acquisition of any entity
that becomes a consolidated Subsidiary of such Person after the date of the
Indenture, to the book value of the assets of such entity), (y) all investments
as of such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined on a consolidated basis in
accordance with GAAP.
"Credit Agreement" means that certain Credit Agreement, dated as of the date
of the Indenture, by and among the Company and NationsBank of Texas, N.A., as
agent, and the lenders parties thereto, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, increased,
renewed, refunded, replaced, restated or refinanced in whole or in part from
time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Designated Senior Indebtedness" means in respect of the Company, (i) so long
as the Senior Bank Debt is outstanding, the Senior Bank Debt and (ii) any other
Senior Indebtedness permitted under the Indenture the principal amount of which
is $15.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness" and, in respect of any Guarantor, any
guarantee by such Guarantor of Designated Senior Indebtedness of the Company.
"Disqualified Stock" means (a) with respect to any Person, Capital Stock of
such Person that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date which is one year after the date
on which the Notes mature and (b) with respect to any Subsidiary of such Person
(including with respect to any Subsidiary of the Company), any Capital Stock
other than any common stock with no preference, privileges, or redemption or
repayment provisions.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock), whether outstanding
prior to, on or after the date of the Indenture.
"Exempt Affiliate Transactions" means (a) transactions between or among the
Company and/or its Wholly Owned Subsidiaries, (b) advances to officers of the
Company or any Subsidiary of the Company in the ordinary course of business to
provide for the payment of reasonable expenses incurred by such persons in the
performance of their responsibilities to the Company or such Subsidiary or in
connection with any relocation, (c) fees and compensation paid to and indemnity
provided on behalf of directors, officers or employees of the Company or any
Subsidiary of the Company in the ordinary course of business, (d) any
employment agreement that is in effect on the date of the Indenture and any
such agreement entered into by the Company or a Subsidiary of the Company after
the date of the Indenture in the ordinary course of business of the Company or
such Subsidiary, (e) any Restricted Payment that is not prohibited by the
covenant set forth under the caption "Certain Covenants--Restricted Payments"
above, (f) payments to the General Partner of (i) retainer fees pursuant to the
Consulting Agreement not to exceed $30,000 per month and (ii) annual
performance bonuses as provided for under the Consulting Agreement not to
exceed $500,000 in any fiscal year, (g) the delegation by the General Partner
of its rights and obligations under the Consulting Agreement to the Management
Company and (h) payment to the Management Company of an investment banking fee
in an amount not to exceed $2.65 million.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its
Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, guarantees or repays or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the four-quarter reference period for which
the Fixed Charge Coverage Ratio is being calculated but on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee,
repayment or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. For purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated EBITDA for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or
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businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date and (iv) in the event that any one or more of the fiscal
quarters included in the four-quarter reference period for which the Fixed
Charge Coverage Ratio of the Company is being calculated is a fiscal quarter
ending on or before September 28, 1996, Consolidated EBITDA for each such
quarter shall be deemed to be $9.25 million, subject to adjustment with respect
to events occurring after September 28, 1996 as required above. $9.25 million
is one quarter of Adjusted Pro Forma EBITDA as shown in Note 3 to "Selected
Financial Data."
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Subsidiaries for such period (net of any interest income) including,
without limitation, amortization of original issue discount, noncash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations, but excluding amortization of deferred financing
charges for such period and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and
noncash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person payable to a party other than the
Company or a Wholly Owned Subsidiary, multiplied by (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate for taxes based on
the income or profits of such Person, expressed as a decimal, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States, that are applicable to the circumstances as of
the date of determination; provided that, except as specifically provided in
the Indenture, all calculations made for purposes of determining compliance
with the covenants set forth in Article IV and Section 5.01 of the Indenture
(which include the covenants described above under "--Certain Covenants") shall
use GAAP as in effect on the date of the Indenture for financial statements for
fiscal years ending on or after September 28, 1996.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each Subsidiary of the Company formed or acquired (and each
other Person that becomes a Subsidiary of the Company) after the date of the
Indenture that guarantees the Company's obligations under the Credit Agreement
or any other Senior Indebtedness; provided that any Guarantor that is released
from its guarantee of the Company's obligations under the Credit Agreement and
any other Senior Indebtedness shall also be released from its Note Guarantee.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under interest rate
swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital
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Lease Obligations, or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable incurred in the ordinary
course of business, if and to the extent any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any indebtedness
of any other Person.
"Initial Stockholders" means CGW, Management Stockholders, NBIC, FPGT and any
Affiliates of NBIC or FPGT.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding advances to officers of the type
specified in clause (b) of the definition of Exempt Affiliate Transactions),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition by the Company for consideration consisting of
common equity securities of the Company shall not be deemed to be an
Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Stockholder" means an officer, director or employee of the
Company or any Subsidiary of the Company who is the beneficial owner of any
Capital Stock of the Company or GHC.
"Net Income" means, with respect to any Person for any period, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to Sale and Leaseback Transactions)
or (b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any noncash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions), taxes paid or payable as a
result thereof, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, premiums, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investments in the Company; (b) any
Investments in Cash Equivalents; (c) Investments made as a result of the
receipt of noncash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"Repurchase at the Option of Holders--Asset Sales"; (d) Investments outstanding
as of the date of the Indenture; and (e) Investments in Wholly Owned
Subsidiaries of the Company and any entity that (i) is engaged in the same or
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a similar line of business as the Company or any of its Subsidiaries was
engaged in on the date of the Indenture or any reasonable extensions or
expansions thereof and (ii) as a result of such Investment, becomes a Wholly
Owned Subsidiary of the Company.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Subsidiary of the
Company that is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Public Equity Offering" means an underwritten primary public offering of the
common stock of the Company or of the common stock of GHC pursuant to an
effective registration statement filed with the Commission in accordance with
the Securities Act (whether alone or in conjunction with a secondary public
offering).
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount that is not
more than 100% of the cost of such property, and incurred within 180 days after
the date of such construction or acquisition (excluding accounts payable to
trade creditors incurred in the ordinary course of business).
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of any property, whether owned by the
Company or any Subsidiary as of the date of the Indenture or later acquired,
which has been or is to be sold or transferred by the Company or such
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Senior Bank Debt" means the Obligations outstanding under the Credit
Agreement.
"Senior Indebtedness" means, with respect to the Company, (i) the Senior Bank
Debt and (ii) any other Indebtedness permitted to be incurred by the Company
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to any Indebtedness for money borrowed. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (w) any
liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates, (y) any trade payables or (z) any Indebtedness to the extent
that it is incurred in violation of the Indenture (other than Senior Bank Debt
incurred in accordance with the terms of the Credit Agreement as in effect on
the date of the initial issuance of the Notes). "Senior Indebtedness" means,
with respect to any Guarantor, any guarantee by such Guarantor of Senior
Indebtedness of the Company.
"Senior Revolving Debt" means revolving credit borrowings and letters of
credit under the Credit Agreement and/or any successor facility or facilities.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"U.S. Government Obligations" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof; and (ii) depositary receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal or interest of the U.S. Government Obligation evidenced by
such depositary receipt.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all
of the outstanding Capital Stock or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF CREDIT FACILITIES
GENERAL
The Company has entered into a credit agreement (the "Credit Agreement") with
NationsBank of Texas, N.A., as administrative agent (the "Agent") and a
syndicate of banks and other financial institutions (the "Lenders") which
provides the Company with a $30.0 million Revolving Credit Facility and a $40.0
million Term Loan Facility. The Revolving Credit Facility includes a
subfacility for commercial and standby letters of credit of up to $7.0 million.
The Credit Agreement is guaranteed by GHC and is required to be guaranteed by
each subsidiary of the Company and GHC acquired or created after the
Acquisition Closing (collectively, the "Guarantors"). This information relating
to the Credit Agreement is qualified in its entirety by reference to the
complete text of the documents entered into or to be entered into in connection
therewith, copies of which will be available from the Company upon request.
The borrowings under the Credit Agreement were used, to finance the
Acquisition, to pay various costs associated with the Transactions and, in the
case of the Revolving Credit Facility, were, and currently are being used, for
general working capital purposes. The entire amount of the Term Loan Facility
and approximately
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$8.0 million of the Revolving Credit Facility were funded simultaneously at the
Acquisition Closing. As of December 28, 1996, the outstanding principal amount
of Loans (as defined in the Credit Agreement) was approximately $49.0.
MATURITY
The maturity of the Term Loan Facility is five years from the Acquisition
Closing and all amounts outstanding thereunder will be due on such date. The
Term Loan is subject to quarterly amortization of principal commencing on March
31, 1997, in an aggregate amount of $3.75 million in fiscal 1997, $6.5 million
in fiscal 1998, $8.5 million in fiscal 1999, $9.0 million in fiscal 2000, $9.75
million in fiscal 2001 and $2.5 million in fiscal 2002.
The Revolving Credit Facility will terminate, and all amounts outstanding
thereunder will become due and payable in full five years from the Acquisition
Closing.
MANDATORY PREPAYMENT
The Credit Agreement requires mandatory prepayment of Loans (as defined in
the Credit Agreement) in an amount equal to 100% of the net cash proceeds
received by the Company or any Guarantor in connection with any sales of assets
the proceeds of which are not used to acquire replacement assets. The Credit
Agreement also requires mandatory prepayment of loans in an amount equal to 50%
of the net cash proceeds received by the Company or any Guarantor from the
issuance of equity securities. Further, the Company is required to prepay loans
in an amount equal to 50% of the Excess Cash Flow (as defined in the Credit
Agreement) earned by the Company for each fiscal year. Until paid in full, all
such mandatory prepayments will be applied to the Term Loan Facility pro rata
to the reduction of the remaining scheduled amortization payments. After the
prepayment in full of the Term Loan, all such mandatory prepayments will be
applied as permanent reductions to the Revolving Credit Facility.
INTEREST
Outstanding borrowings under the Credit Agreement bear interest at a floating
rate per annum equal to, at the Company's option: (i) the Base Rate plus 1.50%
(as defined in the Credit Agreement) or (ii) the Eurodollar Rate (as defined in
the Credit Agreement) plus 2.50%; provided, however, the interest rate margins
are subject to reductions in the event the Company meets certain performance
targets based on a funded debt to EBITDA ratio. The Company is required at all
times to cause the lesser of (i) 50% of the sum of (A) all Funded Debt (as
defined in the Credit Agreement) and (B) the Unused Commitment (as defined in
the Credit Agreement) and (ii) all Funded Debt (as defined in the Credit
Agreement) to bear interest at a fixed rate of interest.
FEES
The Company is required to pay to the Lenders a commitment fee equal to 0.5%
per annum, payable in arrears on a quarterly basis, on the committed undrawn
amount of the Revolving Credit Facility during the preceding quarter; provided,
however, that such fee is subject to reduction to 0.375% in the event the
Company meets certain performance tests based on a funded debt to EBITDA ratio.
The Company is also required to pay to the Lenders participating in the
Revolving Credit Facility certain letter of credit fees, plus a fronting fee to
be paid to the issuing bank for its own account. The Agent and the Lenders
shall receive such other fees as have been separately agreed upon with the
Agent. See "Certain Transactions."
SECURITY
Indebtedness outstanding under the Credit Agreement is secured by a first-
priority security interest in, and lien upon, substantially all of the
Company's present and future tangible and intangible assets, including all
accounts receivable, inventory, machinery, equipment, real property, capital
stock of Subsidiaries, contract rights, trademarks, copyrights, patents,
license agreements and general intangibles. GHC and each Guarantor are
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required to grant a security interest and lien in all of its present and future
assets to secure its guarantee. Further, GHC and each Guarantor are required to
pledge all of the capital stock of each of its Subsidiaries (including the
capital stock of the Company) as collateral. The pledge by GHC of the capital
stock of its Subsidiaries (including the capital stock of the Company) could
have the effect of preventing the Company from effecting a public offering of
its capital stock without the prior consent of the Lenders.
COVENANTS
The Credit Agreement includes customary financial and other covenants
including, among other things: (i) maximum leverage ratio; (ii) minimum fixed
charge coverage ratio; (iii) interest coverage ratio; (iv) minimum net worth;
(v) limitations on indebtedness and guaranties; (vi) limitations on liens;
(viii) limitations on dividends and stock redemptions; (viii) limitations on
prepayments and redemptions of indebtedness (including optional or mandatory
redemptions of the Notes); (ix) limitations on mergers, consolidations and
asset sales; (x) limitations on acquisitions and other investments; and (xi)
limitations on transactions with affiliates. See "Risk Factors--Restrictions
Imposed by Terms of Company's Indebtedness."
EVENTS OF DEFAULT
The events of default under the Credit Agreement include, among others: (i)
failure of the Company to make any payment of principal of, interest on, or any
other amount owing in respect of any obligation under the Credit Agreement when
due and payable; (ii) breach of representations or warranties; (iii) breach of
other covenants or agreements contained in the Credit Agreement; (iv) cross-
default with respect to other indebtedness of GHC, the Company or any
Guarantor; (v) the filing by or against GHC, the Company or of any Guarantor of
a petition for bankruptcy or the appointment of a receiver for the business or
assets of GHC, the Company or any Guarantor or other similar bankruptcy events;
(vi) certain ERISA defaults; (vii) material judgments; (viii) invalidity of
loan documents or security interests; (ix) failure under certain circumstances
of GHC to own 100% of the issued and outstanding capital stock of the Company;
(x) a change in control of GHC; and (xi) engagement by GHC in any business
other than holding 100% of the common stock of the Company and other
subsidiaries.
A Change of Control under the Indenture would constitute a "change of
control" under the Credit Agreement, thereby triggering an "event of default"
under the Credit Agreement. The Credit Agreement definition of "change in
control" is, however, broader than the definition of Change of Control under
the Indenture. Under the Credit Agreement, a "change of control" would also
include the following: (i) prior to an initial public equity offering by the
Company, (a) the failure of GHC to own directly all of the capital stock of the
Company, (b) the failure of CGW to own directly a larger percentage of the
capital stock of GHC than NBIC or FPGT, or (c) any Person other than CGW, NBIC
and FPGT or two or more persons acting in concert other than CGW, NBIC and FPGT
shall have acquired beneficial ownership, directly or indirectly, of, or shall
have acquired by contract or otherwise, or shall have entered into a contract
or arrangement that, upon consummation, will result in its or their acquisition
of, control over, 35% or more of the capital stock of GHC; and (ii) after an
initial public equity offering by the Company (a) the failure of GHC to own all
of the capital stock of the Company, (b) the failure of CGW to own directly a
larger percentage of the capital stock of the Company or of GHC that was issued
and outstanding immediately prior to giving effect to such initial public
equity offering than NBIC or FPGT.
INDEMNIFICATION
Under the Credit Agreement, the Company has agreed to indemnify the Lenders
and related persons from and against any and all losses, liabilities, claims,
damages or expenses (including, without limitation, fees and disbursements of
counsel) that may be incurred by or asserted against any such indemnified party
in connection with any investigation, litigation or other proceeding relating
to the Credit Agreement or related documents, provided that the Company is not
liable for any such losses, liabilities, claims, damages or expenses resulting
from such indemnified party's own gross negligence or willful misconduct.
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The Credit Agreement also contains customary provisions protecting the
Lenders in the event of unavailability of funding, illegality, capital adequacy
requirements, increased costs, withholding taxes and funding losses.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations relating to the ownership of the Exchange Notes that has been
provided to the Company by its counsel, Alston & Bird LLP, and is not intended
to be tax advice to any person, nor is it binding upon the IRS. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing,
temporary, and proposed Treasury Regulations, laws, rulings and decisions now
in effect, all of which are subject to change. This summary deals only with
holders that will hold Exchange Notes as "capital assets" (within the meaning
of Section 1221 of the Code) and that are (i) citizens or residents of the
United States, (ii) domestic corporations, or (iii) otherwise subject to United
States federal income taxation on a net income basis in respect of an Exchange
Note. This summary does not address tax considerations applicable to investors
that may be subject to special tax rules, such as banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies, or
persons that will hold Notes as a position in a hedging transaction, "straddle"
or "conversion transaction" for tax purposes. This summary discusses the
material tax considerations applicable to the initial owners of the Exchange
Notes who acquire the Exchange Notes in exchange for Senior Notes that were
issued at par and those applicable to subsequent owners of the Exchange Notes.
The Company has not obtained any opinion from Alston & Bird LLP or any other
tax professional and has not sought and will not seek any rulings from the IRS
with respect to matters discussed below. While the Company believes that this
discussion is accurate, there can be no assurance that the IRS will not
successfully assert a different position concerning the tax consequences of the
acquisition, ownership or disposition of the Exchange Notes for any investor
and especially for investors subject to special tax rules.
INVESTORS CONSIDERING THE OWNERSHIP OF EXCHANGE NOTES SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
EXCHANGE OF SENIOR NOTES FOR EXCHANGE NOTES
The exchange of Senior Notes for Exchange Notes pursuant to the Exchange
Offer should not be considered a taxable exchange for federal income tax
purposes because the Exchange Notes should not constitute a material
modification of the terms of the Senior Notes. Accordingly, such exchange
should have no federal income tax consequences to holders of Senior Notes who
receive Exchange Notes in exchange therefor, and a holder's basis in an
Exchange Note will be the same as such holder's adjusted tax basis in the
Senior Note exchanged therefor. An Exchange Note acquired in exchange for a
Senior Note will have the same amount of market discount or premium, if any, as
the Senior Note exchanged therefor.
PAYMENT OF INTEREST
Interest on an Exchange Note generally will be includable in the income of a
holder as ordinary income at the time such interest is received or accrued, in
accordance with such holder's method of accounting for United States federal
income tax purposes.
OPTIONAL REDEMPTION OR REPAYMENT
The Senior Notes were issued with no original issue discount ("OID") because
they were issued at par. Similarly, the Exchange Notes will have no OID. For
purposes of determining OID, Treasury Regulations
88
<PAGE>
provide that (i) the holder's right to require redemption of the Exchange Notes
upon the occurrence of a Change of Control will not be taken into account
unless, based on all the facts and circumstances as of the issue date, it is
more likely than not that a Change of Control giving rise to the redemption
will occur and (ii) the Company will be deemed to exercise its option to redeem
the Exchange Notes in a manner that minimizes the yield on the Exchange Notes.
In the event of a Change of Control, each holder of Exchange Notes will have
the right to require the Company to repurchase all or a part of such holder's
Exchange Notes as described in "Description of Notes--Repurchase at the Option
of Holders--Change of Control." The Company may also redeem the Exchange Notes
in certain circumstances, pursuant to the terms of the Exchange Notes. Under
the Treasury Regulations discussed above, neither the repurchase nor the
redemption provisions of the Exchange Notes will cause the Exchange Notes to be
issued with OID. See "Description of Notes--Optional Redemption."
MARKET DISCOUNT ON RESALE OF EXCHANGE NOTES
A holder of an Exchange Note should be aware that the acquisition or resale
of an Exchange Note may be affected by the "market discount" provisions of the
Code. The market discount rules generally provide that if a holder of an
Exchange Note acquires the Exchange Note at a market discount (i.e., a discount
other than at original issue), any gain recognized upon the disposition of the
Exchange Note by the holder will be taxable as ordinary interest income, rather
than as capital gain, to the extent such gain does not exceed the accrued
market discount on such Exchange Note at the time of such disposition. "Market
discount" generally means the excess, if any, of an Exchange Note's stated
redemption price at maturity over the price paid by the holder therefor,
subject to a de minimis exception. A holder who acquires an Exchange Note at a
market discount also may be required to defer the deduction of a portion of the
amount of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry such Exchange Note, if
any.
Any principal payment on an Exchange Note acquired by a holder at a market
discount will be included in gross income as ordinary income (generally, as
interest income) to the extent that it does not exceed the accrued market
discount at the time of such payment. The amount of the accrued market discount
for purposes of determining the tax treatment of subsequent payments on, or
dispositions of, an Exchange Note is to be reduced by the amounts so treated as
ordinary income.
A holder of an Exchange Note acquired at a market discount may elect to
include market discount in gross income, for federal income tax purposes, as
such market discount accrues, either on a straight-line basis or on a constant
interest rate basis. This current inclusion election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the IRS. If a holder of an Exchange Note makes such an election, the
foregoing rules regarding the recognition of ordinary interest income on sales
and other dispositions and the receipt of principal payments with respect to
such Exchange Note, and regarding the deferral of interest deductions on
indebtedness incurred or maintained to purchase or carry such Exchange Note,
will not apply.
EXCHANGE NOTES PURCHASED AT A PREMIUM
In general, if a holder acquires an Exchange Note for an amount in excess of
its stated redemption price at maturity, the holder may elect to treat such
excess as "amortizable bond premium," in which case the amount required to be
included in the holder's income each year with respect to interest on the
Exchange Note will be reduced by the amount of amortizable bond premium
allocable (based on the Exchange Note's yield to maturity) to such year. Any
such election would apply to all bonds (other than bonds the interest on which
is excludable from gross income) held by the holder at the beginning of the
first taxable year to which the election applies or which thereafter are
acquired by the holder, and such election is irrevocable without the consent of
the IRS.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES
Upon the sale, exchange or redemption of an Exchange Note, a holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (except to the extent such amount is
attributable to accrued interest
89
<PAGE>
income not previously included in income which is taxable as ordinary income)
and (ii) such holder's adjusted tax basis in the Exchange Note. A holder's
adjusted tax basis in an Exchange Note generally will equal the cost of the
Exchange Note to such holder. Such capital gain or loss will be long-term
capital gain or loss if the holder's holding period in the Exchange Note is
more than one year at the time of sale, exchange or redemption.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the proceeds
of the sale of a Note to certain noncorporate holders, and a 31% backup
withholding tax may apply to such payments if the holder (i) fails to furnish
or certify his correct taxpayer identification number to the payor in the
manner required, (ii) is notified by the IRS that he has failed to report
payments of interest and dividends properly or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that
he is subject to backup withholding for failure to report interest and dividend
payments. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required minimum information is furnished to the IRS.
SENIOR NOTES REGISTRATION RIGHTS
The Company and the Initial Purchaser of the Senior Notes entered into the
Registration Rights Agreement dated November 25, 1996 pursuant to which the
Company agreed, for the benefit of the holders of the Senior Notes, at the
Company's cost, (i) on or prior to January 31, 1997, to file the Exchange Offer
Registration Statement of which this Prospectus is a part pursuant to which the
Senior Notes will be exchanged for the Exchange Notes, which will have the same
terms as the Senior Notes (except that the Exchange Notes will not contain
terms with respect to certain Liquidated Damages provisions and transfer
restrictions), (ii) to use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act prior
to March 31, 1997, and (iii) use its best efforts to consummate the Exchange
Offer on or prior to April 30, 1997. Upon this Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes
in exchange for surrender of the Senior Notes. The Company will keep the
Exchange Offer open for not less than 30 days and not more than 45 days (or
longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Senior Notes. For each Senior Note
tendered to the Company pursuant to the Exchange Offer and not validly
withdrawn by the holder thereof, the holder of such Senior Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Senior
Note. Holders whose Senior Notes are accepted for exchange will receive accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes, such interest to be payable with the first interest payment on the
Exchange Notes, but will not receive any payment in respect of interest on
Senior Notes accrued after the issuance of the Exchange Notes. See "The
Exchange Offer."
In the event that any changes in law or applicable interpretations of the
Commission Staff do not permit the Company to effect the Exchange Offer, or if
for any reason the Exchange Offer is not consummated by April 30, 1997, or in
certain other circumstances, the Company will, at its expense, (i) as promptly
as practicable, and in any event on or prior to 60 days after such filing
obligation arises or requested by eligible holders of Notes, file with the
Commission a Shelf Registration Statement covering resales of Notes, (ii) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act on or prior to 45 days after such filing
occurs and (iii) keep effective the Shelf Registration Statement continuously
until three years after its effective date (or such shorter period that will
terminate when all the Notes covered thereby have been sold pursuant thereto or
in certain other circumstances). The Company will, in the event of the filing
of a Shelf Registration Statement, provide to each holder of the Notes covered
by the Shelf Registration Statement copies of the prospectus that is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Notes. A
holder of Notes that sells such Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to
90
<PAGE>
deliver a prospectus to the purchaser, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such holder (including certain indemnification obligations). In
addition, each holder of the Notes will be required to deliver information to
be used in connection with the Shelf Registration Statement in order to have
its Notes included in the Shelf Registration Statement.
If (a) the Company fails to file the Exchange Offer Registration Statement by
January 31, 1997 or the Shelf Registration Statement within 60 days after such
filing obligation arises or requested by eligible holders of Notes, (b) either
the Exchange Offer Registration Statement is not declared effective by the
Commission on or prior March 31, 1997 or the Shelf Registration Statement is
not declared effective on or prior to 45 days after the filing of the Shelf
Registration Statement, (c) the Company fails to consummate the Exchange Offer
on or before April 30, 1997 or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective during the 180-day period following the consummation of
the Exchange Offer or the three-year period following the effective date of the
Shelf Registration Statement, as appropriate (each such event referred to in
clauses (a) through (d) above, a "Registration Default"), then the Company will
pay liquidated damages ("Liquidated Damages") to each holder of Notes, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes held by such holder for each week or portion thereof during
which such Registration Default continues. The amount of the Liquidated Damages
for such Registration Default will increase by an additional $.05 per week per
$1,000 principal amount of Notes with respect to each subsequent 90-day period
until such Registration Default has been cured, up to an aggregate maximum
amount of Liquidated Damages of $.30 per week per $1,000 principal amount of
Notes for all Registration Defaults. All accrued Liquidated Damages will be
paid by the Company on each interest payment date with respect to the Notes.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease and all accrued and unpaid Liquidated Damages shall be paid
promptly thereafter, as described in the Registration Rights Agreement.
PLAN OF DISTRIBUTION
Based on interpretations by the Commission Staff set forth in no-action
letters issued to unrelated third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Senior Notes
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any such holder which is (i) a broker-dealer that holds Notes
acquired for its own account as a result of market-making or other trading
activities, (ii) any holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act or (iii) a broker-dealer that
acquired Senior Notes directly from the Company) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Each broker-dealer that
holds Senior Notes acquired for its own account as a result of market-making
activities or other trading activities and who receives Exchange Notes pursuant
to the Exchange Offer may be a statutory underwriter, and must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging, and by
delivering a prospectus, such a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. To date, the
Commission Staff has taken the position that broker-dealers that hold Notes
acquired for its own account as a result of market-making activities or other
trading activities may fulfill their prospectus delivery requirements with
respect to transactions involving an exchange of securities such as the
exchange pursuant to the Exchange Offer (other than a resale of an unsold
allotment from the sale of the Senior Notes to the Initial Purchaser) with the
prospectus contained in the Exchange Offer Registration Statement. Pursuant to
the Registration Rights Agreement, the Company has agreed to permit such
broker-dealers referred to in the prior sentence and other persons, if any,
subject to similar prospectus delivery requirements to use this Prospectus in
connection with the resale of such Exchange Notes. Any holder that cannot rely
upon such interpretations will
91
<PAGE>
be ineligible, under Commission policy, to participate in the Exchange Offer,
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any secondary resale transaction
involving the Notes.
Each holder of the Senior Notes who wishes to exchange its Senior Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer--Terms of
the Exchange."
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Senior Notes where such Senior Notes were acquired as
a result of market making activities or other trading activities. The Company
has agreed that it will make this Prospectus, as amended or supplemented,
available to any such broker-dealer for use in connection with any such resale;
provided, however, that the Company shall not be required to maintain the
effectiveness of the Exchange Offer Registration Statement for more than 180
days following the consummation of the Exchange Offer (i.e., the Expiration
Date), exclusive of any period during which any stop order shall be in effect
suspending the effectiveness of the Exchange Offer Registration Statement;
provided, however, that in the event that all resales of Exchange Notes
(including, subject to the time periods set forth herein, any resales by a
broker-dealer exchanging Senior Notes acquired for its own account as a result
of market-making activities or other trading activities for Exchange Notes)
covered by the Exchange Offer Registration Statement have been made, the
Exchange Offer Registration Statement need not remain continuously effective
for the full 180-day period discussed above. In addition, until , 1997,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
During the 180-day period following the Expiration Date discussed above, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incidental to the Exchange Offer other than commissions and
concessions of any brokers or dealers and will indemnify holders of the Senior
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act, as set forth in the Registration Rights
Agreement.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
have been passed upon for the Company by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The financial statements of the Business at September 30, 1995 and at
September 28, 1996, and for each of the three years in the period ended
September 28, 1996 appearing in this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
92
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GORGES/QUIK-TO-FIX FOODS, INC.
Unaudited Balance Sheet at December 28, 1996............................. F-2
Unaudited Statements of Operations for the three month period ended
December 30, 1995,
the eight week period ended November 25, 1996, the five week period
ended
December 28, 1996, and the pro-forma three month period ended December
28, 1996................................................................ F-3
Unaudited Statements of Cash Flows for the three month period ended
December 30, 1995,
the eight week period ended November 25, 1996, and the five week period
ended
December 28, 1996....................................................... F-4
Notes to Unaudited Financial Statements.................................. F-5
GORGES/QUIK-TO-FIX FOODS
Report of Independent Auditors........................................... F-11
Balance Sheets at September 30, 1995, and September 28, 1996............. F-12
Statements of Income for the years ended September 30, 1995, and Septem-
ber 28, 1996............................................................ F-13
Statements of Cash Flows for the years ended September 30, 1995, and Sep-
tember 28, 1996......................................................... F-14
Notes to Financial Statements............................................ F-15
</TABLE>
F-1
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPANY
------------
DECEMBER 28,
1996
------------
<S> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15
Accounts receivable, net 11,882
Inventory 29,197
Prepaid expenses and other 715
-----------
Total current assets 41,809
Property, plant and equipment:
Land 1,499
Buildings and leasehold improvements 43,162
Machinery and equipment 42,589
Land improvements and other 3,145
-----------
90,395
Accumulated depreciation (682)
-----------
Net property, plant and equipment 89,713
Other assets:
Intangible assets 63,774
Organizational and deferred debt issuance costs 8,731
-----------
Other 50
-----------
Total assets $204,077
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,888
Current portion of long-term debt 5,000
-----------
Total current liabilities 15,888
Long-term debt, less current portion 144,000
Deferred income taxes --
Investment and advances by Tyson --
Stockholders' equity:
Common stock, $.01 par value; 2,000 shares authorized,
1,000 shares issued and outstanding --
Additional paid-in capital 45,000
Accumulated deficit (811)
-----------
Total stockholders' equity 44,189
-----------
Total liabilities and stockholder's equity $204,077
===========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------ -----------------
THREE MONTHS ENDED EIGHT WEEKS ENDED FIVE WEEKS ENDED
DECEMBER 30, 1995 NOVEMBER 25, 1996 DECEMBER 28, 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ----------------- -----------------
<S> <C> <C> <C>
Sales $59,068 $31,966 $17,118
Costs of goods sold 48,308 25,917 14,445
------- ------- -------
Gross profit 10,760 6,049 2,673
Operating expenses:
Selling, general and
administrative 6,790 4,153 1,659
Amortization 406 250 287
------- ------- -------
Total operating ex-
penses 7,196 4,403 1,946
------- ------- -------
Operating income 3,564 1,646 727
Interest expense -- -- 1,538
Other (income) expense (23) -- --
------- ------- -------
Earnings before taxes
on income 3,587 1,646 (811)
Income tax expense 1,578 731 --
------- ------- -------
Net income (loss) $ 2,009 $ 915 $ (811)
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------ -----------------
THREE MONTHS ENDED EIGHT WEEKS ENDED FIVE WEEKS ENDED
DECEMBER 30, 1995 NOVEMBER 25, 1996 DECEMBER 28, 1996
------------------ ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss) $ 2,009 $ 915 $ (811)
Adjustments to recon-
cile net income (loss)
to net cash provided
by (used in) operating
activities:
Depreciation 2,069 342 682
Amortization 406 250 356
Deferred income taxes (746) 26 --
Changes in assets and
liabilities:
Increase in accounts
receivable -- -- (11,882)
(Increase) decrease
in inventory (1,648) (571) 1,730
Increase in prepaid
expenses and other -- -- (765)
Increase in accounts
payable and
accrued expenses -- -- 10,310
------- ----- ---------
Net cash provided by
(used in) operating
activities 2,090 962 (380)
Cash flows from invest-
ing activities:
Purchases of plant and
equipment (811) (141) (395)
Acquisition, net of
cash received -- -- (184,349)
Other 1,080 -- --
------- ----- ---------
Net cash provided by
(used in) investing
activities 269 (141) (184,744)
Cash flows from financ-
ing activities:
Proceeds from note of-
fering -- -- 100,000
Capital contributions -- -- 45,000
Proceeds from revolving
line of credit -- -- 9,000
Proceeds from term loan -- -- 40,000
Debt issuance and orga-
nizational costs -- -- (8,861)
Decrease in Investment
and advances by Tyson (2,359) (821) --
------- ----- ---------
Net cash (used in)
provided by financing
activities (2,359) (821) 185,139
------- ----- ---------
Net increase in cash and
cash equivalents 0 0 15
Cash and cash equiva-
lents at beginning of
period 9 9 --
------- ----- ---------
Cash and cash
equivalents at end of
period $ 9 $ 9 $ 15
======= ===== =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1996
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
(a) Description of Business
Gorges/Quik-to-Fix Foods, Inc., (the "Company") is a leading producer,
marketer and distributor of value added processed fresh and frozen beef, and
to a lesser extent pork and poultry. The Company purchases fresh and frozen
beef, pork and poultry, which it processes into a broad range of fully cooked
and ready to cook products generally falling into one of two categories, value
added products, and ground beef. Value added products include but are not
limited to: (i) breaded beef items such as country fried steak and beef
fingers; (ii) charbroiled beef items such as fully cooked hamburger patties,
fajita strips, meatballs, and meatloaf; and (iii) other specialty products
such as fully cooked and ready to cook pork sausage, breaded pork and turkey,
cubed steaks, and Philly steak slices. Ground beef product offerings primarily
consist of individually quick frozen hamburger patties. The Company's products
are primarily sold to the foodservice industry, which encompasses all aspects
of away-from-home food preparation, including restaurants, schools, healthcare
providers, corporations, and other commercial feeding operations. The Company
sells its products primarily through broadline and specialty foodservice
distributors.
(b)Basis of Presentation
The accompanying unaudited financial statements include financial
information of the Company, and its "Predecessor," which is the Company prior
to its acquisition from Tyson Foods, Inc. ("Tyson"). The Predecessor
represents the beef processing assets and operations of Tyson, and had been
operated and accounted for as a consolidated operating division of Tyson.
Prior to the Acquisition, Tyson's accounting system produced separate income
statements for the Predecessor while certain balance sheet accounts, including
the majority of cash, receivables, prepaids, payables and accruals were
maintained only on a consolidated basis at the corporate level, and are in
effect reflected in Investment and Advances by Tyson. The Predecessor also
participated in Tyson's overall corporate cash management program whereby
operating funds were provided by Tyson with the corresponding charge or credit
reflected in the Investment and Advances by Tyson account. As a result, the
Predecessor maintained only nominal cash accounts. A portion of Tyson's
accounting and administrative costs related to these functions were allocated
to the Predecessor as discussed in Note 2. Additionally, the allocable portion
of the expenses associated with certain other assets and other liabilities
recorded at Tyson's corporate level for which the Predecessor received benefit
was reported in the Predecessor's operations.
On November 25, 1996, the assets of the Predecessor were sold to the
Company, an entity formed by CGW Southeast Partners III, L.P. ("CGW"), to
acquire the assets of the Predecessor. As a result of the acquisition,
financial information for periods through September 28, 1996 and periods
subsequent to September 29, 1996 is presented on a different cost basis and,
therefore, such information is not comparable.
In the opinion of management, the accompanying unaudited financial
information of the Company contains all adjustments, consisting only of those
of a normal recurring nature, necessary to present fairly the Company's
financial position as of December 28, 1996, and the results of operations and
cash flows for the three months ended December 28, 1996 and December 30, 1995.
These results are not necessarily indicative of the results to be expected for
the full fiscal year.
F-5
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Business utilizes a 52 or 53 week accounting period, ending on the
Saturday closest to September 30.
INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out) or market
(replacement or net realizable value), consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28,
1996
------------
<S> <C>
Finished products $26,623
Work in process 141
Supplies 2,433
-------
Total $29,197
=======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is calculated
primarily by the straight-line method over the estimated useful lives of the
assets, which range from 3 to 30 years.
Capital expenditures for equipment and capital improvements are generally
capitalized while maintenance is expensed.
INTANGIBLE ASSETS AND ORGANIZATIONAL AND DEFERRED DEBT ISSUANCE COSTS
Intangible assets, consisting of goodwill and trademarks, are stated at cost
and are amortized on a straight line basis over 10 to 30 years (40 years by
the Predecessor). Recoverability of the carrying value of intangible assets is
evaluated on a recurring basis with consideration toward recovery through
future operating results on an undiscounted basis.
Organizational costs are amortized on a straight line basis over five years,
and deferred debt issuance costs are amortized on a straight line basis over
the life of the debt instrument to which it relates.
At December 28, 1996, the accumulated amortization was $0.4 million.
LONG-LIVED ASSETS
At each balance sheet date, the Company reviews the carrying value of long-
lived assets to determine if facts and circumstances suggest that it may be
impaired. If this review indicates that the carrying value of an asset may not
be fully recoverable, an estimate of the discounted cash flows is prepared and
the carrying value of the asset will be reduced by the estimated shortfall of
discounted cash flows, if any.
INCOME TAXES
The Company follows the liability method of accounting for deferred income
taxes. The liability method provides that deferred tax liabilities are
recorded at currently enacted tax rates based on the difference between the
tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences.
SELLING EXPENSES
Selling expenses consist of direct selling expenses incurred by the Company,
and include direct product line expenses such as shipping and storage,
external handling, consignment freight, external freezer charges, product and
package design, brokerage expense, and other direct selling expenses such as
certain salaries, travel and research and development. Selling expenses for
the Predecessor also include an allocable share of other common Tyson selling
expenses as discussed below.
F-6
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ALLOCATION OF CORPORATE EXPENSES
Prior to the Acquisition certain indirect administrative and selling
expenses incurred at the corporate level which were not actually incurred for
programs specific to the Predecessor have been allocated to the Predecessor
based on net sales. Allocated administrative expenses include costs incurred
for all corporate support functions. Allocated selling expenses consisted of
costs incurred by Tyson's corporate sales and marketing department. Because
these charges were incurred by Tyson, actual charges, if the Predecessor had
been a separate entity at the time, might have differed. Certain expenses
incurred at Tyson corporate directly related to the Predecessor such as
production scheduling, research and development and the corporate aviation
department were allocated based on usage.
Selling, administrative and corporate expenses allocated to the Predecessor
and charged to operations for the three months ended December 30, 1995 were
$1.8 million.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion expenses are charged to operations in the period
incurred. Advertising and promotion expenses for the three month periods ended
December 30, 1995 and December 28, 1996 were $1.9 million and $1.5 million,
respectively.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENT AND ADVANCES BY TYSON
Investment and Advances by Tyson represent its' ownership interest in the
recorded net assets of the Predecessor. As discussed in Note 1, all cash and
inter-company transactions flow through this account. The Predecessor was not
charged interest on advances from Tyson.
3. LONG TERM DEBT
(a) Senior Debt
The Company has entered into a credit agreement (the "Credit Agreement")
with NationsBank of Texas, N.A., (the "Bank") as agent for a syndicate of
banks and financial institutions which provides the Company with a $30 million
Revolving Credit Facility (the "Revolver"), and a $40 million Term Credit
Facility (the "Term Loan"). The Revolver includes a subfacility of $7 million
for commercial and standby letters of credit. The Revolver has a term of five
years, and all amounts outstanding will become due and payable on November 25,
2001. As of December 28, 1996, the Company's available credit under the
Revolver was $21.0 million. The Term Loan also has a five year term and is
subject to quarterly principal payments in an aggregate amount of $3.75
million remaining in fiscal 1997, $6.5 million in fiscal 1998, $8.5 million in
fiscal 1999, $9.0 million in fiscal 2000, $9.75 million in fiscal 2001, and
$2.5 million in fiscal 2002.
F-7
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. LONG TERM DEBT--(CONTINUED)
Outstanding borrowings under the Credit Agreement bear interest at floating
rates per annum equal to, at the Company's option: (i) the Base Rate plus
1.50%, or (ii) the Eurodollar rate, LIBOR plus 2.50%, provided, however, the
interest rate margins are subject to reductions in the event the Company meets
certain performance targets as set forth in the Credit Agreement. At December
28, 1996 the interest rate for the Company based on this formula was 8.15%.
The Company may be required to make mandatory prepayments against both
facilities, comprised of principal payments totaling: (i) 100% of cash
received in asset sales wherein the proceeds are not used to purchase
replacement assets, and (ii) 50% of the Company's Excess Cash Flow as defined
in the Credit Agreement. These payments are to be applied first to the Term
Loan and, upon the Term Loan's retirement, to the Revolver as a permanent
reduction.
Under the Credit Agreement, the Company is subject to customary financial
and other covenants including certain financial limit and ratio covenants as
well as limitations on further indebtedness, guaranties, liens, dividends and
other restricted payments (including transactions with affiliates),
prepayments and redemption of debt, mergers, acquisitions, asset sales,
consolidations, and other investments. Additionally, the Credit Agreement
provides that indebtedness outstanding is secured by a first-priority security
interest in, and lien upon, substantially all of the Company's present and
future tangible and intangible assets and capital stock. The Company was in
compliance with these covenants at December 28, 1996.
(b)Subordinated Debt
On November 25, 1996, the Company consummated a private placement of $100
million aggregate principal amount of 11.5% Senior Subordinated Notes Due 2006
(the "Notes"). The Notes will mature on December 1, 2006, unless previously
redeemed. Interest on the notes is payable semiannually in arrears, commencing
June 1, 1997, and will be payable on June 1 and December 1 of each year at a
rate of 11 1/2% per annum. The issuance of the Notes resulted in net proceeds
to the Company of approximately $95 million and after underwriting discounts
and other debt issuance costs aggregating approximately $5 million.
The Notes were issued pursuant to an Indenture which contains certain
restrictive covenants and limitations. Among other things, the Indenture
limits the incurrence of additional indebtedness, limits the making of
restricted payments (as defined) including the declaration and/or payment of
dividends, places limitations on dividends and other payments by the Company,
and places limitations on liens, certain asset dispositions and merger/sale of
assets activity. The Company was in compliance with these covenants at
December 28, 1996.
The Notes are unsecured subordinated general obligations of the Company. The
Notes become redeemable at the Company's option on December 1, 2001, at which
time the Notes are redeemable in whole or part, subject to a redemption
premium which begins at 105.75 % of the face value in 2001 and reduces at a
scheduled rate annually until 2004 at which time the redemption is 100% of
face value. Notwithstanding the foregoing, at any time prior to December 1,
1999, the Company, at its option, may redeem the Notes, in part, with the net
proceeds of a public equity offering or of a capital contribution made to the
common equity of the Company. Any such redemption is also subject to a
redemption premium, which begins at 110.75% in 1997 and 110.00% in 1998 and
1999. No mandatory redemption or sinking fund payments are required with
respect to the Notes; however, at each Note holder's option, the Company may
be required to repurchase the Notes at a redemption premium of 101% in the
event the Company incurs a change of control as defined by the Indenture
F-8
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
4. COMMITMENTS
Tyson (for the Predecessor), and the Company leased certain properties and
equipment for which the total rentals thereon approximated $11,000 and $11,000
for the three month period ended December 30, 1995 and December 28, 1996,
respectively.
Future minimum lease payments for all noncancelable operating leases for the
Business at December 28, 1996 total $1,041,000, composed of $152,000,
$205,000, $207,000, $210,000, 199,000, and $68,000 annually for the remainder
of fiscal 1997 through 2002.
5. BENEFIT PLANS
Tyson had and the Company has defined contribution retirement and incentive
benefit programs for various groups of personnel. All employees of the
Predecessor and the Company are eligible after meeting requirements concerning
time employed. Incentive benefit programs are of a profit sharing nature, and
are discretionary as to amount and timing. No incentive contributions were
made by Tyson or the Company. Discretionary contributions totaled $218,000 and
$145,000 for the three month period ended December 30, 1995 and December 28,
1996, respectively.
6. INCOME TAXES
The Predecessor was included in the consolidated federal income tax return
of Tyson and computed its federal tax provision as if it filed a separate
return. The state tax provision was computed using an effective state tax rate
as if the Predecessor filed separate state tax returns. The Company has not
recorded any income tax benefit and deferred tax asset associated with the net
loss for the period ended December 28, 1996 because in the opinion of
management it is uncertain when the Company will be able to realize such
deferred tax asset.
7. SIGNIFICANT CUSTOMERS
Certain of the Predecessor's and the Company's products are sold to major
foodservice distributors for distribution to foodservice outlets. As a result,
the Business's top three customers accounted for approximately 44% of sales
for the three month period ended December 30, 1995 and 36% for the three month
period ended December 28, 1996. Sales to one of these customers are likely to
be significantly lower in fiscal 1997 than in fiscal 1996 due to the
customer's decision to increase its purchases with one of the Company's
competitors.
8. TRANSACTIONS WITH AFFILIATES
The Company has entered into a consulting agreement with an affiliate of
majority shareholder CGW, under which CGW will receive a monthly fee of
$30,000 for financial and management consulting services. In addition to the
monthly fee to CGW, the Board of Directors may approve an additional fee not
to exceed $500,000 annually, based upon overall Company operations. At the
closing of the acquisition (see Note 10), CGW received a fee of $2.65 million,
included as part of the Company's organizational costs, for its services in
assisting the Company with the structuring and negotiating of this
transaction.
NationsBank of Texas, N.A., an affiliate of NationsBanc Investment Corp.
("NBIC") a minority shareholder and a limited partner of CGW, is a lender to
the Company and in that capacity has received usual and customary fees for
underwriting, structuring, syndicating and administering the Facilities under
the Credit Agreement. NationsBanc Capital Markets, Inc., another affiliate of
NBIC, was the initial purchaser of the Company's Senior Subordinated Notes,
and in that capacity received usual and customary fees and commissions in
connection with that transaction.
F-9
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
9. ACQUISITION
On November 25, 1996 the Company acquired certain assets and liabilities of
the beef processing division of Tyson, in exchange for a cash payment of
$184.3 million (the "Acquisition"). The cash used to consummate the
Acquisition was obtained through the issuance of $45 million in common stock,
and the proceeds from the borrowings described in the notes above. The details
of the assets and liabilities purchased are as follows (in thousands):
<TABLE>
<S> <C>
Fixed and intangible assets $154,000
Inventory 30,927
Liabilities assumed (578)
--------
$184,349
========
</TABLE>
The Company assumed no liabilities or obligations of Tyson or the
Predecessor with the exception of those defined in the purchase agreement:
future obligations of normal course of business executory contracts,
agreements to purchase inventory or supply products, accrued vacation pay, and
certain property tax obligations. Tyson has agreed to indemnify the Company
from any and all liabilities and obligations relating to the Predecessor,
other than the aforementioned liabilities assumed by the Company. The Company
and Tyson have also entered into a non-competition agreement which expires two
years from the date of closing, in which the parties have agreed, subject to
certain exceptions and limitations, to not compete with each other in the
production or sale of beef and pork items, in the case of Tyson, and poultry
items, in the case of the Company. Pursuant to a Transition Service agreement
between the parties, Tyson will also continue to provide the Company with
administrative and computer support for a period of up to twelve months after
the date of closing.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors Tyson Foods, Inc.
We have audited the accompanying balance sheets of the Gorges/Quik-to-Fix
Foods operations (the "Business") of Tyson Foods, Inc. as of September 28,
1996 and September 30, 1995, and the related statements of income and cash
flows for each of the three years in the period ended September 28, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Business as of
September 28, 1996 and September 30, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended September
28, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Little Rock, Arkansas
November 1, 1996
F-11
<PAGE>
GORGES/QUIK-TO-FIX FOODS
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Current assets:
Cash............................................. $ 9 $ 9
Inventories...................................... 30,634 31,325
-------- --------
Total current assets........................... 30,643 31,334
Property, plant and equipment:
Land............................................. 1,088 1,088
Buildings and leasehold improvements............. 34,905 35,768
Machinery and equipment.......................... 57,149 52,853
Land improvements and other...................... 1,160 1,155
Buildings and equipment under construction....... 3,139 31
-------- --------
97,441 90,895
Accumulated depreciation......................... 43,510 44,439
-------- --------
Net property, plant and equipment.............. 53,931 46,456
Excess of investment over net assets acquired.. 61,132 59,508
-------- --------
Total assets..................................... $145,706 $137,298
======== ========
LIABILITIES AND INVESTMENT AND ADVANCES BY PARENT:
Noncurrent deferred income taxes................... $ 7,660 $ 6,375
Investment and advances by Parent.................. 138,046 130,923
-------- --------
Total liabilities and investment and advances by
Parent.......................................... $145,706 $137,298
======== ========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
GORGES/QUIK-TO-FIX FOODS
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales.................................... $331,969 $304,474 $232,761
Cost of goods sold....................... 278,600 250,787 189,559
-------- -------- --------
Gross profit......................... 53,369 53,687 43,202
Operating expenses:
Selling................................ 27,513 25,128 22,452
General and administrative............. 6,367 6,386 3,962
Amortization........................... 1,528 1,624 1,624
Plant relocation....................... -- 1,036 --
-------- -------- --------
Total operating expenses............. 35,408 34,174 28,038
-------- -------- --------
Operating income......................... 17,961 19,513 15,164
Other expenses........................... 4 678 796
-------- -------- --------
Earnings before taxes on income.......... 17,957 18,835 14,368
Provision for income taxes............... 7,508 7,931 6,205
-------- -------- --------
Net income........................... $ 10,449 $ 10,904 $ 8,163
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
GORGES/QUIK-TO-FIX FOODS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 10,449 $ 10,904 $ 8,163
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation......................... 9,090 8,740 7,292
Amortization......................... 1,528 1,624 1,624
Deferred income taxes................ 778 (3,720) (1,285)
Loss on dispositions of property,
plant and equipment................. 4 678 792
(Increase) decrease in inventories... (5,125) 2,881 (691)
-------- -------- --------
Cash provided by operating activi-
ties.............................. 16,724 21,107 15,895
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions......... (33,476) -- --
Additions to property, plant and equip-
ment.................................. (6,580) (2,792) (735)
Proceeds from sale of property, plant
and equipment......................... 283 5,302 126
-------- -------- --------
Cash provided by (used for) invest-
ing activities.................... (39,773) 2,510 (609)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in investment and
advances by Parent.................... 23,075 (23,637) (15,286)
-------- -------- --------
Cash provided by (used for) financ-
ing activities.................... 23,075 (23,637) (15,286)
-------- -------- --------
Increase (decrease) in cash............ 26 (20) --
Cash at beginning of period............ 3 29 9
-------- -------- --------
Cash at end of period.................. $ 29 $ 9 $ 9
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
GORGES/QUIK-TO-FIX FOODS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Gorges/Quik-to-Fix Foods (the "Business") represents the beef processing
assets and operations of Tyson Foods, Inc. ("Parent"). The Business is a U.S.
processor of beef and produces a wide variety of individually quick-frozen,
fully-cooked, and ready-to-cook foodservice beef products and specialty items.
Products are sold throughout the U.S. to foodservice operators and
distributors and wholesale clubs.
The Business has been operated and accounted for as a consolidated operating
division of Parent. Parent's accounting system produces separate income
statements for the Business while certain balance sheet accounts, including
cash, receivables, prepaids, payables and accruals are maintained only on a
consolidated basis at the corporate level, which are in effect reflected in
Investment and Advances by Parent.
The Business participates in Parent's overall corporate cash management
program whereby operating funds for the Business are provided by Parent with
the corresponding charge or credit reflected in the Investment and Advances by
Parent account. As a result, the Business maintains only nominal cash
accounts.
The Business's products are sold through Parent's common marketing and
distribution operations with the related receivables being recorded at the
corporate level. A customer invoice frequently includes sales of products of
more than one Parent division. Accounts receivable are not maintained at the
Business level; accounting and collection efforts of receivables are performed
by Parent personnel. The Business's receivables are credited to the Business
through the Investment and Advances by Parent account. Additionally, the
purchase of raw materials and services is performed at the Parent corporate
level and related payables are maintained only on a consolidated group basis.
The Business's share of such payables and other liabilities is included in the
Investment and Advances by Parent account. A portion of Parent's accounting
and administrative costs related to these functions is allocated to the
Business as discussed in Note 2.
Personnel involved in the operations of the Business are employed by Parent
and obligations related to these employees are recorded at the corporate level
with the Business's allocable portion of the related expense reflected in the
Business's operating results. Vacation earned by the Business's salaried and
hourly employees is determined on a calendar year basis. The amount of earned
and unused vacation is accrued and reflected in the Investment and Advances by
Parent account.
Additionally, the allocable portion of the expenses associated with certain
other assets and other liabilities recorded at the corporate level for which
the Business receives benefit is reported in the Business's operations.
The average outstanding balance in the Investment and Advances by Parent
account was $134.6, $143.7, and $134.5, for fiscal 1994, fiscal 1995, and
fiscal 1996, respectively.
On October 17, 1996, Parent signed an agreement with an entity formed by CGW
Southeast Partners III, L.P. to sell the assets of the Business. The sale is
expected to close in November 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Business utilizes a 52 or 53 week accounting period which ends on the
Saturday closest to September 30.
F-15
<PAGE>
GORGES/QUIK-TO-FIX FOODS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market
(replacement or net realizable value), consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Finished products................................ $24,948 $27,569
Work in process.................................. 1,622 688
Supplies......................................... 4,064 3,068
------- -------
Total.......................................... $30,634 $31,325
======= =======
</TABLE>
Property, Plant and Equipment and Depreciation
Property, plant and equipment is stated at cost. Depreciation is calculated
primarily by the straight-line method over the estimated useful lives of the
assets, which range from 3 to 33 years.
Capital expenditures for equipment and capital improvements are generally
capitalized while maintenance is expensed. Approximately $488,000 will be
required to complete construction in progress at September 28, 1996.
Excess of Investments Over New Assets Acquired
Costs in excess of the fair value of net assets of businesses purchased are
amortized on a straight line basis over 40 years. The carrying value of excess
of investments over net assets acquired is reviewed at each balance sheet date
to determine if facts and circumstances suggest that it may be impaired. If
this review indicates that the excess of investments over net assets acquired
may not be recoverable, an estimate of the discounted cash flows of the entity
acquired is prepared and the Business's carrying value of excess of
investments over net assets acquired will be reduced by the estimated
shortfall of cash flows. At September 30, 1995 and September 28, 1996, the
accumulated amortization of excess of investments over net assets acquired was
$9.0 million and $10.6 million, respectively.
Income Taxes
The Business follows the liability method in accounting for deferred income
taxes. The liability method provides that deferred tax liabilities are
recorded at currently enacted tax rates based on the difference between the
tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences.
Selling Expenses
Selling expenses consist of direct selling expenses incurred by the
Business, and include direct product line expenses such as shipping and
storage, external handling, consignment freight, external freezer charges,
product and package design, brokerage expense, and other direct selling
expenses such as certain salaries, travel and research and development.
Selling expenses also include an allocable share of other common Parent
selling expenses as discussed below.
F-16
<PAGE>
GORGES/QUIK-TO-FIX FOODS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Allocation of Corporate Expenses
Certain indirect administrative and selling expenses incurred at the
corporate level which are not actually incurred for programs specific to the
Business have been allocated to the Business based on net sales. Allocated
administrative expenses include costs incurred for all corporate support
functions. Allocated selling expenses consisted of costs incurred by Parent's
corporate sales and marketing department. Because these charges were incurred
by Parent, actual charges, if the Business were a separate entity, might have
differed. Certain expenses incurred at the corporate level directly related to
the Business such as production scheduling, research and development and the
corporate aviation department are allocated based on usage. Management
believes that the various methods used to allocate corporate expenses are
reasonable.
Selling, administrative and corporate expenses allocated to the Business and
charged to operations for fiscal 1994, fiscal 1995 and fiscal 1996 were $17.1
million, $13.9 million and $7.7 million, respectively.
Advertising and Promotion Expenses
Advertising and promotion expenses are charged to operations in the period
incurred. Advertising and promotion expenses for fiscal 1994, fiscal 1995 and
fiscal 1996 were $11.2 million, $7.3 million and $5.7 million, respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. PLANT RELOCATION AND DISPOSITION OF ASSETS
In May 1995, Parent sold the LeMars, Iowa beef processing facility for total
proceeds of $5.3 million, resulting in a loss of $582,000, which is included
in the Business's other expenses for the year ended September 30, 1995.
Additionally, the Business incurred $1.0 million in costs to close this plant
and relocate the production lines to its other facilities. Plant relocation
costs represent charges that can be specifically attributed to this production
line move. Plant closing costs consist primarily of employee compensation and
expenses related to shutting the plant down and disassembling the machinery
and equipment.
As a result of the LeMars plant closing discussed above and the movement of
production lines between other facilities, the Business incurred certain
expenses during the year ended September 28, 1996, associated with
Reconfiguration of production between its facilities in an effort to gain
production efficiencies. It is estimated that approximately $4.3 million in
expenses related to this Reconfiguration were incurred during the year ended
September 28, 1996, which may not reoccur. These expenses included costs to
train employees, production inefficiencies incurred during start-up of the
transferred production lines, and transportation costs. Additionally, as part
of the Reconfiguration of product lines between facilities, certain equipment
was written off or sold at a loss which has been included in other expenses
for the year ended September 28, 1996.
4. INVESTMENT AND ADVANCES BY PARENT
Investment and advances by Parent represents Parent's ownership interest in
the recorded net assets of the Business. As discussed in Note 1, all cash and
intercompany transactions flow through this account. The Business is not
charged interest on advances from Parent.
F-17
<PAGE>
GORGES/QUIK-TO-FIX FOODS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. BENEFIT PLANS
Parent has a defined contribution retirement and incentive benefit program
for various groups of personnel which in effect cover all employees of the
Business. Incentive benefit programs are of a profit sharing nature. No
incentive contributions were made by the Parent. Discretionary Parent
contributions for the Business totaled $649,000, $785,000 and $873,000 for
fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
6. COMMITMENTS
Parent leases certain properties and equipment for the Business for which
the total rentals thereon approximated $10,000, $17,000 and $44,000 for fiscal
1994, fiscal 1995 and fiscal 1996, respectively.
Future minimum lease payments for all noncancelable operating leases for the
Business at September 28, 1996 total $61,000, composed of $31,000 for fiscal
1997 and $10,000 annually for fiscal 1998 through 2000.
7. INCOME TAXES
The Business is included in the consolidated federal income tax return of
Parent and computes its federal tax provision as if it filed a separate
return. The state tax provision is computed using an effective state tax rate
as if the Business filed separate state tax returns.
Detail of the provision for income taxes consists of:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal............................... $6,449 $ 6,746 $ 5,270
State................................. 1,059 1,185 935
------ ------- -------
$7,508 $ 7,931 $ 6,205
====== ======= =======
Current............................... $6,730 $11,651 $ 7,490
Deferred.............................. 778 (3,720) (1,285)
------ ------- -------
$7,508 $ 7,931 $ 6,205
====== ======= =======
</TABLE>
The reasons for the difference between the effective income tax rate and the
statutory U.S. federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
U.S. federal income tax rate........ 35.0% 35.0% 35.0%
State income taxes.................. 3.8 4.1 4.2
Amortization of excess of
investments over net assets
acquired........................... 3.1 3.0 4.0
---- ---- ----
41.9% 42.1% 43.2%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
component of the Business's deferred tax liabilities as of September 30, 1995
and September 28, 1996, $7.7 million and $6.4 million, respectively, consisted
primarily of the basis difference in property, plant and equipment.
F-18
<PAGE>
GORGES/QUIK-TO-FIX FOODS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SIGNIFICANT CUSTOMERS
Certain of the Business's products are sold to major foodservice
distributors for distribution to foodservice chains. As a result, the
Business's top three customers accounted for approximately 15%, 14%, and 13%
of sales for fiscal 1994 and 1995 and 18%, 13%, and 13% of sales for fiscal
1996. Sales to one of these customers are likely to be significantly lower in
fiscal 1997 than in fiscal 1996 due to the customer's decision to increase its
purchases with one of the Business's competitors.
F-19
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
All tendered Senior Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
The Exchange Agent
for the Exchange Offer is
IBJ SCHRODER BANK & TRUST COMPANY
By Facsimile:
(212) 858-2611
Confirm By Telephone
(212) 858-2103
Attention: Reorganization Operations Department
By Hand Overnight Delivery:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window Subcellar One, (SC-1)
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company
P. O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
UNTIL , 1997 (90 DAYS
AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN
THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS
UNDERWRITERS OR AS REQUIRED
BY THE TERMS OF THE EXCHANGE
OFFER.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All amounts are estimates except the SEC registration fee.*
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 30,303
Accounting fees and expenses...................................... **
Legal fees and expenses........................................... 300,000
Printing and engraving expenses................................... 200,000
Blue Sky fees and expenses........................................ 110,000
Trustee, Exchange Agent, Transfer Agent and Registrar fees and ex-
penses........................................................... **
Miscellaneous..................................................... **
--------
Total......................................................... $ **
========
</TABLE>
- --------
* Includes amounts incurred in connection with the original issuance of the
Notes.
**To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII of the Company's Restated Certificate of Incorporation provide
that no person shall be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director; provided,
however, except liability of a director (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended hereafter
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall
be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. No amendment, repeal or modification
of Article VII of the Company's Restated Certificate of Incorporation shall
adversely affect any right or protection of a director of the Company existing
thereunder with respect to any act or omission occurring prior to such
amendment, repeal or modification. For purposes of Article VII of the
Company's Restated Certificate of Incorporation, "fiduciary duty as a
director" also includes any fiduciary duty arising out of serving at the
Company's request as a director of another corporation, partnership, limited
liability company, joint venture or other enterprise, and "personal liability
to the Company or its stockholders" also shall include any liability to such
other corporation, partnership, limited liability company, joint venture,
trust or other enterprise, and any liability to the Company in its capacity as
a security holder, joint venturer, partner, member, beneficiary, creditor or
investor of or in any such other corporation, partnership, limited liability
company, joint venture, trust or other enterprise.
Section 6.1 of the Company's Restated Certificate of Incorporation provides
that each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact:
(a) that he or she, or a person of whom he or she is the legal
representative, is or was a director or Board-elected officer of the
Company, or
(b) that he or she, being at the time a director or Board-elected officer
of the Company, is or was serving at the request of the Company as a
director, trustee, officer, employee or agent of another corporation or of
a partnership, limited liability company, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(collectively, "another enterprise" or "other enterprise"), whether either
in case (a) or in case (b) the basis of such proceeding is alleged action
or inaction (x) in an official capacity as a director or officer of the
Company, or as a director, trustee, officer, employee or agent
II-1
<PAGE>
of such other enterprise, or (y) in any other capacity related to the
Company or such other enterprise while so serving as a director, trustee,
officer, employee or agent, shall be indemnified and held harmless by the
Company to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law (or any successor provision or provisions) as the
same exists or may hereafter be amended (but, in the case of any such
amendment, with respect to alleged action or inaction occurring prior to
such amendment, only to the extent that such amendment permits the Company
to provide broader indemnification rights than permitted prior thereto),
against all expense, liability and loss (including without limitation
attorneys' fees and expenses, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) actually and reasonably incurred
by such person in connection therewith. The persons indemnified by Article
VI of the Company's Restated Certificate of Incorporation are hereinafter
referred to as "indemnitees." Such indemnification as to such alleged
action or inaction shall continue as to an indemnitee who has after such
alleged action or inaction ceased to be a director or officer of the
Company, or director, trustee, officer, employee or agent of such other
enterprise; and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. Notwithstanding the foregoing, except as may
be provided in the Company's Bylaws or by the Company's Board of Directors,
the Company shall not indemnify any such indemnitee in connection with a
proceeding (or portion thereof) initiated by such indemnitee (but this
prohibition shall not apply to a counterclaim, cross-claim or third-party
claim brought by the indemnitee in any proceeding) unless such proceeding
(or portion thereof) was authorized by the Company's Board of Directors.
The right to indemnification conferred in Article VI of the Company's
Restated Certificate of Incorporation: (i) shall be a contract right; (ii)
shall not be affected adversely as to any indemnitee by any amendment of
the Company's Restated Certificate of Incorporation with respect to any
alleged action or inaction occurring prior to such amendment; and (iii)
shall, subject to any requirements imposed by law and the Company's Bylaws,
include the right to be paid by the Company the expenses (including
attorneys' fees) incurred in defending any such proceeding in advance of
its final disposition.
Section 6.2 of the Company's Restated Certificate of Incorporation provides
that the rights to indemnification and to the advancement of expenses
conferred in Article VI of the Company's Restated Certificate of Incorporation
shall not be exclusive of any other right which any person may have or
hereafter acquire under the Company's Restated Certificate of Incorporation,
any statute, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
Section 6.2 of the Company's Bylaws further provides that if and to the
extent the Delaware General Corporation Law requires, an advancement by the
Company of expenses incurred by an indemnitee pursuant to clause (iii) of the
last sentence of Section 6.1 of the Company's Restated Certificate of
Incorporation (hereinafter an "advancement of expenses") shall be made only
upon delivery to the Company of an undertaking (hereinafter an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined by final judicial decision from which there is
no further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under Article
VI of the Company's Restated Certificate of Incorporation or otherwise.
Section 6.3 of the Company's Bylaws provides that if a claim for
indemnification under Section 6.1 of the Company's Restated Certificate of
Incorporation is not paid in full by the Company within 60 days after it has
been received in writing by the Company, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20 days,
the indemnitee may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to
an advancement of expenses) it shall be a defense that, and in any suit by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking the Company shall be entitled to recover such expenses only upon a
final adjudication that, the indemnitee has not met the applicable standard of
conduct set forth in Section 145 of the Delaware General Corporation Law (or
any successor
II-2
<PAGE>
provision or provisions). Neither the failure of the Company (including the
Company's Board of Directors, independent legal counsel, or its stockholders)
to have made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in Section 145
of the Delaware General Corporation Law (or any successor provision or
provisions), nor an actual determination by the Company (including the
Company's Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable standard
of conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a right
to indemnification or to an advancement of expenses hereunder, or by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to have or retain such advancement of expenses, under Article
VI of the Company's Restated Certificate of Incorporation or Section VI of the
Company's Bylaws or otherwise, shall be on the Company.
Section 6.5 of the Company's Bylaws the Company may maintain insurance, at
its expense, to protect itself and any director, trustee, officer, employee or
agent of the Company or another enterprise against any expense, liability or
loss, whether or not the Company would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
Section 6.6 of the Company's Bylaws further states that in the event that
any of the provisions of Section VI of the Company's Bylaws (including any
provision within a single section, paragraph or sentence) is held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions are severable and shall remain enforceable to the full
extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On October 17, 1996, the Company issued and sold to CGW Southeast Partners
III, L.P. one hundred (100) shares of its Common Stock, $.01 par value per
share, for aggregate cash consideration of $100.00. On November 18, 1996, the
Company issued and sold to CGW Southeast Partners III, L.P. nine hundred (900)
shares of its Common Stock, $.01 par value per share, for aggregate cash
consideration of $900.00. These sales were exempt from registration under
Section 4(2) of the Securities Act.
On November 20, 1996, the Company issued and sold to the Initial Purchaser
$100.0 million aggregate principal amount of 11 1/2% Senior Subordinated Notes
due 2006. These sales were exempt from registration under Section 4(2) of the
Securities Act. The Initial Purchaser offered those securities for resale in
transactions not requiring registration under the Securities Act to persons
they reasonably believed to be "Qualified Institutional Buyers" as defined in
Rule 144A under the Securities Act or institutional "Accredited Investors" as
defined in subparagraph (a)(1), (2), (3) or (7) of Commission Rule 501 under
the Securities Act. The aggregate price to investors for those securities was
$100.0 million and the Initial Purchaser received $3.0 million in discounts
and commissions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<C> <C> <S>
*1 -- Purchase Agreement of $100,000,000 11 1/2% Senior Subordinated
Notes due 2006, dated November 20, 1996, between Gorges/Quik-To-Fix
Foods, Inc. and NationsBanc Capital Markets, Inc.
*2 -- Asset Purchase Agreement, dated October 17, 1996, by and among
Gorges/Quik-To-Fix Foods, Inc. and Tyson Foods, Inc., Tyson Holding
Company and Gorges Foodservice, Inc.
*3.1 -- Restated Certificate of Incorporation of Gorges/Quik-To-Fix Foods,
Inc.
*3.2 -- Bylaws of Gorges/Quik-To-Fix Foods, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
*4 -- Indenture, dated November 25, 1996, between Gorges/Quik-To-Fix
Foods, Inc. and IBJ Schroder Bank & Trust Company, as Trustee,
relating to the 11 1/2% Senior Subordinated Notes due 2006.
**5 -- Opinion of Alston & Bird LLP re legality
*10.1 -- Agreement For Investment Banking Services, dated November 25,
1996, between Gorges/Quik-To-Fix Foods, Inc. and CGW Southeast
Management III, L.L.C.
*10.2 -- Transition Services Agreement, dated November 25, 1996, between
Tyson Foods, Inc. and Gorges/Quik-To-Fix Foods, Inc.
*10.3 -- Collection Agreement, dated November 25, 1996, between Tyson
Foods, Inc. and Gorges/Quik-To-Fix Foods, Inc.
*10.4 -- Trademark License Agreement, dated November 25, 1996, between
Tyson Holding Company and Gorges/Quik-To-Fix Foods, Inc.
*10.5 -- Assumption Agreement, dated November 25, 1996, among Gorges/Quik-
To-Fix Foods, Inc., Tyson Foods, Inc., Gorges Foodservice, Inc.
and Tyson Holding Corporation.
*10.6 -- Credit Agreement, dated November 25, 1996, among Gorges/Quik-To-
Fix Foods, Inc., as Borrower, and Gorges Holding Corporation, as
Guarantor, the lenders identified therein and NationsBank of
Texas, N.A., as Agent.
*10.7 -- Registration Rights Agreement, dated November 25, 1996, between
Gorges/Quik-To-Fix Foods, Inc. and NationsBanc Capital Markets,
Inc.
***10.8 -- Co-Pack Pricing Agreement, dated November 25, 1996, between Tyson
Foods, Inc. and Gorges/Quik-To-Fix Foods, Inc.
*10.9 -- Agreement of Lease dated December 15, 1995 by and between Stover
Steel Structures, Inc. and Tyson Foods, Inc. as assigned to
Gorges/Quik-To-Fix Foods, Inc. pursuant to that certain Bill of
Sale dated as of November 25, 1996 by and among Tyson Foods,
Inc., Gorges Foodservice, Inc., Tyson Holding Company and
Gorges/Quik-To-Fix Foods, Inc.
*10.10 -- Lease Agreement dated May 1992 by and between Cope Properties and
Tyson Foods, Inc., as amended by letter agreement dated August
25, 1992, from Terry W. Cozby and as amended by letter agreement
dated May 23, 1995 from Terry W. Cozby as assigned to
Gorges/Quik-To-Fix Foods, Inc. pursuant to that certain Bill of
Sale dated as of November 25, 1996 by and among Tyson Foods,
Inc., Gorges Foodservice, Inc., Tyson Holding Company and
Gorges/Quik-To-Fix Foods, Inc.
***10.11 -- Supply Agreement dated November 9, 1990 by and between Harker's
Distribution, Inc. and Tyson Foods, Inc., as amended by
Modification to Supply Agreement dated September 14, 1993 and
Second Modification to Supply Agreement dated May 1, 1995 as
assigned to Gorges/Quik-To-Fix Foods, Inc. pursuant to that
certain Assignment Assumption and Consent Agreement dated as of
November 25, 1996 by and among Tyson Foods, Inc., Harker's
Distribution, Inc. and Gorges/Quik-To-Fix Foods, Inc.
***10.12 -- Letter Agreement dated September 12, 1996 by and between Sonic
Corporation and Tyson Foods, Inc. as assigned to Gorges/Quik-To-
Fix Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-To-Fix
Foods, Inc.
***10.13 -- Beef Pattie Contract dated November 1, 1995, by and between Sam's
Clubs and Tyson Foods, Inc. as assigned to Gorges/Quik-To-Fix
Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-To-Fix
Foods, Inc.
*10.14 -- Gas Sales Agreement dated December 1, 1995 by and between Tyson
Foods, Inc. and US Gas Services LLC as assigned to Gorges/Quik-
To-Fix Foods, Inc. pursuant to that certain Bill of Sale dated as
of November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-To-Fix
Foods, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <C> <S>
*10.15 -- Contract for Industrial Gas Service dated February 14, 1996 by and
between Lone Star Gas Company and Tyson Foods, Inc., as amended by
(i) Amendment of Contract for Industrial Gas Service dated February
14, 1996, (ii) Addendum to Amendment of Contract for Industrial Gas
Service (a/k/a Interruptible Gas Service Agreement) dated February
14, 1996, and (iii) letter of March 21, 1996 as assigned to
Gorges/Quik-To-Fix Foods, Inc. pursuant to that certain Bill of
Sale dated as of November 25, 1996 by and among Tyson Foods, Inc.,
Gorges Foodservice, Inc., Tyson Holding Company and Gorges/Quik-To-
Fix Foods, Inc.
*10.16 -- Gas Sales Agreement dated June 1, 1995 by and between Tyson Foods,
Inc. and Mercado Gas Services, Inc. as assigned to Gorges/Quik-To-
Fix Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-To-Fix
Foods, Inc.
*10.17 -- Waste Water Treatment Agreement dated October 25, 1995 by and
between the City of Orange City, Iowa and Tyson Foods, Inc. as
assigned to Gorges/Quik-To-Fix Foods, Inc. pursuant to that certain
Bill of Sale dated as of November 25, 1996 by and among Tyson
Foods, Inc., Gorges Foodservice, Inc., Tyson Holding Company and
Gorges/Quik-To-Fix Foods, Inc.
*10.18 -- Securities Purchase and Stockholders Agreement dated November 25,
1996 by and among CGW Southeast Partners III, L.P., NationsBanc
Investment Corporation, Mellon Bank, N.A., as Trustee for First
Plaza Group Trust, J. David Culwell, Richard E. Mitchell, Randall
H. Collins, Robert M. Powers, Hernando Aviles, Stuart Alan Ensor,
and Gorges Holding Corporation.
*10.19 -- Consulting Agreement, dated November 25, 1996, between Gorges/Quik-
To-Fix Foods, Inc. and CGW Southeast Partners III, L.L.C.
*10.20 -- Bill of Sale dated as of November 25, 1996 between Tyson Foods,
Inc. and Gorges/Quik-To-Fix Foods, Inc.
*10.21 -- Bill of Sale dated as of November 25, 1996 between Gorges
Foodservice, Inc. and Gorges/Quik-To-Fix Foods, Inc.
*10.22 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and J. David Culwell.
*10.23 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Hernando Aviles.
*10.24 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Stuart A. Ensor.
*10.25 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Robert M. Powers.
*10.26 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Randall H. Collins.
*10.27 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Richard E. Mitchell
10.28 -- Trademark License Agreement, dated November 25, 1996, between
Gorges/Quik-To-Fix Foods, Inc. and Tyson Foods, Inc.
23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consent of Alston & Bird (included in opinion filed as Exhibit 5)
*24 -- Power of Attorney
*25 -- Statement of eligibility of trustee
*27 -- Financial Data Schedule
*99.1 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and J. David Culwell.
*99.2 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Richard E. Mitchell.
</TABLE>
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<PAGE>
<TABLE>
<C> <C> <S>
*99.3 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Randall H. Collins.
*99.4 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Robert M. Powers.
*99.5 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Hernando Aviles.
*99.6 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Stuart Alan Ensor.
*99.7 -- Gorges Holding Corporation 1996 Stock Incentive Plan
*99.8 -- Form of Letter of Transmittal
*99.9 -- Form of Notice of Guaranteed Delivery
*99.10 -- Form of Letter to Clients
*99.11 -- Form of Letter to Nominees
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
*** Certain portions of this Exhibit have been deleted and confidentially
filed with the Commission pursuant to a confidential treatment request
under Rule 406 under the Securities Act.
(b) Financial Statement Schedules. All schedules have been omitted because
they are not applicable or not required or the information required is
included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
4. If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by
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<PAGE>
Section 10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4)
and further information necessary to ensure that all other information in
the prospectus is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to
include financial statements and information required by Section 10(a)(3)
of the Act or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
the Form F-3.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of the
registrant in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes:
1. that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. that every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF GARLAND, STATE OF TEXAS, ON MARCH 11, 1997.
Gorges/Quick-To-Fix Foods, Inc.
By: /s/ J. David Culwell
----------------------------------
J. DAVID CULWELL
CHIEF EXECUTIVE OFFICER AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MARCH 11, 1997.
SIGNATURE TITLE
Chief Executive Officer and Director
/s/ J. David Culwell (Principal Executive Officer)
- -------------------------------------
J. DAVID CULWELL
President and Director
*
- -------------------------------------
RICHARD E. MITCHELL
Chief Financial Officer (Principal
* Financial and Accounting Officer)
- -------------------------------------
A. SCOTT LETIER
Director
*
- -------------------------------------
RICHARD L. CRAVEY
Director
*
- -------------------------------------
WILLIAM A. DAVIES
Director
*
- -------------------------------------
JAMES A. O'DONNELL
*By: /s/ J. David Culwell
----------------------------------
J. DAVID CULWELL
ATTORNEY-IN-FACT
II-8
<PAGE>
EXHIBIT INDEX
1 -- Purchase Agreement of $100,000,000 11-1/2% Senior Subordinated
Notes due 2006, dated November 20, 1996, between Gorges/Quik-To-Fix
Foods, Inc. and NationsBanc Capital Markets, Inc.
2 -- Asset Purchase Agreement, dated October 17, 1996, by and among
Gorges/Quik-To-Fix Foods, Inc. and Tyson Foods, Inc., Tyson Holding
Company and Gorges Foodservice, Inc.
3.1 -- Restated Certificate of Incorporation of Gorges/Quik-To-Fix Foods,
Inc.
3.2 -- Gorges/Quik-To-Fix Foods, Inc. Bylaws.
4 -- Indenture, dated November 25, 1996, between Gorges/Quik-To-Fix
Foods, Inc. and IBJ Schroder Bank & Trust Company, as Trustee,
relating to the 11-1/2% Senior Subordinated Notes due 2006.
5 -- Opinion of Alston & Bird Re Legality*
10.1 -- Agreement For Investment Banking Services, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and CGW Southeast Management
III, L.L.C.
10.2 -- Transition Services Agreement, dated November 25, 1996, between
Tyson Foods, Inc. and Gorges/Quik-To-Fix Foods, Inc.
10.3 -- Collection Agreement, dated November 25, 1996, between Tyson Foods,
Inc. and Gorges/Quik-To-Fix Foods, Inc.
10.4 -- Trademark License Agreement, dated November 25, 1996, between Tyson
Holding Company and Gorges/Quik-To-Fix Foods, Inc.
10.5 -- Assumption Agreement, dated November 25, 1996, among
Gorges/Quik-To-Fix Foods, Inc., Tyson Foods, Inc., Gorges
Foodservice, Inc. and Tyson Holding Corporation.
10.6 -- Credit Agreement, dated November 25, 1996, among Gorges/Quik-To-Fix
Foods, Inc., as Borrower, and Gorges Holding Corporation, as
Guarantor, the lenders identified therein and NationsBank of Texas,
N.A., as Agent.
10.7 -- Registration Rights Agreement, dated November 25, 1996, between
Gorges/Quik-To-Fix Foods, Inc. and NationsBanc Capital Markets,
Inc.
10.8 -- Co-Pack Pricing Agreement, dated November 25, 1996, between Tyson
Foods, Inc. and Gorges/Quik-To-Fix Foods, Inc.**
10.9 -- Agreement of Lease dated December 15, 1995 by and between Stover
Steel Structures, Inc. and Tyson Foods, Inc. as assigned to
Gorges/Quik-to-Fix Foods, Inc. pursuant to that certain Bill of
Sale dated as of November 25, 1996 by and among Tyson Foods, Inc.,
Gorges Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-
Fix Foods, Inc.
10.10 -- Lease Agreement dated May 1992 by and between Cope Properties and
Tyson Foods, Inc., as amended by letter agreement dated August 25,
1992, from Terry W. Cozby and as amended by letter agreement dated
May 23, 1995 from Terry W. Cozby as assigned to Gorges/Quik-to-Fix
Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-Fix
Foods, Inc.
<PAGE>
10.11 -- Supply Agreement dated November 9, 1990 by and between Harker's
Distribution, Inc. and Tyson Foods, Inc., as amended by
Modification to Supply Agreement dated September 14, 1993 and
Second Modification to Supply Agreement dated May 1, 1995 as
assigned to Gorges/Quik-to-Fix Foods, Inc. pursuant to that certain
Assignment Assumption and Consent Agreement dated as of November
25, 1996 by and among Tyson Foods, Inc., Harker's Distribution,
Inc. and Gorges/Quik-to-Fix Foods, Inc.**
10.12 -- Letter Agreement dated September 12, 1996 by and between Sonic
Corporation and Tyson Foods, Inc. as assigned to Gorges/Quik-to-Fix
Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-Fix
Foods, Inc.**
10.13 -- Beef Pattie Contract dated November 1, 1995, by and between Sam's
Clubs and Tyson Foods, Inc. as assigned to Gorges/Quik-to-Fix
Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-Fix
Foods, Inc.**
10.14 -- Gas Sales Agreement dated December 1, 1995 by and between Tyson
Foods, Inc. and US Gas Services LLC as assigned to Gorges/Quik-to-
Fix Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-Fix
Foods, Inc.
10.15 -- Contract for Industrial Gas Service dated February 14, 1996 by and
between Lone Star Gas Company and Tyson Foods, Inc., as amended by
(i) Amendment of Contract for Industrial Gas Service dated February
14, 1996, (ii) Addendum to Amendment of Contract for Industrial Gas
Service (a/k/a Interruptible Gas Service Agreement) dated February
14, 1996, and (iii) letter of March 21, 1996 as assigned to
Gorges/Quik-to-Fix Foods, Inc. pursuant to that certain Bill of
Sale dated as of November 25, 1996 by and among Tyson Foods, Inc.,
Gorges Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-
Fix Foods, Inc.
10.16 -- Gas Sales Agreement dated June 1, 1995 by and between Tyson Foods,
Inc. and Mercado Gas Services, Inc. as assigned to Gorges/Quik-to-
Fix Foods, Inc. pursuant to that certain Bill of Sale dated as of
November 25, 1996 by and among Tyson Foods, Inc., Gorges
Foodservice, Inc., Tyson Holding Company and Gorges/Quik-to-Fix
Foods, Inc.
10.17 -- Waste Water Treatment Agreement dated October 25, 1995 by and
between the City of Orange City, Iowa and Tyson Foods, Inc. as
assigned to Gorges/Quik-to-Fix Foods, Inc. pursuant to that certain
Bill of Sale dated as of November 25, 1996 by and among Tyson
Foods, Inc., Gorges Foodservice, Inc., Tyson Holding Company and
Gorges/Quik-to-Fix Foods, Inc.
10.18 -- Securities Purchase and Stockholders Agreement dated November 25,
1996 by and among CGW Southeast Partners III, L.P., NationsBanc
Investment Corporation, Mellon Bank, N.A., as Trustee for First
Plaza Group Trust, J. David Culwell, Richard E. Mitchell, Randall
H. Collins, Robert M. Powers, Hernando Aviles, Stuart Alan Ensor,
and Gorges Holding Corporation.
10.19 -- Consulting Agreement, dated November 25, 1996, between Gorges/Quik-
to-Fix Foods, Inc. and CGW Southeast Partners III, L.L.C.
10.20 -- Bill of Sale dated as of November 25, 1996 between Tyson Foods,
Inc. and Gorges/Quik-to-Fix Foods, Inc.
10.21 -- Bill of Sale dated as of November 25, 1996 between Gorges
Foodservice, Inc. and Gorges/Quik-to-Fix Foods, Inc.
-2-
<PAGE>
10.22 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and J. David Culwell.
10.23 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Hernando Aviles.
10.24 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Stuart A. Ensor.
10.25 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Robert M. Powers.
10.26 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Randall H. Collins.
10.27 -- Employment and Confidentiality Agreement, dated November 25, 1996,
between Gorges/Quik-To-Fix Foods, Inc. and Richard E. Mitchell
10.28 -- Trademark License Agreement, dated November 25, 1996, between
Gorges/Quik-To-Fix Foods, Inc. and Tyson Foods, Inc.
23.1 -- Consents of Ernst & Young LLP
23.2 -- Consent of Alston & Bird (included in opinion filed as Exhibit 5)
24 -- Power of Attorney (included in Part II of the Registration
Statement)
25 -- Statement of Eligibility of Trustee
27 -- Financial Data Schedule
99.1 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and J. David Culwell.
99.2 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Richard E. Mitchell.
99.3 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Randall H. Collins.
99.4 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Robert M. Powers.
99.5 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Hernando Aviles.
99.6 -- Non-Qualified Stock Option Agreement, dated November 25, 1996,
between Gorges Holding Corporation and Stuart Alan Ensor.
99.7 -- Gorges Holding Corporation 1996 Stock Incentive Plan
99.8 -- Form of Letter of Transmittal
99.9 -- Form of Notice of Guaranteed Delivery
99.10 -- Form of Letter to Clients
99.11 -- Form of Letter to Nominees
- ---------------
* To be filed by amendment.
** Certain portions of this Exhibit have been deleted and confidentially filed
with the Commission pursuant to a confidential treatment request under Rule
406 under the Securities Act.
-3-
<PAGE>
EXHIBIT 10.28
TRADEMARK LICENSE AGREEMENT
---------------------------
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is executed and made
effective this 25th day of November, 1996, by and between TYSON HOLDING
COMPANY, a Delaware corporation ("LICENSOR"), and GORGES/QUIK-TO-FIX FOODS,
INC., a Delaware corporation ("LICENSEE").
W I T N E S S E T H
WHEREAS, LICENSOR is a wholly owned subsidiary of Tyson Foods, Inc., a
Delaware company ("Tyson"); and
WHEREAS, Tyson, LICENSOR, another subsidiary of Tyson (collectively, the
"Sellers") and LICENSEE have entered into that certain Asset Purchase Agreement
(the "Purchase Agreement") pursuant to which LICENSEE shall acquire from Sellers
substantially all of the assets of the beef further processing division of Tyson
known as Gorges/Quik-to-Fix Foods (the "Business"); and
WHEREAS, LICENSOR is the owner of trademarks and trade names which consist
in whole or in part of the term TYSON in both stylized and un-stylized versions,
with and without design, including both common law uses and uses under federal
and state registrations which are used in the Business (the "Marks"); and
WHEREAS, the Marks have acquired significant goodwill as a result of the
substantial and continuous use of the Marks in the United States in connection
with the Business; and
WHEREAS, LICENSEE desires to use the Marks for a limited period in
connection with the Business; and
WHEREAS, LICENSOR desires to grant to LICENSEE a royalty-free, non-
exclusive right to use the Marks for a limited period in connection with the
Business and in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. GRANT OF LICENSE
----------------
(a) LICENSOR hereby grants to LICENSEE a non-exclusive, nontransferable,
royalty-free license within the United States to use the Marks in connection
with the Business, strictly as set forth herein.
(b) LICENSEE's use of the Marks shall be limited solely to continuing to
use, in connection with the Business, any packaging, labeling and similar
materials that exist on the date of this Agreement and contain any of the Marks
(the "Existing Materials"), and such use by LICENSEE hereunder shall be
consistent with past practices of the Business in all respects.
2. TERM
----
The Term of this Agreement shall commence on the date of execution of this
Agreement and shall continue until the earlier of (i) 180 days after the date of
this Agreement, or (ii) the date upon which all of the Existing Materials have
been used. LICENSEE agrees to destroy any Existing Materials remaining in its
possession at the end of said 180 day period. LICENSEE hereby agrees it is not
entitled to any compensation whatsoever for such destroyed Existing Materials.
3. OWNERSHIP OF MARKS
------------------
(a) LICENSEE acknowledges that LICENSOR is the sole owner of all right,
title and interest in and to the Marks and all registrations thereof in any form
or embodiment thereof and is also the sole owner of all goodwill attached to the
Marks in connection with its use by LICENSEE. LICENSEE agrees that it will not,
directly or indirectly, challenge LICENSOR's ownership of or the validity of the
Marks or any registrations or applications for registration thereof.
(b) LICENSEE acknowledges that any use of the Marks shall not create in
LICENSEE's favor any right, title or interest in or to the Marks, except as
specifically granted in this Agreement. LICENSEE expressly agrees and
understands that all uses of the Marks by LICENSEE, and any goodwill created in
the Marks thereby, shall inure solely to the benefit of, and be owned
exclusively by, LICENSOR.
(c) This Section 3 shall survive the termination or expiration of this
Agreement.
4. INSPECTION
----------
LICENSOR or its duly authorized representatives shall have the right,
during regular business hours and upon reasonable prior notice to LICENSEE, to
examine the Existing Materials and any other documents or materials in the
possession or under the control of LICENSEE reasonably relating to LICENSEE's
use of the Marks pursuant to this Agreement.
5. WARRANTY OF LICENSOR
--------------------
LICENSOR warrants that it has the right to use and license the Marks as set
forth in this Agreement. In the event that any third party asserts a claim
against LICENSEE for service mark or trademark infringement based upon
LICENSEE's use of the Marks in accordance with the provisions of this Agreement,
<PAGE>
LICENSOR shall indemnify LICENSEE against any and all damages for which LICENSEE
is held liable, and for all reasonable attorneys' fees, costs, and expenses
incurred by LICENSEE in connection with the defense thereof.
6. INDEMNIFICATION BY LICENSEE
---------------------------
LICENSEE agrees to defend, indemnify, and hold harmless LICENSOR, its
subsidiaries and affiliates, successors and assigns, and their respective
officers, directors, agents, employees and affiliates against any claim, suit,
loss, liability or damage, including the expenses of investigating and defending
against any claim or suit, and any amount paid in settlement thereof, arising
out of or relating to (i) LICENSEE's breach of this Agreement, and (ii) any
product liability claims relating to products sold by LICENSEE bearing the Marks
(subject to the provisions of the Purchase Agreement). Notwithstanding the
foregoing, LICENSOR shall notify LICENSEE, within ten (10) days after receipt by
LICENSOR of notice of any claim, suit, loss, liability or damage ("Indemnified
Claim"), that it is tendering such claim to LICENSEE for defense, settlement,
resolution and/or indemnification; provided, however, that any failure to
provide such notice shall not affect LICENSEE's obligation to indemnify LICENSOR
except to the extent that LICENSEE is harmed by such failure. LICENSEE shall
keep LICENSOR reasonably advised of the progress of the matter, including
providing LICENSOR with copies of all pleadings and correspondence. LICENSEE
shall not settle, compromise or discharge any Indemnified Claim without the
prior written consent of LICENSOR after advising LICENSOR as to the complete
terms of such settlement, which consent will not be unreasonably withheld or
delayed. It is further understood and agreed that money damages would not be a
sufficient remedy for any breach of this Agreement by LICENSEE ,and LICENSOR
shall be entitled to specific performance as a remedy for any such breach. Such
remedy shall not be deemed to be the exclusive remedy for such breach, but shall
be in addition to all other remedies available hereunder, at or in equity, to
LICENSOR. This Section 6 shall survive termination of this Agreement.
7. MAINTENANCE AND PROTECTION OF MARKS
-----------------------------------
LICENSEE, at LICENSOR's expense, agrees to assist LICENSOR in the
protection of LICENSOR's rights to the Marks to the extent that LICENSOR may
commence or prosecute in its own name any claims or suits relating to the Marks,
and LICENSEE agrees, if reasonably required by LICENSOR and at LICENSOR's
expense, to join as a party thereto. LICENSEE shall notify LICENSOR of any
threatened or actual unauthorized use or infringements, imitations or dilutions
by others of the Marks that may come to LICENSEE's attention. LICENSOR shall
have the sole right to determine whether or not any action shall be taken
against any such infringements, imitations or dilutions; provided, however, that
if LICENSOR elects not to take any action, LICENSEE may institute suit or take
action on its own behalf at its own expense, and shall be entitled to all
damages, costs, and attorneys' fees recovered therein.
8. TERMINATION
-----------
This Agreement shall terminate as set forth in Section 2, unless it is
terminated earlier as follows:
(a) upon mutual agreement of the parties; or
<PAGE>
(b) by LICENSOR for material breach of any of the terms hereof by LICENSEE,
if such breach is not corrected within ten (10) days after written notice of
breach is delivered to LICENSEE.
9. EFFECT OF TERMINATION
---------------------
Upon termination of this Agreement, LICENSEE shall cease and desist from
any and all use of the Marks.
10. AMENDMENT AND WAIVER
--------------------
(a) This Agreement may be amended, or any provision of this Agreement may
be waived, provided that any such amendment or waiver will be binding upon
LICENSOR only if set forth in a writing executed by LICENSOR, and any such
amendment or waiver will be binding upon LICENSEE only if set forth in a writing
executed by LICENSEE.
(b) No course of dealing between or among any persons having any interest
in this Agreement will be deemed effective to modify, amend or discharge any
part of this Agreement or any rights or obligations of any person under or by
reason of this Agreement.
11. NOTICES
-------
Except as otherwise expressly set forth in this Agreement, all notices,
demands and other communications to be given or delivered under or by reason of
the provisions of this Agreement will be in writing and will be deemed to have
been given when delivered personally, or by documented overnight delivery
service, or sent by telecopy, telex, or other electronic transmission service,
provided a confirmation copy is also sent no later than the next business day by
first class mail, return receipt requested. Notices, demands and communications
to LICENSOR or LICENSEE will, unless another address is specified in writing, be
sent to the address indicated below:
If to LICENSOR, to: Tyson Foods, Inc.
2210 Oaklawn Drive
P.O. Box 2020
Springdale, Arkansas 72765-2020
Attn: John H. Tyson
(501) 290-4000
(501) 290-4028 (FAX)
<PAGE>
With a copy to: Tyson Foods, Inc.
2210 Oaklawn Drive
P.O. Box 2020
Springdale, Arkansas 72765-2020
Attn: David L. Van Bebber, Esq.
(501) 290-4000
(501) 290-7967 (FAX)
If to LICENSEE, to: Gorges/Quik-to-Fix Foods, Inc.
c/o Cravey, Green & Wahlen
Suite 210
Twelve Piedmont Center
Atlanta, Georgia 30305
Attn: Bill Davies
(404) 816-3255
(404) 816-3258 (FAX)
With a copy to: Alston & Bird
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Sidney J. Nurkin, Esq.
(404) 881-7000
(404) 881-7777 (FAX)
12. ASSIGNMENT.
----------
This Agreement and all of the provisions hereof will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, except that neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by either party without prior
written consent of the other party.
13. SEVERABILITY
------------
Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
14. NO THIRD PARTY BENEFICIARIES
----------------------------
This Agreement does not create any rights in any person or party who is not
a party to this Agreement.
<PAGE>
15. NO STRICT CONSTRUCTION
----------------------
The language used in this Agreement will be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction will be applied against any person.
16. SECTION HEADINGS
----------------
The headings of sections contained in this Agreement are provided for
convenience only. They form no part of this Agreement and shall not affect its
construction or interpretation. All references to sections or subsections refer
to the corresponding sections and subsections of this Agreement. All words used
herein shall be construed to be of such gender or number as the circumstances
require. This "Agreement" shall mean this Agreement as a whole and as the same
may, from time to time hereafter, be amended, supplemented or modified. The
words "herein," "hereby," "hereof," "hereinabove," and "hereinbelow," and words
of similar import, refer to this Agreement as whole and not to any particular
section, subsection, paragraph, clause or other subdivision hereof, unless
otherwise specifically noted.
17. COMPLETE AGREEMENT
------------------
This document and the documents referred to herein or attached hereto
contain the complete agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
18. GOVERNING LAW
-------------
The substantive law (and not the law of conflicts) of the State of Delaware
will govern all questions concerning the construction, validity and
interpretation of this Agreement and the performance of the obligations imposed
by this Agreement.
19. COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts (including by
means of FAXed signature pages), any one of which need not contain the
signatures of more than one party, but all such counterparts taken together will
constitute one and the same instrument.
[Signatures on Next Page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
TYSON HOLDING COMPANY
A DELAWARE CORPORATION
[Corporate Seal]
By: /s/ David L. Van Bebber
----------------------------
Name: Davie L. Van Bebber
Title: Assistant Secretary
GORGES/QUIK-TO-FIX FOODS, INC.,
A DELAWARE CORPORATION
[Corporate Seal]
By: /s/ William A. Davies
----------------------------
Name: William a. Davies
Title: Secretary
<PAGE>
EXHIBIT 23.1
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated November 1, 1996, in the Registration Statement
(Form S-1 No. 333-20155) and related Prospectus of Gorges/Quik-to-Fix Foods,
Inc. dated on March 10, 1997.
/s/ Ernst & Young LLP
March 11, 1997
Dallas, Texas
